485BPOS 1 d485bpos.htm RBB FUND INC. RBB Fund Inc.

As filed with the Securities and Exchange Commission on December 29, 2008

Securities Act File No. 33-20827

Investment Company Act File No. 811-5518

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x

Pre-Effective Amendment No.                                          ¨

Post-Effective Amendment No. 127                                x

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|

Amendment No. 129                                                         x

 

 

THE RBB FUND, INC.

(Exact Name of Registrant as Specified in Charter)

Bellevue Park Corporate Center

103 Bellevue Parkway

Wilmington, DE 19809

(Address of Principal Executive Offices)

Registrant’s Telephone Number: (302) 791-1112

Copies to:

 

EDWARD J. ROACH

PNC Global Investment Servicing (U.S.) Inc.

103 Bellevue Parkway

Wilmington, DE 19809

(Name and Address of Agent for Service)

 

MICHAEL P. MALLOY, ESQUIRE

Drinker Biddle & Reath LLP

One Logan Square

18th & Cherry Streets

Philadelphia, PA 19103-6996

It is proposed that this filing will become effective (check appropriate box)

¨ immediately upon filing pursuant to paragraph (b)

x on December 31, 2008 pursuant to paragraph (b)

¨ 60 days after filing pursuant to paragraph (a)(1)

¨ on             pursuant to paragraph (a)(1)

¨ 75 days after filing pursuant to paragraph (a)(2)

¨ on             pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

¨ This post-effective amendment designates a new effective date for a previously filed post-effective amendment.

Title of Securities Being Registered..............................Shares of Common Stock


 

 

FREE MARKET U.S. EQUITY FUND

FREE MARKET INTERNATIONAL EQUITY FUND

FREE MARKET FIXED INCOME FUND

of

THE RBB FUND, INC.

PROSPECTUS

December 31, 2008

Investment Adviser:

ABUNDANCE TECHNOLOGIES, INC.

5955 Deerfield Blvd.

Mason, OH 45040

 

The securities described in this Prospectus have been registered with the Securities and Exchange Commission (the “SEC”). The SEC, however, has not judged these securities for their investment merit and has not determined the accuracy or adequacy of this Prospectus. Anyone who tells you otherwise is committing a criminal offense.


TABLE OF CONTENTS

 

 

 

INTRODUCTION

   1

DESCRIPTION OF THE FREE MARKET U.S. EQUITY FUND

   2

Investment Goal

   2

Principal Investment Strategies

   2

Summary of Principal Risks

   3

Risk/Return Information

   4

Financial Highlights

   7

DESCRIPTION OF THE FREE MARKET INTERNATIONAL EQUITY FUND

   8

Investment Goal

   8

Principal Investment Strategies

   8

Summary of Principal Risks

   10

Risk/Return Information

   11

Financial Highlights

   14

DESCRIPTION OF THE FREE MARKET FIXED INCOME FUND

   15

Investment Goal

   15

Principal Investment Strategies

   15

Summary of Principal Risks

   16

Risk/Return Information

   18

Financial Highlights

   20

MORE ABOUT EACH FUND’S INVESTMENTS AND RISKS

   21

More About Underlying Investment Company Investments

   21

Investment Risks

   23

Disclosure of Portfolio Holdings

   25

MANAGEMENT OF THE FUNDS

   26

Investment Adviser

   26

Portfolio Managers

   26

Management Fees

   26

OTHER SERVICE PROVIDERS

   27

SHAREHOLDER INFORMATION

   28

Pricing of Fund Shares

   28

Market Timing

   28

Dividends and Distributions

   32

Taxes

   32

FOR MORE INFORMATION ABOUT ABUNDANCE TECHNOLOGIES FAMILY OF FUNDS

   35

 

i


INTRODUCTION

 

This Prospectus is intended to provide you with the information you need to make an informed decision about whether to invest in the Free Market U.S. Equity Fund, Free Market International Equity Fund and Free Market Fixed Income Fund (the “Funds”), three series of The RBB Fund, Inc. (the “Company”). Each Fund operates as a Fund of Funds. For purposes of this Prospectus, “Free Market” refers to markets that are efficient, meaning that the market price of a security is generally indicative of its value.

Abundance Technologies, Inc. (“Abundance” or the “Adviser”) provides investment advisory services to the Funds. This Prospectus and the Statement of Additional Information (“SAI”) incorporated herein relate solely to the Funds.

By investing in a Fund, an investor can invest in a managed portfolio of investment companies to meet a specified investment strategy. The Adviser believes that allocating each Fund’s assets among other investment companies will capture the returns of various market segments and provide diversification to the Fund. Each Fund may invest directly in individual securities. However, the Adviser will not invest directly in individual securities without the prior approval of the Board of Directors of the Company, except as described in this Prospectus.

 

1


DESCRIPTION OF THE FREE MARKET U.S. EQUITY FUND

 

Investment Goal

The Free Market U.S. Equity Fund seeks long-term capital appreciation. The Fund’s investment goal is not fundamental and may be changed without shareholder approval by the Company’s Board of Directors upon prior written notice to shareholders. Shareholders will be given at least 60 days’ prior written notice of any change to the Fund’s investment goal.

Principal Investment Strategies

Investments: The Fund pursues its investment goal by investing under normal circumstances at least 80% of its net assets, including any borrowings for investment purposes, in shares of registered, open-end investment companies and exchange-traded funds (“ETFs”) (collectively, “investment companies”) that have either adopted policies to invest at least 80% of their assets in equity securities, such as common stocks, preferred stocks or securities convertible into stocks, of U.S. companies, or invest substantially all of their assets in such equity securities. The Fund will diversify its investments by investing primarily in investment companies focusing on different segments of the equity markets, including large (“large-cap”), small (“small-cap”) and micro-capitalization (“micro-cap”) equity securities that the Adviser believes offer the prospect of long-term capital appreciation.

The Adviser uses target ranges in allocating the Fund’s assets among various investment company asset classes. The Adviser expects that the Fund’s investments will be within plus or minus 5% of the following target ranges:

 

Asset Class

   Target

U.S. Large Cap Value

   30%

U.S. Small Cap Value

   25%

U.S. Large Company

   15%

U.S. Small Cap

   15%

U.S. Micro Cap

   15%

Target allocations represent the Fund’s current target for investments in a particular asset class. Actual allocations may differ from the target due to market fluctuations and other factors. The Adviser may change these target allocations and ranges from time to time without shareholder approval.

The Fund invests exclusively in investment companies that are not affiliated with it. These investment companies may be within the same fund complex and/or advised by the same investment adviser.

Strategies: The Adviser focuses on the returns of investment companies within each of the target asset classes while keeping trading costs to a minimum. Under normal market conditions, the Adviser expects substantially all of the Fund’s net assets to be invested in the securities of investment companies that invest in the types of securities in each asset class described below, with less than 2% of its net assets invested in cash or money market instruments.

U.S. Value Asset Classes: The underlying investment companies comprising the U.S. large cap value asset class and U.S. small cap value asset class will invest in a broad and diverse group of readily marketable common stocks and other equity securities of U.S. companies which the underlying investment adviser(s) determine to be value stocks at the time of purchase. An issuer’s securities are considered value stocks primarily because they have a high book value in relation to their market value (a “book to market ratio”). In assessing value, the underlying investment adviser(s) may consider additional factors, such as price to cash flow or price to earnings ratios, as well as economic conditions and developments in the issuer’s industry. The criteria used for assessing value are subject to change from time to time.

 

   

U.S. Large Cap Value: The underlying investment companies comprising the large cap value asset class generally will purchase a broad and diverse group of common stocks and other equity securities

 

2


 

of large cap companies that the underlying investment adviser(s) determine to be value stocks. The underlying investment adviser(s) measure company size primarily based on market capitalization. Large cap companies generally are those companies with a market capitalization of $2 billion or greater. This dollar amount will change from time to time due to market conditions.

 

   

U.S. Small Cap Value: The underlying investment companies investing in the small cap value asset class generally will purchase a broad and diverse group of common stocks and other equity securities of small cap companies that the underlying investment adviser(s) determine to be value stocks. The underlying investment adviser(s) measure company size primarily based on market capitalization. Small cap companies generally are those companies with a market capitalization of $2 billion or less. This dollar amount will change from time to time due to market conditions.

U.S. Large Company Asset Class: The underlying investment companies comprising the U.S. large company asset class generally will purchase all of the stocks that comprise the S&P 500® Index in approximately the proportions they are represented in the S&P 500® Index. The S&P 500® Index is comprised of a broad and diverse group of stocks. Generally, these are the U.S. stocks with the largest market capitalizations and, as a group, they represent approximately 70% of the total market capitalization of all publicly traded U.S. stocks. For purposes of this asset class, the underlying investment adviser(s) consider the stocks that comprise the S&P 500® Index to be those of large companies.

U.S. Small Cap Asset Class: The underlying investment companies comprising the small cap asset class generally will purchase a broad and diverse group of common stocks and other equity securities of small cap companies. The underlying investment adviser(s) measure company size primarily based on market capitalization. Small cap companies are generally those with a market capitalization of $2 billion or less. This dollar amount will change from time to time due to market conditions. There may be some overlap in the companies in which the U.S. small cap asset class and the U.S. micro cap asset class invest.

U.S. Micro Cap Asset Class: The underlying investment companies comprising the micro cap asset class generally will purchase a broad and diverse group of common stocks and other equity securities of micro cap companies. The underlying investment adviser(s) measure company size primarily based on market capitalization. Micro cap companies are generally those companies with a market capitalization of $1 billion or less. This dollar amount will change from time to time due to market conditions. There may be some overlap in the companies in which the U.S. micro cap asset class and the U.S. small cap asset class invest.

The Fund will notify shareholders in writing at least 60 days prior to any change in its policy of investing under normal circumstances at least 80% of its net assets, including any borrowings for investment purposes, in shares of registered, open-end investment companies that emphasize investments in U.S. equity securities.

The Fund reserves the right to hold up to 100% of its assets as a temporary defensive measure in cash and money market instruments such as U.S. Government securities, bank obligations and commercial paper. To the extent the Fund employs a temporary defensive measure, the Fund may not achieve its investment goal.

Summary of Principal Risks

Investing in any mutual fund involves risks, including the risk that you may receive little or no return on your investment, the risk that the Fund could underperform other possible investments, and the risk that you may lose part or all of the money you invest. Before you invest in the Fund, you should carefully evaluate the risks. You could lose money on your investment in the Fund. An investment in the Fund involves the same investment risks as those of the underlying investment companies in which the Fund invests. These risks may adversely affect the Fund’s net asset value (“NAV”) and investment performance. The Fund is subject to the following principal risks:

 

   

Stocks of large cap, small cap or micro cap companies in which the Fund’s underlying investment companies invest or in which the Fund invests directly may temporarily fall out of favor with investors or may be more volatile than the rest of the U.S. market as a whole.

 

3


   

The smaller the capitalization of a company, generally the less liquid its stock and the more volatile its price. Companies with smaller market capitalizations also tend to have unproven track records and are more likely to fail than companies with larger market capitalizations.

 

   

Although the Fund will invest in other investment companies that invest in equity securities believed to be undervalued, there is no guarantee that the prices of these securities will not move even lower.

 

   

Companies in which the Fund’s underlying investment companies invest may suffer unexpected losses or lower than expected earnings or their securities may become difficult or impossible to sell at the time and for the price that the underlying investment adviser(s) would like.

 

   

The Adviser’s judgment about the attractiveness or potential appreciation of a particular underlying investment company security could prove to be wrong or the Fund could miss out on an investment opportunity because the assets necessary to take advantage of such opportunity are tied up in less advantageous investments.

 

   

Because under normal circumstances the Fund invests at least 80% of its net assets in shares of registered investment companies that emphasize investments in U.S. equity securities, the NAV of the Fund will change with changes in the share prices of the investment companies in which the Fund invests.

 

   

There is a risk that large capitalization stocks may not perform as well as other asset classes or the U.S. stock market as a whole. In the past, large capitalization stocks have gone through cycles of doing better or worse than the stock market in general.

 

   

There is a risk that the Fund, which is passively managed, may not perform as well as funds with more active methods of investment management, such as selecting securities based on economic, financial, and market analysis.

 

   

The performance of the Fund will depend on how successfully the investment adviser(s) to the underlying investment companies pursue their investment strategies.

Risk/Return Information

The bar chart and performance table have been omitted because the Fund does not have annual returns for a full calendar year. The Fund intends to evaluate its performance as compared to that of a broad-based index and a Composite Index. The broad-based index will be the Russell 2500® Index. The Composite Index will be comprised of the S&P 500® Index, Russell 1000® Value Index, Russell 2000® Index and Russell 2000® Value Index, each weighted 25%, 25%, 25% and 25%, respectively. The following is a description of each index:

The Russell 2500® Index consists of the small- to mid-cap segment of the U.S. equity universe, commonly referred to as “smid” cap. The Russell 2500® Index is constructed to provide a comprehensive and unbiased barometer for the small to mid-cap segment and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the Index. The Russell 2500® Index includes the smallest 2,500 securities in the Russell 3000® Index. The Russell 3000® Index is made up of 3,000 of the biggest U.S. stocks.

The S&P 500® Index consists of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500® Index is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe. The S&P 500® Index is a market-value weighted index and each stock’s weight in the index is proportionate to its market value.

The Russell 1000® Value Index consists of the large-cap value segment of the U.S. equity universe. The Russell 1000® Value Index is constructed to provide a comprehensive and unbiased barometer of the large-cap value market.

 

4


The Russell 2000® Index consists of the small-cap segment of the U.S. equity universe. The Russell 2000® Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the Index. The Russell 2000® Index includes the smallest 2000 securities in the Russell 3000® Index.

The Russell 2000® Value Index consists of the small-cap value segment of the U.S. equity universe. The Russell 2000® Value Index is constructed to provide a comprehensive and unbiased barometer of the small-cap value market.

 

5


Expenses and Fees

As a shareholder, you pay certain fees and expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. The table is based on annualized expenses of the Fund for the fiscal year ended August 31, 2008.

 

Annual Fund Operating Expenses* (expenses that are deducted from Fund assets)

  

Management fees

   0.50%

Distribution (12b-1) and/or service fees

   None

Other Expenses 1

   0.34%

Acquired Fund fees and expenses 2

   0.37%
    

Total annual Fund operating expenses3

   1.21%
    

 

*

Shareholders requesting redemption by wire are charged a transaction fee of $7.50.

1

Other expenses include audit, administration, custody, legal, registration, transfer agency, and miscellaneous other charges.

2

“Acquired Fund” means any investment company in which the Fund invests or has invested in during the period ended August 31, 2008. Net operating expenses will not correlate to the Fund’s ratio of expenses to average net assets, which reflects the operating expenses of the Fund and does not include Acquired Fund fees and expenses. The Fund calculates Acquired Fund fees and expenses using the net expense ratios reported in the Acquired Funds’ most recent shareholder reports.

3

The Adviser has voluntarily agreed to waive its advisory fee and/or reimburse expenses in order to limit Total annual Fund operating expenses to 1.13% of the Fund’s average daily net assets. The Adviser may discontinue these arrangements at any time.

Example

This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of the period. The example also assumes that your investment has a 5% return each year, that the operating expenses of the Fund remain the same, and that you reinvest all dividends and distributions. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

 

1 Year   3 Years   5 Years   10 Years
$ 123   $ 384   $ 665   $ 1,466

 

6


Financial Highlights

The table below sets forth certain financial information for the period since the Fund’s inception on December 31, 2007 through August 31, 2008, including per share information for a single Fund share. The term “Total investment return” indicates how much your investment would have increased or decreased during this period of time and assumes that you have reinvested all dividends and distributions. This information has been derived from the Fund’s financial statements audited by PricewaterhouseCoopers LLP, the Fund’s independent registered public accounting firm. This information should be read in conjunction with the Fund’s financial statements which, together, with the report of the independent registered public accounting firm, are included in the Fund’s annual report, which is available upon request (see back cover for ordering instructions).

 

      For the Period
December 31, 2007*
Through
August 31, 2008
 

Per Share Operating Performance**

  

Net asset value, beginning of period

   $ 10.00  

Net investment income

     0.00

Net realized and unrealized gain on investments

     0.29  
        

Net increase in net assets resulting from operations

     0.29  
        

Dividends and distributions to shareholders from:

  

Net investment income

      

Net realized capital gains

      
        

Total dividends and distributions to shareholders

      
        

Net asset value, end of period

   $ 10.29  
        

Total investment return(1)(2)

     2.90 %
        

Ratio/Supplemental Data

  

Net assets, end of period (000’s omitted)

   $ 187,039  

Ratio of expenses to average net assets(3)

     0.84 %(4)

Ratio of expenses to average net assets without waivers and expense reimbursements(3)

     0.84 %(4)

Ratio of net investment income to average net assets(3)

     0.02 %(4)

Portfolio turnover rate

     0.00 %

 

  *

Commencement of operations.

**

Calculated based on shares outstanding on the first and last day of the respective period, except for dividends and distributions, if any, which are based on actual shares outstanding on the dates of distributions.

Amount less than $0.005 per share.

(1)

Total investment return is calculated by assuming a purchase of shares on the first day and a sale of shares on the last day of each period reported and includes reinvestments of dividends and distributions, if any.

(2)

Not annualized.

(3)

The Fund also will indirectly bear its prorated share of expenses of the underlying funds. Such expenses are not included in the calculation of this ratio.

(4)

Annualized.

 

7


DESCRIPTION OF THE FREE MARKET INTERNATIONAL EQUITY FUND

 

Investment Goal

The Free Market International Equity Fund seeks long-term capital appreciation. The Fund’s investment goal is not fundamental and may be changed without shareholder approval by the Company’s Board of Directors upon prior written notice to shareholders. Shareholders will be given at least 60 days’ prior written notice of any change to the Fund’s investment goal.

Principal Investment Strategies

Investments: The Fund will pursue its investment goal by investing under normal circumstances at least 80% of its net assets, including any borrowings for investment purposes, in shares of registered, open-end investment companies and exchange-traded funds (“ETFs”) (collectively, “investment companies”) that have either adopted policies to invest at least 80% of their assets in equity securities, such as common stocks, preferred stocks or securities convertible into stocks, of foreign companies, or invest substantially all of their net assets in such equity securities. The Fund will diversify its investments by investing primarily in investment companies that focus on different segments of the foreign equity markets, including emerging markets, with little or no focus on domestic equity markets.

The Adviser uses target ranges in allocating the Fund’s assets among various investment company asset classes. The Adviser expects that the Fund’s investments will be within plus or minus 5% of the following target ranges:

 

Asset Class

   Target  

International Small Cap Value

   40 %

International Large Cap Value

   30 %

International Small Company

   10 %

International Large Cap

   5 %

Emerging Markets

   5.25 %

Emerging Markets Value

   4.875 %

Emerging Markets Small Cap

   4.875 %

Target allocations represent the Fund’s current target for investments in a particular asset class. Actual allocations may differ from the target due to market fluctuations and other factors. The Adviser may change these target allocations and ranges from time to time without shareholder approval.

The Fund invests exclusively in investment companies that are not affiliated with it. These investment companies may be within the same fund complex and/or advised by the same investment adviser.

Strategies: The Adviser focuses on the returns of the investment companies within each of the target asset classes while keeping trading costs to a minimum. Under normal market conditions, the Adviser expects substantially all of the Fund’s net assets to be invested in the securities of investment companies that invest in the types of securities in each asset class described below, with less than 5% of its net assets invested in cash or money market instruments.

International Small Cap Value Asset Class: The underlying investment companies comprising the international small cap value asset class generally will purchase the stocks and other equity securities of small foreign companies that the underlying investment adviser(s) determine to be value stocks at the time of purchase. An issuer’s securities are considered value stocks primarily because they have a high book to market ratio. In assessing value, the underlying investment adviser(s) may consider additional factors such as price to cash flow or price to earnings ratios, as well as economic conditions and developments in the issuer’s industry. The criteria used for measuring value are subject to change from time to time.

 

8


The underlying investment companies intend to purchase the stocks and other equity securities of small companies in foreign countries with developed markets. The underlying investment adviser(s) measure company size primarily based on market capitalization. Small foreign companies are generally those companies with a market capitalization below $4.2 billion. This threshold will vary by country or region, and the dollar amount will change from to time due to market conditions. Currently, the median market capitalization of companies in the international small cap value asset class is approximately $115 million.

The underlying investment companies comprising the international small cap value asset class may invest in stocks and other equity securities of issuers located in the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. The investment adviser(s) of the underlying investment companies in which the Fund invests may also invest from time to time in securities of issuers located in other developed countries, at their discretion.

International Large Cap Value Asset Class: The underlying investment companies comprising the international large cap value asset class generally will purchase the stocks and other equity securities of large foreign companies that the underlying investment adviser(s) determine to be value stocks at the time of purchase. An issuer’s securities are considered value stocks primarily because they have a high book to market ratio. In assessing value, the underlying investment adviser(s) may consider additional factors such as price to cash flow or price to earnings ratios as well as economic conditions and developments in the issuer’s industry. The criteria used for assessing value are subject to change from time to time.

