THE RBB FUND, INC.
(THE "COMPANY")
BEDFORD FAMILY
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO AND
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1999
This Statement of Additional Information ("SAI") provides information
about the Company's Bedford Classes of the Money Market, Municipal Money Market
and Government Obligations Money Market Portfolios (the "Portfolios"). This
information is in addition to the information that is contained in the Bedford
Family Prospectus dated December 1, 1999 (the "Prospectus").
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Portfolios' 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 Portfolios' Prospectus and Annual
Report may be obtained free of charge by telephoning (800) 533-7719.
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TABLE OF CONTENTS
PAGE
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GENERAL INFORMATION........................................................... 1
INVESTMENT INSTRUMENTS AND POLICIES........................................... 1
Additional Information on Portfolio Investments............................ 1
Fundamental Investment Limitations and Policies............................13
Non-Fundamental Investment Limitations and Policies........................17
MANAGEMENT OF THE COMPANY.....................................................19
Directors and Officers.....................................................19
Directors' Compensation....................................................21
CONTROL PERSONS...............................................................22
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS..................30
Advisory and Sub-Advisory Agreements.......................................30
Administration Agreements..................................................32
Custodian and Transfer Agency Agreement....................................34
Distribution Agreements....................................................36
PORTFOLIO TRANSACTIONS........................................................37
ADDITIONAL INFORMATION CONCERNING RBB SHARES..................................38
PURCHASE AND REDEMPTION INFORMATION...........................................41
VALUATION OF SHARES...........................................................41
PERFORMANCE INFORMATION.......................................................42
TAXES.........................................................................44
MISCELLANEOUS.................................................................45
Counsel....................................................................45
Independent Accountants....................................................45
FINANCIAL STATEMENTS..........................................................45
APPENDIX A...................................................................A-1
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GENERAL INFORMATION
The RBB Fund, Inc. (the "Company") 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 three classes
of shares (the "Bedford Classes") representing interests in three diversified
investment portfolios (the "Portfolios") of the Company (the Money Market
Portfolio, the Municipal Money Market Portfolio and the Government Obligations
Money Market Portfolio). The Bedford Classes are offered by the Bedford Family
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 Portfolios.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
VARIABLE RATE DEMAND INSTRUMENTS. The Money Market and Municipal Money
Market Portfolios may purchase variable rate demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustment in the interest rate. Although the notes are not normally
traded and there may be no active secondary market in the notes, the Portfolio
will be able to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy the same criteria as issuers of commercial paper. If an
issuer of a variable rate demand note defaulted on its payment obligation, the
Portfolio might be unable to dispose of the note because of the absence of an
active secondary market. For this or other reasons, the Portfolio might suffer a
loss to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
Variable rate demand instruments held by the Money Market Portfolio or
the Municipal Money Market Portfolio may have maturities of more than 397
calendar days, provided: (i) the Portfolio is entitled to the payment of
principal at any time, or during specified intervals not exceeding 397 calendar
days, upon giving the prescribed notice (which may not exceed 30 days); and (ii)
the rate of interest on such instruments is adjusted at periodic intervals which
may extend up to 397 calendar days. In determining the average weighted maturity
of the Money Market and Municipal Money Market Portfolios and whether a variable
rate demand instrument has a remaining maturity of 397 calendar days or less,
each long-term instrument will be deemed by the Portfolio to have a maturity
equal to the longer of the period remaining until its next interest rate
adjustment or the period remaining until the
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principal amount can be recovered through demand. The absence of an active
secondary market with respect to particular variable and floating rate
instruments could make it difficult for a Portfolio to dispose of variable or
floating rate notes if the issuer defaulted on its payment obligations or during
periods that the Portfolio is not entitled to exercise its demand right, and the
Portfolio could, for these or other reasons, suffer a loss with respect to such
instruments.
COMMERCIAL PAPER. The Money Market Portfolio may purchase commercial
paper rated (i) (at the time of purchase) in the two highest rating categories
of at least two nationally recognized statistical rating organizations ("Rating
Organization") or, by the only Rating Organization providing a rating; or (ii)
issued by issuers (or, in certain cases guaranteed by persons) with short-term
debt having such ratings. These rating categories are described in the Appendix
to the Statement of Additional Information. The Portfolio may also purchase
unrated commercial paper provided that such paper is determined to be of
comparable quality by the Portfolio's investment adviser in accordance with
guidelines approved by the Company's Board of Directors.
Commercial paper purchased by the Portfolio may include instruments
issued by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is
U.S. dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
REPURCHASE AGREEMENTS. The Money Market and Government Obligations
Money Market Portfolios may agree to purchase securities from financial
institutions subject to the seller's agreement to repurchase them at an
agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 397 days,
provided the repurchase agreement itself matures in less than 13 months. Default
by or bankruptcy of the seller would, however, expose the Portfolio to possible
loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
The repurchase price under the repurchase agreements described above
generally equals the price paid by a Portfolio 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). The financial institutions
with which a Portfolio may enter into repurchase agreements will be banks and
non-bank dealers of U.S. Government Securities that are listed on the Federal
Reserve Bank of New York's list of reporting dealers, if such banks and non-bank
dealers are deemed creditworthy by the Portfolio's adviser or sub-adviser. A
Portfolio's adviser or sub-adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least the repurchase price (including accrued interest).
In addition, the Portfolio's adviser or sub-adviser will require that the value
of this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to or greater than the
repurchase price including either: (i) accrued premium provided in the
repurchase agreement; or (ii) the daily amortization of the difference between
the purchase price and the repurchase price specified in the repurchase
agreement. The Portfolio's adviser or sub-
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adviser will mark to market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Company's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act Investment Company Act of 1940 (the "1940 Act").
SECURITIES LENDING. The Government Obligations Money Market Portfolio
may lend its portfolio securities to financial institutions in accordance with
the investment restrictions described below. Such loans would involve risks of
delay in receiving additional collateral in the event the value of the
collateral decreased below the value of the securities loaned or of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. However, loans will be made
only to borrowers deemed by the Portfolio's investment adviser to be of good
standing and only when, in the adviser's judgment, the income to be earned from
the loans justifies the attendant risks. Any loans of the Portfolio's securities
will be fully collateralized and marked to market daily.
With respect to loans by the Government Obligations Money Market
Portfolio of its portfolio securities, such Portfolio would continue to accrue
interest on loaned securities and would also earn income on loans. Any cash
collateral received by such Portfolio in connection with such loans would be
invested in short-term U.S. Government obligations. Any loan by the Government
Obligations Money Market Portfolio of its portfolio's securities will be fully
collateralized and marked to market daily.
REVERSE REPURCHASE AGREEMENTS. The Municipal Money Market and
Government Obligations Money Market Portfolios may enter into reverse repurchase
agreements with respect to portfolio securities. A reverse repurchase agreement
involves a sale by a Portfolio of securities that it holds concurrently with an
agreement by the Portfolio to repurchase them at an agreed upon time, price and
rate of interest. Reverse repurchase agreements involve the risk that the market
value of the securities sold by the Portfolio may decline below the price at
which the Portfolio is obligated to repurchase them and the return on the cash
exchanged for the securities. Reverse repurchase agreements are considered to be
borrowings under the Investment Company Act of 1940 (the "1940 Act") and may be
entered into only for temporary or emergency purposes. While reverse repurchase
transactions are outstanding, a Portfolio will maintain in a segregated account
with the Company's custodian or a qualified sub-custodian, cash or liquid
securities of an amount at least equal to the market value of the securities,
plus accrued interest, subject to the agreement.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market and
Municipal Money Market Portfolios may purchase "when-issued" and delayed
delivery securities purchased for delivery beyond the normal settlement date at
a stated price and yield. The Portfolios will generally not pay for such
securities or start earning interest on them until they are received. Securities
purchased on a when-issued basis are recorded as an asset at the time the
commitment is entered into and are subject to changes in value prior to delivery
based upon changes in the general level of interest rates.
While the Money Market or Municipal Money Market Portfolios has such
commitments outstanding, such Portfolio will maintain in a
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segregated account with the Company's custodian or a qualified sub-custodian,
cash or liquid securities of an amount at least equal to the purchase price of
the securities to be purchased. Normally, the custodian for the relevant
Portfolio will set aside portfolio securities to satisfy a purchase commitment
and, in such a case, the Portfolio may be required subsequently to place
additional assets in the separate account in order to ensure that the value of
the account remains equal to the amount of the Portfolio's commitment. It may be
expected that a Portfolio's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Portfolio's liquidity and ability to manage its
portfolio might be affected when it sets aside cash or portfolio securities to
cover such purchase commitments, it is expected that commitments to purchase
"when-issued" securities will not exceed 25% of the value of a Portfolio's total
assets absent unusual market conditions. When the Money Market or Municipal
Money Market Portfolios engage in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
such Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous. The Portfolios do not intend to purchase
when-issued securities for speculative purposes but only in furtherance of their
investment objectives.
U.S. GOVERNMENT OBLIGATIONS. The Portfolios may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury or
are backed only by the credit of the agency or instrumentality issuing the
obligation. U.S. Government obligations that are not backed by the full faith
and credit of the U.S. Government are subject to greater risks than those that
are. U.S. Government obligations that are backed by the full faith and credit of
the U.S. Government are subject to interest rate risk.
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, the Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S.
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Treasury to make payments under its guarantee. Mortgage-related securities
issued by the Federal National Mortgage Association ("FNMA") include FNMA
guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of the FNMA, are not backed by or entitled to
the full faith and credit of the United States and are supported by the right of
the issuer to borrow from the Treasury. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to timely payment of principal and interest by FNMA. Mortgage-related
securities issued by the Federal Home Loan Mortgage Corporation ("FHLMC")
include FHLMC Mortgage Participation Certificates (also known as "Freddie Macs"
or "PCs"). FHLMC is a corporate instrumentality of the United States, created
pursuant to an Act of Congress, which is owned entirely by Federal Home Loan
Banks. Freddie Macs are not guaranteed by the United States or by any Federal
Home Loan Banks and do not constitute a debt or obligation of the United States
or of any Federal Home Loan Bank. Freddie Macs entitle the holder to timely
payment of interest, which is guaranteed by the FHLMC. FHLMC guarantees either
ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Money Market and Government Obligations Money Market Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by
a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage Assets"), the payments on which are used to make
payments on the CMOs. Investors may purchase beneficial interests in CMOs, which
are known as "regular" interests or "residual" interests. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs, as well
as the related administrative expenses of the issuer. Residual interests
generally are junior to, and may be significantly more volatile than, "regular"
CMO interests. The Portfolios do not currently intend to purchase residual
interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs in various ways. In certain structures (known
as "sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
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Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
The relative payment rights of the various CMO classes may be subject
to greater volatility and interest-rate risk than other types of mortgage-backed
securities. The average life of asset-backed securities varies with the
underlying instruments or assets and market conditions, which in the case of
mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely.
ASSET-BACKED SECURITIES. The Portfolios may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and CMOs issued or guaranteed by U.S.
Government agencies and, instrumentalities. The Money Market Portfolio may also
invest in asset-backed securities issued by private companies. Asset-backed
securities also include adjustable rate securities. The estimated life of an
asset-backed security varies with the prepayment experience with respect to the
underlying debt instruments. For this and other reasons, an asset-backed
security's stated maturity may be shortened, and the security's total return may
be difficult to predict precisely. Such difficulties are not expected, however,
to have a significant effect on the Portfolio since the remaining maturity of
any asset-backed security acquired will be 397 days or less. Asset-backed
securities are considered an industry for industry concentration purposes (see
"Fundamental Investment Limitations and Policies"). In periods of falling
interest rates, the rate of mortgage prepayments tends to increase. During these
periods, the reinvestment of proceeds by a Portfolio will generally be at lower
rates than the rates on the prepaid obligations.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage-related securities. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities.
BANK OBLIGATIONS. The Money Market Portfolio may purchase obligations
of issuers in the banking industry, such as short-term obligations of bank
holding companies, certificates of deposit, bankers' acceptances and time
deposits, including U.S. dollar-denominated instruments issued or supported by
the credit of U.S. or foreign banks or savings institutions having total assets
at the time of purchase in excess of $1 billion. The Portfolio may invest
substantially in obligations of foreign banks or foreign branches of U.S. banks
where the investment adviser deems the instrument to present minimal credit
risks. Such investments may nevertheless entail risks in addition to those of
domestic issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements, less market liquidity,
future unfavorable political and economic developments, possible withholding
taxes on interest income, seizure or nationalization of foreign deposits,
currency controls, interest limitations, or other governmental restrictions
which might affect the payment of principal or interest on the
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securities held in the Money Market Portfolio. Additionally, these institutions
may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping requirements than those
applicable to domestic branches of U.S. banks. The Money Market Portfolio will
invest in obligations of domestic branches of foreign banks and foreign branches
of domestic banks only when its investment adviser believes that the risks
associated with such investment are minimal. The Portfolio may also make
interest-bearing savings deposits in commercial and savings banks in amounts not
in excess of 5% of its total assets.
GUARANTEED INVESTMENT CONTRACTS. The Money Market Portfolio may make
investments in obligations, such as guaranteed investment contracts and similar
funding agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Company's policy regarding
investment in illiquid securities.
ELIGIBLE SECURITIES. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities; (2) securities
that (a) are rated (at the time of purchase) by two or more nationally
recognized statistical rating organizations ("Rating Organizations") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2," by Standard & Poor's Ratings Services ("S&P"), or rated
"Prime-1" or "Prime-2" by Moody's Investor's Service, Inc. ("Moody's")), or (b)
are rated (at the time of purchase) by the only Rating Organization rating the
security in one of its two highest rating categories for such securities; (3)
short-term obligations and, subject to certain SEC requirements, long-term
obligations that have remaining maturities of 397 days or less, provided in
each instance that such obligations have no short-term rating and are comparable
in priority and security to a class of short-term obligations of the issuer that
has been rated in accordance with (2)(a) or (b) above ("comparable
obligations"); (4) securities that are not rated and are issued by an issuer
that does not have comparable obligations rated by a Rating Organization
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2)(a) or (b) above; and (5) subject
to certain conditions imposed under SEC rules, obligations guaranteed or
otherwise supported by persons which meet the requisite rating requirements.
MUNICIPAL OBLIGATIONS. The Money Market and Municipal Money Market
Portfolios may invest in short-term Municipal Obligations which are determined
by the Portfolio's investment adviser to present minimal credit risks and that
meet certain ratings criteria pursuant to guidelines established by the
Company's Board of Directors. These Portfolios may also purchase Unrated
Securities provided that such securities are determined to be of comparable
quality to eligible rated securities. The applicable Municipal Obligations
ratings are described in the Appendix to this Statement of Additional
Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's
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pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer. Therefore, risk exists that the reserve fund will not be
restored.
Municipal Obligations may include variable rate demand notes. Such
notes are frequently not rated by credit rating agencies, but unrated notes
purchased by a Portfolio will have been determined by the Portfolio's investment
adviser to be of comparable quality at the time of the purchase to rated
instruments purchasable by the Portfolio. Where necessary to ensure that a note
is of eligible quality, the Portfolio will require that the issuer's obligation
to pay the principal of the note be backed by an unconditional bank letter or
line of credit, guarantee or commitment to lend. While there may be no active
secondary market with respect to a particular variable rate demand note
purchased by a Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 13 months, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons, suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
In addition, the Money Market Portfolio may, when deemed appropriate by
its investment adviser in light of the Portfolio's investment objective, invest
without limitation in high quality, short-term Municipal Obligations issued by
state and local governmental issuers, the interest on which may be taxable or
tax-exempt for federal income tax purposes, provided that such obligations carry
yields that are competitive with those of other types of money market
instruments of comparable quality.
Although the Municipal Money Market Portfolio may invest more than 25%
of its net assets in (i) Municipal Obligations whose issuers are in the same
state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and
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economic conditions relating to such states or projects to a greater extent than
it would be if its assets were not so concentrated.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Company
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
Although the Municipal Money Market Portfolio may invest more than 25%
of its assets in (i) Municipal Obligations the interest on which is paid soley
from revenues of similar projects, and (ii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects,
the Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such states or projects to a greater extent than
it would be if its assets were not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio
may invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
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 (the "Securities
Act"), as amended. Section 4(2) paper is restricted as to disposition under the
federal securities laws and is generally sold to institutional investors such as
the Company 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.
- 9 -
<PAGE>
ILLIQUID SECURITIES. None of the Portfolios may invest more than 10% of
their net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements that have a maturity of longer than seven days), including securities
that are illiquid by virtue of the absence of a readily available market or
legal or contractual restrictions on resale. Other securities considered
illiquid are time deposits with maturities in excess of seven days, variable
rate demand notes with demand periods in excess of seven days unless the
Portfolio's investment adviser determines that such notes are readily marketable
and could be sold promptly at the prices at which they are valued and GICs.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not considered illiquid for
purposes of this limitation. Each Portfolio's investment adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Directors. With respect to the Money Market and Government Obligations Money
Market Portfolios, repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended, securities which are
otherwise not readily marketable and, except as to the Municipal Money Market
Portfolio, repurchase agreements having a maturity of longer than seven days.
Securities which have not been registered under the Securities Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of 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. Illiquid securities would be more difficult to dispose of than
liquid securities to satisfy redemption requests.
The Portfolios 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 Portfolios' 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 Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment 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>
STAND-BY COMMITMENTS. Each of the Money Market and Municipal Money
Market Portfolios may enter into stand-by commitments with respect to
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities and authorities (collectively, "Municipal
Obligations") held in its portfolio. Under a stand-by commitment, a dealer would
agree to purchase at the Portfolio's option a specified Municipal Obligation at
its amortized cost value to the Portfolio plus accrued interest, if any.
Stand-by commitments may be exercisable by the Money Market or Municipal Money
Market Portfolios at any time before the maturity of the underlying Municipal
Obligations and may be sold, transferred or assigned only with the instruments
involved.
Each of the Money Market and Municipal Money Market Portfolios expects
that stand-by commitments will generally be available without the payment of any
direct or indirect consideration. However, if necessary or advisable, either
such Portfolio may pay for a stand-by commitment either in cash or by paying a
higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held by the Money Market and Municipal Money Market Portfolios will
not exceed 1/2 of 1% of the value of the relevant Portfolio's total assets
calculated immediately after each stand-by commitment is acquired.
Each of the Money Market and Municipal Money Market Portfolios intends
to enter into stand-by commitments only with dealers, banks and broker-dealers
which, in the investment adviser's opinion, present minimal credit risks. These
Portfolios' reliance upon the credit of these dealers, banks and broker-dealers
will be secured by the value of the underlying Municipal Obligations that are
subject to the commitment. The acquisition of a stand-by commitment may increase
the cost, and thereby reduce the yield, of the Municipal Obligation to which
such commitment relates.
The Money Market and Municipal Money Market Portfolios will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes. The acquisition of a
stand-by commitment will not affect the valuation or assumed maturity of the
underlying Municipal Obligation which will continue to be valued in accordance
with the amortized cost method. The actual stand-by commitment will be valued at
zero in determining net asset value. Accordingly, where either such Portfolio
pays directly or indirectly for a stand-by commitment, its cost will be
reflected as an unrealized loss for the period during which the commitment is
held by such Portfolio and will be reflected in realized gain or loss when the
commitment is exercised or expires.
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio 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
- 11 -
<PAGE>
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 the Portfolio engages in a short sale, the collateral for the short position
will be maintained by the Portfolio's custodian or a qualified sub-custodian.
While the short sale is open, the Portfolio 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 the Portfolio's long position. The
Portfolio will not engage in short sales against the box for investment
purposes. A Portfolio 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 Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) In such case, any future losses in the Portfolio'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 the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
TEMPORARY DEFENSIVE PERIODS - MUNICIPAL MONEY MARKET PORTFOLIO. The
Portfolio may hold all of its assets in uninvested cash reserves during
temporary defensive periods. Uninvested cash will not earn income.
- 12 -
<PAGE>
FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A fundamental limitation or policy of a Portfolio may not be changed
without the affirmative vote of the holders of a majority of a Portfolio's
outstanding shares. As used in this Statement of Additional Information and in
the Prospectuses, "shareholder approval" and a "majority of the outstanding
shares" of a class, series or Portfolio means, with respect to the approval of
an investment advisory agreement, a distribution plan or a change in a
fundamental investment limitation, the lesser of: (1) 67% of the shares of the
particular class, series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy; or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
The Company's Board of Directors can change the investment objective of
each Fund. The Board may not change the requirement that the Municipal Money
Market Portfolio normally invest at least 80% of their net assets in Municipal
Securities (as defined in the Prospectus) and other instruments whose interest
is exempt from federal income tax or subject to Federal Alternative Minimum Tax
without shareholder approval. Shareholders will be given notice before any such
change is made.
- 13 -
<PAGE>
MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS ONLY
The Money Market and Municipal Money Market Portfolios may not:
1. borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio, except for reverse repurchase
agreements) and then in amounts not in excess of 10% of the value of
the Portfolio's total assets at the time of such borrowing, and only if
after such borrowing there is asset coverage of at least 300% for all
borrowings of the Portfolio; or mortgage, pledge, or hypothecate any of
its assets except in connection with such borrowings and then, with
respect to the Money Market Portfolio, in amounts not in excess of 10%
of the value of a Portfolio's total assets at the time of such
borrowing and, with respect to the Municipal Money Market Portfolio, in
amounts not in excess of the lesser of the dollar amounts borrowed or
10% of the value of a Portfolio's total assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in
excess of 5% of the Portfolio's net assets. (This borrowing provision
is not for investment leverage, but solely to facilitate management of
the Portfolio's securities by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient.);
2. purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions;
3. underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, a Portfolio
may be deemed an underwriter under federal securities laws and except
to the extent that the purchase of Municipal Obligations directly from
the issuer thereof in accordance with a Portfolio's investment
objective, policies and limitations may be deemed to be an
underwriting;
4. make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof;
5. purchase or sell real estate, provided that a Portfolio may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein;
6. purchase or sell commodities or commodity contracts;
7. invest in oil, gas or mineral exploration or development programs;
- 14 -
<PAGE>
8. make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may
enter into repurchase agreements;
9. purchase any securities issued by any other investment company except
in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
10. make investments for the purpose of exercising control or management.
MONEY MARKET PORTFOLIO ONLY
The Money Market Portfolio 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
the Portfolio's total assets would be invested in the securities of
such issuer, or more than 10% of the outstanding voting securities of
such issuer would be owned by the Portfolio, except that up to 25% of
the value of the Portfolio's assets may be invested without regard to
this 5% limitation;
2. purchase any securities other than money market instruments, some of
which may be subject to repurchase agreements, but the Portfolio may
make interest-bearing savings deposits in amounts not in excess of 5%
of the value of the Portfolio's assets and may make time deposits;
3.* purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations
(unless the Portfolio is in a temporary defensive position) or which
would cause, at the time of purchase, more than 25% of the value of its
total assets to be invested in the obligations of issuers in any other
industry; and
4. invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than
three years of continuous operations.
* WITH RESPECT TO THIS LIMITATION, THE PORTFOLIO WILL CONSIDER
WHOLLY-OWNED FINANCE COMPANIES TO BE IN THE INDUSTRIES OF THEIR PARENTS
IF THEIR ACTIVITIES ARE PRIMARILY RELATED TO FINANCING THE ACTIVITIES
OF THE PARENTS, AND WILL DIVIDE UTILITY COMPANIES ACCORDING TO THEIR
SERVICES. FOR EXAMPLE, GAS, GAS TRANSMISSION, ELECTRIC AND GAS,
ELECTRIC AND TELEPHONE WILL EACH BE CONSIDERED A SEPARATE INDUSTRY. THE
POLICY AND PRACTICES STATED IN THIS PARAGRAPH MAY BE CHANGED WITHOUT
SHAREHOLDER APPROVAL, HOWEVER, ANY CHANGE WOULD BE SUBJECT TO ANY
APPLICABLE REQUIREMENTS OF THE SEC AND WOULD BE DISCLOSED IN THE
PROSPECTUS PRIOR TO BEING MADE.
- 15 -
<PAGE>
MUNICIPAL MONEY MARKET PORTFOLIO ONLY
The Municipal Money Market Portfolio 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
the Portfolio's total assets would be invested in the securities of
such issuer, or more than 10% of the outstanding voting securities of
such issuer would be owned by the Portfolio, except that up to 25% of
the value of the Portfolio's assets may be invested without regard to
this 5% limitation;
2. under normal market conditions, invest less than 80% of its net assets
in securities the interest on which is exempt from the regular federal
income tax, although the interest on such securities may constitute an
item of tax preference for purposes of the federal alternative minimum
tax;
3. invest in private activity bonds where the payment of principal and
interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and
4. purchase any securities which would cause, at the time of purchase,
more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO ONLY
The Government Obligations Money Market Portfolio may not:
1. purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, and repurchase agreements relating to such
obligations. There is no limit on the amount of the Portfolio's assets
which may be invested in the securities of any one issuer of
obligations that the Portfolio is permitted to purchase;
2. borrow money, except from banks for temporary purposes, and except for
reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings
of the Portfolio; or mortgage, pledge, or hypothecate its assets except
in connection with any such borrowing and in amounts not in excess of
10% of the value of the Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings are in
excess of 5% of the Portfolio's net assets. (This borrowing provision
is not for investment leverage, but solely to facilitate management of
the Portfolio by enabling the Portfolio to meet redemption requests
where the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous.);
- 16 -
<PAGE>
3. act as an underwriter; or
4. make loans except that the Portfolio 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 Portfolio'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 the Portfolio's annual gross
income (without offset for realized capital gains) unless, in the
opinion of counsel to the Company, such amounts are qualifying income
under federal income tax provisions applicable to regulated investment
companies.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A non-fundamental investment limitation or policy may be changed by the
Board of Directors without shareholder approval. However, shareholders will be
notified of any changes to any of the following limitations or policies.
- 17 -
<PAGE>
MONEY MARKET PORTFOLIO ONLY
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940
Act, the Money Market Portfolio will limit its purchases of:
1. the securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Portfolio may
invest more than 5% of its total assets in First Tier Securities of one
issuer for a period of up to three business days. "First Tier
Securities" include eligible securities that:
(i) if rated by more than one Rating Organization (as defined in the
Prospectus), are rated (at the time of purchase) by two or more
Rating Organizations in the highest rating category for such
securities;
(ii) if rated by only one Rating Organization, are rated by such Rating
Organization in its highest rating category for such securities;
(iii) have no short-term rating and are comparable in priority and
security to a class of short-term obligations of the issuer of
such securities that have been rated in accordance with (i) or
(ii) above; or
(iv) are Unrated Securities that are determined to be of comparable
quality to such securities. Purchases of First Tier Securities
that come within categories (ii) and (iv) above will be approved
or ratified by the Board of Directors;
2. Second Tier Securities, which are eligible securities other than First
Tier Securities, to 5% of its total assets; and
3. Second Tier Securities of one issuer to the greater of 1% of its total
assets or $1 million.
MUNICIPAL MONEY MARKET PORTFOLIO ONLY
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will not purchase any Guarantees or
Demand Features (as defined in Rule 2a-7) if after the acquisition of the
Guarantees or Demand Features the Portfolio has more than 10% of its total
assets invested in instruments issued by or subject to Guarantees or Demand
Features from the same institution, except that the foregoing condition
shall only be applicable with respect to 75% of the Portfolio's total
assets.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO ONLY
The Government Obligations Money Market Portfolio may purchase
securities on margin only to obtain short-term credit necessary for
clearance of portfolio transactions.
- 18 -
<PAGE>
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS.
The business and affairs of the Company are managed under the direction of
the Company's Board of Directors. The directors and executive officers of the
Company, 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 Pincus
c/o 400 Bellevue Parkway Asset Management, Inc., Executive Officer
Wilmingtron, DE 19809 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 Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 64 Director Since 1963, Executive Vice President, Fox
Fox Chase Cancer Center Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
-19-
<PAGE>
*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 - 65 Director Director and Vice Chairman, since 1969
Comcast Corporation Comcast Corporation (cable television and
1500 Market Street communications); Director, Comcast U.K.
35th Floor
Philadelphia, PA 19102
Donald van Roden - 75 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 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 Chairman
400 Bellevue Parkway of the Board, Fox Chase Cancer Center;
Wilmington, DE 19809 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 Independence Square
Income Securities, Inc.; Director of the
Bradford Funds, Inc.
Morgan R. Jones - 60 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Education
One Logan Square Dynamics, Inc.; Secretary, Petroferm, Inc.
18th & Cherry Streets
Philadelphia, PA 19103
- ------------------
<FN>
* Each of Mr. Sablowsky and Mr. Sternberg is an "interested person" of RBB,
as that term is defined in the 1940 Act.
</FN>
</TABLE>
- 20-
<PAGE>
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee
of the Board of Directors. The Audit Committee, among other things, reviews
results of the annual audit and recommends to the Company 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 the Company 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 the Company.
The Company 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 the
Company in the following amounts:
DIRECTORS' COMPENSATION.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ANNUAL TOTAL COMPENSATION
COMPENSATION ACCRUED AS BENEFITS FROM FUND AND FUND
NAME OF PERSON/ FROM PART OF COMPANY UPON COMPLEX PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- --------------- ------------ --------------- ---------- ------------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $19,250 N/A N/A $19,250
Director
Francis J. McKay, $16,750 N/A N/A $16,750
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $18,250 N/A N/A $18,250
Director
Marvin E. Sternberg, $19,250 N/A N/A $19,250
Director
Donald van Roden, $25,250 N/A N/A $25,250
Director and Chairman
</TABLE>
- 21-
<PAGE>
On October 24, 1990 the Company adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach), pursuant to which the Company
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
BlackRock Institutional Management Corporation ("BIMC") (formerly known as "PNC
Institutional Management Corporation"), the Portfolios' adviser, PFPC Trust
Company, the Company's custodian, PFPC Inc. ("PFPC"), the administrator to the
Municipal Money Market and New York Municipal Money Market Portfolios and the
Company's transfer and dividend disbursing agent, and Provident Distributors
Inc. (the "Distributor"), the Company's distributor, the Company itself requires
only one part-time employee. Drinker Biddle & Reath LLP, of which Mr. Jones is a
partner, receives legal fees as counsel to the Company. No officer, director or
employee of BIMC, PFPC Trust Company, PFPC or the Distributor currently receives
any compensation from the Company.
CONTROL PERSONS
As of November 17, 1999, to the Company's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of the class of the Company indicated
below. See "Additional Information Concerning RBB Shares" below. The Company
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 MONEY MARKET Gabe Nechamkin 7.40%
27 Muchmore Road
Harrison, NY 10528-1109
- ------------------------------------- ------------------------------------------------------- ------------------------
CASH PRESERVATION MONEY MARKET Harold T. Erfer 6.349%
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 in Tr. 12.785%
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 MONEY MARKET Saxon and Co. 65.047%
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>
22
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 Portfolio 12.161%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------- ------------------------------------------------------- ------------------------
Warburg Pincus Trust-International Equity Portfolio 15.203%
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>
23
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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>
24
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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. 20.546%
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 VALUE 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>
25
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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 FUND INST Shady Side Academy Endowment 5.631%
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>
26
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
BOSTON PARTNERS LARGE CAP FUND Charles Schwab & Co. Inc. 66.397%
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 VALUE FUND MAC & CO. 5.642%
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 VALUE FUND National Financial Svcs. Corp. for Exclusive 17.061%
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>
27
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 INVESTOR Charles Schwab & Co. Inc 81.125%
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>
28
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 NEUTRAL Boston Partners Asset Mgmt. L. P. 100.000%
FUND- INSTITUTIONAL SHARES Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MARKET NEUTRAL Glenn P. Verrette and Laurie Jo Verrette 6.690%
FUND- INVESTOR SHARES Jt. Ten. Wros.
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 FUND Arnold C. Schneider III 13.637%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
Mark Shevitz 7.206%
Rollover IRA
65 Wardell St.
Rumson, NJ 07760
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
29
<PAGE>
As of the November 17, 1999, directors and officers as a group owned
less than one percent of the shares of the Company.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS.
The Portfolios have investment advisory agreements with BIMC. Although
BIMC in turn has sub-advisory agreements respecting the Portfolios (except the
New York Municipal Money Market Portfolio) with PNC Bank dated August 16, 1988,
as of April 29, 1998, BIMC assumed these advisory responsibilities from PNC
Bank. Pursuant to the Sub-Advisory Agreements, PNC Bank would be entitled to
receive an annual fee from BIMC for its sub-advisory services calculated at the
annual rate of 75% of the fees received by BIMC on behalf of the Money Market,
Municipal Money Market and Government Obligations Portfolios. The advisory
agreements relating to the Money Market and Government Obligations Money Market
Portfolios are each dated August 16, 1988, the advisory agreement relating to
the New York Municipal Money Market Portfolio is dated November 5, 1991 and the
advisory agreement relating to the Municipal Money Market Portfolio is dated
April 21, 1992. Such advisory and sub-advisory agreements are hereinafter
collectively referred to as the "Advisory Agreements."
For the fiscal year ended August 31, 1999, the Company paid BIMC
(excluding fees to PFPC, with respect to the Money Market and Government
Obligations Portfolios, for administrative services obligated under the Advisory
Agreements) advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
Money Market $6,580,761 $2,971,645 $819,409
Municipal Money Market $ 238,604 $ 716,746 $102,998
Government Obligations Money Market $1,386,459 $ 833,218 $221,397
- 30 -
<PAGE>
For the fiscal year ended August 31, 1998, the Company paid BIMC
(excluding fees to PFPC, with respect to the Money Market and Government
Obligations Portfolios, for administrative services obligated under the Advisory
Agreements) advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $ 238,721 $ 822,533 $ 55,085
Government Obligations Money Market $1,649,453 $ 723,970 $392,949
For the fiscal year ended August 31, 1997, the Company paid BIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
Money Market $5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Government Obligations Money Market $1,774,123 $ 647,063 $404,193
Each Portfolio bears all of its own expenses not specifically assumed
by BIMC. General expenses of the Company not readily identifiable as belonging
to a portfolio of the Company are allocated among all investment portfolios by
or under the direction of the Company's Board of Directors in such manner as the
Board determines to be fair and equitable. Expenses borne by a portfolio
include, but are not limited to, the following (or a portfolio's share of the
following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
BIMC; (c) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Company or a portfolio for
violation of any law; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Company to its directors and officers;
(g) organizational costs; (h) fees paid to the investment adviser and PFPC; (i)
fees and expenses of officers and directors who are not affiliated with the
Portfolios' investment adviser or Distributor; (j) taxes; (k) interest; (l)
legal fees; (m) custodian fees; (n) auditing fees; (o)
- 31 -
<PAGE>
brokerage fees and commissions; (p) certain of the fees and expenses of
registering and qualifying the Portfolios and their shares for distribution
under federal and state securities laws; (q) expenses of preparing prospectuses
and statements of additional information and distributing annually to existing
shareholders that are not attributable to a particular class of shares of the
Company; (r) the expense of reports to shareholders, shareholders' meetings and
proxy solicitations that are not attributable to a particular class of shares of
the Company; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Bedford Classes of the
Company pays their own distribution fees, and may pay a different share than
other classes of the Company (excluding advisory and custodial fees) if those
expenses are actually incurred in a different amount by the Bedford Classes or
if they receive different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Company
or a Portfolio in connection with the performance of the Advisory Agreements,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of BIMC or PNC Bank in the performance of their respective duties or
from reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 28, 1999
by a vote of the Company'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 Agreements were each
approved with respect to the Money Market and Government Obligations Money
Market Portfolios by the shareholders of each Portfolio at a special meeting
held on December 22, 1989, as adjourned. Each Advisory Agreement is terminable
by vote of the Company's Board of Directors or by the holders of a majority of
the outstanding voting securities of the relevant Portfolio, at any time without
penalty, on 60 days' written notice to BIMC or PNC Bank. Each of the Advisory
Agreements may also be terminated by BIMC or PNC Bank on 60 days' written notice
to the Company. Each of the Advisory Agreements terminates automatically in the
event of assignment thereof.
ADMINISTRATION AGREEMENT.
PFPC serves as the administrator to the Municipal Money Market
Portfolio pursuant to an Administration and Accounting Services Agreement dated
April 21, 1992 (the "Administration Agreement"). PFPC has agreed to furnish to
the Company on behalf of the Municipal Money Market Portfolio statistical and
research data, clerical, accounting, and bookkeeping services, and certain other
services required by the Company. PFPC has also agreed to prepare
- 32 -
<PAGE>
and file various reports with the appropriate regulatory agencies, and prepare
materials required by the SEC or any state securities commission having
jurisdiction over the Company.
The Administration Agreement provide that PFPC shall not be liable for
any error of judgment or mistake of law or any loss suffered by the Company or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreement, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market Portfolio.
BIMC is obligated to render administrative services to the Money Market
and Government Obligations Money Market Portfolio pursuant to the investment
advisory agreements. Pursuant to the terms of Delegation Agreements, dated July
29, 1998, between BIMC and PFPC, however, BIMC has delegated to PFPC its
administrative responsibilities to these Portfolios. The Company pays
administrative fees directly to PFPC.
For the fiscal year ended August 31, 1999, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
Money Market $2,577,726 $0 $0
Municipal Money Market $ 276,787 $0 $0
Government Obligations Money Market $ 528,689 $0 $0
For the fiscal year ended August 31, 1998, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
Municipal Money Market $312,593 $0 $0
- 33 -
<PAGE>
For the fiscal year ended August 31, 1997, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
Municipal Money Market $448,548 $ 0 $0
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS.
PFPC Trust Company is custodian of the Company's assets pursuant to a
custodian agreement dated August 16, 1988, as amended (the "Custodian
Agreement"). Under the Custodian Agreement, PFPC Trust Company: (a) maintains a
separate account or accounts in the name of each Portfolio; (b) holds and
transfers portfolio securities on account of each Portfolio; (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio; (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities; and (e) makes periodic reports to the
Company's Board of Directors concerning each Portfolio's operations. PFPC Trust
Company is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Company, provided that PFPC Trust Company remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Company harmless from the acts and omissions of any sub-custodian.
For its services to the Company under the Custodian Agreement, PFPC Trust
Company receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Company.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Company's Bedford Classes pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under which
PFPC: (a) issues and redeems shares of each of the Bedford Classes; (b)
addresses and mails all communications by each Portfolio to record owners of
shares of each such Class, 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 the Company's Board of Directors concerning the operations
of each Bedford Class. PFPC may, on 30 days' notice to the Company, assign its
duties as transfer and dividend disbursing agent to any other affiliate of PNC
Bank Corp. For its services to the Company under the Transfer Agency Agreement,
PFPC receives a fee at the annual rate of $15.00 per account in each Portfolio
for orders which are placed via third parties and relayed electronically to
PFPC, and at an annual rate
- 34 -
<PAGE>
of $17.00 per account in each Portfolio for all other orders, exclusive of
out-of-pocket expenses, and also receives a fee for each redemption check
cleared and reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Company on behalf of their customers and to provide sweep processing for
uninvested cash balances for customers participating in a cash management
account. In addition to the shareholder records maintained by PFPC, Authorized
Dealers may maintain duplicate records for their customers who are shareholders
of the Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Company to PFPC.
- 35 -
<PAGE>
DISTRIBUTION AGREEMENTS.
Pursuant to the terms of a distribution agreement, dated as of June 25,
1999 and supplements entered into by the Distributor and the Company on behalf
of each of the Bedford Classes, (the "Distribution Agreement") and separate
Plans of Distribution, as amended, for each of the Bedford Classes
(collectively, the "Plans"), all of which were adopted by the Company in the
manner prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use
appropriate efforts to distribute shares of each of the Bedford Classes.
Payments to the Distributor under the Plans are to compensate it for
distribution assistance and expenses assumed and activities intended to result
in the sale of shares of each of the Bedford Classes. As compensation for its
distribution services, the Distributor receives, pursuant to the terms of the
Distribution Agreement, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans was approved by the Company's Board of Directors,
including the directors who are not "interested persons" of the Company and who
have no direct or indirect financial interest in the operation of the Plans or
any agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Company regarding all amounts expended under the Plans and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plans
will continue in effect only so long as they are approved at least annually, and
any material amendment thereto is approved, by the Company's directors,
including the 12b-1 Directors, acting in person at a meeting called for said
purpose; (3) the aggregate amount to be spent by the Company on the distribution
of the Company's shares of the Bedford Class under the Plans shall not be
materially increased without the affirmative vote of the holders of a majority
of the Company's shares in the affected Bedford Class; and (4) while the Plans
remain in effect, the selection and nomination of the 12b-1 Directors shall be
committed to the discretion of the directors who are not interested persons of
the Company.
For the fiscal year ended August 31, 1999, the Company paid
distribution fees to PDI under the Plans for the Bedford Classes of each of the
Money Market Portfolio, the Municipal Money Market Portfolio, and the Government
Obligations Money Market Portfolio, in the aggregate amounts of $3,832,958,
$951,897, and $778,123, respectively. Of those amounts $3,771,851, $933,545, and
$767,273, respectively, was paid to dealers with whom PDI had entered into
dealer agreements, and $61,107, $18,352, and $10,850, respectively, was retained
by PDI.
The amounts retained by PDI were used to pay certain advertising and
promotion, printing, postage, legal fees, travel, entertainment, sales,
marketing and administrative expenses. The Company believes that such Plans may
benefit the Company by increasing sales of Shares. Mr. Sablowsky, a Director of
the Company, had an indirect interest in the operation of the Plans by virtue of
his position with Fahnestock Co., Inc., a broker-dealer.
- 36-
<PAGE>
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less).
However, the Money Market Portfolio, Municipal Money Market Portfolio and New
York Municipal Money Market Portfolio may purchase variable rate securities with
remaining maturities of 13 months or more so long as such securities comply with
conditions established by the SEC under which they may be considered to have
remaining maturities of 13 months or less. Because all Portfolios intend to
purchase only securities with remaining maturities of 13 months or less, their
portfolio turnover rates will be relatively high. However, because brokerage
commissions will not normally be paid with respect to investments made by each
such Portfolio, the turnover rate should not adversely affect such Portfolio's
net asset value or net income. The Portfolios do not intend to seek profits
through short term trading.
Purchases of portfolio securities by each of the Portfolios are made
from dealers, underwriters and issuers; sales are made to dealers and issuers.
None of the Portfolios currently expects to incur any brokerage commission
expense on such transactions because money market instruments are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. The price of the security, however, usually
includes a profit to the dealer. Securities purchased in underwritten offerings
include a fixed amount of compensation to the underwriter, generally referred to
as the underwriter's concession or discount. When securities are purchased
directly from or sold directly to an issuer, no commissions or discounts are
paid. It is the policy of such Portfolios to give primary consideration to
obtaining the most favorable price and efficient execution of transactions. In
seeking to implement the policies of such Portfolios, BIMC will effect
transactions with those dealers it believes provide the most favorable prices
and are capable of providing efficient executions. In no instance will portfolio
securities be purchased from or sold to the Distributor or BIMC or any
affiliated person of the foregoing entities except to the extent permitted by
SEC exemptive order or by applicable law.
BIMC may seek to obtain an undertaking from issuers of commercial paper
or dealers selling commercial paper to consider the repurchase of such
securities from a Portfolio prior to their maturity at their original cost plus
interest (sometimes adjusted to reflect the actual maturity of the securities),
if it believes that a Portfolio's anticipated need for liquidity makes such
action desirable. Any such repurchase prior to maturity reduces the possibility
that the Portfolio would incur a capital loss in liquidating commercial paper
(for which there is no established market), especially if interest rates have
risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment
accounts managed by BIMC are made independently of each other in 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 Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A
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<PAGE>
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which BIMC or any affiliated
person (as defined in the 1940 Act) thereof is a member except pursuant to
procedures adopted by the Company's Board of Directors pursuant to Rule 10f-3
under the 1940 Act. Among other things, these procedures, which will be reviewed
by the Company's directors annually, require that the commission paid in
connection with such a purchase be reasonable and fair, that the purchase be at
not more than the public offering price prior to the end of the first business
day after the date of the public offer, and that BIMC not participate in or
benefit from the sale to a Portfolio.
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 L,
M, N and O constitute the Bedford Classes, described herein. 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 SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (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
</TABLE>
- 38 -
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (MILLIONS)
- ---------------------------------------------------------- --------------------------------------------------------
<S> <C> <C> <C>
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
GG (n/i numeric Growth) 50 Delta 4 (N.Y. Money) 1
HH (n/i numeric Mid Cap) 50 Epsilon 1 (Money) 1
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
- 39 -
<PAGE>
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 interests 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 and 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 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 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 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).
- 40 -
<PAGE>
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
Company reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Company
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Company
has elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio. 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 Portfolio may also suspend or postpone
the recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.)
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.
VALUATION OF SHARES
The Company intends to use its best efforts to maintain the net asset
value of each class of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by adding
the value of the proportionate interest of the class in the Portfolio's
securities, cash and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of such class. The net asset value of each class of the Company is
determined independently of the other classes. A Portfolio's "net assets" equal
the value of a Portfolio's investments and other securities less its
liabilities. Each Portfolio's net asset value per share is computed twice each
day, as of 12:00 noon (Eastern Time) and 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 both the NYSE and the Federal Reserve Bank of
Philadelphia (the "FRB") are open. Currently, the NYSE is closed weekends and 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 the preceding Friday and subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as Columbus Day and Veterans' Day.
The Company calculates the value of the portfolio securities of each of
the Portfolios by using the amortized cost method of valuation. Under this
method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument.
- 41 -
<PAGE>
The effect of changes in the market value of a security as a result of
fluctuating interest rates is not taken into account. The market value of debt
securities usually reflects yields generally available on securities of similar
quality. When such yields decline, market values can be expected to increase,
and when yields increase, market values can be expected to decline. In addition,
if a large number of redemptions take place at a time when interest rates have
increased, a Portfolio may have to sell portfolio securities prior to maturity
and at a price which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Company's Board
of Directors has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share for each Portfolio, which include a
review of the extent of any deviation of net asset value per share, based on
available market quotations, from the $1.00 amortized cost per share. Should
that deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will
limit portfolio investments, including repurchase agreements (where permitted),
to those United States dollar-denominated instruments that BIMC determines
present minimal credit risks pursuant to guidelines adopted by the Board of
Directors, and BIMC will comply with certain reporting and recordkeeping
procedures concerning such credit determination. There is no assurance that
constant net asset value will be maintained. In the event amortized cost ceases
to represent fair value in the judgment of the Company's Board of Directors, the
Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments,
the Company 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 Company's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Company's Board of
Directors.
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the
- 42 -
<PAGE>
results (i.e., multiplying the base period return by 365/7). The net change in
the value of the account reflects the value of additional shares purchased with
dividends declared and all dividends declared on both the original share and
such additional shares, but does not include realized gains and losses or
unrealized appreciation and depreciation. Compound effective yields are computed
by adding 1 to the base period return (calculated as described above), raising
the sum to a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1999 for
the Bedford Classes of each of the Money Market Portfolio, the Municipal Money
Market Portfolio, the Government Obligations Money Market Portfolio before
waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
PORTFOLIOS YIELD YIELD INCOME TAX RATE OF 28%)
- ---------- ----- --------- -----------------------
Money Market 4.36% 4.45% N/A
Municipal Money Market 2.46% 2.49% 3.42%
Government Obligations Money Market 4.13% 4.21% N/A
The annualized yield for the seven-day period ended August 31, 1999 for
the Bedford Classes of each of the Money Market, Municipal Money Market and the
Government Obligations Money Market Portfolio after waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
PORTFOLIOS YIELD YIELD INCOME TAX RATE OF 28%)
- ---------- ----- --------- -----------------------
Money Market 4.37% 4.46% N/A
Municipal Money Market 2.47% 2.50% 3.43%
Government Obligations Money Market 4.18% 4.27% N/A
- 43 -
<PAGE>
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of each Portfolio will fluctuate, they cannot
be compared with yields on savings accounts or other investment alternatives
that provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
yields of a Portfolio may be quoted and compared to those of other mutual funds
with similar investment objectives and to stock or other relevant indices. For
example, the yield of a Portfolio may be compared to the Donoghue's Money
Company Average, which is an average compiled by IBC Money Company Report(R), a
widely recognized independent publication that monitors the performance of money
market funds, or to the data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service that monitors the performance of mutual
funds.
TAXES
Each Portfolio intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute its
respective income to shareholders each year, so that each Portfolio generally
will be relieved of federal income and excise taxes. If a Portfolio were to fail
to so qualify: (1) the Portfolio 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. For the
Municipal Money Market Portfolio to pay tax-exempt dividends for any taxable
year, at least 50% of the aggregate value of such Portfolio's assets at the
close of each quarter of the Company's taxable year must consist of
exempt-interest obligations.
An investment in the Municipal Money Market Portfolio is not intended
to constitute a balanced investment program. Shares of the Municipal Money
Market Portfolio would
- 44 -
<PAGE>
not be suitable for tax-exempt institutions and may not be suitable for
retirement plans qualified under Section 401 of the Code, H.R. 10 plans and
individual retirement accounts because such plans and accounts are generally
tax-exempt and, therefore, not only would the shareholder not gain any
additional benefit from the Portfolios' dividends being tax-exempt, but such
dividends would be ultimately taxable to the beneficiaries when distributed. In
addition, the Municipal Money Market Portfolio may not be an appropriate
investment for entities which are "substantial users" of facilities financed by
"private activity bonds" or "related persons" thereof. "Substantial user" is
defined under U.S. Treasury Regulations to include a non-exempt person who (i)
regularly uses a part of such facilities in his or her trade or business and
whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities, (ii) occupies more than 5% of the usable area of such
facilities or (iii) are persons for whom such facilities or a part thereof were
specifically constructed, reconstructed or acquired. "Related persons" include
certain related natural persons, affiliated corporations, a partnership and its
partners and an S corporation and its shareholders.
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 the
Company and the non-interested directors.
INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP serves as the Company's independent
accountants. PricewaterhouseCoopers LLP performs an annual audit of the
Company's financial statements.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Portfolio's
Annual Report to Shareholders for the fiscal year ended August 31, 1999 (the
"1999 Annual Report") 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 the Company's independent accountants,
PricewaterhouseCoopers LLP . The reports of PricewaterhouseCoopers LLP are
incorporated herein by reference. 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 at no charge by telephoning the Distributor at the telephone number
appearing on the front page of this Statement of Additional Information.
- 45 -
<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.
A-5
<PAGE>
N.R. Not rated. Debt obligations of issuers outside the United
States and its 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.
A-6
<PAGE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. 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-7
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. 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.
A-8
<PAGE>
'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 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.
A-9
<PAGE>
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity
factors and market access 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
<PAGE>
THE RBB FUND, INC.
(THE "COMPANY")
BEDFORD FAMILY
Money Market Portfolio
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1999
This Statement of Additional Information ("SAI") provides information
about the Company's Bedford Class of the Money Market Portfolio (the
"Portfolio"). This information is in addition to the information that is
contained in the Bedford Family Money Market Portfolio Prospectus dated December
1, 1999 (the "Prospectus").
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Portfolio's 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 Portfolio's Prospectus and Annual
Report may be obtained free of charge by telephoning (800) 533-7719.
<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION ........................................................ 1
INVESTMENT INSTRUMENTS AND POLICIES .........................................1
Additional Information on Portfolio Investments ....................1
Fundamental Investment Limitations and Policies ...................10
Non-Fundamental Investment Limitations and Policies ...............12
MANAGEMENT OF THE COMPANY ..................................................13
Directors and Officers. ...........................................13
Directors' Compensation. ..........................................16
CONTROL PERSONS ............................................................16
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS ...............25
Advisory and Sub-Advisory Agreements ..............................25
Administration Agreement ..........................................27
Custodian and Transfer Agency Agreements ..........................28
Distribution Agreement ............................................29
PORTFOLIO TRANSACTIONS .....................................................30
ADDITIONAL INFORMATION CONCERNING RBB SHARES ...............................31
PURCHASE AND REDEMPTION INFORMATION ........................................33
VALUATION OF SHARES ........................................................34
PERFORMANCE INFORMATION ....................................................35
TAXES ......................................................................37
MISCELLANEOUS ..............................................................37
Counsel ...........................................................37
Independent Accountants ...........................................37
FINANCIAL STATEMENTS .......................................................37
APPENDIX A ................................................................A-1
-i-
<PAGE>
GENERAL INFORMATION
The RBB Fund, Inc. (the "Company") 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 one class of
shares (the "Bedford Class") representing interests in the Money Market
Portfolio, a diversified investment portfolio (the "Portfolio") of the Company.
The Bedford Class is offered by the Bedford Family Money Market 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 Portfolios.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
VARIABLE RATE DEMAND INSTRUMENTS. The Portfolio may purchase variable
rate demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary and provide for periodic adjustment in the interest rate.
Although the notes are not normally traded and there may be no active secondary
market in the notes, the Portfolio will be able to demand payment of the
principal of a note. The notes are not typically rated by credit rating
agencies, but issuers of variable rate demand notes must satisfy the same
criteria as issuers of commercial paper. If an issuer of a variable rate demand
note defaulted on its payment obligation, the Portfolio might be unable to
dispose of the note because of the absence of an active secondary market. For
this or other reasons, the Portfolio might suffer a loss to the extent of the
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
Variable rate demand instruments held by the Portfolio may have
maturities of more than 397 calendar days, provided: (i) the Portfolio is
entitled to the payment of principal at any time, or during specified intervals
not exceeding 397 calendar days, upon giving the prescribed notice (which may
not exceed 30 days); and (ii) the rate of interest on such instruments is
adjusted at periodic intervals which may extend up to 397 calendar days. In
determining the average weighted maturity of the Portfolio and whether a
variable rate demand instrument has a remaining maturity of 397 calendar days or
less, each long-term instrument will be deemed by the Portfolio to have a
maturity equal to the longer of the period remaining until its next interest
rate adjustment or the period remaining until the principal amount can be
recovered through demand. The absence of an active secondary market with respect
to particular variable and floating rate instruments could make it difficult for
the Portfolio to dispose of variable or floating rate notes if the issuer
defaulted on its payment obligations or during periods that the Portfolio is not
entitled to exercise its demand right, and the Portfolio could, for these or
other reasons, suffer a loss with respect to such instruments.
-1-
<PAGE>
COMMERCIAL PAPER. The Portfolio may purchase commercial paper rated (i)
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. These rating categories are described in the Appendix to the
Statement of Additional Information. The Portfolio may also purchase unrated
commercial paper provided that such paper is determined to be of comparable
quality by the Portfolio's investment adviser in accordance with guidelines
approved by the Company's Board of Directors.
Commercial paper purchased by the Portfolio may include instruments
issued by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is
U.S. dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 397 days,
provided the repurchase agreement itself matures in less than 13 months. Default
by or bankruptcy of the seller would, however, expose the Portfolio to possible
loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
The repurchase price under the repurchase agreements described above
generally equals the price paid by the Portfolio 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). The financial institutions
with which the Portfolio may enter into repurchase agreements will be banks and
non-bank dealers of U.S. Government Securities that are listed on the Federal
Reserve Bank of New York's list of reporting dealers, if such banks and non-bank
dealers are deemed creditworthy by the Portfolio's adviser or sub-adviser. The
Portfolio's adviser or sub-adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least the repurchase price (including accrued interest).
In addition, the Portfolio's adviser or sub-adviser will require that the value
of this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to or greater than the
repurchase price including either: (i) accrued premium provided in the
repurchase agreement; or (ii) the daily amortization of the difference between
the purchase price and the repurchase price specified in the repurchase
agreement. The Portfolio's adviser or sub-adviser will mark to market daily the
value of the securities. Securities subject to repurchase agreements will be
held by the Company'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 Portfolio under the Investment Company Act of 1940
(the "1940 Act").
-2-
<PAGE>
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Portfolio may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. The Portfolio will generally
not pay for such securities or start earning interest on them until they are
received. Securities purchased on a when-issued basis are recorded as an asset
at the time the commitment is entered into and are subject to changes in value
prior to delivery based upon changes in the general level of interest rates.
While the Portfolio has such commitments outstanding, the Portfolio
will maintain in a segregated account with the Company's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the purchase price of the securities to be purchased. Normally, the custodian
for the Portfolio will set aside portfolio securities to satisfy a purchase
commitment and, in such a case, the Portfolio may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Portfolio's commitment.
It may be expected that the Portfolio's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the Portfolio's liquidity and
ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments, it is expected that
commitments to purchase "when-issued" securities will not exceed 25% of the
value of the Portfolio's total assets absent unusual market conditions. When the
Portfolio engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous. The Portfolio does not intend to purchase
when-issued securities for speculative purposes but only in furtherance of its
investment objectives.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury or
are backed only by the credit of the agency or instrumentality issuing the
obligation. U.S. government obligations that are not backed by the full faith
and credit of the U.S. Government are subject to greater risks than those that
are. U.S. Government obligations that are backed by the full faith and credit of
the U.S. Government are subject to interest rate risk.
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, the Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
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<PAGE>
MORTGAGE-RELATED SECURITIES. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA, are not backed
by or entitled to the full faith and credit of the United States and are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Portfolio may invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs"). These multiple class
securities may be issued by U.S. Government agencies or instrumentalities,
including FNMA and FHLMC, or by trusts formed by private originators of, or
investors in, mortgage loans. In general, CMOs are debt obligations of a legal
entity that are collateralized by a pool of residential or commercial mortgage
loans or mortgage pass-through securities (the "Mortgage Assets"), the payments
on which are used to make payments on the CMOs. Investors may purchase
beneficial interests in CMOs, which are known as "regular" interests or
"residual" interests. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making required payments of
principal of and interest on the CMOs, as well as the related administrative
expenses of the issuer. Residual interests generally are junior to, and may be
significantly more volatile than, "regular" CMO interests. The Portfolio does
not currently intend to purchase residual interests.
-4-
<PAGE>
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs in various ways. In certain structures (known
as "sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
The relative payment rights of the various CMO classes may be subject
to greater volatility and interest-rate risk than other types of mortgage-backed
securities. The average life of asset-backed securities varies with the
underlying instruments or assets and market conditions, which in the case of
mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely.
ASSET-BACKED SECURITIES. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and CMOs issued or guaranteed by U.S.