The underlying investment companies intend to purchase the stocks of large companies in countries with developed markets. The underlying investment adviser(s) determine company size primarily based on market capitalization. Large foreign companies generally are those companies with a market capitalization of at least $700 million. This threshold will vary by country or region, and the dollar amount will change from time to time due to market conditions. Currently, the median market capitalization of companies in the international large cap value asset class is approximately $3.04 billion.

The underlying investment companies comprising the international large cap value asset class may invest in stocks and other equity securities of issuers located in the same foreign countries as described above under “International Small Cap Value Asset Class.” The investment adviser(s) of the underlying investment companies in which the Fund invests may also invest from time to time in securities of issuers located in other developed countries, at their discretion.

International Small Company Asset Class: The underlying investment companies comprising the international small company asset class generally will purchase the stocks and other equity securities of small companies in foreign countries with developed markets. The underlying investment adviser(s) measure company size primarily based on market capitalization. Small foreign companies generally are those companies with a market capitalization below $4.2 billion. This threshold will vary by country or region, and the dollar amount will change from time to time due to market conditions. Currently, the median market capitalization of companies in the international small company asset class is approximately $151 million.

The underlying investment companies comprising the international small company asset class may invest in stocks and other equity securities of issuers located in the same foreign countries as described above under “International Small Cap Value Asset Class.” The investment adviser(s) of the underlying investment companies in which the Fund invests may also invest from time to time in securities of issuers located in other developed countries, at their discretion.

International Large Cap Asset Class: The underlying investment companies comprising the international large cap asset class generally will purchase the stocks and other equity securities of large companies in foreign countries. The underlying investment adviser(s) determine company size primarily based on market capitalization. Large companies generally are considered to be those companies with a market capitalization of at

 

9


least $700 million. This threshold will vary by country or region, and the dollar amount will change from time to time due to market conditions. Currently, the median market capitalization of companies in the international large cap asset class is approximately $3.66 billion.

The underlying investment companies comprising the international large cap asset class may invest in stocks and other equity securities of issuers located in the same foreign countries as described above under “International Small Cap Value Asset Class.” The investment adviser(s) of the underlying investment companies in which the Fund invests may also invest from time to time in securities of issuers located in other developed countries, at their discretion.

Emerging Markets Asset Class, Emerging Markets Value Asset Class, and Emerging Markets Small Cap Asset Class (collectively, the “Emerging Markets Asset Classes”): Underlying investment companies comprising each Emerging Markets Asset Class generally will purchase stocks and other equity securities of companies located in the emerging market countries identified below. The underlying investment companies investing in securities of the emerging markets asset class and the emerging markets small cap asset class will seek broad market coverage by purchasing the equity securities of larger and smaller companies, respectively, within each country. The underlying investment adviser(s) determine company size primarily based on market capitalization. Companies in the Emerging Markets Small Cap Asset Classes generally are those companies with a market capitalization of $1 billion or less. This threshold will vary by country or region. These dollar amounts will change from time to time due to market conditions.

The underlying investment companies in the emerging markets value asset class generally will purchase emerging market equity securities that are deemed by the underlying investment adviser(s) to be value stocks at the time of purchase. An issuer’s securities are considered value stocks primarily because they have a high book to market ratio. In assessing value, the underlying investment advisers may consider additional factors, such as price to cash flow or price to earnings ratios, as well as economic conditions and developments in the issuer’s industry. The criteria used for assessing value are subject to change from time to time.

The underlying investment companies comprising the Emerging Markets Asset Classes may invest in the stocks and other equity securities of issuers located in the following foreign countries: Brazil, Chile, China, Czech Republic, Hungary, India, Indonesia, Israel, Malaysia, Mexico, Philippines, Poland, South Africa, South Korea, Taiwan, Thailand, and Turkey. The investment adviser(s) of the underlying investment companies in which the Fund invests may also invest from time to time in securities of issuers located in other emerging market countries, at their discretion.

The Fund will notify shareholders in writing at least 60 days prior to any change in its policy of investing at least 80% of its net assets, including any borrowings for investment purposes, in shares of investment companies that emphasize investments in equity securities of foreign companies.

The Fund reserves the right to hold up to 100% of its assets as a temporary defensive measure in cash and money market instruments such as U.S. Government securities, bank obligations and commercial paper. To the extent the Fund employs a temporary defensive measure, the Fund may not achieve its investment goal.

Summary of Principal Risks

Investing in any mutual fund involves risks, including the risk that you may receive little or no return on your investment, the risk that the Fund could underperform other possible investments, and the risk that you may lose part or all of the money you invest. Before you invest in the Fund, you should carefully evaluate the risks. You could lose money on your investment in the Fund. An investment in the Fund involves the same investment risks as those of the underlying investment companies in which the Fund invests. These risks could adversely affect the Fund’s NAV and investment performance. The Fund is subject to the following principal risks:

 

   

The value of particular foreign equity securities or stock markets which the Fund’s underlying investment companies may purchase or on which the securities they may purchase are traded may decline in value.

 

10


   

Stocks of large cap or small cap foreign companies in which the Fund’s underlying investment companies may invest may temporarily fall out of favor with investors or may be more volatile than particular foreign stock markets or foreign stock markets as a whole.

 

   

The smaller the capitalization of a company, generally the less liquid its stock and the more volatile its price. Companies with smaller market capitalizations also tend to have unproven track records and are more likely to fail than companies with larger market capitalizations.

 

   

Stocks of large cap or small cap foreign companies in which the Fund’s underlying investment companies may invest may suffer unexpected losses or lower than expected earnings or such securities may become difficult or impossible to sell at the time and for the price the underlying investment advisers would like.

 

   

Because the Fund owns shares of underlying investment companies that invest in foreign issuers, the Fund is subject to risks presented by investments in such issuers. Securities of foreign issuers may be negatively affected by political events, economic conditions, or inefficient, illiquid or unregulated markets in foreign countries. Foreign issuers may be subject to inadequate regulatory or accounting standards.

 

   

Investments in emerging market securities by underlying investment companies in which the Fund invests are subject to higher risks than those in developed market countries because there is greater uncertainty in less established markets and economics.

 

   

The Adviser’s judgment about the attractiveness or potential appreciation of a particular underlying investment company security could prove to be wrong or the Fund could miss out on an investment opportunity because the assets necessary to take advantage of such opportunity are tied up in less advantageous investments.

 

   

Because under normal circumstances the Fund invests at least 80% of its net assets in shares of registered investment companies that emphasize investments in equity securities of foreign companies, the NAV of the Fund will change with changes in the share prices of the investment companies in which the Fund invests.

 

   

There is a risk that the Fund, which is passively managed, may not perform as well as funds with more active methods of investment management, such as selecting securities based on economic, financial, and market analysis.

 

   

The performance of the Fund will depend on how successfully the investment adviser(s) to the underlying investment companies pursue their investment strategies.

Risk/Return Information

The bar chart and performance table have been omitted because the Fund does not have annual returns for a full calendar year. The Fund intends to evaluate its performance as compared to that of a broad-based index and a Composite Index. The broad-based index will be the MSCI World (excluding U.S.) Index. The Composite Index will be comprised of the MSCI EAFE Index, MSCI EAFE Value Index, MSCI EAFE Small Company Index, and MSCI Emerging Markets Free Index, each weighted 25%, 25%, 25% and 25%, respectively. The following is a description of each index:

The MSCI World (excluding U.S.) Index is a stock market index of ‘world’ stocks maintained by Morgan Stanley Capital International (“MSCI”) The index includes a selection of stocks of developed markets, as defined by MSCI. This index contains securities from the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom, and United States.

 

11


The MSCI Europe, Australasia, and Far East (“EAFE”) Index is a stock market index of foreign stocks that covers 85% of the equity market of the following developed countries: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and United Kingdom.

The MSCI EAFE Value Index is a subset of the EAFE Index and includes securities from Europe, Australasia (Australia and Asia) and the Far East. The Index generally represents approximately 50% of the market capitalization of the EAFE Index and consists of those securities classified by MSCI as most representing the value style.

The MSCI EAFE Small Cap Index targets 40% of the eligible small cap universe within each industry group, within each country. MSCI defines the small cap universe as all listed securities that have a market capitalization in the range of $200 million to $1.5 billion.

The MSCI Emerging Markets Free Index is designed to measure equity market performance in global emerging markets. The Index contains securities from the following emerging market countries: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

 

12


Expenses and Fees

As a shareholder, you pay certain fees and expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. The table is based on annualized expenses of the Fund for the fiscal year ended August 31, 2008.

 

Annual Fund Operating Expenses* (expenses that are deducted from Fund assets)

  

Management fees

   0.50%

Distribution (12b-1) and/or service fees

   None

Other Expenses 1

   0.42%

Acquired Fund fees and expenses 2

   0.57%
    

Total annual Fund operating expenses 3

   1.49%

 

*

Shareholders requesting redemption by wire are charged a transaction fee of $7.50.

1

Other expenses include audit, administration, custody, legal, registration, transfer agency, and miscellaneous other charges.

2

“Acquired Fund” means any investment company in which the Fund invests or has invested in during the period ended August 31, 2008. Net operating expenses will not correlate to the Fund’s ratio of expenses to average net assets, which reflects the operating expenses of the Fund and does not include Acquired Fund fees and expenses. The Fund calculates Acquired Fund fees and expenses using the net expense ratios reported in the Acquired Funds’ most recent shareholder reports.

3

The Adviser has voluntarily agreed to waive its advisory fee and/or reimburse expenses in order to limit Total annual Fund operating expenses to 1.35% of the Fund’s average daily net assets. The Adviser may discontinue these arrangements at any time.

Example

This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of the period. The example also assumes that your investment has a 5% return each year, that the operating expenses of the Fund remain the same, and that you reinvest all dividends and distributions. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

 

1 Year   3 Years   5 Years   10 Years
$ 152   $ 471   $ 813   $ 1,779

 

13


Financial Highlights

The table below sets forth certain financial information for the period since the Fund’s inception on December 31, 2007 through August 31, 2008, including per share information for a single Fund share. The term “Total investment return” indicates how much your investment would have increased or decreased during this period of time and assumes that you have reinvested all dividends and distributions. This information has been derived from the Fund’s financial statements audited by PricewaterhouseCoopers LLP, the Fund’s independent registered public accounting firm. This information should be read in conjunction with the Fund’s financial statements which, together, with the report of the independent registered public accounting firm, are included in the Fund’s annual report, which is available upon request (see back cover for ordering instructions).

 

      For the Period
December 31, 2007*
Through
August 31, 2008
 

Per Share Operating Performance**

  

Net asset value, beginning of period

   $ 10.00  

Net investment income

     0.08  

Net realized and unrealized gain on investments

     (1.23 )
        

Net decrease in net assets resulting from operations

     (1.15 )
        

Dividends and distributions to shareholders from:

  

Net investment income

      

Net realized capital gains

      
        

Total dividends and distributions to shareholders

      
        

Net asset value, end of period

   $ 8.85  
        

Total investment return(1)(2)

     (11.50 )%
        

Ratio/Supplemental Data

  

Net assets, end of period (000’s omitted)

   $ 130,821  

Ratio of expenses to average net assets(3)

     0.92 %(4)

Ratio of expenses to average net assets without waivers and expense reimbursements(3)

     0.92 %(4)

Ratio of net investment income to average net assets(3)

     2.94 %(4)

Portfolio turnover rate

     0.00 %

 

  *

Commencement of operations.

**

Calculated based on shares outstanding on the first and last day of the respective period, except for dividends and distributions, if any, which are based on actual shares outstanding on the dates of distributions.

(1)

Total investment return is calculated by assuming a purchase of shares on the first day and a sale of shares on the last day of each period reported and includes reinvestments of dividends and distributions, if any.

(2)

Not annualized.

(3)

The Fund also will indirectly bear its prorated share of expenses of the underlying funds. Such expenses are not included in the calculation of this ratio.

(4)

Annualized.

 

14


DESCRIPTION OF THE FREE MARKET FIXED INCOME FUND

 

Investment Goal

The Free Market Fixed Income Fund seeks total return (consisting of current income and capital appreciation). The Fund’s investment goal is not fundamental and may be changed without shareholder approval by the Company’s Board of Directors upon prior written notice to shareholders. Shareholders will be given at least 60 days’ prior written notice of any change to the Fund’s investment goal.

Principal Investment Strategies

Investments: The Fund pursues its investment goal by investing under normal circumstances at least 80% of its net assets, including any borrowings for investment purposes, in shares of registered, open-end investment companies and exchange-traded funds (“ETFs”) (collectively, “investment companies”) that have either adopted policies to invest at least 80% of their assets in fixed income securities that the Adviser believes offer the prospect of providing total return, or invest substantially all of their assets in such fixed income securities.

The Adviser uses target ranges in allocating the Fund’s assets among various investment company asset classes. The Adviser expects the Fund’s investment to be within plus or minus 5% of the following target ranges.

 

Asset Class

   Target  

One-Year Fixed Income

   25 %

Two-Year Global Fixed Income

   25 %

Intermediate Government Fixed Income

   25 %

Five-Year Global Fixed Income

   25 %

Target allocations represent the Fund’s current target for investments in a particular asset class. Actual allocations may differ from the target due to market fluctuations and other factors. The Adviser may change these target allocations and ranges from time to time without shareholder approval.

The Fund invests exclusively in investment companies that are not affiliated with it. These investment companies may be within the same fund complex and/or advised by the same investment adviser.

Strategies: The Adviser focuses on the returns of investment companies within each of the target asset classes while keeping trading costs to a minimum. Under normal market conditions, the Adviser expects substantially all of the Fund’s net assets to be invested in the securities of investment companies that invest in the types of securities in each asset class described below, with less than 2% of its net assets invested in cash or money market instruments.

One-Year Fixed Income Asset Class: The underlying investment companies comprising the one-year fixed income asset class generally will purchase U.S. government obligations, U.S. government agency obligations, dollar-denominated obligations of foreign issuers issued in the U.S., foreign government and agency obligations, bank obligations, including the obligations of U.S. subsidiaries and branches of foreign banks, corporate obligations, commercial paper, repurchase agreements, and obligations of supranational organizations such as the World Bank, the European Investment Bank, European Economic Community and European Coal and Steel Community. Generally, underlying investment companies comprising this asset class will purchase obligations which mature within one year from the date of settlement, but substantial investments may be made in obligations maturing within two years from the date of settlement when greater returns are available.

Two-Year Global Fixed Income Asset Class: The underlying investment companies comprising the two-year global fixed income asset class generally will purchase obligations issued or guaranteed by the U.S. and

 

15


foreign governments, their agencies and instrumentalities, corporate debt obligations, bank obligations, commercial paper, repurchase agreements, and other debt obligations of domestic and foreign issuers. Generally, investment companies in this asset class will purchase obligations with weighted average maturity not exceeding two years. However, investments may be made in obligations maturing in a shorter time period (from overnight to less than two years from the date of settlement). Because many of the investments of the underlying investment companies in this asset class will be denominated in foreign currencies, the underlying investment companies may also enter into forward foreign currency contracts solely for the purpose of hedging against fluctuations in currency exchange rates.

Intermediate Government Fixed Income Asset Class: The underlying investment companies comprising the intermediate government fixed income asset class generally will purchase debt obligations of the U.S. government and U.S. government agencies. Generally, investment companies in the asset class will purchase securities with maturities of between five and fifteen years, however such investment companies ordinarily will have an average weighted maturity of between three and ten years. The goal of the investment companies in the asset class generally would be to invest in securities with shorter term maturities.

Five-Year Global Fixed Income Asset Class: The underlying investment companies comprising the five-year global fixed income asset class generally will purchase obligations issued or guaranteed by the U.S. and foreign governments, their agencies and instrumentalities, obligations of other foreign issuers, corporate debt obligations, bank obligations, commercial paper, and obligations of supranational organizations. Generally investment companies in this asset class will purchase obligations with a weighted average maturity not exceeding five years. However, investments may be made in obligations maturing in a shorter time period (from overnight to less than five years from the date of settlement.)

Credit Ratings: Corporate debt obligations and dollar-denominated obligations of foreign issuers issued in the U.S. in which the underlying investment companies may invest will be issued by companies whose commercial paper is rated Prime-1 by Moody’s Investors, Inc. (“Moody’s”) or A-1 by Standard & Poor’s® (“S&P”) If the issuer’s commercial paper is unrated, then the debt security must be rated at least AA by S&P or Aa2 by Moody’s. If there is neither a commercial paper rating nor a rating of the debt security, then the investment adviser(s) to the underlying investment companies must determine that the debt security is of comparable quality to equivalent issues of the same issuer rated at least AA or Aa2.

Commercial Paper in which the underlying investment companies may invest will be rated, at the time of purchase, A-1 or better by S&P or Prime-1 by Moody’s, or, if unrated, issued by a corporation having an outstanding unsecured debt issue rated Aaa by Moody’s or AAA by S&P.

Debt securities of foreign issuers in which the underlying investment companies may invest will be rated AA or better by S&P or Aa2 or better by Moody’s.

The Fund will notify shareholders in writing at least 60 days prior to any change in its policy of investing at least 80% of its net assets, including any borrowings for investment purposes, in shares of investment companies that emphasize investments in fixed income securities.

The Fund reserves the right to hold up to 100% of its assets as a temporary defensive measure in cash and money market instruments. To the extent the Fund employs a temporary defensive measure, the Fund may not achieve its investment goal.

Summary of Principal Risks

Investing in any mutual fund involves risks, including the risk that you may receive little or no return on your investment, the risk that the Fund could underperform other possible investments, and the risk that you may lose part or all of the money you invest. Before you invest in the Fund, you should carefully evaluate the risks. You could lose money on your investment in the Fund. An investment in the Fund involves the same investment

 

16


risks as those of the underlying investment companies in which the Fund invests. These risks may adversely affect the Fund’s NAV and investment performance. The Fund is subject to the following principal risks:

 

   

Fixed income securities in which the Fund’s underlying investment companies may invest are subject to certain risks, including interest rate risk, reinvestment risk, prepayment and extension risk, credit/default risk, and the risks associated with investing in repurchase agreements.

 

   

Interest rate risk involves the risk that prices of fixed income securities will rise and fall in response to interest rate changes.

 

   

Reinvestment risk involves the risk that proceeds from matured investments may be re-invested at lower interest rates.

 

   

Prepayment risk involves the risk that in declining interest rates environments prepayments of principal could increase and require the Fund to reinvest proceeds of the prepayments at lower interest rates.

 

   

Extension risk involves the risk that prepayments of principal will decrease when interest rates rise resulting in a longer effective maturity of a security.

 

   

Credit risk involves the risk that the credit rating of a security may be lowered.

 

   

Repurchase agreement risk involves the risk that the other party to a repurchase agreement will be unable to complete the transaction and the underlying investment company in which the Fund invests may suffer a loss as a result.

 

   

Because the Fund owns shares of underlying investment companies that invest in foreign issuers, the Fund is subject to risks presented by investments in such issuers. Securities of foreign issuers may be negatively affected by political events, economic conditions, or inefficient, illiquid or unregulated markets in foreign countries. Foreign issuers may be subject to inadequate regulatory or accounting standards.

 

   

Currency risk is the risk that exchange rates for currencies in which securities held by the underlying investment companies in which the Fund invests are denominated will fluctuate daily. Forward foreign currency exchange contracts may limit potential gains from a favorable change in value between the U.S. dollar and foreign currencies. Unanticipated changes in currency pricing may result in poorer overall performance for the Fund than if it had not engaged in these contracts.

 

   

The Adviser’s judgment about the attractiveness or potential appreciation of a particular underlying investment company security could prove to be wrong or the Fund could miss out on an investment opportunity because the assets necessary to take advantage of such opportunity are tied up in less advantageous investments.

 

   

Because under normal circumstances the Fund invests at least 80% of its net assets in shares of registered investment companies that emphasize investments in fixed income securities, the NAV of the Fund will change with changes in the share prices of the investment companies in which the Fund invests.

 

   

Not all obligations of U.S. government agencies and instrumentalities are backed by the full faith and credit of the U.S. Treasury; some are backed only by the credit of the issuing agency or instrumentality. For instance, obligations of Fannie Mae and Freddie Mac are not backed by the full faith and credit of the U.S. Treasury but are backed by the credit of the federal agencies or government sponsored entities. Accordingly, there may be some risk of default by the issuer in such cases.

 

   

There is a risk that the Fund, which is passively managed, may not perform as well as funds with more active methods of investment management, such as selecting securities based on economic, financial, and market analysis.

 

   

The performance of the Fund will depend on how successfully the investment adviser(s) to the underlying investment companies pursue their investment strategies.