Government agencies and instrumentalities. It may also invest in asset-backed
securities issued by private companies. Asset-backed securities also include
adjustable rate securities. The estimated life of an asset-backed security
varies with the prepayment experience with respect to the underlying debt
instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security
-5-
<PAGE>
acquired will be 397 days or less. Asset-backed securities
are considered an industry for industry concentration purposes (see "Fundamental
Investment Limitations and Policies"). In periods of falling interest rates, the
rate of mortgage prepayments tends to increase. During these periods, the
reinvestment of proceeds by the Portfolio will generally be at lower rates than
the rates on the prepaid obligations.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage-related securities. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities.
BANK OBLIGATIONS. The Portfolio may purchase obligations of issuers in
the banking industry, such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements, less market liquidity,
future unfavorable political and economic developments, possible withholding
taxes on interest income, seizure or nationalization of foreign deposits,
currency controls, interest limitations, or other governmental restrictions
which might affect the payment of principal or interest on the securities held
in the Portfolio. Additionally, these institutions may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping requirements than those applicable to domestic branches of
U.S. banks. The Portfolio will invest in obligations of domestic branches of
foreign banks and foreign branches of domestic banks only when its investment
adviser believes that the risks associated with such investment are minimal. The
Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
-6-
<PAGE>
conditions. GIC investments are subject to the Company's policy regarding
investment in illiquid securities.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities; (2) securities
that (a) are rated (at the time of purchase) by two or more nationally
recognized statistical rating organizations ("Rating Organizations") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2," by Standard & Poor's Ratings Services ("S&P"), or rated
"Prime-1" or "Prime-2" by Moody's Investor's Service, Inc. ("Moody's")), or (b)
are rated (at the time of purchase) by the only Rating Organization rating the
security in one of its two highest rating categories for such securities; (3)
short-term obligations and, subject to certain SEC requirements, long-term
obligations that have remaining maturities of 397 days or less, provided in each
instance that such obligations have no short-term rating and are comparable in
priority and security to a class of short-term obligations of the issuer that
has been rated in accordance with (2)(a) or (b) above ("comparable
obligations"); (4) securities that are not rated and are issued by an issuer
that does not have comparable obligations rated by a Rating Organization
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2)(a) or (b) above; and (5) subject
to certain conditions imposed under SEC rules, obligations guaranteed or
otherwise supported by persons which meet the requisite rating requirements.
MUNICIPAL OBLIGATIONS. The Portfolio may invest in short-term Municipal
Obligations which are determined by its investment adviser to present minimal
credit risks and that meet certain ratings criteria pursuant to guidelines
established by the Company's Board of Directors. The Portfolio may also purchase
Unrated Securities provided that such securities are determined to be of
comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to this Statement of
Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer. Therefore, risk exists that the reserve fund will not be
restored.
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<PAGE>
Municipal Obligations may include variable rate demand notes. Such
notes are frequently not rated by credit rating agencies, but unrated notes
purchased by the Portfolio will have been determined by the Portfolio's
investment adviser to be of comparable quality at the time of the purchase to
rated instruments purchasable by the Portfolio. Where necessary to ensure that a
note is of eligible quality, the Portfolio will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable rate demand note
purchased by the Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 13 months, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons, suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
In addition, the Portfolio may, when deemed appropriate by its
investment adviser in light of the Portfolio's investment objective, invest
without limitation in high quality, short-term Municipal Obligations issued by
state and local governmental issuers, the interest on which may be taxable or
tax-exempt for federal income tax purposes, provided that such obligations carry
yields that are competitive with those of other types of money market
instruments of comparable quality.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Company
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
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 (the "Securities
Act"), as amended. Section 4(2) paper is restricted as to disposition under the
federal securities laws and is generally sold to institutional investors such as
the Company 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.
ILLIQUID SECURITIES. The Portfolio may not invest more than 10% of its
net assets in illiquid securities including repurchase agreements that have a
maturity of longer than seven days, and including securities that are illiquid
by virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Other securities considered illiquid are time deposits
with maturities in excess of seven days, variable rate demand notes with demand
periods
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<PAGE>
in excess of seven days unless the Portfolio's investment adviser
determines that such notes are readily marketable and could be sold promptly at
the prices at which they are valued and GICs. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities that
have legal or contractual restrictions on resale but have a readily available
market are not considered illiquid for purposes of this limitation. The
Portfolio's investment adviser will monitor the liquidity of such restricted
securities under the supervision of the Board of Directors. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act, as amended, securities which are otherwise
not readily marketable and repurchase agreements having a maturity of longer
than seven days. Securities which have not been registered under the Securities
Act are referred to as private placements or restricted securities and are
purchased directly from the issuer or in the secondary market. Mutual funds do
not typically hold a significant amount of 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. Illiquid securities would be more
difficult to dispose of than liquid securities to satisfy redemption requests.
The Portfolio 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 Portfolio'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 the Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of
restricted securities in the Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment 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).
STAND-BY COMMITMENTS. The Portfolio may enter into stand-by commitments
with respect to obligations issued by or on behalf of states, territories, and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities (collectively,
"Municipal Obligations") held in its portfolio. Under a stand-by commitment, a
dealer would agree to purchase at the Portfolio's option a specified Municipal
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<PAGE>
Obligation at its amortized cost value to the Portfolio plus accrued interest,
if any. Stand-by commitments may be exercisable by the Portfolio at any time
before the maturity of the underlying Municipal Obligations and may be sold,
transferred or assigned only with the instruments involved.
The Portfolio expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Portfolio may pay for a stand-by commitment
either in cash or by paying a higher price for portfolio securities which are
acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the Portfolio will not
exceed 1/2 of 1% of the value of the Portfolio's total assets calculated
immediately after each stand-by commitment is acquired.
The Portfolio intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the investment adviser's opinion,
present minimal credit risks. The Portfolio's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment. The acquisition of a
stand-by commitment may increase the cost, and thereby reduce the yield, of the
Municipal Obligation to which such commitment relates.
The Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where the Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by the Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A fundamental limitation or policy of the Portfolio may not be changed
without the affirmative vote of the holders of a majority of the Portfolio's
outstanding shares. 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 Portfolio means, with respect to the approval of
an investment advisory agreement, a distribution plan or a change in a
fundamental investment limitation, the lesser of: (1) 67% of the shares of the
particular class, series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy; or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
The Company's Board of Directors can change the investment objective of
each Fund.
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<PAGE>
The Money Market Portfolio may not:
1. borrow money, except from banks for temporary purposes and for
reverse repurchase agreements and then in amounts not in excess of
10% of the value of the Portfolio's total assets at the time of
such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge, or hypothecate any of its assets except in
connection with such borrowings and then in amounts not in excess
of 10% of the value of the Portfolio's total assets at the time of
such borrowing or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (This borrowing
provision is not for investment leverage, but solely to facilitate
management of the Portfolio's securities by enabling the Portfolio
to meet redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or inconvenient.);
2. purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
3. underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the
Portfolio may be deemed an underwriter under federal securities
laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with
the Portfolio's investment objective, policies and limitations may
be deemed to be an underwriting;
4. make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations
thereof;
5. purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein
or issued by companies which invest in real estate or interests
therein;
6. purchase or sell commodities or commodity contracts;
7. invest in oil, gas or mineral exploration or development programs;
8. make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies
and limitations and may enter into repurchase agreements;
9. purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition
or reorganization of all the securities or assets of such an
issuer; or
10. make investments for the purpose of exercising control or
management.
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<PAGE>
11. 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 the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of the Portfolio's
assets may be invested without regard to this 5% limitation;
12. purchase any securities other than money market instruments, some
of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts
not in excess of 5% of the value of the Portfolio's assets and may
make time deposits;
13.* purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the
banking industry, or in obligations, such as repurchase
agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets
to be invested in the obligations of issuers in any other
industry; and
14. invest more than 5% of its total assets (taken at the time of
purchase) in securities of issuers (including their predecessors)
with less than three years of continuous operations.
* With respect to this limitation, the Portfolio will consider
wholly-owned finance companies to be in the industries of their
parents if their activities are primarily related to financing the
activities of the parents, and will divide utility companies
according to their services. For example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this
paragraph may be changed without shareholder approval, however,
any change would be subject to any applicable requirements of the
SEC and would be disclosed in the Prospectus prior to being made.
Non-Fundamental Investment Limitations and Policies.
A non-fundamental investment limitation or policy may be changed by the
Board of Directors without shareholder approval. However, shareholders will be
notified of any changes to any of the following limitations or policies.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940
Act, the Portfolio will limit its purchases of:
1. the securities of any one issuer, other than issuers of U.S.
Government securities, to 5% of its total assets, except that the
Portfolio may invest more than 5% of its
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<PAGE>
total assets in First Tier Securities of one issuer for a period
of up to three business days. "First Tier Securities" include
eligible securities that:
(i) if rated by more than one Rating Organization (as defined in
the Prospectus), are rated (at the time of purchase) by two
or more Rating Organizations in the highest rating category
for such securities;
(ii) if rated by only one Rating Organization, are rated by such
Rating Organization in its highest rating category for such
securities;
(iii) have no short-term rating and are comparable in priority and
security to a class of short-term obligations of the issuer
of such securities that have been rated in accordance with
(i) or (ii) above;
(iv) or are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of First
Tier Securities that come within categories (ii) and (iv)
above will be approved or ratified by the Board of
Directors;
(2) Second Tier Securities, which are eligible securities other than
First Tier Securities, to 5% of its total assets; and
(3) Second Tier Securities of one issuer to the greater of 1% of its
total assets or $1 million.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS.
The business and affairs of the Company are managed under the direction
of the Company's Board of Directors. The directors and executive officers of the
Company, 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 Pincus
c/o 400 Bellevue Parkway Asset Management, Inc., Executive Officer
Wilmingtron, DE 19809 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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ -----------------------
<S> <C> <C>
*Robert Sablowsky - 61 Director Executive Vice President of Fahnestock Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 64 Director Since 1963, Executive Vice President, Fox
Fox Chase Cancer Center Chase Cancer Center (biomedical research and
7701 Burholme Avenue 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 - 65 Director Director and Vice Chairman, since 1969
Comcast Corporation Comcast Corporation (cable television and
1500 Market Street communications); Director, Comcast U.K.
35th Floor
Philadelphia, PA 19102
Donald van Roden - 75 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 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 Chairman
400 Bellevue Parkway of the Board, Fox Chase Cancer Center;
Wilmington, DE 19809 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
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ -----------------------
<S> <C> <C>
Treasurer of Independence Square
Income Securities, Inc.; Director of the
Bradford Funds, Inc.
Morgan R. Jones - 60 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Education
One Logan Square Dynamics, Inc.; Secretary, Petroferm, Inc.
18th & Cherry Streets
Philadelphia, PA 19103
<FN>
* Each of Mr. Sablowsky and Mr. Sternberg is an "interested person" of RBB,
as that term is defined in the 1940 Act.
</FN>
</TABLE>
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 the Company 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 the Company 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 the Company.
The Company 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 the
Company in the following amounts:
-15-
<PAGE>
DIRECTORS' COMPENSATION.
PENSION OR TOTAL
RETIREMENT ESTIMATED ESTIMATED COMPENSATION
AGGREGATE BENEFITS ANNUAL ANNUAL FROM FUND AND
COMPENSATION ACCRUED AS BENEFITS FUND COMPLEX
NAME OF PERSON/ FROM PART OF COMPANY UPON PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- --------------- ------------ --------------- ---------- -------------
Julian A. Brodsky, $19,250 N/A N/A $19,250
Director
Francis J. McKay, $16,750 N/A N/A $16,750
Director
Arnold M. Reichman, $0 N/A N/A $0
Director
Robert Sablowsky, $18,250 N/A N/A $18,250
Director
Marvin E. Sternberg, $19,250 N/A N/A $19,250
Director
Donald van Roden, $25,250 N/A N/A $25,250
Director and Chairman
On October 24, 1990 the Company adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach), pursuant to which the Company
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
BlackRock Institutional Management Corporation ("BIMC") (formerly known as "PNC
Institutional Management Corporation"), the Portfolios' adviser, PFPC Trust
Company, the Company's custodian, PFPC Inc. ("PFPC"), the administrator to the
Municipal Money Market Portfolio and the Company's transfer and dividend
disbursing agent, and Provident Distributors Inc. (the "Distributor"), the
Company's distributor, the Company itself requires only one part-time employee.
Drinker Biddle & Reath LLP, of which Mr. Jones is a partner, receives legal fees
as counsel to the Company. No officer, director or employee of BIMC, PFPC Trust
Company, PFPC or the Distributor currently receives any compensation from the
Company.
CONTROL PERSONS
As of November 17, 1999, to the Company's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of the class of the Company indicated
below. See "Additional Information Concerning RBB Shares" below. The Company
does not know whether such persons also beneficially own such shares.
-16-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
BEDFORD MUNICIPAL MONEY MARKET Gabe Nechamkin 7.40%
27 Muchmore Road
Harrison, NY 10528-1109
- ------------------------------------- ------------------------------------------------------- ------------------------
CASH PRESERVATION MONEY MARKET Harold T. Erfer 6.349%
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 in Tr. 12.785%
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 MONEY MARKET Saxon and Co. 65.047%
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>
-17-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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 Portfolio 12.161%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------- ------------------------------------------------------- ------------------------
Warburg Pincus Trust-International Equity Portfolio 15.203%
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>
-18-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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>
-19-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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. 20.546%
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 VALUE 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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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
- ------------------------------------- ------------------------------------------------------- ------------------------
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 FUND INST Shady Side Academy Endowment 5.631%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS LARGE CAP FUND Charles Schwab & Co. Inc. 66.397%
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 VALUE FUND MAC & CO. 5.642%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
Norwest Bank Minnesota 5.194%
FBO McCormick & Co.
PEN-BOSTON A/C 12778825
P.O. Box 1533
Minneapolis, MN 55480
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MID CAP VALUE FUND National Financial Svcs. Corp. for Exclusive 17.061%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
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 INVESTOR Charles Schwab & Co. Inc 81.125%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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
- ------------------------------------- ------------------------------------------------------- ------------------------
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 NEUTRAL Boston Partners Asset Mgmt. L. P. 100.000%
FUND- INSTITUTIONAL SHARES Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MARKET NEUTRAL Glenn P. Verrette and Laurie Jo Verrette 6.690%
FUND- INVESTOR SHARES Jt. Ten. Wros.
156 Osgood St.
Andover, MA 01810
- ------------------------------------- ------------------------------------------------------- ------------------------
Thomas Lannan and Kathleen Lannan 89.987%
Jt. Ten. Wros.
P. O. Box 312
Osterville, MA 02655
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
SCHNEIDER SMALL CAP VALUE FUND Arnold C. Schneider III 13.637%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
Mark Shevitz 7.206%
Rollover IRA
65 Wardell St.
Rumson, NJ 07760
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
As of November 17, 1999, directors and officers as a group owned less
than one percent of the shares of the Company.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS .
The Portfolio has an investment advisory agreement with BIMC. Although
BIMC in turn has a sub-advisory agreement respecting the Portfolio with PNC Bank
dated August 16, 1988, as of April 29, 1998, BIMC assumed these advisory
responsibilities from PNC Bank. Pursuant to the Sub-Advisory Agreement, PNC Bank
would be entitled to receive an annual fee from BIMC for its sub-advisory
services calculated at the annual rate of 75% of the fees received by BIMC. The
advisory agreement is dated August 16, 1988. The advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory
Agreements."
For the fiscal year ended August 31, 1999, the Company paid BIMC
(excluding fees to PFPC, with respect to the Portfolio, for administrative
services obligated under the Advisory Agreements) advisory fees as follows:
-25-
<PAGE>
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$6,580,761 $2,971,645 $819,409
For the fiscal year ended August 31, 1998, the Company paid BIMC
(excluding fees to PFPC, for administrative services obligated under the
Advisory Agreement) advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$6,283,705 $3,334,990 $692,630
For the fiscal year ended August 31, 1997, the Company paid BIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$5,366,431 $3,603,130 $469.986
The Portfolio bears all of its own expenses not specifically assumed by
BIMC. General expenses of the Company not readily identifiable as belonging to a
portfolio of the Company are allocated among all investment portfolios by or
under the direction of the Company's Board of Directors in such manner as the
Board determines to be fair and equitable. Expenses borne by a portfolio
include, but are not limited to, the following (or a portfolio's share of the
following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
BIMC; (c) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Company or a portfolio for
violation of any law; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Company to its directors and officers;
(g) organizational costs; (h) fees paid to the investment adviser and PFPC; (i)
fees and expenses of officers and directors who are not affiliated with the
Portfolio's investment adviser or Distributor; (j) taxes; (k) interest; (l)
legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Portfolio and its shares for distribution under federal and state securities
laws; (q) expenses of preparing prospectuses and statements of additional
information and distributing
-26-
<PAGE>
annually to existing shareholders that are not attributable to a particular
class of shares of the Company; (r) the expense of reports to shareholders,
shareholders' meetings and proxy solicitations that are not attributable to a
particular class of shares of the Company; (s) fidelity bond and directors' and
officers' liability insurance premiums; (t) the expense of using independent
pricing services; and (u) other expenses which are not expressly assumed by the
Portfolio's investment adviser under its advisory agreement with the Portfolio.
The Bedford Class of the Company pays its own distribution fees, and may pay a
different share than other classes of the Company (excluding advisory and
custodial fees) if those expenses are actually incurred in a different amount by
the Bedford Class or if it receives different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Company
or the Portfolio in connection with the performance of the Advisory Agreements,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of BIMC or PNC Bank in the performance of their respective duties or
from reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were most recently approved July 28, 1999 by a
vote of the Company'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 Agreements were each
approved by the shareholders of the Portfolio at a special meeting held on
December 22, 1989, as adjourned. The Advisory Agreement is terminable by vote of
the Company's Board of Directors or by the holders of a majority of the
outstanding voting securities of the Portfolio, at any time without penalty, on
60 days' written notice to BIMC or PNC Bank. The Advisory Agreements may also be
terminated by BIMC or PNC Bank on 60 days' written notice to the Company. The
Advisory Agreements terminate automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENT.
BIMC is obligated to render administrative services to the Portfolio
pursuant to the investment advisory agreement. Pursuant to the terms of a
Delegation Agreement, dated July 29, 1998, between BIMC and PFPC, however, BIMC
has delegated to PFPC its administrative responsibilities to the Portfolio. The
Company pays administrative fees directly to PFPC.
For the fiscal year ended August 31, 1999, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$2,577,726 $0 $0
-27-
<PAGE>
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS.
PFPC Trust Company is custodian of the Company's assets pursuant to a
custodian agreement dated August 16, 1988, as amended (the "Custodian
Agreement"). Under the Custodian Agreement, PFPC Trust Company: (a) maintains a
separate account or accounts in the name of the Portfolio; (b) holds and
transfers portfolio securities on account of the Portfolio; (c) accepts receipts
and makes disbursements of money on behalf of the Portfolio; (d) collects and
receives all income and other payments and distributions on account of the
Portfolio's portfolio securities; and (e) makes periodic reports to the
Company's Board of Directors concerning the Portfolio's operations. PFPC Trust
Company is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Company, provided that PFPC Trust Company remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Company harmless from the acts and omissions of any sub-custodian.
For its services to the Company under the Custodian Agreement, PFPC Trust
Company receives a fee which is calculated based upon the Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Company.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Company's Bedford Classes pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under which
PFPC: (a) issues and redeems shares of the Bedford Class of the Portfolio; (b)
addresses and mails all communications by the Portfolio to record owners of
shares of each such Class, 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 the Company's Board of Directors concerning the operations
of the Bedford Class. PFPC may, on 30 days' notice to the Company, assign its
duties as transfer and dividend disbursing agent to any other affiliate of PNC
Bank Corp. For its services to the Company under the Transfer Agency Agreement,
PFPC receives a fee at the annual rate of $15.00 per account in the Portfolio
for orders which are placed via third parties and relayed electronically to
PFPC, and at an annual rate of $17.00 per account in the Portfolio for all other
orders, exclusive of out-of-pocket expenses, and also receives a fee for each
redemption check cleared and reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolio.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Company on behalf of their customers and to provide sweep processing for
uninvested cash balances for customers participating in a cash management
account. In addition to the shareholder records maintained by PFPC, Authorized
Dealers may maintain duplicate records for their customers who are shareholders
of the Portfolio for purposes of responding to customer
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<PAGE>
inquiries and brokerage instructions. In consideration for providing such
services, Authorized Dealers may receive fees from PFPC. Such fees will have no
effect upon the fees paid by the Company to PFPC.
DISTRIBUTION AGREEMENT.
Pursuant to the terms of a distribution agreement, dated as of June 25,
1999 and supplements entered into by the Distributor and the Company on behalf
of the Bedford Class, (the "Distribution Agreement") and a separate Plan of
Distribution, as amended, for the Bedford Class (the "Plan"), which was adopted
by the Company in the manner prescribed by Rule 12b-1 under the 1940 Act, the
Distributor will use appropriate efforts to distribute shares of the Bedford
Class. Payments to the Distributor under the Plan are to compensate it for
distribution assistance and expenses assumed and activities intended to result
in the sale of shares of the Bedford Class. As compensation for its distribution
services, the Distributor receives, pursuant to the terms of the Distribution
Agreement, a distribution fee, to be calculated daily and paid monthly, at the
annual rate set forth in the Prospectus. The Distributor currently proposes to
reallow up to all of its distribution payments to broker/dealers for selling
shares of the Portfolio based on a percentage of the amounts invested by their
customers.
The Plan was approved by the Company's Board of Directors, including
the directors who are not "interested persons" of the Company and who have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan ("12b-1 Directors").
Among other things, the Plan provides that: (1) the Distributor shall
be required to submit quarterly reports to the directors of the Company
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Company's directors, including the 12b 1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Company on the distribution of the Company's
shares of the Bedford Class under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the Company's
shares in the Bedford Class; and (4) while the Plan remains in effect, the
selection and nomination of the 12b 1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Company.
For the fiscal year ended August 31, 1999, the Company paid
distribution fees to PDI under the Plan for the Bedford Class of the Portfolio
in the aggregate amount of $3,832,958. Of this amount $3,771,851 was paid to
dealers with whom PDI had entered into dealer agreements, and $61,107 was
retained by PDI.
The amounts retained by PDI were used to pay certain advertising and
promotion, printing, postage, legal fees, travel, entertainment, sales,
marketing and administrative expenses. The Company believes that the Plan may
benefit the Company by increasing sales of Shares. Mr.
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<PAGE>
Sablowsky, a Director of the Company, had an indirect interest in the operation
of the Plan by virtue of his position with Fahnestock Co., Inc., a
broker-dealer.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining maturities
of 13 months or less, except for securities that are subject to repurchase
agreements (which in turn may have maturities of 13 months or less). However,
the Portfolio may purchase variable rate securities with remaining maturities of
13 months or more so long as such securities comply with conditions established
by the SEC under which they may be considered to have remaining maturities of 13
months or less. Because the Portfolio intends to purchase only securities with
remaining maturities of 13 months or less, its portfolio turnover rate will be
relatively high. However, because brokerage commissions will not normally be
paid with respect to investments made by the Portfolio, the turnover rate should
not adversely affect the Portfolio's net asset value or net income. The
Portfolio does not intend to seek profits through short term trading.
Purchases of portfolio securities by the Portfolio are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. The
Portfolio does not currently expect to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of the Portfolio to give primary consideration to obtaining the most
favorable price and efficient execution of transactions. In seeking to implement
the policies of the Portfolio, BIMC will effect transactions with those dealers
it believes provide the most favorable prices and are capable of providing
efficient executions. In no instance will portfolio securities be purchased from
or sold to the Distributor or BIMC or any affiliated person of the foregoing
entities except to the extent permitted by SEC exemptive order or by applicable
law.
BIMC 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 Portfolio 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 Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for the Portfolio and for other investment
accounts managed by BIMC are made independently of each other in 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
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<PAGE>
some cases this practice could have a detrimental effect upon the price or
value of the security as far as the Portfolio is concerned, in other cases it is
believed to be beneficial to the Portfolio. The Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which BIMC or any affiliated person (as defined in the 1940
Act) thereof is a member except pursuant to procedures adopted by the Company's
Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Company's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that BIMC not participate in or benefit from the sale to the
Portfolio.
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 Class L
constitute the Bedford Class described herein. 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
CLASS OF AUTHORIZED CLASS OF AUTHORIZED
COMMON STOCK SHARES (MILLIONS) 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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
CLASS OF AUTHORIZED CLASS OF AUTHORIZED
COMMON STOCK SHARES (MILLIONS) COMMON STOCK SHARES (MILLIONS)
- --------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C>
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
GG (n/i numeric Growth) 50 Delta 4 (N.Y. Money) 1
HH (n/i numeric Mid Cap) 50 Epsilon 1 (Money) 1
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 Cap) 100 Eta 3 (Government Money) 1
SS (Boston Partners Advisor Large Cap) 100 Eta 4 (N.Y. Money) 1
TT (Boston Partners Investors Mid Cap) 100 Theta 1 (Money) 1
UU (Boston Partners Institutional Mid Cap) 100 Theta 2 (Municipal Money) 1
VV (Boston Partners Institutional Bond) 100 Theta 3 (Government Money) 1
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 interests in one
non-money
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<PAGE>
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 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 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 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).
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 Company
reserves the right, if conditions exist which make cash payments undesirable, to
honor any request for redemption or repurchase
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<PAGE>
of the Portfolio's shares by making payment in whole or in part in securities
chosen by the Company and valued in the same way as they would be valued for
purposes of computing the Portfolio's net asset value. If payment is made in
securities, a shareholder may incur transaction costs in converting these
securities into cash. The Company has elected, however, to be governed by Rule
18f-1 under the 1940 Act so that the Portfolio is obligated to redeem its shares
solely in cash up to the lesser of $250,000 or 1% of its net asset value during
any 90-day period for any one shareholder of the Portfolio. 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. (The Portfolio may also suspend or postpone the recordation
of the transfer of its shares upon the occurrence of any of the foregoing
conditions.)
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.
VALUATION OF SHARES
The Company intends to use its best efforts to maintain the net asset value of
each class of the Portfolio at $1.00 per share. Net asset value per share, the
value of an individual share in the Portfolio, is computed by adding the value
of the proportionate interest of the class in the Portfolio's securities, cash
and other assets, subtracting the actual and accrued liabilities of the class
and dividing the result by the number of outstanding shares of such class. The
net asset value of each class of the Company is determined independently of the
other classes. The Portfolio's "net assets" equal the value of the Portfolio's
investments and other securities less its liabilities. The Portfolio's net asset
value per share is computed twice each day, as of 12:00 noon (Eastern Time) and
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 both the
NYSE and the Federal Reserve Bank of Philadelphia (the "FRB") are open.
Currently, the NYSE is closed weekends and 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 the preceding Friday and
subsequent Monday when one of these holidays falls on a Saturday or Sunday. The
FRB is currently closed on weekends and the same holidays as the NYSE as well as
Columbus Day and Veterans' Day.
The Company calculates the value of the portfolio securities of the
Portfolio by using the amortized cost method of valuation. Under this method the
market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased,
the Portfolio
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<PAGE>
may have to sell portfolio securities prior to maturity and at a price which
might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Company's Board
of Directors has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share for the Portfolio, which include a
review of the extent of any deviation of net asset value per share, based on
available market quotations, from the $1.00 amortized cost per share. Should
that deviation exceed 1/2 of 1% for the Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
those United States dollar-denominated instruments that BIMC determines present
minimal credit risks pursuant to guidelines adopted by the Board of Directors,
and BIMC will comply with certain reporting and recordkeeping procedures
concerning such credit determination. There is no assurance that constant net
asset value will be maintained. In the event amortized cost ceases to represent
fair value in the judgment of the Company's Board of Directors, the Board will
take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments,
the Company 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 Company's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Company's Board of
Directors.
PERFORMANCE INFORMATION
The Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for the
Portfolio are computed by: (a) determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of a
seven-calendar day period; (b) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared and all dividends declared on both the
original share and such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed
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<PAGE>
by adding 1 to the base period return (calculated as described above), raising
the sum to a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1999 for
the Bedford Class of the Portfolio before waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
YIELD YIELD INCOME TAX RATE OF 28%)
----- --------- -----------------------
4.36% 4.45% N/A
The annualized yield for the seven-day period ended August 31, 1999 for
the Bedford Class of the Portfolio after waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
YIELD YIELD INCOME TAX RATE OF 28%)
----- --------- -----------------------
4.37% 4.46% N/A
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of the Portfolio will fluctuate, they cannot
be compared with yields on savings accounts or other investment alternatives
that provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market
instruments in which the Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by the Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether the Portfolio should continue to hold the obligation.
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<PAGE>
From time to time, in advertisements or in reports to shareholders, the
yields of the Portfolio may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yield of the Portfolio may be compared to the Donoghue's Money
Company Average, which is an average compiled by IBC Money Company Report(R), a
widely recognized independent publication that monitors the performance of money
market funds, or to the data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service that monitors the performance of mutual
funds.
TAXES
The Portfolio intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute its
respective income to shareholders each year, so that the Portfolio generally
will be relieved of federal income and excise taxes. If the Portfolio were to
fail to so qualify: (1) the Portfolio 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 the
Company and the non-interested directors.
INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP serves as the Company's independent
accountants. PricewaterhouseCoopers LLP performs an annual audit of the
Company's financial statements.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Portfolio's
Annual Report to Shareholders for the fiscal year ended August 31, 1999 (the
"1999 Annual Report") 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 the Company's independent accountants,
PricewaterhouseCoopers LLP. The reports of PricewaterhouseCoopers LLP are
incorporated herein by reference. 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 at no charge by telephoning the Distributor at the telephone number
appearing on the front page of this Statement of Additional Information.
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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.
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"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
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principal and interest is strong, the relative degree of safety is not as high
as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson 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.
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"B" - An obligation rated "B" is more vulnerable to nonpayment
than obligations rated "BB", but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable
to nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action 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
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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 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
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other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. 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.
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"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. 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.
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<PAGE>
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 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.
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"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 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.
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"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.
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<PAGE>
THE RBB FUND, INC.
(THE "COMPANY")
BEDFORD FAMILY
Municipal Money Market Portfolio
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1999
This Statement of Additional Information ("SAI") provides information
about the Company's Bedford Class of the Municipal Money Market Portfolio (the
"Portfolio"). This information is in addition to the information that is
contained in the Bedford Family Municipal Money Market Portfolio Prospectus
dated December 1, 1999 (the "Prospectus").
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Portfolio's 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 Portfolio's Prospectus and Annual
Report may be obtained free of charge by telephoning (800) 533-7719.
<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION .........................................................1
INVESTMENT INSTRUMENTS AND POLICIES .........................................1
Additional Information on Portfolio Investments ....................1
Fundamental Investment Limitations and Policies ....................7
Non-Fundamental Investment Limitations and Policies ................9
MANAGEMENT OF THE COMPANY ..................................................10
Directors and Officers. ...........................................10
Directors' Compensation. ..........................................12
CONTROL PERSONS ............................................................13
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS ...............22
Advisory and Sub-Advisory Agreements ..............................22
Administration Agreement ..........................................24
Custodian and Transfer Agency Agreements ..........................25
Distribution Agreement ............................................26
PORTFOLIO TRANSACTIONS .....................................................27
ADDITIONAL INFORMATION CONCERNING RBB SHARES ...............................28
PURCHASE AND REDEMPTION INFORMATION ........................................31
VALUATION OF SHARES ........................................................31
PERFORMANCE INFORMATION ....................................................33
TAXES ......................................................................34
MISCELLANEOUS ..............................................................35
Counsel ...........................................................35
Independent Accountants ...........................................35
FINANCIAL STATEMENTS .......................................................35
APPENDIX A ................................................................A-1
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GENERAL INFORMATION
The RBB Fund, Inc. (the "Company") 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 one class of
shares (the "Bedford Class") representing interests in the Municipal Money
Market Portfolio, a diversified investment portfolio (the "Portfolio") of the
Company. The Bedford Class is offered by the Bedford Family Municipal Money
Market 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 Portfolios.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
VARIABLE RATE DEMAND INSTRUMENTS. The Portfolio may purchase variable
rate demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary and provide for periodic adjustment in the interest rate.
Although the notes are not normally traded and there may be no active secondary
market in the notes, the Portfolio will be able to demand payment of the
principal of a note. The notes are not typically rated by credit rating
agencies, but issuers of variable rate demand notes must satisfy the same
criteria as issuers of commercial paper. If an issuer of a variable rate demand
note defaulted on its payment obligation, the Portfolio might be unable to
dispose of the note because of the absence of an active secondary market. For
this or other reasons, the Portfolio might suffer a loss to the extent of the
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
Variable rate demand instruments held by the Portfolio may have maturities of
more than 397 calendar days, provided: (i) the Portfolio is entitled to the
payment of principal at any time, or during specified intervals not exceeding
397 calendar days, upon giving the prescribed notice (which may not exceed 30
days); and (ii) the rate of interest on such instruments is adjusted at periodic
intervals which may extend up to 397 calendar days. In determining the average
weighted maturity of the Portfolio and whether a variable rate demand instrument
has a remaining maturity of 397 calendar days or less, each long-term instrument
will be deemed by the Portfolio to have a maturity equal to the longer of the
period remaining until its next interest rate adjustment or the period remaining
until the principal amount can be recovered through demand. The absence of an
active secondary market with respect to particular variable and floating rate
instruments could make it difficult for the Portfolio to dispose of variable or
floating rate notes if the issuer defaulted on its payment obligations or during
periods that the Portfolio is
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not entitled to exercise its demand right, and the Portfolio could, for these or
other reasons, suffer a loss with respect to such instruments.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. A reverse repurchase
agreement involves a sale by the Portfolio of securities that it holds
concurrently with an agreement by the Portfolio to repurchase them at an agreed
upon time, price and rate of interest. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Portfolio may decline
below the price at which the Portfolio is obligated to repurchase them and the
return on the cash exchanged for the securities. Reverse repurchase agreements
are considered to be borrowings under the Investment Company Act of 1940 (the
"1940 Act") and may be entered into only for temporary or emergency purposes.
While reverse repurchase transactions are outstanding, the Portfolio will
maintain in a segregated account with the Company's custodian or a qualified
sub-custodian, cash or liquid securities of an amount at least equal to the
market value of the securities, plus accrued interest, subject to the agreement.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Portfolio may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. The Portfolio will generally
not pay for such securities or start earning interest on them until they are
received. Securities purchased on a when-issued basis are recorded as an asset
at the time the commitment is entered into and are subject to changes in value
prior to delivery based upon changes in the general level of interest rates.
While the Portfolio has such commitments outstanding, the Portfolio
will maintain in a segregated account with the Company's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the purchase price of the securities to be purchased. Normally, the custodian
for the Portfolio will set aside portfolio securities to satisfy a purchase
commitment and, in such a case, the Portfolio may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Portfolio's commitment.
It may be expected that the Portfolio's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the Portfolio's liquidity and
ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments, it is expected that
commitments to purchase "when-issued" securities will not exceed 25% of the
value of the Portfolio's total assets absent unusual market conditions. When the
Portfolio engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous. The Portfolio does not intend to purchase
when-issued securities for speculative purposes but only in furtherance of its
investment objectives.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury
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<PAGE>
or are backed only by the credit of the agency or instrumentality issuing the
obligation. U.S. Government obligations that are not backed by the full faith
and credit of the U.S. Government are subject to greater risks than those that
are. U.S. Government obligations that are backed by the full faith and credit of
the U.S. Government are subject to interest rate risk.
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, the Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
ASSET-BACKED SECURITIES. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and CMOs issued or guaranteed by U.S.
Government agencies and instrumentalities. Asset-backed securities also include
adjustable rate securities. The estimated life of an asset-backed security
varies with the prepayment experience with respect to the underlying debt
instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 397 days or less. Asset-backed securities
are considered an industry for industry concentration purposes (see "Fundamental
Investment Limitations and Policies"). In periods of falling interest rates, the
rate of mortgage prepayments tends to increase. During these periods, the
reinvestment of proceeds by the Portfolio will generally be at lower rates than
the rates on the prepaid obligations.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage-related securities. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities; (2)
-3-
<PAGE>
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("Rating Organizations")
in the two highest rating categories for such securities (e.g., commercial paper
rated "A-1" or "A-2," by Standard & Poor's Ratings Services ("S&P"), or rated
"Prime-1" or "Prime-2" by Moody's Investor's Service, Inc. ("Moody's")), or (b)
are rated (at the time of purchase) by the only Rating Organization rating the
security in one of its two highest rating categories for such securities; (3)
short-term obligations and, subject to certain SEC requirements, long-term
obligations that have remaining maturities of 397 days or less, provided in each
instance that such obligations have no short-term rating and are comparable in
priority and security to a class of short-term obligations of the issuer that
has been rated in accordance with (2)(a) or (b) above ("comparable
obligations"); (4) securities that are not rated and are issued by an issuer
that does not have comparable obligations rated by a Rating Organization
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2)(a) or (b) above; and (5) subject
to certain conditions imposed under SEC rules, obligations guaranteed or
otherwise supported by persons which meet the requisite rating requirements.
MUNICIPAL OBLIGATIONS. The Portfolio may invest in short-term Municipal
Obligations which are determined by its investment adviser to present minimal
credit risks and that meet certain ratings criteria pursuant to guidelines
established by the Company's Board of Directors. The Portfolio may also purchase
Unrated Securities provided that such securities are determined to be of
comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to this Statement of
Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer. Therefore, risk exists that the reserve fund will not be
restored.
Municipal Obligations may include variable rate demand notes. Such
notes are frequently not rated by credit rating agencies, but unrated notes
purchased by the Portfolio will have been determined by the Portfolio's
investment adviser to be of comparable quality at the time of the purchase to
rated instruments purchasable by the Portfolio. Where necessary to ensure that a
note is of eligible quality, the Portfolio will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional bank
letter or line of credit, guarantee or commitment to
-4-
<PAGE>
lend. While there may be no active secondary market with respect to a particular
variable rate demand note purchased by the Portfolio, the Portfolio may, upon
the notice specified in the note, demand payment of the principal of the note at
any time or during specified periods not exceeding 13 months, depending upon the
instrument involved. The absence of such an active secondary market, however,
could make it difficult for the Portfolio to dispose of a variable rate demand
note if the issuer defaulted on its payment obligation or during the periods
that the Portfolio is not entitled to exercise its demand rights. The Portfolio
could, for this or other reasons, suffer a loss to the extent of the default.
The Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
Although the Portfolio may invest more than 25% of its net assets in
(i) Municipal Obligations whose issuers are in the same state, (ii) Municipal
Obligations the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds bearing Tax-Exempt Interest, it does
not currently intend to do so on a regular basis. To the extent the Municipal
Money Market Portfolio's assets are concentrated in Municipal Obligations that
are payable from the revenues of similar projects or are issued by issuers
located in the same state, the Portfolio will be subject to the peculiar risks
presented by the laws and economic conditions relating to such states or
projects to a greater extent than it would be if its assets were not so
concentrated.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Company
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
TAX-EXEMPT DERIVATIVE SECURITIES. The Portfolio may invest in
tax-exempt derivative securities such as tender option bonds, custodial
receipts, participations, beneficial interests in trusts and partnership
interests. A typical tax-exempt derivative security involves the purchase of an
interest in a pool of Municipal Obligations which interest includes a tender
option, demand or other feature, allowing the Portfolio to tender the underlying
Municipal Obligation to a third party at periodic intervals and to receive the
principal amount thereof. In some cases, Municipal Obligations are represented
by custodial receipts evidencing rights to future principal or interest
payments, or both, on underlying municipal securities held by a custodian and
such receipts include the option to tender the underlying securities to the
sponsor (usually a bank, broker-dealer or other financial institution). Although
the Internal Revenue Service has not ruled on whether the interest received on
derivative securities in the form of participation interests or custodial
receipts is Tax-Exempt Interest, opinions relating to the validity of, and the
tax-exempt status of payments received by, the Portfolio from such derivative
securities are rendered by counsel to the respective sponsors of such
derivatives and relied upon by the Portfolio in purchasing such securities.
Neither the Portfolio nor its investment adviser will review the proceedings
relating to the creation of any tax-exempt derivative securities or the basis
for such legal opinions.
-5-
<PAGE>
ILLIQUID SECURITIES. The Portfolio may not invest more than 10% of its
net assets in illiquid securities, including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Other securities considered illiquid are time deposits
with maturities in excess of seven days, variable rate demand notes with demand
periods in excess of seven days unless the Portfolio's investment adviser
determines that such notes are readily marketable and could be sold promptly at
the prices at which they are valued and GICs. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities that
have legal or contractual restrictions on resale but have a readily available
market are not considered illiquid for purposes of this limitation. The
Portfolio's investment adviser will monitor the liquidity of such restricted
securities under the supervision of the Board of Directors.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and securities which are otherwise not readily marketable. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of 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. Illiquid
securities would be more difficult to dispose of than liquid securities to
satisfy redemption requests.
The Portfolio 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 Portfolio'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 the Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of
restricted securities in the Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment 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).
STAND-BY COMMITMENTS. The Portfolio may enter into stand-by commitments
with respect to obligations issued by or on behalf of states, territories, and
possessions of the United
-6-
<PAGE>
States, the District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at the Portfolio's option a specified Municipal Obligation at its amortized cost
value to the Portfolio plus accrued interest, if any. Stand-by commitments may
be exercisable by the Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
The Portfolio expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Portfolio may pay for a stand-by commitment
either in cash or by paying a higher price for portfolio securities which are
acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the Portfolio will not
exceed 1/2 of 1% of the value of the relevant Portfolio's total assets
calculated immediately after each stand-by commitment is acquired.
The Portfolio intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the investment adviser's opinion,
present minimal credit risks. The Portfolio's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment. The acquisition of a
stand-by commitment may increase the cost, and thereby reduce the yield, of the
Municipal Obligation to which such commitment relates.
The Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where the Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by the Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
TEMPORARY DEFENSIVE PERIODS. The Portfolio may hold all of its assets
in uninvested cash reserves during temporary defensive periods. Uninvested cash
will not earn income.
FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A fundamental limitation or policy of the Portfolio may not be changed
without the affirmative vote of the holders of a majority of the Portfolio's
outstanding shares. 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 Portfolio means, with respect to the approval of
an investment advisory agreement, a distribution plan or a change in a
fundamental investment limitation, the lesser of: (1) 67% of the shares of the
particular class, series or
-7-
<PAGE>
Portfolio represented at a meeting at which the holders of more than 50% of the
outstanding shares of such class, series or Portfolio are present in person or
by proxy; or (2) more than 50% of the outstanding shares of such class, series
or Portfolio.
The Company's Board of Directors can change the investment objective of
each Fund. The Board may not change the requirement that the Portfolio normally
invest at least 80% of its net assets in Municipal Securities (as defined in the
Prospectus) and other instruments whose interest is exempt from federal income
tax or subject to Federal Alternative Minimum Tax without shareholder approval.
Shareholders will be given notice before any such change is made.
The Portfolio may not:
1. borrow money, except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Portfolio's total
assets at the time of such borrowing, and only if after such
borrowing there is asset coverage of at least 300% for all
borrowings of the Portfolio; or mortgage, pledge, or hypothecate
any of its assets except in connection with such borrowing and
then in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of a Portfolio's total assets at the
time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets.
(This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient.);
2. purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
3. underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the
Portfolio may be deemed an underwriter under federal securities
laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with a
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
4. make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations
thereof;
5. purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein
or issued by companies which invest in real estate or interests
therein;
6. purchase or sell commodities or commodity contracts;
-8-
<PAGE>
7. invest in oil, gas or mineral exploration or development programs;
8. make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies
and limitations;
9. purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition
or reorganization of all the securities or assets of such an
issuer; or
10. make investments for the purpose of exercising control or
management.
11. 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 the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of the Portfolio's
assets may be invested without regard to this 5% limitation;
12. under normal market conditions, invest less than 80% of its net
assets in securities the interest on which is exempt from the
regular federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes
of the federal alternative minimum tax;
13. invest in private activity bonds where the payment of principal
and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations;
and
14. purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of the issuers in the
same industry.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A non-fundamental investment limitation or policy may be changed by the
Board of Directors without shareholder approval. However, shareholders will be
notified of any changes to any of the following limitations or policies.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940
Act, the Portfolio will not purchase any Guarantees or Demand Features
(as defined in Rule 2a-7) if after the acquisition of the put the
Portfolio has more than 10% of its total assets invested in instruments
issued by or subject to Guarantees or Demand Features from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the Portfolio's total assets.
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<PAGE>
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS.
The business and affairs of the Company are managed under the direction of
the Company's Board of Directors. The directors and executive officers of the
Company, 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 Pincus
c/o 400 Bellevue Parkway Asset Management, Inc., Executive Officer
Wilmingtron, DE 19809 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 Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 64 Director Since 1963, Executive Vice President, Fox
Fox Chase Cancer Center Chase Cancer Center (biomedical research and
7701 Burholme Avenue 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).
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ -----------------------
<S> <C> <C>
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
Comcast Corporation Comcast Corporation (cable television and
1500 Market Street communications); Director, Comcast U.K.
35th Floor
Philadelphia, PA 19102
Donald van Roden - 75 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 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 Chairman
400 Bellevue Parkway of the Board, Fox Chase Cancer Center;
Wilmington, DE 19809 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 Independence Square
Income Securities, Inc.; Director of the
Bradford Funds, Inc.
Morgan R. Jones - 60 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Education
One Logan Square Dynamics, Inc.; Secretary, Petroferm, Inc.
18th & Cherry Streets
Philadelphia, PA 19103
<FN>
* Each of Mr. Sablowsky and Mr. Sternberg is an "interested person" of RBB,
as that term is defined in the 1940 Act.
</FN>
</TABLE>
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 the Company the firm to be
selected as independent auditors.
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<PAGE>
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 the Company 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 the Company.
The Company 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 the
Company in the following amounts:
DIRECTORS' COMPENSATION.
PENSION OR TOTAL
RETIREMENT ESTIMATED ESTIMATED COMPENSATION
AGGREGATE BENEFITS ANNUAL ANNUAL FROM FUND AND
COMPENSATION ACCRUED AS BENEFITS FUND COMPLEX
NAME OF PERSON/ FROM PART OF COMPANY UPON PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- --------------- ------------ --------------- ---------- -------------
Julian A. Brodsky, $19,250 N/A N/A $19,250
Director
Francis J. McKay, $16,750 N/A N/A $16,750
Director
Arnold M. Reichman, $ 0 N/A N/A $0
Director
Robert Sablowsky, $18,250 N/A N/A $18,250
Director
Marvin E. Sternberg, $19,250 N/A N/A $19,250
Director
Donald van Roden, $25,250 N/A N/A $25,250
Director and Chairman
On October 24, 1990 the Company adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach), pursuant to which the Company
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
BlackRock Institutional Management Corporation ("BIMC") (formerly known as "PNC
Institutional Management Corporation"), the Portfolios' adviser, PFPC Trust
Company,
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<PAGE>
the Company's custodian, PFPC Inc. ("PFPC"), the administrator to the Municipal
Money Market Portfolio and the Company's transfer and dividend disbursing agent,
and Provident Distributors Inc. (the "Distributor"), the Company's distributor,
the Company itself requires only one part-time employee. Drinker Biddle & Reath
LLP, of which Mr. Jones is a partner, receives legal fees as counsel to the
Company. No officer, director or employee of BIMC, PFPC Trust Company, PFPC or
the Distributor currently receives any compensation from the Company.
CONTROL PERSONS
As of November 17, 1999, to the Company's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of the class of the Company indicated
below. See "Additional Information Concerning RBB Shares" below. The Company
does not know whether such persons also beneficially own such shares.
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
BEDFORD MUNICIPAL MONEY MARKET Gabe Nechamkin 7.40%
27 Muchmore Road
Harrison, NY 10528-1109
- ------------------------------------- ------------------------------------------------------- ------------------------
CASH PRESERVATION MONEY MARKET Harold T. Erfer 6.349%
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 in Tr. 12.785%
Under the Dominic Trst.
And Barbara Pisciotta Caring
Tr. Dtd.
01/24/92
207 Woodmere Way
St. Charles, MO 63303
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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 MONEY MARKET Saxon and Co. 65.047%
FBO Paine Webber
A/C 32 32 400 4000038
P.O. Box 7780 1888
Phila., PA 19182
- ------------------------------------- ------------------------------------------------------- ------------------------
Saxon and Co. 34.753%
c/o PNC Bank, N. A.
F3-F076-02-2
200 Stevens Drive Ste. 260/ACI
Lester, PA 19113
- ------------------------------------- ------------------------------------------------------- ------------------------
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
JY 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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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 Portfolio 12.161%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------- ------------------------------------------------------- ------------------------
Warburg Pincus Trust-International Equity Portfolio 15.203%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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
- ------------------------------------- ------------------------------------------------------- ------------------------
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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
N/I MID CAP FUND Charles Schwab & Co. Inc. 20.546%
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 VALUE 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
- ------------------------------------- ------------------------------------------------------- ------------------------
Yale University 29.939%
Trst. Yale University Ret. Health Bene. Tr.
Attention: Seth Alexander
230 Prospect St.
New Haven, CT 06511
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS LARGE CAP FUND INST Shady Side Academy Endowment 5.631%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS LARGE CAP FUND Charles Schwab & Co. Inc. 66.397%
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 VALUE FUND MAC & CO. 5.642%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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 VALUE FUND National Financial Svcs. Corp. for Exclusive 17.061%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
The Roman Catholic Diocese of 11.654%
Raleigh, NC
Clergy Trust
715 Nazareth St.
Raleigh, NC 27606
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS BOND FUND INVESTOR Charles Schwab & Co. Inc 81.125%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MARKET NEUTRAL Boston Partners Asset Mgmt. L. P. 100.000%
FUND- INSTITUTIONAL SHARES Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MARKET NEUTRAL Glenn P. Verrette and Laurie Jo Verrette 6.690%
FUND- INVESTOR SHARES Jt. Ten. Wros.
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 FUND Arnold C. Schneider III 13.637%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
Mark Shevitz 7.206%
Rollover IRA
65 Wardell St.
Rumson, NJ 07760
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
As of November 17, 1999, directors and officers as a group owned less
than one percent of the shares of the Company.
-21-
<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS.
The Portfolio has an investment advisory agreement with BIMC. Although
BIMC in turn has a sub-advisory agreement respecting the Portfolio with PNC Bank
dated August 16, 1988, as of April 29, 1998, BIMC assumed these advisory
responsibilities from PNC Bank. Pursuant to the Sub-Advisory Agreement, PNC Bank
would be entitled to receive an annual fee from BIMC for its sub-advisory
services calculated at the annual rate of 75% of the fees received by BIMC on
behalf of the Portfolio. The advisory agreement relating to the Portfolio is
dated April 21, 1992. Such advisory and sub-advisory agreements are hereinafter
collectively referred to as the "Advisory Agreements."
For the fiscal year ended August 31, 1999, the Company paid BIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ -------- --------------
$238,604 $716,746 $102,998
For the fiscal year ended August 31, 1998, the Company paid BIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ -------- --------------
$238,721 $822,533 $55,085
For the fiscal year ended August 31, 1997, the Company paid BIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ---------- --------------
$201,095 $1,269,553 $14,921
The Portfolio bears all of its own expenses not specifically assumed by
BIMC. General expenses of the Company not readily identifiable as belonging to a
portfolio of the Company are
22
<PAGE>
allocated among all investment portfolios by or under the direction of the
Company's Board of Directors in such manner as the Board determines to be fair
and equitable. Expenses borne by a portfolio include, but are not limited to,
the following (or a portfolio's share of the following): (a) the cost (including
brokerage commissions) of securities purchased or sold by a portfolio and any
losses incurred in connection therewith; (b) fees payable to and expenses
incurred on behalf of a portfolio by BIMC; (c) any costs, expenses or losses
arising out of a liability of or claim for damages or other relief asserted
against the Company or a portfolio for violation of any law; (d) any
extraordinary expenses; (e) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (f)
the cost of investment company literature and other publications provided by the
Company to its directors and officers; (g) organizational costs; (h) fees paid
to the investment adviser and PFPC; (i) fees and expenses of officers and
directors who are not affiliated with the Portfolio's investment adviser or
Distributor; (j) taxes; (k) interest; (l) legal fees; (m) custodian fees; (n)
auditing fees; (o) brokerage fees and commissions; (p) certain of the fees and
expenses of registering and qualifying the Portfolio and its shares for
distribution under federal and state securities laws; (q) expenses of preparing
prospectuses and statements of additional information and distributing annually
to existing shareholders that are not attributable to a particular class of
shares of the Company; (r) the expense of reports to shareholders, shareholders'
meetings and proxy solicitations that are not attributable to a particular class
of shares of the Company; (s) fidelity bond and directors' and officers'
liability insurance premiums; (t) the expense of using independent pricing
services; and (u) other expenses which are not expressly assumed by the
Portfolio's investment adviser under its advisory agreement with the Portfolio.
The Bedford Class of the Company pays its own distribution fees, and may pay a
different share than other classes of the Company (excluding advisory and
custodial fees) if those expenses are actually incurred in a different amount by
the Bedford Class or if it receives different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Company
or the Portfolio in connection with the performance of the Advisory Agreements,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of BIMC or PNC Bank in the performance of their respective duties or
from reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were most recently approved July 28, 1999 by a
vote of the Company'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 Agreements were each
approved with respect to the Money Market and Government Obligations Money
Market Portfolios by the shareholders of each Portfolio at a special meeting
held on December 22, 1989, as adjourned. The investment advisory agreement was
approved with respect to the Portfolio by shareholders at a special meeting held
June 10, 1992, as adjourned. The Advisory Agreement is terminable by vote of the
Company's Board of Directors or by the holders of a majority of the outstanding
voting securities of the Portfolio, at any time without penalty, on 60 days'
written notice to BIMC or PNC Bank. The Advisory Agreement may also be
terminated by BIMC or PNC Bank on 60 days' written notice to the Company. The
Advisory Agreements terminate automatically in the event of assignment thereof.
23
<PAGE>
ADMINISTRATION AGREEMENT.
PFPC serves as the administrator to the Portfolio pursuant to an
Administration and Accounting Services Agreement dated April 21, 1992 (the
"Administration Agreement"). PFPC has agreed to furnish to the Company on behalf
of the Portfolio statistical and research data, clerical, accounting, and
bookkeeping services, and certain other services required by the Company. PFPC
has also agreed to prepare and file various reports with the appropriate
regulatory agencies, and prepare materials required by the SEC or any state
securities commission having jurisdiction over the Company.
The Administration Agreement provides that PFPC shall not be liable for
any error of judgment or mistake of law or any loss suffered by the Company or
the Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreement, PFPC receives a fee of .10%
of the average daily net assets of the Portfolio.
Pursuant to the terms of a Delegation Agreement, dated July 29, 1998,
between BIMC and PFPC, however, BIMC has delegated to PFPC its administrative
responsibilities to the Portfolio. The Company pays administrative fees directly
to PFPC.
For the fiscal year ended August 31, 1999, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ -------- --------------
$276,787 $0 $0
For the fiscal year ended August 31, 1998, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ -------- --------------
$312,593 $0 $0
For the fiscal year ended August 31, 1997, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
24
<PAGE>
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ -------- --------------
$448,548 $0 $0
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS.
PFPC Trust Company is custodian of the Company's assets pursuant to a
custodian agreement dated August 16, 1988, as amended (the "Custodian
Agreement"). Under the Custodian Agreement, PFPC Trust Company: (a) maintains a
separate account or accounts in the name of the Portfolio; (b) holds and
transfers portfolio securities on account of the Portfolio; (c) accepts receipts
and makes disbursements of money on behalf of the Portfolio; (d) collects and
receives all income and other payments and distributions on account of the
Portfolio's portfolio securities; and (e) makes periodic reports to the
Company's Board of Directors concerning the Portfolio's operations. PFPC Trust
Company is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Company, provided that PFPC Trust Company remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Company harmless from the acts and omissions of any sub-custodian.
For its services to the Company under the Custodian Agreement, PFPC Trust
Company receives a fee which is calculated based upon the Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 exclusive of transaction charges
and out-of-pocket expenses, which are also charged to the Company.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Company's Bedford Classes pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under which
PFPC: (a) issues and redeems shares of the Bedford Class of the Portfolio; (b)
addresses and mails all communications by the Portfolio to record owners of
shares of each such Class, 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 the Company's Board of Directors concerning the operations
of the Bedford Class. PFPC may, on 30 days' notice to the Company, assign its
duties as transfer and dividend disbursing agent to any other affiliate of PNC
Bank Corp. For its services to the Company under the Transfer Agency Agreement,
PFPC receives a fee at the annual rate of $15.00 per account in the Portfolio
for orders which are placed via third parties and relayed electronically to
PFPC, and at an annual rate of $17.00 per account in the Portfolio for all other
orders, exclusive of out-of-pocket expenses, and also receives a fee for each
redemption check cleared and reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are
25
<PAGE>
shareholders of the Portfolio. Pursuant to the Shareholder Servicing Agreements,
the Authorized Dealers have agreed to prepare monthly account statements,
process dividend payments from the Company on behalf of their customers and to
provide sweep processing for uninvested cash balances for customers
participating in a cash management account. In addition to the shareholder
records maintained by PFPC, Authorized Dealers may maintain duplicate records
for their customers who are shareholders of the Portfolios for purposes of
responding to customer inquiries and brokerage instructions. In consideration
for providing such services, Authorized Dealers may receive fees from PFPC. Such
fees will have no effect upon the fees paid by the Company to PFPC.
DISTRIBUTION AGREEMENT.
Pursuant to the terms of a distribution agreement, dated as of June 25,
1999 and supplements entered into by the Distributor and the Company on behalf
of the Bedford Class, (the "Distribution Agreement") and separate Plan of
Distribution, as amended, for the Bedford Class (the "Plan"), which as adopted
by the Company in the manner prescribed by Rule 12b-1 under the 1940 Act, the
Distributor will use appropriate efforts to distribute shares of the Bedford
Class. Payments to the Distributor under the Plan are to compensate it for
distribution assistance and expenses assumed and activities intended to result
in the sale of shares of a Bedford Class. As compensation for its distribution
services, the Distributor receives, pursuant to the terms of the Distribution
Agreement, a distribution fee, to be calculated daily and paid monthly, at the
annual rate set forth in the Prospectus. The Distributor currently proposes to
reallow up to all of its distribution payments to broker/dealers for selling
shares of the Portfolio based on a percentage of the amounts invested by their
customers.