 

17


Risk/Return Information

The bar chart and performance table have been omitted because the Fund does not have annual returns for a full calendar year. The Fund intends to evaluate its performance as compared to that of a broad-based index and a Composite Index. The broad-based index will be the CitiGroup World Government Bond Index 1-5 Year Currency Hedged U.S. Dollar Index. The Composite Index will be comprised of the Three-Month Treasury Bill Index, Barclays Capital Intermediate Government Bond Index, Merrill Lynch 1-3 Year US Government/Corporate Index and Barclays Capital Aggregate Bond Index, each weighted 25%, respectively. The following is a description of each index:

CitiGroup World Government Bond Index 1-5 Year Currency Hedged U.S. Dollar Index includes the most significant and liquid government bond markets globally that carry at least an investment grade rating. Currently, this includes all countries in the CitiGroup EMU Governments Index (“EGBI”) (currently, Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Slovenia and Spain) and Australia, Canada, Denmark, Japan, Sweden, Switzerland, United Kingdom, and the United States. Index weights are based on the market capitalization of qualifying outstanding debt stocks.

Three Month Treasury-Bill Index consists of three-month Treasury bills purchased at the beginning of each of three consecutive months. As each bill matures, all proceeds are rolled over or reinvested in a new three-month bill. The income used to calculate the monthly return is derived by subtracting the original amount invested from the maturity value. The index is rebalanced monthly by market capitalization.

Barclays Capital Intermediate Government Bond Index is a weighted index of U.S. government and government agency securities (other than mortgage securities) with maturities of one year or more.

Merrill Lynch 1-3 Year U.S. Government/Corporate Index is an unmanaged index of short-term U.S. government securities and short-term domestic investment-grade corporate bonds with maturities between 1 and 2.99 years.

Barclays Capital Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds and Treasury Inflation-Protected securities are excluded. The Index includes Treasury securities, Government agency bonds, mortgage-backed bonds, corporate bonds, and a small amount of foreign bonds traded in the U.S. The Barclays Capital Aggregate Bond Index is an intermediate term index. The average maturity is 7.47 years as of September 30, 2008.

 

18


Expenses and Fees

As a shareholder, you pay certain fees and expenses. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. The table is based on annualized expenses of the Fund for the fiscal year ended August 31, 2008.

 

Annual Fund Operating Expenses* (expenses that are deducted from Fund assets)

  

Management fees

   0.50%

Distribution (12b-1) and/or service fees

   None

Other expenses 1

   0.47%

Acquired Fund fees and expenses 2

   0.22%
    

Total annual Fund operating expenses 3

   1.19%

 

*

Shareholders requesting redemption by wire are charged a transaction fee of $7.50.

1

Other expenses include audit, administration, custody, legal, registration, transfer agency, and miscellaneous other charges.

2

“Acquired Fund” means any investment company in which the Fund invests or has invested in during the period ended August 31, 2008. Net operating expenses will not correlate to the Fund’s ratio of expenses to average net assets, which reflects the operating expenses of the Fund and does not include Acquired Fund fees and expenses. The Fund calculates the Acquired Fund fees and expenses using the net expense ratios reported in the Acquired Funds’ most recent shareholder reports.

3

The Adviser has voluntarily agreed to waive its advisory fee and/or reimburse expenses in order to limit Total annual Fund operating expenses to 1.00% of the Fund’s average daily net assets. The Adviser may discontinue these arrangements at any time.

Example

This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of the period. The example also assumes that your investment has a 5% return each year, that the operating expenses of the Fund remain the same, and that you reinvest all dividends and distributions. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

 

1 Year   3 Years   5 Years   10 Years
$ 121   $ 378   $ 634   $ 1,443

 

19


Financial Highlights

The table below sets forth certain financial information for the period since the Fund’s inception on December 31, 2007 through August 31, 2008, including per share information for a single Fund share. The term “Total investment return” indicates how much your investment would have increased or decreased during this period of time and assumes that you have reinvested all dividends and distributions. This information has been derived from the Fund’s financial statements audited by PriceWaterhouseCoopers LLP, the Fund’s independent registered public accounting firm. This information should be read in conjunction with the Fund’s financial statements which, together, with the report of the independent registered public accounting firm, are included in the Fund’s annual report, which is available upon request (see back cover for ordering instructions).

 

      For the Period
December 31, 2007*
Through
August 31, 2008
 

Per Share Operating Performance**

  

Net asset value, beginning of period

   $ 10.00  

Net investment income

     0.02  

Net realized and unrealized gain on investments

     0.04  
        

Net increase in net assets resulting from operations

     0.06  
        

Dividends and distributions to shareholders from:

  

Net investment income

     (0.02 )

Tax Return of Capital

     0.00

Net realized capital gains

      
        

Total dividends and distributions to shareholders

     (0.02 )
        

Net asset value, end of period

   $ 10.04  
        

Total investment return(1)(2)

     0.61 %
        

Ratio/Supplemental Data

  

Net assets, end of period (000’s omitted)

   $ 128,982  

Ratio of expenses to average net assets(3)

     0.97 %(4)

Ratio of expenses to average net assets without waivers and expense reimbursements(3)

     0.97 %(4)

Ratio of net investment income to average net assets(3)

     0.26 %(4)

Portfolio turnover rate

     0.00 %

 

  *

Commencement of operations.

** Calculated based on shares outstanding on the first and last day of the respective period, except for dividends and distributions, if any, which are based on actual shares outstanding on the dates of distributions.
  †

Amount less than $0.005 per share.

(1) Total investment return is calculated by assuming a purchase of shares on the first day and a sale of shares on the last day of each period reported and includes reinvestments of dividends and distributions, if any.
(2)

Not annualized.

(3) The Fund also will indirectly bear its prorated share of expenses of the underlying funds. Such expenses are not included in the calculation of this ratio.
(4)

Annualized.

 

20


MORE ABOUT EACH FUND’S INVESTMENTS AND RISKS

 

The Risk/Return Information describes each Fund’s investment goal and its principal investment strategies and risks. This section provides some additional information about the Funds and underlying investment companies in which the Funds may invest and certain portfolio management techniques that such underlying investment companies may use.

Investments in Investment Companies and the Investment Company Industry. The Funds invest primarily in securities of registered investment companies and will attempt to identify investment companies that have demonstrated superior management, favorable investment results, and relatively lower costs and expenses. There can be no assurance that this result will be achieved. Each Fund will indirectly bear its proportionate share of any management fees and other expenses paid by the investment companies in which it invests including the advisory and administration fees paid by the underlying fund. Some underlying investment companies may concentrate their investments in various industries or industry sectors and may use options, futures, or options on futures in their investment programs.

Investment decisions by the investment advisers of the underlying investment companies are made independently of the Funds and the Adviser. Therefore, the investment adviser of one underlying investment company may be purchasing shares of the same issuer whose shares are being sold by the investment adviser of another underlying investment company. The result of this would be an indirect expense to a Fund without accomplishing any investment purpose.

Each Fund expects that it will select the investment companies in which it will invest based, in part, upon an analysis of the past and projected performance and investment structure of the underlying investment companies. However, each Fund may consider other factors in the selection of investment companies. These other factors include, but are not limited to the investment company’s size, shareholder services, liquidity, investment objective and investment techniques. Each Fund will be affected by the losses of its underlying investment companies and the level of risk arising from the investment practices of such investment companies and has no control over the risks taken by such investment companies.

Investing in investment companies does not eliminate investment risk. When the Adviser has identified a significant upward trend in a particular asset class, each Fund retains the right to invest in investment companies that invest primarily in that particular asset class in accordance with the Fund’s target range for that asset class. Investment companies may have greater fluctuations in value when compared to other categories of investment companies that are not invested primarily in the particular asset class selected by the Adviser.

Each Fund’s ability to achieve its investment goal will depend largely on the Adviser’s ability to select the appropriate mix of underlying investment companies. In addition, achieving each Fund’s investment goal will depend on the performance of the underlying investment companies, which depends on the ability of the underlying investment companies to meet their investment goals. There can be no assurance that either the Funds or their underlying investment companies will achieve their investment goals.

ETFs are a type of investment company bought and sold on a securities exchange. An ETF represents a fixed portfolio of securities designed to track a particular market index. The risks of owning an ETF generally reflect the risks of owning the underlying securities that they are designed to track, although lack of liquidity in an ETF could result in its being more volatile. A Fund may incur brokerage fees in connection with its purchase of ETF shares.

More About Underlying Investment Company Investments

Underlying Investment Companies. The underlying investment companies in which the Funds may invest reflect a broad spectrum of investment opportunities including equities, fixed income, domestic, foreign and emerging markets. These investment companies may invest in various obligations and employ various investment techniques. The following describes these obligations and techniques:

 

21


Derivative Contracts. The underlying investment companies in which each of the Funds invest may, but need not, use derivative contracts to seek to hedge against the possible adverse impact of changes in stock market prices, currency exchange rates (with respect to the Free Market Fixed Income Fund only) or interest rates in the market value of its securities or securities to be purchased.

Examples of derivative contracts include: futures and options on securities, securities indices or currencies; options on these futures; forward foreign currency contracts, and interest rate or currency swaps. A derivative contract will obligate or entitle an underlying investment company to deliver or receive an asset or cash payment that is based on the change in value of one or more securities, currencies or indices. Even a small investment in derivative contracts can have a big impact on an underlying investment company’s stock market, currency and interest rate exposure. Therefore, using derivatives can disproportionately increase losses and reduce opportunities for gains when stock prices, currency rates or interest rates are changing. An underlying investment company may not fully benefit from or may lose money on derivatives if changes in their value do not correspond accurately to changes in the value of the investment company’s holdings. The other parties to certain derivative contracts present the same types of default risk as issuers of fixed income securities in that the counterparty may default on its payment obligations or become insolvent. Derivatives can also make an underlying investment company less liquid and harder to value, especially in declining markets. Some of the underlying investment companies may be permitted to use derivative contracts for speculative purposes.

Equity Investments. The underlying investment companies in which the Free Market U.S. Equity Fund and Free Market International Equity Fund invest may purchase all types of equity securities. Equity securities include exchange-traded and over-the-counter common and preferred stocks, warrants, rights, convertible securities, depositary receipts and shares, trust certificates, limited partnership interests, and equity participations.

Fixed Income Investments. The underlying investment companies in which the Free Market Fixed Income Fund invests may purchase all types of fixed income securities, although these investments are not part of such Funds’ primary investment strategies. The Free Market U.S. Equity Fund and the Free Market International Equity Fund may invest a portion of their assets in underlying investment companies that invest in fixed income securities, although these investments are not part of such Funds’ principal investment strategies. Fixed income investments include bonds, notes (including structured notes), mortgage-backed securities, asset-backed securities, convertible securities, Eurodollar and Yankee dollar instruments, preferred stocks and money market instruments. Fixed income securities may be issued by corporate, governmental and foreign issuers and may have all types of interest rate payment and reset terms, including (without limitation) fixed rate, adjustable rate, zero coupon, contingent, deferred, payment-in-kind and auction rate features.

Foreign Securities. The securities held by the underlying investment companies in which the Free Market International Equity Fund and the Free Market Fixed Income Fund invest generally are traded or denominated in foreign currencies. Investments in securities of foreign entities and securities denominated or traded in foreign currencies involve special risks. These include possible political and economic instability and the possible imposition of exchange controls or other restrictions on investments. Changes in foreign currency rates relative to the U.S. dollar will affect the U.S. dollar value of an underlying investment company’s assets denominated or quoted in currencies other than the U.S. dollar. Emerging market investments offer the potential for significant gains but also involve greater risks than investing in more developed countries. Political or economic instability, lack of market liquidity and government actions such as currency controls or seizure of private business or property may be more likely in emerging markets.

Mortgage-Backed Securities. Mortgage-backed securities in which the underlying investment companies invest may be issued by private companies or by agencies of the U.S. Government. Mortgage-backed securities represent direct or indirect participation in, or are collateralized by and payable from, mortgage loans secured by real property.

Certain debt instruments may only pay principal at maturity or may only represent the right to receive payments of principal or payments of interest on underlying pools of mortgage or government securities, but not

 

22


both. The value of these types of instruments may change more drastically than debt securities that pay both principal and interest during periods of changing interest rates. Principal only mortgage-backed securities are particularly subject to prepayment risk. An underlying investment company may obtain a below market yield or incur a loss on such instruments during periods of declining interest rates. Interest only instruments are particularly subject to extension risk, which is the risk that principal repayments will not occur as quickly as anticipated, causing the expected maturity of a security to increase and making its price more sensitive to rate changes and more volatile. Mortgage derivatives and structural securities often employ features that have the effect of leverage. As a result, small changes in interest or prepayment rates may cause large and sudden price movements, especially compared to an investment in a security that is not leveraged. Mortgage derivatives can also become illiquid and hard to value in declining markets. Mortgage-backed securities also include mortgage pass-through certificates and multiple-class pass-through certificates, such as collateralized mortgage obligations (CMOs) and real estate mortgage investment conduits (REMICs).

Securities Lending. The underlying investment companies may seek to increase their income by lending portfolio securities to institutions, such as certain broker-dealers. Portfolio securities loans are secured continuously by collateral maintained on a current basis at an amount at least equal to the market value of the securities loaned. The value of the securities loaned by the underlying investment company will not exceed 33 1/3% of the value of the investment company’s total assets. The underlying investment company may experience a loss or delay in the recovery of its securities if the borrowing institution breaches its agreement with the investment company. Lending portfolio securities involves the risk of delay in receiving additional collateral if the value of the securities goes up while they are on loan.

Borrowing. The underlying investment companies may borrow money for temporary or emergency (not leveraging) purposes. A Fund will not make any additional investments in an investment company while such investment company’s borrowings exceed 5% of its total assets.

Temporary Investments. The Funds may depart from their principal investment strategies in response to adverse market, economic or political conditions by taking temporary defensive positions in cash or money market instruments. If a Fund were to take a temporary defensive position, it may be unable to achieve its investment goal.

Investment Risks

The following provides additional information about the risks of investing in the Funds:

Other Investment Companies. Each Fund’s NAV will fluctuate due to business developments concerning a particular issuer or industry as well as general market and economic conditions affecting securities held by the particular underlying investment companies in which the Fund invests. Investment decisions by the investment advisers of the underlying investment companies in which the Funds invest are made independently of the Funds and the Adviser. Each Fund will be affected by the losses of its underlying investment companies and the risks involved in the investment practices of such investment companies. Neither the Funds nor the Adviser has any control over the risks taken by such investment companies. Some underlying investment companies may concentrate their investments in various industries or sectors and may invest in derivative securities, options or futures.

Small Company Securities. While the securities of small capitalization companies in which the Free Market U.S. Equity and Free Market International Equity Funds’ underlying investment companies invest may offer greater opportunity for capital appreciation than larger companies, investment in such companies presents greater risks than investment in larger, more established companies. Historically, small capitalization stocks have been more volatile in price than larger capitalization stocks. Among the reasons for the greater price volatility of these securities are the lower degree of liquidity in the markets for such stocks, and the potentially greater sensitivity of such small companies to changes in or failure of management, and to many other changes in competitive, business, industry and economic conditions, including risks associated with limited product lines, markets, management depth, or financial resources. Besides exhibiting greater volatility, micro and small company stocks

 

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may, to a degree, fluctuate independently of larger company stocks. Small company stocks may decline in price as large company stocks rise, or rise in price as large company stocks decline. Additionally, while the markets in securities of small companies have grown rapidly in recent years, such securities may trade less frequently and in smaller volume than more widely held securities. The values of these securities may fluctuate more sharply than those of other securities, and the underlying investment companies in which the Funds invest may experience some difficulty in establishing or closing out positions in these securities at prevailing market prices. There may be less publicly available information about the issuers of these securities or less market interest in such securities than in the case of larger companies and it may take a longer period of time for the prices of such securities to reflect the full value of their issuers’ underlying earnings potential or assets.

Stock Market. Underlying investment companies in which the Free Market U.S. Equity Fund and Free Market International Equity Fund may invest are subject to fluctuations in the stock markets, which have periods of increasing and decreasing values. Equity securities typically have greater volatility than fixed income securities.

Foreign Investing. Foreign securities in which the Free Market International Equity Fund and Free Market Fixed Income Fund’s underlying investment companies may invest pose additional risks over U.S.-based securities for a number of reasons. Investments in foreign securities may adversely affect the value of an investment in certain underlying investment companies. Foreign economic, governmental, and political systems may be less favorable than those of the U.S. Foreign governments may exercise greater control over their economies, industries, and citizens’ rights. Specific risk factors related to foreign securities include: inflation, structure and regulation of financial markets, liquidity and volatility of investments, currency exchange rates and regulations and accounting standards. Foreign companies may also be subject to significantly higher levels of taxation than U.S. companies, including potentially confiscatory levels of taxation, thereby reducing their earnings potential, and amounts realized on foreign securities may be subject to high levels of foreign taxation and withholding. In addition, these underlying investment companies may incur higher costs and expenses when making foreign investments, which will affect the underlying investment companies’ total return.

Currency Risk. With respect to investments in foreign securities by underlying investment companies in which the Free Market International Equity Fund and the Free Market Fixed Income Fund invest, exchange rates for currencies fluctuate daily. The combination of currency risk and market risk tends to make securities traded in foreign markets more volatile than securities traded exclusively in the U.S. Foreign securities are usually denominated in a foreign currency; therefore, changes in foreign currency exchange rates can affect the NAV of an underlying investment company. Diversification among foreign currencies will not protect the underlying investment companies against a general increase in the value of the U.S. dollar relative to other currencies.

Emerging Market Securities. Underlying investment companies in which the Free Market International Equity Fund invests may purchase the securities of issuers located in developing or emerging market countries. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets, because there is greater uncertainty in less established markets and economies. These risks include political, social or economic systems, smaller securities markets, lower trading volume, and substantial rates of inflation. To the extent an underlying investment company is invested in emerging market securities, it will be subject to higher risk than those investing in securities of developed market countries.

Interest Rate Risk. During periods of rising interest rates, an underlying investment company’s yield and the market value of the investment company’s fixed-income securities will tend to be lower than prevailing market interest rates. In periods of falling interest rates, the underlying investment company’s yield and the market value of the underlying investment company’s fixed-income securities generally will tend to be higher than prevailing market interest rates. Prices of longer-term fixed income securities are typically more sensitive to changes in interest rates than prices of shorter-term fixed-income securities.

Cash Flow Risk. Payment of principal on the mortgages or other assets underlying a particular fixed income security in which an underlying investment company invests may be faster or slower than estimated. Interest only

 

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instrument are particularly subject to extension risk, which is the risk that principal repayment will not occur as quickly as anticipated, causing the expected maturity of a security to increase and making its price more sensitive to rate change and more volatile. When interest rates decline, borrowers may pay off their mortgages or other loans sooner than expected and will typically shorten the average life of these instruments. This is known as prepayment risk.

Credit/Default Risk. The credit rating of an issuer or guarantor of a security in which an underlying investment company invests may be lowered or an issuer or guarantor of a security or the counterparty to a derivatives contract or a repurchase agreement may default on its payment obligations.

U.S. Government Securities Risk. Although a Fund’s investments in U.S. Government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by certain U.S. Government agencies, authorities, instrumentalities or sponsored enterprises, such as the Government National Mortgage Association, are backed by the full faith and credit of the U.S. Treasury, while obligations issued by others, such as the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal Home Loan Banks, are backed solely by the ability of the entity to borrow from the U.S. Treasury or by the entity’s own resources. No assurance can be given that the U.S. Government would provide financial support to U.S. Government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.

On September 7, 2008, Fannie Mae and Freddie Mac were placed under the conservatorship of the Federal Housing Finance Agency (“FHFA”) to provide stability in the financial markets, mortgage availability and taxpayer protection by preserving Fannie Mae and Freddie Mac’s assets and property and putting Fannie Mae and Freddie Mac in a sound and solvent condition. Under the conservatorship, the management of Fannie Mae and Freddie Mac was replaced. Additionally, Fannie Mae and Freddie Mac are expected to modestly increase their mortgage-backed security portfolios through the end of 2009 and then gradually reduce such portfolios at the rate of 10 percent per year until stabilizing at a smaller size. Please see the SAI for more information.

Derivatives Risk. Loss may result from an underlying investment company’s investments in futures, swaps, options and other derivative instruments. These instruments may be leveraged so that small changes in value may produce disproportionate losses to the underlying investment company. Using derivative instruments may involve risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. An underlying investment company’s investment in a derivative instrument could lose more than the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances and there can be no assurance that the underlying investment company will engage in these transactions to reduce exposure to other risks when they would be beneficial.

Non-diversified investments. The performance of large positions in certain equity or fixed income securities may significantly impact the performance of an underlying investment company, resulting in greater volatility.

Concentration. Concentration of investments within one industry or market sector may subject an underlying investment company to greater market fluctuations. The Funds will not knowingly concentrate their investments, directly or indirectly, in any industry.

Disclosure of Portfolio Holdings

A description of the Company’s policies and procedures with respect to the disclosure of the Funds’ portfolio securities is available in the SAI.

 

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MANAGEMENT OF THE FUNDS

 

Investment Adviser

Abundance Technologies, Inc. (“Abundance” or the “Adviser”) is located at 5955 Deerfield Blvd., Mason, OH 45040. Abundance was founded in 1991 and provides advisory services to individuals, trusts, corporations, non-profit organizations, retirement plans and foundations. Mark E. Matson, President, Chief Financial Officer and a Director of Abundance, owns approximately 51% of Abundance’s outstanding voting securities. Abundance had approximately $2.3 billion in assets under management as of September 30, 2008.