The Plan was approved by the Company's Board of Directors, including
the directors who are not "interested persons" of the Company and who have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan ("12b-1 Directors").
Among other things, the Plan provides that: (1) the Distributor shall
be required to submit quarterly reports to the directors of the Company
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Company's directors, including the 12b 1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Company on the distribution of the Company's
shares of the Bedford Class under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the Company's
shares in the Bedford Class; and (4) while the Plan remains in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Company.
For the fiscal year ended August 31, 1999, the Company paid
distribution fees to PDI under the Plan for the Bedford Class of the Portfolio
in the aggregate amount of $951,897. Of
26
<PAGE>
this amount $933,545 was paid to dealers with whom PDI had entered into dealer
agreements, and $18,352 was retained by PDI.
The amounts retained by PDI were used to pay certain advertising and
promotion, printing, postage, legal fees, travel, entertainment, sales,
marketing and administrative expenses. The Company believes that the Plan may
benefit the Company by increasing sales of Shares. Mr. Sablowsky, a Director of
the Company, had an indirect interest in the operation of the Plan by virtue of
his position with Fahnestock Co., Inc., a broker-dealer.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining maturities
of 13 months or less, except for securities that are subject to repurchase
agreements (which in turn may have maturities of 13 months or less). However,
the Portfolio may purchase variable rate securities with remaining maturities of
13 months or more so long as such securities comply with conditions established
by the SEC under which they may be considered to have remaining maturities of 13
months or less. Because the Portfolio intends to purchase only securities with
remaining maturities of 13 months or less, its portfolio turnover rate will be
relatively high. However, because brokerage commissions will not normally be
paid with respect to investments made by the Portfolio, the turnover rate should
not adversely affect the Portfolio's net asset value or net income. The
Portfolio does not intend to seek profits through short term trading.
Purchases of portfolio securities by the Portfolio are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. The
Portfolio does not currently expect to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of the Portfolio to give primary consideration to obtaining the most
favorable price and efficient execution of transactions. In seeking to implement
the policies of the Portfolio, BIMC will effect transactions with those dealers
it believes provide the most favorable prices and are capable of providing
efficient executions. In no instance will portfolio securities be purchased from
or sold to the Distributor or BIMC or any affiliated person of the foregoing
entities except to the extent permitted by SEC exemptive order or by applicable
law.
BIMC 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 Portfolio 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 Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
27
<PAGE>
Investment decisions for the Portfolio and for other investment
accounts managed by BIMC are made independently of each other in 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 the Portfolio is concerned, in other cases it is
believed to be beneficial to the Portfolio. The Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which BIMC or any affiliated person (as defined in the 1940
Act) thereof is a member except pursuant to procedures adopted by the Company's
Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Company's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that BIMC not participate in or benefit from the sale to the
Portfolio.
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 Class M
constitute the Bedford Class described herein. 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.
28
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
CLASS OF AUTHORIZED CLASS OF AUTHORIZED
COMMON STOCK SHARES (MILLIONS) 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 100
Neutral)
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
GG (n/i numeric Growth) 50 Delta 4 (N.Y. Money) 1
HH (n/i numeric Mid Cap) 50 Epsilon 1 (Money) 1
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
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
CLASS OF AUTHORIZED CLASS OF AUTHORIZED
COMMON STOCK SHARES (MILLIONS) COMMON STOCK SHARES (MILLIONS)
- --------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C>
QQ (Boston Partners Institutional Eta 2 (Municipal Money) 1
Large Cap) 100
RR (Boston Partners Investors Large Cap) 100 Eta 3 (Government Money) 1
SS (Boston Partners Advisor Large Cap) 100 Eta 4 (N.Y. Money) 1
TT (Boston Partners Investors Mid Cap) 100 Theta 1 (Money) 1
UU (Boston Partners Institutional Mid Cap) 100 Theta 2 (Municipal Money) 1
VV (Boston Partners Institutional Bond) 100 Theta 3 (Government Money) 1
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 interests 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 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
30
<PAGE>
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 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 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).
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 Company
reserves the right, if conditions exist which make cash payments undesirable, to
honor any request for redemption or repurchase of the Portfolio's shares by
making payment in whole or in part in securities chosen by the Company and
valued in the same way as they would be valued for purposes of computing the
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Company
has elected, however, to be governed by Rule 18f-1 under the 1940 Act so that
the Portfolio is obligated to redeem its shares solely in cash up to the lesser
of $250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of the Portfolio. 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. (The Portfolio may also suspend or postpone the recordation
of the transfer of its shares upon the occurrence of any of the foregoing
conditions.)
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.
VALUATION OF SHARES
31
<PAGE>
The Company intends to use its best efforts to maintain the net asset
value of each class of the Portfolio at $1.00 per share. Net asset value per
share, the value of an individual share in the Portfolio, is computed by adding
the value of the proportionate interest of the class in the Portfolio's
securities, cash and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of such class. The net asset value of each class of the Company is
determined independently of the other classes. The Portfolio's "net assets"
equal the value of the Portfolio's investments and other securities less its
liabilities. The Portfolio's net asset value per share is computed twice each
day, as of 12:00 noon (Eastern Time) and 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 both the NYSE and the Federal Reserve Bank of
Philadelphia (the "FRB") are open. Currently, the NYSE is closed weekends and 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 the preceding Friday and subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as Columbus Day and Veterans' Day.
The Company calculates the value of the portfolio securities of the
Portfolio by using the amortized cost method of valuation. Under this method the
market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased,
the Portfolio may have to sell portfolio securities prior to maturity and at a
price which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Company's Board
of Directors has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share for the Portfolio, which include a
review of the extent of any deviation of net asset value per share, based on
available market quotations, from the $1.00 amortized cost per share. Should
that deviation exceed 1/2 of 1% for the Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where
32
<PAGE>
permitted), to those United States dollar-denominated instruments that BIMC
determines present minimal credit risks pursuant to guidelines adopted by the
Board of Directors, and BIMC will comply with certain reporting and
recordkeeping procedures concerning such credit determination. There is no
assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Company's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments,
the Company 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 Company's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Company's Board of
Directors.
PERFORMANCE INFORMATION
The Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for the
Portfolio are computed by: (a) determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of a
seven-calendar day period; (b) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared and all dividends declared on both the
original share and such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed by adding 1 to the base period return (calculated as
described above), raising the sum to a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1999 for
the Bedford Class of the Portfolio before waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
YIELD YIELD INCOME TAX RATE OF 28%)
----- --------- -----------------------
2.46% 2.49% 3.42%
33
<PAGE>
The annualized yield for the seven-day period ended August 31, 1999 for
the Bedford Class of the Portfolio after waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
YIELD YIELD INCOME TAX RATE OF 28%)
----- --------- -----------------------
2.47% 2.50% 3.43%
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of the Portfolio will fluctuate, they cannot
be compared with yields on savings accounts or other investment alternatives
that provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market
instruments in which the Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by the Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether the Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
yields of the Portfolio may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yield of the Portfolio may be compared to the Donoghue's Money
Company Average, which is an average compiled by IBC Money Company Report(R), a
widely recognized independent publication that monitors the performance of money
market funds, or to the data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service that monitors the performance of mutual
funds.
TAXES
The Portfolio intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute its
respective income to shareholders each year, so that the Portfolio generally
will be relieved of federal income and excise taxes. If the Portfolio were to
fail to so qualify: (1) the Portfolio would be taxed at regular corporate rates
without any deduction for distributions to shareholders; and (2) shareholders
would be taxed as if they
34
<PAGE>
received ordinary dividends, although corporate shareholders could be eligible
for the dividends received deduction. For the Portfolio to pay tax-exempt
dividends for any taxable year, at least 50% of the aggregate value of the
Portfolio's assets at the close of each quarter of the Company's taxable year
must consist of exempt-interest obligations.
An investment in the Portfolio is not intended to constitute a balanced
investment program. Shares of the Portfolio would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, not
only would the shareholder not gain any additional benefit from the Portfolio's
dividends being tax-exempt, but such dividends would be ultimately taxable to
the beneficiaries when distributed. In addition, the Portfolio may not be an
appropriate investment for entities which are "substantial users" of facilities
financed by "private activity bonds" or "related persons" thereof. "Substantial
user" is defined under U.S. Treasury Regulations to include a non-exempt person
who (i) regularly uses a part of such facilities in his or her trade or business
and whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities, (ii) occupies more than 5% of the usable area of such
facilities or (iii) are persons for whom such facilities or a part thereof were
specifically constructed, reconstructed or acquired. "Related persons" include
certain related natural persons, affiliated corporations, a partnership and its
partners and an S corporation and its shareholders.
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 the
Company and the non-interested directors.
INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP serves as the Company's independent
accountants. PricewaterhouseCoopers LLP performs an annual audit of the
Company's financial statements.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Portfolio's
Annual Report to Shareholders for the fiscal year ended August 31, 1999 (the
"1999 Annual Report") 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 the Company's independent accountants,
PricewaterhouseCoopers LLP. The reports of PricewaterhouseCoopers LLP are
incorporated
35
<PAGE>
herein by reference. 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 at no charge by telephoning the Distributor at the telephone number
appearing on the front page of this Statement of Additional Information.
36
<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
A-3
<PAGE>
principal and interest is strong, the relative degree of safety is not as high
as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson 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.
A-4
<PAGE>
"B" - An obligation rated "B" is more vulnerable to nonpayment
than obligations rated "BB", but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable
to nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action 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
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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 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
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other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. 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.
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"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. 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.
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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 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.
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"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
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A Standard and Poor's note rating reflects the liquidity
factors and market access 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.
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"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.
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<PAGE>
THE RBB FUND, INC.
(THE "COMPANY")
CASH PRESERVATION PORTFOLIOS
MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1999
This Statement of Additional Information ("SAI") provides information
about the Company's Cash Preservation Classes of the Money Market and Municipal
Money Market Portfolios (the "Portfolios"). This information is in addition to
the information that is contained in the Cash Preservation Portfolio's
Prospectus dated December 1, 1999 (the "Prospectus").
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Portfolios' 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 Portfolios' Prospectus and Annual
Report may be obtained free of charge by telephoning (800) 430-9618.
<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION........................................................... 1
INVESTMENT INSTRUMENTS AND POLICIES........................................... 1
Additional Information on Portfolio Investments............................ 1
Fundamental Investment Limitations and Policies............................11
Non-Fundamental Investment Limitations and Policies........................13
MANAGEMENT OF THE COMPANY.....................................................15
Directors and Officers.....................................................15
Directors' Compensation....................................................17
CONTROL PERSONS...............................................................18
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS..................26
Advisory and Sub-Advisory Agreements.......................................26
Administration Agreements..................................................28
Custodian and Transfer Agency Agreements...................................29
Distribution Agreements....................................................31
PORTFOLIO TRANSACTIONS........................................................32
ADDITIONAL INFORMATION CONCERNING RBB SHARES..................................33
PURCHASE AND REDEMPTION INFORMATION...........................................36
VALUATION OF SHARES...........................................................36
PERFORMANCE INFORMATION.......................................................38
TAXES.........................................................................39
MISCELLANEOUS.................................................................40
Counsel....................................................................40
Independent Accountants....................................................40
FINANCIAL STATEMENTS..........................................................40
APPENDIX A...................................................................A-1
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GENERAL INFORMATION
The RBB Fund, Inc. (the "Company") 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 two classes of
shares (the "Cash Preservation Classes") representing interests in two
diversified investment portfolios (the "Portfolios") of the Company (the Money
Market Portfolio and the Municipal Money Market Portfolio). The Cash
Preservation Classes are offered by the Cash Preservation Portfolio's 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 Portfolios.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
VARIABLE RATE DEMAND INSTRUMENTS. The Portfolios may purchase variable
rate demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary and provide for periodic adjustment in the interest rate.
Although the notes are not normally traded and there may be no active secondary
market in the notes, the Portfolio will be able to demand payment of the
principal of a note. The notes are not typically rated by credit rating
agencies, but issuers of variable rate demand notes must satisfy the same
criteria as issuers of commercial paper. If an issuer of a variable rate demand
note defaulted on its payment obligation, the Portfolio might be unable to
dispose of the note because of the absence of an active secondary market. For
this or other reasons, the Portfolio might suffer a loss to the extent of the
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
Variable rate demand instruments held by the Portfolios may have
maturities of more than 397 calendar days, provided: (i) the Portfolio is
entitled to the payment of principal at any time, or during specified intervals
not exceeding 397 calendar days, upon giving the prescribed notice (which may
not exceed 30 days); and (ii) the rate of interest on such instruments is
adjusted at periodic intervals which may extend up to 397 calendar days. In
determining the average weighted maturity of the Portfolios and whether a
variable rate demand instrument has a remaining maturity of 397 calendar days or
less, each long-term instrument will be deemed by the Portfolio to have a
maturity equal to the longer of the period remaining until its next interest
rate adjustment or the period remaining until the principal amount can be
recovered through demand. The absence of an active secondary market with respect
to particular variable and floating rate instruments could make it difficult for
a Portfolio to dispose of variable or floating rate notes if the issuer
defaulted on its payment obligations or during periods that the Portfolio is
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not entitled to exercise its demand right, and the Portfolio could, for these or
other reasons, suffer a loss with respect to such instruments.
COMMERCIAL PAPER. The Money Market Portfolio may purchase commercial
paper rated (i) (at the time of purchase) in the two highest rating categories
of at least two nationally recognized statistical rating organizations ("Rating
Organization") or, by the only Rating Organization providing a rating; or (ii)
issued by issuers (or, in certain cases guaranteed by persons) with short-term
debt having such ratings. These rating categories are described in the Appendix
to the Statement of Additional Information. The Portfolio may also purchase
unrated commercial paper provided that such paper is determined to be of
comparable quality by the Portfolio's investment adviser in accordance with
guidelines approved by the Company's Board of Directors.
Commercial paper purchased by the Portfolio may include instruments
issued by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is
U.S. dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
REPURCHASE AGREEMENTS. The Money Market Portfolio may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 397 days, provided the repurchase agreement itself matures in less
than 13 months. Default by or bankruptcy of the seller would, however, expose
the Portfolio to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
The repurchase price under the repurchase agreements described above
generally equals the price paid by the Money Market Portfolio 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). The
financial institutions with which the Portfolio may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government Securities that
are listed on the Federal Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed creditworthy by the portfolio's
adviser or sub-adviser. The Portfolio's adviser or sub-adviser will continue to
monitor creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement to equal at least the repurchase price
(including accrued interest). In addition, the Portfolio's adviser or
sub-adviser will require that the value of this collateral, after transaction
costs (including loss of interest) reasonably expected to be incurred on a
default, be equal to or greater than the repurchase price including either: (i)
accrued premium provided in the repurchase agreement; or (ii) the daily
amortization of the difference between the purchase price and the repurchase
price specified in the repurchase agreement. The Portfolio's adviser or
sub-adviser will mark to market daily the value of the securities. Securities
subject to repurchase agreements will be held by the Company's custodian in the
Federal Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
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REVERSE REPURCHASE AGREEMENTS. The Municipal Money Market Portfolio may
enter into reverse repurchase agreements with respect to portfolio securities. A
reverse repurchase agreement involves a sale by the Portfolio of securities that
it holds concurrently with an agreement by the Portfolio to repurchase them at
an agreed upon time, price and rate of interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Portfolio
may decline below the price at which the Portfolio is obligated to repurchase
them and the return on the cash exchanged for the securities. Reverse repurchase
agreements are considered to be borrowings under the Investment Company Act of
1940 (the "1940 Act") and may be entered into only for temporary or emergency
purposes. While reverse repurchase transactions are outstanding, the Portfolio
will maintain in a segregated account with the Company's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Portfolios may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. The Portfolios will
generally not pay for such securities or start earning interest on them until
they are received. Securities purchased on a when-issued basis are recorded as
an asset at the time the commitment is entered into and are subject to changes
in value prior to delivery based upon changes in the general level of interest
rates.
While the Money Market or Municipal Money Market Portfolio has such
commitments outstanding, such Portfolio will maintain in a segregated account
with the Company's custodian or a qualified sub-custodian, cash or liquid
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the relevant Portfolio will set
aside portfolio securities to satisfy a purchase commitment and, in such a case,
the Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that a
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because a Portfolio's liquidity and ability to manage its portfolio might
be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, it is expected that commitments to purchase "when-issued"
securities will not exceed 25% of the value of a Portfolio's total assets absent
unusual market conditions. When the Money Market or the Municipal Money Market
Portfolio engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in such
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous. The Portfolios do not intend to purchase
when-issued securities for speculative purposes but only in furtherance of their
investment objectives.
U.S. GOVERNMENT OBLIGATIONS. The Portfolios may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury or
are backed only by the credit of the agency or instrumentality issuing the
obligation. U.S. Government obligations that are not backed by the full faith
and credit of the U.S. Government are subject to greater risks than those that
are. U.S. Government obligations that are backed by the full faith and
credit of the U.S. Government are subject to interest rate risk.
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<PAGE>
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, the Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA, are not backed
by or entitled to the full faith and credit of the United States and are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Money Market Portfolio may invest in multiple class pass-through
securities, including collateralized mortgage obligations ("CMOs"). These
multiple class securities may be issued by U.S. Government agencies or
instrumentalities, including FNMA and FHLMC, or by trusts formed by private
originators of, or investors in, mortgage loans. In general, CMOs are debt
obligations of a legal entity that are collateralized by a pool of residential
or commercial
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<PAGE>
mortgage loans or mortgage pass-through securities (the "Mortgage Assets"), the
payments on which are used to make payments on the CMOs. Investors may purchase
beneficial interests in CMOs, which are known as "regular" interests or
"residual" interests. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making required payments of
principal of and interest on the CMOs, as well as the related administrative
expenses of the issuer. Residual interests generally are junior to, and may be
significantly more volatile than, "regular" CMO interests. The Money Market
Portfolio does not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs in various ways. In certain structures (known
as "sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
The relative payment rights of the various CMO classes may be subject
to greater volatility and interest-rate risk than other types of mortgage-backed
securities. The average life of asset-backed securities varies with the
underlying instruments or assets and market conditions, which in the case of
mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely.
ASSET-BACKED SECURITIES. The Portfolios may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and CMOs issued or guaranteed by U.S.
Government agencies and, instrumentalities. The Money Market Portfolio may also
invest in asset-backed securities issued by private companies. Asset-backed
securities also include adjustable rate securities. The estimated life of an
asset-backed security varies with the prepayment experience with respect to the
underlying debt instruments. For this and other reasons, an asset-backed
security's stated maturity may be shortened, and the security's total return may
be difficult to predict precisely. Such difficulties are not expected, however,
to have a significant effect on the Portfolio since the remaining maturity of
any asset-backed security acquired will be 397 days or less. Asset-backed
securities are considered an industry for industry concentration purposes (see
"Fundamental Investment Limitations and Policies"). In periods of falling
interest rates, the rate of mortgage prepayments tends to increase. During these
periods, the reinvestment of proceeds by a Portfolio will generally be at lower
rates than the rates on the prepaid obligations.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a
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special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. Asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage-related securities. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities.
BANK OBLIGATIONS. The Money Market Portfolio may purchase obligations
of issuers in the banking industry, such as short-term obligations of bank
holding companies, certificates of deposit, bankers' acceptances and time
deposits, including U.S. dollar-denominated instruments issued or supported by
the credit of U.S. or foreign banks or savings institutions having total assets
at the time of purchase in excess of $1 billion. The Portfolio may invest
substantially in obligations of foreign banks or foreign branches of U.S. banks
where the investment adviser deems the instrument to present minimal credit
risks. Such investments may nevertheless entail risks in addition to those of
domestic issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements, less market liquidity,
future unfavorable political and economic developments, possible withholding
taxes on interest income, seizure or nationalization of foreign deposits,
currency controls, interest limitations, or other governmental restrictions
which might affect the payment of principal or interest on the securities held
in the Money Market Portfolio. Additionally, these institutions may be subject
to less stringent reserve requirements and to different accounting, auditing,
reporting and recordkeeping requirements than those applicable to domestic
branches of U.S. banks. The Money Market Portfolio will invest in obligations of
domestic branches of foreign banks and foreign branches of domestic banks only
when its investment adviser believes that the risks associated with such
investment are minimal. The Portfolio may also make interest-bearing savings
deposits in commercial and savings banks in amounts not in excess of 5% of its
total assets.
GUARANTEED INVESTMENT CONTRACTS. The Money Market Portfolio may make
investments in obligations, such as guaranteed investment contracts and similar
funding agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Company's policy regarding
investment in illiquid securities.
ELIGIBLE SECURITIES. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities; (2) securities
that (a) are rated (at the time of purchase) by two or more nationally
recognized statistical rating organizations ("Rating Organizations") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2," by Standard & Poor's Ratings Services ("S&P"), or rated
"Prime-1" or "Prime-2" by Moody's Investor's Service, Inc.
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("Moody's")), or (b) are rated (at the time of purchase) by the only Rating
Organization rating the security in one of its two highest rating categories for
such securities; (3) short-term obligations and, subject to certain SEC
requirements, long-term obligations that have remaining maturities of 397 days
or less, provided in each instance that such obligations have no short-term
rating and are comparable in priority and security to a class of short-term
obligations of the issuer that has been rated in accordance with (2)(a) or (b)
above ("comparable obligations"); (4) securities that are not rated and are
issued by an issuer that does not have comparable obligations rated by a Rating
Organization ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to a security satisfying (2)(a) or (b)
above; and (5) subject to certain conditions imposed under SEC rules,
obligations guaranteed or otherwise supported by persons which meet the
requisite rating requirements.
MUNICIPAL OBLIGATIONS. The Portfolios may invest in short-term
Municipal Obligations which are determined by the Portfolio's investment adviser
to present minimal credit risks and that meet certain ratings criteria pursuant
to guidelines established by the Company's Board of Directors. Portfolios may
also purchase Unrated Securities provided that such securities are determined to
be of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to this Statement of
Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer. Therefore, risk exists that the reserve fund will not be
restored.
Municipal Obligations may include variable rate demand notes. Such
notes are frequently not rated by credit rating agencies, but unrated notes
purchased by a Portfolio will have been determined by the Portfolio's investment
adviser to be of comparable quality at the time of the purchase to rated
instruments purchasable by the Portfolio. Where necessary to ensure that a note
is of eligible quality, the Portfolio will require that the issuer's obligation
to pay the principal of the note be backed by an unconditional bank letter or
line of credit, guarantee or commitment to lend. While there may be no active
secondary market with respect to a particular variable rate demand note
purchased by a Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 13 months, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate
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demand note if the issuer defaulted on its payment obligation or during the
periods that the Portfolio is not entitled to exercise its demand rights. The
Portfolio could, for this or other reasons, suffer a loss to the extent of the
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
In addition, the Money Market Portfolio may, when deemed appropriate by
its investment adviser in light of the Portfolio's investment objective, invest
without limitation in high quality, short-term Municipal Obligations issued by
state and local governmental issuers, the interest on which may be taxable or
tax-exempt for federal income tax purposes, provided that such obligations carry
yields that are competitive with those of other types of money market
instruments of comparable quality.
Although the Municipal Money Market Portfolio may invest more than 25%
of its net assets in (i) Municipal Obligations whose issuers are in the same
state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Company
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio
may invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
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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, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Company 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.
ILLIQUID SECURITIES. None of the Portfolios may invest more than 10% of
their net assets in illiquid securities (including with respect to the Money
Market Portfolio, repurchase agreements that have a maturity of longer than
seven days), including securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale. Other
securities considered illiquid are time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued and GICs. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation. Each Portfolio's investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of Directors. With respect to the Money Market Portfolio,
repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of 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. Illiquid securities would be
more difficult to dispose of than liquid securities to satisfy redemption
requests.
The Portfolios 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 Portfolios' adviser that
an adequate trading market exists for the securities. This investment
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<PAGE>
practice could have the effect of increasing the level of illiquidity in a
Portfolio during any period that qualified institutional buyers become
uninterested in purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment 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).
STAND-BY COMMITMENTS. The Portfolios may enter into stand-by
commitments with respect to obligations issued by or on behalf of states,
territories, and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities
(collectively, "Municipal Obligations") held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option a
specified Municipal Obligation at its amortized cost value to the Portfolio plus
accrued interest, if any. Stand-by commitments may be exercisable by the
Portfolios at any time before the maturity of the underlying Municipal
Obligations and may be sold, transferred or assigned only with the instruments
involved.
Each Portfolio expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, either such Portfolio may pay for a stand-by
commitment either in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid in
either manner for outstanding stand-by commitments held by the Portfolios will
not exceed 1/2 of 1% of the value of the relevant Portfolio's total assets
calculated immediately after each stand-by commitment is acquired.
Each Portfolio intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the investment adviser's opinion,
present minimal credit risks. These Portfolios' reliance upon the credit of
these dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Obligations that are subject to the commitment. The
acquisition of a stand-by commitment may increase the cost, and thereby reduce
the yield, of the Municipal Obligation to which such commitment relates.
The Portfolios will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where either such Portfolio pays directly or indirectly for a
stand-by commitment, its cost will be reflected as an unrealized loss for the
period during which the commitment is held
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by such Portfolio and will be reflected in realized gain or loss when the
commitment is exercised or expires.
TEMPORARY DEFENSIVE PERIODS - MUNICIPAL MONEY MARKET PORTFOLIO. The
Municipal Money Market Portfolio may hold all of its assets in uninvested cash
reserves during temporary defensive periods. Uninvested cash will not earn
income.
FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A fundamental limitation or policy of a Portfolio may not be changed
without the affirmative vote of the holders of a majority of a Portfolio's
outstanding shares. As used in this Statement of Additional Information and in
the Prospectuses, "shareholder approval" and a "majority of the outstanding
shares" of a class, series or Portfolio means, with respect to the approval of
an investment advisory agreement, a distribution plan or a change in a
fundamental investment limitation, the lesser of: (1) 67% of the shares of the
particular class, series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy; or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
The Company's Board of Directors can change the investment objective of
each Fund. The Board may not change the requirement that the Municipal Money
Market Portfolio normally invest at least 80% of its net assets in Municipal
Securities (as defined in the Prospectus) and other instruments whose interest
is exempt from federal income tax or subject to Federal Alternative Minimum Tax
without shareholder approval. Shareholders will be given notice before any such
change is made.
The Portfolios may not:
1. borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio, except for reverse
repurchase agreements) and then in amounts not in excess of 10% of
the value of the Portfolio's total assets at the time of such
borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge, or hypothecate any of its assets except in
connection with such borrowings and then, with respect to the
Money Market Portfolio, in amounts not in excess of 10% of the
value of a Portfolio's total assets at the time of such borrowing
and, with respect to the Municipal Money Market Portfolio, in
amounts not in excess of the lesser of the dollar amounts borrowed
or 10% of the value of a Portfolio's total assets at the time of
such borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (This borrowing
provision is not for investment leverage, but solely to facilitate
management of the Portfolio's securities by enabling the Portfolio
to meet redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or inconvenient.);
2. purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
3. underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a
Portfolio may be deemed an underwriter under federal securities
laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with a
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Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
4. make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations
thereof;
5. purchase or sell real estate, provided that a Portfolio may invest
in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests
therein;
6. purchase or sell commodities or commodity contracts;
7. invest in oil, gas or mineral exploration or development programs;
8. make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies
and limitations and (except for the Municipal Money Market
Portfolio) may enter into repurchase agreements;
9. purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition
or reorganization of all the securities or assets of such an
issuer; or
10. make investments for the purpose of exercising control or
management.
MONEY MARKET PORTFOLIO ONLY
The Money Market Portfolio 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 the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of the Portfolio's
assets may be invested without regard to this 5% limitation;
2. purchase any securities other than money market instruments, some
of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts
not in excess of 5% of the value of the Portfolio's assets and may
make time deposits;
3.* purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the
banking industry, or in obligations, such as repurchase
agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the
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value of its total assets to be invested in the obligations of
issuers in any other industry; and
4. invest more than 5% of its total assets (taken at the time of
purchase) in securities of issuers (including their predecessors)
with less than three years of continuous operations.
* WITH RESPECT TO THIS LIMITATION, THE PORTFOLIO WILL CONSIDER
WHOLLY- OWNED FINANCE COMPANIES TO BE IN THE INDUSTRIES OF THEIR
PARENTS IF THEIR ACTIVITIES ARE PRIMARILY RELATED TO FINANCING THE
ACTIVITIES OF THE PARENTS, AND WILL DIVIDE UTILITY COMPANIES
ACCORDING TO THEIR SERVICES. FOR EXAMPLE, GAS, GAS TRANSMISSION,
ELECTRIC AND GAS, ELECTRIC AND TELEPHONE WILL EACH BE CONSIDERED A
SEPARATE INDUSTRY. THE POLICY AND PRACTICES STATED IN THIS
PARAGRAPH MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL, HOWEVER,
ANY CHANGE WOULD BE SUBJECT TO ANY APPLICABLE REQUIREMENTS OF THE
SEC AND WOULD BE DISCLOSED IN THE PROSPECTUS PRIOR TO BEING MADE.
MUNICIPAL MONEY MARKET PORTFOLIO ONLY
The Municipal Money Market Portfolio 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 the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of the Portfolio's
assets may be invested without regard to this 5% limitation;
2. under normal market conditions, invest less than 80% of its net
assets in securities the interest on which is exempt from the
regular federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes
of the federal alternative minimum tax;
3. invest in private activity bonds where the payment of principal
and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations;
and
4. purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of the issuers in the
same industry.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A non-fundamental investment limitation or policy may be changed by the
Board of Directors without shareholder approval. However, shareholders will be
notified of any changes to any of the following limitations or policies.
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MONEY MARKET PORTFOLIO ONLY
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the
1940 Act, the Money Market Portfolio will limit its purchases of:
1. the securities of any one issuer, other than issuers of U.S.
Government securities, to 5% of its total assets, except that the
Portfolio may invest more than 5% of its total assets in First
Tier Securities of one issuer for a period of up to three business
days. "First Tier Securities" include eligible securities that:
(i) if rated by more than one Rating Organization (as defined in
the Prospectus), are rated (at the time of purchase) by two
or more Rating Organizations in the highest rating category
for such securities;
(ii) if rated by only one Rating Organization, are rated by such
Rating Organization in its highest rating category for such
securities;
(iii) have no short-term rating and are comparable in priority and
security to a class of short-term obligations of the issuer
of such securities that have been rated in accordance with
(i) or (ii) above; or
(iv) are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of First
Tier Securities that come within categories (ii) and (iv)
above will be approved or ratified by the Board of
Directors;
2. Second Tier Securities, which are eligible securities other than
First Tier Securities, to 5% of its total assets; and
3. Second Tier Securities of one issuer to the greater of 1% of its
total assets or $1 million.
MUNICIPAL MONEY MARKET PORTFOLIO ONLY
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the
1940 Act, the Municipal Money Market Portfolio will not purchase any
Guarantee or Demand Feature (as defined in Rule 2a-7) if after the
acquisition of the Guarantee or Demand Feature the Portfolio has more
than 10% of its total assets invested in instruments issued by or
subject to Guarantee or Demand Features from the same institution,
except that the foregoing condition shall only be applicable with
respect to 75% of the Portfolio's total assets.
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MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS.
The business and affairs of the Company are managed under the direction
of the Company's Board of Directors. The directors and executive officers of the
Company, their ages, business addresses and principal occupations during the
past five years are:
<TABLE>
<CAPTION>
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 Pincus
c/o 400 Bellevue Parkway Asset Management, Inc., Executive Officer
Wilmington, DE 19809 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 Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 64 Director Since 1963, Executive Vice President, Fox
Fox Chase Cancer Center Chase Cancer Center (biomedical research and
7701 Burholme Avenue 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 - 65 Director Director and Vice Chairman, since 1969
Comcast Corporation Comcast Corporation (cable television and
1500 Market Street communications); Director, Comcast U.K.
35th Floor
Philadelphia, PA 19102
-15-
<PAGE>
Donald van Roden - 75 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 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 Chairman
400 Bellevue Parkway of the Board, Fox Chase Cancer Center;
Wilmington, DE 19809 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 Independence Square
Income Securities, Inc.; Director of the
Bradford Funds, Inc.
Morgan R. Jones - 60 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Education
One Logan Square Dynamics, Inc.; Secretary, Petroferm, Inc.
18th & Cherry Streets
Philadelphia, PA 19103
<FN>
------------------
* Each of Mr. Sablowsky and Mr. Sternberg is an "interested person" of RBB,
as that term is defined in the 1940 Act.
</FN>
</TABLE>
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 the Company 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 the Company 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 the Company.
The Company currently pays directors $15,000 annually and $1,250 per
-16-
<PAGE>
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 the
Company in the following amounts:
DIRECTORS' COMPENSATION.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ANNUAL TOTAL COMPENSATION
COMPENSATION ACCRUED AS BENEFITS FROM FUND AND FUND
NAME OF PERSON/ FROM PART OF COMPANY UPON COMPLEX PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- -------------- ------------ --------------- ------------ ------------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $19,250 N/A N/A $19,250
Director
Francis J. McKay, $16,750 N/A N/A $16,750
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $18,250 N/A N/A $18,250
Director
Marvin E. Sternberg, $19,250 N/A N/A $19,250
Director
Donald van Roden, $25,250 N/A N/A $25,250
Director and Chairman
</TABLE>
On October 24, 1990 the Company adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach), pursuant to which the Company
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
BlackRock Institutional Management Corporation ("BIMC") (formerly known as "PNC
Institutional Management Corporation"), the Portfolios' adviser, PFPC Trust
Company, the Company's custodian, PFPC Inc. ("PFPC"), the administrator to the
Municipal Money Market Portfolio and the Company's transfer and dividend
disbursing agent, and Provident Distributors Inc. (the "Distributor"), the
Company's distributor, the Company itself requires only one part-time employee.
Drinker Biddle & Reath LLP, of which Mr. Jones is a partner, receives legal fees
as counsel to the Company. No officer, director or employee of BIMC, PFPC Trust
Company, PFPC or the Distributor currently receives any compensation from the
Company.
-17-
<PAGE>
CONTROL PERSONS
As of November 17, 1999, to the Company's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of the class of the Company indicated
below. See "Additional Information Concerning RBB Shares" below. The Company
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 MONEY MARKET Gabe Nechamkin 7.40%
27 Muchmore Road
Harrison, NY 10528-1109
- ------------------------------------- ------------------------------------------------------- ------------------------
CASH PRESERVATION MONEY MARKET Harold T. Erfer 6.349%
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 in Tr. 12.785%
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 MONEY MARKET Saxon and Co. 65.047%
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>
18
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 Portfolio 12.161%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------- ------------------------------------------------------- ------------------------
Warburg Pincus Trust-International Equity Portfolio 15.203%
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>
19
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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>
20
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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. 20.546%
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 VALUE 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>
21
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 FUND INST Shady Side Academy Endowment 5.631%
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>
22
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
BOSTON PARTNERS LARGE CAP FUND Charles Schwab & Co. Inc. 66.397%
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 VALUE FUND MAC & CO. 5.642%
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 VALUE FUND National Financial Svcs. Corp. for Exclusive 17.061%
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>
23
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 INVESTOR Charles Schwab & Co. Inc 81.125%
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>
24
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 NEUTRAL Boston Partners Asset Mgmt. L. P. 100.000%
FUND- INSTITUTIONAL SHARES Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MARKET NEUTRAL Glenn P. Verrette and Laurie Jo Verrette 6.690%
FUND- INVESTOR SHARES Jt. Ten. Wros.
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 FUND Arnold C. Schneider III 13.637%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
Mark Shevitz 7.206%
Rollover IRA
65 Wardell St.
Rumson, NJ 07760
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
25
<PAGE>
As of November 17, 1999, directors and officers as a group
owned less than one percent of the shares of the Company.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS.
The Portfolios have investment advisory agreements with BIMC. Although
BIMC in turn has sub-advisory agreements respecting the Portfolios with PNC Bank
dated August 16, 1988, as of April 29, 1998, BIMC assumed these advisory
responsibilities from PNC Bank. Pursuant to the Sub-Advisory Agreements, PNC
Bank would be entitled to receive an annual fee from BIMC for its sub-advisory
services calculated at the annual rate of 75% of the fees received by BIMC on
behalf of the Money Market and Municipal Money Market Portfolios. The advisory
agreement relating to the Money Market Portfolio is dated August 16, 1988, and
the advisory agreement relating to the Municipal Money Market Portfolio is dated
April 21, 1992. Such advisory and sub-advisory agreements are hereinafter
collectively referred to as the "Advisory Agreements."
For the fiscal year ended August 31, 1999, the Company paid BIMC
(excluding fees to PFPC, with respect to the Money Market Portfolio, for
administrative services obligated under the Advisory Agreements) advisory fees
as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------- ------------------ ------- --------------
Money Market $6,580,761 $2,971,645 $819,409
Municipal Money Market $ 238,604 $ 716,746 $102,998
-26-
<PAGE>
For the fiscal year ended August 31, 1998, the Company paid BIMC
(excluding fees to PFPC, with respect to the Money Market Portfolio, for
administrative services obligated under the Advisory Agreements) advisory fees
as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------- ----------------- ------- --------------
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $ 238,721 $ 822,533 $ 55,085
For the fiscal year ended August 31, 1997, the Company paid BIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------- ----------------- ------- --------------
Money Market $5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Each Portfolio bears all of its own expenses not specifically assumed
by BIMC. General expenses of the Company not readily identifiable as belonging
to a portfolio of the Company are allocated among all investment portfolios by
or under the direction of the Company's Board of Directors in such manner as the
Board determines to be fair and equitable. Expenses borne by a portfolio
include, but are not limited to, the following (or a portfolio's share of the
following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
BIMC; (c) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Company or a portfolio for
violation of any law; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Company to its directors and officers;
(g) organizational costs; (h) fees paid to the investment adviser and PFPC; (i)
fees and expenses of officers and directors who are not affiliated with the
Portfolios' investment adviser or Distributor; (j) taxes; (k) interest; (l)
legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Portfolios and their shares for distribution under federal and state
securities laws; (q) expenses of preparing prospectuses and statements of
additional information and distributing annually to existing shareholders that
are not attributable to a particular class of shares of the Company; (r) the
expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of the
Company; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Cash Preservation Classes
of the Company pay their own distribution fees, and may pay a different share
than other classes of the Company (excluding advisory and custodial fees) if
those expenses are actually incurred in a different amount by the Cash
Preservation Classes or if they receive different services.
-27-
<PAGE>
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Company
or a Portfolio in connection with the performance of the Advisory Agreements,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of BIMC or PNC Bank in the performance of their respective duties or
from reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 28, 1999
by a vote of the Company'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 was
approved with respect to the Money Market Portfolio by the shareholders of the
Portfolio at a special meeting held on December 22, 1989, as adjourned. The
investment advisory agreement was approved with respect to the Municipal Money
Market Portfolio by shareholders at a special meeting held June 10, 1992, as
adjourned. Each Advisory Agreement is terminable by vote of the Company's Board
of Directors or by the holders of a majority of the outstanding voting
securities of the relevant Portfolio, at any time without penalty, on 60 days'
written notice to BIMC or PNC Bank. Each of the Advisory Agreements may also be
terminated by BIMC or PNC Bank on 60 days' written notice to the Company. Each
of the Advisory Agreements terminates automatically in the event of assignment
thereof.
ADMINISTRATION AGREEMENTS.
PFPC serves as the administrator to the Municipal Money Market
Portfolio pursuant to an Administration and Accounting Services Agreement dated
April 21, 1992 (the "Administration Agreement"). PFPC has agreed to furnish to
the Company on behalf of the Municipal Money Market Portfolio statistical and
research data, clerical, accounting, and bookkeeping services, and certain other
services required by the Company. PFPC has also agreed to prepare and file
various reports with the appropriate regulatory agencies, and prepare materials
required by the SEC or any state securities commission having jurisdiction over
the Company.
The Administration Agreements provide that PFPC shall not be liable for
any error of judgment or mistake of law or any loss suffered by the Company or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreements, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market Portfolio.
BIMC is obligated to render administrative services to the Money Market
Portfolio pursuant to the investment advisory agreements. Pursuant to the terms
of Delegation Agreements, dated July 29, 1998, between BIMC and PFPC, however,
BIMC has delegated to PFPC its administrative responsibilities to this
Portfolio. The Company pays administrative fees directly to PFPC.
For the fiscal year ended August 31, 1999, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
-28-
<PAGE>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------- ------------------ ------- --------------
Money Market $2,577,726 $0 $0
Municipal Money Market $ 276,787 $0 $0
For the fiscal year ended August 31, 1998, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------- ------------------ ------- --------------
Municipal Money Market $312,593 $0 $0
For the fiscal year ended August 31, 1997, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER WAIVERS AND
PORTFOLIO REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- --------- ------------------ ------- --------------
Municipal Money Market $448,548 $0 $0
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS.
PFPC Trust Company is custodian of the Company's assets pursuant to a
custodian agreement dated August 16, 1988, as amended (the "Custodian
Agreement"). Under the Custodian Agreement, PFPC Trust Company: (a) maintains a
separate account or accounts in the name of each Portfolio; (b) holds and
transfers portfolio securities on account of each Portfolio; (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio; (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities; and (e) makes periodic reports to the
Company's Board of Directors concerning each Portfolio's operations. PFPC Trust
Company is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Company, provided that PFPC Trust Company remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Company harmless from the acts and omissions of any sub-custodian.
For its services to the Company under the Custodian Agreement, PFPC Trust
Company receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over
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$100 million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Company.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Company's Cash Preservation Classes pursuant to a
Transfer Agency Agreement dated August 16, 1988 (the "Transfer Agency
Agreement"), under which PFPC: (a) issues and redeems shares of each of the Cash
Preservation Classes; (b) addresses and mails all communications by each
Portfolio to record owners of shares of each such Class, 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 the Company's Board of Directors
concerning the operations of each Cash Preservation Class. PFPC may, on 30 days'
notice to the Company, assign its duties as transfer and dividend disbursing
agent to any other affiliate of PNC Bank Corp. For its services to the Company
under the Transfer Agency Agreement, PFPC receives a fee at the annual rate of
$15.00 per account in each Portfolio for orders which are placed via third
parties and relayed electronically to PFPC, and at an annual rate of $17.00 per
account in each Portfolio for all other orders, exclusive of out-of-pocket
expenses, and also receives a fee for each redemption check cleared and
reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Company on behalf of their customers and to provide sweep processing for
uninvested cash balances for customers participating in a cash management
account. In addition to the shareholder records maintained by PFPC, Authorized
Dealers may maintain duplicate records for their customers who are shareholders
of the Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Company to PFPC.
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<PAGE>
DISTRIBUTION AGREEMENTS.
Pursuant to the terms of a distribution agreement, dated as of June 25,
1999, and supplements entered into by the Distributor and the Company on behalf
of each of the Cash Preservation Classes, (the "Distribution Agreement") and
separate Plans of Distribution, as amended, for each of the Cash Preservation
Classes (collectively, the "Plans"), all of which were adopted by the Company in
the manner prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use
appropriate efforts to distribute shares of each of the Cash Preservation
Classes. Payments made to the Distributor under the Plans are to compensate it
for distribution assistance and expenses assumed and activities intended to
result in the sale of shares of each of the Cash Preservation Classes. As
compensation for its distribution services, the Distributor receives, pursuant
to the terms of the Distribution Agreements, a distribution fee, to be
calculated daily and paid monthly, at the annual rate set forth in the
Prospectus. The Distributor currently proposes to reallow up to all of its
distribution payments to broker/dealers for selling shares of each of the
Portfolios based on a percentage of the amounts invested by their customers.
Each of the Plans was approved by the Company's Board of Directors,
including the directors who are not "interested persons" of the Company and who
have no direct or indirect financial interest in the operation of the Plans or
any agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Company regarding all amounts expended under the Plans and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plans
will continue in effect only so long as they are approved at least annually, and
any material amendment thereto is approved, by the Company's directors,
including the 12b-1 Directors, acting in person at a meeting called for said
purpose; (3) the aggregate amount to be spent by the Company on the distribution
of the Company's shares of the Cash Preservation Class under the Plans shall not
be materially increased without the affirmative vote of the holders of a
majority of the Company's shares in the affected Cash Preservation Class; and
(4) while the Plans remain in effect, the selection and nomination of the 12b-1
Directors shall be committed to the discretion of the directors who are not
interested persons of the Company.
During the fiscal year ended August 31, 1999, the Company paid
distribution fees to PDI under the Plans for the Cash Preservation Classes of
each of the Money Market Portfolio and the
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Municipal Money Market Portfolio in the aggregate amounts of $656 and $717,
respectively. Of those amounts $0 and $0, respectively, was paid to dealers
with whom PDI had entered into dealer agreements, and $656 and $717,
respectively, was retained by PDI.
The amounts retained by PDI were used to pay certain advertising and
promotion, printing, postage, legal fees, travel, entertainment, sales,
marketing and administrative expenses. The Company believes that such Plans may
benefit the Company by increasing sales of Shares. Mr. Sablowsky, a Director of
the Company, had an indirect interest in the operation of the Plans by virtue of
his position with Fahnestock Co., Inc., a broker-dealer.
PORTFOLIO TRANSACTIONS
Each Portfolio intends to purchase securities with remaining maturities
of 13 months or less, except for securities that are subject to repurchase
agreements (which in turn may have maturities of 13 months or less). However,
the Portfolios may purchase variable rate securities with remaining maturities
of 13 months or more so long as such securities comply with conditions
established by the SEC under which they may be considered to have remaining
maturities of 13 months or less. Because both Portfolios intend to purchase only
securities with remaining maturities of 13 months or less, their portfolio
turnover rates will be relatively high. However, because brokerage commissions
will not normally be paid with respect to investments made by each such
Portfolio, the turnover rate should not adversely affect such Portfolio's net
asset value or net income. The Portfolios do not intend to seek profits through
short term trading.
Purchases of portfolio securities by each of the Portfolios are made
from dealers, underwriters and issuers; sales are made to dealers and issuers.
None of the Portfolios currently expects to incur any brokerage commission
expense on such transactions because money market instruments are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. The price of the security, however, usually
includes a profit to the dealer. Securities purchased in underwritten offerings
include a fixed amount of compensation to the underwriter, generally referred to
as the underwriter's concession or discount. When securities are purchased
directly from or sold directly to an issuer, no commissions or discounts are
paid. It is the policy of such Portfolios to give primary consideration to
obtaining the most favorable price and efficient execution of transactions. In
seeking to implement the policies of such Portfolios, BIMC will effect
transactions with those dealers it believes provide the most favorable prices
and are capable of providing efficient executions. In no instance will portfolio
securities be purchased from or sold to the Distributor or BIMC or any
affiliated person of the foregoing entities except to the extent permitted by
SEC exemptive order or by applicable law.
BIMC may seek to obtain an undertaking from issuers of commercial paper
or dealers selling commercial paper to consider the repurchase of such
securities from a Portfolio prior to their maturity at their original cost plus
interest (sometimes adjusted to reflect the actual maturity of the securities),
if it believes that a Portfolio's anticipated need for liquidity makes such
action desirable. Any such repurchase prior to maturity reduces the possibility
that the Portfolio would
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<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 each Portfolio and for other investment
accounts managed by BIMC are made independently of each other in 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 Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which BIMC or any affiliated person (as defined in the 1940
Act) thereof is a member except pursuant to procedures adopted by the Company's
Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Company's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that BIMC not participate in or benefit from the sale to a Portfolio.
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 Class G Common
Stock and Class H Common Stock constitute the Cash Preservation Classes
described in this SAI. 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 SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (MILLIONS)
- ---------------------------------------------------------- ------------------------------------------------------
<S> <C> <S> <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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (MILLIONS)
- ---------------------------------------------------------- ------------------------------------------------------
<S> <C> <S> <C>
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
GG (n/i numeric Growth) 50 Delta 4 (N.Y. Money) 1
HH (n/i numeric Mid Cap) 50 Epsilon 1 (Money) 1
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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (MILLIONS)
- ---------------------------------------------------------- ------------------------------------------------------
<S> <C> <S> <C>
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 interests 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 and 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 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 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
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<PAGE>
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 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).
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
Company reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Company
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Company
has elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio. 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 Portfolio may also suspend or postpone
the recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.)
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.
VALUATION OF SHARES
The Company intends to use its best efforts to maintain the net asset
value of each class of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by adding
the value of the proportionate interest of the class in the Portfolio's
securities, cash and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of such class. The net asset value of each class of the Company is
determined independently of the other classes. A Portfolio's "net assets" equal
the value of a Portfolio's investments and other securities less its
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<PAGE>
liabilities. Each Portfolio's net asset value per share is computed twice each
day, as of 12:00 noon (Eastern Time) and 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 both the NYSE and the Federal Reserve Bank of
Philadelphia (the "FRB") are open. Currently, the NYSE is closed weekends and 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 the preceding Friday and subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as Columbus Day and Veterans' Day.
The Company calculates the value of the portfolio securities of each of
the Portfolios by using the amortized cost method of valuation. Under this
method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Company's Board
of Directors has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share for each Portfolio, which include a
review of the extent of any deviation of net asset value per share, based on
available market quotations, from the $1.00 amortized cost per share. Should
that deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will
limit portfolio investments, including repurchase agreements (where permitted),
to those United States dollar-denominated instruments that BIMC determines
present minimal credit risks pursuant to guidelines adopted by the Board of
Directors, and BIMC will comply with certain reporting and recordkeeping
procedures concerning such credit determination. There is no assurance that
constant net asset value will be maintained. In the event amortized cost ceases
to represent fair value in the judgment of the Company's Board of Directors, the
Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments,
the Company may employ outside organizations, which may use a matrix or formula
method that takes into
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<PAGE>
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
Company's books at their face value. Other assets, if any, are valued at fair
value as determined in good faith by the Company's Board of Directors.
PERFORMANCE INFORMATION
Each Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1999 for
the Cash Preservation Classes of each Portfolio before waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
PORTFOLIO YIELD YIELD INCOME TAX RATE OF 28%)
- --------- ----- --------- -----------------------
Money Market 4.38% 4.48% N/A
Municipal Money Market 2.24% 2.26% 3.11%
The annualized yield for the seven-day period ended August 31, 1999 for
the Cash Preservation Classes of each Portfolio after waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
PORTFOLIO YIELD YIELD INCOME TAX RATE OF 28%)
- --------- ----- --------- -----------------------
Money Market 4.39% 4.49% N/A
Municipal Money Market 2.38% 2.41% 3.31%
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of each Portfolio will fluctuate, they cannot
be compared with yields on
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savings accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, yield information
may be useful to an investor considering temporary investments in money market
instruments. In comparing the yield of one money market fund to another,
consideration should be given to each fund's investment policies, including the
types of investments made, lengths of maturities of the portfolio securities,
the method used by each fund to compute the yield (methods may differ) and
whether there are any special account charges which may reduce the effective
yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
yields of a Portfolio may be quoted and compared to those of other mutual funds
with similar investment objectives and to stock or other relevant indices. For
example, the yield of a Portfolio may be compared to the Donoghue's Money
Company Average, which is an average compiled by IBC Money Company Report(R), a
widely recognized independent publication that monitors the performance of money
market funds, or to the data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service that monitors the performance of mutual
funds.
TAXES
Each Portfolio intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute its
respective income to shareholders each year, so that each Portfolio generally
will be relieved of federal income and excise taxes. If a Portfolio were to fail
to so qualify: (1) the Portfolio 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. For the
Municipal Money Market Portfolio to pay tax-exempt dividends for any taxable
year, at least 50% of the aggregate value of the Portfolio's assets at the close
of each quarter of the Company's taxable year must consist of exempt-interest
obligations.
An investment in the Municipal Money Market Portfolio is not intended
to constitute a balanced investment program. Shares of the Municipal Money
Market Portfolio would not be suitable for tax-exempt institutions and may not
be suitable for retirement plans qualified under Section 401 of the Code, H.R.
10 plans and individual retirement accounts because such plans and accounts are
generally tax-exempt and, therefore, not only would the shareholder not gain any
additional benefit from the Portfolios' dividends being tax-exempt, but such
dividends would
-39-
<PAGE>
be ultimately taxable to the beneficiaries when distributed. In addition, the
Municipal Money Market Portfolio may not be an appropriate investment for
entities which are "substantial users" of facilities financed by "private
activity bonds" or "related persons" thereof. "Substantial user" is defined
under U.S. Treasury Regulations to include a non-exempt person who (i) regularly
uses a part of such facilities in his or her trade or business and whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds are more than 5% of the total revenues derived by all users of such
facilities, (ii) occupies more than 5% of the usable area of such facilities or
(iii) are persons for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S corporation and its shareholders.
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 the
Company and the non-interested directors.
INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP serves as the Company's independent
accountants. PricewaterhouseCoopers LLP performs an annual audit of the
Company's financial statements.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Portfolio's
Annual Report to Shareholders for the fiscal year ended August 31, 1999 (the
"1999 Annual Report") 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 the Company's independent accountants,
PricewaterhouseCoopers LLP. The reports of PricewaterhouseCoopers LLP are
incorporated herein by reference. 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 at no charge by telephoning the Distributor at the telephone number
appearing on the front page of this Statement of Additional Information.
-40-
<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.
A-5
<PAGE>
N.R. Not rated. Debt obligations of issuers outside the United
States and its 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.
A-6
<PAGE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. 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-7
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. 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.
A-8
<PAGE>
'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 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.
A-9
<PAGE>
Municipal Note Ratings
A Standard and Poor's note rating reflects the liquidity
factors and market access 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
<PAGE>
THE RBB FUND, INC.
(THE "COMPANY")
JANNEY MONTGOMERY SCOTT MONEY FUNDS
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
AND NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1999
This Statement of Additional Information ("SAI") provides information
about the Company's Janney Classes of the Money Market, Municipal Money Market,
Government Obligations Money Market and New York Municipal Money Market
Portfolios (the "Portfolios"). This information is in addition to the
information that is contained in the Janney Montgomery Scott Money 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 Portfolios' 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 Portfolios' Prospectus and Annual
Report may be obtained free of charge by telephoning (800) JANNEYS or (800)
526-6397.
<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION.......................................................... 1
INVESTMENT INSTRUMENTS AND POLICIES.......................................... 1
Additional Information on Portfolio Investments........................... 1
Fundamental Investment Limitations and Policies...........................24
Non-Fundamental Investment Limitations and Policies.......................28
MANAGEMENT OF THE COMPANY....................................................30
Directors and Officers....................................................30
Directors' Compensation...................................................32
CONTROL PERSONS..............................................................33
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS.................41
Advisory and Sub-Advisory Agreements......................................41
Administration Agreements.................................................43
Custodian and Transfer Agency Agreements..................................45
Distribution Agreements...................................................46
PORTFOLIO TRANSACTIONS.......................................................47
ADDITIONAL INFORMATION CONCERNING RBB SHARES.................................49
PURCHASE AND REDEMPTION INFORMATION..........................................52
VALUATION OF SHARES..........................................................53
PERFORMANCE INFORMATION......................................................54
TAXES........................................................................56
MISCELLANEOUS................................................................57
Counsel...................................................................57
Independent Accountants...................................................57
FINANCIAL STATEMENTS.........................................................57
APPENDIX A..................................................................A-1
-i-
<PAGE>
GENERAL INFORMATION
The RBB Fund, Inc. (the "Company") 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 four classes of
shares (the "Janney Classes") representing interests in three diversified
investment portfolios (the "Portfolios") of the Company (the Money Market
Portfolio, the Municipal Money Market Portfolio and the Government Obligations
Money Market Portfolio); and a non-diversified investment portfolio (the New
York Municipal Money Market Portfolio). The Janney Classes are offered by the
Janney Montgomery Scott Money Funds 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 Portfolios.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
VARIABLE RATE DEMAND INSTRUMENTS. The Money Market, Municipal Money
Market and New York Municipal Money Market Portfolios may purchase variable rate
demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary and provide for periodic adjustment in the interest rate.
Although the notes are not normally traded and there may be no active secondary
market in the notes, the Portfolio will be able to demand payment of the
principal of a note. The notes are not typically rated by credit rating
agencies, but issuers of variable rate demand notes must satisfy the same
criteria as issuers of commercial paper. If an issuer of a variable rate demand
note defaulted on its payment obligation, the Portfolio might be unable to
dispose of the note because of the absence of an active secondary market. For
this or other reasons, the Portfolio might suffer a loss to the extent of the
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
Variable rate demand instruments held by the Money Market Portfolio or
the Municipal Money Market Portfolio may have maturities of more than 397
calendar days, provided: (i) the Portfolio is entitled to the payment of
principal at any time, or during specified intervals not exceeding 397 calendar
days, upon giving the prescribed notice (which may not exceed 30 days); and (ii)
the rate of interest on such instruments is adjusted at periodic intervals which
may extend up to 397 calendar days. In determining the average weighted maturity
of the Money Market, Municipal Money Market or New York Municipal Money Market
Portfolios and whether a variable rate demand instrument has a remaining
maturity of 397 calendar days or less, each long-term instrument will be deemed
by the Portfolio to have a maturity equal to the longer of the period remaining
until its next interest rate adjustment or the period remaining until the
principal amount can be recovered through demand. The absence of an active
secondary market
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with respect to particular variable and floating rate instruments could make it
difficult for a Portfolio to dispose of variable or floating rate notes if the
issuer defaulted on its payment obligations or during periods that the Portfolio
is not entitled to exercise its demand right, and the Portfolio could, for these
or other reasons, suffer a loss with respect to such instruments.
COMMERCIAL PAPER. The Money Market Portfolio may purchase commercial
paper rated (i) (at the time of purchase) in the two highest rating categories
of at least two nationally recognized statistical rating organizations ("Rating
Organization") or, by the only Rating Organization providing a rating; or (ii)
issued by issuers (or, in certain cases guaranteed by persons) with short-term
debt having such ratings. These rating categories are described in the Appendix
to the Statement of Additional Information. The Portfolio may also purchase
unrated commercial paper provided that such paper is determined to be of
comparable quality by the Portfolio's investment adviser in accordance with
guidelines approved by the Company's Board of Directors.
Commercial paper purchased by the Portfolio may include instruments
issued by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is
U.S. dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
REPURCHASE AGREEMENTS. The Money Market, Government Obligations Money
Market and New York Municipal Money Market Portfolios may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 397 days, provided the repurchase agreement itself matures in less
than 13 months. Default by or bankruptcy of the seller would, however, expose
the Portfolio to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
The repurchase price under the repurchase agreements described above
generally equals the price paid by a Portfolio 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). The financial institutions
with which a Portfolio may enter into repurchase agreements will be banks and
non-bank dealers of U.S. Government Securities that are listed on the Federal
Reserve Bank of New York's list of reporting dealers, if such banks and non-bank
dealers are deemed creditworthy by the Portfolio's adviser or sub-adviser. A
Portfolio's adviser or sub-adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least the repurchase price (including accrued interest).
In addition, the Portfolio's adviser or sub-adviser will require that the value
of this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to or greater than the
repurchase price including either: (i) accrued premium provided in the
repurchase agreement; or (ii) the daily amortization of the difference between
the purchase price and the repurchase price specified in the repurchase
agreement. The Portfolio's adviser or sub-adviser will mark to market daily the
value of the securities. Securities subject to repurchase
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agreements will be held by the Company's custodian in the Federal
Reserve/Treasury book-entry system or by another authorized securities
depository. Repurchase agreements are considered to be loans by a Portfolio
under the 1940 Act.
SECURITIES LENDING. The Government Obligations Money Market Portfolio
may lend its portfolio securities to financial institutions in accordance with
the investment restrictions described below. Such loans would involve risks of
delay in receiving additional collateral in the event the value of the
collateral decreased below the value of the securities loaned or of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. However, loans will be made
only to borrowers deemed by the Portfolio's investment adviser to be of good
standing and only when, in the adviser's judgment, the income to be earned from
the loans justifies the attendant risks. Any loans of the Portfolio's securities
will be fully collateralized and marked to market daily.
With respect to loans by the Government Obligations Money Market
Portfolio of its portfolio securities, such Portfolio would continue to accrue
interest on loaned securities and would also earn income on loans. Any cash
collateral received by such Portfolio in connection with such loans would be
invested in short-term U.S. Government obligations. Any loan by the Government
Obligations Money Market Portfolio of its portfolio's securities will be fully
collateralized and marked to market daily.
REVERSE REPURCHASE AGREEMENTS. The Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Portfolios may
enter into reverse repurchase agreements with respect to portfolio securities. A
reverse repurchase agreement involves a sale by a Portfolio of securities that
it holds concurrently with an agreement by the Portfolio to repurchase them at
an agreed upon time, price and rate of interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Portfolio
may decline below the price at which the Portfolio is obligated to repurchase
them and the return on the cash exchanged for the securities. Reverse repurchase
agreements are considered to be borrowings under the Investment Company Act of
1940 (the "1940 Act") and may be entered into only for temporary or emergency
purposes. While reverse repurchase transactions are outstanding, a Portfolio
will maintain in a segregated account with the Company's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement.
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Money Market, Municipal
Money Market and New York Municipal Money Market Portfolios may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. The Portfolios will
generally not pay for such securities or start earning interest on them until
they are received. Securities purchased on a when-issued basis are recorded as
an asset at the time the commitment is entered into and are subject to changes
in value prior to delivery based upon changes in the general level of interest
rates.
While the Money Market, Municipal Money Market or New York Municipal
Money Market Portfolios has such commitments outstanding, such Portfolio will
maintain in a segregated account with the Company's custodian or a qualified
sub-custodian, cash or liquid
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securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the relevant Portfolio will set
aside portfolio securities to satisfy a purchase commitment and, in such a case,
the Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that a
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because a Portfolio's liquidity and ability to manage its portfolio might
be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, it is expected that commitments to purchase "when-issued"
securities will not exceed 25% of the value of a Portfolio's total assets absent
unusual market conditions. When the Money Market, Municipal Money Market or New
York Municipal Money Market Portfolios engage in when-issued transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may
result in such Portfolio's incurring a loss or missing an opportunity to obtain
a price considered to be advantageous. The Portfolios do not intend to purchase
when-issued securities for speculative purposes but only in furtherance of their
investment objectives.
U.S. GOVERNMENT OBLIGATIONS. The Portfolios may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury or
are backed only by the credit of the agency or instrumentality issuing the
obligation. U.S. Government obligations that are not backed by the full faith
and credit of the U.S. Government are subject to greater risks than those that
are. U.S. Government obligations that are backed by the full faith and credit of
the U.S. Govenrment are subject to interest rate risk.
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, the Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the
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Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Money Market and Government Obligations Money Market Portfolios may
invest in multiple class pass-through securities, including collateralized
mortgage obligations ("CMOs"). These multiple class securities may be issued by
U.S. Government agencies or instrumentalities, including FNMA and FHLMC, or by
trusts formed by private originators of, or investors in, mortgage loans. In
general, CMOs are debt obligations of a legal entity that are collateralized by
a pool of residential or commercial mortgage loans or mortgage pass-through
securities (the "Mortgage Assets"), the payments on which are used to make
payments on the CMOs. Investors may purchase beneficial interests in CMOs, which
are known as "regular" interests or "residual" interests. The residual in a CMO
structure generally represents the interest in any excess cash flow remaining
after making required payments of principal of and interest on the CMOs, as well
as the related administrative expenses of the issuer. Residual interests
generally are junior to, and may be significantly more volatile than, "regular"
CMO interests. The Portfolios do not currently intend to purchase residual
interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs in various ways. In certain structures (known
as "sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
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Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
The relative payment rights of the various CMO classes may be subject
to greater volatility and interest-rate risk than other types of mortgage-backed
securities. The average life of asset-backed securities varies with the
underlying instruments or assets and market conditions, which in the case of
mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return my be difficult to predict precisely.
ASSET-BACKED SECURITIES. The Portfolios may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and CMOs issued or guaranteed by U.S.
Government agencies and instrumentalities. The Money Market Portfolio may also
invest in asset-backed securities issued by private companies. Asset-backed
securities also include adjustable rate securities. The estimated life of an
asset-backed security varies with the prepayment experience with respect to the
underlying debt instruments. For this and other reasons, an asset-backed
security's stated maturity may be shortened, and the security's total return may
be difficult to predict precisely. Such difficulties are not expected, however,
to have a significant effect on the Portfolio since the remaining maturity of
any asset-backed security acquired will be 397 days or less. Asset-backed
securities are considered an industry for industry concentration purposes (see
"Fundamental Investment Limitations and Policies"). In periods of falling
interest rates, the rate of mortgage prepayments tends to increase. During these
periods, the reinvestment of proceeds by a Portfolio will generally be at lower
rates than the rates on the prepaid obligations.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage-related securities. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities.
BANK OBLIGATIONS. The Money Market Portfolio may purchase obligations
of issuers in the banking industry, such as short-term obligations of bank
holding companies, certificates of deposit, bankers' acceptances and time
deposits, including U.S. dollar-denominated instruments issued or supported by
the credit of U.S. or foreign banks or savings institutions having total assets
at the time of purchase in excess of $1 billion. The Portfolio may invest
substantially in obligations of foreign banks or foreign branches of U.S. banks
where the investment adviser deems the instrument to present minimal credit
risks. Such investments may nevertheless entail risks in addition to those of
domestic issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements, less market liquidity,
future unfavorable political and economic developments, possible withholding
taxes on interest income, seizure or nationalization of foreign deposits,
currency controls, interest limitations, or other governmental restrictions
which might affect the payment of principal or interest on the
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securities held in the Money Market Portfolio. Additionally, these institutions
may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping requirements than those
applicable to domestic branches of U.S. banks. The Money Market Portfolio will
invest in obligations of domestic branches of foreign banks and foreign branches
of domestic banks only when its investment adviser believes that the risks
associated with such investment are minimal. The Portfolio may also make
interest-bearing savings deposits in commercial and savings banks in amounts not
in excess of 5% of its total assets.
GUARANTEED INVESTMENT CONTRACTS. The Money Market Portfolio may make
investments in obligations, such as guaranteed investment contracts and similar
funding agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Company's policy regarding
investment in illiquid securities.
ELIGIBLE SECURITIES. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities; (2) securities
that (a) are rated (at the time of purchase) by two or more nationally
recognized statistical rating organizations ("Rating Organizations") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2," by Standard & Poor's Ratings Services ("S&P"), or rated
"Prime-1" or "Prime-2" by Moody's Investor's Service, Inc. ("Moody's")), or (b)
are rated (at the time of purchase) by the only Rating Organization rating the
security in one of its two highest rating categories for such securities; (3)
short-term obligations and, subject to certain SEC requirements, long-term
obligations that have remaining maturities of 397 days or less, provided in
each instance that such obligations have no short-term rating and are comparable
in priority and security to a class of short-term obligations of the issuer that
has been rated in accordance with (2)(a) or (b) above ("comparable
obligations"); (4) securities that are not rated and are issued by an issuer
that does not have comparable obligations rated by a Rating Organization
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2)(a) or (b) above; and (5) subject
to certain conditions imposed under SEC rules, obligations guaranteed or
otherwise supported by persons which meet the requisite rating requirements.
MUNICIPAL OBLIGATIONS. The Money Market, Municipal Money Market and New
York Municipal Money Market Portfolios may invest in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Company's Board of Directors. These Portfolios may
also purchase Unrated Securities provided that such securities are determined to
be of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to this Statement of
Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's
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pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer. Therefore, risk exists that the reserve fund will not be
restored.
Municipal Obligations may include variable rate demand notes. Such
notes are frequently not rated by credit rating agencies, but unrated notes
purchased by a Portfolio will have been determined by the Portfolio's investment
adviser to be of comparable quality at the time of the purchase to rated
instruments purchasable by the Portfolio. Where necessary to ensure that a note
is of eligible quality, the Portfolio will require that the issuer's obligation
to pay the principal of the note be backed by an unconditional bank letter or
line of credit, guarantee or commitment to lend. While there may be no active
secondary market with respect to a particular variable rate demand note
purchased by a Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 13 months, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons, suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
In addition, the Money Market Portfolio may, when deemed appropriate by
its investment adviser in light of the Portfolio's investment objective, invest
without limitation in high quality, short-term Municipal Obligations issued by
state and local governmental issuers, the interest on which may be taxable or
tax-exempt for federal income tax purposes, provided that such obligations carry
yields that are competitive with those of other types of money market
instruments of comparable quality.
Although the Municipal Money Market Portfolio may invest more than 25%
of its net assets in (i) Municipal Obligations whose issuers are in the same
state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and
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economic conditions relating to such states or projects to a greater extent than
it would be if its assets were not so concentrated.
Although the New York Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations the interest on which is
paid solely from revenues of similar projects, and (ii) private activity bonds
bearing Tax-Exempt Interest, it does not currently intend to do so on a regular
basis. To the extent the New York Municipal Money Market Portfolio's assets are
concentrated in Municipal Obligations that are payable from the revenues of
similar projects, the Portfolio will be subject to the peculiar risks presented
by the laws and economic conditions relating to such states or projects to a
greater extent than it would be if its assets were not so concentrated.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Company
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio
may invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
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, as amended. Section
4(2) paper is restricted as to disposition under the federal securities laws and
is generally sold to institutional investors such as the Company 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.
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ILLIQUID SECURITIES. None of the Portfolios may invest more than 10% of
their net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements that have a maturity of longer than seven days), including securities
that are illiquid by virtue of the absence of a readily available market or
legal or contractual restrictions on resale. Other securities considered
illiquid are time deposits with maturities in excess of seven days, variable
rate demand notes with demand periods in excess of seven days unless the
Portfolio's investment adviser determines that such notes are readily marketable
and could be sold promptly at the prices at which they are valued and GICs.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not considered illiquid for
purposes of this limitation. Each Portfolio's investment adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Directors. With respect to the Money Marke, Government Obligations Money
Market and New York Municipal Money Market Portfolios, repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of 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. Illiquid securities would be more
difficult to dispose of than liquid securities to satisfy redemption requests.
The Portfolios 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 Portfolios' 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 Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment 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).
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STAND-BY COMMITMENTS. Each of the Money Market, Municipal Money Market
and New York Municipal Money Market Portfolios may enter into stand-by
commitments with respect to obligations issued by or on behalf of states,
territories, and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities
(collectively, "Municipal Obligations") held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option a
specified Municipal Obligation at its amortized cost value to the Portfolio plus
accrued interest, if any. Stand-by commitments may be exercisable by the Money
Market, Municipal Money Market or New York Municipal Money Market Portfolios at
any time before the maturity of the underlying Municipal Obligations and may be
sold, transferred or assigned only with the instruments involved.
Each of the Money Market, Municipal Money Market and New York Municipal
Money Market Portfolios expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, either such Portfolio may pay for a stand-by
commitment either in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid in
either manner for outstanding stand-by commitments held by the Money Market,
Municipal Money Market and New York Municipal Money Market Portfolios will not
exceed 1/2 of 1% of the value of the relevant Portfolio's total assets
calculated immediately after each stand-by commitment is acquired.
Each of the Money Market, Municipal Money Market and New York Municipal
Money Market Portfolios intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the investment adviser's opinion,
present minimal credit risks. These Portfolios' reliance upon the credit of
these dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Obligations that are subject to the commitment. The
acquisition of a stand-by commitment may increase the cost, and thereby reduce
the yield, of the Municipal Obligation to which such commitment relates.
The Money Market, Municipal Money Market and New York Municipal Money
Market Portfolios will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where either such Portfolio pays directly or indirectly for a
stand-by commitment, its cost will be reflected as an unrealized loss for the
period during which the commitment is held by such Portfolio and will be
reflected in realized gain or loss when the commitment is exercised or expires.
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio 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
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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 the Portfolio engages in a short sale, the collateral for the short position
will be maintained by the Portfolio's custodian or a qualified sub-custodian.
While the short sale is open, the Portfolio 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 the Portfolio's long position. The
Portfolio will not engage in short sales against the box for investment
purposes. A Portfolio 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 Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes possibly to defer
recognition of gain or loss for federal income tax purposes. (A short sale
against the box will defer recognition of gain for federal income tax purposes
only if the Portfolio subsequently closes the short position by making a
purchase of the relevant securities no later than 30 days after the end of the
taxable year.) In such case, any future losses in the Portfolio'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 the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
TEMPORARY DEFENSIVE PERIODS - MUNICIPAL MONEY MARKET PORTFOLIO. The
Portfolio may hold all of its assets in uninvested cash reserves during
temporary defensive periods. Uninvested cash will not earn income.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS. Some
of the significant financial considerations relating to the New York Tax Exempt
Fund's investments in New York Municipal Securities are summarized below. This
summary information is not intended to be a complete description and is
principally derived from the Annual Information Statement of the State of New
York as supplemented and contained in official statements relating to issues of
New York Municipal Securities that were available prior to the date of this
Statement of Additional Information. The accuracy and completeness of the
information contained in those official statements have not been independently
verified.
STATE ECONOMY. New York is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy.
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Like the rest of the nation, New York has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries.
In the calendar years 1987 through 1997, the State's rate of economic
growth was somewhat slower than that of the nation. In particular, during the
1990-91 recession and post-recession period, the economy of the State, and that
of the rest of the Northeast, was more heavily damaged than that of the nation
as a whole and has been slower to recover.
State per capita personal income has historically been significantly
higher than the national average, although the ratio has varied substantially.
Because New York City (the "City") is a regional employment center for a
multi-state region, State personal income measured on a residence basis
understates the relative importance of the State to the national economy and the
size of the base to which State taxation applies.
The Additional Information Statement reflects estimates of receipts and
disbursements as formulated in the State Financial Plan released on June 25,
1998, as updated on a quarterly basis. The third quarterly update ("Third
Quarterly Update") was released on January 27, 1999 in connection with the
1999-2000 Executive Budget. There can be no assurance that the State economy
will not experience worse-than-predicted results, with corresponding material
and adverse effects on the State's projections of receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor (the
"Governor") to submit to the State legislature (the "Legislature") a balanced
executive budget which contains a complete plan of expenditures for the ensuing
fiscal year and all moneys and revenues estimated to be available therefor,
accompanied by bills containing all proposed appropriations or reappropriations
and any new or modified revenue measures to be enacted in connection with the
executive budget. The entire plan constitutes the proposed State financial plan
for that fiscal year. The Governor is required to submit to the Legislature
quarterly budget updates which include a revised cash-basis state financial
plan, and an explanation of any changes from the previous state financial plan.
State law requires the Governor to propose a balanced budget each year.
In recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State's 1998-99 fiscal year began on April 1, 1998 and
ended on March 31, 1999. The Legislature adopted the debt service component of
the State budget for the 1998-99 fiscal year on March 30, 1998 and the remainder
of the budget on April 18, 1998. In the period prior to adoption of the budget
for the 1998-99 fiscal year, the Legislature also enacted appropriations to
permit the State to continue its operations and provide for other purposes.
The 1998-99 State Financial Plan projected a closing balance in the
General Fund of $1.42 billion comprised of a reserve of $761 million available
for future needs, a balance of $400 million in the Tax Stabilization Reserve
Fund ("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF")
and a balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF
can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
is
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used to finance various legislative and executive initiatives. The CRF provides
resource to help finance any extraordinary litigation costs during the fiscal
year.
The Third Quarterly Update of the 1998-99 Financial Plan projected a
year-end available cash surplus of $1.79 billion in the General Fund, an
increase of $749 million over the surplus estimate in the Mid-Year Update.
Strong growth in receipts as well as lower-than expected disbursements during
the first nine months of the fiscal year account for the higher surplus
estimate. As of February 9, 1999, this amount was projected to be reduced by the
transfer of $1.04 billion to the tax refund reserve. The projected remaining
closing balance of $799 million in the General Fund is comprised of $473 million
in the TSRF, $226 million in the CPF, and $100 million in the CRF.
The Governor presented his 1999-2000 Executive Budget to the
Legislature on January 27, 1999. The 1999-2000 Financial Plan projects General
Fund disbursements and transfers to other funds of $37.10 billion, an increase
of $482 million over projected spending for the current year. Grants to local
governments constitute approximately 67 percent of all General Fund spending,
and include payments to local governments, non-profit providers and individuals.
Disbursements in this category are projected to decrease $87 million (0.4
percent) to $24.81 billion in 1999-2000, in part due to a $175 million decline
in proposed spending for legislative initiatives.
The State is projected to close the 1999-2000 fiscal year with a
General Fund balance of $2.36 billion. The balance is comprised of $1.79 billion
in tax reduction reserves, $473 million in the TSRF and $100 million in the CFR.
The entire $226 million balance in the Community Projects Fund is expected to be
used in 1999-2000, with $80 million spent to pay for existing projects and the
remaining balance of $146 million, against which there are currently no
appropriations as a result of the Governor's 1998 vetoes, used to fund other
expenditures in 1999-2000.
The State currently projects spending to grow by $1.09 billion (2.9
percent) in 2000-01 and an additional $1.8 billion (4.7 percent) in 2001-02.
General Fund spending increases at a higher rate in 2001-02 than in 2000-01,
driven primarily by higher growth rates for Medicaid, welfare, Children and
Families Services, and Mental Retardation, as well as the loss of federal money
that offsets General Fund spending.
Over the long-term, uncertainties with regard to the economy present
the largest potential risk to future budget balance in New York State. For
example, a downturn in the financial markets or the wider economy is possible, a
risk that is heightened by the lengthy expansion currently underway. The
securities industry is more important to the New York economy than the national
economy, potentially amplifying the impact of an economic downturn. A large
change in stock market performance during the forecast horizon could result in
wage and unemployment levels that are significantly different from those
embodied in the forecast. Merging and downsizing by firms, as a consequence of
deregulation or continued foreign competition, may also have more significant
adverse effects on employment than expected. Finally, a "forecast error" of one
percentage point in the estimated growth of receipts could cumulatively raise or
lower results by over $1 billion by 2002.
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Many complex political, social and economic forces influence the
State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions, and organizations that are
not subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. The projections assume
no changes in federal tax law, which could substantially alter the current
receipts forecast. In addition, these projections do not include funding for new
collective bargaining agreements after the current contracts expire on April 1,
1999. Actual results, however, could differ materially and adversely from their
projections, and those projections may be changed materially and adversely from
time to time.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by
which the State of New York may incur debt. Under the State Constitution, the
State may not, with limited exceptions for emergencies, undertake long-term
general obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued general obligation bonds, by
issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.
The proposed 1998-99 through 2003-04 Capital Program and Financing Plan
was released with the Executive Budget on January 27, 1999. The recommended
five-year Capital
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Program and Financing Plan reflects debt reduction initiatives that would reduce
future State-supported debt issuances by significantly increasing the share of
the Plan financed with pay-as-you-go resources. Compared to the last year of the
July 1998 update to the Plan, outstanding State-supported debt would be reduced
by $4.7 billion (from $41.9 billion to $37.2 billion).
As described therein, efforts to reduce debt, unanticipated delays in
the advancement of certain projects and revisions to estimated proceeds needs
will modestly reduce projected borrowings in 1998-99. The State's 1998-99
borrowing plan now projects issuances of $331 million in general obligation
bonds (including $154 million for purposes of redeeming outstanding BANs) and
$154 million in general obligation commercial paper. The State has issued $179
million in Certificates of Participation to finance equipment purchases
(including costs of issuance, reserve funds, and other costs) during the 1998-99
fiscal year. Of this amount, it is anticipated that approximately $83 million
will be used to finance agency equipment acquisitions, and $96 million to
address Statewide technology issues related to Year 2000 compliance.
Approximately $228 million for information technology related to welfare reform,
originally anticipated to be issued during the 1998-99 fiscal year, is now
expected to be delayed until 1999-2000.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.85 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
On January 13, 1992, S&P reduced its ratings on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On August 28, 1997, S&P revised its ratings on the State's general
obligation bonds from A- to A and revised its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On March
5, 1999, S&P affirmed its A rating on the State's outstanding bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State.
On March 5, 1999, Moody's affirmed its A2 rating with a stable outlook to the
State's general obligations.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in
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central and upstate New York; (2) certain aspects of New York State's Medicaid
policies, including its rates, regulations and procedures; (3) action against
New York State and New York City officials alleging inadequate shelter
allowances to maintain proper housing; (4) challenges to regulations promulgated
by the Superintendent of Insurance establishing certain excess medical
malpractice premium rates; (5) challenges to the constitutionality of Public
Health Law 2807-d, which imposes a gross receipts tax from certain patient care
services; (6) action seeking enforcement of certain sales and excise taxes and
tobacco products and motor fuel sold to non-Indian consumers on Indian
reservations; (7) a challenge to the Governor's application of his
constitutional line item veto authority; and (8) a challenge to the enactment of
the CLEAN WATER/CLEAN AIR BOND ACT OF 1996.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at $241 million in
fiscal 1998-99. Beginning in fiscal 2001-02, State contributions required under
the Comptroller's plan are projected to be less than that required under the
prior funding method. As a result of the United States Supreme Court decision in
the case of STATE OF DELAWARE V. STATE OF NEW YORK, on January 21, 1994, the
State entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State
programs and miscellaneous cure rights, tort, real property and contract claims
in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1998-99 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
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AUTHORITIES. The fiscal stability of New York State is related, in
part, to the fiscal stability of its Authorities, which generally have
responsibility for financing, constructing and operating revenue-producing
public benefit facilities. Authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially and adversely affected, if any of the Authorities were to default on
their respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. JDA recently resumed its lending activities
under a revised set of lending programs and underwriting guidelines.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State may
also be impacted by the fiscal health of its localities, particularly the City,
which has required and continues to require significant financial assistance
from the State. The City depends on State aid both to enable the City to balance
its budget and to meet its cash requirements. There can be no assurance that
there will not be reductions in State aid to the City from amounts currently
projected or that State budgets will be adopted by the April 1 statutory
deadline or that any such reductions or delays will not have adverse effects on
the City's cash flow or expenditures. In addition, the Federal budget
negotiation process could result in a reduction in or a delay in the receipt of
Federal grants which could have additional adverse effects on the City's cash
flow or revenues.
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In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to the public credit markets. The City was not able to sell
short-term notes to the public again until 1979. In 1975, S&P suspended its A
rating of City bonds. This suspension remained in effect until March 1981, at
which time the City received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+
and on November 19, 1987, to A-. On February 3, 1998 and again on May 27, 1998,
S&P assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications. On March 9, 1999, S&P
assigned its A- rating to Series 1999H of New York City general obligation bonds
and affirmed the A- rating on various previously issued New York City bonds.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded approximately $28 billion of the City's general obligations from Baa1
to A3. On June 9, 1998, Moody's affirmed its A3 rating to the City's general
obligations and stated that its outlook was stable.
On March 8, 1999, Fitch IBCA upgraded New York City's $26 billion
outstanding general obligation bonds from A- to A.
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975. Since
its creation, MAC has provided, among other things, financing assistance to the
City by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. MAC is authorized to issue
bonds and notes payable from certain stock transfer tax revenues, from the
City's portion of the State sales tax derived in the City and, subject to
certain prior claims, from State per capita aid otherwise payable by the State
to the City. Failure by the State to continue the imposition of such taxes, the
reduction of the rate of such taxes to rates less than those in effect on July
2, 1975, failure by the State to pay such aid revenues and the reduction of such
aid revenues below a specified level are included among the events of default in
the resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do not
constitute an enforceable obligation or debt of either the State or the City.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the
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Office of the State Deputy Comptroller for New York City ("OSDC") to assist the
Control Board in exercising its powers and responsibilities. On June 30, 1986,
the City satisfied the statutory requirements for termination of the control
period. This means that the Control Board's powers of approval are suspended,
but the Board continues to have oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and CUNY and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-1998 level. Recurring growth in the State General Fund tax base is
projected to be approximately six percent during 1998-99, after adjusting for
tax law and administrative changes. This growth rate is lower than the rates for
1996-97 or 1997-98, but roughly equivalent to the rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the impact
of scheduled tax reductions that will lower receipts by $38 million, as well as
the impact of two Executive Budget proposals that are projected to lower
receipts by an additional $79 million. The first proposal would divert $30
million in motor vehicle registration fees from the General Fund to the
Dedicated Highway and Bridge Trust Fund; the second would reduce fees for motor
vehicle registrations, which would further lower receipts by $49 million. The
underlying growth of receipts in this category is projected at 4 percent, after
adjusting for these scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the General Fund GAAP Financial Plan shows total revenues of $34.68
billion, total expenditures of $35.94 billion, and net other financing sources
and uses of $42 million.
Although the City has consistently maintained balanced budgets and is
projected to achieve balanced operating results for the 1999 fiscal year, there
can be no assurance that the gap-closing actions proposed in the 1998-2001
Financial Plan can be successfully implemented or that the City will maintain a
balanced budget in future years without additional State aid, revenue increases
or expenditure reductions. Additional tax increases and reductions in essential
City services could adversely affect the City's economic base.
- 20 -
<PAGE>
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon
the City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs in
the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. Although the City's 1998 fiscal year financial plan
projected $2.4 billion of seasonal financing, the City expected to undertake
only approximately $1.4 billion of seasonal financing. The City issued $2.4
billion of short-term obligations in fiscal year 1997. Seasonal financing
requirements for the 1996 fiscal year increased to $2.4 billion from $2.2
billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
- 21 -
<PAGE>
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the 1997-98 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
On June 30, 1998, the City of Yonkers satisfied the statutory
conditions for ending the supervision of its finances by a State-ordered control
board. Pursuant to State law, the control board's powers over City finances
lapsed six months after the satisfaction of these conditions, on December 31,
1998.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
The 1998-99 budget includes $29.4 million in unrestricted aid targeted
to 57 municipalities across the State. Other assistance for municipalities with
special needs totals more than $25.6 million. Twelve upstate cities will receive
$24.2 million in one-time assistance from a cash flow acceleration of State aid.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. State law requires the Comptroller to
review and make recommendations concerning the budgets of those local government
units other than New York City that are authorized by State law to issue debt to
finance deficits during the period that such deficit financing is outstanding.
From time to time, federal expenditure reductions could reduce, or in
some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within the State could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. Long-range
- 22 -
<PAGE>
potential problems of declining urban population, increasing expenditures and
other economic trends could adversely affect localities and require increasing
the State assistance in the future.
YEAR 2000 COMPLIANCE. The State is currently addressing Year 2000
("Y2K") data processing compliance issues. Since its inception, the computer
industry has used a two-digit date convention to represent the year. In the year
2000, the date field will contain "00" and, as a result, many computer systems
and equipment may not be able to process dates properly or may fail since they
may not be able to distinguish between the years 1900 and 2000. The Year 2000
issue not only affects computer programs, but also the hardware, software and
networks they operate on. In addition, any system or equipment that is dependent
on an embedded chip, such as telecommunication equipment and security systems,
may also be adversely affected.
The Office for Technology is monitoring compliance progress for the
State's mission-critical and high-priority systems and is reporting compliance
progress to the Governor's office on a quarterly basis. As of December 1998, the
State had completed 93 percent of overall compliance effort for its
mission-critical systems; 18 systems are now Year 2000 compliant and the
remaining systems are on schedule to be compliant by the first quarter of 1999.
As of December 1998, the State has completed 70 percent of overall compliance
effort on the high-priority systems; 168 systems are now Year 2000 compliant and
the remaining systems are on schedule to be compliant by the second quarter of
1999. Compliance testing is expected to be completed by the end of calendar
1999.
While New York State is taking what it believes to be appropriate
action to address Year 2000 compliance, there can be no guarantee that all of
the State's systems and equipment will be Year 2000 compliant and that there
will not be an adverse impact upon State operations or finances as a result.
Since Year 2000 compliance by outside parties is beyond the State's control to
remediate, the failure of outside parties to achieve Year 2000 compliance could
have an adverse impact on State operations or finances as well.
-23
- -
<PAGE>
FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A fundamental limitation or policy of a Portfolio may not be changed
without the affirmative vote of the holders of a majority of a Portfolio's
outstanding shares. As used in this Statement of Additional Information and in
the Prospectuses, "shareholder approval" and a "majority of the outstanding
shares" of a class, series or Portfolio means, with respect to the approval of
an investment advisory agreement, a distribution plan or a change in a
fundamental investment limitation, the lesser of: (1) 67% of the shares of the
particular class, series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy; or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
The Company's Board of Directors can change the investment objective of
each fund. The Board may not change the requirement that the Municipal Money
Market and New York Municipal Money Market Portfolio, normally invest at least
80% of their net assets in Municipal Securities (as defined in the Prospectus)
and other instruments whose interest is exempt from federal income tax or
subject to Federal Alternative Minimum Tax without shareholder approval.
Shareholders will be given notice before any such change is made.
-24-
<PAGE>
MONEY MARKET, MUNICIPAL MONEY MARKET AND NEW YORK MUNICIPAL MONEY MARKET
PORTFOLIOS ONLY
The Money Market, Municipal Money Market and New York
Municipal Money Market Portfolios may not:
1. borrow money, except from banks for temporary purposes (and
with respect to the Money Market and New York Municipal Money
Market Portfolios, except for reverse repurchase agreements)
and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at
least 300% for all borrowings of the Portfolio; or mortgage,
pledge, or hypothecate any of its assets except in connection
with such borrowings and then, with respect to the Money
Market and New York Municipal Money Market Portfolios, in
amounts not in excess of 10% of the value of a Portfolio's
total assets at the time of such borrowing and, with respect
to the Municipal Money Market Portfolio, in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of
the value of a Portfolio's total assets at the time of such
borrowing; or purchase portfolio securities while borrowings
are in excess of 5% of the Portfolio's net assets. (This
borrowing provision is not for investment leverage, but solely
to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient.);
2. purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
3. underwrite securities of other issuers, except to the extent
that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under
federal securities laws and except to the extent that the
purchase of Municipal Obligations directly from the issuer
thereof in accordance with a Portfolio's investment objective,
policies and limitations may be deemed to be an underwriting;
4. make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations
thereof;
5. purchase or sell real estate, provided that a Portfolio may
invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein;
6. purchase or sell commodities or commodity contracts;
7. invest in oil, gas or mineral exploration or development
programs;
-25-
<PAGE>
8. make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective,
policies and limitations and (except for the Municipal Money
Market Portfolio) may enter into repurchase agreements;
9. purchase any securities issued by any other investment company
except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets
of such an issuer; or
10. make investments for the purpose of exercising control or
management.
MONEY MARKET PORTFOLIO ONLY
The Money Market Portfolio 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 the Portfolio's total assets
would be invested in the securities of such issuer, or more
than 10% of the outstanding voting securities of such issuer
would be owned by the Portfolio, except that up to 25% of the
value of the Portfolio's assets may be invested without regard
to this 5% limitation;
2. purchase any securities other than money market instruments,
some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in
amounts not in excess of 5% of the value of the Portfolio's
assets and may make time deposits;
3.* purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of
the Portfolio to be invested in the obligations of issuers in
the banking industry, or in obligations, such as repurchase
agreements, secured by such obligations (unless the Portfolio
is in a temporary defensive position) or which would cause, at
the time of purchase, more than 25% of the value of its total
assets to be invested in the obligations of issuers in any
other industry; and
4. invest more than 5% of its total assets (taken at the time of
purchase) in securities of issuers (including their
predecessors) with less than three years of continuous
operations.
* WITH RESPECT TO THIS LIMITATION, THE PORTFOLIO WILL CONSIDER
WHOLLY-OWNED FINANCE COMPANIES TO BE IN THE INDUSTRIES OF
THEIR PARENTS IF THEIR ACTIVITIES ARE PRIMARILY RELATED TO
FINANCING THE ACTIVITIES OF THE PARENTS, AND WILL DIVIDE
UTILITY COMPANIES ACCORDING TO THEIR SERVICES. FOR EXAMPLE,
GAS, GAS TRANSMISSION, ELECTRIC AND GAS, ELECTRIC AND
TELEPHONE WILL EACH BE CONSIDERED A SEPARATE INDUSTRY. THE
POLICY AND PRACTICES STATED IN THIS PARAGRAPH MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL, HOWEVER, ANY CHANGE WOULD BE
SUBJECT TO ANY APPLICABLE REQUIREMENTS OF THE SEC AND WOULD BE
DISCLOSED IN THE PROSPECTUS PRIOR TO BEING MADE.
-26-
<PAGE>
MUNICIPAL MONEY MARKET PORTFOLIO ONLY
The Municipal Money Market Portfolio 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 the Portfolio's total assets
would be invested in the securities of such issuer, or more
than 10% of the outstanding voting securities of such issuer
would be owned by the Portfolio, except that up to 25% of the
value of the Portfolio's assets may be invested without regard
to this 5% limitation;
2. under normal market conditions, invest less than 80% of its
net assets in securities the interest on which is exempt from
the regular federal income tax, although the interest on such
securities may constitute an item of tax preference for
purposes of the federal alternative minimum tax;
3. invest in private activity bonds where the payment of
principal and interest are the responsibility of a company
(including its predecessors) with less than three years of
continuous operations; and
4. purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of
the Portfolio to be invested in the obligations of the issuers
in the same industry.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO ONLY
The Government Obligations Money Market Portfolio may not:
1. purchase securities other than U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, and repurchase agreements
relating to such obligations. There is no limit on the amount
of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio
is permitted to purchase;
2. borrow money, except from banks for temporary purposes, and
except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total
assets, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio;
or mortgage, pledge, or hypothecate its assets except in
connection with any such borrowing and in amounts not in
excess of 10% of the value of the Portfolio's assets at the
time of such borrowing; or purchase portfolio securities while
borrowings are in excess of 5% of the Portfolio's net assets.
(This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio by enabling
the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous.);
-27-
<PAGE>
3. act as an underwriter; or
4. make loans except that the Portfolio 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 Portfolio'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 the
Portfolio's annual gross income (without offset for realized
capital gains) unless, in the opinion of counsel to the
Company, such amounts are qualifying income under federal
income tax provisions applicable to regulated investment
companies.
The New York Municipal Money Market Portfolio Only
The New York Municipal Money Market Portfolio may not:
1. under normal market conditions, invest less than 80% of its
net assets in securities the interest on which is exempt from
the federal income tax does not constitute an item of tax
preference for purposes of the federal alternative minimum tax
("Tax-Exempt Interest");
2. invest in private activity bonds where the payment of
principal and interest are the responsibility of a company
(including its predecessors) with less than three years of
continuous operations; and
3. purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of
the Portfolio to be invested in the obligations of the issuers
in the same industry; provided that this limitation shall not
apply to Municipal Obligations; and provided, further, that
for the purpose of this limitation only, private activity
bonds that are considered to be issued by non-governmental
users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A non-fundamental investment limitation or policy may be changed by the
Board of Directors without shareholder approval. However, shareholders will be
notified of any changes to any of the following limitations or policies.
-28-
<PAGE>
MONEY MARKET PORTFOLIO ONLY
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the
1940 Act, the Money Market Portfolio will limit its purchases of:
1. the securities of any one issuer, other than issuers of U.S.
Government securities, to 5% of its total assets, except that
the Portfolio may invest more than 5% of its total assets in
First Tier Securities of one issuer for a period of up to
three business days. "First Tier Securities" include eligible
securities that:
(i) if rated by more than one Rating Organization (as
defined in the Prospectus), are rated (at the time of
purchase) by two or more Rating Organizations in the
highest rating category for such securities;
(ii) if rated by only one Rating Organization, are rated
by such Rating Organization in its highest rating
category for such securities;
(iii) have no short-term rating and are comparable in
priority and security to a class of short-term
obligations of the issuer of such securities that
have been rated in accordance with (i) or (ii) above;
or
(iv) are Unrated Securities that are determined to be of
comparable quality to such securities.
2. Second Tier Securities, which are eligible securities other
than First Tier Securities, to 5% of its total assets; and
3. Second Tier Securities of one issuer to the greater of 1% of
its total assets or $1 million.
MUNICIPAL MONEY MARKET PORTFOLIO ONLY
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the
1940 Act, the Municipal Money Market Portfolio will not purchase any
Guarantee or Demand Feature (as defined in Rule 2a-7) if after the
acquisition of the Guarantee or Demand Feature the Portfolio has more
than 10% of its total assets invested in instruments issued by or
subject to Guarantees or Demand Features from the same institution,
except that the foregoing condition shall only be applicable with
respect to 75% of the Portfolio's total assets.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO ONLY
The Government Obligations Money Market Portfolio may purchase
securities on margin only to obtain short-term credit necessary for
clearance of portfolio transactions.
NEW YORK MUNICIPAL MONEY MARKET PROTFOLIO ONLY
So long as it values its portfoli securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the
1940 Act, the New York Municipal Money Market Portfolio will not
purchase any Guarantee or Demand Feature (as defined by Rule 2a-7) if
after the acquisition of the Guarantee or Demand Feature the New York
Municipal Money Market Portfolio has more than 10% of its total assets
invested in instruments issued by or subject to Guarantee or Demand
Features from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the New York
Municipal Money Market Portfolio's total assets.
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<PAGE>
MANAGEMENT OF THE COMPANY DIRECTORS AND OFFICERS
The business and affairs of the Company are managed under the direction
of the Company's Board of Directors. The directors and executive officers of the
Company, 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 Pincus
c/o 400 Bellevue Parkway Asset Management, Inc., Executive Officer
Wilmington, DE 19809 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 Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 64 Director Since 1963, Executive Vice President, Fox
Fox Chase Cancer Center Chase Cancer Center (biomedical research and
7701 Burholme Avenue medical care).
Philadelphia, PA 19111
-30-
<PAGE>
*Marvin E. Sternberg - 65 Director Since 1974, Chairman, Director and
Comcast Corporation President, Moyco Technologies, Inc.
Moyco Technologies, Inc. (manufacturer of dental supplies and
200 Commerce Drive precision coated abrasives).
Montgomeryville, PA 18936
Julian A. Brodsky - 65 Director Director and Vice Chairman, since 1969
Comcast Corporation Comcast Corporation (cable television and
1500 Market Street communications); Director, Comcast U.K.
35th Floor
Philadelphia, PA 19102
Donald van Roden - 75 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 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 Chairman
400 Bellevue Parkway of the Board, Fox Chase Cancer Center;
Wilmington, DE 19809 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 Independence Square
Income Securities, Inc.; Director of the
Bradford Funds, Inc.
Morgan R. Jones - 60 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Education
One Logan Square Dynamics, Inc.; Secretary, Petroferm, Inc.
18th & Cherry Streets
Philadelphia, PA 19103
<FN>
- ------------------
* Each of Mr. Sablowsky and Mr. Sternberg is an "interested person" of
RBB, as that term is defined in the 1940 Act.
</FN>
</TABLE>
-31-
<PAGE>
Messrs. McKay, Sternberg and Brodsky are members of the Audit Committee
of the Board of Directors. The Audit Committee, among other things, reviews
results of the annual audit and recommends to the Company 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 the Company 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 the Company.
The Company 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 the
Company in the following amounts:
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION.
PENSION OR
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ANNUAL TOTAL COMPENSATION
COMPENSATION ACCRUED AS BENEFITS FROM FUND AND
NAME OF PERSON/ FROM PART OF COMPANY UPON FUND COMPLEX
POSITION REGISTRANT EXPENSES RETIREMENT PAID TO DIRECTORS
- -------------- ------------ --------------- ---------- ------------------
<S> <C> <C> <C>
Julian A. Brodsky, $19,250 N/A N/A $19,250
Director
Francis J. McKay, $16,750 N/A N/A $16,750
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $18,250 N/A N/A $18,250
Director
Marvin E. Sternberg, $19,250 N/A N/A $19,250
Director
Donald van Roden, $25,250 N/A N/A $25,250
Director and Chairman
</TABLE>
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<PAGE>
On October 24, 1990 the Company adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach), pursuant to which the Company
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
BlackRock Institutional Management Corporation ("BIMC") (formerly known as "PNC
Institutional Management Corporation"), the Portfolios' adviser, PFPC Trust
Company, the Company's custodian, PFPC Inc. ("PFPC"), the administrator to the
Municipal Money Market and New York Municipal Money Market Portfolios and the
Company's transfer and dividend disbursing agent, and Provident Distributors
Inc. (the "Distributor"), the Company's distributor, the Company itself requires
only one part-time employee. Drinker Biddle & Reath LLP, of which Mr. Jones is a
partner, receives legal fees as counsel to the Company. No officer, director or
employee of BIMC, PFPC Trust Company, PFPC or the Distributor currently receives
any compensation from the Company.
CONTROL PERSONS
As of November 17, 1999, to the Company's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of the class of the Company indicated
below. See "Additional Information Concerning RBB Shares" below. The Company
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 MONEY MARKET Gabe Nechamkin 7.40%
27 Muchmore Road
Harrison, NY 10528-1109
- ------------------------------------- ------------------------------------------------------- ------------------------
CASH PRESERVATION MONEY MARKET Harold T. Erfer 6.349%
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 in Tr. 12.785%
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 MONEY MARKET Saxon and Co. 65.047%
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>
33
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 Portfolio 12.161%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------- ------------------------------------------------------- ------------------------
Warburg Pincus Trust-International Equity Portfolio 15.203%
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>
34
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
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>
35
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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. 20.546%
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 VALUE 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>
36
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 FUND INST Shady Side Academy Endowment 5.631%
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>
37
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
BOSTON PARTNERS LARGE CAP FUND Charles Schwab & Co. Inc. 66.397%
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 VALUE FUND MAC & CO. 5.642%
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 VALUE FUND National Financial Svcs. Corp. for Exclusive 17.061%
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>
38
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 INVESTOR Charles Schwab & Co. Inc 81.125%
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>
39
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 NEUTRAL Boston Partners Asset Mgmt. L. P. 100.000%
FUND- INSTITUTIONAL SHARES Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MARKET NEUTRAL Glenn P. Verrette and Laurie Jo Verrette 6.690%
FUND- INVESTOR SHARES Jt. Ten. Wros.
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 FUND Arnold C. Schneider III 13.637%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
Mark Shevitz 7.206%
Rollover IRA
65 Wardell St.
Rumson, NJ 07760
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
40
<PAGE>
As of Novemebr 17, 1999, the directors and officers as a group
owned less than one percent of the shares of the Company.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS.
The Portfolios have investment advisory agreements with BIMC. Although
BIMC in turn has sub-advisory agreements respecting the Portfolios (except the
New York Municipal Money Market Portfolio) with PNC Bank dated August 16, 1988,
as of April 29, 1998, BIMC assumed these advisory responsibilities from PNC
Bank. Pursuant to the Sub-Advisory Agreements, PNC Bank would be entitled to
receive an annual fee from BIMC for its sub-advisory services calculated at the
annual rate of 75% of the fees received by BIMC on behalf of the Money Market,
Municipal Money Market and Government Obligations Portfolios. The advisory
agreements relating to the Money Market and Government Obligations Money Market
Portfolios are each dated August 16, 1988, the advisory agreement relating to
the New York Municipal Money Market Portfolio is dated November 5, 1971 and the
advisory agreement relating to the Municipal Money Market Portfolio is dated
April 21, 1992. Such advisory and sub-advisory agreements are hereinafter
collectively referred to as the "Advisory Agreements."
For the fiscal year ended August 31, 1999, the Company paid BIMC
(excluding fees to PFPC, with respect to the Money Market and Government
Obligations Portfolios, for administrative services obligated under the Advisory
Agreements) advisory fees as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Money Market $6,580,761 $2,971,645 $819,409
Municipal Money Market $ 238,604 $ 716,746 $102,998
Government Obligations Money Market $1,386,459 $ 833,218 $221,997
New York Municipal Money Market $ 0 $ 103,567 $ 0
</TABLE>
For the fiscal year ended August 31, 1998, the Company paid BIMC
(excluding fees to PFPC, with respect to the Money Market and Government
Obligations Portfolios, for administrative services obligated under the Advisory
Agreements) advisory fees as follows:
-41-
<PAGE>
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Money Market $6,283,705 $3,334,990 $692,630
Municipal Money Market $ 238,721 $ 822,533 $ 55,085
Government Obligations Money Market $1,649,453 $ 723,970 $392,949
New York Municipal Money Market $ 60,758 $ 267,374 $ 0
</TABLE>
For the fiscal year ended August 31, 1997, the Company paid BIMC
advisory fees as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Money Market $5,366,431 $3,603,130 $469,986
Municipal Money Market $ 201,095 $1,269,553 $ 14,921
Government Obligations Money Market $1,774,123 $ 647,063 $404,193
New York Municipal Money Market $ 21,831 $ 324,917 $ 0
</TABLE>
Each Portfolio bears all of its own expenses not specifically assumed
by BIMC. General expenses of the Company not readily identifiable as belonging
to a portfolio of the Company are allocated among all investment portfolios by
or under the direction of the Company's Board of Directors in such manner as the
Board determines to be fair and equitable. Expenses borne by a portfolio
include, but are not limited to, the following (or a portfolio's share of the
following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
BIMC; (c) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Company or a portfolio for
violation of any law; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Company to its directors and officers;
(g) organizational costs; (h) fees paid to the investment adviser and PFPC; (i)
fees and expenses of officers and directors who are not affiliated with the
Portfolios' investment adviser or Distributor; (j) taxes; (k) interest; (l)
legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Portfolios and their shares for distribution under federal and state
securities laws; (q) expenses of preparing prospectuses and statements of
additional information and distributing annually to existing shareholders that
are not attributable to a particular class of shares of the
-42-
<PAGE>
Company; (r) the expense of reports to shareholders, shareholders' meetings and
proxy solicitations that are not attributable to a particular class of shares of
the Company; (s) fidelity bond and directors' and officers' liability insurance
premiums; (t) the expense of using independent pricing services; and (u) other
expenses which are not expressly assumed by the Portfolio's investment adviser
under its advisory agreement with the Portfolio. The Janney Classes of the
Company pay their own distribution fees, and may pay a different share than
other classes of the Company (excluding advisory and custodial fees) if those
expenses are actually incurred in a different amount by the Janney Classes or if
they receive different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Company
or a Portfolio in connection with the performance of the Advisory Agreements,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of BIMC or PNC Bank in the performance of their respective duties or
from reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were each most recently approved July 28, 1999
by a vote of the Company'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 Agreements were each
approved with respect to the Money Market and Government Obligations Money
Market Portfolios by the shareholders of each Portfolio at a special meeting
held on December 22, 1989, as adjourned. The investment advisory agreement was
approved with respect to the Municipal Money Market Portfolio by shareholders at
a special meeting held June 10, 1992, as adjourned. The Advisory Agreements were
approved with respect to the New York Municipal Money Market Portfolio by the
Portfolio's shareholders at a special meeting of shareholders held December 22,
1989. Each Advisory Agreement is terminable by vote of the Company's Board of
Directors or by the holders of a majority of the outstanding voting securities
of the relevant Portfolio, at any time without penalty, on 60 days' written
notice to BIMC or PNC Bank. Each of the Advisory Agreements may also be
terminated by BIMC or PNC Bank on 60 days' written notice to the Company. Each
of the Advisory Agreements terminates automatically in the event of assignment
thereof.
ADMINISTRATION AGREEMENTS.
PFPC serves as the administrator to the New York Municipal Money Market
Portfolio pursuant to an Administration Agreement dated November 5, 1991 and as
the administrator to the Municipal Money Market Portfolio pursuant to an
Administration and Accounting Services Agreement dated April 21, 1992 (together,
the "Administration Agreements"). PFPC has agreed to furnish to the Company on
behalf of the Municipal Money Market and New York Municipal Money Market
Portfolios statistical and research data, clerical, accounting, and bookkeeping
services, and certain other services required by the Company. PFPC has also
agreed to prepare and file various reports with the appropriate regulatory
agencies, and prepare materials required by the SEC or any state securities
commission having jurisdiction over the Company.
The Administration Agreements provide that PFPC shall not be liable for
any error of judgment or mistake of law or any loss suffered by the Company or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross
-43-
<PAGE>
negligence or reckless disregard by it of its duties and obligations thereunder.
In consideration for providing services pursuant to the Administration
Agreements, PFPC receives a fee of .10% of the average daily net assets of the
Municipal Money Market Portfolio.
BIMC is obligated to render administrative services to the Money Market
and Government Obligations Money Market Portfolio pursuant to the investment
advisory agreements. Pursuant to the terms of Delegation Agreements, dated July
29, 1998, between BIMC and PFPC, however, BIMC has delegated to PFPC its
administrative responsibilities to these Portfolios. The Company pays
administrative fees directly to PFPC.
For the fiscal year ended August 31, 1999, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Money Market $2,577,726 $ 0 $0
Municipal Money Market $ 276,787 $ 0 $0
Government Obligations Money Market $ 528,689 $ 0 $0
New York Municipal Money Market $ 29,591 $29,591 $0
</TABLE>
For the fiscal year ended August 31, 1998, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Municipal Money Market $312,593 $ 0 $0
New York Municipal Money Market $ 85,926 $7,826 $0
</TABLE>
For the fiscal year ended August 31, 1997, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
-44-
<PAGE>
<TABLE>
<CAPTION>
FEES PAID
(AFTER WAIVERS AND
PORTFOLIOS REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- ------------------ ------- --------------
<S> <C> <C> <C>
Municipal Money Market $448,548 $0 $0
New York Municipal Money Market $ 99,071 $0 $0
</TABLE>
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS.
PFPC Trust Company is custodian of the Company's assets pursuant to a
custodian agreement dated August 16, 1988, as amended (the "Custodian
Agreement"). Under the Custodian Agreement, PFPC Trust Company: (a) maintains a
separate account or accounts in the name of each Portfolio; (b) holds and
transfers portfolio securities on account of each Portfolio; (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio; (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities; and (e) makes periodic reports to the
Company's Board of Directors concerning each Portfolio's operations. PFPC Trust
Company is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Company, provided that PFPC Trust Company remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Company harmless from the acts and omissions of any sub-custodian.
For its services to the Company under the Custodian Agreement, PFPC Trust
Company receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Company.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Company's Janney Classes pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under which
PFPC: (a) issues and redeems shares of each of the Janney Classes; (b) addresses
and mails all communications by each Portfolio to record owners of shares of
each such Class, 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 the Company's Board of Directors concerning the operations of each
Janney Class. PFPC may, on 30 days' notice to the Company, assign its duties as
transfer and dividend disbursing agent to any other affiliate of PNC Bank Corp.
For its services to the Company under the Transfer Agency Agreement, PFPC
receives a fee at the annual rate of $15.00 per account in each Portfolio for
orders which are placed via third parties and relayed electronically to PFPC,
and at an annual rate of $17.00 per account in each Portfolio for all other
orders, exclusive of out-of-pocket expenses, and also receives a fee for each
redemption check cleared and reimbursement of its out-of-pocket expenses.
-45-
<PAGE>
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Company on behalf of their customers and to provide sweep processing for
uninvested cash balances for customers participating in a cash management
account. In addition to the shareholder records maintained by PFPC, Authorized
Dealers may maintain duplicate records for their customers who are shareholders
of the Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Company to PFPC.
DISTRIBUTION AGREEMENTS.
Pursuant to the terms of a distribution agreement, dated as of June 25,
1999, and supplements entered into by the Distributor and the Company on behalf
of each of the Janney Classes (the "Distribution Agreement"), and separate Plans
of Distribution, as amended, for each of the Janney Classes (collectively, the
"Plans"), all of which were adopted by the Company in the manner prescribed by
Rule 12b-1 under the 1940 Act, the Distributor will use appropriate
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efforts to distribute shares of each of the Janney Classes. Payments to the
Distributor under the Plans are to compensate it for distribution assistance and
expenses assumed and activities intended to result in the sale of shares of each
of the Janney Classes. As compensation for its distribution services, the
Distributor receives, pursuant to the terms of the Distribution Agreement, a
distribution fee, to be calculated daily and paid monthly, at the annual rate
set forth in the Prospectus. The Distributor currently proposes to reallow up to
all of its distribution payments to broker/dealers for selling shares of each of
the Portfolios based on a percentage of the amounts invested by their customers.
Each of the Plans was approved by the Company's Board of Directors,
including the directors who are not "interested persons" of the Company and who
have no direct or indirect financial interest in the operation of the Plans or
any agreements related to the Plans ("12b-1 Directors").
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Company regarding all amounts expended under the Plans and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plans
will continue in effect only so long as they are approved at least annually, and
any material amendment thereto is approved, by the Company's directors,
including the 12b-1 Directors, acting in person at a meeting called for said
purpose; (3) the aggregate amount to be spent by the Company on the distribution
of the Company's shares of the Janney Class under the Plans shall not be
materially increased without the affirmative vote of the holders of a majority
of the Company's shares in the affected Janney Class; and (4) while the Plans
remain in effect, the selection and nomination of the 12b-1 Directors shall be
committed to the discretion of the directors who are not interested persons of
the Company.
For the fiscal year ended August 31, 1999, the Company paid
distribution fees to PDI under the Plans for the Janney Classes of each of the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio in the aggregate amounts of $615, $697,971, $2,391,836and $177,597
respectively. Of those amounts $6,048,335, $686,338, $2,351,972 and $174,637
respectively, was paid to dealers with whom PDI had entered into dealer
agreements, and $102,514, $11,633, $39,864 and $2,960 respectively, was retained
by PDI.
The amounts retained by PDI were used to pay certain advertising and
promotion, printing, postage, legal fees, travel, entertainment, sales,
marketing and administrative expenses. The Company believes that such Plans may
benefit the Company by increasing sales of Shares. Mr. Sablowsky, a Director of
the Company, had an indirect interest in the operation of the Plans by virtue of
his position with Fahnestock Co., Inc., a broker-dealer.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 13 months or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 13 months or less),
and except that each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may
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purchase variable rate securities with remaining maturities of 13 months or more
so long as such securities comply with conditions established by the SEC under
which they may be considered to have remaining maturities of 13 months or less.
Because all Portfolios intend to purchase only securities with remaining
maturities of 13 months or less, their portfolio turnover rates will be
relatively high. However, because brokerage commissions will not normally be
paid with respect to investments made by each such Portfolio, the turnover rate
should not adversely affect such Portfolio's net asset value or net income. The
Portfolios do not intend to seek profits through short term trading.
Purchases of portfolio securities by each of the Portfolios are made
from dealers, underwriters and issuers; sales are made to dealers and issuers.
None of the Portfolios currently expects to incur any brokerage commission
expense on such transactions because money market instruments are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. The price of the security, however, usually
includes a profit to the dealer. Securities purchased in underwritten offerings
include a fixed amount of compensation to the underwriter, generally referred to
as the underwriter's concession or discount. When securities are purchased
directly from or sold directly to an issuer, no commissions or discounts are
paid. It is the policy of such Portfolios to give primary consideration to
obtaining the most favorable price and efficient execution of transactions. In
seeking to implement the policies of such Portfolios, BIMC will effect
transactions with those dealers it believes provide the most favorable prices
and are capable of providing efficient executions. In no instance will portfolio
securities be purchased from or sold to the Distributor or BIMC or any
affiliated person of the foregoing entities except to the extent permitted by
SEC exemptive order or by applicable law.
BIMC may seek to obtain an undertaking from issuers of commercial paper
or dealers selling commercial paper to consider the repurchase of such
securities from a Portfolio prior to their maturity at their original cost plus
interest (sometimes adjusted to reflect the actual maturity of the securities),
if it believes that a Portfolio's anticipated need for liquidity makes such
action desirable. Any such repurchase prior to maturity reduces the possibility
that the Portfolio would incur a capital loss in liquidating commercial paper
(for which there is no established market), especially if interest rates have
risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment
accounts managed by BIMC are made independently of each other in 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 Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which BIMC or any affiliated person (as defined in the 1940
Act) thereof is a member except pursuant to procedures adopted by the Company's
Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Company's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public
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offering price prior to the end of the first business day after the date of the
public offer, and that BIMC not participate in or benefit from the sale to a
Portfolio.