Subject to the general supervision of the Company’s Board of Directors, Abundance manages the Funds’ portfolios and is responsible for the selection and management of all investments of the Funds in accordance with the Funds’ investment goal and policies.

Portfolio Managers

A team of portfolio managers, led by Daniel J. List, is responsible for the day-to-day operation of the Funds. Mark E. Matson and Steven B. Miller assist Mr. List in managing the assets of the Funds.

Daniel J. List, Director of Portfolio Management of the Adviser, has been employed by the Adviser since 1994. He is responsible for portfolio designs, compliance, trading and system designs.

Mark E. Matson, President, Chief Executive Officer and Director of the Adviser, founded the Adviser in 1991 and serves as head portfolio manager at the Adviser.

Steven B. Miller, Director of Operations and Portfolio Manager of the Adviser, has been employed by the Adviser since April 2004 as a portfolio manager and then as Director of Operations. Prior thereto, he was a senior financial analyst with F+W Publications Inc. from November 2002 to April 2004, and a financial analyst with MidLand Enterprises, Inc. from April 2002 to November 2002.

The SAI provides additional information about the portfolio managers’ compensation, other accounts managed by the portfolio managers and the portfolio managers’ ownership of securities in the Funds.

Management Fees

Pursuant to an investment advisory agreement with the Company, the Adviser is entitled to an advisory fee at the annual rate of 0.50% of each Fund’s average daily net assets, computed daily and payable monthly. For the fiscal year ended August 31, 2008, the Free Market U.S. Equity Fund, Free Market International Equity Fund and Free Market Fixed Income Fund each paid 0.50% (expressed as a percentage of average net assets) to Abundance for its services. A discussion regarding the basis for Board of Directors’ approving the investment advisory agreement with respect to the Funds is available in the Funds’ annual report to shareholders dated August 31, 2008.

 

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OTHER SERVICE PROVIDERS

 

The following chart shows the Funds’ service providers and includes their addresses and principal activities.

LOGO

 

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SHAREHOLDER INFORMATION

 

Pricing of Fund Shares

The Funds’ shares (“Shares”) are priced at their net asset value (“NAV”). The NAV per Share of each Fund is calculated as follows:

 

  Value of Assets Attributable to the Fund’s Shares

NAV  =  –

  Value of Liabilities Attributable to the Fund’s Shares
  Number of Outstanding Shares of the Fund

Each Fund’s NAV is calculated once daily at the close of regular trading hours on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m. Eastern time) on each day the NYSE is open. The NYSE is generally open Monday through Friday, except national holidays. The Funds will effect purchases of Fund Shares at the public offering price next determined after receipt of your order or request in proper form. The Funds will effect redemptions of Fund Shares at the NAV next calculated after receipt of your order in proper form.

Investments in underlying investment companies including ETFs, are valued based on the NAV of those investment companies at the close of business that day. A Fund’s direct investments in equity securities listed on any national or foreign exchange will be valued at the last sale price for all exchanges, except the National Association of Securities Dealers Automatic Quotation System (“NASDAQ”). Equity securities listed on NASDAQ will be valued at the official closing price for the NASDAQ. Direct investments in equity securities traded in the over-the-counter market are valued at their closing prices. If there were no transactions on that day, securities traded principally on an exchange or on NASDAQ will be valued at the mean of the valued at the mean of the last bid and ask prices prior to the market close. A Fund’s direct investments in fixed income securities having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. Direct investments in fixed income securities having a remaining maturity of greater than 60 days are valued using an independent pricing service. Direct investments in foreign securities, currencies and other securities denominated in foreign currencies are translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar provided by a pricing service. All assets denominated in foreign currencies will be converted into U.S. dollars at the exchange rates in effect at the time of valuation. If a Fund holds foreign securities, the calculation of the Fund’s NAV will not occur at the same time as the determination of the value of the foreign securities in the Fund’s portfolio, since these securities are traded on foreign exchanges.

If market quotations are unavailable or deemed unreliable, the fair value of a Fund’s investments will be determined by its Valuation Committee in accordance with procedures adopted by the Company’s Board of Directors. In addition, the prices of foreign securities may be affected by events that occur after the close of a foreign market but before a Fund prices its shares. In such instances, a Fund’s Valuation Committee may fair value such foreign securities. The use of a pricing service and fair valuation involve the risk that the values used by a Fund to price its investments may be higher or lower than the values used by other mutual funds and investors to price the same investments.

Market Timing

In accordance with the policy adopted by the Company’s Board of Directors, the Company discourages market timing and other excessive trading practices. Purchases should be made with a view to longer-term investment only. Excessive short-term (market timing) trading practices may disrupt Fund management strategies, increase brokerage and administrative costs, harm Fund performance and result in dilution in the value of Shares held by long-term shareholders. The Company and the Adviser reserve the right to reject or restrict purchase requests from any investor. The Company and the Adviser will not be liable for any loss resulting from rejected purchase orders. To minimize harm to the Company and its shareholders (or the Adviser), the Company (or the Adviser) will exercise their right if, in the Company’s (or the Adviser’s) judgment, an investor has a

 

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history of excessive trading or if an investor’s trading, in the judgment of the Company or the Adviser, has been or may be disruptive to a Fund. No waivers of the provisions of the policy established to detect and deter market timing and other excessive trading activity are permitted that would harm a Fund and its shareholders or would subordinate the interests of the Fund and its shareholders to those of the Adviser or any affiliated person or associated person of the Adviser.

Pursuant to the policy adopted by the Board of Directors, the Adviser has developed criteria that it uses to identify trading activity that may be excessive. The Adviser reviews on a regular, periodic basis available information related to the trading activity in each Fund in order to assess the likelihood that the Fund may be the target of excessive trading. As part of its excessive trading surveillance process, the Adviser, on a periodic basis, examines transactions that exceed certain monetary thresholds or numerical limits within a period of time. If, in its judgment, the Adviser detects excessive, short-term trading, the Adviser may reject or restrict a purchase request and may further seek to close an investor’s account with a Fund. The Adviser may modify its surveillance procedures and criteria from time to time without prior notice regarding the detection of excessive trading or to address specific circumstances. The Adviser will apply the criteria in a manner that, in the Adviser’s judgment, will be uniform.

There is no assurance that the Funds will be able to identify market timing, particularly if shareholders invest through intermediaries.

If necessary, the Company may prohibit additional purchases of Fund shares by a financial intermediary or by certain customers of the financial intermediary. Financial intermediaries may also monitor their customers’ trading activities in the Company. The criteria used by intermediaries to monitor for excessive trading may differ from the criteria used by the Company. If a financial intermediary fails to enforce the Company’s excessive trading policies, the Company may take certain actions, including terminating the relationship.

Purchase of Fund Shares

General. Shares of the Funds are offered continuously for sale at NAV by PFPC Distributors, Inc. (the “Distributor”). You can only purchase Shares through the means described below. The Funds have no minimum initial investment or minimum subsequent investment.

Purchases Through Intermediaries. The Funds are exclusively available to shareholders of service organizations approved by the Adviser, including certain brokerage firms, investment advisers, financial institutions and other industry professionals (“Service Organizations”). Only shareholders having relationships with these Service Organizations may invest in the Funds. If a shareholder terminates his or her relationship with a Service Organization, the shareholder will not be permitted to purchase additional Fund Shares except for Shares purchased as a result of the reinvestment of dividends and distributions. Service Organizations may impose transaction or administrative charges or other direct fees, which would not be imposed if shares of the Fund were purchased directly from the Company. Therefore, investors should contact the Service Organization acting on their behalf concerning the fees, if any, charged in connection with a purchase or redemption of shares of the Funds and should read this Prospectus in light of the terms governing their accounts with the Service Organization. Service Organizations may impose minimum initial and minimum subsequent investment requirements with respect to their customers’ investments in the Funds and will be responsible for promptly transmitting client or customer purchase and redemption orders to the Company in accordance with their agreements with the Company and with clients and customers. A Service Organization or, if applicable, its designee that has entered into such an agreement with the Company or its agent may enter confirmed purchase orders on behalf of clients and customers, with payment to follow no later than the Fund’s pricing on the following business day. If payment is not received by such time, the Service Organization could be held liable for resulting fees or losses.

Good Order. The Company will be deemed to have received a purchase or redemption order when a Service Organization, or if applicable, its authorized designee, accepts a purchase or redemption order in good order.

 

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Orders received by a Service Organization in good order will be executed at the Fund’s next determined NAV after they are accepted by the Service Organization or its authorized designee.

The Company relies upon the integrity of Service Organizations to ensure that orders are timely and properly submitted. The Funds cannot assure you that Service Organizations have properly submitted to it all purchase and redemption orders received from the Service Organizations’ customers before the time for determination of the Fund’s NAV in order to obtain that day’s price.

You must include complete and accurate required information on your purchase request. Purchase requests not in good order may be rejected.

Retirement Plans. Shares of a Fund may be purchased in connection with various retirement plans, including Individual Retirement Accounts (“IRAs”), section 403(b) plans and retirement plans for self-employed individuals, partnerships and corporations and their employees. Detailed information concerning retirement plans is available from your Service Organization. A $15.00 retirement custodial maintenance fee is charged per IRA account per year. For further information as to applications and annual fees, contact your Service Organization. To determine whether the benefits of an IRA are available and/or appropriate, you should consult with a tax advisor.

Other Purchase Information: The Company reserves the right, in its sole discretion, to suspend the offering of Shares or to reject purchase orders when, in the judgment of management, such suspension or rejection is in the best interests of a Fund. The Adviser will monitor each Fund’s total assets and may decide to close any of the Funds at any time to new investments or to new accounts due to concerns that a significant increase in the size of a Fund may adversely affect the implementation of the Fund’s strategy. Subject to the Board of Directors’ discretion, the Adviser may also choose to reopen a Fund to new investments at any time and may subsequently close the Fund again should concerns regarding the Fund’s size recur. If a Fund closes to new investments, the Fund would be offered only to certain existing shareholders of the Fund and certain other persons, who are generally subject to cumulative, maximum purchase amounts, as follows:

 

  a.

persons who already hold Shares of the closed Fund directly or through accounts maintained by brokers by arrangement with the Company,

 

  b.

existing and future clients of financial advisers and planners whose clients already hold Shares of the closed Fund, and

 

  c.

employees of the Adviser and their spouses, parents and children.

Other persons who are shareholders of the other Free Market Funds are not permitted to acquire shares of the closed Fund by exchange. Distributions to all shareholders of the Funds will continue to be reinvested unless a shareholder elects otherwise. The Adviser reserves the right to implement other purchases limitations at the time of closing, including limitations on current shareholders.

Customer Identification Program: Federal law requires the Company to obtain, verify and record identifying information, which may include the name, residential or business street address, date of birth (for an individual), social security or taxpayer identification number or other identifying information for each investor who opens or reopens an account with the Company. Applications without the required information, or without any indication that a social security or taxpayer identification number has been applied for, may not be accepted. After acceptance, to the extent permitted by applicable law or its customer identification program, the Company reserves the right (a) to place limits on transactions in any account until the identity of the investor is verified; or (b) to refuse an investment in a Fund or to involuntarily redeem an investor’s shares and close an account in the event that an investor’s identity is not verified. The Company and its agents will not be responsible for any loss in an investor’s account resulting from the investor’s delay in providing all required identifying information or from closing an account and redeeming an investor’s shares when an investor’s identity cannot be verified.

 

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Redemption of Fund Shares

General: You may submit redemption requests to your Service Organization in person or by telephone, mail or wire. Redemption requests are effected at the NAV next calculated after receipt of the redemption request by your Service Organization in proper form and transmission of the request to the Transfer Agent. You can only redeem Shares of a Fund on days the NYSE is open. Your Service Organization may refuse a telephone redemption request if it believes it is advisable to do so. You will bear the risk of loss from fraudulent or unauthorized instructions received over the telephone provided your Service Organization reasonably believes that the instructions are genuine.

Telephone Redemptions: During periods of dramatic economic or market changes, you may experience difficulty in implementing a telephone redemption with your Service Organization because of increased telephone volume.

Involuntary Redemption: Each Fund reserves the right to redeem a shareholder’s account in the Fund at any time the value of the account falls below $500 as the result of a redemption or an exchange request. Shareholders will be notified in writing that the value of their account in a Fund is less than $500 and will be allowed 30 days to make additional investments before the redemption is processed.

Each Fund may assert the right to redeem your shares at current NAV at any time and without prior notice if, and to the extent that, such redemption is necessary to reimburse the Fund for any loss sustained by reason of your failure to make full payment for shares of the Fund you previously purchased or subscribed for.

Other Redemption Information: Redemption proceeds for Shares of a Fund recently purchased by check may not be distributed until payment for the purchase has been collected, which may take up to fifteen days from the purchase date. Shareholders can avoid this delay by purchasing shares electronically through a wire transfer.

Other than as described above, payment of the redemption proceeds will be made within seven days after receipt of an order for a redemption. The Company may suspend the right of redemption or postpone the date at times when the NYSE is closed or under any emergency circumstances as determined by the Securities and Exchange Commission. If the Board of Directors determines that it would be detrimental to the best interests of the remaining shareholders of a Fund to make payment wholly or partly in cash, redemption proceeds may be paid in whole or in part by an in-kind distribution of readily marketable securities held by the Fund instead of cash in conformity with applicable rules of the Securities and Exchange Commission. Investors generally will incur brokerage charges on the sale of portfolio securities so received in the payment of redemptions. The Company has elected, however, to be governed by Rule 18f-1 under the Investment Company Act of 1940, so that a Fund is obligated to redeem its Shares solely in cash up to the lesser of $250,000 or 1% of the Fund’s NAV during any 90-day period for any one shareholder of the Fund.

Proper Form: You must include complete and accurate required information on your redemption request. Redemption requests not in proper form may be delayed.

Exchange Privilege

The exchange privilege is available to shareholders residing in any state in which the Shares being acquired may be legally sold. A shareholder may exchange Shares of any Free Market Fund for Shares of another Free Market Fund up to six (6) times per year (one exchange per calendar month). Such an exchange will be effected at the NAV of the exchanged Shares and the NAV of the Shares to be acquired next determined after a Service Organization’s receipt of a request for an exchange. An exchange of Shares will be treated as a sale for federal income tax purposes. A shareholder may make an exchange, if authorized, by telephone. Defined contribution plans and IRA accounts are not subject to the above exchange limitations.

 

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If the exchanging shareholder does not currently own Shares of the Fund, a new account will be established with the same registration, dividend and capital gain options as the account from which Shares are exchanged, unless otherwise specified in writing by the shareholder. The exchange privilege may be modified or terminated at any time, or from time to time, by the Funds, upon 60 days’ written notice to shareholders. If a shareholder wants to exchange shares into a new account in a Fund, the dollar value of the Shares acquired must equal or exceed the Fund’s minimum investment requirement for a new account. If a shareholder wants to exchange shares into an existing account, the dollar value of the shares must equal or exceed the Fund’s minimum investment requirement for additional investments. If an amount remains in the Fund from which the exchange is being made that is below the minimum account value required, the account will be subject to involuntary redemption.

The Funds’ exchange privilege is not intended to afford shareholders a way to speculate on short-term movements in the market. Accordingly, in order to prevent excessive use of the exchange privilege, which may potentially disrupt the management of the Funds and increase transaction costs, the Funds have established a policy of limiting excessive exchange activity. Shareholders are entitled to six (6) exchange redemptions (one exchange per calendar month) from each Fund during any twelve-month period. Notwithstanding these limitations, the Funds reserve the right to reject any purchase request that is deemed to be disruptive to efficient portfolio management.

Dividends and Distributions

Each Fund will distribute substantially all of its net investment income and net realized capital gains, if any, to its shareholders. All distributions are reinvested in the form of additional full and fractional Shares of the Fund unless a shareholder elects otherwise.

The Free Market U.S. Equity Fund and the Free Market International Equity Fund will declare and pay dividends from net investment income annually. The Free Market Fixed Income Fund will declare and pay dividends from net investment income quarterly. Net realized capital gains (including net short-term capital gains), if any, will be distributed by the Funds at least annually.

Taxes

The following is a summary of certain United States tax considerations relevant under current law, which may be subject to change in the future. Except where otherwise indicated, the summary assumes you are a U.S. citizen or resident or otherwise subject to U.S. federal income tax. Potential investors should consult their tax advisers for further information regarding federal, state, local and/or foreign tax consequences relevant to their specific situations.

Each Fund contemplates declaring as dividends each year all or substantially all of its taxable income, including its net capital gain (the excess of long-term capital gain over short-term capital loss). Distributions attributable to the net capital gain of a Fund (including distributions attributable to net capital gains of underlying investment companies) will be taxable to you as long-term capital gain, regardless of how long you have held your Shares. Other Fund distributions will generally be taxable as ordinary income. A portion of those distributions, however, may be treated as “qualified dividend income” taxable to non-corporate U.S. shareholders at a maximum federal income tax rate of 15% for distributions received through December 31, 2010. A distribution is treated as qualified dividend income to the extent the Fund or an underlying investment company receives dividend income from taxable domestic corporations and certain qualified foreign corporations, provided that the holding period and other requirements are met by the Fund, the underlying investment company and the shareholder. Additionally, a portion of the distributions paid by a Fund may be eligible for the dividends-received deduction for corporate shareholders. You will be subject to income tax on Fund distributions regardless of whether they are paid in cash or reinvested in additional Shares. You will be notified annually of the tax status of distributions to you.

 

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Distributions attributable to the net capital gain of a Fund will be taxable to you as long-term capital gain, no matter how long you have owned your shares. The maximum long-term capital gain rate applicable to individuals, estates, and trusts is currently 15%.

You should note that if you purchase Shares just before a distribution, the purchase price will reflect the amount of the upcoming distribution, but you will be taxed on the entire amount of the distribution received, even though, as an economic matter, the distribution simply constitutes a return of a portion of your purchase price. This is known as “buying into a dividend.”

You will recognize taxable gain or loss on a sale, exchange or redemption of your Shares, based on the difference, if any, between your tax basis in the Shares and the amount you receive for them. This gain or loss will generally be capital gain or loss if you hold your Fund Shares as capital assets and will be long-term if you held your Shares for more than twelve months. Long-term capital gains are taxable to non-corporate U.S. shareholders at a maximum federal income tax rate of 15% through December 31, 2010. (To aid in computing your tax basis, you generally should retain your account statements for the periods during which you held Shares.) Additionally, any loss realized on a disposition of Shares of the Fund may be disallowed under “wash sale” rules to the extent the Shares disposed of are replaced with other shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the Shares are disposed of, such as pursuant to a dividend reinvestment in shares of the Fund. If disallowed, the loss will be reflected in an adjustment to the basis of the shares acquired. An exchange of each Fund’s shares for shares of another Fund will be treated as a sale of the Fund’s shares and any gain on the transaction may be subject to federal income tax.

Any loss realized on Shares held for six months or less will be treated as a long-term capital loss to the extent of any capital gain dividends that were received on the Shares.

IRAs and Other Tax-Qualified Plans: One major exception to the preceding tax principles is that distributions on, and sales, exchanges and redemptions of, shares held in an IRA (or other tax-qualified plan) will not be currently taxable.

Backup Withholding: On the New Account Application Form, you will be asked to certify that your social security number or taxpayer identification number is correct and that you are not subject to backup withholding for failing to report income to the IRS. If you are subject to backup withholding or you did not certify your taxpayer identification number, the IRS requires each Fund to withhold a percentage of any dividend and redemption or exchange proceeds. The current withholding rate is 28%. Each Fund reserves the right to reject any application that does not include a certified social security or taxpayer identification number.

U.S. Tax Treatment of Foreign Shareholders: For nonresident aliens, foreign corporations and other foreign investors, Fund distributions attributable to net long-term capital gains of each Fund will generally be exempt from U.S. tax, but all other Fund distributions will generally be subject to a 30% withholding tax. The withholding tax may, however, be reduced (and, in some cases, eliminated) under an applicable tax treaty between the United States and a shareholder’s country of residence or incorporation, provided that the shareholder furnishes the Fund with a properly completed Form W-8BEN to establish entitlement for these treaty benefits.

Foreign shareholders will generally not be subject to U.S. tax on gains realized on sale, exchange or redemption of shares in the Funds.

Different U.S. tax rules may apply to a foreign shareholder, however, if the investment in the Funds is connected to a trade or business of the shareholder in the United States or the investor is present in the United States for 183 days or more in a year.

All foreign investors should consult their own tax advisors regarding the tax consequences in their country of residence of an investment in the Funds.

 

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State and Local Taxes: Shareholders may also be subject to state and local taxes on distributions and redemptions. Shareholders should consult their advisers regarding the tax status of distributions in their state and locality.

Sunset of Tax Provisions: Some of the tax provisions described above are subject to sunset provisions. Specifically, a sunset provision provides that the 15% long-term capital gain rate and the taxation of dividends at the long-term capital gain rate will change after 2010.