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 Janney
Classes constitute the shares described in this SAI. 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 SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (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
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (MILLIONS)
- ------------------------------------- -------------------- ----------------------------------- --------------------
<S> <C> <C> <C>
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
GG (n/i numeric Growth) 50 Delta 4 (N.Y. Money) 1
HH (n/i numeric Mid Cap) 50 Epsilon 1 (Money) 1
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
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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
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represents interests 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 and 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 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 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 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).
PURCHASE AND REDEMPTION INFORMATION
You may purchase shares through an account maintanced by your brokerage
firm and you may also purchase shares directly by mail or wire. The Company
reserves the right, if conditions exist which make cash payments undesirable, to
honor any request for redemption or repurchase of a Portfolio's shares by making
payment in whole or in part in securities chosen by the Company and valued in
the same way as
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they would be valued for purposes of computing a Portfolio's net asset value. If
payment is made in securities, a shareholder may incur transaction costs in
converting these securities into cash. The Company has elected, however, to be
governed by Rule 18f-1 under the 1940 Act so that a Portfolio is obligated to
redeem its shares solely in cash up to the lesser of $250,000 or 1% of its net
asset value during any 90-day period for any one shareholder of a Portfolio.
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 Portfolio may also suspend or postpone
the recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.)
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.
VALUATION OF SHARES
The Company intends to use its best efforts to maintain the net asset
value of each class of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by adding
the value of the proportionate interest of the class in the Portfolio's
securities, cash and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of such class. The net asset value of each class of the Company is
determined independently of the other classes. A Portfolio's "net assets" equal
the value of a Portfolio's investments and other securities less its
liabilities. Each Portfolio's net asset value per share is computed twice each
day, as of 12:00 noon (Eastern Time) and 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 both the NYSE and the Federal Reserve Bank of
Philadelphia (the "FRB") are open. Currently, the NYSE is closed weekends and 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 the preceding Friday and subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as Columbus Day and Veterans' Day.
The Company calculates the value of the portfolio securities of each of
the Portfolios by using the amortized cost method of valuation. Under this
method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
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<PAGE>
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Company's Board
of Directors has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share for each Portfolio, which include a
review of the extent of any deviation of net asset value per share, based on
available market quotations, from the $1.00 amortized cost per share. Should
that deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will
limit portfolio investments, including repurchase agreements (where permitted),
to those United States dollar-denominated instruments that BIMC determines
present minimal credit risks pursuant to guidelines adopted by the Board of
Directors, and BIMC will comply with certain reporting and recordkeeping
procedures concerning such credit determination. There is no assurance that
constant net asset value will be maintained. In the event amortized cost ceases
to represent fair value in the judgment of the Company's Board of Directors, the
Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments,
the Company 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 Company's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Company's Board of
Directors.
PERFORMANCE INFORMATION
Each of the Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for a Portfolio
are computed by: (a) determining the net change in the value of a hypothetical
account having a balance of one share at the beginning of a seven-calendar day
period; (b) dividing the net change by the value of the account at the beginning
of the period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with dividends
declared and all dividends declared on both the original share and such
additional shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. Compound effective yields are computed by adding
1 to the base period return (calculated as described above), raising the sum to
a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1999 for
the Janney Classes of each of the Money Market Portfolio, the Municipal Money
Market Portfolio,
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Government Obligations Money Market Portfolio and the New York Municipal Money
Market Portfolio before waivers was as follows:
<TABLE>
<CAPTION>
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
PORTFOLIO YIELD YIELD INCOME TAX RATE OF 28%)
- --------- ----- --------- -----------------------
<S> <C> <C> <C>
Money Market 4.33% 4.42% N/A
Municipal Money Market 2.36% 2.39% 3.28%
Government Obligations Money Market 4.14% 4.23% N/A
New York Municipal Money Market 1.93% 1.95% 2.68%
</TABLE>
The annualized yield for the seven-day period ended August 31, 1999 for
the Janney Classes of each of the Money Market, Municipal Money Market,
Government Obligations Money Market and New York Municipal Money Market
Portfolio after waivers was as follows:
<TABLE>
<CAPTION>
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
PORTFOLIO YIELD YIELD INCOME TAX RATE OF 28%)
- --------- ----- --------- -----------------------
<S> <C> <C> <C>
Money Market 4.34% 4.43% N/A
Municipal Money Market 2.50% 2.53% 3.47%
Government Obligations Money Market 4.16% 4.25% N/A
New York Municipal Money Market 2.40% 2.43% 3.33%
</TABLE>
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of each Portfolio will fluctuate, they cannot
be compared with yields on savings accounts or other investment alternatives
that provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
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The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
yields of a Portfolio may be quoted and compared to those of other mutual funds
with similar investment objectives and to stock or other relevant indices. For
example, the yield of a Portfolio may be compared to the Donoghue's Money
Company Average, which is an average compiled by IBC Money Company Report(R), a
widely recognized independent publication that monitors the performance of money
market funds, or to the data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service that monitors the performance of mutual
funds.
TAXES
Each Portfolio intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute its
respective income to shareholders each year, so that each Portfolio generally
will be relieved of federal income and excise taxes. If a Portfolio were to fail
to so qualify: (1) the Portfolio 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. For the
Municipal Money Market Portfolio to pay tax-exempt dividends for any taxable
year, at least 50% of the aggregate value of such Portfolio's assets at the
close of each quarter of the Company's taxable year must consist of
exempt-interest obligations.
An investment in the Municipal Money Market Portfolio is not intended
to constitute a balanced investment program. Shares of the Municipal Money
Market Portfolio would not be suitable for tax-exempt institutions and may not
be suitable for retirement plans qualified under Section 401 of the Code, H.R.
10 plans and individual retirement accounts because such plans and accounts are
generally tax-exempt and, therefore, not only would the shareholder not gain any
additional benefit from the Portfolios' dividends being tax-exempt, but such
dividends would be ultimately taxable to the beneficiaries when distributed. In
addition, the Municipal Money Market Portfolio may not be an appropriate
investment for entities which are "substantial users" of facilities financed by
"private activity bonds" or "related persons" thereof. "Substantial user" is
defined under U.S. Treasury Regulations to include a non-exempt person who (i)
regularly uses a part of such facilities in his
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or her trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, (ii) occupies more than 5% of
the usable area of such facilities or (iii) are persons for whom such facilities
or a part thereof were specifically constructed, reconstructed or acquired.
"Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.
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 the
Company and the non-interested directors.
INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP serves as the Company's independent
accountants. PricewaterhouseCoopers LLP performs an annual audit of the
Company's financial statements.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Portfolio's
Annual Report to Shareholders for the fiscal year ended August 31, 1999 (the
"1999 Annual Report") 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 the Company's independent accountants,
PricewaterhouseCoopers LLP. The reports of PricewaterhouseCoopers LLP are
incorporated herein by reference. 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 at no charge by telephoning the Distributor at the telephone number
appearing on the front page of this Statement of Additional Information.
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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:
"A1" - 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.
A-5
<PAGE>
N.R. Not rated. Debt obligations of issuers outside the United
States and its 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.
A-6
<PAGE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. 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-7
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. 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.
A-8
<PAGE>
'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 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.
A-9
<PAGE>
Municipal Note Ratings
A Standard and Poor's note rating reflects the liquidity
factors and market access 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
<PAGE>
RBB SELECT MONEY MARKET PORTFOLIO
OF THE RBB FUND, INC.
(THE "COMPANY")
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1999
This Statement of Additional Information ("SAI") provides information
about the Company's RBB Select Money Market Portfolio (the "Portfolio"). This
information is in addition to the information that is contained in the RBB
Select Money Market Portfolio Prospectus dated December 1, 1999 (the
"Prospectus").
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Portfolio's 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 Portfolio's Prospectus and Annual
Report may be obtained free of charge by telephoning (800) 430-9618.
<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION......................................................... 1
INVESTMENT INSTRUMENTS AND POLICIES......................................... 1
Additional Information on Portfolio Investments.......................... 1
Fundamental Investment Limitations and Policies..........................10
Non-Fundamental Investment Limitations and Policies......................12
MANAGEMENT OF THE COMPANY...................................................13
Directors and Officers. .................................................13
Directors' Compensation..................................................15
CONTROL PERSONS.............................................................16
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS................24
Advisory and Sub-Advisory Agreements.....................................24
Administration Agreement.................................................26
Custodian and Transfer Agency Agreements.................................27
Distribution Agreement...................................................29
PORTFOLIO TRANSACTIONS......................................................29
ADDITIONAL INFORMATION CONCERNING RBB SHARES................................30
PURCHASE AND REDEMPTION INFORMATION.........................................33
VALUATION OF SHARES.........................................................33
PERFORMANCE INFORMATION.....................................................35
TAXES.......................................................................36
MISCELLANEOUS...............................................................36
Counsel..................................................................36
Independent Accountants..................................................36
FINANCIAL STATEMENTS........................................................37
APPENDIX A.................................................................A-1
-i-
<PAGE>
GENERAL INFORMATION
The RBB Fund, Inc. (the "Company") 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 one class of
shares (the "Select Class") representing interests in a diversified investment
portfolio (the "Portfolio") of the Company (the Money Market Portfolio). The
Select Class is offered by the RBB Select Money Market Portfolio Prospectus
dated December 1, 1999.
INVESTMENT INSTRUMENTS AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objective and policies of the Portfolio.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
VARIABLE RATE DEMAND INSTRUMENTS. The Portfolio may purchase variable
rate demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary and provide for periodic adjustment in the interest rate.
Although the notes are not normally traded and there may be no active secondary
market in the notes, the Portfolio will be able to demand payment of the
principal of a note. The notes are not typically rated by credit rating
agencies, but issuers of variable rate demand notes must satisfy the same
criteria as issuers of commercial paper. If an issuer of a variable rate demand
note defaulted on its payment obligation, the Portfolio might be unable to
dispose of the note because of the absence of an active secondary market. For
this or other reasons, the Portfolio might suffer a loss to the extent of the
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
Variable rate demand instruments held by the Portfolio may have
maturities of more than 397 calendar days, provided: (i) the Portfolio is
entitled to the payment of principal at any time, or during specified intervals
not exceeding 397 calendar days, upon giving the prescribed notice (which may
not exceed 30 days); and (ii) the rate of interest on such instruments is
adjusted at periodic intervals which may extend up to 397 calendar days. In
determining the average weighted maturity of the Portfolio and whether a
variable rate demand instrument has a remaining maturity of 397 calendar days or
less, each long-term instrument will be deemed by the Portfolio to have a
maturity equal to the longer of the period remaining until its next interest
rate adjustment or the period remaining until the principal amount can be
recovered through demand. The absence of an active secondary market with respect
to particular variable and floating rate instruments could make it difficult for
the Portfolio to dispose of variable or floating rate notes if the issuer
defaulted on its payment obligations or during periods that the Portfolio is
-1-
<PAGE>
not entitled to exercise its demand right, and the Portfolio could, for these or
other reasons, suffer a loss with respect to such instruments.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper rated (i)
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. These rating categories are described in the Appendix to the
Statement of Additional Information. The Portfolio may also purchase unrated
commercial paper provided that such paper is determined to be of comparable
quality by the Portfolio's investment adviser in accordance with guidelines
approved by the Company's Board of Directors.
Commercial paper purchased by the Portfolio may include instruments
issued by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is
U.S. dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 397 days,
provided the repurchase agreement itself matures in less than 13 months. Default
by or bankruptcy of the seller would, however, expose the Portfolio to possible
loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
The repurchase price under the repurchase agreements described above
generally equals the price paid by the Portfolio 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). The financial institutions
with which the Portfolio may enter into repurchase agreements will be banks and
non-bank dealers of U.S. Government Securities that are listed on the Federal
Reserve Bank of New York's list of reporting dealers, if such banks and non-bank
dealers are deemed creditworthy by the Portfolio's adviser or sub-adviser. The
Portfolio's adviser or sub-adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least the repurchase price (including accrued interest).
In addition, the Portfolio's adviser or sub-adviser will require that the value
of this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to or greater than the
repurchase price including either: (i) accrued premium provided in the
repurchase agreement; or (ii) the daily amortization of the difference between
the purchase price and the repurchase price specified in the repurchase
agreement. The Portfolio's adviser or sub-adviser will mark to market daily the
value of the securities. Securities subject to repurchase agreements will be
held by the Company'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 Portfolio under the 1940 Act Investment Company
Act of 1940 (the "1940 Act").
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<PAGE>
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Portfolio may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. The Portfolio will generally
not pay for such securities or start earning interest on them until they are
received. Securities purchased on a when-issued basis are recorded as an asset
at the time the commitment is entered into and are subject to changes in value
prior to delivery based upon changes in the general level of interest rates.
While the Portfolio has such commitments outstanding, the Portfolio
will maintain in a segregated account with the Company's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the purchase price of the securities to be purchased. Normally, the custodian
for the Portfolio will set aside portfolio securities to satisfy a purchase
commitment and, in such a case, the Portfolio may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Portfolio's commitment.
It may be expected that the Portfolio's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the Portfolio's liquidity and
ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments, it is expected that
commitments to purchase "when-issued" securities will not exceed 25% of the
value of the Portfolio's total assets absent unusual market conditions. When the
Portfolio engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous. The Portfolio does not intend to purchase
when-issued securities for speculative purposes but only in furtherance of its
investment objective.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury or
are backed only by the credit of the agency or instrumentality issuing the
obligation. U.S. Government obligations that are not backed by the full faith
and credit of the U.S. Government are subject to greater risks than those that
are. U.S. Government obligations that are backed by the full faith and credit of
the U.S. Government are subject to interest rate risk.
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, the Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself.
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There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA, are not backed
by or entitled to the full faith and credit of the United States and are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Portfolio may invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs"). These multiple class
securities may be issued by U.S. Government agencies or instrumentalities,
including FNMA and FHLMC, or by trusts formed by private originators of, or
investors in, mortgage loans. In general, CMOs are debt obligations of a legal
entity that are collateralized by a pool of residential or commercial mortgage
loans or mortgage pass-through securities (the "Mortgage Assets"), the payments
on which are used to make payments on the CMOs. Investors may purchase
beneficial interests in CMOs, which are known as "regular" interests or
"residual" interests. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making required payments of
principal of and interest on the CMOs, as well as the related administrative
expenses of the issuer. Residual interests generally are junior to, and may be
significantly more volatile than, "regular" CMO interests. The Portfolio does
not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes
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of CMOs to be retired substantially earlier than their final distribution dates.
Generally, interest is paid or accrues on all classes of CMOs on a monthly
basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs in various ways. In certain structures (known
as "sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
The relative payment rights of the various CMO classes may be subject
to greater volatility and interest-rate risk than other types of mortgage-backed
securities. The average life of asset-backed securities varies with the
underlying instruments or assets and market conditions, which in the case of
mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return my be difficult to predict precisely.
ASSET-BACKED SECURITIES. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and CMOs issued or guaranteed by U.S.
Government agencies and instrumentalities. It may also invest in asset-backed
securities issued by private companies. Asset-backed securities also include
adjustable rate securities. The estimated life of an asset-backed security
varies with the prepayment experience with respect to the underlying debt
instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 397 days or less. Asset-backed
securities are considered an industry for industry concentration purposes (see
"Fundamental Investment Limitations and Policies"). In periods of falling
interest rates, the rate of mortgage prepayments tends to increase. During these
periods, the reinvestment of proceeds by the Portfolio will generally be at
lower rates than the rates on the prepaid obligations.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage-related securities. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities.
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BANK OBLIGATIONS. The Portfolio may purchase obligations of issuers in
the banking industry, such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements, less market liquidity,
future unfavorable political and economic developments, possible withholding
taxes on interest income, seizure or nationalization of foreign deposits,
currency controls, interest limitations, or other governmental restrictions
which might affect the payment of principal or interest on the securities held
in the Portfolio. Additionally, these institutions may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping requirements than those applicable to domestic branches of
U.S. banks. The Portfolio will invest in obligations of domestic branches of
foreign banks and foreign branches of domestic banks only when its investment
adviser believes that the risks associated with such investment are minimal. The
Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Company's policy regarding
investment in illiquid securities.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities; (2) securities
that (a) are rated (at the time of purchase) by two or more nationally
recognized statistical rating organizations ("Rating Organizations") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2," by Standard & Poor's Ratings Services ("S&P"), or rated
"Prime-1" or "Prime-2" by Moody's Investor's Service, Inc. ("Moody's")), or (b)
are rated (at the time of purchase) by the only Rating Organization rating the
security in one of its two highest rating categories for such securities; (3)
short-term obligations and, subject to certain SEC requirements, long-term
obligations that have remaining maturities of 397 days or less, provided in
each instance that such obligations have no short-term rating and are comparable
in priority and security to a class of short-term obligations of the issuer that
has been rated in accordance with (2)(a) or (b) above ("comparable
obligations"); (4) securities that are not rated and are issued by an issuer
that does not have comparable obligations rated by a Rating Organization
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2)(a) or (b) above; and (5) subject
to certain
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conditions imposed under SEC rules, obligations guaranteed or otherwise
supported by persons which meet the requisite rating requirements.
MUNICIPAL OBLIGATIONS. The Portfolio may invest in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Company's Board of Directors. The Portfolio may
also purchase Unrated Securities provided that such securities are determined to
be of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to this Statement of
Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer. Therefore, risk exists that the reserve fund will not be
restored.
Municipal Obligations may include variable rate demand notes. Such
notes are frequently not rated by credit rating agencies, but unrated notes
purchased by the Portfolio will have been determined by the Portfolio's
investment adviser to be of comparable quality at the time of the purchase to
rated instruments purchasable by the Portfolio. Where necessary to ensure that a
note is of eligible quality, the Portfolio will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable rate demand note
purchased by the Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 13 months, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons, suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
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In addition, the Portfolio may, when deemed appropriate by its
investment adviser in light of the Portfolio's investment objective, invest
without limitation in high quality, short-term Municipal Obligations issued by
state and local governmental issuers, the interest on which may be taxable or
tax-exempt for federal income tax purposes, provided that such obligations carry
yields that are competitive with those of other types of money market
instruments of comparable quality.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Company
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
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 (the "Securities
Act"), as amended. Section 4(2) paper is restricted as to disposition under the
federal securities laws and is generally sold to institutional investors such as
the Company 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.
ILLIQUID SECURITIES. The Portfolio may not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements that 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. Other securities considered illiquid are time deposits
with maturities in excess of seven days, variable rate demand notes with demand
periods in excess of seven days unless the Portfolio's investment adviser
determines that such notes are readily marketable and could be sold promptly at
the prices at which they are valued and GICs. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities that
have legal or contractual restrictions on resale but have a readily available
market are not considered illiquid for purposes of this limitation. The
Portfolio's investment adviser will monitor the liquidity of such restricted
securities under the supervision of the Board of Directors. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act, as amended, securities which are otherwise
not readily marketable and repurchase agreements having a maturity of longer
than seven days. Securities which have not been registered under the Securities
Act are referred to as private placements or restricted securities and are
purchased directly from the issuer or in the secondary market. Mutual funds do
not typically hold a significant amount of 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
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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. Illiquid securities would be more
difficult to dispose of than liquid securities to satisfy redemption requests.
The Portfolio 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 Portfolio'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 the Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of
restricted securities in the Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment 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).
STAND-BY COMMITMENTS. The Portfolio may enter into stand-by commitments
with respect to obligations issued by or on behalf of states, territories, and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities (collectively,
"Municipal Obligations") held in its portfolio. Under a stand-by commitment, a
dealer would agree to purchase at the Portfolio's option a specified Municipal
Obligation at its amortized cost value to the Portfolio plus accrued interest,
if any. Stand-by commitments may be exercisable by the Portfolio at any time
before the maturity of the underlying Municipal Obligations and may be sold,
transferred or assigned only with the instruments involved.
The Portfolio expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Portfolio may pay for a stand-by commitment
either in cash or by paying a higher price for portfolio securities which are
acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the Portfolio will not
exceed 1/2 of 1% of the value of the Portfolio's total assets calculated
immediately after each stand-by commitment is acquired.
The Portfolio intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the investment adviser's opinion,
present minimal credit risks. The Portfolio's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment. The acquisition of a
stand-by commitment may increase the cost, and thereby reduce the yield, of the
Municipal Obligation to which such commitment relates.
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The Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where the Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by the Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A fundamental limitation or policy of the Portfolio may not be changed
without the affirmative vote of the holders of a majority of the Portfolio's
outstanding shares. 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 Portfolio means, with respect to the approval of
an investment advisory agreement, a distribution plan or a change in a
fundamental investment limitation, the lesser of: (1) 67% of the shares of the
particular class, series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy; or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
The Company's Board of Directors can change the investment objective
of each Fund. Shareholders will be given notice before any such change is made.
The Money Market Portfolio may not:
1. borrow money, except from banks for temporary purposes and for
reverse repurchase agreements and then in amounts not in
excess of 10% of the value of the Portfolio's total assets at
the time of such borrowing, and only if after such borrowing
there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge, or hypothecate any of its
assets except in connection with such borrowings and then in
amounts not in excess of 10% of the value of the Portfolio's
total assets at the time of such borrowing or purchase
portfolio securities while borrowings are in excess of 5% of
the Portfolio's net assets. (This borrowing provision is not
for investment leverage, but solely to facilitate management
of the Portfolio's securities by enabling the Portfolio to
meet redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or inconvenient.);
2. purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
3. underwrite securities of other issuers, except to the extent
that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under
federal securities laws and except to the extent that the
purchase of Municipal Obligations directly from the issuer
thereof in accordance with the
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Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
4. make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations
thereof;
5. purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein;
6. purchase or sell commodities or commodity contracts;
7. invest in oil, gas or mineral exploration or development
programs;
8. make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective,
policies and limitations and may enter into repurchase
agreements;
9. purchase any securities issued by any other investment company
except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets
of such an issuer;
10. make investments for the purpose of exercising control or
management;
11. 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 the Portfolio's total assets
would be invested in the securities of such issuer, or more
than 10% of the outstanding voting securities of such issuer
would be owned by the Portfolio, except that up to 25% of the
value of the Portfolio's assets may be invested without regard
to this 5% limitation;
12. purchase any securities other than money market instruments,
some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in
amounts not in excess of 5% of the value of the Portfolio's
assets and may make time deposits;
13.* purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of
the Portfolio to be invested in the obligations of issuers in
the banking industry, or in obligations, such as repurchase
agreements, secured by such obligations (unless the Portfolio
is in a temporary defensive position) or which would cause, at
the time of purchase, more than 25% of the value of its total
assets to be invested in the obligations of issuers in any
other industry; and
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14. invest more than 5% of its total assets (taken at the time of
purchase) in securities of issuers (including their
predecessors) with less than three years of continuous
operations.
* WITH RESPECT TO THIS LIMITATION, THE PORTFOLIO WILL CONSIDER
WHOLLY-OWNED FINANCE COMPANIES TO BE IN THE INDUSTRIES OF
THEIR PARENTS IF THEIR ACTIVITIES ARE PRIMARILY RELATED TO
FINANCING THE ACTIVITIES OF THE PARENTS, AND WILL DIVIDE
UTILITY COMPANIES ACCORDING TO THEIR SERVICES. FOR EXAMPLE,
GAS, GAS TRANSMISSION, ELECTRIC AND GAS, ELECTRIC AND
TELEPHONE WILL EACH BE CONSIDERED A SEPARATE INDUSTRY. THE
POLICY AND PRACTICES STATED IN THIS PARAGRAPH MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL, HOWEVER, ANY CHANGE WOULD BE
SUBJECT TO ANY APPLICABLE REQUIREMENTS OF THE SEC AND WOULD BE
DISCLOSED IN THE PROSPECTUS PRIOR TO BEING MADE.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A non-fundamental investment limitation or policy may be changed by the
Board of Directors without shareholder approval. However, shareholders will be
notified of any changes to any of the following limitations or policies.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the
1940 Act, the Portfolio will limit its purchases of:
1. the securities of any one issuer, other than issuers of U.S.
Government securities, to 5% of its total assets, except that
the Portfolio may invest more than 5% of its total assets in
First Tier Securities of one issuer for a period of up to
three business days. "First Tier Securities" include eligible
securities that:
(i) if rated by more than one Rating Organization (as
defined in the Prospectus), are rated (at the time of
purchase) by two or more Rating Organizations in the
highest rating category for such securities;
(ii) if rated by only one Rating Organization, are rated
by such Rating Organization in its highest rating
category for such securities;
(iii) have no short-term rating and are comparable in
priority and security to a class of short-term
obligations of the issuer of such securities that
have been rated in accordance with (i) or (ii) above;
or
(iv) are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of
First Tier Securities that come within categories
(ii) and (iv) above will be approved or ratified by
the Board of Directors;
2. Second Tier Securities, which are eligible securities other
than First Tier Securities, to 5% of its total assets; and
3. Second Tier Securities of one issuer to the greater of 1% of
its total assets or $1 million.
-12-
<PAGE>
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS.
The business and affairs of the Company are managed under the direction
of the Company's Board of Directors. The directors and executive officers of the
Company, 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 Pincus
c/o 400 Bellevue Parkway Asset Management, Inc., Executive Officer
Wilmington, DE 19809 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 Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 64 Director Since 1963, Executive Vice President, Fox
Fox Chase Cancer Center Chase Cancer Center (biomedical research and
7701 Burholme Avenue 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 - 65 Director Director and Vice Chairman, since 1969
Comcast Corporation Comcast Corporation (cable television and
1500 Market Street communications); Director, Comcast U.K.
35th Floor
Philadelphia, PA 19102
-13-
<PAGE>
Donald van Roden - 75 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 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 Chairman
400 Bellevue Parkway of the Board, Fox Chase Cancer Center;
Wilmington, DE 19809 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 Independence Square
Income Securities, Inc.; Director of the
Bradford Funds, Inc.
Morgan R. Jones - 60 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Education
One Logan Square Dynamics, Inc.; Secretary, Petroferm, Inc.
18th & Cherry Streets
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 the Company 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 the Company 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 the Company.
-14-
<PAGE>
The Company 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 the
Company in the following amounts:
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION.
PENSION OR
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ANNUAL TOTAL COMPENSATION
COMPENSATION ACCRUED AS BENEFITS FROM FUND AND
NAME OF PERSON/ FROM PART OF COMPANY UPON FUND COMPLEX
POSITION REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
- --------------- ------------ --------------- ---------- ----------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $19,250 N/A N/A $19,250
Director
Francis J. McKay, $16,250 N/A N/A $16,250
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $18,250 N/A N/A $18,250
Director
Marvin E. Sternberg, $19,250 N/A N/A $19,250
Director
Donald van Roden, $25,250 N/A N/A $25,250
Director and Chairman
</TABLE>
On October 24, 1990 the Company adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach), pursuant to which the Company
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
BlackRock Institutional Management Corporation ("BIMC") (formerly known as "PNC
Institutional Management Corporation"), the Portfolio's adviser, PFPC Trust
Company, the Company's custodian, PFPC Inc. ("PFPC"), the administrator to the
Municipal Money Market Portfolio and the Company's transfer and dividend
disbursing agent, and Provident Distributors Inc. (the "Distributor"), the
Company's distributor, the Company itself requires only one part-time employee.
Drinker Biddle & Reath LLP, of which Mr. Jones is a partner, receives legal fees
as counsel to the Company. No officer,
-15-
<PAGE>
director or employee of BIMC, PFPC Trust Company, PFPC or the Distributor
currently receives any compensation from the Company.
CONTROL PERSONS
As of November 17, 1999, to the Company's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of the class of the Company indicated
below. See "Additional Information Concerning RBB Shares" below. The Company
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 MONEY MARKET Gabe Nechamkin 7.40%
27 Muchmore Road
Harrison, NY 10528-1109
- ------------------------------------- ------------------------------------------------------- ------------------------
CASH PRESERVATION MONEY MARKET Harold T. Erfer 6.349%
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 in Tr. 12.785%
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 MONEY MARKET Saxon and Co. 65.047%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 Portfolio 12.161%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------- ------------------------------------------------------- ------------------------
Warburg Pincus Trust-International Equity Portfolio 15.203%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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. 20.546%
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 VALUE 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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 FUND INST Shady Side Academy Endowment 5.631%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
BOSTON PARTNERS LARGE CAP FUND Charles Schwab & Co. Inc. 66.397%
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 VALUE FUND MAC & CO. 5.642%
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 VALUE FUND National Financial Svcs. Corp. for Exclusive 17.061%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 INVESTOR Charles Schwab & Co. Inc 81.125%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 NEUTRAL Boston Partners Asset Mgmt. L. P. 100.000%
FUND- INSTITUTIONAL SHARES Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MARKET NEUTRAL Glenn P. Verrette and Laurie Jo Verrette 6.690%
FUND- INVESTOR SHARES Jt. Ten. Wros.
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 FUND Arnold C. Schneider III 13.637%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
Mark Shevitz 7.206%
Rollover IRA
65 Wardell St.
Rumson, NJ 07760
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
<PAGE>
As of November 17, 1999, directors and officers as a group owned less
than one percent of the shares of the Company.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS.
-24-
<PAGE>
The Portfolio has an investment advisory agreement with BIMC. Although
BIMC in turn has a sub-advisory agreement with PNC Bank dated August 16, 1988,
as of April 29, 1998, BIMC assumed the advisory responsibilities from PNC Bank.
Pursuant to the Sub-Advisory Agreement, PNC Bank would be entitled to receive an
annual fee from BIMC for its sub-advisory services calculated at the annual rate
of 75% of the fees received by BIMC. The advisory agreement is dated August 16,
1988. The advisory and sub-advisory agreements are hereinafter collectively
referred to as the "Advisory Agreements."
For the fiscal year ended August 31, 1999, the Company paid BIMC
(excluding fees to PFPC, with respect to the Portfolio, for administrative
services obligated under the Advisory Agreement) advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$6,580,761 $2,971,645 $819,409
For the fiscal year ended August 31, 1998, the Company paid BIMC
(excluding fees to PFPC, for administrative services obligated under the
Advisory Agreement) advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$6,283,705 $3,334,990 $692,630
For the fiscal year ended August 31, 1997, the Company paid BIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$5,366,431 $3,603,130 $469,986
The Portfolio bears all of its own expenses not specifically assumed by
BIMC. General expenses of the Company not readily identifiable as belonging to a
portfolio of the Company are allocated among all investment portfolios by or
under the direction of the Company's Board of Directors in such manner as the
Board determines to be fair and equitable. Expenses borne by the Portfolio
include, but are not limited to, the following (or the Portfolio's share of the
following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of the Portfolio
by BIMC; (c) any costs, expenses or losses arising out of a liability of or
claim
-25-
<PAGE>
for damages or other relief asserted against the Company or the Portfolio for
violation of any law; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Company to its directors and officers;
(g) organizational costs; (h) fees paid to the investment adviser and PFPC; (i)
fees and expenses of officers and directors who are not affiliated with the
Portfolio's investment adviser or Distributor; (j) taxes; (k) interest; (l)
legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Portfolio and its shares for distribution under federal and state securities
laws; (q) expenses of preparing prospectuses and statements of additional
information and distributing annually to existing shareholders that are not
attributable to a particular class of shares of the Company; (r) the expense of
reports to shareholders, shareholders' meetings and proxy solicitations that are
not attributable to a particular class of shares of the Company; (s) fidelity
bond and directors' and officers' liability insurance premiums; (t) the expense
of using independent pricing services; and (u) other expenses which are not
expressly assumed by the Portfolio's investment adviser under its advisory
agreement with the Portfolio. The Select Class of the Company pays its own
distribution fees, and may pay a different share than other classes of the
Company (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Select Class or if it receives different
services.
Under the Advisory Agreement, BIMC and PNC Bank will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Company
or the Portfolio in connection with the performance of the Advisory Agreement,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of BIMC or PNC Bank in the performance of their respective duties or
from reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were most recently approved July 28, 1999 by a
vote of the Company's Board of Directors, including a majority of those
directors who are not parties to the Advisory Agreement or "interested persons"
(as defined in the 1940 Act) of such parties. The Advisory Agreements were
approved by the shareholders at a special meeting held on December 22, 1989, as
adjourned. The Advisory Agreement is terminable by vote of the Company's Board
of Directors or by the holders of a majority of the outstanding voting
securities of the Portfolio, at any time without penalty, on 60 days' written
notice to BIMC or PNC Bank. The Advisory Agreement may also be terminated by
BIMC or PNC Bank on 60 days' written notice to the Company. The Advisory
Agreement terminates automatically in the event of its assignment.
ADMINISTRATION AGREEMENT.
BIMC is obligated to render administrative services to the Portfolio
pursuant to the investment advisory agreement. Pursuant to the terms of a
Delegation Agreement, dated July 29, 1998, between BIMC and PFPC, however, BIMC
has delegated to PFPC its administrative responsibilities to the Portfolio. The
Company pays administrative fees directly to PFPC.
-26-
<PAGE>
For the fiscal year ended August 31, 1999, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$2,577,726 $0 $0
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS.
PFPC Trust Company is custodian of the Company's assets pursuant to a
custodian agreement dated August 16, 1988, as amended (the "Custodian
Agreement"). Under the Custodian Agreement, PFPC Trust Company: (a) maintains a
separate account or accounts in the name of the Portfolio; (b) holds and
transfers portfolio securities on account of the Portfolio; (c) accepts receipts
and makes disbursements of money on behalf of the Portfolio; (d) collects and
receives all income and other payments and distributions on account of the
Portfolio's portfolio securities; and (e) makes periodic reports to the
Company's Board of Directors concerning the Portfolio's operations. PFPC Trust
Company is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Company, provided that PFPC Trust Company remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Company harmless from the acts and omissions of any sub-custodian.
For its services to the Company under the Custodian Agreement, PFPC Trust
Company receives a fee which is calculated based upon the Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000, exclusive of transaction charges
and out-of-pocket expenses, which are also charged to the Company.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Company's Select Class of the Portfolio pursuant to a
Transfer Agency Agreement dated August 16, 1988 (the "Transfer Agency
Agreement"), under which PFPC: (a) issues and redeems shares of the Select Class
of the Portfolio; (b) addresses and mails all communications by the Portfolio to
record owners of shares of such Class, including reports to shareholders,
dividend and distribution notices and proxy materials for its meetings of
shareholders; (c)
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maintains shareholder accounts and, if requested, sub-accounts; and (d) makes
periodic reports to the Company's Board of Directors concerning the operations
of the Select Class. PFPC may, on 30 days' notice to the Company, assign its
duties as transfer and dividend disbursing agent to any other affiliate of PNC
Bank Corp. For its services to the Company under the Transfer Agency Agreement,
PFPC receives a fee at the annual rate of $15.00 per account in the Portfolio
for orders which are placed via third parties and relayed electronically to
PFPC, and at an annual rate of $17.00 per account in the Portfolio for all other
orders, exclusive of out-of-pocket expenses, and also receives a fee for each
redemption check cleared and reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolio.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Company on behalf of their customers and to provide sweep processing for
uninvested cash balances for customers participating in a cash management
account. In addition to the shareholder records maintained by PFPC, Authorized
Dealers may maintain duplicate records for their customers who are shareholders
of the Portfolio for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Company to PFPC.
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<PAGE>
DISTRIBUTION AGREEMENT.
Pursuant to the terms of a distribution agreement, dated as of June 25,
1999 (the "Distribution Agreement"), the Distributor will use appropriate
efforts to distribute shares of the Fund. Currently the Fund does not pay fees
under the Distribution Agreement.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining maturities
of 13 months or less, except for securities that are subject to repurchase
agreements (which in turn may have maturities of 13 months or less). However,
the Portfolio may purchase variable rate securities with remaining maturities of
13 months or more so long as such securities comply with conditions established
by the SEC under which they may be considered to have remaining maturities of 13
months or less. Because the Portfolio intends to purchase only securities with
remaining maturities of 13 months or less, its portfolio turnover rates will be
relatively high. However, because brokerage commissions will not normally be
paid with respect to investments made by the Portfolio, the turnover rate should
not adversely affect the Portfolio's net asset value or net income. The
Portfolio does not intend to seek profits through short term trading.
Purchases of portfolio securities by the Portfolio are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. The
Portfolio does not currently expect to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of the Portfolio to give primary consideration to obtaining the most
favorable price and efficient execution of transactions. In seeking to implement
the policies of the Portfolio, BIMC will effect transactions with those dealers
it believes provide the most favorable prices and are capable of providing
efficient executions. In no instance will portfolio securities be purchased from
or sold to the Distributor or BIMC or any affiliated person of the foregoing
entities except to the extent permitted by SEC exemptive order or by applicable
law.
BIMC 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 Portfolio prior to
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<PAGE>
their maturity at their original cost plus interest (sometimes adjusted to
reflect the actual maturity of the securities), if it believes that the
Portfolio's anticipated need for liquidity makes such action desirable. Any such
repurchase prior to maturity reduces the possibility that the Portfolio would
incur a capital loss in liquidating commercial paper (for which there is no
established market), especially if interest rates have risen since acquisition
of the particular commercial paper.
Investment decisions for the Portfolio and for other investment
accounts managed by BIMC are made independently of each other in 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 the Portfolio is concerned, in other cases it is
believed to be beneficial to the Portfolio. The Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which BIMC or any affiliated person (as defined in the 1940
Act) thereof is a member except pursuant to procedures adopted by the Company's
Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Company's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that BIMC not participate in or benefit from the sale to the
Portfolio.
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. 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 SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (MILLIONS)
- ------------------------------------- -------------------- ----------------------------------- --------------------
<S> <C> <C> <C>
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
GG (n/i numeric Growth) 50 Delta 4 (N.Y. Money) 1
HH (n/i numeric Mid Cap) 50 Epsilon 1 (Money) 1
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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (MILLIONS)
- ------------------------------------- -------------------- ----------------------------------- --------------------
<S> <C> <C> <C>
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 interests 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 and 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 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 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
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<PAGE>
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 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).
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
Company reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of the
Portfolio's shares by making payment in whole or in part in securities chosen by
the Company and valued in the same way as they would be valued for purposes of
computing the Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Company has elected, however, to be governed by Rule 18f-1 under the
1940 Act so that the Portfolio is obligated to redeem its shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of the Portfolio. 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. (The Portfolio may also suspend or postpone
the recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.)
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.
VALUATION OF SHARES
The Company intends to use its best efforts to maintain the net asset
value of each class of the Portfolio at $1.00 per share. Net asset value per
share, the value of an individual share in the Portfolio, is computed by adding
the value of the proportionate interest of the class in the Portfolio's
securities, cash and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of such class. The net asset value of each class of the Company is
determined independently of the other classes. The
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<PAGE>
Portfolio's "net assets" equal the value of the Portfolio's investments and
other securities less its liabilities. The Portfolio's net asset value per share
is computed twice each day, as of 12:00 noon (Eastern Time) and 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 both the NYSE and the
Federal Reserve Bank of Philadelphia (the "FRB") are open. Currently, the NYSE
is closed weekends and 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 the preceding Friday and subsequent
Monday when one of these holidays falls on a Saturday or Sunday. The FRB is
currently closed on weekends and the same holidays as the NYSE as well as
Columbus Day and Veterans' Day.
The Company calculates the value of the portfolio securities of the
Portfolio by using the amortized cost method of valuation. Under this method the
market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased,
the Portfolio may have to sell portfolio securities prior to maturity and at a
price which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Company's Board
of Directors has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share for the Portfolio, which include a
review of the extent of any deviation of net asset value per share, based on
available market quotations, from the $1.00 amortized cost per share. Should
that deviation exceed 1/2 of 1% for the Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
those United States dollar-denominated instruments that BIMC determines present
minimal credit risks pursuant to guidelines adopted by the Board of Directors,
and BIMC will comply with certain reporting and recordkeeping procedures
concerning such credit determination. There is no assurance that constant net
asset value will be maintained. In the event amortized cost ceases to represent
fair value in the judgment of the Company's Board of Directors, the Board will
take such actions as it deems appropriate.
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<PAGE>
In determining the approximate market value of portfolio investments,
the Company 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 Company's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Company's Board of
Directors.
PERFORMANCE INFORMATION
The Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for the
Portfolio are computed by: (a) determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of a
seven-calendar day period; (b) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared and all dividends declared on both the
original share and such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed by adding 1 to the base period return (calculated as
described above), raising the sum to a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1999 for
the Select Class of the Money Market Portfolio before waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
YIELD YIELD INCOME TAX RATE OF 28%)
----- --------- -----------------------
4.38% 4.48% N/A
The annualized yield for the seven-day period ended August 31, 1999 for
the Select Class of the Money Market Portfolio after waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
YIELD YIELD INCOME TAX RATE OF 28%)
----- --------- -----------------------
4.39% 4.49% N/A
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of the Portfolio will fluctuate, they cannot
be compared with yields on savings accounts or other investment alternatives
that provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor
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<PAGE>
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which the Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by the Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether the Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
yields of the Portfolio may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yield of the Portfolio may be compared to the Donoghue's Money
Company Average, which is an average compiled by IBC Money Company Report(R), a
widely recognized independent publication that monitors the performance of money
market funds, or to the data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service that monitors the performance of mutual
funds.
TAXES
The Portfolio intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute its
respective income to shareholders each year, so that the Portfolio generally
will be relieved of federal income and excise taxes. If the Portfolio were to
fail to so qualify: (1) the Portfolio 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 the
Company and the non-interested directors.
INDEPENDENT ACCOUNTANTS.
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PricewaterhouseCoopers LLP serves as the Company's independent
accountants. PricewaterhouseCoopers LLP performs an annual audit of the
Company's financial statements.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Portfolio's
Annual Report to Shareholders for the fiscal year ended August 31, 1999 (the
"1999 Annual Report") 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 the Company's independent accountants,
PricewaterhouseCoopers LLP. The reports of PricewaterhouseCoopers LLP are
incorporated herein by reference. 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 at no charge by telephoning the Distributor at the telephone number
appearing on the front page of this Statement of Additional Information.
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<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:
"A1" - 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.
A-5
<PAGE>
N.R. Not rated. Debt obligations of issuers outside the United
States and its 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.
A-6
<PAGE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. 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-7
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. 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.
A-8
<PAGE>
'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 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.
A-9
<PAGE>
Municipal Note Ratings
A Standard and Poor's note rating reflects the liquidity
factors and market access 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
<PAGE>
THE RBB FUND, INC.
(THE "COMPANY")
SANSOM STREET MONEY MARKET PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1999
This Statement of Additional Information ("SAI") provides information
about the Company's Sansom Street Class of the Money Market Portfolio (the
"Portfolio"). This information is in addition to the information that is
contained in the Sansom Street Prospectus dated December 1, 1999 (the
"Prospectus").
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Portfolio's 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 Portfolio's Prospectus and Annual
Report may be obtained free of charge by telephoning (800) 430-9618.
<PAGE>
TABLE OF CONTENTS
Page
----
GENERAL INFORMATION ....................................................... 1
INVESTMENT INSTRUMENTS AND POLICIES ....................................... 1
Additional Information on Portfolio Investments .................. 1
Fundamental Investment Limitations and Policies .................. 10
Non-Fundamental Investment Limitations and Policies .............. 12
MANAGEMENT OF THE COMPANY ................................................. 13
Directors and Officers. .......................................... 13
Directors' Compensation. ......................................... 16
CONTROL PERSONS ........................................................... 16
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS .............. 25
Advisory and Sub-Advisory Agreements ............................. 25
Administration Agreement ......................................... 27
Custodian and Transfer Agency Agreements ......................... 27
Distribution and Servicing Agreement ............................. 28
PORTFOLIO TRANSACTIONS .................................................... 29
ADDITIONAL INFORMATION CONCERNING RBB SHARES .............................. 30
PURCHASE AND REDEMPTION INFORMATION ....................................... 33
VALUATION OF SHARES ....................................................... 33
PERFORMANCE INFORMATION ................................................... 35
TAXES ..................................................................... 37
MISCELLANEOUS ............................................................. 37
Counsel .......................................................... 37
Independent Accountants .......................................... 37
FINANCIAL STATEMENTS ...................................................... 37
APPENDIX A ................................................................ A-1
i
<PAGE>
GENERAL INFORMATION
The RBB Fund, Inc. (the "Company") 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 one class of
shares (the "Sansom Street Class") representing interests in the Money Market
Portfolio, a diversified investment portfolio (the "Portfolio") of the Company.
The Sansom Street Class is offered by the Sansom Street Money Market 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 Portfolios.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
VARIABLE RATE DEMAND INSTRUMENTS. The Portfolio may purchase variable
rate demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary and provide for periodic adjustment in the interest rate.
Although the notes are not normally traded and there may be no active secondary
market in the notes, the Portfolio will be able to demand payment of the
principal of a note. The notes are not typically rated by credit rating
agencies, but issuers of variable rate demand notes must satisfy the same
criteria as issuers of commercial paper. If an issuer of a variable rate demand
note defaulted on its payment obligation, the Portfolio might be unable to
dispose of the note because of the absence of an active secondary market. For
this or other reasons, the Portfolio might suffer a loss to the extent of the
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
Variable rate demand instruments held by the Portfolio may have
maturities of more than 397 calendar days, provided: (i) the Portfolio is
entitled to the payment of principal at any time, or during specified intervals
not exceeding 397 calendar days, upon giving the prescribed notice (which may
not exceed 30 days); and (ii) the rate of interest on such instruments is
adjusted at periodic intervals which may extend up to 397 calendar days. In
determining the average weighted maturity of the Portfolio and whether a
variable rate demand instrument has a remaining maturity of 397 calendar days or
less, each long-term instrument will be deemed by the Portfolio to have a
maturity equal to the longer of the period remaining until its next interest
rate adjustment or the period remaining until the principal amount can be
recovered through demand. The absence of an active secondary market with respect
to particular variable and floating rate instruments could make it difficult for
the Portfolio to dispose of variable or floating rate notes if the issuer
defaulted on its payment obligations or during periods that the Portfolio is
1
<PAGE>
not entitled to exercise its demand right, and the Portfolio could, for these or
other reasons, suffer a loss with respect to such instruments.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper rated (i)
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. These rating categories are described in the Appendix to the
Statement of Additional Information. The Portfolio may also purchase unrated
commercial paper provided that such paper is determined to be of comparable
quality by the Portfolio's investment adviser in accordance with guidelines
approved by the Company's Board of Directors.
Commercial paper purchased by the Portfolio may include instruments
issued by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is
U.S. dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 397 days,
provided the repurchase agreement itself matures in less than 13 months. Default
by or bankruptcy of the seller would, however, expose the Portfolio to possible
loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
The repurchase price under the repurchase agreements described above
generally equals the price paid by the Portfolio 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). The financial institutions
with which the Portfolio may enter into repurchase agreements will be banks and
non-bank dealers of U.S. Government Securities that are listed on the Federal
Reserve Bank of New York's list of reporting dealers, if such banks and non-bank
dealers are deemed creditworthy by the Portfolio's adviser or sub-adviser. The
Portfolio's adviser or sub-adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least the repurchase price (including accrued interest).
In addition, the Portfolio's adviser or sub-adviser will require that the value
of this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to or greater than the
repurchase price including either: (i) accrued premium provided in the
repurchase agreement; or (ii) the daily amortization of the difference between
the purchase price and the repurchase price specified in the repurchase
agreement. The Portfolio's adviser or sub-adviser will mark to market daily the
value of the securities. Securities subject to repurchase agreements will be
held by the Company's custodian in the Federal Reserve/Treasury book-entry
system or by another authorized securities depository. Repurchase agreements are
considered to be loans by a Portfolio under the Investment Company Act of 1940
(the "1940 Act").
2
<PAGE>
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Portfolio may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. The Portfolios will
generally not pay for such securities or start earning interest on them until
they are received. Securities purchased on a when-issued basis are recorded as
an asset at the time the commitment is entered into and are subject to changes
in value prior to delivery based upon changes in the general level of interest
rates.
While the Portfolio has such commitments outstanding, the Portfolio
will maintain in a segregated account with the Company's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the purchase price of the securities to be purchased. Normally, the custodian
for the Portfolio will set aside portfolio securities to satisfy a purchase
commitment and, in such a case, the Portfolio may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Portfolio's commitment.
It may be expected that the Portfolio's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the Portfolio's liquidity and
ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments, it is expected that
commitments to purchase "when-issued" securities will not exceed 25% of the
value of the Portfolio's total assets absent unusual market conditions. When the
Portfolio engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous. The Portfolio does not intend to purchase
when-issued securities for speculative purposes but only in furtherance of its
investment objectives.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury or
are backed only by the credit of the agency or instrumentality issuing the
obligation. U.S. Government obligations that are not backed by the full faith
and credit of the U.S. Government are subject to greater risks than those that
are. U.S. Government obligations that are backed by the full faith and credit of
the U.S. Government are subject to interest rate risk.
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, the Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
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<PAGE>
MORTGAGE-RELATED SECURITIES. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA, are not backed
by or entitled to the full faith and credit of the United States and are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Portfolio may invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs"). These multiple class
securities may be issued by U.S. Government agencies or instrumentalities,
including FNMA and FHLMC, or by trusts formed by private originators of, or
investors in, mortgage loans. In general, CMOs are debt obligations of a legal
entity that are collateralized by a pool of residential or commercial mortgage
loans or mortgage pass-through securities (the "Mortgage Assets"), the payments
on which are used to make payments on the CMOs. Investors may purchase
beneficial interests in CMOs, which are known as "regular" interests or
"residual" interests. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making required payments of
principal of and interest on the CMOs, as well as the related administrative
expenses of the issuer. Residual interests generally are junior to, and may be
significantly more volatile than, "regular" CMO interests. The Portfolio does
not currently intend to purchase residual interests.
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<PAGE>
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs in various ways. In certain structures (known
as "sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
The relative payment rights of the various CMO classes may be subject
to greater volatility and interest-rate risk than other types of mortgage-backed
securities. The average life of asset-backed securities varies with the
underlying instruments or assets and market conditions, which in the case of
mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely.
ASSET-BACKED SECURITIES. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and CMOs issued or guaranteed by U.S.
Government agencies and instrumentalities. It may also invest in asset-backed
securities issued by private companies. Asset-backed securities also include
adjustable rate securities. The estimated life of an asset-backed security
varies with the prepayment experience with respect to the underlying debt
instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 397 days or less. Asset-backed securities
are considered an industry for industry
5
<PAGE>
concentration purposes (see "Fundamental Investment Limitations and Policies").
In periods of falling interest rates, the rate of mortgage prepayments tends to
increase. During these periods, the reinvestment of proceeds by the Portfolio
will generally be at lower rates than the rates on the prepaid obligations.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage-related securities. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities.
BANK OBLIGATIONS. The Portfolio may purchase obligations of issuers in
the banking industry, such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements, less market liquidity,
future unfavorable political and economic developments, possible withholding
taxes on interest income, seizure or nationalization of foreign deposits,
currency controls, interest limitations, or other governmental restrictions
which might affect the payment of principal or interest on the securities held
in the Portfolio. Additionally, these institutions may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping requirements than those applicable to domestic branches of
U.S. banks. The Portfolio will invest in obligations of domestic branches of
foreign banks and foreign branches of domestic banks only when its investment
adviser believes that the risks associated with such investment are minimal. The
Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Company's policy regarding
investment in illiquid securities.
6
<PAGE>
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities; (2) securities
that (a) are rated (at the time of purchase) by two or more nationally
recognized statistical rating organizations ("Rating Organizations") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2," by Standard & Poor's Ratings Services ("S&P"), or rated
"Prime-1" or "Prime-2" by Moody's Investor's Service, Inc. ("Moody's")), or (b)
are rated (at the time of purchase) by the only Rating Organization rating the
security in one of its two highest rating categories for such securities; (3)
short-term obligations and, subject to certain SEC requirements, long-term
obligations that have remaining maturities of 397 days or less, provided in each
instance that such obligations have no short-term rating and are comparable in
priority and security to a class of short-term obligations of the issuer that
has been rated in accordance with (2)(a) or (b) above ("comparable
obligations"); (4) securities that are not rated and are issued by an issuer
that does not have comparable obligations rated by a Rating Organization
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2)(a) or (b) above; and (5) subject
to certain conditions imposed under SEC rules, obligations guaranteed or
otherwise supported by persons which meet the requisite rating requirements.
MUNICIPAL OBLIGATIONS. The Portfolio may invest in short-term Municipal
Obligations which are determined by its investment adviser to present minimal
credit risks and that meet certain ratings criteria pursuant to guidelines
established by the Company's Board of Directors. The Portfolio may also purchase
Unrated Securities provided that such securities are determined to be of
comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to this Statement of
Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer. Therefore, risk exists that the reserve fund will not be
restored.
Municipal Obligations may include variable rate demand notes. Such
notes are frequently not rated by credit rating agencies, but unrated notes
purchased by the Portfolio will have been determined by the Portfolio's
investment adviser to be of comparable quality at the time of the purchase to
rated instruments purchasable by the Portfolio. Where necessary to ensure that a
note
7
<PAGE>
is of eligible quality, the Portfolio will require that the issuer's obligation
to pay the principal of the note be backed by an unconditional bank letter or
line of credit, guarantee or commitment to lend. While there may be no active
secondary market with respect to a particular variable rate demand note
purchased by the Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 13 months, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons, suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
In addition, the Portfolio may, when deemed appropriate by its
investment adviser in light of the Portfolio's investment objective, invest
without limitation in high quality, short-term Municipal Obligations issued by
state and local governmental issuers, the interest on which may be taxable or
tax-exempt for federal income tax purposes, provided that such obligations carry
yields that are competitive with those of other types of money market
instruments of comparable quality.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
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 (the "Securities
Act"), as amended. Section 4(2) paper is restricted as to disposition under the
federal securities laws and is generally sold to institutional investors such as
the Company 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.
ILLIQUID SECURITIES. The Portfolio may not invest more than 10% of its
net assets in illiquid securities including repurchase agreements that have a
maturity of longer than seven days and including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Other securities considered illiquid are time deposits
with maturities in excess of seven days, variable rate demand notes with demand
periods in excess of seven days unless the Portfolio's investment adviser
determines that such notes are readily marketable and could be sold promptly at
the prices at which they are valued and GICs. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities that
have legal or contractual restrictions on resale but have a readily available
market are not considered illiquid for purposes of this limitation. The
Portfolio's investment
8
<PAGE>
adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors. Repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act, as amended, securities which are otherwise
not readily marketable and repurchase agreements having a maturity of longer
than seven days. Securities which have not been registered under the Securities
Act are referred to as private placements or restricted securities and are
purchased directly from the issuer or in the secondary market. Mutual funds do
not typically hold a significant amount of 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. Illiquid securities would be more
difficult to dispose of than liquid securities to satisfy redemption requests.
The Portfolio 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 Portfolio'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 the Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of
restricted securities in the Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment 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).
STAND-BY COMMITMENTS. The Portfolio may enter into stand-by commitments
with respect to obligations issued by or on behalf of states, territories, and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities (collectively,
"Municipal Obligations") held in its portfolio. Under a stand-by commitment, a
dealer would agree to purchase at the Portfolio's option a specified Municipal
Obligation at its amortized cost value to the Portfolio plus accrued interest,
if any. Stand-by commitments may be exercisable by the Portfolio at any time
before the maturity of the underlying Municipal Obligations and may be sold,
transferred or assigned only with the instruments involved.
9
<PAGE>
The Portfolio expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Portfolio may pay for a stand-by commitment
either in cash or by paying a higher price for portfolio securities which are
acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the Portfolio will not
exceed 1/2 of 1% of the value of the Portfolio's total assets calculated
immediately after each stand-by commitment is acquired.
The Portfolio intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the investment adviser's opinion,
present minimal credit risks. The Portfolio's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment. The acquisition of a
stand-by commitment may increase the cost, and thereby reduce the yield, of the
Municipal Obligation to which such commitment relates.
The Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where the Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by the Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A fundamental limitation or policy of the Portfolio may not be changed
without the affirmative vote of the holders of a majority of the Portfolio's
outstanding shares. As used in this Statement of Additional Information and in
the Prospectuses, "shareholder approval" and a "majority of the outstanding
shares" of a class, series or Portfolio means, with respect to the approval of
an investment advisory agreement, a distribution plan or a change in a
fundamental investment limitation, the lesser of: (1) 67% of the shares of the
particular class, series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy; or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
The Money Market Portfolio may not:
1. borrow money, except from banks for temporary purposes and for
reverse repurchase agreements and then in amounts not in excess of
10% of the value of the Portfolio's total assets at the time of
such borrowing, and only if after such borrowing there is asset
coverage of at least 300% for all borrowings of the Portfolio; or
mortgage, pledge, or hypothecate any of its assets except in
connection with such borrowings and then in amounts not in excess
of 10% of the value of the Portfolio's total assets at the time of
such borrowing or purchase
10
<PAGE>
portfolio securities while borrowings are in excess of 5% of the
Portfolio's net assets. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the
Portfolio's securities by enabling the Portfolio to meet
redemption requests where the liquidation of portfolio securities
is deemed to be disadvantageous or inconvenient.);
2. purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
3. underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the
Portfolio may be deemed an underwriter under federal securities
laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with
the Portfolio's investment objective, policies and limitations may
be deemed to be an underwriting;
4. make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations
thereof;
5. purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein
or issued by companies which invest in real estate or interests
therein;
6. purchase or sell commodities or commodity contracts;
7. invest in oil, gas or mineral exploration or development programs;
8. make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies
and limitations and may enter into repurchase agreements;
9. purchase any securities issued by any other investment company
except in connection with the merger, consolidation, acquisition
or reorganization of all the securities or assets of such an
issuer; or
10. make investments for the purpose of exercising control or
management.
11. 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 the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of the Portfolio's
assets may be invested without regard to this 5% limitation;
11
<PAGE>
12. purchase any securities other than money market instruments, some
of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts
not in excess of 5% of the value of the Portfolio's assets and may
make time deposits;
13.* purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the
banking industry, or in obligations, such as repurchase
agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets
to be invested in the obligations of issuers in any other
industry; and
14. invest more than 5% of its total assets (taken at the time of
purchase) in securities of issuers (including their predecessors)
with less than three years of continuous operations.