More information about taxes is contained in the Fund’s SAI.

 

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FOR MORE INFORMATION ABOUT ABUNDANCE TECHNOLOGIES FAMILY OF FUNDS

 

This Prospectus contains important information you should know before you invest. Read it carefully and keep it for future reference. More information about the Funds is available free of charge, upon request, including:

Annual/Semi-Annual Reports

These reports contain additional information about the Funds’ investments, describe the Funds’ performance, list portfolio holdings, and discuss recent market conditions and economic trends. The Annual Report includes market conditions and investment strategies that significantly affected the Funds’ performance during the last fiscal year.

Statement of Additional Information (“SAI”)

An SAI, dated December 31, 2008 has been filed with the SEC. The SAI, which includes additional information about the Funds, may be obtained free of charge, along with the Annual and Semi-Annual Reports when available, by calling (866) 780-0357 Ext. 3863. The SAI, as supplemented from time to time, is incorporated by reference into this Prospectus (and is legally part of the Prospectus). The SAI is not available on the Adviser’s website but a copy may be obtained by calling (866) 780-0357 Ext. 3863.

Shareholder Inquiries

Representatives are available to discuss account balance information, mutual fund prospectuses, literature programs and services available. Hours: 8 a.m. to 6 p.m. (Eastern time) Monday-Friday. Call: (866) 780-0357 Ext. 3863.

Purchases and Redemptions

Call (866) 780-0357 Ext. 3863

Written Correspondence

Street Address:

    Abundance Technologies, Inc. Family of Funds

    c/o PNC Global Investment Servicing (U.S.) Inc.

    101 Sabin Street

    Pawtucket, RI 02860-1427

Securities and Exchange Commission

You may also view and copy information about the Company and the Fund, including the SAI, by visiting the SEC’s Public Reference Room in Washington, DC or the EDGAR Database on the SEC’s Internet site at www.sec.gov. You may also obtain copies of fund documents by paying a duplicating fee and sending an electronic request to the following e-mail address: publicinfo@sec.gov, or by sending your written request and a duplicating fee to the SEC’s Public Reference Section, Washington, DC 20549-0102. You may obtain information on the operation of the public reference room by calling the SEC at 1-202-942-8090.

Investment Company Act File No. 811-05518

 

35


 

 

BEAR STEARNS CUFS® MLP MORTGAGE PORTFOLIO

of

THE RBB FUND, INC.

PROSPECTUS

December 31, 2008

 

The Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or passed upon the accuracy or adequacy of this Prospectus. Anyone who tells you otherwise is committing a criminal offense.

An investment in the Portfolio is not a credit union deposit and is not insured or guaranteed by the National Credit Union Share Insurance Fund, the National Credit Union Administration (“NCUA”) or any other government agency. An investment in the Portfolio involves investment risks, including possible loss of principal.

 

LOGO


TABLE OF CONTENTS

 

INTRODUCTION

  3

BEAR STEARNS CUFS® MLP MORTGAGE PORTFOLIO

  4

FINANCIAL HIGHLIGHTS

  12

MORE ABOUT THE PORTFOLIO’S INVESTMENTS AND RISKS

  13

MANAGEMENT OF THE PORTFOLIO

  19

Investment Adviser

  19

Portfolio Manager

  19

Management Fees

  19

Revenue Sharing Arrangements

  19

OTHER SERVICE PROVIDERS

  20

SHAREHOLDER INFORMATION

  21

Pricing of Portfolio Shares

  21

Market Timing

  21

Purchase of Portfolio Shares

  22

Redemption of Portfolio Shares

  23

Dividends and Distributions

  24

Taxes

  25

FOR MORE INFORMATION

  Back Cover

 

2


 

INTRODUCTION

 

The Bear Stearns CUFS® MLP Mortgage Portfolio (the “Portfolio”) is an open-end, non-diversified investment portfolio of The RBB Fund, Inc. (the “Company”). This Prospectus and the Statement of Additional Information (the “SAI”) incorporated herein relate solely to the Portfolio.

Bear Stearns Asset Management Inc. (“BSAM” or the “Adviser”) provides investment advisory services to the Portfolio. As a result of the acquisition of The Bear Stearns Companies Inc. (“Bear Stearns”) by JPMorgan Chase & Co. (“JPMorgan Chase”) which was completed on May 30, 2008, the Adviser is an indirect, wholly-owned subsidiary of JPMorgan Chase.

Credit Union Financial Services® and CUFS® are both registered trademarks of Wade Charles Barnett and represent the group generally responsible for acting as adviser to BSAM on relevant issues related to credit unions. In addition, CUFS® will provide program education and marketing to prospective and existing credit union clients.

MLP refers to “Managed Leverage Program,” an investment strategy that is a component of an NCUA-approved Pilot Program. MLP is designed to enable credit unions to generate earnings on statutory excess net worth by using a structured asset management program. MLP seeks to use permitted mortgage-related securities, risk management and hedging strategies to attempt to reduce sensitivity to interest rate risk. Although the NCUA approved the Pilot Program, the NCUA does not regulate, insure or guarantee the Portfolio or its investment strategies.

The Portfolio is offered solely to eligible state and federally chartered credit unions. See “Shareholder Information — Purchase of Portfolio Shares.” Shares of the Portfolio (“Shares”) are designed to qualify as eligible investments for federally chartered credit unions pursuant to Part 1757, Sections 107(7), 107(8) and 107(15) of the Federal Credit Union Act (“FCUA”) and Part 703 of the NCUA Rules and Regulations. The NCUA has issued to the Adviser a waiver with respect to the Portfolio from the following provisions of the NCUA Rules and Regulations: Section 703.13(a)-Permissible Investment Activities: Regular way settlement and delivery versus payment; Section 703.15-Prohibited Investment Activities: Adjusted trading or short sales; Section 703.16(a)-Prohibited Investments: Derivatives; and Section 703.16(e)-Prohibited Investments: Other Prohibited Investments (including stripped mortgage-backed securities).

Shares of the Portfolio may or may not qualify as eligible investments for particular state chartered credit unions. You should consult qualified legal counsel to determine whether an investment in Shares of the Portfolio by a particular credit union qualifies as an eligible investment under applicable law.

 

3


 

BEAR STEARNS CUFS® MLP MORTGAGE PORTFOLIO

 

Investment Objective

The Portfolio’s primary investment objective is to seek high total return. Preservation of capital is the Portfolio’s secondary investment objective. The Portfolio’s investment objectives are not fundamental and may be changed without shareholder approval by the Company’s Board of Directors. The Portfolio will provide written notice to shareholders at least 60 days prior to changing either investment objective.

Principal Investment Strategies

Investments

The Portfolio intends to invest all of its assets in obligations authorized by the FCUA or otherwise permitted pursuant to a waiver granted by the NCUA with respect to certain FCUA rules and regulations.

Mortgage-Related Securities. Under normal circumstances, the Portfolio will invest at least 80% of its net assets (including any borrowings for investment purposes) in mortgage-related securities, including:

 

  Ÿ  

privately-issued mortgage-related securities, rated at the time of purchase in one of the two highest rating categories by a nationally recognized statistical ratings organization (“NRSRO”); and

 

  Ÿ  

mortgage-related securities issued or guaranteed by the U.S. government, its agencies, instrumentalities or sponsored enterprises.

Types of Mortgage-Related Securities. The Portfolio may hold various types of mortgage-related securities, including:

 

  Ÿ  

adjustable rate and fixed rate mortgage pass-through securities;

 

  Ÿ  

collateralized mortgage obligations (“CMOs”) and other multiclass mortgage-related securities;

 

  Ÿ  

other securities that are collateralized by or represent direct or indirect interests in mortgage-related securities or mortgage loans;

 

  Ÿ  

mortgage dollar rolls; and

 

  Ÿ  

stripped mortgage-backed securities (“SMBS”), including interest only (“IO”) SMBS, inverse floating IO SMBS, and principal only (“PO”) SMBS, as well as other floating rate and inverse floating rate debt instruments.

The Portfolio will notify shareholders in writing at least 60 days prior to any change in its policy to invest at least 80% of its net assets in mortgage-related securities.

The Portfolio may also invest in:

Derivative Instruments. The Portfolio will primarily use these derivative instruments to manage or hedge risks associated with its investments in mortgage-related securities. The Portfolio may invest in derivative instruments including:

 

  Ÿ  

interest rate swaps and total return swaps on indices and sub-indices on instruments otherwise eligible for investment, and options thereon (including swaptions);

 

  Ÿ  

futures (Treasury, Eurodollar and Federal Funds) and options (including put and call options on financial futures contracts);

 

  Ÿ  

options on securities otherwise eligible for investment;

 

  Ÿ  

interest rate caps;

 

  Ÿ  

interest rate floors; and

 

  Ÿ  

interest rate collars.

The Portfolio may also invest in derivative instruments for the purpose of generating investment return (which may be considered speculative).

Other Investments. The Portfolio may invest in other instruments, including:

 

  Ÿ  

other U.S. government securities and related custodial receipts;

 

4


 

  Ÿ  

U.S. dollar-denominated obligations issued or guaranteed by U.S. banks with total assets exceeding $1 billion (but only to the extent permitted under the FCUA and the rules, regulations and interpretations thereunder); and

 

  Ÿ  

repurchase agreements (to gain investment return) and reverse repurchase agreements (to effectively borrow money).

Investment Strategy

The Adviser seeks high total return consistent with preservation of capital. The Adviser intends to use a wide spectrum of mortgage-related securities, subject to the limitations contained in this Prospectus, in conjunction with hedging instruments and strategies to reduce risk.

Duration. “Duration” refers to the sensitivity of an instrument or portfolio to parallel movements in interest rates. That is, the higher the duration, the greater the sensitivity an instrument or portfolio has to movements in interest rates. “Effective duration” is a measure of duration that incorporates cash flow variability into the analysis and considers the likelihood that a particular security will be called or prepaid prior to maturity based on prevailing interest rates. The longer the effective duration of a security, the more the security is affected by movements in interest rates.

Theoretically, for each 1% parallel increase in interest rates, a security declines in principal value equal to its effective duration with all other factors unchanged. For example, if the effective duration of the Portfolio is two years and interest rates rise 1%, the principal value of the Portfolio could be expected to decrease by approximately 2%. If the effective duration of the portfolio is -2 years and interest rates rise 1%, the principal value of the Portfolio could be expected to increase by approximately 2%.

Generally, the Adviser expects that under normal circumstances, the overall “effective” duration of the Portfolio will be between -2 and +2 years as calculated using the Adviser’s mortgage risk models. Unlike traditional fixed income securities that have a positive effective duration and are expected to appreciate in value as interest rates fall, a negative effective duration may indicate that the Portfolio would be expected to benefit from a rise in interest rates. A negative duration can be caused either by the use of particular classes of securities that benefit from rising interest rates (such as certain interest-only securities) or by the use of hedging techniques that may result in “over-hedging” of the interest-rate risk inherent in the securities being hedged. The Adviser generally intends to minimize the Portfolio’s sensitivity to movements in interest rates, and corresponding fluctuation in the Portfolio’s net asset value. There is no guarantee that the Adviser can successfully protect the Portfolio’s principal value.

Calculating effective duration requires estimates of possible future interest rates, historical and estimated prepayment rates, call options, and other cash flow variables. Estimates of these factors are used in pricing models to calculate effective duration. In computing effective portfolio duration, the Adviser will estimate the duration of obligations that are subject to repayment or redemption by the issuer, taking into account the influence of interest rates on prepayments of mortgages that make up the Portfolio’s holdings. There can be no assurance that estimates will be correct or that models calculating effective duration will be applied or implemented correctly.

There also can be no assurance that the Adviser’s estimation of duration will be accurate or that the duration of the Portfolio will always remain within its maximum target duration.

Convexity. Convexity can be a useful measure of risk. Convexity refers to the relationship between a bond’s duration and changes in interest rates. Generally, convexity may complicate the Adviser’s ability to achieve its goal of maintaining low interest rate sensitivity for the Portfolio, especially during periods of higher interest rate volatility.

For securities with embedded options, there are limitations in relying solely on effective duration as the measure of interest rate risk. Because effective duration is calculated as an average across numerous potential interest rate scenarios, it does not fully describe how duration can change under certain conditions. Callable bonds, such as those for which the issuer has the right but not the obligation to redeem the bonds at a pre-determined price prior to the bond’s maturity, are a common type of security with embedded options. Most mortgage-backed securities also have callable features embedded in them, as the early payment or refinancing of principal by the underlying borrowers may result in the return of principal to the bondholder prior to the scheduled payment date.

“Effective convexity” is a statistic used to help describe the expected sensitivity of an instrument’s duration to interest rate changes. For securities with negative convexity (e.g., many mortgage-related and callable securities), duration tends to underestimate a bond’s price fall for a rise in interest rates, and overestimate a bond’s price rise for a fall in interest rates. For bonds that have greater degrees of negative convexity, model estimates of effective duration tend to be less reliable as a measure of interest rate risk. The Adviser calculates effective convexity to better estimate the Portfolio’s sensitivity to interest rates. The Portfolio’s minimum convexity will be negative 5 (for avoidance of doubt, in measuring convexity, negative 4 is a greater number than negative 5). This limit applies at the time of purchase of new

 

5


 

securities in the Portfolio, as market movements may from time to time adversely affect the Portfolio convexity and temporarily push it below the minimum convexity limit. As with model estimates of effective duration, there can be no assurance that models will provide accurate estimates of effective convexity or that they will be applied or implemented correctly.

Maturity. Maturity measures the time until final payment is due. The Portfolio has no restrictions as to the minimum or maximum maturity of any particular security it holds, but intends to maintain the duration range noted above.

Breadth of Investment Opportunities. While the Adviser expects that the Portfolio’s overall interest rate sensitivity typically will be low, the Portfolio is structured to take advantage of a range of opportunities throughout the universe of mortgage-related securities. The Adviser may identify value in asset classes that have interest-rate sensitivity greater than would ordinarily be acceptable to the Portfolio. The Portfolio may invest in these instruments in conjunction with hedging instruments or with other mortgage securities designed to offset these additional risks. The Adviser intends to use a wide range of mortgage-related securities as part of the strategy. Some of these securities may be very sensitive to changes in interest rates or mortgage prepayment levels. To the extent that the inclusion of certain of these securities would have the impact of increasing interest rate or convexity risk beyond the aggregate portfolio limitations outlined above, securities with offsetting risks or hedging instruments will be used in an attempt to reduce the overall portfolio risks to meet those limitations. Because the investments or hedging instruments may behave in a manner other than that which is expected, there is no guarantee that this strategy will have the desired result.

Short Sales. The Portfolio may engage in short-sales of securities. Short sales involve selling securities that the Portfolio does not own and borrowing them for delivery to the purchaser, with an obligation to replace the borrowed securities at a later date. Short selling allows the Portfolio to profit from a decline in market price to the extent such decline exceeds the transaction costs and the costs of borrowing the securities. The extent to which the Portfolio engages in short sales will depend upon investment strategy and opportunities. A short sale creates the risk of a theoretically unlimited loss, because the price of the underlying security could theoretically increase without limit, which would increase the cost to the Portfolio of buying the securities to cover its short position. There is no assurance that the Portfolio will maintain its ability to borrow securities sold short. In such a case, the Portfolio may be forced to repurchase the securities in the open market to return to the lender. There can be no assurance that the securities necessary to cover a short position will be available for purchase at or near prices quoted in the open market. Purchasing securities to close out a short position can itself cause the price of the security to rise, which could exacerbate the loss. The technical aspects of borrowing a security for delivery involve degrees of skill in locating a counterparty to lend the security for delivery and assessing the holdings of securities to determine whether the Portfolio may have to repurchase the securities even if credit deterioration has occurred. Using short sales may cause the Portfolio to lose money.

Principal Risks

You may lose money by investing in the Portfolio. An investment in the Portfolio is not a deposit in any credit union and is not insured or guaranteed by the National Credit Union Share Insurance Fund, the NCUA or any other governmental agency. The net asset value of the Portfolio will fluctuate and may decline for extended periods with no guarantee that the Portfolio’s net asset value will return to its prior level. The Portfolio could underperform other possible investments or benchmarks.

The Portfolio’s principal risks include:

 

  Ÿ  

Fixed Income Securities Risk – The mortgage-related and fixed income securities held by the Portfolio may experience a drop in price that affects the Portfolio’s net asset value. One reason that this may occur is due to changes in interest rates. Other factors may affect the value of fixed income securities and the Portfolio’s share price, such as financial conditions of a particular issuer and general economic conditions. The Portfolio is also subject to the risk that investment grade fixed income securities in which it invests may underperform particular segments of the fixed income markets or the fixed income markets generally.

 

  Ÿ  

Mortgage Risk The risk that prepayment of principal on the mortgages underlying a particular security may be faster or slower than estimated and may be sensitive to changes in mortgage interest rates. When underlying interest rates are rising, prepayment of principal tends to slow and will tend to extend the duration of mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, the Portfolio may exhibit additional volatility. This has the tendency to delay the Portfolio’s ability to reinvest principal in higher yielding securities and is known as extension risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected and will tend to shorten the duration of mortgage-related securities. This can reduce the returns of the Portfolio because the Portfolio may be unable to recoup all of its initial investment and will also suffer from having to reinvest in lower yielding securities. This is known as

 

6


 

 

prepayment risk. Certain mortgage-related securities, such as PO, IO or inverse floating rate securities, are particularly exposed to prepayment and extension risk. Small changes in mortgage prepayments can significantly impact the cash flow and mortgage value of these securities. The value of POs and IOs may change more drastically than debt securities that pay both principal and interest during periods of changing interest rates. An increase in mortgage prepayments of principal may result in significant losses to an IO security. Slower than anticipated prepayments generally adversely affects PO securities. The Portfolio’s share price may be adversely impacted because of its investment in these IO and PO securities.

 

  Ÿ  

Interest Rate RiskThe risk that during periods of rising interest rates, the Portfolio’s yield (and the market value of its mortgage-related and other fixed income securities) will tend to be lower than prevailing market rates. In periods of falling interest rates, the Portfolio’s yield (and the market value of its mortgage-related and other fixed income securities) will tend to be higher.

 

  Ÿ  

Credit/Default RiskThe risk that the credit rating of an issuer or guarantor of a security may be lowered or that an issuer or guarantor of a security or the counterparty to a derivative contract or repurchase agreement may default on its payment obligations.

 

  Ÿ  

Derivatives Risk The risk that loss may result from the Portfolio’s investments in swaps, futures and options and other derivative instruments. These instruments may be leveraged so that small changes in value may produce disproportionate losses to the Portfolio. The Portfolio intends to use derivatives primarily to reduce the risk of its investments in mortgage-related securities or as part of a strategy to reduce exposure to other overall risks, such as interest rate risk, but the Portfolio may also use derivatives as a substitute for taking a position in the underlying asset or to generate additional returns. Using derivative instruments may involve risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. The Portfolio’s investment in a derivative instrument could lose more than the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances and there can be no assurance that the Portfolio will engage in these transactions to reduce exposure to other risks when they would be beneficial. The Adviser will adopt procedures to identify and manage risks associated with investing in derivatives.

 

  Ÿ  

Leverage Risk – The risk that loss may result from the Portfolio’s investments in certain leveraged mortgage-related securities and derivative instruments. These instruments may be leveraged so that small changes in value may produce disproportionate losses to the Portfolio. Leverage may also arise from the Portfolio’s use of borrowed money for leveraging purposes which may affect adversely the value of its share price. Using leverage in a declining market may cause a greater decline in the value of the Portfolio’s Share price than if the Portfolio were not leveraged. Fluctuations in interest rates on borrowings may reduce the Portfolio’s return or dividends it may pay.

 

  Ÿ  

Repurchase and Reverse Repurchase Agreements Risk – The risk that the other party to a repurchase or reverse repurchase agreement will be unable or unwilling to complete the transaction as scheduled, which may result in losses to the Portfolio. Reverse repurchase transactions are a form of leverage that may also increase the volatility of the Portfolio’s share price.

 

  Ÿ  

Short Selling Risk – The risk that the Portfolio’s use of short sales will result in losses. A short sale involves the sale of a security that the Portfolio does not own. A short sale creates the risk of a theoretically unlimited loss, in that the price of the underlying security could theoretically increase without limits, thus increasing the cost to the Portfolio of buying those securities to cover the short position. There can be no assurance that the Portfolio will be able to maintain the ability to borrow securities sold short. There also can be no assurance that the securities necessary to cover a short position will be available for purchase at or near prices quoted in the market. Purchasing securities to close out the short position can itself cause the price of the securities to rise further, thereby exacerbating the loss.

 

  Ÿ  

Liquidity Risk – Liquidity risk exists when particular investments are difficult to purchase or sell. The Portfolio’s investments in illiquid securities may reduce the returns of the Portfolio because it may be unable to sell the illiquid securities at an advantageous time or price. Liquid securities may also become illiquid because of market events or uncertainties. Portfolios with principal investment strategies that include derivatives or securities with substantial market and/or credit risk may have a greater exposure to liquidity risk.

 

  Ÿ  

Market Risk – The risk that the market price of securities owned by the Portfolio may go up or down, sometimes rapidly or unpredictably depending solely on the market conditions of supply and demand. In such a market, the value of such securities and the Portfolio’s share price may change dramatically. The value of a security may decline due to general market conditions that are not specifically related to a particular issuer such as real or perceived adverse economic conditions, changes in the outlook for corporate earnings, changes in interest rates

 

7


 

 

or adverse investor sentiment generally. The value of a security also may decline because of factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. The Portfolio’s share price or yield may be adversely impacted by market risk.

 

  Ÿ  

Market Sector Risk – The risk that the Portfolio’s risk level will depend on the market sectors in which the Portfolio is invested. The Portfolio may overweight or underweight certain market sectors, which may cause the Portfolio’s performance to be more or less sensitive to developments affecting those sectors.

 

  Ÿ  

Management Risk – The risk that a strategy used by the Adviser may fail to produce the intended results.

 

  Ÿ  

U.S. Government Securities Risk – The risk that the U.S. government will not provide financial support to U.S. government instrumentalities or sponsored enterprises if it is not obligated to do so by law. Some U.S. government securities are backed by the full faith and credit of the U.S. Treasury. Other issuers, however, may be chartered or sponsored by Acts of Congress, although their securities are neither issued nor guaranteed by the United States Treasury and, therefore, are not backed by the full faith and credit of the United States.

 

  Ÿ  

Non-Diversification Risk – The Portfolio is non-diversified, meaning that it is permitted to invest more of its assets in fewer issuers than “diversified” mutual funds. Thus, the Portfolio may be more susceptible to adverse developments affecting any single issuer held in its portfolio, and may be more susceptible to greater losses because of these developments.

 

  Ÿ  

Model Risk – The risk that the models used by the Adviser will not accurately predict the price movements or the total return for certain securities or for the Portfolio under certain future market conditions even if those market conditions were accurately predicted ahead of time. This risk may arise because models are applied to tasks for which they are inappropriate, because the market conditions that were used for calibration of such models are no longer useful for predicting future market environments, because assumptions used to generate model output are not robust or accurate, or other reasons associated with the inappropriate or incorrect implementation of such models. Even with the proper use of models, it should be understood that models generally provide estimated risk characteristics (such as effective duration and convexity) over a broad range of market scenarios, and may not be appropriate for particular scenarios that may transpire. There can be no assurance that estimates will be accurate or that the models calculating effective duration or effective convexity will be applied or implemented correctly. Additionally, there can be no assurance that the effective duration of the Portfolio will always remain within its targeted range. There can be no assurance that the Portfolio’s convexity generally will be within the limitations stated above (see “Investment Strategy — Convexity” and “Investment Strategy — Duration”).

 

8


 

Risk/Return Information

The bar chart below shows the Portfolio’s performance for its first full calendar year since its inception. The chart assumes reinvestment of dividends and distributions. As with all such investments, past performance in not an indication of future results. Performance reflects voluntary fee waivers in effect. If fee waivers were not in place, performance would be reduced.

Total Return for the Calendar Year Ended December 31

LOGO

Best and Worst Quarterly Performance

Best Quarter 1.40% (Quarter ended March 31, 2007)

Worst Quarter 0.71% (Quarter ended September 30, 2007)

Year-to-date total return for the nine months ended September 30, 2008: (9.02)%

 

9


 

Average Annual Total Returns

The table below compares the Portfolio’s average annual total returns for the past calendar year and since inception to the average annual total returns of a broad-based securities market index for the same periods. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The table, like the bar chart, provides some indication of the risks of investing in the Portfolio by showing how the Portfolio’s average annual total returns for 1 year and since inception compared with those of a broad measure of market performance. Past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

 

       Average Annual Total Returns
for the Periods Ended December 31, 2007
 
       1 Year      Since Inception*  

Before Taxes

     4.34 %    4.59 %

After Taxes on Distributions

     2.34 %    2.58 %

After Taxes on Distributions and Sale of Shares of the Portfolio

     2.80 %    2.75 %

Barclay’s Capital U.S. Treasury Bills 1-3 Month Index (reflects no deductions for fees, expenses or taxes) (1)

     4.78 %    4.79 %

 

  * Commenced operations on December 19, 2006.

 

  (1) The Barclay’s Capital U.S. Treasury Bills 1-3 Month Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. It is not possible to invest directly in an index.

 

10


 

Fees and Expenses of the Portfolio

As a shareholder, you pay certain fees and expenses. Total annual Portfolio operating expenses are paid out of Portfolio assets and are reflected in the Portfolio’s price. The table below describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.

 

Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio assets)

  

Management Fees

   0.48 %

Distribution (12b-1) Fees

   None  

Other Expenses (1)

   0.32 %
      

Total Annual Portfolio Operating Expenses (2)

   0.80 %
      

 

  (1) Other expenses include audit, administration, custody, legal, registration, transfer agency, and miscellaneous other charges.

 

  (2) The Adviser is voluntarily waiving a portion of its advisory fee and/or reimbursing certain expenses to the extent necessary to limit total annual Portfolio operating expenses to 0.60% of the Portfolio’s average daily net assets. These waivers and/or reimbursements may be terminated by the Adviser at any time.

Example

This example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your Shares at the end of the period. The example also assumes that your investment has a 5% return each year, that the operating expenses of the Portfolio remain the same, and that you reinvested all dividends and distributions. Although your actual costs may be higher or lower, based on these assumptions your cost would be:

 

1 Year

 

3 Years

 

5 Years

 

10 Years

$82   $255   $444   $990

 

11


 

FINANCIAL HIGHLIGHTS

 

The table below sets forth certain financial information for the periods indicated, including per share information results for a single share of the Portfolio. The term “Total investment return” indicates how much your investment would have increased or decreased during this period of time and assumes that you have reinvested all dividends and distributions. The information for the fiscal year ended August 31, 2008 has been derived from the Portfolio’s financial statements audited by PricewaterhouseCoopers LLP, the Portfolio’s independent registered public accounting firm. This information should be read in conjunction with the Fund’s financial statements which, together with the report of the independent registered public accounting firm, are included in the Portfolio’s annual report for the fiscal year ended August 31, 2008 and is available at no cost upon request (see back cover for ordering instructions). The information for the fiscal period ended August 31, 2007 has been derived from the Portfolio’s financial statements audited by Deloitte & Touche LLP, the Portfolio’s former independent registered public accounting firm, whose report on the financial statements, included in the Portfolio’s annual report to shareholders for the fiscal year ended August 31, 2007, is incorporated by reference into the SAI.

 

    For the Fiscal
Year Ended
August 31, 2008
    For the period
December 19, 2006*
to August 31, 2007
 

Per Share Operating Performance†

   

Net asset value, beginning of period

  $ 9.92     $ 10.00  

Net investment income

    0.54       0.38  

Net realized and unrealized gain (loss) on investments, futures transactions, short sales, and swap agreements

    (0.98 )     (0.08 )
               

Net increase in net assets resulting from operations

    (0.44 )     0.30  
               

Dividends to shareholders from:

   

Net investment income

    (0.55 )     (0.38 )

Net realized capital gains

           
               

Net asset value, end of period

  $ 8.93     $ 9.92  
               

Total investment return (1)

    (4.76 )%     3.10 %

Ratios/Supplemental Data

   

Net assets, end of period (000’s omitted)

  $ 129,888     $ 161,278  

Ratio of expenses to average net assets with waivers and expense reimbursements (excluding interest expense)

    0.60 %     0.60 (2)

Ratio of expenses to average net assets with waivers and expense reimbursements (including interest expense)

    0.60 %     0.78 (2)

Ratio of expenses to average net assets without waivers and expense reimbursements (including interest expense)

    0.80 %     0.95 (2)

Ratio of net investment income to average net assets

    5.56 %     5.58 (2)

Portfolio turnover rate (3)

    190.88 %     259.47 %

 

 

* Commencement of operations.

 

Calculated based on shares outstanding on the first and last day of the respective period, except for dividends and distributions, if any, which are based on actual shares outstanding on the dates of distributions.

 

(1) Total investment return is calculated by assuming a purchase of shares on the first day and a sale of shares on the last day of each period reported and includes reinvestments of dividends and distributions, if any.

 

(2) Annualized.

 

(3) The portfolio turnover rate excluding TBA transactions is 32.83% for the year ended August 31, 2008 and 125.15% for the period December 19, 2006 to August 31, 2007, respectively.

 

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MORE ABOUT THE PORTFOLIO’S INVESTMENTS AND RISKS

 

The Risk/Return Summary describes the Portfolio’s investment objective and its principal investment strategies and risks. This section provides some additional information about the Portfolio’s investments and certain portfolio management techniques that the Portfolio may use. More information about the Portfolio’s investments and portfolio management techniques, some of which entail risks, is included in the SAI.

More About the Portfolio’s Investments

Mortgage-Related Securities. Mortgage-related securities may be issued by private companies or by government-sponsored entities or agencies of the U.S. government, such as the Government National Mortgage Association (“Ginnie Mae”), Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal Home Loan Banks. Mortgage-related securities represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Ginnie Mae is a wholly-owned corporation of the U.S. government.

Mortgage-related securities may include multiple class securities, including collateralized mortgage obligations (“CMOs”) and Real Estate Mortgage Investment Conduit (“REMIC”) pass-through or participation certificates. CMOs provide an investor with a specified interest in the cash flow from a pool of underlying mortgages or of other mortgage-related securities. A REMIC is a CMO that qualifies for special tax treatment under the Internal Revenue Code of 1986, as amended, and invests in certain mortgages principally secured by interests in real property and other permitted investments. CMOs may exhibit more or less price volatility and interest rate sensitivity than other types of mortgage-related obligations, and under certain interest rate and payment scenarios, the Portfolio may fail to recoup fully its investment in certain of these securities regardless of their credit quality.

Stripped mortgage-backed securities (“SMBS”) represent the right to receive payments of interest (“IOs”) or payments of principal (“POs”) on underlying pools of mortgage securities, but not both. The value of these types of instruments may change more drastically than debt securities that pay both principal and interest during periods of changing interest rates. IOs are particularly subject to prepayment risk. The Portfolio may obtain a below market yield or incur a loss on such instruments. POs are particularly subject to extension risk.

Mortgage instruments, such as SMBS, often employ features that have the effect of leverage. As a result, small changes in interest rates may cause large and sudden price movements, especially compared to an investment in a security that is not leveraged.

The Portfolio seeks to invest in floating rate debt instruments (“floaters”). While floaters provide a certain degree of protection against rises in interest rates, their yields fall in a decline in interest rates as well. The Portfolio may also invest in inverse floating rate debt instruments (“inverse floaters”). An inverse floater may exhibit greater price volatility than a fixed rate obligation of similar credit quality. The Portfolio may also invest in inverse floating IOs, which are IO securities related to inverse floaters. The Portfolio generally may invest no more than 50% of its total assets at the time of purchase in IO, inverse floating interest only, or PO securities in the aggregate. Within this 50% limit, IO, inverse floating IO and PO securities each will generally be no more than 20% of the Portfolio’s total assets at the time of purchase.

Mortgage Dollar Rolls. The Portfolio may enter into mortgage dollar rolls to finance the purchase of additional investments. Dollar rolls expose the Portfolio to the risk that it will lose money if the additional investments do not produce enough income to cover the Portfolio’s dollar roll obligations. In addition, if the Adviser’s prepayment assumptions are incorrect, the Portfolio may have performed better had the Portfolio not entered into the mortgage dollar roll.

U.S. Government Securities. U.S. government securities include U.S. Treasury obligations and obligations issued or guaranteed by U.S. government agencies, instrumentalities or sponsored enterprises. U.S. Treasury obligations include, among other things, the separately traded principal and interest components of securities guaranteed or issued by the U.S. Treasury that are traded independently under the Separate Trading of Registered Interest and Principal of Securities program (“STRIPS”).

U.S. government securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that the U.S. government will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.

On September 7, 2008, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) were placed under the conservatorship of the Federal Housing Finance Agency (“FHFA”) to provide stability in the financial markets, mortgage availability and taxpayer protection by preserving Fannie

 

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Mae and Freddie Mac’s assets and property and putting Fannie Mae and Freddie Mac in a sound and solvent condition. Under the conservatorship, the management of Fannie Mae and Freddie Mac was replaced. Additionally, Fannie Mae and Freddie Mac are expected to modestly increase their mortgage-backed security portfolios through the end of 2009 and then gradually reduce such portfolios at the rate of 10 percent per year until stabilizing at a smaller size. Please see the SAI for more information.

Custodial Receipts. Interests in U.S. government securities may be purchased in the form of custodial receipts that evidence ownership of future interest payments, principal payments or both on certain notes or bonds issued or guaranteed as to principal and interest by the U.S. government, its agencies, instrumentalities or authorities. For certain securities law purposes, custodial receipts are not considered obligations of the U.S. government.

Leverage. The Portfolio’s investments in mortgage-related securities may involve the use of leverage. The Portfolio may make margin purchases of securities and, in connection with the purchases, borrow money from banks and other financial institutions for investment purposes. The Portfolio may also engage in selling securities short, which is a form of leverage. Although the use of leverage by the Portfolio may create an opportunity for increased return, it also results in additional risks and can magnify the effect of any losses. There is no assurance that the use of leverage as an investment strategy will be successful.

Repurchase Agreements. Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually agreed upon date and price. The Portfolio may enter into repurchase agreements with securities dealers and banks that furnish collateral at least equal in value or market price to the amount of their repurchase obligation. Repurchase agreements are considered to be loans by the Portfolio under the Investment Company Act of 1940, as amended (the “1940 Act”).

If the other party or “seller” defaults, the Portfolio might suffer a loss to the extent that the proceeds from the sale of the underlying securities and other collateral held by the Portfolio are less than the repurchase price and the Portfolio’s cost associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, the Portfolio could suffer additional losses if a court determines that the Portfolio’s interest in the collateral is not enforceable.

Borrowings and Reverse Repurchase Agreements. The Portfolio can borrow money from banks and other financial institutions, and the Portfolio may enter into reverse repurchase agreements as permitted by law for leverage provided there is asset coverage of at least 300% of the amount borrowed, or for temporary or emergency purposes. Reverse repurchase agreements involve the sale of securities held by the Portfolio subject to the Portfolio’s agreement to repurchase them at a mutually agreed upon date and price (including interest). These transactions may be entered into as a temporary measure for emergency purposes or to meet redemption requests. The Portfolio may also enter into reverse repurchase agreements when the Adviser believes that the interest income to be earned from the investment of the transaction proceeds will be greater than the related interest expense. Borrowings and reverse repurchase agreements involve leverage. If the securities held by the Portfolio decline in value while these transactions are outstanding, the net asset value of the Portfolio’s outstanding shares will decline in value by proportionately more than the decline in value of the securities. In addition, reverse repurchase agreements involve the risks that the investment return earned by the Portfolio (from the investment of the proceeds) will be less than the interest expense of the transaction, that the market value of the securities sold by the Portfolio will decline below the price the Portfolio is obligated to pay to repurchase the securities, and that the securities may not be returned to the Portfolio.

Other Investment Companies. The Portfolio may invest in securities of other investment companies subject to the limitations contained in the 1940 Act. The Portfolio will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. Such other investment companies will have investment objectives, policies and/or restrictions that fall within the criteria set forth in the FCUA, subject to the waiver granted by the NCUA with respect to its rules and regulations.

Inverse Floaters. The Portfolio may invest in inverse floating rate debt securities (“inverse floaters”). The interest rate on inverse floaters resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher the degree of leverage of an inverse floater, the greater the volatility of its market value. Inverse floaters may present a greater degree of market risk than many types of securities, and may be more volatile, less liquid and more difficult to price accurately than less complex securities.

Bank Obligations. The Portfolio may invest in U.S. dollar-denominated obligations issued or guaranteed by U.S. banks with total assets exceeding $1 billion (including obligations issued by foreign branches of such banks) but only to

 

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the extent permitted under the FCUA and the rules and regulations thereunder. Bank obligations may include certificates of deposit, bankers’ acceptances, bank notes, deposit notes, and other obligations. Bank obligations may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligations or by government regulation.

Futures Contracts and Options on Futures Contracts. The Portfolio may purchase and sell Federal Funds, Treasury and Eurodollar futures contracts and may purchase and write put and call options on such futures contracts. Futures contracts are standardized, exchange-traded contracts that provide for the sale or purchase of a specified financial instrument at a future time at a specified price. An option on a futures contract gives the purchaser the right (and the writer of the option the obligation) to assume a position in a futures contract at a specified exercise price within a specified period of time. A futures contract may be based on particular securities, securities indices and other financial instruments and indices. The Portfolio may engage in futures transactions on U.S. exchanges.

The Portfolio may purchase and sell futures contracts, and purchase and write call and put options on futures contracts, in order to seek to increase total return or to hedge against changes in interest rates, securities prices, or to otherwise manage its term structure, sector selections and duration in accordance with its investment objective and policies. The Portfolio may also enter into closing purchase and sale transactions with respect to such contracts and options.

Options on Securities. A put option gives the purchaser of the option the right to sell, and the writer (seller) of the option the obligation to buy, the underlying instrument during the option period. A call option gives the purchaser of the option the right to buy, and the writer (seller) of the option the obligation to sell, the underlying instrument during the option period. The Portfolio may write (sell) call and put options and purchase put and call options on any securities in which the Portfolio may invest.

Writing and purchasing options is a highly specialized activity that involves special investment risks. The Portfolio may use options for either hedging purposes, or to seek to increase total return (which is considered a speculative activity). The successful use of options depends in part on the ability of the Adviser to manage future price fluctuations and the degree of correlation between the options and securities markets. If the Adviser is incorrect in its expectation of changes in market prices or determination of the correlation between the instruments or indices on which options are written and purchased and the instruments in the Portfolio, the Portfolio may incur losses that it would not otherwise incur. The use of options can also increase the Portfolio’s transaction costs. Options written or purchased by the Portfolio may be traded on U.S. exchanges or over-the-counter. Over-the-counter options will present greater possibility of loss because of their greater illiquidity and credit risk. The Portfolio may be required to treat as illiquid certain over-the-counter options purchased and securities being used to cover certain written over-the counter options.

When-Issued Securities and Forward Commitments. The Portfolio may purchase when-issued securities and make contracts to purchase or sell securities for a fixed price at a future date beyond customary settlement time. When-issued securities are purchased after the announcement of the offering but before the issue date of the securities in order to secure what is considered to be an advantageous price and yield to the Portfolio at the time of entering into the transaction. A forward commitment involves the entering into a contract to purchase or sell securities for a fixed price at a future date beyond the customary settlement period.

The purchase of securities on a when-issued or forward commitment basis involves a risk of loss if the value of the securities to be purchased declines before the settlement date. Conversely, the sale of securities on a forward commitment basis involves the risk that the value of the securities sold may increase before the settlement date. Although the Portfolio may purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, the Portfolio may dispose of when-issued securities or forward commitments prior to settlement if the Adviser deems it appropriate.

Interest Rate Swaps, Total Return Swaps, Options on Swaps and Interest Rate Caps, Floors and Collars.

 

  Ÿ  

Interest rate swaps involve the exchange by the Portfolio with another party of their respective commitments to pay or receive interest, such as an exchange of fixed-rate payments for floating rate payments.

 

  Ÿ  

Total return swaps are contracts that obligate a party to pay or receive interest in exchange for payment by the other party of the total return generated by a security, a basket of securities, an index, or an index component.

 

  Ÿ  

Options on swaps (“swaptions”) are options to enter into a swap agreement. The Portfolio may also purchase and write (sell) swaptions. Like other types of options, the buyer of a swaption pays a non-refundable premium for the option and obtains the right, but not the obligation, to enter into an underlying swap on agreed-upon terms. The

 

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seller of a swaption, in exchange for the premium, becomes obligated (if the option is exercised) to enter into an underlying swap on agreed-upon terms.

 

  Ÿ  

Limits on swaps. The total notional amount of swaps will not exceed 300% of the Portfolio’s net assets.

 

  Ÿ  

Interest rate caps entitle the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payment of interest on a notional principal amount from the party selling such interest rate cap.

 

  Ÿ  

Interest rate floors entitle the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling the interest rate floor.

 

  Ÿ  

Interest rate collars combine a cap and a floor that are designed to preserve a certain return within a predetermined range of interest rates.

The Portfolio may enter into the transactions described above for hedging purposes or to seek to increase total return. The use of swaps, swaptions, and interest rate caps, floors and collars is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Adviser is incorrect in its forecasts of market values and interest rates, the investment performance of the Portfolio would be less favorable than it would have been if these investment techniques were not used.

Short Sales. The Portfolio may engage in short-sales of securities. A short sale is a sale by the Portfolio of a security which has been borrowed from a third party on the expectation that the market price will decline. If the price of the security drops, the Portfolio will make a profit by purchasing the security in the market at a lower price than the price at which it sold the security. If the price of the security rises, the Portfolio may have to cover its short position at a higher price than the short sale price, resulting in a loss to the Portfolio.