* WITH RESPECT TO THIS LIMITATION, THE PORTFOLIO WILL CONSIDER
WHOLLY-OWNED FINANCE COMPANIES TO BE IN THE INDUSTRIES OF THEIR
PARENTS IF THEIR ACTIVITIES ARE PRIMARILY RELATED TO FINANCING THE
ACTIVITIES OF THE PARENTS, AND WILL DIVIDE UTILITY COMPANIES
ACCORDING TO THEIR SERVICES. FOR EXAMPLE, GAS, GAS TRANSMISSION,
ELECTRIC AND GAS, ELECTRIC AND TELEPHONE WILL EACH BE CONSIDERED A
SEPARATE INDUSTRY. THE POLICY AND PRACTICES STATED IN THIS
PARAGRAPH MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL, HOWEVER,
ANY CHANGE WOULD BE SUBJECT TO ANY APPLICABLE REQUIREMENTS OF THE
SEC AND WOULD BE DISCLOSED IN THE PROSPECTUS PRIOR TO BEING MADE.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A non-fundamental investment limitation or policy may be changed by the
Board of Directors without shareholder approval. However, shareholders will be
notified of any changes to any of the following limitations or policies.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940
Act, the Portfolio will limit its purchases of:
1. the securities of any one issuer, other than issuers of U.S.
Government securities, to 5% of its total assets, except that the
Portfolio may invest more than 5% of its total assets in First
Tier Securities of one issuer for a period of up to three business
days. "First Tier Securities" include eligible securities that:
(i) if rated by more than one Rating Organization (as defined in
the Prospectus), are rated (at the time of purchase) by two
or more Rating Organizations in the highest rating category
for such securities;
(ii) if rated by only one Rating Organization, are rated by such
Rating Organization in its highest rating category for such
securities;
(iii) have no short-term rating and are comparable in priority and
security to a class of short-term obligations of the issuer
of such securities that have been rated in accordance with
(i) or (ii) above; or
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<PAGE>
(iv) are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of First
Tier Securities that come within categories (ii) and (iv)
above will be approved or ratified by the Board of
Directors;
2. Second Tier Securities, which are eligible securities other than
First Tier Securities, to 5% of its total assets; and
3. Second Tier Securities of one issuer to the greater of 1% of its
total assets or $1 million.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS.
The business and affairs of the Company are managed under the direction
of the Company's Board of Directors. The directors and executive officers of the
Fund, 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 Pincus
c/o 400 Bellevue Parkway Asset Management, Inc., Executive Officer
Wilmington, DE 19809 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 Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ -----------------------
<S> <C> <C>
Francis J. McKay - 64 Director Since 1963, Executive Vice President, Fox
Fox Chase Cancer Center Chase Cancer Center (biomedical research and
7701 Burholme Avenue 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 - 65 Director Director and Vice Chairman, since 1969
Comcast Corporation Comcast Corporation (cable television and
1500 Market Street communications); Director, Comcast U.K.
35th Floor
Philadelphia, PA 19102
Donald van Roden - 75 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 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 Chairman
400 Bellevue Parkway of the Board, Fox Chase Cancer Center;
Wilmington, DE 19809 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 Independence Square
Income Securities, Inc.; Director of the
Bradford Funds, Inc.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ------------------------ ------------------ -----------------------
<S> <C> <C>
Morgan R. Jones - 60 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Education
One Logan Square Dynamics, Inc.; Secretary, Petroferm, Inc.
18th & Cherry Streets
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 the Company 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 the Company 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 the Company.
The Company 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 the
Company in the following amounts:
15
<PAGE>
DIRECTORS' COMPENSATION.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ANNUAL TOTAL COMPENSATION
COMPENSATION ACCRUED AS BENEFITS FROM FUND AND FUND
NAME OF PERSON/ FROM PART OF COMPANY UPON COMPLEX PAID TO
POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS
- -------------- ------------ --------------- ------------ ------------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $19,250 N/A N/A $19,250
Director
Francis J. McKay, $16,750 N/A N/A $16,750
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $18,250 N/A N/A $18,250
Director
Marvin E. Sternberg, $19,250 N/A N/A $19,250
Director
Donald van Roden, $25,250 N/A N/A $25,250
Director and Chairman
</TABLE>
On October 24, 1990 the Company adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach), pursuant to which the Company
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
BlackRock Institutional Management Corporation ("BIMC") (formerly known as "PNC
Institutional Management Corporation"), the Portfolios' adviser, PFPC Trust
Company, the Company's custodian, PFPC Inc. ("PFPC"), the administrator to the
Municipal Money Market Portfolio and the Company's transfer and dividend
disbursing agent, and Provident Distributors Inc. (the "Distributor"), the
Company's distributor, the Company itself requires only one part-time employee.
Drinker Biddle & Reath LLP, of which Mr. Jones is a partner, receives legal fees
as counsel to the Company. No officer, director or employee of BIMC, PFPC Trust
Company, PFPC or the Distributor currently receives any compensation from the
Company.
CONTROL PERSONS
As of November 17, 1999, to the Company's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of the class of the Company indicated
below. See "Additional Information Concerning RBB Shares" below. The Company
does not know whether such persons also beneficially own such shares.
16
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
BEDFORD MUNICIPAL MONEY MARKET Gabe Nechamkin 7.40%
27 Muchmore Road
Harrison, NY 10528-1109
- ------------------------------------- ------------------------------------------------------- ------------------------
CASH PRESERVATION MONEY MARKET Harold T. Erfer 6.349%
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 in Tr. 12.785%
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 MONEY MARKET Saxon and Co. 65.047%
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>
17
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 Portfolio 12.161%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------- ------------------------------------------------------- ------------------------
Warburg Pincus Trust-International Equity Portfolio 15.203%
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>
18
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
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
- ------------------------------------- ------------------------------------------------------- ------------------------
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. 20.546%
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 VALUE 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
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
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
- ------------------------------------- ------------------------------------------------------- ------------------------
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 FUND INST Shady Side Academy Endowment 5.631%
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>
21
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
BOSTON PARTNERS LARGE CAP FUND Charles Schwab & Co. Inc. 66.397%
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 VALUE FUND MAC & CO. 5.642%
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 VALUE FUND National Financial Svcs. Corp. for Exclusive 17.061%
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>
22
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 INVESTOR Charles Schwab & Co. Inc 81.125%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
David M. Dabora 6.622%
11 White Plains Ct.
San Anselmo, CA 94960
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
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 NEUTRAL Boston Partners Asset Mgmt. L. P. 100.000%
FUND- INSTITUTIONAL SHARES Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MARKET NEUTRAL Glenn P. Verrette and Laurie Jo Verrette 6.690%
FUND- INVESTOR SHARES Jt. Ten. Wros.
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 FUND Arnold C. Schneider III 13.637%
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>
24
<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, directors and officers as a group owned less
than one percent of the shares of the Company.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING
ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS.
The Portfolio has an investment advisory agreement with BIMC. Although
BIMC in turn has a sub-advisory agreement respecting the Portfolio with PNC Bank
dated August 16, 1988, as of April 29, 1998, BIMC assumed these advisory
responsibilities from PNC Bank. Pursuant to the Sub-Advisory Agreement, PNC Bank
would be entitled to receive an annual fee from BIMC for its sub-advisory
services calculated at the annual rate of 75% of the fees received by BIMC. The
advisory agreement is dated August 16, 1988. The advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory
Agreements."
For the fiscal year ended August 31, 1999, the Company paid BIMC
(excluding fees to PFPC, with respect to the Portfolio, for administrative
services obligated under the Advisory Agreements) advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$6,580,761 $2,971,645 $819,409
For the fiscal year ended August 31, 1998, the Company paid BIMC
(excluding fees to PFPC, for administrative services obligated under the
Advisory Agreement) advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ---------- --------------
$6,283,705 $3,334,990 $692,630
25
<PAGE>
For the fiscal year ended August 31, 1997, the Company paid BIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ---------- --------------
$5,366,431 $3,603,130 $469,986
The Portfolio bears all of its own expenses not specifically assumed by
BIMC. General expenses of the Company not readily identifiable as belonging to a
portfolio of the Company are allocated among all investment portfolios by or
under the direction of the Company's Board of Directors in such manner as the
Board determines to be fair and equitable. Expenses borne by a portfolio
include, but are not limited to, the following (or a portfolio's share of the
following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
BIMC; (c) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Company or a portfolio for
violation of any law; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Company to its directors and officers;
(g) organizational costs; (h) fees paid to the investment adviser and PFPC; (i)
fees and expenses of officers and directors who are not affiliated with the
Portfolio's investment adviser or Distributor; (j) taxes; (k) interest; (l)
legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Portfolio and its shares for distribution under federal and state securities
laws; (q) expenses of preparing prospectuses and statements of additional
information and distributing annually to existing shareholders that are not
attributable to a particular class of shares of the Company; (r) the expense of
reports to shareholders, shareholders' meetings and proxy solicitations that are
not attributable to a particular class of shares of the Company; (s) fidelity
bond and directors' and officers' liability insurance premiums; (t) the expense
of using independent pricing services; and (u) other expenses which are not
expressly assumed by the Portfolio's investment adviser under its advisory
agreement with the Portfolio. The Sansom Street Class of the Company pays its
own distribution fees, and may pay a different share than other classes of the
Company (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Sansom Street Class or if it receives
different services.
Under the Advisory Agreements, BIMC and PNC Bank will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Company
or the Portfolio in connection with the performance of the Advisory Agreements,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of BIMC or PNC Bank in the performance of their respective duties or
from reckless disregard of their duties and obligations thereunder.
26
<PAGE>
The Advisory Agreements were most recently approved July 28, 1999 by a
vote of the Company'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 Agreements were each
approved by the shareholders of the Portfolio at a special meeting held on
December 22, 1989, as adjourned. The Advisory Agreement is terminable by vote of
the Company's Board of Directors or by the holders of a majority of the
outstanding voting securities of the Portfolio, at any time without penalty, on
60 days' written notice to BIMC or PNC Bank. The Advisory Agreements may also be
terminated by BIMC or PNC Bank on 60 days' written notice to the Company. The
Advisory Agreements terminate automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENT.
BIMC is obligated to render administrative services to the Portfolio
pursuant to the investment advisory agreement. Pursuant to the terms of a
Delegation Agreement, dated July 29, 1998, between BIMC and PFPC, however, BIMC
has delegated to PFPC its administrative responsibilities to the Portfolio. The
Company pays administrative fees directly to PFPC.
For the fiscal year ended August 31, 1999, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$2,577,726 $ 0 $ 0
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS.
PFPC Trust Company is custodian of the Company's assets pursuant to a
custodian agreement dated August 16, 1988, as amended (the "Custodian
Agreement"). Under the Custodian Agreement, PFPC Trust Company: (a) maintains a
separate account or accounts in the name of the Portfolio; (b) holds and
transfers portfolio securities on account of the Portfolio; (c) accepts receipts
and makes disbursements of money on behalf of the Portfolio; (d) collects and
receives all income and other payments and distributions on account of the
Portfolio's portfolio securities; and (e) makes periodic reports to the
Company's Board of Directors concerning the Portfolio's operations. PFPC Trust
Company is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Company, provided that PFPC Trust Company remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Company harmless from the acts and omissions of any sub-custodian.
For its services to the Company under the Custodian Agreement, PFPC Trust
Company receives a fee which is calculated based upon the Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over
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<PAGE>
$100 million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Company.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Company's Sansom Street Class pursuant to a Transfer
Agency Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under
which PFPC: (a) issues and redeems shares of the Sansom Street Class of the
Portfolio; (b) addresses and mails all communications by the Portfolio to record
owners of shares of each such Class, 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 the Company's Board of Directors concerning the
operations of the Sansom Street Class. PFPC may, on 30 days' notice to the
Company, assign its duties as transfer and dividend disbursing agent to any
other affiliate of PNC Bank Corp. For its services to the Company under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in the Portfolio for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
the Portfolio for all other orders, exclusive of out-of-pocket expenses, and
also receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Company on behalf of their customers and to provide sweep processing for
uninvested cash balances for customers participating in a cash management
account. In addition to the shareholder records maintained by PFPC, Authorized
Dealers may maintain duplicate records for their customers who are shareholders
of the Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Company to PFPC.
DISTRIBUTION AND SERVICING AGREEMENT.
Pursuant to the terms of a distribution agreement, dated as of June 25,
1999 and supplements entered into by the Distributor and the Company on behalf
of the Sansom Street Class, (the "Distribution Agreement") and separate Plan of
Distribution, as amended, for the Sansom Street Class (the "Plan"), was adopted
by the Company in the manner prescribed by Rule 12b-1 under the 1940 Act, the
Distributor will use appropriate efforts to distribute shares of the Sansom
Street Class. Payments to the Distributor under the Plan are to compensate it
for distribution assistance and expenses assumed and activities intended to
result in the sale of shares of the Sansom Street Class. As compensation for its
distribution services, the Distributor receives, pursuant to the terms of the
Distribution Agreement, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of the Portfolio based on a percentage of the
amounts invested by their customers.
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<PAGE>
The Plan was approved by the Company's Board of Directors, including
the directors who are not "interested persons" of the Company and who have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan ("12b-1 Directors").
Among other things, the Plan provides that: (1) the Distributor shall
be required to submit quarterly reports to the directors of the Company
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Company's directors, including the 12b 1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Company on the distribution of the Company's
shares of the Sansom Street Class under the Plan shall not be materially
increased without the affirmative vote of the holders of a majority of the
Company's shares in the Sansom Street Class; and (4) while the Plan remains in
effect, the selection and nomination of the 12b-1 Directors shall be committed
to the discretion of the directors who are not interested persons of the
Company.
For the fiscal year ended August 31, 1999, the Company paid
distribution fees to PDI under the Plan for the Sansom Street Class of the
Portfolio in the aggregate amount of $386,583. Of this amount $6,713 was paid to
dealers with whom PDI had entered into dealer agreements, and $379,870 was
retained by PDI.
The amounts retained by PDI were used to pay certain advertising and
promotion, printing, postage, legal fees, travel, entertainment, sales,
marketing and administrative expenses. The Company believes that the Plan may
benefit the Company by increasing sales of Shares. Mr. Sablowsky, a Director of
the Company, had an indirect interest in the operation of the Plan by virtue of
his respective position with Fahnestock Co., Inc., a broker-dealer.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining maturities
of 13 months or less, except for securities that are subject to repurchase
agreements (which in turn may have maturities of 13 months or less), and except
that the Portfolio may purchase variable rate securities with remaining
maturities of 13 months or more so long as such securities comply with
conditions established by the SEC under which they may be considered to have
remaining maturities of 13 months or less. Because the Portfolio intends to
purchase only securities with remaining maturities of 13 months or less, its
portfolio turnover rates will be relatively high. However, because brokerage
commissions will not normally be paid with respect to investments made by the
Portfolio, the turnover rate should not adversely affect the Portfolio's net
asset value or net income. The Portfolio does not intend to seek profits through
short term trading.
Purchases of portfolio securities by the Portfolio are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. The
Portfolio does not currently expect to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
29
<PAGE>
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of the Portfolio to give primary consideration to obtaining the most
favorable price and efficient execution of transactions. In seeking to implement
the policies of the Portfolio, BIMC will effect transactions with those dealers
it believes provide the most favorable prices and are capable of providing
efficient executions. In no instance will portfolio securities be purchased from
or sold to the Distributor or BIMC or any affiliated person of the foregoing
entities except to the extent permitted by SEC exemptive order or by applicable
law.
BIMC 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 Portfolio 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 Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for the Portfolio and for other investment
accounts managed by BIMC are made independently of each other in 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 the Portfolio is concerned, in other cases it is
believed to be beneficial to the Portfolio. The Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which BIMC or any affiliated person (as defined in the 1940
Act) thereof is a member except pursuant to procedures adopted by the Company's
Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Company's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that BIMC not participate in or benefit from the sale to the
Portfolio.
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 Class L
constitute the Sansom Street Class described herein. 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.
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (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
GG (n/i numeric Growth) 50 Delta 4 (N.Y. Money) 1
HH (n/i numeric Mid Cap) 50 Epsilon 1 (Money) 1
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
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (MILLIONS)
- ---------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C>
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 interests 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 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
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<PAGE>
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 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 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).
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 Company
reserves the right, if conditions exist which make cash payments undesirable, to
honor any request for redemption or repurchase of the Portfolio's shares by
making payment in whole or in part in securities chosen by the Company and
valued in the same way as they would be valued for purposes of computing the
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Company
has elected, however, to be governed by Rule 18f-1 under the 1940 Act so that
the Portfolio is obligated to redeem its shares solely in cash up to the lesser
of $250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of the Portfolio. 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 of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which 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. (The Portfolio may also suspend or postpone the recordation
of the transfer of its shares upon the occurrence of any of the foregoing
conditions.)
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.
33
<PAGE>
VALUATION OF SHARES
The Company intends to use its best efforts to maintain the net asset
value of each class of the Portfolio at $1.00 per share. Net asset value per
share, the value of an individual share in the Portfolio, is computed by adding
the value of the proportionate interest of the class in the Portfolio's
securities, cash and other assets, subtracting the actual and accrued
liabilities of the class and dividing the result by the number of outstanding
shares of such class. The net asset value of each class of the Company is
determined independently of the other classes. The Portfolio's "net assets"
equal the value of the Portfolio's investments and other securities less its
liabilities. The Portfolio's net asset value per share is computed twice each
day, as of 12:00 noon (Eastern Time) and 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 both the NYSE and the Federal Reserve Bank of
Philadelphia (the "FRB") are open. Currently, the NYSE is closed weekends and 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 the preceding Friday and subsequent Monday when one of these holidays falls
on a Saturday or Sunday. The FRB is currently closed on weekends and the same
holidays as the NYSE as well as Columbus Day and Veterans' Day.
The Company calculates the value of the portfolio securities of the
Portfolio by using the amortized cost method of valuation. Under this method the
market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased,
the Portfolio may have to sell portfolio securities prior to maturity and at a
price which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Company's Board
of Directors has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share for the Portfolio, which include a
review of the extent of any deviation of net asset value per share, based on
available market quotations, from the $1.00 amortized cost per share. Should
that deviation exceed 1/2 of 1% for
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<PAGE>
the Portfolio, the Board of Directors will promptly consider whether any action
should be initiated to eliminate or reduce material dilution or other unfair
results to shareholders. Such action may include redeeming shares in kind,
selling portfolio securities prior to maturity, reducing or withholding
dividends, and utilizing a net asset value per share as determined by using
available market quotations.
The Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
those United States dollar-denominated instruments that BIMC determines present
minimal credit risks pursuant to guidelines adopted by the Board of Directors,
and BIMC will comply with certain reporting and recordkeeping procedures
concerning such credit determination. There is no assurance that constant net
asset value will be maintained. In the event amortized cost ceases to represent
fair value in the judgment of the Company's Board of Directors, the Board will
take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments,
the Company 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 Company's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Company's Board of
Directors.
PERFORMANCE INFORMATION
The Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for the
Portfolio are computed by: (a) determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of a
seven-calendar day period; (b) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared and all dividends declared on both the
original share and such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed by adding 1 to the base period return (calculated as
described above), raising the sum to a power equal to 365/7 and subtracting 1.
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<PAGE>
The annualized yield for the seven-day period ended August 31, 1999 for
the Sansom Street Class of the Portfolio before waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
YIELD YIELD INCOME TAX RATE OF 28%)
----- --------- -----------------------
4.84% 4.96% N/A
The annualized yield for the seven-day period ended August 31, 1999 for
the Sansom Street Class of the Portfolio after waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
YIELD YIELD INCOME TAX RATE OF 28%)
----- --------- -----------------------
4.85% 4.97% N/A
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of the Portfolio will fluctuate, they cannot
be compared with yields on savings accounts or other investment alternatives
that provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market
instruments in which the Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by the Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether the Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
yields of the Portfolio may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yield of the Portfolio may be compared to the Donoghue's Money
Company Average, which is an average compiled by IBC Money Company Report(R), a
widely recognized independent publication that monitors the
36
<PAGE>
performance of money market funds, or to the data prepared by Lipper Analytical
Services, Inc., a widely-recognized independent service that monitors the
performance of mutual funds.
TAXES
The Portfolio intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute its
respective income to shareholders each year, so that the Portfolio generally
will be relieved of federal income and excise taxes. If the Portfolio were to
fail to so qualify: (1) the Portfolio 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 the
Company and the non-interested directors.
INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, serves as the Company's independent
accountants. PricewaterhouseCoopers LLP performs an annual audit of the
Company's financial statements.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Portfolio's
Annual Report to Shareholders for the fiscal year ended August 31, 1999 (the
"1999 Annual Report") 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 the Company's independent accountants,
PricewaterhouseCoopers LLP. The reports of PricewaterhouseCoopers LLP are
incorporated herein by reference. 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 at no charge by telephoning the Distributor at the telephone number
appearing on the front page of this Statement of Additional Information.
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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
A-4
<PAGE>
obligation. Adverse business, financial or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable
to nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action 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.
A-5
<PAGE>
N.R. Not rated. Debt obligations of issuers outside the United
States and its 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.
A-6
<PAGE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. 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-7
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. 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.
A-8
<PAGE>
'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 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.
A-9
<PAGE>
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity
factors and market access 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
<PAGE>
THE PRINCIPAL CLASS
OF THE RBB FUND, INC.
(THE "COMPANY")
MONEY MARKET PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1999
This Statement of Additional Information ("SAI") provides information about
the Company's Principal Class of the Money Market Portfolio (the "Portfolio").
This information is in addition to the information that is contained in the
Principal Class Money Market Portfolio Prospectus dated December 1, 1999 (the
"Prospectus").
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus and the Portfolio's 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 Portfolio's Prospectus and Annual
Report may be obtained free of charge by telephoning (800) 430-9618.
<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION........................................................1
INVESTMENT INSTRUMENTS AND POLICIES........................................1
Additional Information on Portfolio Investments.........................1
Fundamental Investment Limitations and Policies........................10
Non-Fundamental Investment Limitations and Policies....................12
MANAGEMENT OF THE COMPANY.................................................13
Directors and Officers.................................................13
Directors' Compensation................................................15
CONTROL PERSONS...........................................................16
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS..............24
Advisory and Sub-Advisory Agreements...................................24
Administration Agreement...............................................26
Custodian and Transfer Agency Agreements...............................26
Distribution Agreement.................................................28
PORTFOLIO TRANSACTIONS....................................................29
ADDITIONAL INFORMATION CONCERNING RBB SHARES..............................30
PURCHASE AND REDEMPTION INFORMATION.......................................33
VALUATION OF SHARES.......................................................33
PERFORMANCE INFORMATION...................................................35
TAXES.....................................................................36
MISCELLANEOUS.............................................................36
Counsel................................................................36
Independent Accountants................................................37
FINANCIAL STATEMENTS......................................................37
APPENDIX A...............................................................A-1
-i-
<PAGE>
GENERAL INFORMATION
The RBB Fund, Inc. (the "Company") 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 one class of
shares (the "Principal Class") representing interests in a diversified
investment portfolio (the "Portfolio") of the Company (the Money Market
Portfolio). The Principal Class is offered by the Principal Class Money Market
Portfolio Prospectus dated December 1, 1999.
INVESTMENT INSTRUMENTS AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objective and policies of the Portfolio.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
VARIABLE RATE DEMAND INSTRUMENTS. The Portfolio may purchase variable
rate demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary and provide for periodic adjustment in the interest rate.
Although the notes are not normally traded and there may be no active secondary
market in the notes, the Portfolio will be able to demand payment of the
principal of a note. The notes are not typically rated by credit rating
agencies, but issuers of variable rate demand notes must satisfy the same
criteria as issuers of commercial paper. If an issuer of a variable rate demand
note defaulted on its payment obligation, the Portfolio might be unable to
dispose of the note because of the absence of an active secondary market. For
this or other reasons, the Portfolio might suffer a loss to the extent of the
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
Variable rate demand instruments held by the Portfolio may have
maturities of more than 397 calendar days, provided: (i) the Portfolio is
entitled to the payment of principal at any time, or during specified intervals
not exceeding 397 calendar days, upon giving the prescribed notice (which may
not exceed 30 days); and (ii) the rate of interest on such instruments is
adjusted at periodic intervals which may extend up to 397 calendar days. In
determining the average weighted maturity of the Portfolio and whether a
variable rate demand instrument has a remaining maturity of 397 calendar days or
less, each long-term instrument will be deemed by the Portfolio to have a
maturity equal to the longer of the period remaining until its next interest
rate adjustment or the period remaining until the principal amount can be
recovered through demand. The absence of an active secondary market with respect
to particular variable and floating rate instruments could make it difficult for
the Portfolio to dispose of variable or floating rate notes if the issuer
defaulted on its payment obligations or during periods that the Portfolio is
-1-
<PAGE>
not entitled to exercise its demand right, and the Portfolio could, for these or
other reasons, suffer a loss with respect to such instruments.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper rated (i)
(at the time of purchase) in the two highest rating categories of at least two
nationally recognized statistical rating organizations ("Rating Organization")
or, by the only Rating Organization providing a rating; or (ii) issued by
issuers (or, in certain cases guaranteed by persons) with short-term debt having
such ratings. These rating categories are described in the Appendix to the
Statement of Additional Information. The Portfolio may also purchase unrated
commercial paper provided that such paper is determined to be of comparable
quality by the Portfolio's investment adviser in accordance with guidelines
approved by the Company's Board of Directors.
Commercial paper purchased by the Portfolio may include instruments
issued by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is
U.S. dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 397 days,
provided the repurchase agreement itself matures in less than 13 months.
Default by or bankruptcy of the seller would, however, expose the Portfolio to
possible loss because of adverse market action or delays in connection with the
disposition of the underlying obligations.
The repurchase price under the repurchase agreements described above
generally equals the price paid by the Portfolio 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). The financial institutions
with which the Portfolio may enter into repurchase agreements will be banks and
non-bank dealers of U.S. Government Securities that are listed on the Federal
Reserve Bank of New York's list of reporting dealers, if such banks and non-bank
dealers are deemed creditworthy by the Portfolio's adviser or sub-adviser. The
Portfolio's adviser or sub-adviser will continue to monitor creditworthiness of
the seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement to equal at least the repurchase price (including accrued interest).
In addition, the Portfolio's adviser or sub-adviser will require that the value
of this collateral, after transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be equal to or greater than the
repurchase price including either: (i) accrued premium provided in the
repurchase agreement; or (ii) the daily amortization of the difference between
the purchase price and the repurchase price specified in the repurchase
agreement. The Portfolio's adviser or sub-adviser will mark to market daily the
value of the securities. Securities subject to repurchase agreements will be
held by the Company'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 Portfolio under the Investment Company Act of 1940
(the "1940 Act").
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<PAGE>
WHEN-ISSUED OR DELAYED DELIVERY SECURITIES. The Portfolio may purchase
"when-issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. The Portfolio will generally
not pay for such securities or start earning interest on them until they are
received. Securities purchased on a when-issued basis are recorded as an asset
at the time the commitment is entered into and are subject to changes in value
prior to delivery based upon changes in the general level of interest rates.
While the Portfolio has such commitments outstanding, the Portfolio
will maintain in a segregated account with the Company's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the purchase price of the securities to be purchased. Normally, the custodian
for the Portfolio will set aside portfolio securities to satisfy a purchase
commitment and, in such a case, the Portfolio may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Portfolio's commitment.
It may be expected that the Portfolio's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the Portfolio's liquidity and
ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments, it is expected that
commitments to purchase "when-issued" securities will not exceed 25% of the
value of the Portfolio's total assets absent unusual market conditions. When the
Portfolio engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous. The Portfolio does not intend to purchase
when-issued securities for speculative purposes but only in furtherance of its
investment objective.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States.
Others are backed by the right of the issuer to borrow from the U.S. Treasury or
are backed only by the credit of the agency or instrumentality issuing the
obligation. U.S. Government obligations that are not backed by the full faith
and credit of the U.S. Government are subject to greater risks than those that
are. U.S. Government obligations that are backed by the full faith and credit of
the U.S. Government are subject to interest rate risk.
Examples of types of U.S. Government obligations include U.S. Treasury
Bills, Treasury Notes and Treasury Bonds and the obligations of Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, the Maritime
Administration, International Bank for Reconstruction and Development (the
"World Bank"), the Asian-American Development Bank and the Inter-American
Development Bank.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities consist of
mortgage loans which are assembled into pools, the interests in which are issued
and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself.
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There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA, are not backed
by or entitled to the full faith and credit of the United States and are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Portfolio may invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs"). These multiple class
securities may be issued by U.S. Government agencies or instrumentalities,
including FNMA and FHLMC, or by trusts formed by private originators of, or
investors in, mortgage loans. In general, CMOs are debt obligations of a legal
entity that are collateralized by a pool of residential or commercial mortgage
loans or mortgage pass-through securities (the "Mortgage Assets"), the payments
on which are used to make payments on the CMOs. Investors may purchase
beneficial interests in CMOs, which are known as "regular" interests or
"residual" interests. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making required payments of
principal of and interest on the CMOs, as well as the related administrative
expenses of the issuer. Residual interests generally are junior to, and may be
significantly more volatile than, "regular" CMO interests. The Portfolio does
not currently intend to purchase residual interests.
Each class of CMOs, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
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The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs in various ways. In certain structures (known
as "sequential pay" CMOs), payments of principal, including any principal
prepayments, on the Mortgage Assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay"
CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the Mortgage Assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
The relative payment rights of the various CMO classes may be subject
to greater volatility and interest-rate risk than other types of mortgage-backed
securities. The average life of asset-backed securities varies with the
underlying instruments or assets and market conditions, which in the case of
mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely.
ASSET-BACKED SECURITIES. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and CMOs issued or guaranteed by U.S.
Government agencies and, instrumentalities. It may also invest in asset-backed
securities issued by private companies. Asset-backed securities also include
adjustable rate securities. The estimated life of an asset-backed security
varies with the prepayment experience with respect to the underlying debt
instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 397 days or less. Asset-backed securities
are considered an industry for industry concentration purposes (see "Fundamental
Investment Limitations and Policies"). In periods of falling interest rates, the
rate of mortgage prepayments tends to increase. During these periods, the
reinvestment of proceeds by the Portfolio will generally be at lower rates than
the rates on the prepaid obligations.
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage-related securities. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities.
BANK OBLIGATIONS. The Portfolio may purchase obligations of issuers in
the banking industry, such as short-term obligations of bank holding companies,
certificates of deposit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the
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time of purchase in excess of $1 billion. The Portfolio may invest substantially
in obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks in addition to those of domestic
issuers, including higher transaction costs, less complete financial
information, less stringent regulatory requirements, less market liquidity,
future unfavorable political and economic developments, possible withholding
taxes on interest income, seizure or nationalization of foreign deposits,
currency controls, interest limitations, or other governmental restrictions
which might affect the payment of principal or interest on the securities held
in the Portfolio. Additionally, these institutions may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping requirements than those applicable to domestic branches of
U.S. banks. The Portfolio will invest in obligations of domestic branches of
foreign banks and foreign branches of domestic banks only when its investment
adviser believes that the risks associated with such investment are minimal. The
Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Company's policy regarding
investment in illiquid securities.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities; (2) securities
that (a) are rated (at the time of purchase) by two or more nationally
recognized statistical rating organizations ("Rating Organizations") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2," by Standard & Poor's Ratings Services ("S&P"), or rated
"Prime-1" or "Prime-2" by Moody's Investor's Service, Inc. ("Moody's")), or (b)
are rated (at the time of purchase) by the only Rating Organization rating the
security in one of its two highest rating categories for such securities; (3)
short-term obligations and, subject to certain SEC requirements, long-term
obligations that have remaining maturities of 397 days or less, provided in each
instance that such obligations have no short-term rating and are comparable in
priority and security to a class of short-term obligations of the issuer that
has been rated in accordance with (2)(a) or (b) above ("comparable
obligations"); (4) securities that are not rated and are issued by an issuer
that does not have comparable obligations rated by a Rating Organization
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2)(a) or (b) above; and (5) subject
to certain conditions imposed under SEC rules, obligations guaranteed or
otherwise supported by persons which meet the requisite rating requirements.
MUNICIPAL OBLIGATIONS. The Portfolio may invest in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Company's Board of
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Directors. The Portfolio may also purchase Unrated Securities provided that such
securities are determined to be of comparable quality to eligible rated
securities. The applicable Municipal Obligations ratings are described in the
Appendix to this Statement of Additional Information.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer. Therefore, risk exists that the reserve fund will not be
restored.
Municipal Obligations may include variable rate demand notes. Such
notes are frequently not rated by credit rating agencies, but unrated notes
purchased by the Portfolio will have been determined by the Portfolio's
investment adviser to be of comparable quality at the time of the purchase to
rated instruments purchasable by the Portfolio. Where necessary to ensure that a
note is of eligible quality, the Portfolio will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable rate demand note
purchased by the Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 13 months, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons, suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes to determine whether the Portfolio should continue to hold
such notes.
In addition, the Portfolio may, when deemed appropriate by its
investment adviser in light of the Portfolio's investment objective, invest
without limitation in high quality, short-term Municipal Obligations issued by
state and local governmental issuers, the interest on which may be taxable or
tax-exempt for federal income tax purposes, provided that such obligations carry
yields that are competitive with those of other types of money market
instruments of comparable quality.
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Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Company
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
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 (the "Securities
Act"), as amended. Section 4(2) paper is restricted as to disposition under the
federal securities laws and is generally sold to institutional investors such as
the Company 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.
ILLIQUID SECURITIES. The Portfolio may not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements that 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. Other securities considered illiquid are time deposits
with maturities in excess of seven days, variable rate demand notes with demand
periods in excess of seven days unless the Portfolio's investment adviser
determines that such notes are readily marketable and could be sold promptly at
the prices at which they are valued and GICs. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. Securities that
have legal or contractual restrictions on resale but have a readily available
market are not considered illiquid for purposes of this limitation. The
Portfolio's investment adviser will monitor the liquidity of such restricted
securities under the supervision of the Board of Directors. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended, securities which are
otherwise not readily marketable and repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of 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. Illiquid securities would be more
difficult to dispose of than liquid securities to satisfy redemption requests.
The Portfolio 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
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the Portfolio'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 the Portfolio during any period that qualified
institutional buyers become uninterested in purchasing restricted securities.
The Portfolio's investment adviser will monitor the liquidity of
restricted securities in the Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment 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).
STAND-BY COMMITMENTS. The Portfolio may enter into stand-by commitments
with respect to obligations issued by or on behalf of states, territories, and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities (collectively,
"Municipal Obligations") held in its portfolio. Under a stand-by commitment, a
dealer would agree to purchase at the Portfolio's option a specified Municipal
Obligation at its amortized cost value to the Portfolio plus accrued interest,
if any. Stand-by commitments may be exercisable by the Portfolio at any time
before the maturity of the underlying Municipal Obligations and may be sold,
transferred or assigned only with the instruments involved.
The Portfolio expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Portfolio may pay for a stand-by commitment
either in cash or by paying a higher price for portfolio securities which are
acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the Portfolio will not
exceed 1/2 of 1% of the value of the Portfolio's total assets calculated
immediately after each stand-by commitment is acquired.
The Portfolio intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the investment adviser's opinion,
present minimal credit risks. This Portfolio's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment. The acquisition of a
stand-by commitment may increase the cost, and thereby reduce the yield, of the
Municipal Obligation to which such commitment relates.
The Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligation which will
continue to be valued in accordance with the amortized cost method. The actual
stand-by commitment will be valued at zero in determining net asset value.
Accordingly, where the Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by the
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Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A fundamental limitation or policy of the Portfolio may not be changed
without the affirmative vote of the holders of a majority of the Portfolio's
outstanding shares. 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 Portfolio means, with respect to the approval of
an investment advisory agreement, a distribution plan or a change in a
fundamental investment limitation, the lesser of: (1) 67% of the shares of the
particular class, series or Portfolio represented at a meeting at which the
holders of more than 50% of the outstanding shares of such class, series or
Portfolio are present in person or by proxy; or (2) more than 50% of the
outstanding shares of such class, series or Portfolio.
The Company's Board of Directors can change the investment objective of
each Fund. Shareholders will be given notice before any such change is made.
The Money Market Portfolio may not:
1. borrow money, except from banks for temporary purposes and for
reverse repurchase agreements and then in amounts not in
excess of 10% of the value of the Portfolio's total assets at
the time of such borrowing, and only if after such borrowing
there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge, or hypothecate any of its
assets except in connection with such borrowings and then in
amounts not in excess of 10% of the value of the Portfolio's
total assets at the time of such borrowing or purchase
portfolio securities while borrowings are in excess of 5% of
the Portfolio's net assets. (This borrowing provision is not
for investment leverage, but solely to facilitate management
of the Portfolio's securities by enabling the Portfolio to
meet redemption requests where the liquidation of portfolio
securities is deemed to be disadvantageous or inconvenient.);
2. purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
3. underwrite securities of other issuers, except to the extent
that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under
federal securities laws and except to the extent that the
purchase of Municipal Obligations directly from the issuer
thereof in accordance with the Portfolio's investment
objective, policies and limitations may be deemed to be an
underwriting;
4. make short sales of securities or maintain a short position or
write or sell puts, calls, straddles, spreads or combinations
thereof;
5. purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein;
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6. purchase or sell commodities or commodity contracts;
7. invest in oil, gas or mineral exploration or development
programs;
8. make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective,
policies and limitations and may enter into repurchase
agreements;
9. purchase any securities issued by any other investment company
except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets
of such an issuer;
10. make investments for the purpose of exercising control or
management;
11. 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 the Portfolio's total assets
would be invested in the securities of such issuer, or more
than 10% of the outstanding voting securities of such issuer
would be owned by the Portfolio, except that up to 25% of the
value of the Portfolio's assets may be invested without regard
to this 5% limitation;
12. purchase any securities other than money market instruments,
some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in
amounts not in excess of 5% of the value of the Portfolio's
assets and may make time deposits;
13.* purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of
the Portfolio to be invested in the obligations of issuers in
the banking industry, or in obligations, such as repurchase
agreements, secured by such obligations (unless the Portfolio
is in a temporary defensive position) or which would cause, at
the time of purchase, more than 25% of the value of its total
assets to be invested in the obligations of issuers in any
other industry; and
14. invest more than 5% of its total assets (taken at the time of
purchase) in securities of issuers (including their
predecessors) with less than three years of continuous
operations.
* WITH RESPECT TO THIS LIMITATION, THE PORTFOLIO WILL CONSIDER
WHOLLY-OWNED FINANCE COMPANIES TO BE IN THE INDUSTRIES OF
THEIR PARENTS IF THEIR ACTIVITIES ARE PRIMARILY RELATED TO
FINANCING THE ACTIVITIES OF THE PARENTS, AND WILL DIVIDE
UTILITY COMPANIES ACCORDING TO THEIR SERVICES. FOR EXAMPLE,
GAS, GAS TRANSMISSION, ELECTRIC AND GAS, ELECTRIC AND
TELEPHONE WILL EACH BE CONSIDERED A SEPARATE INDUSTRY. THE
POLICY AND PRACTICES STATED IN THIS PARAGRAPH MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL, HOWEVER, ANY CHANGE WOULD BE
SUBJECT TO ANY APPLICABLE REQUIREMENTS OF THE SEC AND WOULD BE
DISCLOSED IN THE PROSPECTUS PRIOR TO BEING MADE.
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NON-FUNDAMENTAL INVESTMENT LIMITATIONS AND POLICIES.
A non-fundamental investment limitation or policy may be changed by the
Board of Directors without shareholder approval. However, shareholders will be
notified of any changes to any of the following limitations or policies.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the
1940 Act, the Portfolio will limit its purchases of:
1. the securities of any one issuer, other than issuers of U.S.
Government securities, to 5% of its total assets, except that
the Portfolio may invest more than 5% of its total assets in
First Tier Securities of one issuer for a period of up to
three business days. "First Tier Securities" include eligible
securities that:
(i) if rated by more than one Rating Organization (as
defined in the Prospectus), are rated (at the time of
purchase) by two or more Rating Organizations in the
highest rating category for such securities;
(ii) if rated by only one Rating Organization, are rated by
such Rating Organization in its highest rating category
for such securities;
(iii) have no short-term rating and are comparable in
priority and security to a class of short-term
obligations of the issuer of such securities that have
been rated in accordance with (i) or (ii) above; or
(iv) are Unrated Securities that are determined to be of
comparable quality to such securities. Purchases of
First Tier Securities that come within categories (ii)
and (iv) above will be approved or ratified by the Board
of Directors;
2. Second Tier Securities, which are eligible securities other
than First Tier Securities, to 5% of its total assets; and
3. Second Tier Securities of one issuer to the greater of 1% of
its total assets or $1 million.
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MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS.
The business and affairs of the Company are managed under the direction
of the Company's Board of Directors. The directors and executive officers of the
Company, 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 Pincus
c/o 400 Bellevue Parkway Asset Management, Inc., Executive Officer
Wilmington, DE 19809 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 Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 64 Director Since 1963, Executive Vice President, Fox
Fox Chase Cancer Center Chase Cancer Center (biomedical research and
7701 Burholme Avenue 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 - 65 Director Director and Vice Chairman, since 1969
Comcast Corporation Comcast Corporation (cable television and
1500 Market Street communications); Director, Comcast U.K.
35th Floor
Philadelphia, PA 19102
-13-
<PAGE>
Donald van Roden - 75 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 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 Chairman
400 Bellevue Parkway of the Board, Fox Chase Cancer Center;
Wilmington, DE 19809 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 Independence Square
Income Securities, Inc.; Director of the
Bradford Funds, Inc.
Morgan R. Jones - 60 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Education
One Logan Square Dynamics, Inc.; Secretary, Petroferm, Inc.
18th & Cherry Streets
Philadelphia, PA 19103
* Each of Mr. Sablowsky and Mr. Sternberg is an "interested person" of RBB, as that term is defined in the
1940 Act.
</TABLE>
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 the Company 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 the Company 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 the Company.
The Company currently pays directors $15,000 annually and $1,250 per
-14-
<PAGE>
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 the
Company in the following amounts:
<TABLE>
<CAPTION>
DIRECTORS' COMPENSATION.
PENSION OR
RETIREMENT ESTIMATED TOTAL
AGGREGATE BENEFITS ANNUAL COMPENSATION
COMPENSATION ACCRUED AS BENEFITS FROM FUND AND
NAME OF PERSON/ FROM PART OF COMPANY UPON FUND COMPLEX
POSITION REGISTRANT EXPENSES RETIREMENT PAID TO DIRECTORS
- --------------- ------------ --------------- ---------- ----------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, $19,250 N/A N/A $19,250
Director
Francis J. McKay, $16,750 N/A N/A $16,750
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $18,250 N/A N/A $18,250
Director
Marvin E. Sternberg, $19,250 N/A N/A $19,250
Director
Donald van Roden, $25,250 N/A N/A $25,250
Director and Chairman
</TABLE>
On October 24, 1990 the Company adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach), pursuant to which the Company
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
BlackRock Institutional Management Corporation ("BIMC") (formerly known as "PNC
Institutional Management Corporation"), the Portfolio's adviser, PFPC Trust
Company, the Company's custodian, PFPC Inc. ("PFPC"), the administrator to the
Municipal Money Market Portfolio and the Company's transfer and dividend
disbursing agent, and Provident Distributors Inc. (the "Distributor"), the
Company's distributor, the Company itself requires only one part-time employee.
Drinker Biddle & Reath LLP, of which Mr. Jones is a partner, receives legal fees
as counsel to the Company. No officer, director or employee of BIMC, PFPC Trust
Company, PFPC or the Distributor currently receives any compensation from the
Company.
-15-
<PAGE>
CONTROL PERSONS
As of November 17, 1999, (except with respect to the Bedford Municipal
Money Market Fund and Bedford Government Obligations Fund for which information
is provided as of September 3, 1999 and September 8, 1999, respectively) to the
Company's knowledge, the following named persons at the addresses shown below
owned of record approximately 5% or more of the total outstanding shares of the
class of the Company indicated below. See "Additional Information Concerning RBB
Shares" below. The Company 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 MONEY MARKET Gabe Nechamkin 7.40%
27 Muchmore Road
Harrison, NY 10528-1109
- ------------------------------------- ------------------------------------------------------- ------------------------
CASH PRESERVATION MONEY MARKET Harold T. Erfer 6.349%
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 in Tr. 12.785%
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 MONEY MARKET Saxon and Co. 65.047%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 Portfolio 12.161%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------- ------------------------------------------------------- ------------------------
Warburg Pincus Trust-International Equity Portfolio 15.203%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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. 20.546%
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 VALUE 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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 FUND INST Shady Side Academy Endowment 5.631%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS LARGE CAP FUND Charles Schwab & Co. Inc. 66.397%
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 VALUE FUND MAC & CO. 5.642%
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 VALUE FUND National Financial Svcs. Corp. for Exclusive 17.061%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 INVESTOR Charles Schwab & Co. Inc 81.125%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 NEUTRAL Boston Partners Asset Mgmt. L. P. 100.000%
FUND- INSTITUTIONAL SHARES Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MARKET NEUTRAL Glenn P. Verrette and Laurie Jo Verrette 6.690%
FUND- INVESTOR SHARES Jt. Ten. Wros.
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 FUND Arnold C. Schneider III 13.637%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
Mark Shevitz 7.206%
Rollover IRA
65 Wardell St.
Rumson, NJ 07760
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
<PAGE>
As of November 17, 1999, directors and officers as a group owned less
than one percent of the shares of the Company.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS.
The Portfolio has an investment advisory agreement with BIMC. Although
BIMC in turn has a sub-advisory agreement with PNC Bank dated August 16, 1988,
as of April 29, 1998, BIMC assumed the advisory responsibilities from PNC Bank.
Pursuant to the Sub-Advisory Agreement, PNC Bank would be entitled to receive an
annual fee from BIMC for its sub-advisory services calculated at the annual rate
of 75% of the fees received by BIMC. The advisory agreement is dated August 16,
1988. The advisory and sub-advisory agreements are hereinafter collectively
referred to as the "Advisory Agreements."
-24-
<PAGE>
For the fiscal year ended August 31, 1999, the Company paid BIMC
(excluding fees to PFPC, with respect to the Portfolio, for administrative
services obligated under the Advisory Agreement) advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$6,580,761 $2,971,645 $819,409
For the fiscal year ended August 31, 1998, the Company paid BIMC
(excluding fees to PFPC, for administrative services obligated under the
Advisory Agreement) advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$6,283,705 $3,334,990 $692,630
For the fiscal year ended August 31, 1997, the Company paid BIMC
advisory fees as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$5,366,431 $3,603,130 $469,986
The Portfolio bears all of its own expenses not specifically assumed by
BIMC. General expenses of the Company not readily identifiable as belonging to a
portfolio of the Company are allocated among all investment portfolios by or
under the direction of the Company's Board of Directors in such manner as the
Board determines to be fair and equitable. Expenses borne by the Portfolio
include, but are not limited to, the following (or the Portfolio's share of the
following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of the Portfolio
by BIMC; (c) any costs, expenses or losses arising out of a liability of or
claim for damages or other relief asserted against the Company or the Portfolio
for violation of any law; (d) any extraordinary expenses; (e) fees, voluntary
assessments and other expenses incurred in connection with membership in
investment company organizations; (f) the cost of investment company literature
and other publications provided by the Company to its directors and officers;
(g) organizational costs; (h) fees paid to the investment adviser and PFPC; (i)
fees and expenses of officers and directors who are not affiliated with the
Portfolio's investment adviser or Distributor; (j) taxes; (k) interest; (l)
legal fees; (m) custodian fees; (n) auditing fees; (o) brokerage fees and
commissions; (p) certain of the fees and expenses of registering and qualifying
the Portfolio and its shares for distribution under federal and state securities
laws; (q)
-25-
<PAGE>
expenses of preparing prospectuses and statements of additional information and
distributing annually to existing shareholders that are not attributable to a
particular class of shares of the Company; (r) the expense of reports to
shareholders, shareholders' meetings and proxy solicitations that are not
attributable to a particular class of shares of the Company; (s) fidelity bond
and directors' and officers' liability insurance premiums; (t) the expense of
using independent pricing services; and (u) other expenses which are not
expressly assumed by the Portfolio's investment adviser under its advisory
agreement with the Portfolio. The Principal Class of the Company pays its own
distribution fees, and may pay a different share than other classes of the
Company (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by the Principal Class or if it receives
different services.
Under the Advisory Agreement, BIMC and PNC Bank will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Company
or the Portfolio in connection with the performance of the Advisory Agreement,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of BIMC or PNC Bank in the performance of their respective duties or
from reckless disregard of their duties and obligations thereunder.
The Advisory Agreements were most recently approved July 28, 1999 by a
vote of the Company's Board of Directors, including a majority of those
directors who are not parties to the Advisory Agreement or "interested persons"
(as defined in the 1940 Act) of such parties. The Advisory Agreements were
approved by the shareholders at a special meeting held on December 22, 1989, as
adjourned. The Advisory Agreement is terminable by vote of the Company's Board
of Directors or by the holders of a majority of the outstanding voting
securities of the Portfolio, at any time without penalty, on 60 days' written
notice to BIMC or PNC Bank. The Advisory Agreement may also be terminated by
BIMC or PNC Bank on 60 days' written notice to the Company. The Advisory
Agreement terminates automatically in the event of its assignment.
ADMINISTRATION AGREEMENT.
BIMC is obligated to render administrative services to the Portfolio
pursuant to the investment advisory agreement. Pursuant to the terms of a
Delegation Agreement, dated July 29, 1998, between BIMC and PFPC, however, BIMC
has delegated to PFPC its administrative responsibilities to the Portfolio. The
Company pays administrative fees directly to PFPC.
For the fiscal year ended August 31, 1999, the Company paid PFPC
administration fees, and PFPC waived fees and/or reimbursed expenses as follows:
FEES PAID
(AFTER WAIVERS AND
REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
------------------ ------- --------------
$2,577,726 $0 $0
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS.
-26-
<PAGE>
PFPC Trust Company is custodian of the Company's assets pursuant to a
custodian agreement dated August 16, 1988, as amended (the "Custodian
Agreement"). Under the Custodian Agreement, PFPC Trust Company: (a) maintains a
separate account or accounts in the name of the Portfolio; (b) holds and
transfers portfolio securities on account of the Portfolio; (c) accepts receipts
and makes disbursements of money on behalf of the Portfolio; (d) collects and
receives all income and other payments and distributions on account of the
Portfolio's portfolio securities; and (e) makes periodic reports to the
Company's Board of Directors concerning the Portfolio's operations. PFPC Trust
Company is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Company, provided that PFPC Trust Company remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Company harmless from the acts and omissions of any sub-custodian.
For its services to the Company under the Custodian Agreement, PFPC Trust
Company receives a fee which is calculated based upon the Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000, exclusive of transaction charges
and out-of-pocket expenses, which are also charged to the Company.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Company's Principal Class of the Portfolio pursuant to
a Transfer Agency Agreement dated August 16, 1988 (the "Transfer Agency
Agreement"), under which PFPC: (a) issues and redeems shares of the Principal
Class of the Portfolio; (b) addresses and mails all communications by the
Portfolio to record owners of shares of such Class, 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 the Company's Board of Directors
concerning the operations of the Principal Class. PFPC may, on 30 days' notice
to the Company, assign its duties as transfer and dividend disbursing agent to
any other affiliate of PNC Bank Corp. For its services to the Company under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in the Portfolio for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
the Portfolio for all other orders, exclusive of out-of-pocket expenses, and
also receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolio.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Company on behalf of their customers and to provide sweep processing for
uninvested cash balances for customers participating in a cash management
account. In addition to the shareholder records maintained by PFPC, Authorized
Dealers may maintain duplicate records for their customers who are shareholders
of the Portfolio for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized
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Dealers may receive fees from PFPC. Such fees will have no effect upon the fees
paid by the Company to PFPC.
DISTRIBUTION AGREEMENT.
Pursuant to the terms of a distribution agreement, dated as of June 25,
1999, and supplements entered into by the Distributor and the Company on behalf
of the Principal Class of the Portfolio, (the "Distribution Agreement") and a
Plan of Distribution, as amended, for the Principal Class of the Portfolio (the
"Plan"), which was adopted by the Company in the manner prescribed by Rule 12b-1
under the 1940 Act, the Distributor will use appropriate efforts to distribute
shares of the Principal Class of the Portfolio. Payments to the Distributor
under the Plan are to compensate it for distribution assistance and expenses
assumed and activities intended to result in the sale of shares of the Principal
Class of the Portfolio. As compensation for its distribution services, the
Distributor receives, pursuant to the terms of the Distribution Agreement, a
distribution fee, to be calculated daily and paid monthly, at the annual rate
set forth in the Prospectus. The Distributor currently proposes to reallow up to
all of its distribution payments to broker/dealers for selling shares of the
Portfolio based on a percentage of the amounts invested by their customers.
The Plan was approved by the Company's Board of Directors, including
the directors who are not "interested persons" of the Company and who have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan ("12b-1 Directors").
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Among other things, the Plan provides that: (1) the Distributor shall
be required to submit quarterly reports to the directors of the Company
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Company's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Company on the distribution of the Company's
shares of the Principal Class under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the Company's
shares in the Principal Class; and (4) while the Plan remains in effect, the
selection and nomination of the 12b-1 Directors shall be committed to the
discretion of the directors who are not interested persons of the Company.
During the period June 1, 1998 through August 31, 1999, the Company
paid distribution fees to PDI under the Plan for the Principal Class of the
Money Market Portfolio in the aggregate amount of $225,438. Of this amount
$225,438 was paid to dealers with whom PDI had entered into dealer agreements,
and $0 was retained by PDI.
The amounts retained by PDI were used to pay certain advertising and
promotion, printing, postage, legal fees, travel, entertainment, sales,
marketing and administrative expenses. The Company believes that the Plan may
benefit the Company by increasing sales of Shares. Mr. Sablowsky, a Director of
the Company, had an indirect interest in the operation of the Plan by virtue of
his position with Fahnestock Co., Inc., a broker-dealer.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining maturities
of 13 months or less, except for securities that are subject to repurchase
agreements (which in turn may have maturities of 13 months or less). However,
the Portfolio may purchase variable rate securities with remaining maturities of
13 months or more so long as such securities comply with conditions established
by the SEC under which they may be considered to have remaining maturities of 13
months or less. Because the Portfolio intends to purchase only securities with
remaining maturities of 13 months or less, its portfolio turnover rates will be
relatively high. However, because brokerage commissions will not normally be
paid with respect to investments made by the Portfolio, the turnover rate should
not adversely affect the Portfolio's net asset value or net income. The
Portfolio does not intend to seek profits through short term trading.
Purchases of portfolio securities by the Portfolio are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. The
Portfolio does not currently expect to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities
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are purchased directly from or sold directly to an issuer, no commissions or
discounts are paid. It is the policy of the Portfolio to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of the Portfolio, BIMC will
effect transactions with those dealers it believes provide the most favorable
prices and are capable of providing efficient executions. In no instance will
portfolio securities be purchased from or sold to the Distributor or BIMC or any
affiliated person of the foregoing entities except to the extent permitted by
SEC exemptive order or by applicable law.
BIMC 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 Portfolio 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 Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for the Portfolio and for other investment
accounts managed by BIMC are made independently of each other in 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 the Portfolio is concerned, in other cases it is
believed to be beneficial to the Portfolio. The Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which BIMC or any affiliated person (as defined in the 1940
Act) thereof is a member except pursuant to procedures adopted by the Company's
Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Company's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that BIMC not participate in or benefit from the sale to the
Portfolio.
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. 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.
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (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
GG (n/i numeric Growth) 50 Delta 4 (N.Y. Money) 1
HH (n/i numeric Mid Cap) 50 Epsilon 1 (Money) 1
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
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (MILLIONS)
- ------------------------------------- -------------------- ----------------------------------- --------------------
<S> <C> <C> <C>
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 interests 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 and 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 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
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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 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 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).
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 Company
reserves the right, if conditions exist which make cash payments undesirable, to
honor any request for redemption or repurchase of the Portfolio's shares by
making payment in whole or in part in securities chosen by the Company and
valued in the same way as they would be valued for purposes of computing the
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Company
has elected, however, to be governed by Rule 18f-1 under the 1940 Act so that
the Portfolio is obligated to redeem its shares solely in cash up to the lesser
of $250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of the Portfolio. 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. (The Portfolio may also suspend or postpone the recordation
of the transfer of its shares upon the occurrence of any of the foregoing
conditions.)
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.
VALUATION OF SHARES
The Company intends to use its best efforts to maintain the net asset
value of each class of the Portfolio at $1.00 per share. Net asset value per
share, the value of an individual share in
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the Portfolio, is computed by adding the value of the proportionate interest of
the class in the Portfolio's securities, cash and other assets, subtracting the
actual and accrued liabilities of the class and dividing the result by the
number of outstanding shares of such class. The net asset value of each class of
the Company is determined independently of the other classes. The Portfolio's
"net assets" equal the value of the Portfolio's investments and other securities
less its liabilities. The Portfolio's net asset value per share is computed
twice each day, as of 12:00 noon (Eastern Time) and 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 both the NYSE and the Federal Reserve
Bank of Philadelphia (the "FRB") are open. Currently, the NYSE is closed
weekends and 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 the preceding Friday and subsequent Monday when one of
these holidays falls on a Saturday or Sunday. The FRB is currently closed on
weekends and the same holidays as the NYSE as well as Columbus Day and Veterans'
Day.
The Company calculates the value of the portfolio securities of the
Portfolio by using the amortized cost method of valuation. Under this method the
market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased,
the Portfolio may have to sell portfolio securities prior to maturity and at a
price which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Company's Board
of Directors has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share for the Portfolio, which include a
review of the extent of any deviation of net asset value per share, based on
available market quotations, from the $1.00 amortized cost per share. Should
that deviation exceed 1/2 of 1% for the Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 13 months, will limit
portfolio investments, including repurchase agreements (where permitted), to
those United States dollar-denominated instruments that BIMC determines present
minimal credit risks pursuant to guidelines adopted by the Board of Directors,
and BIMC will comply with certain reporting and recordkeeping procedures
concerning such credit determination. There is no assurance that constant net
asset value will be maintained. In the event
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amortized cost ceases to represent fair value in the judgment of the Company's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments,
the Company 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 Company's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Company's Board of
Directors.