Securities Lending. The Portfolio may seek to increase its income by lending portfolio securities to institutions, such as certain broker-dealers. Portfolio securities loans are secured continuously by collateral maintained on a current basis at an amount at least equal to the market value of the securities loaned. The value of the securities loaned by the Portfolio will not exceed 33 1/3% of the value of the Portfolio’s total assets. The Portfolio may experience a loss or delay in the recovery of its securities if the borrowing institution breaches its agreement with the Portfolio. Lending the Portfolio’s securities involves the risk of delay in receiving additional collateral if the value of the securities goes up while they are on loan.

Temporary Investments. The Portfolio may depart from its principal investment strategy in response to adverse market, economic, political or other conditions by taking temporary defensive positions in all types of money market securities. If the Portfolio were to take a temporary defensive position, it may be unable for a time to achieve its investment objective.

Investment Risks

The following provides additional information about the principal risks of investing in the Portfolio.

Risks of Fixed Income Securities. These risks include interest rate risk and credit risk. In general, interest rate risk involves the risk that when interest rates decline, the market value of fixed income securities tends to increase (although many mortgage-related securities will have less potential than other debt securities for capital appreciation during periods of declining rates). Conversely, when interest rates increase, the market value of fixed income securities tends to decline. Credit risk involves the risk that the issuer could default on its obligations, and the Portfolio will not recover its investment.

Risks of Mortgage and Related Investments. Mortgage-related securities are particularly exposed to prepayment and extension risks. For example, homeowners have the option to prepay their mortgages. Therefore, the duration of a security backed by home mortgages can either shorten (prepayment risk) or lengthen (extension risk). In general, if interest rates on new mortgage loans fall sufficiently below the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to increase. Conversely, if mortgage loan interest rates rise above the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to decrease. Small changes in mortgage prepayments can significantly impact the cash flow and the market value of mortgage-related securities. A change in the prepayment rate can result in losses to investors. In addition, particular securities may be leveraged such that their exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is magnified.

The yields on stripped mortgage-backed securities that receive all or most of the interest from mortgage loans are generally higher than prevailing market yields on other mortgage-related securities because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. The market value of stripped mortgage-backed securities consisting entirely of principal payments generally is unusually volatile in response to

 

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changes in interest rates. Total return may fluctuate in rising interest rate environments and create greater price volatility. The yield to maturity on an interest-only security is extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the Portfolio’s yield to maturity from these securities.

Call Risk. The risk that an issuer or borrower will exercise its right to pay principal on an obligation held by the Portfolio earlier than expected. Issuers are more likely to exercise these rights during periods of declining interest rates, because they may be able to issue new lower-coupon instruments. The Portfolio may receive unscheduled prepayments of principal before the security’s maturity date due to voluntary prepayments, refinancing or foreclosure on the underlying mortgage loans. To the Portfolio this means a loss of anticipated interest, and a portion of its principal investment represented by any premium that the Portfolio may have paid. Under these circumstances, the Portfolio may be unable to recoup all of its initial investment and will also suffer from having to reinvest in lower yielding securities. For mortgage-related securities, the early prepayment of principal by all or a portion of the borrowers underlying a mortgage security is functionally equivalent to a full or partial call of the security.

Risks of Derivative Investments. The Portfolio’s transactions, if any, in options, futures, options on futures, options on swaps, swaps and interest rate caps, floors and collars, involve risk of loss. Loss can result from a lack of correlation between changes in the value of derivative instruments and the portfolio assets (if any) being hedged, the potential illiquidity of the markets for derivative instruments, or the risks arising from margin requirements and related leverage factors associated with such transactions. The use of these management techniques also involves the risk of loss if the Adviser is incorrect in its expectation of fluctuations in securities prices or interest rates. Markets for derivatives are highly volatile and the use of derivatives may increase the volatility of the Portfolio’s net asset value and may result in substantial losses to the Portfolio. Certain derivative instruments may be illiquid. Although the Portfolio intends to invest in derivative instruments primarily to hedge against mortgage-related security risks and other risks, the Portfolio may invest in derivative instruments for non-hedging purposes (that is, to seek to increase total return). Investing for non-hedging purposes is considered a speculative practice and presents even greater risk of loss.

Credit/Default Risks. The Portfolio expects to purchase securities rated in one of the two highest rating categories by an NRSRO (e.g., Aaa or Aa as rated by Moody’s Investors Service, Inc. or AAA or AA as rated by Standard & Poor’s Rating Group). A security will be deemed to have met a rating requirement if it receives the minimum required rating from at least one NRSRO even though it has been rated below the minimum rating by one or more other rating organizations, or if unrated by such rating organizations, the security is determined by the Adviser to be of comparable credit quality. A security satisfies the Portfolio’s minimum rating requirement regardless of its relative rating (for example, plus or minus) within a designated major rating category. If a security satisfies the Portfolio’s minimum rating requirement at the time of purchase and is subsequently downgraded below that rating, the Portfolio will not be required to dispose of the security. If a downgrade occurs, the Adviser will consider which action, including the sale of the security, is in the best interest of the Portfolio and its shareholders. Debt securities purchased by the Portfolio may include securities issued by the U.S. government (and its agencies, instrumentalities and sponsored enterprises), banks and other issuers.

Leveraging Risks. The use of leverage by the Adviser may increase the volatility of the Portfolio. Mortgage-related securities in which the Portfolio invests may be leveraged. These leveraged instruments may result in losses to the Portfolio or may adversely affect the Portfolio’s net asset value or total return, because instruments that contain leverage are more sensitive to changes in interest rates. The Portfolio may also use borrowed funds to create leverage. Although the use of leverage by the Portfolio may create an opportunity for increased return, it also results in additional risks and can magnify the effect of any losses. If the income and gains earned on the securities and instruments purchased with leverage proceeds are greater than the cost of the leverage, the Portfolio’s return will be greater than if leverage had not been used. Conversely, if the income and gains from the securities and instruments purchased with such proceeds does not cover the cost of leverage, the Portfolio’s return will be less than if leverage had not been used. In the event of a sudden, precipitous drop in value of the Portfolio’s assets, the Portfolio may not be able to liquidate assets quickly enough to pay off its borrowing. Short sales of securities also involve the use of leverage. Using this investment technique may adversely affect the Portfolio’s net asset value or total return.

To limit leverage risk, the Portfolio will segregate assets determined by the Adviser to be liquid in accordance with procedures established by the Board of Directors, or, when permissible, enter into offsetting transactions, to cover its obligations resulting from its use of derivative instruments. Securities held in a segregated account cannot be sold while the futures contract or option is outstanding, unless they are replaced with other suitable assets. As a result, it is possible that segregating a large percentage of the Portfolio’s assets could impede portfolio management or its ability to meet redemption requests or other current obligations.

 

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Risks of Illiquid Securities. The Portfolio generally may invest up to 15% of its net assets in illiquid securities which cannot be disposed of in seven days in the ordinary course of business at fair value. Illiquid securities may include:

 

  Ÿ  

Securities that are not readily marketable

 

  Ÿ  

Repurchase agreements with a notice or demand period of more than seven days

 

  Ÿ  

Certain over-the-counter options

 

  Ÿ  

Certain structured securities

 

  Ÿ  

Certain swap transactions

 

  Ÿ  

Certain restricted securities, unless it is determined, based upon a review of the trading markets for a specific restricted security, that such restricted security is liquid because it is otherwise eligible for resale pursuant to Rule 144A under the Securities Act of 1933 (“144A Securities”).

Investing in 144A securities may decrease the liquidity of the Portfolio to the extent that qualified institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of comparable securities for which a liquid market exists.

Disclosure of Portfolio Holdings

A description of the Company’s policies and procedures with respect to the disclosure of the Portfolio’s securities is available in the SAI.

 

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MANAGEMENT OF THE PORTFOLIO

 

Investment Adviser

BSAM, located at 237 Park Avenue, New York, New York 10017, serves as the Portfolio’s investment adviser. As a result of the acquisition of Bear Stearns by JPMorgan Chase, BSAM is an indirect, wholly owned subsidiary of JPMorgan Chase. JPMorgan Chase, 270 Park Avenue, New York, NY 10017, is a Delaware corporation and leading global financial services firm that operates in more than 60 countries. JPMorgan Chase is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management, and private equity. BSAM is a registered investment adviser and provides investment advisory and sub-advisory services to open-end investment portfolios, U.S. equity and fixed income separate accounts, and alternative investment vehicles such as hedge funds, private equity funds and fund of funds. As of September 30, 2008, BSAM had approximately $9.5 billion in assets under management.

Subject to the general supervision of the Company’s Board of Directors, the Adviser manages the Portfolio’s investment portfolio and is responsible for the selection and management of all investments of the Portfolio in accordance with the Portfolio’s investment objective and policies.

Portfolio Manager

The Portfolio is managed by a team that is led by Andrew Headley. Mr. Headley, Managing Director at BSAM, is primarily responsible for the day-to-day management of the Portfolio’s investments. Mr. Headley joined BSAM in 2005 as a Portfolio Manager. In this capacity, Mr. Headley oversees all strategy and security selection for the mortgage and asset-backed sectors. Mr. Headley came to BSAM from Fischer Francis Trees & Watts (“FFTW”), where he had worked since 1994. As a portfolio manager for FFTW’s mortgage and broad-market portfolios, Mr. Headley’s responsibilities included asset allocation, portfolio construction and risk management. Mr. Headley was also responsible for security selection within the commercial and residential mortgage-backed securities markets. Mr. Headley graduated summa cum laude from the Wharton School of the University of Pennsylvania with a B.S. in Economics and is a CFA Charterholder.

The SAI provides additional information about the portfolio manager’s compensation, other accounts managed by the portfolio manager and the portfolio manager’s ownership of securities in the Portfolio.

Management Fees

Pursuant to an investment advisory agreement with the Company, the Adviser is entitled to an advisory fee at the annual rate of 0.48% of the Portfolio’s average daily net assets, computed daily and payable monthly. A discussion regarding the Board of Directors’ basis for approving the investment advisory agreement with respect to the Portfolio is available in the Portfolio’s annual report for the period ended August 31, 2008.

The Adviser is voluntarily waiving a portion of its advisory fee and/or reimbursing expenses to the extent necessary to limit total annual Portfolio operating expenses to 0.60% of the Portfolio’s average daily net assets. These waivers and/or reimbursements can be terminated at any time.

Revenue Sharing Arrangements

The Adviser has entered into revenue sharing arrangements. Under these arrangements, the Adviser may pay compensation, out of its own assets and not as an expense of the Portfolio, to Bear Stearns & Co., Inc. (“BSCO”) and other unaffiliated brokers, dealers or other financial Intermediaries (“Intermediaries”) in connection with the sale or retention of Portfolio shares and/or shareholder servicing. For example, the Adviser may pay compensation to BSCO or to Intermediaries for the purpose of promoting the sale of Portfolio shares, maintaining share balances and/or for administrative or shareholder processing services. The payments will not exceed 0.20 percent of the amount of assets invested by the Intermediary’s customers (which could include current or aged assets of the Portfolio). The amount of these payments may be different for different Intermediaries. These payments, and the basis upon which an Intermediary receiving these payments compensates its salespersons, could create an incentive for an Intermediary or its salespersons to recommend the Portfolio, based on the amount of compensation paid.

 

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OTHER SERVICE PROVIDERS

 

LOGO

 

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SHAREHOLDER INFORMATION

 

Pricing of Portfolio Shares

Shares of the Portfolio are priced at their net asset value (“NAV”). The Portfolio’s NAV per Share is calculated as follows:

 

  Value of Assets Attributable to the Portfolio

NAV =

  Value of Liabilities Attributable to the Portfolio
   
  Number of Outstanding Shares of the Portfolio

The Portfolio’s NAV is calculated once daily at the close of regular trading hours on the New York Stock Exchange (the “NYSE”) (generally 4:00 p.m. Eastern time) on each day the NYSE is open (a “Business Day”). The NYSE is generally open Monday through Friday, except national holidays. The Portfolio will effect purchases or redemptions of shares at the next NAV calculated after receipt of your order in proper form.

Fixed income securities having a remaining maturity of greater than 60 days are valued using an independent pricing service. These fixed income securities are valued by pricing services approved by the Company’s Board of Directors based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation. Certain debt securities, which tend to be more thinly traded and of lesser quality, are priced based on fundamental analysis of the financial condition of the issuer and the estimated value of any collateral. Valuations developed through pricing techniques may materially vary from the actual amounts realized upon sale of the securities, and the potential material variation may be greater for those securities valued using fundamental analysis.

If price quotes are unavailable or deemed unreliable, securities will be fair valued in accordance with procedures adopted by the Company’s Board of Directors. Relying on prices supplied by pricing services or dealers or using fair valuation may result in values that are higher or lower than the values used by other investment companies and investors to price the same investments.

Market Timing

In accordance with the policy adopted by the Company’s Board of Directors, the Company discourages market timing and other excessive trading practices. Purchases should be made with a view to longer-term investment only. Excessive short-term (market timing) trading practices may disrupt portfolio management strategies, increase brokerage and administrative costs, harm Portfolio performance and result in dilution in the value of Portfolio shares held by long-term shareholders. The Company and the Adviser reserve the right to reject or restrict purchase requests from any investor. The Company and the Adviser will not be liable for any loss resulting from rejected purchase orders. To minimize harm to the Company and its shareholders (or the Adviser), the Company (or the Adviser) will exercise their right if, in the Company’s (or the Adviser’s) judgment, an investor has a history of excessive trading or if an investor’s trading, in the judgment of the Company or the Adviser, has been or may be disruptive to the Portfolio. No waivers of the provisions of the policy established to detect and deter market timing and other excessive trading activity are permitted that would harm the Portfolio and its shareholders or would subordinate the interests of the Portfolio and its shareholders to those of the Adviser or any affiliated person or associated person of the Adviser.

Pursuant to the policy adopted by the Company’s Board of Directors, the Adviser has developed criteria that it uses to identify trading activity that may be excessive. The Adviser reviews on a regular, periodic basis available information related to the trading activity in the Portfolio in order to assess the likelihood that the Portfolio may be the target of excessive trading. As part of its excessive trading surveillance process, the Adviser, on a periodic basis, examines transactions that exceed certain monetary thresholds or numerical limits within a period of time. If, in its judgment, the Adviser detects excessive, short-term trading, the Adviser may reject or restrict a purchase request and may further seek to close an investor’s account with the Portfolio. The Adviser may modify its surveillance procedures and criteria from time to time without prior notice regarding the detection of excessive trading or to address specific circumstances. The Adviser will apply the criteria in a manner that, in the Adviser’s judgment, will be uniform.

There is no assurance that the Adviser will be able to identify market timers, particularly if they are investing through intermediaries.

 

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If necessary, the Company may prohibit additional purchases of Portfolio shares by a financial intermediary or by certain customers of the financial intermediary. Financial intermediaries may also monitor their customers’ trading activities in the Company. The criteria used by intermediaries to monitor for excessive trading may differ from the criteria used by the Company. If a financial intermediary fails to enforce the Company’s excessive trading policies, the Company may take certain actions, including terminating the relationship.

Purchase of Portfolio Shares

Portfolio Shares are offered continuously for sale at NAV by PFPC Distributors, Inc. (the “Distributor”). The Portfolio is offered solely to eligible state and federally chartered credit unions.

The minimum initial investment in the Portfolio is $20 million and the minimum subsequent investment is $1 million. The minimum initial and subsequent investment requirement may be reduced or waived from time to time at the Adviser’s discretion. You can only purchase Shares of the Portfolio via Wire on days the NYSE and PNC Bank, N.A. are open.

For purchase information, call 1-800-519-CUFS (2837).

Account. You may open an account by completing and signing an application and providing a list of persons authorized to give instructions to the Transfer Agent on behalf of the shareholder, together with any necessary supporting legal documentation (such as certified resolutions of the shareholder). Shareholders must elect, on the application, whether to permit redemption by telephone, and designate an account for payment of redemption proceeds from telephonic redemptions. You may obtain an application by calling CUFS® at (800) 519-CUFS (2837).

General. You may also purchase Shares of the Portfolio at the NAV per share next calculated after your order is received by PNC in its capacity as Transfer Agent (the “Transfer Agent”) in good order as described below. After an initial purchase is made, the Transfer Agent will set up an account for you on the Company records.

Initial Investment By Mail. Initial purchase of shares is accomplished by completing the account application and mailing it, together with supporting legal documentation, to the Transfer Agent at the address noted below, together with a check payable to Bear Stearns CUFS® MLP Mortgage Portfolio. Third party checks will not be accepted.

 

Regular Mail:   Overnight Mail:
Bear Stearns CUFS® MLP Mortgage Portfolio   Bear Stearns CUFS® MLP Mortgage Portfolio
c/o PNC Global Investment Servicing (U.S.) Inc.  

c/o PNC Global Investment Servicing (U.S.) Inc.

P.O. Box 9843  

101 Sabin Street

Providence, RI 02940-8043  

Pawtucket, RI 02860-1427

Payment for the purchase of Shares received by mail will be credited to a shareholder’s account at the NAV per Share of the Portfolio next determined after receipt of payment in good order.

Initial Investment By Wire. Shares of the Portfolio may be purchased by wiring federal funds to PNC Bank, N.A. (see instructions below). You must forward a completed application together with necessary supporting documentation to the Transfer Agent at the address noted above under “Initial Investment by Mail” before wiring funds. You must notify the Transfer Agent and CUFS® at (800) 519-CUFS (2837) before 4:00 p.m., Eastern time, on the wire date. (Prior notification must also be received from investors with existing accounts.) Request account information and routing instructions by calling CUFS® at (800) 519-CUFS (2837) to be connected with the Transfer Agent. Funds should be wired to:

PNC Bank, N.A.

Philadelphia, Pennsylvania

ABA # 0310-0005-3

Account Number 86-1172-4119

F/B/O Bear Stearns CUFS® MLP Mortgage Portfolio

Ref. (Account Registration)

(Fund and Account Number)

Federal funds wire purchases will be accepted only on days when the NYSE and PNC Bank, N.A. are open for business.

Subsequent Investments. Subsequent investments may be made at any time by purchasing Shares of the Portfolio at its NAV per Share by mailing a check payable to Bear Stearns CUFS® MLP Mortgage Portfolio to the Transfer Agent at the address noted under “Initial Investment by Mail,” or by wiring monies to PNC Bank, N.A. as outlined under “Initial Investment by Wire.” You must notify CUFS® and the Transfer Agent at (800) 519-CUFS (2837) before 4:00 p.m., East-

 

22


 

ern time, on the wire date. Initial and subsequent purchases made by check cannot be redeemed until payment of the purchase has been collected. This may take up to 15 calendar days.

Other Purchase Information. The Company reserves the right, in its sole discretion, to suspend the offering of Shares or to reject purchase orders when, in the judgment of management, such suspension or rejection is in the best interests of the Portfolio. The Adviser will monitor the Portfolio’s total assets and may decide to close the Portfolio at any time to new investments or to new accounts. Decisions to close or open the Portfolio are subject to Board approval. If the Portfolio closes to new investments, generally the closed Portfolio would be offered only to certain existing shareholders of the Portfolio and certain other persons, who are generally subject to cumulative, maximum purchase amounts, as follows:

 

  a. persons who already hold Shares of the Portfolio directly or through accounts maintained by brokers by arrangement with the Company, and

 

  b. existing and future clients of financial advisers and planners whose clients already hold shares of the Portfolio.

Other persons who are shareholders of other funds of the Company are not permitted to acquire shares of the Portfolio by exchange. Distributions to all shareholders of the Portfolio will continue to be reinvested unless a shareholder elects otherwise. The Adviser reserves the right to implement other purchase limitations at the time of closing, including limitations on current shareholders.

Purchases of the Portfolio’s Shares will be made in full and fractional shares of the Portfolio calculated to three decimal places.

Customer Identification Program. Federal law requires the Company to obtain, verify and record identifying information, which may include the name, residential or business street address, date of birth (for an individual), social security or taxpayer identification number or other identifying information for each investor who opens or reopens an account with the Company. For business entities, partnerships, trusts, or other organizations, the Company may request additional documentation including, but not limited to, certified copies of the corporate resolution, partnership agreement, or trust document, which established the entity’s identity. Applications without the required information, or without any indication that a social security or taxpayer identification number has been applied for, may not be accepted. After acceptance, to the extent permitted by applicable law or its customer identification program, the Company reserves the right (a) to place limits on transactions in any account until the identity of the investor is verified; or (b) to refuse an investment in a Company portfolio or to involuntarily redeem an investor’s shares and close an account in the event that an investor’s identity is not verified. The Company and its agents will not be responsible for any loss in an investor’s account resulting from the investor’s delay in providing all required identifying information or from closing an account and redeeming an investor’s shares when an investor’s identity cannot be verified.

Good Order. You must include complete and accurate required information on your purchase request. Purchase requests not in good order may be rejected.