PERFORMANCE INFORMATION
The Portfolio's current and effective yields are computed using
standardized methods required by the SEC. The annualized yields for the
Portfolio are computed by: (a) determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of a
seven-calendar day period; (b) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared and all dividends declared on both the
original share and such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed by adding 1 to the base period return (calculated as
described above), raising the sum to a power equal to 365/7 and subtracting 1.
The annualized yield for the seven-day period ended August 31, 1999 for
the Principal Class of the Money Market Portfolio before waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
YIELD YIELD INCOME TAX RATE OF 28%)
----- --------- -----------------------
4.56% 4.66% N/A
The annualized yield for the seven-day period ended August 31, 1999 for
the Principal Class of the Money Market Portfolio after waivers was as follows:
TAX-EQUIVALENT YIELD
EFFECTIVE (ASSUMES A FEDERAL
YIELD YIELD INCOME TAX RATE OF 28%)
----- --------- -----------------------
4.57% 4.67% N/A
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of the Portfolio will fluctuate, they cannot
be compared with yields on
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savings accounts or other investment alternatives that provide an agreed to or
guaranteed fixed yield for a stated period of time. However, yield information
may be useful to an investor considering temporary investments in money market
instruments. In comparing the yield of one money market fund to another,
consideration should be given to each fund's investment policies, including the
types of investments made, lengths of maturities of the portfolio securities,
the method used by each fund to compute the yield (methods may differ) and
whether there are any special account charges which may reduce the effective
yield.
The yields on certain obligations, including the money market
instruments in which the Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by the Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, BIMC will
consider whether the Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
yields of the Portfolio may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yield of the Portfolio may be compared to the Donoghue's Money
Company Average, which is an average compiled by IBC Money Company Report(R), a
widely recognized independent publication that monitors the performance of money
market funds, or to the data prepared by Lipper Analytical Services, Inc., a
widely-recognized independent service that monitors the performance of mutual
funds.
TAXES
The Portfolio intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute its
respective income to shareholders each year, so that the Portfolio generally
will be relieved of federal income and excise taxes. If the Portfolio were to
fail to so qualify: (1) the Portfolio 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 the
Company and the non-interested directors.
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INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP serves as the Company's independent
accountants. PricewaterhouseCoopers LLP performs an annual audit of the
Company's financial statements.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Portfolio's
Annual Report to Shareholders for the fiscal year ended August 31, 1999 (the
"1999 Annual Report") 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 the Company's independent accountants,
PricewaterhouseCoopers LLP. The reports of PricewaterhouseCoopers LLP are
incorporated herein by reference. 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 at no charge by telephoning the Distributor at the telephone number
appearing on the front page of this Statement of Additional Information.
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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:
"A1" - 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.
A-5
<PAGE>
N.R. Not rated. Debt obligations of issuers outside the United
States and its 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.
A-6
<PAGE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. 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-7
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. 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.
A-8
<PAGE>
'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 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.
A-9
<PAGE>
Municipal Note Ratings
A Standard and Poor's note rating reflects the liquidity
factors and market access 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
<PAGE>
BOSTON PARTNERS
FAMILY OF FUNDS
OF
THE RBB FUND, INC.
Institutional and Investor Classes
Boston Partners Large Cap Value Fund
Boston Partners Mid Cap Value Fund
Boston Partners Micro Cap Value Fund
Boston Partners Bond Fund
Boston Partners Market Neutral Fund
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1999
This Statement of Additional Information ("SAI") provides information
about the, Boston Partners Large Cap Value Fund (the "Large Cap Value Fund"),
Boston Partners Mid Cap Value Fund (the "Mid Cap Value Fund"), Boston Partners
Micro Cap Value Fund (the "Micro Cap Value Fund"), Boston Partners Bond Fund
(the "Bond Fund") and the Boston Partners Market Neutral Fund (the "Market
Neutral Fund"),(each a "Fund" and collectively, the "Funds") of The RBB Fund,
Inc. (the "Company"). This information is in addition to the information
contained in Boston Partners 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 by calling toll-free (888) 261-4073.
<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION.......................................................... 1
INVESTMENT INSTRUMENTS AND POLICIES.......................................... 1
INVESTMENT LIMITATIONS.......................................................20
MANAGEMENT OF THE COMPANY....................................................23
Directors and Officers..............................................23
Directors' Compensation.............................................24
CONTROL PERSONS..............................................................24
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING
ARRANGEMENTS........................................................33
Advisory Agreements.................................................33
Custodian and Transfer Agency Agreements............................35
Administration Agreement............................................36
Distribution Agreement..............................................37
Administrative Services Agent.......................................40
PORTFOLIO TRANSACTIONS.......................................................41
PURCHASE AND REDEMPTION INFORMATION..........................................42
VALUATION OF SHARES..........................................................43
PERFORMANCE INFORMATION......................................................44
TAXES........................................................................46
ADDITIONAL INFORMATION CONCERNING RBB SHARES ................................47
MISCELLANEOUS................................................................50
Counsel.............................................................50
Independent Accountants.............................................50
FINANCIAL STATEMENTS.........................................................50
APPENDIX A..................................................................A-1
-i-
<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 Institutional and Investor 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, with the exception of the Bond Fund, invest primarily in
equity markets at all times. Equity markets can be highly volatile, so that
investing in the Funds involves substantial risk. As a result, investing in the
Funds involves the risk of loss of capital.
MICRO CAP AND MID CAP STOCKS
Securities of companies with micro and mid-size capitalizations tend to
be riskier than securities of companies with large capitalizations. This is
because micro and mid cap companies typically have smaller product lines and
less access to liquidity than large cap companies, and are therefore more
sensitive to economic downturns. In addition, growth prospects of micro and mid
cap companies tend to be less certain than large cap companies, and the
dividends paid on micro and mid cap stocks are frequently negligible. Moreover,
micro and mid cap stocks have, on occasion, fluctuated in the opposite direction
of large cap stocks or the general stock market. Consequently, securities of
micro and mid cap companies tend to be more volatile than those of 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.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities to financial institutions
in accordance with the investment restrictions described below. Such loans would
involve risks of delay in receiving additional collateral in the event the value
of the collateral decreased below the value of the securities loaned or of delay
in recovering the securities loaned or even loss of rights in the collateral
should the borrower of the securities fail financially. However, loans will be
made only to borrowers deemed by the Funds' investment adviser to be of good
standing and only
-1-
<PAGE>
when, in the Adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of a Fund's securities will be fully
collateralized and marked to market daily.
BORROWING
The Market Neutral Fund may borrow up to 33 1/3 percent of its
respective total assets. The Adviser intends to borrow only for temporary or
emergency purposes, including to meet portfolio redemption requests so as to
permit the orderly disposition of portfolio securities, or to facilitate
settlement transactions on portfolio securities. Investments will not be made
when borrowings exceed 5% of a fund's total assets. Although the principal of
such borrowings will be fixed, the Fund's assets may change in value during the
time the borrowing is outstanding. The Fund expects that some of its borrowings
may be made on a secured basis. In such situations, either the custodian will
segregate the pledged assets for the benefit of the lender or arrangements will
be made with a suitable subcustodian, which may include the lender. 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.
INDEXED SECURITIES
The Funds may invest in indexed securities whose value is linked to
securities indices. Most such securities have values which rise and fall
according to the change in one or more specified indices, and may have
characteristics similar to direct investments in the underlying securities.
Depending on the index, such securities may have greater volatility than the
market as a whole. Each of the Bond, Large Cap Value, Mid Cap Value and Micro
Cap Value Funds do not presently intend to invest more than 5% of their
respective net assets in indexed securities.
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 securities held subject to a repurchase
agreement may have stated maturities exceeding 13 months, provided the
repurchase agreement itself matures in less than 13 months. The financial
institutions with whom the Fund may enter into repurchase agreements will be
banks which the Adviser considers creditworthy pursuant to criteria approved by
the Board of Directors and non-bank dealers of U.S. Government securities that
are listed on the Federal Reserve Bank of New York's list of reporting dealers.
The Adviser will consider the creditworthiness of a seller in determining
whether to have the Fund enter into a repurchase agreement. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price plus accrued
interest. The Adviser will mark to market daily the value of the securities, and
will, if necessary, require the seller to maintain additional securities, to
ensure that the value is not less than the repurchase price. Default by or
bankruptcy of the seller would, however, expose the Fund to possible loss
because of adverse market action or delays in connection with the disposition of
the underlying obligations.
2
<PAGE>
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
The Funds may enter into reverse repurchase agreements with respect to
portfolio securities for temporary purposes (such as to obtain cash to meet
redemption requests) when the liquidation of portfolio securities is deemed
disadvantageous or inconvenient by the Adviser. Reverse repurchase agreements
involve the sale of securities held by 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 Investment Company Act
of 1940 (the "1940 Act"), and may be entered into only for temporary or
emergency purposes. While reverse repurchase transactions are outstanding, a
Fund will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash or liquid securities of an amount at least equal
to the market value of the securities, plus accrued interest, subject to the
agreement and will monitor the account to ensure that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Fund may decline below the price of the securities the
Fund is obligated to repurchase and the interest received on the cash exchanged
for the securities. The Bond, Large Cap Value, Mid Cap Value and Micro Cap Value
Funds may also enter into "dollar rolls," in which it sells fixed income
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period, a Fund would forgo principal
and interest paid on such securities. The Fund would be compensated by the
difference between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the initial
sale. The return on dollar rolls may be negatively impacted by fluctuations in
interest rates. The Funds do not presently intend to engage in reverse
repurchase transactions involving more than 5% of each Fund's respective net
assets. The Bond, Large Cap Value, Mid Cap Value and Micro Cap Value Funds do
not presently intend to engage in dollar roll transactions involving more than
5% of each Fund's respective net assets.
U.S. GOVERNMENT OBLIGATIONS
The Funds may purchase U.S. Government agency and instrumentality
obligations that are debt securities issued by U.S. Government-sponsored
enterprises and federal agencies. Some obligations of agencies and
instrumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Government or by U.S. Treasury guarantees, such as securities
of the Government National Mortgage Association and the Federal Housing
Authority; others, by the ability of the issuer to borrow, provided approval is
granted, from the U.S. Treasury, such as securities of the Federal Home Loan
Mortgage Corporation and others, only by the credit of the agency or
instrumentality issuing the obligation, such as securities of the Federal
National Mortgage Association and the Federal Loan Banks. U.S. government
obligations that are not backed by the full faith and credit of the U.S.
government are subject to greater risks than those that are. U.S. government
obligations that are backed by the full faith and credit of the U.S. government
are subject to interest rate risk.
Each Fund's net assets may be invested in obligations issued or
guaranteed by the U.S. Treasury or the agencies or instrumentalities of the U.S.
Government, including options and futures on such obligations. The maturities of
U.S. Government securities usually range from three months to thirty years.
Examples of types of U.S. Government obligations include U.S. Treasury Bills,
Treasury Notes and Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage
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Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, the Maritime Administration, the
Asian-American Development Bank and the Inter-American Development Bank. The
Bond, Large Cap Value, Mid Cap Value and Micro Cap Value Funds do not presently
intend to invest more than 5% of each Fund's respective net assets in U.S.
Government obligations.
ILLIQUID SECURITIES
A Fund may not invest more than 15% of its net assets in illiquid
securities (including repurchase agreements that have a maturity of longer than
seven days), including securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not considered illiquid for purposes of this
limitation. With respect to each Fund, 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 restricted
or other illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
Each Fund 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 Funds' 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 held by
a Fund 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).
SECURITIES OF UNSEASONED ISSUERS
The Market Neutral Fund may invest in securities of unseasoned issuers,
including equity securities of unseasoned issuers which are not readily
marketable,
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provided the aggregate investment in such securities would not exceed 5% of such
Fund's net assets. The term "unseasoned" refers to issuers which, together with
their predecessors, have been in operation for less than three years.
CONVERTIBLE SECURITIES
The Bond and Large Cap Value Funds may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. A convertible security entitles
the holder to receive interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Before conversion, convertible securities have characteristics
similar to nonconvertible debt securities in that they ordinarily provide a
stable stream of income with generally higher yields than those of common stocks
of the same or similar issuers. Convertible securities rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. While no securities investment is
completely without risk, investments in convertible securities generally entail
less risk than the corporation's common stock, although the extent to which such
risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally: (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities; (2) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics;
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value, if
converted into the underlying common stock). The investment value of a
convertible security is influenced by changes in interest rates, with investment
value declining as interest rates increase and increasing as interest rates
decline. The credit standing of the issuer and other factors also may have an
effect on the convertible security's investment value. The conversion value of a
convertible security is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value, the
price of the convertible security is governed principally by its investment
value. Generally the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. A convertible
security generally will sell at a premium over its conversion value by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
A convertible security might be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by either the Bond or Large Cap Value
Fund is called for redemption, that Fund will be required to
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permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party. The Bond and Large Cap Value Funds do not
presently intend to invest more than 5% of each Fund's respective net assets in
convertible securities, or securities received by a Fund upon conversion
thereof.
HEDGING INVESTMENTS
At such times as the Adviser deems it appropriate and consistent with a
Fund's investment objective, the Large Cap Value, Mid Cap Value and Micro Cap
Value Funds may invest in financial futures contracts and options on financial
futures contracts. The purpose of such transactions is to hedge against changes
in the market value of securities in a Fund caused by fluctuating interest rates
and to close out or offset its existing positions in such futures contracts or
options as described below. Such instruments will not be used for speculation.
Futures contracts and options on futures are discussed below.
FUTURES CONTRACTS
The Large Cap Value, Mid Cap Value and Micro Cap Value Funds may invest
in financial futures contracts with respect to those securities listed on the S
& P 500 Stock Index ("Index Futures"). The Bond Fund may enter into futures
contracts based on various securities (such as U.S. Government Securities),
foreign securities, securities indices and other financial instruments and
indices. Financial futures contracts obligate the seller to deliver a specific
type of security called for in the contract, at a specified future time, and for
a specified price. Financial futures contracts may be satisfied by actual
delivery of the securities or, more typically, by entering into an offsetting
transaction. In contrast to purchases of a common stock, no price is paid or
received by a Fund upon the purchase of a futures contract. Upon entering into a
futures contract, the Fund will be required to deposit with its custodian in a
segregated account in the name of the futures broker a specified amount of cash
or securities. This is known by participants in the market as "initial margin."
The type of instruments that may be deposited as initial margin, and the
required amount of initial margin, are determined by the futures exchange(s) on
which the Index Futures are traded. The nature of initial margin in futures
transactions is different from that of margin in securities transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Subsequent payments, called "variation margin,"
to and from the broker, will be made on a daily basis as the price of the S&P
500 Index fluctuates, making the position in the futures contract more or less
valuable, a process known as "marking to the market." For example, when a Fund
has purchased an Index Future and the price of the S&P 500 Index has risen, that
position will have increased in value and the Fund will receive from the broker
a variation margin payment equal to that increase in value. Conversely, when a
Fund has purchased an Index Future and the price of the S&P 500 Index has
declined, the position would be less valuable and the Fund would be required to
make a variation margin payment to the broker. When a Fund terminates a position
in a futures contract, a final determination of variation margin is made,
additional cash is paid by or to the Fund, and the Fund realizes a gain or a
loss.
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The price of Index Futures may not correlate perfectly with movement in
the underlying index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the S&P 500 Index and futures
markets. Secondly, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market, and as a result the
futures market may attract more speculators than does the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions.
There are risks that are associated with the use of futures contracts
for hedging purposes. In certain market conditions, as in a rising interest rate
environment, sales of futures contracts may not completely offset a decline in
value of the portfolio securities against which the futures contracts are being
sold. In the futures market, it may not always be possible to execute a buy or
sell order at the desired price, or to close out an open position due to market
conditions, limits on open positions, and/or daily price fluctuations. Risks in
the use of futures contracts also result from the possibility that changes in
the market interest rates may differ substantially from the changes anticipated
by the Fund's investment adviser when hedge positions were established. Futures
markets are highly volatile and the use of futures may increase the volatility
of a Fund's net asset value. The Large Cap Value, Mid Cap Value and Micro Cap
Value Funds do not presently intend to invest more than 5% of each Fund's
respective net assets in futures contracts. The Bond Fund may not purchase or
sell futures contracts to seek to increase total return, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of initial margin deposits and premiums paid on the Fund's outstanding positions
in futures entered into for the purpose of seeking to increase total return
would exceed 5% of the market value of the Fund's net assets.
OPTIONS ON FUTURES
The Large Cap Value, Mid Cap Value and Micro Cap Value Funds may
purchase and write call and put options on futures contracts with respect to
those securities listed on the S & P 500 Stock Index and enter into closing
transactions with respect to such options to terminate an existing position. The
Bond Fund may purchase and write call and put options on futures contracts based
on various securities (such as U.S. Government Securities), foreign securities,
securities indices and other financial instruments and indices. The Bond Fund
may not purchase or sell options on futures contracts to seek to increase total
return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid on
the Fund's outstanding positions in futures entered into for the purpose of
seeking to increase total return would exceed 5% of the market value of the
Fund's net assets. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract. The Funds may use options on futures contracts in connection with
hedging strategies. The purchase of put options on futures contracts is a means
of hedging against the risk of rising interest rates. The purchase of call
options on futures contracts is a means of hedging against a market advance when
a Fund is not fully invested.
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Options trading is a highly specialized activity which entails greater
than ordinary investment risks. Options on particular securities may be more
volatile than the underlying securities, and therefore, on a percentage basis,
an investment in the underlying securities themselves. A Fund will write call
options only if they are "covered." In the case of a call option on a security,
the option is "covered" if a Fund owns the security underlying the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, liquid assets
in such amount as are held in a segregated account by its custodian) upon
conversion or exchange of other securities held by it. For a call option on an
index, the option is covered if a Fund maintains with its custodian liquid
assets equal to the contract value. A call option is also covered if a Fund
holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call written
provided the difference is maintained by the Fund in liquid assets in a
segregated account with its custodian.
When a Fund purchases a put option, the premium paid by it is recorded
as an asset of the Fund. When a Fund writes an option, an amount equal to the
net premium (the premium less the commission) received by the Fund is included
in the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the mean between the last bid and asked
prices. If an option purchased by a Fund expires unexercised the Fund realizes a
loss equal to the premium paid. If the Fund enters into a closing sale
transaction on an option purchased by it, the Fund will realize a gain if the
premium received by the Fund on the closing transaction is more than the premium
paid to purchase the option, or a loss if it is less. If an option written by a
Fund expires on the stipulated expiration date or if the Fund enters into a
closing purchase transaction, it will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the net premium received when the option is
sold) and the deferred credit related to such option will be eliminated. If an
option written by a Fund is exercised, the proceeds of the sale will be
increased by the net premium originally received and the Fund will realize a
gain or loss.
In addition, a liquid secondary market for particular options, whether
traded over-the-counter or on a national securities exchange ("Exchange"), may
be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an Exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading volume; or one or more Exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that Exchange would
continue to be exercisable in accordance with their terms.
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There is no assurance that a Fund will be able to close out its
financial futures positions at any time, in which case it would be required to
maintain the margin deposits on the contract. There can be no assurance that
hedging transactions will be successful, as there may be imperfect correlations
(or no correlations) between movements in the prices of the futures contracts
and of the securities being hedged, or price distortions due to market
conditions in the futures markets. Such imperfect correlations could have an
impact on the Fund's ability to effectively hedge its securities. The Bond,
Large Cap Value, Mid Cap Value and Micro Cap Value Funds do not presently intend
to invest more than 5% of each Fund's respective net assets in options on
futures.
BANK AND CORPORATE OBLIGATIONS
The Large Cap Value, Mid Cap Value and Micro Cap Value Funds may
purchase obligations of issuers in the banking industry, such as short-term
obligations of bank holding companies, certificates of deposit, bankers'
acceptances and time deposits issued by U.S. or foreign banks or savings
institutions having total assets at the time of purchase in excess of $1
billion. Investment in obligations of foreign banks or foreign branches of U.S.
banks may entail risks that are different from those of investments in
obligations of U.S. banks due to differences in political, regulatory and
economic systems and conditions. The Funds may also make interest-bearing
savings deposits in commercial and savings banks in amounts not in excess of 5%
of its total assets.
The Large Cap Value, Mid Cap Value and Micro Cap Value Funds may invest
in debt obligations, such as bonds and debentures, issued by corporations and
other business organizations that are rated at the time of purchase within the
three highest ratings categories of S&P or Moody's (or which, if unrated, are
determined by the Adviser to be of comparable quality). Unrated securities will
be determined to be of comparable quality to rated debt obligations if, among
other things, other outstanding obligations of the issuers of such securities
are rated A or better. See Appendix "A" for a description of corporate debt
ratings. An issuer of debt obligations may default on its obligation to pay
interest and repay principal. Also, changes in the financial strength of an
issuer or changes in the credit rating of a security may affect its value.
COMMERCIAL PAPER
Each Fund may purchase commercial paper rated (at the time of purchase)
"A-1" by S&P or "Prime-1" by Moody's or, when deemed advisable by the Fund's
Adviser, issues rated "A-2" or "Prime-2" by S&P or Moody's, respectively. These
rating symbols are described in Appendix "A" hereto. The Funds may also purchase
unrated commercial paper provided that such paper is determined to be of
comparable quality by the Funds' Adviser pursuant to guidelines approved by the
Board of Directors. Commercial paper issues in which a Fund may invest include
securities issued by corporations without registration under the Securities Act
of 1933, as amended (the "Securities Act") in reliance on the exemption from
such registration afforded by Section 3(a)(3) thereof, and commercial paper
issued in reliance on the so-called "private placement" exemption from
registration, which is afforded by Section 4(2) of the Securities Act ("Section
4(2) paper"). Section 4(2) paper is restricted as to disposition under the
federal securities laws in that any resale must similarly be made in an exempt
transaction. Section 4(2) paper is normally resold to other institutional
investors through or with the assistance of
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investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Each Fund does not presently intend to invest more than 5% of its net
assets in commercial paper.
FOREIGN SECURITIES
Each of the Funds may invest in foreign securities, either directly or
indirectly through American Depository Receipts and, in the case of the Bond and
Market Neutral Funds, through European Depository Receipts. ADRs are receipts
issued by an American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. ADRs may be listed on a national
securities exchange or may trade in the over-the-counter market. ADR prices are
denominated in United States dollars; the underlying security may be denominated
in a foreign currency. The underlying security may be subject to foreign
government taxes which would reduce the yield on such securities. Investments in
foreign securities involve higher costs than investments in U.S. securities,
including higher transaction costs as well as the imposition of additional taxes
by foreign governments. In addition, foreign investments may include additional
risks associated with currency exchange rates, less complete financial
information about the issuers, less market liquidity and political stability.
Future political and economic information, the possible imposition of
withholding taxes on interest income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions, might adversely affect the payment
of principal and interest on foreign obligations.
Fixed commissions on foreign securities exchanges are generally higher
than negotiated commissions on U.S. exchanges, although the Funds endeavor to
achieve the most favorable net results on their portfolio transactions. There is
generally less government supervision and regulation of securities exchanges,
brokers, dealers and listed companies than in the United States. Settlement
mechanics (e.g., mail service between the United States and foreign countries)
may be slower or less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of a Fund is uninvested and no
return is earned thereon. The inability of the Funds to make intended security
purchases due to settlement problems could cause a Fund to miss attractive
investment opportunities. Inability to dispose of Fund securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the securities, or, if a Fund has entered into a contract
to sell the securities, could result in possible liability to the purchaser.
Individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth or gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Although the Funds may invest in securities denominated in foreign
currencies, each Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of a Fund's shares may fluctuate with U.S. dollar
exchange rates as well as the price changes of the
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Fund's securities in the various local markets and currencies. Thus, an increase
in the value of the U.S. dollar compared to the currencies in which a Fund makes
its investments could reduce the effect of increases and magnify the effect of
decreases in the price of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar may have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of a Fund's securities in its foreign markets. In
addition to favorable and unfavorable currency exchange rate developments, each
Fund is subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
The Bond Fund may purchase debt obligations issued or guaranteed by
governments (including states, provinces or municipalities) of countries other
than the United States, or by their agencies, authorities or instrumentalities.
The Bond Fund may purchase debt obligations issued or guaranteed by
supranational entities organized or supported by several national governments,
such as the International Bank for Reconstruction and Development (the "World
Bank"), the Inter-American Development Bank, the Asian Development Bank and the
European Investment Bank. The Bond Fund may purchase debt obligations of foreign
corporations or financial institutions, such as Yankee bonds (dollar-denominated
bonds sold in the United States by non-U.S. issuers) and Euro bonds (bonds not
issued in the country (and possibly not in the currency) of the issuer).
SHORT SALES
The Market Neutral Fund may enter into short sales. Short sales are
transactions in which a Fund sells a security it does not own in anticipation of
a decline in the market value of that security. To complete such a transaction,
the Fund must borrow the security to make delivery to the buyer. The Fund then
is obligated to replace the security borrowed by purchasing it at the market
price at the time of replacement. The price at such time may be more or less
than the price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to pay to the lender amounts equal to any
dividend which accrues during the period of the loan. To borrow the security,
the Fund also may be required to pay a premium, which would increase the cost of
the security sold. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the short
position is closed out.
Until a Fund replaces a borrowed security in connection with a short
sale, the Fund will: (a) maintain daily a segregated account, containing cash,
cash equivalents, or liquid marketable securities, at such a level that (i) the
amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and (ii) the
amount deposited in the segregated account plus the amount deposited with the
broker as collateral will not be less than the market value of the security at
the time it was sold short; or (b) otherwise cover its short position in
accordance with positions taken by the Staff of the Securities and Exchange
Commission.
A Fund will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. This result is the opposite of
what one would expect from a cash purchase of a long position in a security. The
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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 Market Neutral Fund
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 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 positiion 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.
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EUROPEAN CURRENCY UNIFICATION
Many European countries have adopted 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 has been 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.
This change is likely to significantly impact the European capital
markets in which the Funds may invest and may result in a Fund facing additional
risks in pursuing its investment objective. These risks, which include, but are
not limited to, uncertainty as to 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.
ADDITIONAL INFORMATION ON BOND FUND INVESTMENTS
The Adviser will select certain mortgage-backed and asset-backed
securities which it believes have superior risk/return characteristics versus
other fixed income instruments. Mortgage-backed securities represent pools of
mortgage loans assembled for sale to investors by various governmental agencies
as well as by private issuers. Asset-backed securities represent pools of other
assets (such as automobile installment purchase obligations and credit card
receivables) similarly assembled for sale by private issuers.
MORTGAGE-RELATED SECURITIES. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes"), which are guaranteed as to the timely payment of principal
and interest by GNMA and such guarantee is backed by the full faith and credit
of the United States. GNMA is a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes"), which are solely the
obligations of the FNMA, are not backed by or entitled to the full faith and
credit of the United States and are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the
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United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Fund may invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduit ("REMIC") pass-through or participation certificates ("REMIC
Certificates"). These multiple class securities may be issued by U.S. Government
agencies or instrumentalities, including FNMA and FHLMC, or by trusts formed by
private originators of, or investors in, mortgage loans. In general, CMOs and
REMICs are debt obligations of a legal entity that are collateralized by, and
multiple class pass-through securities represent direct ownership interests in,
a pool of residential mortgage loans or mortgage pass-through securities (the
"Mortgage Assets"), the payments on which are used to make payments on the CMOs
or multiple pass-through securities. Investors may purchase beneficial interests
in REMICs, which are known as "regular" interests or "residual" interests. The
Fund does not intend to purchase residual interests.
Each class of CMOs or REMIC Certificates, often referred to as a
"tranche," is issued at a specific adjustable or fixed interest rate and must be
fully retired no later than its final distribution date. Principal prepayments
on the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs or REMIC Certificates in various ways. In
certain structures (known as "sequential pay" CMOs or REMIC Certificates),
payments of principal, including any principal prepayments, on the Mortgage
Assets generally are applied to the classes of CMOs or REMIC Certificates in the
order of their respective final distribution dates. Thus no payment of principal
will be made on any class of sequential pay CMOs or REMIC Certificates until all
other classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs or REMIC Certificates include, among
others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
The relative payment rights of the various CMO classes may be subject
to greater volatility and interest-rate risk than other types of mortgage-backed
securities. The average life of asset-backed securities varies with the
underlying instruments or assets and market conditions, which in the case of
mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return my be difficult to predict precisely.
A wide variety of REMIC Certificates may be issued in the parallel pay
or sequential pay structures. These securities include accrual certificates
(also known as "Z-Bonds"), which only accrue interest at a specified rate until
all other certificates having an earlier final distribution date have been
retired and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more
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classes of REMIC Certificates (the "PAC Certificates"), even though all other
principal payments and prepayments of the Mortgage Assets are then required to
be applied to one or more other classes of the Certificates. The scheduled
principal payments for the PAC Certificates generally have the highest priority
on each payment date after interest due has been paid to all classes entitled to
receive interest currently. Shortfalls, if any, are added to the amount payable
on the next payment date. The PAC Certificate payment schedule is taken into
account in calculating the final distribution date of each class of PAC. In
order to create PAC tranches, one or more tranches generally must be created
that absorb most of the volatility in the underlying Mortgage Assets. These
tranches tend to have market prices and yields that are much more volatile than
the PAC classes.
FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA. In addition, FNMA will be
obligated to distribute on a timely basis to holders of FNMA REMIC Certificates
required installments of principal and interest and to distribute the principal
balance of each class of REMIC Certificates in full, whether or not sufficient
funds are otherwise available.
For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of
interest, and also guarantees the ultimate payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participation therein purchased by FHLMC and placed in
a PC pool. With respect to principal payments on PCs, FHLMC generally guarantees
ultimate collection of all principal of the related mortgage loans without
offset or deduction. FHLMC also guarantees timely payment of principal on
certain PCs, referred to as "Gold PCs."
ASSET-BACKED SECURITIES. Asset-backed securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected may reduce yield to maturity, while a prepayment rate that is slower
than expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments may increase, while slower than expected prepayments may
decrease, yield to maturity.
In general, the collateral supporting asset-backed securities is of
shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.
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WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. When the Fund agrees to
purchase securities on a when-issued basis or enters into a forward commitment
to purchase securities, the Custodian will set aside cash, U.S. government
securities or other liquid assets equal to the amount of the purchase or the
commitment in a separate account. The market value of the separate account will
be monitored and if such market value declines, the Fund will be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of the Fund's
commitments.
The Fund will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases, the Fund may
realize a capital gain or loss.
The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining the Fund's net asset value
starting on the day that the Fund agrees to purchase the securities. The Fund
does not earn interest on the securities it has committed to purchase until they
are paid for and delivered on the settlement date. When the Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets, and fluctuations in the value of
the underlying securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.
FORWARD CURRENCY TRANSACTIONS. The Fund's participation in forward
currency contracts will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging involves the purchase
or sale of foreign currency with respect to specific receivables or payables of
the Fund generally arising in connection with the purchase or sale of its
portfolio securities. The purpose of transaction hedging is to "lock in" the
U.S. dollar equivalent price of such specific securities. Position hedging is
the sale of foreign currency with respect to portfolio security positions
denominated or quoted in that currency. The Funds will not speculate in foreign
currency exchange transactions. Transaction and position hedging will not be
limited to an overall percentage of the Fund's assets, but will be employed as
necessary to correspond to particular transactions or positions. The Fund may
not hedge its currency positions to an extent greater than the aggregate market
value (at the time of entering into the forward contract) of the securities held
in its portfolio denominated, quoted in, or currently convertible into that
particular currency. When the Fund engages in forward currency transactions,
certain asset segregation requirements must be satisfied to ensure that the use
of foreign currency transactions is unleveraged. When a Fund takes a long
position in a forward currency contract, it must maintain a segregated account
containing liquid assets equal to the purchase price of the contract, less any
margin or deposit. When a Fund takes a short position in a forward currency
contract, the Fund must maintain a segregated account containing liquid assets
in an amount equal to the market value of the currency underlying such contract
(less any margin or deposit), which amount must be at least equal to the market
price at which the short
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position was established. Asset segregation requirements are not applicable when
a Fund "covers" a forward currency position generally by entering into an
offsetting position.
The transaction costs to the Fund of engaging in forward currency
transactions vary with factors such as the currency involved, the length of the
contract period and prevailing currency market conditions. Because currency
transactions are usually conducted on a principal basis, no fees or commissions
are involved. The use of forward currency contracts does not eliminate
fluctuations in the underlying prices of the securities being hedged, but it
does establish a rate of exchange that can be achieved in the future. Thus,
although forward currency contracts used for transaction or position hedging
purposes may limit the risk of loss due to an increase in the value of the
hedged currency, at the same time they limit potential gain that might result
were the contracts not entered into. Further, the Adviser may be incorrect in
its expectations as to currency fluctuations, and the Fund may incur losses in
connection with its currency transactions that it would not otherwise incur. If
a price movement in a particular currency is generally anticipated, a Fund may
not be able to contract to sell or purchase that currency at an advantageous
price.
At or before the maturity of a forward sale contract, the Fund may sell
a portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same maturity
date, the same amount of the currency which it is obligated to deliver. If the
Fund retains the portfolio security and engages in an offsetting transaction,
the Fund, at the time of execution of the offsetting transaction, will incur a
gain or a loss to the extent that movement has occurred in forward contract
prices. Should forward prices decline during the period between a Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to sell is less than the price of the currency it has
agreed to purchase in the offsetting contract. The foregoing principles
generally apply also to forward purchase contracts.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. In order to protect against a
possible loss on investments resulting from a decline or appreciation in the
value of a particular foreign currency against the U.S. dollar or another
foreign currency or for other reasons, the Fund is authorized to enter into
forward currency exchange contracts. These contracts involve an obligation to
purchase or sell a specified currency at a future date at a price set at the
time of the contract. Forward currency contracts do not eliminate fluctuations
in the values of portfolio securities but rather may allow the Fund to establish
a rate of exchange for a future point in time.
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When entering into a contract for the purchase or sale of
a security, the Fund may enter into a contract for the amount of the purchase or
sale price to protect against variations, between the date the security is
purchased or sold and the date on which payment is made or received, in the
value of the foreign currency relative to the U.S. dollar or other foreign
currency.
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When the Adviser anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading currencies,
in order to reduce risk, the Fund may enter into a forward contract to sell, for
a fixed amount, the amount of foreign currency approximating the value of some
or all of the Fund's securities denominated in such foreign currency. Similarly,
when the securities held by the Fund create a short position in a foreign
currency, the Fund may enter into a forward contract to buy, for a fixed amount,
an amount of foreign currency approximating the short position. With respect to
any forward foreign currency contract, it will generally not be possible to
precisely match the amount covered by that contract and the value of the
securities involved due to the changes in the values of such securities
resulting from market movements between the date the forward contract is entered
into and the date it matures. While forward contracts may offer protection from
losses resulting from declines or appreciation in the value of a particular
foreign currency, they also limit potential gains which might result from
changes in the value of such currency. The Fund will also incur costs in
connection with forward foreign currency exchange contracts and conversions of
foreign currencies and U.S. dollars. In addition, the Adviser may purchase or
sell forward foreign currency exchange contracts for the Fund for non-hedging
purposes when the Adviser anticipates that the foreign currency will appreciate
or depreciate in value.
A separate account consisting of liquid assets, such as cash, U.S.
Government securities or other liquid high grade debt obligations, equal to the
amount of the Fund's assets that could be required to consummate forward
contracts will be established with the Fund's Custodian except to the extent the
contracts are otherwise "covered." For the purpose of determining the adequacy
of the securities in the account, the deposited securities will be valued at
market or fair value. If the market or fair value of such securities declines,
additional cash or securities will be placed in the account daily so that the
value of the account will equal the amount of such commitments by the Fund. A
forward contract to sell a foreign currency is "covered" if the Fund owns the
currency (or securities denominated in the currency) underlying the contract, or
holds a forward contract (or call option) permitting the Fund to buy the same
currency at a price no higher than the Fund's price to sell the currency. A
forward contract to buy a foreign currency is "covered" if the Fund holds a
forward contract (or put option) permitting the Fund to sell the same currency
at a price as high as or higher than the Fund's price to buy the currency.
STRIPPED SECURITIES. The Federal Reserve has established an investment
program known as "STRIPS" or "Separate Trading of Registered Interest and
Principal of Securities." The Fund may purchase securities registered under this
program. This program allows the Fund to be able to have beneficial ownership of
zero coupon securities recorded directly in the book-entry record-keeping system
in lieu of having to hold certificates or other evidences of ownership of the
underlying U.S. Treasury securities. The Treasury Department has, within the
past several years, facilitated transfers of such securities by accounting
separately for the beneficial ownership of particular interest coupon and
principal payments on Treasury securities through the Federal Reserve book-entry
record-keeping system.
In addition, the Fund may acquire U.S. Government Obligations and their
unmatured interest coupons that have been separated ("stripped") by their
holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government Obligations, the holder will resell the stripped securities in
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custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury
Securities" ("CATS"). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. The underlying
U.S. Treasury bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are ostensibly owned by the bearer or holder), in trust on
behalf of the owners.
MONEY MARKET INSTRUMENTS. The Fund may invest in "money market
instruments," for purposes of temporary defensive measures which include, among
other things, bank obligations. Bank obligations include bankers' acceptances,
negotiable certificates of deposit, and non-negotiable time deposits earning a
specified return and issued by a U.S. bank which is a member of the Federal
Reserve System or insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation ("FDIC"), or by a savings and loan association or savings
bank which is insured by the Savings Association Insurance Fund of the FDIC.
Such deposits are not FDIC insured and the Fund bears the risk of bank failure.
Bank obligations also include U.S. dollar-denominated obligations of foreign
branches of U.S. banks and obligations of domestic branches of foreign banks.
Such investments may involve risks that are different from investments in
securities of domestic branches of U.S. banks. These risks may include future
unfavorable political and economic developments, possible withholding taxes on
interest income, seizure or nationalization of foreign deposits, currency
controls, interest limitations, or other governmental restrictions which might
affect the payment of principal or interest on the securities held in the Fund.
Additionally, these institutions may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
requirements than those applicable to domestic branches of U.S. banks. The Fund
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when the Adviser believes that the risks
associated with such investment are minimal. The value of money market
instruments tends to fall when current interest rates rise. Money market
instruments are generally less sensitive to interest rate changes than
longer-term securities.
DURATION. Although the Fund has no restriction as to the maximum or
minimum duration of any individual security held by it, during normal market
conditions the Fund's average effective duration will generally be within 5% of
the duration of the Lehman Brothers Aggregate Bond Index. "Duration" is a term
used by investment managers to express the average time to receipt of expected
cash flows (discounted to their present value) on a particular fixed income
instrument or a portfolio of instruments. Duration takes into account the
pattern of a security's cash flow over time, including how cash flow is affected
by prepayments and changes in interest rates. For example, the duration of a
five-year zero coupon bond that pays no interest or principal until the maturity
of the bond is five years. This is because a zero coupon bond produces no cash
flow until the maturity date. On the other hand, a coupon bond that pays
interest semi-annually and matures in five years will have a duration of less
than five years, which reflects the semi-annual cash flows resulting from coupon
payments. Duration also generally defines the effect of interest rate changes on
bond prices. Generally, if interest rates increase by one percent, the value of
a security having an effective duration of five years would decrease in value by
five percent.
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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 person or by
proxy, or (2) more than 50% of the outstanding shares of such class, series or
Fund. Each Fund's investment goals and strategies described in the Prospectuses
may be changed by the Company's Board of Directors without the approval of the
Fund's shareholders. Each Fund may not:
1. Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements and the
Bond, Large Cap Value, Mid Cap Value and Micro Cap Value Funds may
enter into dollar rolls for temporary purposes in amounts up to
one-third of the value of each Fund's respective total assets at the
time of such borrowing and provided that, for any borrowing with
respect to the Large Cap Value, Mid Cap Value and Market Neutral Funds,
there is at least 300% asset coverage for the borrowings of the Fund. A
Fund may not mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Fund's total assets at the time of such
borrowing. However, with respect to the Large Cap Value, Mid Cap Value
and Market Neutral Funds, the amount shall not be in excess of lesser
of the dollar amounts borrowed or 33 1/3% of the value of the Fund's
total assets at the time of such borrowing, provided that for the
Market Neutral and Long-Short Equity Funds: (a) short sales and related
borrowings of securities are not subject to this restriction; and (b)
for the purposes of this restriction, collateral arrangements with
respect to options, short sales, stock index, interest rate, currency
or other futures, options on futures contracts, collateral arrangements
with respect to initial and variation margin and collateral
arrangements with respect to swaps and other derivatives are not deemed
to be a pledge or other encumbrance of assets, and provided that for
the Large Cap Value and Mid Cap Value Funds, any collateral
arrangements with respect to the writing of options, futures contracts
and options on futures contracts and collateral arrangements with
respect to initial and variation margin are not deemed to be a pledge
of assets. The Micro Cap Value, Large Cap Value and Bond Funds will not
purchase securities while aggregate borrowings (including reverse
repurchase agreements, dollar rolls and borrowings from banks) are in
excess of 5% of total assets. Securities held in escrow or separate
accounts in connection with a Fund's investment practices are not
considered to be borrowings or deemed to be pledged for purposes of
this limitation; (For purposes of this Limitation No. 1, any collateral
arrangements with respect to, if applicable, the writing of options and
futures contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are not
deemed to be a pledge of assets.)
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2. Issue any senior securities, except as permitted under the 1940 Act;
(For purposes of this Limitation No. 2, neither the collateral
arrangements with respect to options and futures identified in
Limitation No. 1, nor the purchase or sale of futures or related
options are deemed to be the issuance of senior securities.)
3. Act as an underwriter of securities within the meaning of the
Securities Act, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired
within the limitation on purchases of restricted securities;
4. Purchase or sell real estate (including real estate limited partnership
interests), provided that the Fund may invest: (a) in securities
secured by real estate or interests therein or issued by companies that
invest in real estate or interests therein; or (b) in real estate
investment trusts;
5. Purchase or sell commodities or commodity contracts, except that a Fund
may deal in forward foreign exchanges between currencies of the
different countries in which it may invest and purchase and sell stock
index and currency options, stock index futures, financial futures and
currency futures contracts and related options on such futures;
6. Make loans, except through loans of portfolio instruments and
repurchase agreements, provided that for purposes of this restriction
the acquisition of bonds, debentures or other debt instruments or
interests therein and investment in government obligations, loan
participations and assignments, short-term commercial paper,
certificates of deposit and bankers' acceptances shall not be deemed to
be the making of a loan;
7. Invest 25% or more of its total assets, taken at market value at the
time of each investment, in the securities of issuers in any particular
industry (excluding the U.S. Government and its agencies and
instrumentalities); or
8. Purchase the securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such
purchase, more than 5% of the value of the Fund's total assets would be
invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Fund, except that up to 25% of the value of the Fund's total assets may
be invested without regard to such limitations.
In addition to the fundamental investment limitations specified above,
the Market Neutral Fund may:
Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to (i)
instruments issued or guaranteed by the United States, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions, and (ii)
repurchase agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry;
For purposes of Investment Limitation No. 1, collateral arrangements
with respect to, if applicable, the writing of options, futures contracts,
options on futures contracts, forward currency contracts and collateral
arrangements with respect to initial and variation margin are not deemed to be a
pledge of assets and neither such arrangements nor the purchase or sale of
futures
21
<PAGE>
or related options are deemed to be the issuance of a senior security for
purposes of Investment Limitation No. 2.
In addition to the fundamental investment limitations specified above,
the Market Neutral Fund is subject to the following nonfundamental
limitations. The Market Neutral Fund may not:
1. Make investments for the purpose of exercising control or management,
but investments by a Fund in wholly-owned investment entities created
under the laws of certain countries will not be deemed the making of
investments for the purpose of exercising control or management; or
2. Purchase securities on margin, except for short-term credits necessary
for clearance of portfolio transactions, and except that a Fund may
make margin deposits in connection with its use of options, futures
contracts, options on futures contracts and forward contracts.
The Funds may invest in securities issued by other investment companies
within the limits prescribed by the 1940 Act. As a shareholder of another
investment company, a Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that a Fund bears directly in connection with its own operations.
Securities held by a Fund generally may not be purchased from, sold or
loaned to the Adviser or its affiliates or any of their directors, officers or
employees, acting as principal, unless pursuant to a rule or exemptive order
under the 1940 Act.
If a percentage restriction under one of a Fund's investment policies
or limitations or the use of assets is adhered to at the time a transaction is
effected, later changes in percentages 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).
22
<PAGE>
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
The business and affairs of the Company are managed under the direction
of the Company's Board of Directors. The directors and executive officers of the
Company, 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 Pincus
c/o 400 Bellevue Parkway Asset Management, Inc., Executive Officer
Wilmington, DE 19809 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 Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 64 Director Since 1963, Executive Vice President, Fox
Fox Chase Cancer Center Chase Cancer Center (biomedical research and
7701 Burholme Avenue 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 - 65 Director Director and Vice Chairman, since 1969
Comcast Corporation Comcast Corporation (cable television and
1500 Market Street communications); Director, Comcast U.K.
35th Floor
Philadelphia, PA 19102
-23-
<PAGE>
Donald van Roden - 75 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 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 Chairman
400 Bellevue Parkway of the Board, Fox Chase Cancer Center;
Wilmington, DE 19809 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 Independence Square
Income Securities, Inc.; Director of the
Bradford Funds, Inc.
Morgan R. Jones - 60 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Education
One Logan Square Dynamics, Inc.; Secretary, Petroferm, Inc.
18th & Cherry Streets
Philadelphia, PA 19103
<FN>
* 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 the Company 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 the Company 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 the Company.
</FN>
</TABLE>
DIRECTORS' COMPENSATION
The Company currently pays directors $15,000 annually and $1,000 per
meeting of the Board or any committee thereof that is not held in conjunction
with a Board meeting. In addition, the Chairman of the Board receives an
additional fee of $6,000 per year for his services in this capacity. Directors
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:
24
<PAGE>
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS TOTAL COMPENSATION
COMPENSATION ACCRUED AS ESTIMATED FROM FUND AND
FROM PART OF ANNUAL BENEFITS FUND COMPLEX
NAME OF PERSON/POSITION REGISTRANT FUND EXPENSES UPON RETIREMENT PAID TO DIRECTORS
- -------------------------------------- ------------ ------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Julian A. Brodsky, Director $19,250 N/A $19,250 $19,250
Francis J. McKay, Director $16,750 N/A $16,750 $16,750
Arnold M. Reichman, Director $ 0 N/A $ 0 $ 0
Robert Sablowsky, Director $18,250 N/A $18,250 $18,250
Marvin E. Sternberg, Director $19,250 N/A $19,250 $19,250
Donald van Roden, Director and $25,250 N/A $25,250 $25,250
Chairman
</TABLE>
On October 24, 1990, the Company adopted, as a participating employer,
the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement
plan for employees (currently Edward J. Roach) pursuant to which the Company
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
the Company's advisers, custodians, administrators and distributor, the Company
itself requires only one part-time employee. Drinker Biddle & Reath LLP, of
which Mr. Jones is a partner, receives legal fees as counsel to the Company. No
officer, director or employee of the Adviser or the Distributor currently
receives any compensation from the Company.
CONTROL PERSONS
As of November 17, 1999, to the Company's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of the class of the Company indicated
below. See "Additional Information Concerning Fund Shares" above. The Company
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 MONEY MARKET Gabe Nechamkin 7.40%
27 Muchmore Road
Harrison, NY 10528-1109
- ------------------------------------- ------------------------------------------------------- ------------------------
CASH PRESERVATION MONEY MARKET Harold T. Erfer 6.349%
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 in Tr. 12.785%
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 MONEY MARKET Saxon and Co. 65.047%
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>
25
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 Portfolio 12.161%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------- ------------------------------------------------------- ------------------------
Warburg Pincus Trust-International Equity Portfolio 15.203%
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>
26
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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>
27
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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. 20.546%
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 VALUE 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>
28
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 FUND INST Shady Side Academy Endowment 5.631%
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>
29
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
BOSTON PARTNERS LARGE CAP FUND Charles Schwab & Co. Inc. 66.397%
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 VALUE FUND MAC & CO. 5.642%
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 VALUE FUND National Financial Svcs. Corp. for Exclusive 17.061%
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>
30
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 INVESTOR Charles Schwab & Co. Inc 81.125%
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>
31
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 NEUTRAL Boston Partners Asset Mgmt. L. P. 100.000%
FUND- INSTITUTIONAL SHARES Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MARKET NEUTRAL Glenn P. Verrette and Laurie Jo Verrette 6.690%
FUND- INVESTOR SHARES Jt. Ten. Wros.
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 FUND Arnold C. Schneider III 13.637%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
Mark Shevitz 7.206%
Rollover IRA
65 Wardell St.
Rumson, NJ 07760
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
32
<PAGE>
As of November 17, 1999, the directors and officers as a group owned
less than 1% of the Company's Shares.
INVESTMENT ADVISORY, DISTRIBUTION
AND SERVICING ARRANGEMENTS
ADVISORY AGREEMENTS
Boston Partners renders advisory services to the Funds pursuant to
Investment Advisory Agreements dated October 16, 1996 with respect to the Bond
and Large Cap Value Funds, May 30, 1997 with respect to the Mid Cap Value Fund,
July 1, 1998 with respect to the Micro Cap Value Fund, November 13, 1998 with
respect to the Market Neutral Fund and June 1, 1999 with respect to the
Long-Short Equity Fund (the "Advisory Agreements"). Boston Partners' general
partner is Boston Partners, Inc.
Boston Partners has investment discretion for the Funds and will make
all decisions affecting the assets of the Funds under the supervision of the
Company's Board of Directors and in accordance with each Fund's stated policies.
Boston Partners will select investments for the Funds. For its services to the
Funds, Boston Partners is entitled to receive a monthly advisory
33
<PAGE>
fee under the Advisory Agreements computed at an annual rate of 0.40% of the
Bond Fund's average daily net assets, 2.25% of the Market Neutral Fund's average
daily net assets, 0.10% of the Long-Short Equity Fund's average daily net
assets, 0.75% of the Large Cap Value Fund's average daily net assets, 0.80% of
the Mid Cap Value Fund's average daily net assets and 1.25% of the Micro Cap
Value Fund's average daily net assets. Until December 31, 2000, Boston Partners
has agreed to waive its fees to the extent necessary to maintain an annualized
expense ratio for: the 1) Institutional Class of the Boston Partners Bond Fund,
Boston Partners Market Neutral Fund, Boston Partners Long-Short Equity Fund,
Boston Partners Large Cap Value Fund, Boston Partners Mid Cap Value Fund and
Boston Partners Micro Cap Value Fund of 0.60%, 2.95%, 1.00%, 1.00%, 1.55% and
3.05% respectively, and 2) the Investor Class of the Boston Partners Bond Fund,
Boston Partners Market Neutral Fund, Boston Partners Long-Short Equity Fund,
Boston Partners Large Cap Value Fund, Boston Partners Mid Cap Value Fund and
Boston Partners Micro Cap Value Fund of 0.82%, 3.17%, 1.22%, 1.22%, 1.77% and
3.30% respectively. There can be no assurance that Boston Partners will continue
such waivers thereafter.
For the fiscal years ended August 31, 1999, 1998 and 1997 the Fund paid
Boston Partners advisory fees and Boston Partners waived advisory fees as
follows:
ADVISORY FEES PAID
(AFTER WAIVERS AND
FUND REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---- ------------------ ------- --------------
FISCAL YEAR ENDED AUGUST 31, 1999
Bond $ 0 $ 56,220 $ 72,841
Market Neutral 1 $ 0 $ 12,727 $121,414
Large Cap Value $450,337 $109,852 $ 0
Mid Cap Value $926,862 $128,384 $ 0
Micro Cap Value $ 0 $ 18,140 $129,809
FISCAL YEAR ENDED AUGUST 31, 1998
Bond 2 $ 0 $ 34,418 $ 54,244
Large Cap Value $250,634 $112,482 $ 0
Mid Cap Value $235,623 $ 84,082 $ 30,520
Micro Cap Value 3 $ 0 $ 3,155 $ 19,063
FISCAL YEAR ENDED AUGUST 31, 1997
Large Cap Value 4 $ 5,635 $ 57,752 $ 26,104
Mid Cap Value 5 $ 0 $ 3,606 $ 32,554
1 Commenced operations November 17, 1998.
2 Commenced operations December 30, 1997.
3 Commenced operations July 1, 1998.
4 Institutional class commenced operations January 2, 1997 and Investor Class
commenced operations January 16, 1997.
5 Commenced operations June 2, 1997.
Each class of the Funds bears its own expenses not specifically assumed
by Boston Partners. General expenses of the Company not readily identifiable as
belonging to a portfolio of the Company are allocated among all investment
portfolios by or under the direction of the Company's Board of Directors in such
manner as the Board determines to be fair and equitable. Expenses borne by a
portfolio include, but are not limited to, the following (or a portfolio's share
of the following): (a) the cost (including brokerage commissions) of securities
purchased or sold
34
<PAGE>
by a portfolio and any losses incurred in connection therewith; (b) fees payable
to and expenses incurred on behalf of a portfolio by Boston Partners; (c) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Company or a portfolio for violation of any
law; (d) any extraordinary expenses; (e) fees, voluntary assessments and other
expenses incurred in connection with membership in investment company
organizations; (f) the cost of investment company literature and other
publications provided by the Company to its directors and officers; (g)
organizational costs; (h) fees to the investment adviser and PFPC; (i) fees and
expenses of officers and directors who are not affiliated with a portfolios'
investment adviser or Distributor; (j) taxes; (k) interest; (l) legal fees; (m)
custodian fees; (n) auditing fees; (o) brokerage fees and commissions; (p)
certain of the fees and expenses of registering and qualifying the Funds and
their shares for distribution under federal and state securities laws; (q)
expenses of preparing prospectuses and statements of additional information and
distributing annually to existing shareholders that are not attributable to a
particular class of shares of the Company; (r) the expense of reports to
shareholders, shareholders' meetings and proxy solicitations that are not
attributable to a particular class of shares of the Company; (s) fidelity bond
and directors' and officers' liability insurance premiums; (t) the expense of
using independent pricing services; and (u) other expenses which are not
expressly assumed by a portfolio's investment adviser under its advisory
agreement with the portfolio. Each class of the Funds pays its own distribution
fees, if applicable, and may pay a different share than other classes of other
expenses (excluding advisory and custodial fees) if those expenses are actually
incurred in a different amount by such class or if it receives different
services.
Under the Advisory Agreement, Boston Partners will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund or
the Company in connection with the performance of the Advisory Agreement, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of Boston Partners in the performance of its respective duties or from
reckless disregard of its duties and obligations thereunder.
The Advisory Agreements were most recently approved on July 28, 1999 by
vote of the Company'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 Agreements were
approved by the initial shareholder of each class of the Funds. The Advisory
Agreements are terminable by vote of the Company'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 Boston Partners. The
Advisory Agreements may also be terminated by Boston Partners on 60 days'
written notice to the Company. The Advisory Agreement terminates automatically
in the event of its assignment.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS
PFPC Trust Company is custodian of the Funds' assets pursuant to a
custodian agreement dated August 16, 1988, as amended (the "Custodian
Agreement"). Under the Custodian Agreement, PFPC Trust Company: (a) maintains a
separate account or accounts in the name of each Fund; (b) holds and transfers
portfolio securities on account of each Fund; (c) accepts receipts and makes
disbursements of money on behalf of each Fund; (d) collects and receives all
income and other payments and distributions on account of each Fund's portfolio
securities; and
35
<PAGE>
(e) makes periodic reports to the Company's Board of Directors concerning the
Funds' operations. PFPC Trust Company is authorized to select one or more banks
or trust companies to serve as sub-custodian on behalf of the Funds, provided
that PFPC Trust Company remains responsible for the performance of all of its
duties under the Custodian Agreement and holds the Funds harmless from the acts
and omissions of any sub-custodian. For its services to the Funds under the
Custodian Agreement, PFPC Trust Company receives a fee, which is calculated
based upon each Fund's average daily gross assets as follows: $.18 per $1,000 on
the first $100 million of average daily gross assets; $.15 per $1,000 on the
next $400 million of average daily gross assets; $.125 per $1,000 on the next
$500 million of average daily gross assets; and $.10 per $1,000 on average daily
gross assets over $1 billion, exclusive of transaction charges and out-of-pocket
expenses, which are also charged to the Fund.
PFPC Inc. ("PFPC"), an affiliate of PFPC Trust Company, serves as the
transfer and dividend disbursing agent for the Fund pursuant to a Transfer
Agency Agreement dated November 5, 1991, as supplemented (the "Transfer Agency
Agreement"), under which PFPC: (a) issues and redeems shares of each Fund; (b)
addresses and mails all communications by the Funds to record owners of the
Shares, including reports to shareholders, dividend and distribution notices and
proxy materials for its meetings of shareholders; (c) maintains shareholder
accounts and, if requested, sub-accounts; and (d) makes periodic reports to the
Company's Board of Directors concerning the operations of the Funds. PFPC may,
on 30 days' notice to the Company, assign its duties as transfer and dividend
disbursing agent to any other affiliate of PNC Bank Corp. For its services to
the Funds under the Transfer Agency Agreement, PFPC receives a fee at the annual
rate of $10 per account in the Fund, exclusive of out-of-pocket expenses, and
also receives reimbursement of its out-of-pocket expenses.
ADMINISTRATION AGREEMENT
PFPC serves as administrator to the Funds pursuant to Administration
and Accounting Services Agreements dated October 16, 1996 with respect to the
Bond and Large Cap Value Funds, May 30, 1997 with respect to the Mid Cap Value
Fund, July 1, 1998 with respect to the Micro Cap Value Fund, November 13, 1998
with respect to the Market Neutral Fund (the "Administration Agreements"). PFPC
has agreed to furnish to the Funds statistical and research data, clerical,
accounting and bookkeeping services, and certain other services required by the
Funds. In addition, PFPC has agreed to prepare and file various reports with the
appropriate regulatory agencies and prepare materials required by the SEC or any
state securities commission having jurisdiction over the Funds. For its services
to the Funds, PFPC is entitled to receive a fee calculated at an annual rate of
.125% of each Fund's average daily net assets, with a minimum annual fee of
$75,000 payable monthly on a pro rata basis. PFPC is currently waiving one-half
of its minimum annual fee on the Bond Fund, Micro Cap Fund and Market Neutral
Fund.
For the fiscal years ended August 31, 1999, 1998 and 1997, the Funds
paid PFPC administration fees as follows:
36
<PAGE>
ADMINISTRATION FEES PAID
(AFTER WAIVERS AND
FUND REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---- ------------------ ------- --------------
FISCAL YEAR ENDED AUGUST 31, 1999
Bond $ 37,499 $37,501 $0
Market Neutral 1 $ 31,250 $31,250 $0
Large Cap Value $ 93,735 $ 0 $0
Mid Cap Value $164,882 $ 0 $0
Micro Cap Value $ 37,500 $37,500 $0
FISCAL YEAR ENDED AUGUST 31, 1998
Bond 2 $ 25,201 $25,202 $0
Large Cap Value $ 55,792 $22,142 $0
Mid Cap Value $ 57,653 $22,352 $0
Micro Cap Value 3 $ 6,250 $ 6,250 $0
FISCAL YEAR ENDED AUGUST 31, 1997
Large Cap Value 4 $ 25,000 $25,000 $0
Mid Cap Value 5 $ 9,166 $ 9,167 $0
1 Commenced operations November 17, 1998.
2 Commenced operations December 30, 1997.
3 Commenced operations July 1, 1998.
4 Institutional class commenced operations January 2, 1997 and Investor Class
commenced operations January 16, 1997.
5 Commenced operations June 2, 1997.
The Administration Agreements provide that PFPC shall not be liable for
any error of judgment or mistake of law or any loss suffered by the Company or a
Fund in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder.
DISTRIBUTION AGREEMENT
Provident Distributors, Inc. ("PDI"), whose principal business address
is Four Falls Corporate Center, 6th Floor, West Conshohocken, PA 19428-2961,
serves as the distributor of the Funds pursuant to the terms of a distribution
agreement, dated as of June 25, 1999, (the "Distribution Agreement") on behalf
of the Institutional and Investor Classes. Pursuant to the Distribution
Agreement and the Plans of Distribution, as amended, for the Investor Class
(together, the "Plans"), which were adopted by the Company in the manner
prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use
appropriate efforts to solicit orders for the sale of each Fund's Shares.
Payments to the Distributor under the Plans are to compensate it for
distribution assistance and expenses assumed and activities intended to result
in the sale of shares of the Investor Class. As compensation for its
distribution services, the Distributor receives, pursuant to the terms of the
Distribution Agreement, a distribution fee under the Plans, to be
37
<PAGE>
calculated daily and paid monthly by the Investor Class, at the annual rate set
forth in the Prospectus.
For the fiscal years ended August 31, 1999, 1998 and 1997, the Investor
Class of each of the Funds below paid the Distributor fees as follows: 1
DISTRIBUTION FEES PAID
(AFTER WAIVERS AND
FUND REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---- ------------------ ------- --------------
FISCAL YEAR ENDED AUGUST 31, 1999
Bond $ 4,158 $ 16,630 $0
Market Neutral 2 $ 219 $ 874 $0
Large Cap Value Fund $20,836 $ 83,346 $0
Mid Cap Value $38,745 $154,978 $0
Micro Cap Value $ 365 $ 1,458 $0
FOR THE PERIOD MAY 29, 1998 THROUGH AUGUST 31, 1998
Bond $1,294 $ 4,063 $0
Large Cap Value Fund $3,387 $ 22 $0
Mid Cap Value $6,827 $ 21,843 $0
Micro Cap Value 3 $ 54 $ 0 $0
1 Of the fee amounts disclosed above, $0 was retained by the Distributor.
2 Commenced operations November 17, 1998.
3 Commenced operations July 1, 1998.
For the period September 1, 1997 through May 29, 1998, both the
Institutional Class and Investor Class of the Fund paid the Company's previous
distributor, Counsellors Securities, Inc. ("Counsellors"), a wholly-owned
subsidiary of Warburg Pincus Asset Management, Inc., with a principal business
address of 466 Lexington Avenue, New York, New York 10071, distribution fees as
follows:
38
<PAGE>
DISTRIBUTION FEES PAID
(AFTER WAIVERS AND
FUND REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---- ------------------ ------- --------------
Bond (Institutional)3 $ 1,986 $ 5,461 $0
Bond (Investor)3 $ 54 $ 0 $0
Large Cap Value $10,283 $28,278 $0
(Institutional)
Large Cap Value $ 878 $ 1,317 $0
(Investor)
Mid Cap Value $ 8,284 $22,780 $0
(Institutional)
Mid Cap Value $ 950 $ 1,425 $0
(Investor)
3 Commenced operations December 30, 1997.
For the period ended August 31, 1997, the Large Cap Value and Mid Cap
Value Funds paid Counsellors fees as follows:
DISTRIBUTION FEES PAID
(AFTER WAIVERS AND
FUND REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---- ------------------ ------- --------------
Large Cap Value Fund $3,325 $0 $0
(Institutional)4
Large Cap Value Fund $ 155 $0 $0
(Investor)5
Mid Cap Value $ 161 $0 $0
(Institutional)6
Mid Cap Value $ 77 $0 $0
(Investor)6
4 Commenced operations January 2, 1997.
5 Commenced operations January 16, 1997.
6 Commenced operations June 2, 1997.
Among other things, the Plans provide that: (1) the Distributor shall
be required to submit quarterly reports to the directors of the Company
regarding all amounts expended under the Plans and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plans will
continue in effect only so long as they are approved at least annually, and any
material amendment thereto is approved, by the Company's directors, including
the 12b-1 Directors, acting in person at a meeting called for said purpose; (3)
the aggregate amount to be spent by each Fund on the distribution of the Fund's
shares of the Investor Class under the Plans shall not be materially increased
without shareholder approval; and (4) while the Plans remain in effect,
39
<PAGE>
the selection and nomination of the Company's directors who are not "interested
persons" of the Company (as defined in the 1940 Act) shall be committed to the
discretion of such Directors who are not "interested persons" of the Company.
Mr. Sablowsky, a Director of the Company, had an indirect interest in
the operation of the Plans by virtue of his position with Fahnestock Co., Inc.,
a broker-dealer.
ADMINISTRATIVE SERVICES AGENT
Provident Distributors, Inc. ("PDI") provides certain administrative
services to the Institutional Class of each Fund that are not provided by PFPC,
pursuant to an Administrative Services Agreement, dated June 25, 1999, between
the Company and PDI. These services include furnishing data processing and
clerical services, acting as liaison between the Funds and various service
providers and coordinating the preparation of 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 the average daily net
assets of the Institutional Class. PDI is currently waiving fees in excess of
.03% of each Fund's average daily net assets. For the fiscal years ended August
31, 1999 and August 31, 1998, PDI received administrative services fees from the
Institutional Class of the Funds below as follows:
ADMINISTRATIVE SERVICES
FUND FEES (AFTER WAIVERS) WAIVERS
- ---- ----------------------- -----------
FISCAL YEAR ENDED AUGUST 31, 1999
Bond $ 4,158 $ 16,630
Market Neutral 1 $ 219 $ 874
Large Cap Value $20,836 $ 83,346
Mid Cap Value $38,745 $154,978
Micro Cap Value $ 365 $ 1,458
PERIOD MAY 29, 1998 THROUGH AUGUST 31, 1998
Bond $ 3,155 $ 9,524
Large Cap Value $24,042 $ 6,662
Mid Cap Value $13,741 $ 44,606
Micro Cap Value 2 $ 69 $ 2,277
1 Commenced operations November 17, 1998.
2 Commenced operations July 1, 1998.
40
<PAGE>
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors and
applicable rules, Boston Partners is responsible for the execution of portfolio
transactions and the allocation of brokerage transactions for the Funds. In
executing portfolio transactions, Boston Partners 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 Boston Partners 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. Boston Partners 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 Boston Partners.
Information and research received from such brokers will be in addition to, and
not in lieu of, the services required to be performed by Boston Partners 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 Boston Partners determines in good faith that such
commission is reasonable in terms either of the transaction or the overall
responsibility of Boston Partners 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.
The following chart shows the aggregate brokerage commissions paid by
each Fund for the past three fiscal years:
FUND 1999 1998 1997
- ---- ---- ---- ----
Bond 1 $ 665 $ 804 N/A
Market Neutral 2 $ 19,409 N/A N/A
Large Cap Value 3 $211,118 $165,408 N/A
Mid Cap Value 4 $790,052 $326,951 N/A
Micro Cap Value 5 $ 3,631 N/A N/A
1 Commenced operations December 30, 1997.
2 Commenced operations November 17, 1998.
3 Institutional class commenced operations January 2, 1997 and Investor Class
commenced operations on January 16, 1997.
4 Commenced operations June 2, 1997.
5 Commenced operations July 1, 1998.
The Funds are required to identify any securities of the Company'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:
FUND SECURITY VALUE
- ---- -------- -----
Bond None $ 0
Market Neutral Goldman Sachs Group, Inc. $ 11,963
Large Cap Value Morgan Stanley & Co. $257,437
Mid Cap Value None $ 0
Micro Cap Value None $ 0
Investment decisions for each Fund and for other investment accounts
managed by Boston Partners are made independently of each other in the light of
differing conditions.
41
<PAGE>
However, the same investment decision may be made for two or more of such
accounts. In such cases, simultaneous transactions are inevitable. Purchases or
sales are then averaged as to price and allocated as to amount according to a
formula deemed equitable to each such account. While in some cases this practice
could have a detrimental effect upon the price or value of the security as far
as a Fund is concerned, in other cases it is believed to be beneficial to a
Fund.
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 Company
reserves the right, if conditions exist which 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 the Company and valued in
the same way as they would be valued for purposes of computing that Fund's net
asset value. If payment is made in securities, a shareholder may incur
transaction costs in converting these securities into cash. A shareholder will
also bear any market risk or tax consequences as a result of a payment in
securities. The Company has elected, however, to be governed by Rule 18f-1 under
the 1940 Act so that each Fund is obligated to redeem its shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of the Fund. 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. (The Company may also suspend or postpone the recordation of
the transfer of its shares upon the occurrence of any of the foregoing
conditions.)
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.
The computation of the hypothetical offering price per share of an
Institutional and Investor Share of the Funds based on the value of each Fund's
net assets on August 31, 1999 and each Fund's Institutional and Investor Shares
outstanding on such date is as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
MARKET LARGE CAP MID CAP MICRO CAP
BOND NEUTRAL VALUE VALUE VALUE
----------- -------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net assets $12,041,031 $940,793 $53,111,553 $173,223,501 $1,308,557
Outstanding shares 1,280,021 99,500 4,388,660 15,100,118 150,988
Net asset value per share $ 9.41 $ 9.46 $ 12.24 $ 11.47 $ 8.67
Maximum sales charge -- -- -- -- --
Maximum offering
price to public $ 9.41 $ 9.46 $ 12.24 $ 11.47 $ 8.67
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
INVESTOR CLASS
MARKET LARGE CAP MID CAP MICRO CAP
BOND NEUTRAL VALUE VALUE VALUE
----------- -------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net assets $ 188,379 $230,714 $ 1,637,506 $ 2,762,170 $ 292,973
Outstanding shares 19,900 24,477 132,520 242,821 33,859
Net asset value per share $ 9.47 $ 9.43 $ 12.36 $ 11.38 $ 8.65
Maximum sales charge -- -- -- -- --
Maximum offering
price to public $ 9.47 $ 9.43 $ 12.36 $ 11.38 $ 8.65
</TABLE>
VALUATION OF SHARES
The net asset values per share of each class of the Fund are calculated
as of the close of 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
these holidays falls on a Saturday or Sunday. Net asset value per share, the
value of an individual share in a fund, is computed by adding the value of the
proportionate interest of each class in a Fund's securities, cash and other
assets, subtracting the actual and accrued liabilities of the class and dividing
the result by the number of outstanding shares of the class. The net asset
values of each class are calculated independently of the other classes.
Securities that are listed on stock exchanges are valued at the last sale price
on the day the securities are valued or, lacking any sales on such day, at the
mean of the bid and asked prices available prior to the evaluation. In cases
where securities are traded on more than one exchange,
43
<PAGE>
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 the Company's Board of Directors. The amortized cost
method of valuation may also be used with respect to debt obligations with sixty
days or less remaining to maturity.
In determining the approximate market value of portfolio investments,
the 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 a Fund's books at their face value. Other assets, if any, are valued
at fair value as determined in good faith by the Company's Board of Directors.
PERFORMANCE INFORMATION
TOTAL RETURN
The Funds may from time to time advertise "average annual total
return." Each Fund computes such return separately for each class of shares by
determining the average annual compounded rate of return during specified
periods that equates the initial amount invested to the ending redeemable value
of such investment according to the following formula:
P (l+T)n=ERV
Where : T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the
end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed
in years.
And when solving for T:
ERV 1/n
T = [(-------) -1]
P
The Funds, when advertising "aggregate total return," compute such
returns separately for each class of shares by determining the aggregate
compounded rates of return during specified
44
<PAGE>
periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate total
return is as follows:
ERV
Aggregate Total Return T = [(-------) - 1]
P
The calculations are made assuming that: (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date; (2) all recurring fees charged to all
shareholder accounts are included; and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in a Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Calculated according to the SEC Rules, the average annual total returns
for the Funds for the fiscal years ending August 31, 1999, 1998 and 1997 were as
follows:
AVERAGE ANNUAL TOTAL RETURN
---------------------------
FUND INSTITUTIONAL INVESTOR
- ---- ------------- --------
FOR THE FISCAL YEAR ENDED AUGUST 31, 1999
Bond 3.10 % 2.85 %
Market Neutral 1 (5.40)% (5.70)%
Large Cap Value 10.67 % 9.85 %
Mid Cap Value 6.97 % 6.84 %
Micro Cap Value (11.48)% (11.66)%
FOR THE FISCAL YEAR ENDED AUGUST 31, 1998
Large Cap Value 6.97% 5.75%
Mid Cap Value (3.16%) (3.19%)
FOR THE FISCAL YEAR ENDED AUGUST 1997
Large Cap Value 2 24.60% 22.06%
Mid Cap Value 3 10.10% 10.10%
1 Commenced operations November 17, 1998.
2 The Institutional Class commenced operations January 2, 1997 and the Investor
Class commenced operations January 16, 1997.
3 The Mid Cap Value Fund commenced operations June 2, 1997.
45
<PAGE>
Calculated according to the above formula, the aggregate total returns
for the Funds were as follows:
AGGREGATE TOTAL RETURN
--------------------------
FUND INSTITUTIONAL INVESTOR
- ---- ------------- ---------
FOR THE FISCAL YEAR ENDED AUGUST 31, 1999
Bond 0.42 % 0.17 %
Market Neutral (5.40)% (5.70)%
Large Cap Value 17.12 % 16.86 %
Mid Cap Value 21.08 % 20.81 %
Micro Cap Value 13.78 % 13.37 %
FOR THE FISCAL YEAR ENDED AUGUST 31, 1998
Bond 4.79% 4.63%
Large Cap Value 11.85% 9.51%
Mid Cap Value (3.92%) (3.96%)
FOR THE FISCAL YEAR ENDED AUGUST 31, 1997
Large Cap Value 24.60% 22.06%
Mid Cap Value 10.10% 10.10%
Investors should note that the total return figures are based on
historical earnings and are not intended to indicate future performance.
TAXES
Each 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 a Fund itself generally will be relieved of
federal income and excise taxes. If a 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.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that do not distribute with respect to each calendar year an amount
equal to 98% of their ordinary income for the calendar year plus 98% of their
capital gain net income for the 1-year period ending on October 31 of such
calendar year. The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such
46
<PAGE>
calendar year. Investors should note that the Funds may in certain circumstances
be required to liquidate investments in order to make sufficient distributions
to avoid excise tax liability.
Each Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of its dividends paid to any shareholder: (1) who
has provided either an incorrect tax identification number or no number at all;
(2) who is subject to backup withholding by the Internal Revenue Service for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to the Fund that he is not subject to backup
withholding or that he is an "exempt recipient."
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
QQ, RR, SS, TT, UU, VV, WW, DDD, EEE, III and JJJ constitute the Fund's
described herein. 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 SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (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
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (MILLIONS)
- ------------------------------------- -------------------- ----------------------------------- --------------------
<S> <C> <C> <C>
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
GG (n/i numeric Growth) 50 Delta 4 (N.Y. Money) 1
HH (n/i numeric Mid Cap) 50 Epsilon 1 (Money) 1
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
Large Cap) 100 Eta 2 (Municipal Money) 1
RR (Boston Partners Investors Large
Cap) 100 Eta 3 (Government Money) 1
SS (Boston Partners Advisor Large
Cap) 100 Eta 4 (N.Y. Money) 1
TT (Boston Partners Investors Mid
Cap) 100 Theta 1 (Money) 1
UU (Boston Partners Institutional
Mid Cap) 100 Theta 2 (Municipal Money) 1
VV (Boston Partners Institutional
Bond) 100 Theta 3 (Government Money) 1
WW (Boston Partners Investors Bond)
100 Theta 4 (N.Y. Money) 1
XX (n/i numeric Larger Cap) 50 1
</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
48
<PAGE>
represents interests 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 and 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 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 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 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).
49
<PAGE>
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 the
Company and the non-interested directors.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP serves as the Company's independent
accountants. PricewaterhouseCoopers LLP performs an annual audit of the
Company's financial statements.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1999 (the "1999
Annual Report") 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 the Company's independent accountants,
PricewaterhouseCoopers LLP. The reports of PricewaterhouseCoopers LLP are
incorporated herein by reference. 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 at no charge by telephoning the Distributor at the telephone number
appearing on the front page of this Statement of Additional Information.
50
<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:
"A1" - 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.
A-5
<PAGE>
N.R. Not rated. Debt obligations of issuers outside the United
States and its 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.
A-6
<PAGE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. 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-7
<PAGE>
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. 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.
A-8
<PAGE>
'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 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.
A-9
<PAGE>
Municipal Note Ratings
A Standard and Poor's note rating reflects the liquidity
factors and market access 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
<PAGE>
SCHNEIDER SMALL CAP VALUE FUND
(AN INVESTMENT PORTFOLIO OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1999
This Statement of Additional Information provides supplementary
information pertaining to shares (the "Shares") representing interest in the
Schneider Small Cap Value Fund (the "Fund") of The RBB Fund, Inc. ("RBB"). This
Statement of Additional Information is not a prospectus, and should be read only
in conjunction with the Schneider Small Cap Value Fund Prospectus, dated
December 1, 1999 (the "Prospectus"). A copy of the Prospectus may be obtained
from RBB by calling toll-free (888) 520-3277.
TABLE OF CONTENTS
PAGE
----
FUND HISTORY AND CLASSIFICATION................................................2
INVESTMENT STRATEGIES..........................................................2
DIRECTORS AND OFFICERS........................................................ 9
DIRECTORS' COMPENSATION ......................................................11
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS..................12
PORTFOLIO TRANSACTIONS........................................................15
PURCHASE AND REDEMPTION INFORMATION...........................................16
TELEPHONE TRANSACTION PROCEDURES..............................................16
VALUATION OF SHARES...........................................................17
PERFORMANCE AND YIELD INFORMATION.............................................18
TAXES.........................................................................19
ADDITIONAL INFORMATION CONCERNING RBB SHARES..................................19
MISCELLANEOUS.................................................................21
FINANCIAL STATEMENTS .........................................................22
CONTROL PERSONS ..............................................................22
APPENDIX A...................................................................A-1
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION IN
CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY RBB OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY RBB
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
FUND HISTORY AND CLASSIFICATION
The RBB Fund, Inc. ("RBB") is an open-end management investment company
currently operating or proposing to operate 17 separate investment portfolios.
RBB was organized as a Maryland corporation on February 29, 1988. This statement
of additional information pertains to one class of shares representing interests
in one diversified portfolio of the Company, which is offered by a Prospectus
dated December 1, 1999.
Capitalized terms used herein and not otherwise defined have the
same meanings as are given to them in the Prospectus.
INVESTMENT STRATEGIES
The following supplements the information contained in the
Prospectus concerning the investment objectives and policies of the Fund.
ADDITIONAL INFORMATION ON FUND INVESTMENTS.
LENDING OF FUND SECURITIES. The Fund may lend securities to brokers,
dealers and other financial institutions desiring to borrow securities to
complete transactions and for other purposes. Because the government securities
or other assets that are pledged as collateral to the Fund in connection with
these loans generate income, securities lending enables the Fund to earn income
that may partially offset expenses. These loans may not exceed 33 1/3% of the
Fund's total assets. The documentation for these loans will provide that the
Fund will receive collateral equal to at least 102% of the current market value
of the loaned securities, as marked to market each day that the net asset value
of the Fund is determined, consisting of government securities or other assets
permitted by applicable regulations and interpretations. The Fund will pay
administrative and custodial fees in connection with the loan of securities. The
Fund will invest collateral in short-term investments, and will bear the risk of
loss of the invested collateral. In addition, the Fund will be exposed to the
risk of loss should a borrower default on its obligation to return the borrowed
securities. The Fund's share of income from the loan collateral will be included
in its gross investment income.
Securities lending would involve risks of delay in receiving
additional collateral in the event the value of the collateral decreased below
the value of the securities loaned or of delay in recovering the securities
loaned or even loss of rights in the collateral should the borrower of the
securities fail financially. However, loans will be made only to borrowers
deemed by Schneider Capital Management Company (the "Adviser"), to be of good
standing and only when, in the Adviser's judgment, the income to be earned from
the loans justifies the attendant risks. Any loans of the Fund's securities will
be marked to market daily.
INDEXED SECURITIES. The Fund may invest in indexed securities whose
value is linked to securities indices. Most such securities have values which
rise and fall according to the change in one or more specified indices, and may
have characteristics
-2-
<PAGE>
similar to direct investments in the underlying securities. Depending on the
index, such securities may have greater volatility than the market as a whole.
The Fund does not presently intend to invest more than 5% of its net assets in
indexed securities.
REPURCHASE AGREEMENTS. The Fund may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase them
at an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 13
months, provided the repurchase agreement itself matures in less than 13 months.
The financial institutions with whom the Fund may enter into repurchase
agreements will be banks which the Adviser considers creditworthy pursuant to
criteria approved by the Board of Directors and non-bank dealers of U.S.
Government securities that are listed on the Federal Reserve Bank of New York's
list of reporting dealers. The Adviser will consider the creditworthiness of a
seller in determining whether to cause the Fund to enter into a repurchase
agreement. The seller under a repurchase agreement will be required to maintain
the value of collateral at not less than the repurchase price plus accrued
interest. The Adviser will monitor daily the value of the collateral, and will,
if necessary, require the seller to increase the collateral so that its value is
not less than the repurchase price. Default by or bankruptcy of the seller
would, however, expose the Fund to the risk of loss because of possible market
declines in the value of the collateral or delays in connection with its
disposition.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may enter
into reverse repurchase agreements with respect to portfolio securities for
temporary purposes (such as to obtain cash to meet redemption requests) when the
liquidation of portfolio securities is deemed disadvantageous or inconvenient by
the Adviser. Reverse repurchase agreements involve the sale of securities held
by the Fund pursuant to the Fund's agreement to repurchase the securities at an
agreed-upon price, date and rate of interest. Such agreements are considered to
be borrowings under the Investment Company Act of 1940 (the "1940 Act"), and may
be entered into only for temporary or emergency purposes. While reverse
repurchase transactions are outstanding, the Fund will maintain in a segregated
account with the Fund's custodian or a qualified sub-custodian, cash or liquid
securities of an amount at least equal to the market value of the securities,
plus accrued interest, subject to the agreement and will monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Fund may decline below
the price of the securities the Fund is obligated to repurchase and the return
on the cash exchanged for the securities. The Fund may also enter into "dollar
rolls," in which it sells fixed income securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. During the
roll period, the Fund would forgo principal and interest paid on such
securities. The Fund would be compensated by the difference between the current
sales price and the forward price for the future purchase, as well as by the
interest earned on the cash proceeds of the initial sale. The return on dollar
rolls may be negatively impacted by fluctuations in interest rates. The Fund
does not presently intend to engage in reverse repurchase or dollar roll
transactions involving more than 5% of the Fund's net assets.
-3-
<PAGE>
U.S. GOVERNMENT OBLIGATIONS. The Fund may purchase U.S. Government
agency and instrumentality obligations that are debt securities issued by U.S.
Government-sponsored enterprises and federal agencies. Some obligations of
agencies and instrumentalities of the U.S. Government are supported by the full
faith and credit of the U.S. Government or by U.S. Treasury guarantees, such as
securities of the Government National Mortgage Association and the Federal
Housing Authority; others, by the ability of the issuer to borrow, provided
approval is granted, from the U.S. Treasury, such as securities of the Federal
Home Loan Mortgage Corporation and others, only by the credit of the agency or
instrumentality issuing the obligation, such as securities of the Federal
National Mortgage Association and the Federal Loan Banks. U.S. government
obligations that are not backed by the full faith and credit of the U.S.
government are subject to greater risks than those that are. U.S. government
obligations that are backed by the full faith and credit of the U.S. government
are subject to interest rate risk.
The Fund's net assets may be invested in obligations issued or
guaranteed by the U.S. Treasury or the agencies or instrumentalities of the U.S.
Government, including options and futures on such obligations. The maturities of
U.S. Government securities usually range from three months to thirty years.
Examples of types of U.S. Government obligations include U.S. Treasury Bills,
Treasury Notes and Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Federal National Mortgage Association,
Government National Mortgage Association, General Services Administration,
Student Loan Marketing Association, Central Bank for Cooperatives, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, the Maritime
Administration, the Asian-American Development Bank and the Inter-American
Development Bank.
HEDGING INVESTMENTS. At such times as the Adviser deems it
appropriate and consistent with the investment objective of the Fund, the Fund
may invest in financial futures contracts and options on financial futures
contracts. The purpose of such transactions is to hedge against changes in the
market value of securities in the Fund caused by fluctuating interest rates and
to close out or offset its existing positions in such futures contracts or
options as described below. Such instruments will not be used for speculation.
Futures contracts and options on futures are discussed below.
FUTURES CONTRACTS. The Fund may invest in financial futures
contracts with respect to those securities listed on the S&P 500 Stock Index.
Financial futures contracts obligate the seller to deliver a specific type of
security called for in the contract, at a specified future time, and for a
specified price. Financial futures contracts may be satisfied by actual delivery
of the securities or, more typically, by entering into a transaction that
offsets the financial futures contract. The Fund will comply with guidelines
established by the SEC with respect to coverage of options and futures stategies
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 the 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, the Fund may
be required to sell off assets it would not otherwise liquidate. There are risks
that are associated with the use of futures contracts for hedging purposes. In
certain market conditions, as in a rising interest rate environment, sales of
futures contracts may not completely offset a decline in value of the portfolio
securities against which the futures contracts are being sold. In the futures
market, it may not always be possible to execute a buy or sell order at the
desired price, or to close out an open position due to market conditions, limits
on open positions, and/or daily price fluctuations. Risks in the use of futures
contracts also result from the possibility that changes in the market interest
rates may differ substantially from the
-4-
<PAGE>
changes anticipated by the Fund's investment adviser when hedge positions were
established. The Fund does not presently intend to invest more than 5% of the
value of its assets in futures contracts.
OPTIONS ON FUTURES. The Fund may purchase and write call and put
options on futures contracts with respect to those securities listed on the S&P
500 Stock Index and enter into closing transactions with respect to such options
to terminate an existing position. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract. The Fund may use options on futures contracts in connection
with hedging strategies. The purchase of put options on futures contracts is a
means of hedging against the risk of rising interest rates. The purchase of call
options on futures contracts is a means of hedging against a market advance when
the Fund is not fully invested.
The Fund may seek to terminate its position in a put option it
writes before exercise by closing out the option in the secondary market at its
current price. If the secondary market is not liquid for an option the 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. 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, the Fund would
seek to mitigate the efects of a price decline. At the same time, because the
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.
Because there are a limited number of types of futures contracts, it
is likely that the standardized futures contracts available to the Fund will not
match the Fund's current or anticipated investments. Futures prices can also
diverge from the prices of their underlying instruments, even if the underlying
instruments match the 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 the Fund's investments and its futures positions may also
result from differing levels of demand in the furures 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
Fund may purchase or sell futures contracts with a greater or lesser value than
the securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in historical volatility between the futures
contracts and the securities, although this may not be successful in all cases.
If price changes in the Fund's futures positions are poorly correlated with its
other investemnts, 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
investemnts.
There is no assurance that the Fund will be able to close out its
financial futures positions at any time, in which case it would be required to
maintain the margin deposits on the contract. The Fund does not presently intend
to invest more than 5% of its net assets in options on futures.
BANK AND CORPORATE OBLIGATIONS. The Fund may purchase obligations of
issuers in the banking industry, such as short-term obligations of bank holding
companies, certificates of deposit, bankers' acceptances and time deposits
issued by U.S. or foreign banks or savings institutions having total assets at
the time of purchase in excess of $1 billion. Investment in obligations of
foreign banks or foreign branches of U.S. banks may entail risks that are
different from those of investments in obligations of U.S. banks due to
differences in political, regulatory and economic systems and conditions. Such
obligations are not FDIC insured and the Fund bears the risk of their failure.
The Fund may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of its total assets.
The Fund may invest in debt obligations, such as bonds and
debentures, issued by corporations and other business organizations that are
rated at the time of purchase within the three highest ratings categories of S&P
or Moody's (or which, if unrated, are determined by the Adviser to be of
comparable quality). Unrated securities will be determined to be of the
comparable quality to rated debt obligations if, among other things, other
outstanding obligations of the issuers of such securities are rated A or better.
See Appendix "A" for a description of corporate debt ratings. An issuer of debt
obligations may default on its obligation to pay interest and repay principal.
Also, changes in the financial strength of an issuer or changes in the credit
rating of a security may affect its value.
COMMERCIAL PAPER. The Fund may purchase commercial paper rated (at
the time of purchase) "A-1" by S&P or "Prime-1" by Moody's or, when deemed
advisable by the Adviser, issues rated "A-2" or "Prime-2" by S&P or Moody's,
respectively. These rating symbols are described in Appendix "A" hereto. The
Fund may also purchase
-5-
<PAGE>
unrated commercial paper provided that such paper is determined to be of
comparable quality by the Fund's Adviser pursuant to guidelines approved by the
Fund's Board of Directors. Commercial paper issues in which the Fund may invest
include securities issued by corporations without registration under the
Securities Act of 1933, as amended (the "Securities Act") in reliance on the
exemption from such registration afforded by Section 3(a)(3) thereof, and
commercial paper issued in reliance on the so-called "private placement"
exemption from registration, which is afforded by Section 4(2) of the Securities
Act ("Section 4(2) paper"). Section 4(2) paper is restricted as to disposition
under the federal securities laws in that any resale must similarly be made in
an exempt transaction. Section 4(2) paper is normally resold to other
institutional investors through or with the assistance of investment dealers who
make a market in Section 4(2) paper, thus providing liquidity.
RULE 144A SECURITIES. The Fund may invest up to 15% of the value of
its net assets in securities that are illiquid and may be difficult to value.
The Fund may purchase securities which are not registered under the Securities
Act of 1933 (the "1933 Act"), as amended, but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act. Any such
security will not be considered illiquid so long as it is determined by the
Adviser, acting under guidelines approved and monitored by the Board, that an
adequate trading market exists for that security. This investment practice could
have the effect of increasing the level of illiquidity in the Fund during any
period that qualified institutional buyers become uninterested in purchasing
these restricted securities.
FOREIGN SECURITIES. The Fund may invest in foreign securities,
either directly or indirectly through American Depository Receipts and European
Depository Receipts. Investments in foreign securities involve higher costs than
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity and political stability. Future political and economic information,
the possible imposition of withholding taxes on interest income, the possible
seizure or nationalization of foreign holdings, the possible establishment of
exchange controls, or the adoption of other governmental restrictions, might
adversely affect the payment of principal and interest on foreign obligations.
Transactions in foreign securities may involve greater time from the trade date
until the settlement date than domestic securities transactions, and may involve
the risk of possible losses through the holding of securities in custodians and
securities depositories in foreign countries. These factors could interfere with
the Adviser's ability to sell the securities.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as the price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
price of the Fund's securities in their local markets. Conversely, a decrease in
the value of the U.S. dollar may have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in its foreign markets. In addition to favorable and
unfavorable currency
-6-
<PAGE>
exchange rate developments, the Fund is subject to the possible imposition of
exchange control regulations or freezes on convertibility of currency.
FUNDAMENTAL INVESTMENT LIMITATIONS.
RBB has adopted the following fundamental investment limitations,
which may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding Shares (as defined in Section 2(a)(42) of the
1940 Act). 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 Portfolio means, with respect to the approval of an
investment advisory agreement, a distribution plan or a change in a fundamental
investment limitation, the lesser of: (1) 67% of the shares of the particular
class, series or Portfolio represented at a meeting at which the holders of more
than 50% of the outstanding shares of such class, series or Portfolio are
present in person or by proxy; or (2) more than 50% of the outstanding shares of
such class, series or Portfolio. The Fund may not:
1. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements and dollar rolls
for temporary purposes in amounts up to one-third of the value of its total
assets at the time of such borrowing; or mortgage, pledge or hypothecate any
assets, except in connection with any such borrowing and then in amounts not in
excess of one-third of the value of the Fund's total assets at the time of such
borrowing. The Fund will not purchase securities while its aggregate borrowings
(including reverse repurchase agreements, dollar rolls and borrowings from
banks) are in excess of 5% of its total assets. Securities held in escrow or
separate accounts in connection with the Fund's investment practices are not
considered to be borrowings or deemed to be pledged for purposes of this
limitation.
2. Act as an underwriter of securities within the meaning of the
Securities Act, except insofar as it might be deemed to be an underwriter upon
disposition of certain portfolio securities acquired within the limitation on
purchases of restricted securities;
3. Purchase or sell real estate (including real estate limited
partnership interests), provided that the Fund may invest (a) in securities
secured by real estate or interests therein or issued by companies that invest
in real estate or interests therein or (b) in real estate investment trusts;
4. Purchase or sell commodities or commodity contracts, except that
the Fund may deal in forward foreign exchanges between currencies of the
different countries in which it may invest and purchase and sell stock index and
currency options, stock index futures, financial futures and currency futures
contracts and related options on such futures;
5. Make loans, except through loans of portfolio instruments and
repurchase agreements, provided that for purposes of this restriction the
acquisition of bonds, debentures or other debt instruments or interests therein
and investment in government obligations, loan participations and assignments,
short-term commercial paper, certificates of deposit and bankers' acceptances
shall not be deemed to be the making of a loan;
6. Invest 25% or more of its assets, taken at market value at the
time of each investment, in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and instrumentalities); or
-7-
<PAGE>
7. Purchase the securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase, more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting securities
of such issuer would be owned by the Fund, except that up to 25% of the value of
the Fund's total assets may be invested without regard to such limitations.
8. Purchase any securities which would cause, at the time of
purchase, 25% or more of the value of the total assets of the Fund to be
invested in the obligations of issuers in any single industry, provided that
there is no limitation with respect to investments in U.S. Government
obligations.
(For purposes of Investment Limitation No. 1, any collateral
arrangements with respect to, if applicable, the writing of options and futures
contracts, options on futures contracts, and collateral arrangements with
respect to initial and variation margin are not deemed to be a pledge of assets.
For purposes of Investment Limitation No. 2, neither the foregoing arrangements
nor the purchase or sale of futures or related options are deemed to be the
issuance of senior securities.)
The Fund may invest in securities issued by other investment
companies within the limits prescribed by the 1940 Act. As a shareholder of
another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations.
Except as required by the 1940 Act with respect to the borrowing of
money and the limitation on illiquid holdings, if a percentage restriction is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from a change in market values of portfolio securities or amount of
total or net assets will not be considered a violation of any of the foregoing
restrictions.
Securities held by the Fund generally may not be purchased from,
sold or loaned to the Adviser or its affiliates or any of their directors,
officers or employees, acting as principal, unless permitted under the 1940 Act.
-8-
<PAGE>
DIRECTORS AND OFFICERS
The business and affairs of the Company are managed under the
direction of the Company's Board of Directors. The directors and executive
officers of the Fund, 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 Pincus
c/o 400 Bellevue Parkway Asset Management, Inc., Executive Officer
Wilmington, DE 19809 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 Co.,
Fahnestock & Company, Inc. Inc. (a registered broker-dealer); Prior to
125 Broad Street October 1996, Executive Vice President of
New York, NY 10004 Gruntal & Co., Inc. (a registered
broker-dealer).
Francis J. McKay - 64 Director Since 1963, Executive Vice President, Fox
Fox Chase Cancer Center Chase Cancer Center (biomedical research and
7701 Burholme Avenue 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 - 65 Director Director and Vice Chairman, since 1969
Comcast Corporation Comcast Corporation (cable television and
1500 Market Street communications); Director, Comcast U.K.
35th Floor
Philadelphia, PA 19102
-9-
<PAGE>
Donald van Roden - 75 Director and Chairman of the Self-employed businessman. From February
1200 Old Mill Lane Board 1980 to March 1987, Vice Chairman,
Wyomissing, PA 19610 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 Chairman
400 Bellevue Parkway of the Board, Fox Chase Cancer Center;
Wilmington, DE 19809 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 Independence Square
Income Securities, Inc.; Director of the
Bradford Funds, Inc.
Morgan R. Jones - 60 Secretary Chairman, the law firm of Drinker Biddle &
Drinker Biddle & Reath LLP Reath LLP; Director, Nobel Education
One Logan Square Dynamics, Inc.; Secretary, Petroferm, Inc.
18th & Cherry Streets
Philadelphia, PA 19103
* Each of Mr. Sablowsky and Mr. Sternberg is an "interested person" of
RBB, as that term is defined in the 1940 Act.
</TABLE>
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.
-10-
<PAGE>
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board all persons to be nominated as directors of RBB.
RBB 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:
DIRECTORS' COMPENSATION
-----------------------
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS ESTIMATED REGISTRANT
AGGREGATE ACCRUED ANNUAL AND
COMPENSATION AS PART BENEFITS FUND COMPLEX1
FROM OF FUND UPON PAID
NAME OF PERSON/ POSITION REGISTRANT EXPENSES RETIREMENT TO DIRECTORS
- ------------------------ ---------- -------- ---------- ------------
Julian A. Brodsky, $19,250 N/A N/A $19,250
Director
Francis J. McKay, $16,750 N/A N/A $16,750
Director
Arnold M. Reichman, $ 0 N/A N/A $ 0
Director
Robert Sablowsky, $18,250 N/A N/A $18,250
Director
Marvin E. Sternberg, $19,250 N/A N/A $19,250
Director
Donald van Roden, $25,250 N/A N/A $25,250
Director and Chairman
- ----------------------
1 A Fund Complex means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser
or have an investment adviser that is an affiliated person of the
investment adviser of any other investment companies.
-11-
<PAGE>
On October 24, 1990 the Company adopted, as a participating
employer, the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a
retirement plan for employees (currently Edward J. Roach is the Company's sole
employee), pursuant to which the Company will contribute on a quarterly basis
amounts equal to 10% of the quarterly compensation of each eligible employee.
Drinker Biddle & Reath LLP, of which Mr. Jones is a partner, receives legal fees
as counsel to the Company. No officer, director or employee of the Adviser or
the Distributor currently receives any compensation from the Company.
INVESTMENT ADVISORY, DISTRIBUTION
AND SERVICING ARRANGEMENTS
ADVISORY AGREEMENT. Schneider Capital Management Company renders
advisory services to the Fund pursuant to an Investment Advisory Agreement dated
September 1, 1998 (the "Advisory Agreement").
The Adviser is a Pennsylvania corporation controlled by its majority
shareholder, Arnold C. Schneider, III. The Adviser has been managing assets for
institutional accounts since 1996. The Adviser currently acts as investment
adviser for one other investment company registered under the 1940 Act, Impact
Management Investment Trust. As of August 31, 1999, the Adviser managed
approximately $500 million in assets. The Adviser is a registered investment
advisor under the Investment Advisors Act of 1940, as amended.
The Adviser is an active, equity value manager that believes a
disciplined fundamental approach can consistently add value in a market that has
shown to be extremely efficient with current data, but less so with future
events. Schneider Capital Management Co. is research intensive and focuses on
new ideas, believing that the market is slow to react to change, particularly
where out-of-favor stocks are concerned. The Advisor strives to act on them as
soon as possible to generate above-average returns.
The Adviser has investment discretion for the Fund and will make all
decisions affecting assets in the Fund under the supervision of RBB's Board of
Directors and in accordance with the Fund's stated policies. The Adviser will
select investments for the Fund. For its services to the Fund, the Adviser is
entitled to receive a monthly advisory fee under the Advisory Agreement computed
at an annual rate of 1.00% of the Fund's average daily net assets. Until
December 31, 2000, the Adviser has agreed to waive its fees to the extent
necessary to maintain an annualized expense ratio for the Fund of 1.10%. There
can be no assurance that the Adviser will continue such waivers thereafter.
The Fund bears its own expenses not specifically assumed by the
Adviser. General expenses of RBB not readily identifiable as belonging to a
portfolio of RBB are allocated among all investment portfolios by or under the
direction of RBB's Board of Directors in such manner as the Board determines to
be fair and equitable. Expenses borne by a portfolio include, but are not
limited to, the following (or a portfolio's share of the following): (a) the
cost (including brokerage commissions) of securities purchased or sold by a
portfolio and any losses incurred in connection therewith; (b) fees payable to
-12-
<PAGE>
and expenses incurred on behalf of a portfolio by the Adviser; (c) any costs,
expenses or losses arising out of a liability of or claim for damages or other
relief asserted against RBB or a portfolio for violation of any law; (d) any
extraordinary expenses; (e) fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations; (f)
the cost of investment company literature and other publications provided by RBB
to its directors and officers; (g) organizational costs; (h) fees to the Adviser
and PFPC; (i) fees and expenses of officers and directors who are not affiliated
with the Adviser or Distributor; (j) taxes; (k) interest; (l) legal fees; (m)
custodian fees; (n) auditing fees; (o) brokerage fees and commissions; (p)
certain of the fees and expenses of registering and qualifying the Fund and its
shares for distribution under federal and state securities laws; (q) expenses of
preparing prospectuses and statements of additional information and distributing
annually to existing shareholders that are not attributable to a particular
class of shares of RBB; (r) the expense of reports to shareholders,
shareholders' meetings and proxy solicitations that are not attributable to a
particular class of shares of RBB; (s) fidelity bond and directors' and
officers' liability insurance premiums; (t) the expense of using independent
pricing services; and (u) other expenses which are not expressly assumed by the
Adviser under its advisory agreement with the portfolio. Each class of the Fund
pays its own distribution fees, if applicable, and may pay a different share
than other classes of other expenses (excluding advisory and custodial fees) if
those expenses are actually incurred in a different amount by such class or if
it receives different services.
Under the Advisory Agreement, the Adviser will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund or RBB
in connection with the performance of the Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard of its
duties and obligations thereunder.
The Advisory Agreement was approved on January 21, 1998 by vote of
RBB's Board of Directors, including a majority of those directors who are not
parties to the Advisory Agreement or interested persons (as defined in the 1940
Act) of such parties. The Advisory Agreement was approved by the initial
shareholder of the Fund. The Advisory Agreement is terminable by vote of RBB's
Board of Directors or by the holders of a majority of the outstanding voting
securities of the Fund, at any time without penalty, on 60 days' written notice
to the Adviser. The Advisory Agreement may also be terminated by the Adviser on
60 days' written notice to RBB. The Advisory Agreement terminates automatically
in the event of its assignment. For the period from September 2, 1998
(commencement of operations) through August 31, 1999, the Fund paid advisory
fees of $71,634 and the Adviser waived $71,634 and reimbursed the Fund $58,799.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PFPC Trust Company (the
"Custodian") serves as the custodian of the Fund's assets. The Custodian (a)
maintains a separate account or accounts in the name of the Fund (b) holds and
transfers portfolio securities on account of the Fund, (c) accepts receipts and
makes disbursements of money on behalf of the Fund, (d) collects and receives
all income and other payments
-13-
<PAGE>
and distributions on account of the Fund's portfolio securities and (e) makes
periodic reports to RBB's Board of Directors concerning the Fund's operations.
The Custodian is authorized to select one or more banks or trust companies to
serve as sub-custodian on behalf of the Fund, provided that the Custodian
remains responsible for the performance of all of its duties under the Custodian
Agreement and holds the Fund harmless from the acts and omissions of any
sub-custodian.
PFPC Inc. ("PFPC"), an affiliate of PNC Bank, serves as the transfer
and dividend disbursing agent for the Fund. PFPC (a) issues and redeems shares
of the Fund, (b) addresses and mails all communications by the Fund to record
owners of the Shares, including reports to shareholders, dividend and
distribution notices and proxy materials for its meetings of shareholders, (c)
maintains shareholder accounts and, if requested, sub-accounts and (d) makes
periodic reports to RBB's Board of Directors concerning the operations of the
Fund. PFPC may, on 30 days' notice to RBB, assign its duties as transfer and
dividend disbursing agent to any other affiliate of PNC Bank Corp.
DISTRIBUTION AGREEMENT. Provident Distributors, Inc. ("PDI"), whose
principal business address is Four Falls Corporate Center, 6th Floor, West
Conshohocken, PA 19428-2961, serves as the distributor of the Fund 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 Fund.
ADMINISTRATION AND ADMINISTRATIVE SERVICES AGREEMENTS. PFPC serves
as administrator to the Fund pursuant to an Administration and Accounting
Services Agreement dated September 1, 1998 (the "Administration Agreement").
PFPC has agreed to furnish to the Fund statistical and research data, clerical,
accounting and bookkeeping services, and certain other services required by the
Fund. In addition, PFPC has agreed to, among other things, prepare and file (or
assist in the preparation) of certain reports with the SEC and other regulatory
agencies. For its services to the Fund, PFPC is entitled to receive a fee
calculated at an annual rate of .125% of the Fund's average daily net assets,
with a minimum monthly fee of $8,333.
The Administration Agreement provides that PFPC shall not be liable
for any error of judgment or mistake of law or any loss suffered by RBB or the
Fund in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. For the period year ended August 31,
1999, PFPC received $51,725.
PDI provides certain administrative services to the Fund that are
not provided by PFPC, pursuant to an Agreement dated May 29, 1998 (the
"Administrative Services Agreement"). Such services are provided subject to the
supervision and direction of the Board of Directors of the Company.
The Administrative Services Agreement provides that PDI shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund in
-14-
<PAGE>
connection with the performance of services under the Agreement, except a loss
resulting from willful misfeasance, negligence or reckless disregard of its
duties and obligations thereunder.
As compensation for its services to the Fund under the
Administrative Services Agreement, PDI receives a monthly fee for the previous
month calculated at the annual rate of .15% of the average daily net assets of
the Fund. For the period year ended August 31, 1999, PDI received $2,150.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors and
applicable rules, the Adviser is responsible for the execution of portfolio
transactions and the allocation of brokerage transactions for the Fund. In
executing portfolio transactions, the Adviser seeks to obtain the best price and
most favorable execution for the Fund, 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 the Adviser 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.
The Fund has no obligation to deal with any broker or group of
brokers in the execution of portfolio transactions. The Adviser may, consistent
with the interests of the Fund 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 Fund and other clients of the Adviser. Information
and research received from such brokers will be in addition to, and not in lieu
of, the services required to be performed by the Adviser 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 the Adviser, as applicable, determines in good faith that such
commmission is reasonable in terms either of the transaction or the overall
responsibility of the Adviser, as applicable, to the Fund and its other clients
and that the total commissions paid by the Fund will be reasonable in relation
to the benefits to the Fund over the long-term.
For the fiscal year ended August 31, 1999, the Fund paid aggregate
commissions of $106,710 to brokers on account of research services.
The Fund expects that its annual portfolio turnover rate will not
exceed 75%. A high rate (100% or more) of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs that must be borne directly by the Fund. The Fund anticipates that its
annual portfolio turnover rate will vary from year to year. The portfolio
turnover rate is calculated by dividing the lesser of a portfolio's annual sales
or purchases of portfolio securities (exclusive of purchases or sales of
securities whose maturities at the time of acquisition were one year or less) by
the monthly average value of the securities in the portfolio during the year.
-15-
<PAGE>
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. RBB
reserves the right, if conditions exist which make cash payments undesirable, to
honor any request for redemption or repurchase of the Fund's shares by making
payment in whole or in part in securities chosen by RBB and valued in the same
way as they would be valued for purposes of computing the Fund's net asset
value. If payment is made in securities, a shareholder may incur transaction
costs in converting these securities into cash. RBB has elected, however, to be
governed by Rule 18f-1 under the 1940 Act so that the Fund is obligated to
redeem its shares solely in cash up to the lesser of $250,000 or 1% of its net
asset value during any 90-day period for any one shareholder of the Fund. 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. (RBB may also suspend or postpone the
recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.)
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.
The computation of the hypothetical offering price per Share of the
Fund based on the value of the Fund's net assets on August 31, 1999 and the
Fund's Shares outstanding on such date is as follows:
SCHNEIDER SMALL CAP VALUE FUND
Net Assets......................................... $12,923,726
Outstanding Shares................................. 716,341
Net Asset Value per Share.......................... 18.04
Maximum Offering Price to Public................... 18.04
TELEPHONE TRANSACTION PROCEDURES
RBB's telephone transaction procedures include the following
measures: (1) requiring the appropriate telephone transaction privilege forms;
(2) requiring the caller to provide the names of the account owners, the account
social security number and name of the Fund, all of which must match RBB's
records; (3) requiring RBB's service representative to complete a telephone
transaction form, listing all of the above caller identification
-16-
<PAGE>
information; (4) permitting exchanges (if applicable) only if the two account
registrations are identical; (5) requiring that redemption proceeds be sent only
by check to the account owners of record at the address of record, or by wire
only to the owners of record at the bank account of record; (6) sending a
written confirmation for each telephone transaction to the owners of record at
the address of record within five (5) Business Days of the call; and (7)
maintaining tapes of telephone transactions for six months, if the Fund elects
to record shareholder telephone transactions. For accounts held of record by
broker-dealers (other than the Distributor), financial institutions, securities
dealers, financial planners and other industry professionals, additional
documentation or information regarding the scope of a caller's authority is
required. Finally, for telephone transactions in accounts held jointly,
additional information regarding other account holders is required. Telephone
transactions will not be permitted in connection with IRA or other retirement
plan accounts or by an attorney-in-fact under a power of attorney.
VALUATION OF SHARES
The net asset value per share of the Fund is calculated as of the
close of the NYSE, generally 4:00 p.m. Eastern Time on each Business Day. A
"Business Day" is any day that the NYSE is open for business. Currently, the
NYSE is closed on New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day and on the preceding Friday and subsequent Monday when one of
these holidays falls on Saturday or Sunday. Net asset value per share, the value
of an individual share in a fund, is computed by adding the value of the Fund's
portfolio securities, cash and other assets, subtracting its actual and accrued
liabilities, and dividing the result by the number of outstanding shares of the
Fund. Securities that are listed on stock exchanges are valued at the last sale
price on the day the securities are valued or, lacking any sales on such day, at
the mean of the bid and asked prices. 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. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the direction
of RBB's Board of Directors. The amortized cost method of valuation may also be
used with respect to debt obligations with sixty days or less remaining to
maturity.
In determining the approximate market value of portfolio
investments, the Fund may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face
-17-
<PAGE>
value. Other assets, if any, are valued at fair value as determined in good
faith by RBB's Board of Directors.
PERFORMANCE AND YIELD INFORMATION
TOTAL RETURN. The Fund may from time to time advertise its "average
annual total return." The Fund computes such return separately for its shares by
determining the average annual compounded rate of return during specified
periods that equates the initial amount invested to the ending redeemable value
of such investment according to the following formula:
P(1+T) n = ERV
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the
end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
And when solving for T:
ERV 1/n
T= [(-------)-1]
P
For the period ended August 31, 1999, the Fund's average annual
total return was $82.50.
The Fund, when advertising its "aggregate total return," computes
such returns by determining the aggregate compounded rates of return during
specified periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate total
return is as follows:
ERV
Aggregate Total Return = [(-----)-1]
P
The calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund during
the periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
-18-
<PAGE>
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.
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 Class YYY
constitutes the Schneider Capital Small Cap Value Class described herein. 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 SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (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 Investment
Management Institutional Small 100
Cap Growth)
Q 100 Class OOO (Bogle Investment
Management Investors Small Cap 100
Growth)
R (Municipal Money) 500 Janney (Money) 3000
S (Government Money) 500 Janney (Municipal Money) 200
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AUTHORIZED SHARES AUTHORIZED SHARES
CLASS OF COMMON STOCK (MILLIONS) CLASS OF COMMON STOCK (MILLIONS)
- ------------------------------------- -------------------- ----------------------------------- --------------------
<S> <C> <C> <C>
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
GG (n/i numeric Growth) 50 Delta 4 (N.Y. Money) 1
HH (n/i numeric Mid Cap) 50 Epsilon 1 (Money) 1
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
20
<PAGE>
portfolios; the Bogle Family represents interests 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
and 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 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 the Fund will vote in the aggregate on all
matters. Further, shareholders of RBB will vote in the aggregate and not by
portfolio except as otherwise required by law or when the Board of Directors
determines that the matter to be voted upon affects only the interests of the
shareholders of a particular portfolio. Rule 18f-2 under the 1940 Act provides
that any matter required to be submitted by the provisions of the 1940 Act or
applicable state law, or otherwise, to the holders of the outstanding securities
of an investment company such as RBB shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding voting shares, as defined in the 1940 Act, of each portfolio
affected by the matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of each
portfolio in the matter are identical or that the matter does not affect any
interest of the portfolio. Under Rule 18f-2, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a portfolio only if approved by the
holders of a majority of the outstanding voting shares, as defined in the 1940
Act, of such portfolio. However, Rule 18f-2 also provides that the ratification
of the selection of independent public accountants and the election of directors
are not subject to the separate voting requirements and may be effectively acted
upon by shareholders of an investment company voting without regard to
portfolio.
Notwithstanding any provision of Maryland law requiring a greater
vote of shares of RBB's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law, or by
RBB's Articles of Incorporation, RBB may take or authorize such action upon the
favorable vote of the holders of more than 50% of all of the outstanding shares
of Common Stock entitled to vote on the matter voting without regard to class
(or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Drinker Biddle & Reath LLP, One Logan
Square, 18th & Cherry Streets, Philadelphia, Pennsylvania 19103-6996 serves as
counsel to RBB and the non-interested directors.
-21-
<PAGE>
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP serves as RBB's
independent accountants. PricewaterhouseCoopers LLP performs an annual audit of
the Company's financial statements.
FINANCIAL STATEMENTS
The Funds' annual report for the fiscal period ended August 31, 1999
has been filed with the Securities and Exchange Commission. The financial
statements in such annual report are incorporated herein by reference into this
Statement of Additional Information. The financial statements included in the
annual report for the Fund for the fiscal period ended August 31, 1999 have been
audited by the Company's independent accountants, PricewaterhouseCoopers LLP
("Pricewaterhouse"), whose report thereon also appears and is incorporated
herein by reference. The financial statements in such annual report have been
incorporated herein on reliance upon such report given upon the authority of
such film as experts in accounting and auditing. Copies of the annual report may
be obtained by calling toll-free (888) 261-4073.
CONTROL PERSONS
As of November 17, 1999, to the Company's knowledge, the following
named persons at the addresses shown below owned of record approximately 5% or
more of the total outstanding shares of the class of the Company indicated
below. See "Additional Information Concerning Fund Shares" above. The Company
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 MONEY MARKET Gabe Nechamkin 7.40%
27 Muchmore Road
Harrison, NY 10528-1109
- ------------------------------------- ------------------------------------------------------- ------------------------
CASH PRESERVATION MONEY MARKET Harold T. Erfer 6.349%
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 in Tr. 12.785%
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 MONEY MARKET Saxon and Co. 65.047%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 Portfolio 12.161%
Attn. Joe Gajewski / PFPC, Inc.
MS W3-F400-03-2
400 Bellevue Parkway
Wilmington, DE 19809
- ------------------------------------- ------------------------------------------------------- ------------------------
Warburg Pincus Trust-International Equity Portfolio 15.203%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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. 20.546%
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 VALUE 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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 FUND INST Shady Side Academy Endowment 5.631%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<S> <C> <C>
BOSTON PARTNERS LARGE CAP FUND Charles Schwab & Co. Inc. 66.397%
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 VALUE FUND MAC & CO. 5.642%
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 VALUE FUND National Financial Svcs. Corp. for Exclusive 17.061%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 INVESTOR Charles Schwab & Co. Inc 81.125%
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>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------------------- ------------------------
FUND NAME SHAREHOLDER NAME AND ADDRESS PERCENTAGE OF FUND HELD
- ------------------------------------- ------------------------------------------------------- ------------------------
<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 NEUTRAL Boston Partners Asset Mgmt. L. P. 100.000%
FUND- INSTITUTIONAL SHARES Attn: Jan Penney
28 State St.
Boston, MA 02109
- ------------------------------------- ------------------------------------------------------- ------------------------
BOSTON PARTNERS MARKET NEUTRAL Glenn P. Verrette and Laurie Jo Verrette 6.690%
FUND- INVESTOR SHARES Jt. Ten. Wros.
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 FUND Arnold C. Schneider III 13.637%
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
- ------------------------------------- ------------------------------------------------------- ------------------------
Mark Shevitz 7.206%
Rollover IRA
65 Wardell St.
Rumson, NJ 07760
- ------------------------------------- ------------------------------------------------------- ------------------------
</TABLE>
<PAGE>
As of Novemeber 17, 1999, directors and officers as a group
owned less than one percent of the shares of the Company.
-26-
<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.
A-5
<PAGE>
N.R. Not rated. Debt obligations of issuers outside the United
States and its 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.
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Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles. 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.
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"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. 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.
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'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 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.
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Municipal Note Ratings
A Standard and Poor's note rating reflects the liquidity
factors and market access 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.
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