Redemption of Portfolio Shares

You may redeem Shares of the Portfolio at the next NAV calculated after a redemption request is received by the Transfer Agent in proper form (as defined below). You can only redeem Shares on days the NYSE and PNC Bank, N.A. are open and through the means described below.

For redemption information, call (800) 519-CUFS (2837).

You may redeem Shares of the Portfolio by mail, or by telephone (with proper authorization). The value of Shares redeemed may be more or less than the purchase price, depending on the market value of the investment securities held by the Portfolio. There is generally no charge for a redemption.

Redemption By Mail. Your redemption requests should be addressed to Bear Stearns CUFS® MLP Mortgage Portfolio, c/o PNC Global Investment Servicing (U.S.) Inc., P.O. Box 9843, Providence, RI 02940; for overnight delivery, requests should be addressed to Bear Stearns CUFS® MLP Mortgage Portfolio, c/o PNC Global Investment Servicing (U.S.) Inc., 101 Sabin Street, Pawtucket, RI 02860-1427 and must include:

 

  a. Name of the Portfolio;

 

  b. Account Number;

 

  c. Your share certificates, if any, properly endorsed or with proper powers of attorney;

 

  d. A letter of instruction specifying the number of Shares or dollar amount to be redeemed, signed by all registered owners of the Shares in the exact names in which they are registered;

 

23


 

  e. Medallion signature guarantees are required when (i) the redemption proceeds are to be sent to someone other than the registered shareholder(s) or (ii) the redemption request is for $10,000 or more. A signature guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency or savings association who are participants in a Medallion Program recognized by the Securities Transfer Association. The three recognized Medallion Programs are Securities Transfer Agent Medallion Program (STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature Program (MSP). Signature guarantees that are not a part of these programs will not be accepted. Please note that a notary public stamp or seal is not acceptable; and

 

  f. Other supporting legal documents, if required, in the case of corporations, trusts and other organizations.

Redemption By Telephone. If you are authorized to make redemptions by telephone, a redemption of Shares may be requested by calling CUFS® at (800) 519-CUFS (2837) and you will be connected with the Transfer Agent to place your redemption request. Redemption proceeds will be mailed to the primary registration address unless you provide wire instructions with your authorized instructions. There is no minimum or maximum amount that may be redeemed by phone.

To redeem by telephone, you must elect telephone redemptions in your account application and submit a list of authorized persons. When telephone redemptions are authorized, the Company and the Transfer Agent may act on telephone instructions from any person representing himself or herself to be an authorized person of a shareholder and believed by the Company and the Transfer Agent to be genuine. The Transfer Agent’s records of such instructions are binding and shareholders, not the Company or the Transfer Agent, bear the risk of loss in the event of unauthorized instructions reasonably believed by the Company or the Transfer Agent to be genuine. The Company and the Transfer Agent will employ reasonable procedures to confirm that instructions communicated are genuine and, if they do not, they may be liable for any losses due to unauthorized or fraudulent instructions. The procedures employed by the Company and the Transfer Agent in connection with transactions initiated by telephone include tape recording of telephone instructions and requiring some form of personal identification prior to acting upon instructions received by telephone.

Other Redemption Information. Generally, redemption proceeds will be paid within seven days after the receipt of a valid redemption request; however, redemption proceeds for recently-purchased Portfolio Shares paid for by check may not be distributed until payment for the purchase has been collected, which may take up to fifteen days from the purchase date. Shareholders can avoid this delay by utilizing the wire purchase option. The Company may suspend the right of redemption or postpone the date at times when the NYSE is closed or under any emergency circumstances as determined by the SEC.

Generally, redemption proceeds will be paid in cash, unless the Company’s Board of Directors, at its discretion, determines that it would be detrimental to the best interests of the remaining shareholders of the Portfolio to make payment wholly or partly in cash. In such a case, some or all of the redemption proceeds may be paid in kind, which means that the Portfolio will distribute readily marketable securities held by the Portfolio instead of cash in conformity with applicable rules of the SEC. Investors generally will incur brokerage charges on the sale of portfolio securities received in redemption of their Shares. The Company has elected, however, to be governed by Rule 18f-1 under the Act; as a result, the Portfolio is obligated to redeem its Shares solely in cash up to the lesser of $250,000 or 1% of its NAV during any 90-day period for any one shareholder of the Portfolio.

The Portfolio may assert the right to redeem your shares at current NAV at any time and without prior notice if, and to the extent that, such redemption is necessary to reimburse the Portfolio for any loss sustained by reason of your failure to make full payment for shares of the Fund you previously purchased or subscribed for.

Proper Form. You must include complete and accurate required information on your redemption request. Redemption requests not in proper form may be delayed.

Dividends and Distributions

The Portfolio will distribute substantially all of its net investment income and net realized capital gains, if any, to its shareholders. All distributions are reinvested in the form of additional full and fractional Shares of the Portfolio unless a shareholder elects otherwise.

The Portfolio will declare dividends from net investment income daily and pay such dividends monthly. Net realized capital gains (including net short-term capital gains), if any, will be distributed by the Portfolio at least annually.

The Portfolio may pay additional distributions and dividends at other times if necessary to avoid U.S. federal tax. The Portfolio’s distributions and dividends, whether received in cash or reinvested in additional Portfolio shares, are subject to U.S. federal income tax.

 

24


 

Taxes

Shares of the Portfolio are available only to state and federally chartered credit unions, which the Portfolio expects will be generally exempt from federal and state income taxes. Accordingly, the Portfolio expects that shareholders will not be taxed on Portfolio distributions or on gains on disposition of Shares. Information regarding tax rules affecting the Portfolio is available in the SAI.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE PORTFOLIO’S SAI INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE COMPANY OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.

 

25


BEAR STEARNS CUFS® MLP MORTGAGE PORTFOLIO

of

The RBB Fund, Inc.

 

For More Information:

This Prospectus contains important information you should know before you invest. Read it carefully and keep it for future reference. More information about the Bear Stearns CUFS® MLP Mortgage Portfolio is available free of charge, upon request, including:

 

Annual/Semi-Annual Reports

These reports contain additional information about the Portfolio’s investments, describe the Portfolio’s performance, list portfolio holdings, and discuss recent market conditions and economic trends. The Annual Report includes a discussion of the market conditions and investment strategies that significantly affected the Portfolio’s performance during the last fiscal year.

 

Statement of Additional Information (“SAI”)

An SAI has been filed with the SEC. The SAI, which includes additional information about the Bear Stearns CUFS® MLP Mortgage Portfolio, may be obtained free of charge, along with the annual and semi-annual reports, by calling (800) 519-CUFS (2837). The SAI, as supplemented from time to time, is incorporated in its entirety by reference into this Prospectus (and is legally part of the Prospectus). The SAI is not available on the Adviser’s website but a copy may be obtained by calling (800) 519-CUFS (2837).

 

Shareholder Inquiries

Representatives are available to discuss account balance information, mutual fund prospectuses, literature programs and services available. Hours: 8 a.m. to 6 p.m. (Eastern time) Monday-Friday. Call (800) 519-CUFS (2837). Shareholders can obtain a copy of the Portfolio’s SAI and Annual/Semi-Annual Reports to shareholders by telephoning the Portfolio at (800) 519-CUFS (2837).

 

Purchases and Redemptions

Call 1-800-519-CUFS (2837).

 

Written Correspondence

Street Address:

Bear Stearns CUFS® MLP Mortgage Portfolio, c/o PNC Global Investment Servicing (U.S.) Inc., 101 Sabin Street, Pawtucket, RI 02860-1427.

 

P.O. Box Address:

Bear Stearns CUFS® MLP Mortgage Portfolio, c/o PNC Global Investment Servicing (U.S.) Inc., P.O. Box 9843, Providence, RI 02940-8043.

 

Securities and Exchange Commission

You may also view and copy information about the Company and the Portfolios, including the SAI, by visiting the SEC’s Public Reference Room in Washington, DC or the EDGAR Database on the SEC’s Internet site at www.sec.gov. You may also obtain copies of Portfolio documents by paying a duplicating fee and sending an electronic request to the following e-mail address: publicinfo@sec.gov, or by sending your written request and a duplicating fee to the SEC’s Public Reference Section, Washington, DC 20549-0102. You may obtain information on the operation of the public reference room by calling the SEC at (202) 551-8090.

 

INVESTMENT COMPANY ACT FILE NUMBER 811-05518


 

THE BEDFORD SHARES OF THE

MONEY MARKET PORTFOLIO

of

The RBB Fund, Inc.

This prospectus gives vital information about this money market mutual fund, advised by BlackRock Institutional Management Corporation (“BIMC” or the “Adviser”), including information on investment policies, risks and fees. For your own benefit and protection, please read it before you invest and keep it on hand for future reference.

Please note that the Money Market Portfolio:

 

  n  

is not a bank deposit;

 

  n  

is not federally insured;

 

  n  

is not an obligation of, or guaranteed or endorsed by PNC Bank N.A., PFPC Trust Company or any other bank;

 

  n  

is not an obligation of, or guaranteed or endorsed or otherwise supported by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other governmental agency (Notwithstanding the preceding statements, shareholders will be guaranteed to receive $1.00 net asset value for amounts that they held as of September 19, 2008 subject to the terms of the U.S. Department of the Treasury Temporary Guarantee Program for Money Market Funds);

 

  n  

is not guaranteed to achieve its goals; and

 

  n  

may not be able to maintain a stable $1 share price and you may lose money.

 

 

THE SECURITIES DESCRIBED IN THIS PROSPECTUS HAVE BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION (“SEC”). THE SEC, HOWEVER, HAS NOT JUDGED THESE SECURITIES FOR THEIR INVESTMENT MERIT AND HAS NOT DETERMINED THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIMINAL OFFENSE.

 

PROSPECTUS

December 31, 2008


TABLE OF CONTENTS

 

 

A look at the goals, strategies, risks, expenses and financial history of the portfolio.

Details about the service providers.

 

Policies and instructions for opening, maintaining and closing an account in the portfolio.

 

 

 

Details on the distribution plan.

INTRODUCTION TO THE RISK/RETURN SUMMARY2

MONEY MARKET PORTFOLIO3

PORTFOLIO MANAGEMENT

Investment Adviser8

Disclosure of Portfolio Holdings8

Other Service Providers9

SHAREHOLDER INFORMATION

Pricing Shares10

Market Timing10

Purchase of Shares11

Redemption of Shares13

Dividends and Distributions15

Taxes15

Participation in U.S. Department of the Treasury Temporary Guarantee Program for Money Market Funds 16

DISTRIBUTION ARRANGEMENTS17

FOR MORE INFORMATIONBack Cover

 

1


INTRODUCTION TO THE RISK/RETURN SUMMARY

 

This prospectus has been written to provide you with the information you need to make an informed decision about whether to invest in the Bedford Shares of the Money Market Portfolio (the “Portfolio”) of The RBB Fund, Inc. (the “Company”).

The class of common stock (the “Bedford Class”) of the Company offered by this prospectus represents interests in the Bedford Class of the Portfolio.

This prospectus has been organized so that there is a short section with important facts about the Portfolio’s goals, strategies, risks, expenses and financial history. Once you read this short section, read the sections about Purchase and Redemption of shares of the Bedford Class (“Bedford Shares” or “Shares”).

 

2


MONEY MARKET PORTFOLIO

 

 

IMPORTANT DEFINITIONS

Asset-Backed Securities: Debt securities that are backed by a pool of assets, usually loans such as installment sale contracts or credit card receivables.

Commercial Paper: Short-term securities with maturities of 1 to 397 days which are issued by banks, corporations and others.

Dollar Weighted Average Maturity: The average amount of time until the organizations that issued the debt securities in the Portfolio must pay off the principal amount of the debt. “Dollar weighted” means the larger the dollar value of a debt security in the Portfolio, the more weight it gets in calculating this average.

Liquidity: Liquidity is the ability to convert investments easily into cash without losing a significant amount of money in the process.

Net Asset Value (“NAV”): The value of everything the Portfolio owns, minus everything it owes, divided by the number of shares held by investors.

Repurchase Agreement: A special type of a short-term investment. A dealer sells securities to a fund and agrees to buy them back later at a set price. In effect, the dealer is borrowing the Portfolio’s money for a short time, using the securities as collateral.

Variable or Floating Rate Securities: Securities whose interest rates adjust automatically after a certain period of time and/or whenever a predetermined standard interest rate changes.

Investment Goal

The Portfolio seeks to generate current income, to provide you with liquidity and to protect your investment.

Primary Investment Strategies

To achieve this goal, we invest in a diversified investment portfolio of short term, high quality, U.S. dollar-denominated instruments, including government, bank, commercial and other obligations.

Specifically, we may invest in:

 

   

U.S. dollar-denominated obligations issued or supported by the credit of U.S. or foreign banks or savings institutions with total assets of more than $1 billion (including obligations of foreign branches of such banks).

 

 

 

High quality commercial paper and other obligations issued or guaranteed (or otherwise supported) by U.S. and foreign corporations and other issuers rated (at the time of purchase) A-2 or higher by Standard and Poor’s®, Prime-2 or higher by Moody’s Investor’s Service, Inc. or F-2 or higher by Fitch, Inc., as well as high quality corporate bonds rated AA (or Aa) or higher at the time of purchase by those rating agencies. These ratings must be provided by at least two rating agencies, or by the only rating agency providing a rating.

 

   

Unrated notes, paper and other instruments that are determined by us to be of comparable quality to the instruments described above.

 

   

Asset-backed securities (including interests in pools of assets such as mortgages, installment purchase obligations and credit card receivables).

 

   

Securities issued or guaranteed by the U.S. government or by its agencies or authorities.

 

   

Dollar-denominated securities issued or guaranteed by foreign governments or their political subdivisions, agencies or authorities.

 

   

Securities issued or guaranteed by state or local governmental bodies.

 

   

Repurchase agreements relating to the above instruments.

The Portfolio seeks to maintain a net asset value of $1.00 per share. At least 25% of the Fund’s total assets will be invested in banking obligations.

 

3


Quality

Under guidelines established by the Company’s Board of Directors, we will only purchase securities if such securities or their issuers have (or such securities are guaranteed or otherwise supported by entities which have) short-term debt ratings at the time of purchase in the two highest rating categories from at least two nationally recognized statistical ratings organizations (“NRSRO”), or one such rating if the security is rated by only one NRSRO. Securities that are unrated must be determined to be of comparable quality.

Maturity

The dollar-weighted average maturity of all the investments of the Portfolio will be 90 days or less. Only those securities which have remaining maturities of 397 days or less (except for certain variable and floating rate instruments and securities collateralizing repurchase agreements) will be purchased.

Key Risks

 

   

The value of money market investments tends to fall when current interest rates rise. Money market investments are generally less sensitive to interest rate changes than longer-term securities.

 

   

The Portfolio’s investment securities may not earn as high a level of income as longer-term or lower quality securities, which generally have greater risk and more fluctuation in value.

 

   

The Portfolio’s concentration of its investments in the banking industry could increase risks. The profitability of banks depends largely on the availability and cost of funds, which can change depending upon economic conditions. Banks are also exposed to losses if borrowers get into financial trouble and cannot repay their loans.

 

   

The obligations of foreign banks and other foreign issuers may involve certain risks in addition to those of domestic issuers, including higher transaction costs, less complete financial information, political and economic instability, less stringent regulatory requirements and less market liquidity.

 

   

Unrated notes, paper and other instruments may be subject to the risk that an issuer may default on its obligation to pay interest and repay principal.

 

   

The obligations issued or guaranteed by state or local governmental bodies may be issued by entities in the same state and may have interest which is paid from revenues of similar projects. As a result, changes in economic, business or political conditions relating to a particular state or types of projects may impact the Portfolio.

 

   

Treasury obligations differ only in their interest rates, maturities and time of issuance. These differences could result in fluctuations in the value of such securities depending upon the market. Obligations of U.S. government agencies and authorities are supported by varying degrees of credit. The U.S. government gives no assurances that it will provide financial support to its agencies and authorities if it is not obligated by law to do so. Default in these issuers could negatively impact the Portfolio.

On September 7, 2008, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) were placed under the conservatorship of the Federal Housing Finance Agency (“FHFA”) to provide stability in the financial markets, mortgage availability and taxpayer protection by preserving Fannie Mae and Freddie Mac’s assets and property and putting Fannie Mae and Freddie Mac in a sound and solvent condition. Under the conservatorship, the management of Fannie Mae and Freddie Mac was replaced. Additionally, Fannie Mae and Freddie Mac are expected to modestly increase their mortgage-backed security portfolios through the end of 2009 and then gradually reduce such portfolios at the rate of 10 percent per year until stabilizing at a smaller size. Please see the Statement of Additional Information (“SAI”) for more information.

 

4


   

The Portfolio’s investment in asset-backed securities may be negatively impacted by interest rate fluctuations or when an issuer pays principal on an obligation held by the Portfolio earlier or later than expected. These events may affect their value and the return on your investment.

 

   

The Portfolio could lose money if a seller under a repurchase agreement defaults or declares bankruptcy.

 

   

We may purchase variable and floating rate instruments. Like all debt instruments, their value is dependent on the credit paying ability of the issuer. If the issuer were unable to make interest payments or default, the value of the securities would decline. The absence of an active market for these securities could make it difficult to dispose of them if the issuer defaults.

 

5


Although we seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. When you invest in the Portfolio you are not making a bank deposit. Your investment is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any bank or governmental agency. Notwithstanding the preceding statements, shareholders will be guaranteed to receive $1.00 net asset value for amounts that they held as of September 19, 2008 subject to the terms of the U.S. Department of the Treasury Temporary Guarantee Program for Money Market Funds. See “Participation in U.S. Department of the Treasury Temporary Guarantee Program for Money Market Funds” for more information.

Risk/Return Information

The chart and table below illustrate the variability of the Portfolio’s long-term performance for Bedford Shares. The information shows you how the Portfolio’s performance has varied year by year and provides some indication of the risks of investing in the Portfolio. The chart and the table both assume reinvestment of dividends and distributions. As with all such investments, past performance is not an indication of future results. Performance reflects fee waivers in effect. If fee waivers were not in place, the Portfolio’s performance would be reduced.

Total Returns for the Calendar Years Ended December 31

LOGO

Best and Worst Quarterly Performance (for the periods reflected in the chart above):

 

Best Quarter:

   1.46%      (quarter ended September 30, 2000)     

Worst Quarter:

   0.05%      (quarter ended March 31, 2004)     

Year-to-date total return for the nine months ended September 30, 2008:

     1.79%

Average Annual Total Returns for the Years Ended December 31, 2007

 

     1 Year        5 Years        10 Years  

Money Market Portfolio

   4.52 %      2.40 %      3.14 %

Current Yield: The seven-day yield for the period ended December 31, 2007 for the Portfolio was 4.13%. Past performance is not an indication of future results. Yields will vary. You may call (800) 888-9723 to obtain the current seven-day yield of the Portfolio.

 

6


Expenses and Fees

As a shareholder you pay certain fees and expenses. Annual fund operating expenses are paid out of Portfolio assets and are reflected in the Portfolio’s price.

The table below describes the fees and expenses that you may pay if you buy and hold Bedford Shares of the Money Market Portfolio. The table is based on expenses for the most recent fiscal year.

 

Annual Portfolio Operating Expenses*

    

(Expenses that are deducted from Portfolio assets)

    

Management Fees(1)

     0.45%

Distribution and Service (12b-1) Fees(1)(2)

     0.65%

Other Expenses(1)(3)

     0.13%
      

Total Annual Portfolio Operating Expenses(1)

     1.23%
      

 

  * The table does not reflect charges or credits which investors might incur if they invest through a financial institution. Shareholders requesting redemptions by wire are charged a transaction fee of $7.50.  

 

  1. Management fees include investment advisory and administration fees. The Adviser voluntarily waived a portion of its Management Fees and/or reimbursed expenses for the Portfolio during the fiscal year ended August 31, 2008. The Adviser expects that it will continue to voluntarily waive a portion of these fees and/or reimburse expenses through the fiscal year ending August 31, 2009. The Portfolio’s service providers may also voluntarily waive a portion of their fees and/or reimburse expenses during these fiscal years. After these fee waivers and/or reimbursements, the Portfolio’s Management Fees, Distribution and Service (12b-1) Fees, Other Expenses and ordinary Total Annual Portfolio Operating Expenses are not expected to exceed:

 

Management Fees

   0.16%

Distribution and Service (12b-1) Fees

   0.65%

Other Expenses

   0.09%
    

Total Annual Portfolio Operating Expenses

   0.90%
    

Although the Adviser expects the waivers and/or reimbursements to continue through August 31, 2009, these fee waivers and/or reimbursements are voluntary and may be terminated at any time.

 

  2. Distribution and Service (12b-1) Fees reflect fees incurred by the Portfolio during the fiscal year ended August 31, 2008. The Portfolio may pay the Distributor up to a maximum of 0.65% of the average daily net assets of the Bedford Class under the Portfolio’s distribution plan during the current fiscal year. The Distributor may voluntarily waive these fees at its discretion.

 

  3. A $15.00 retirement custodial maintenance fee is charged per IRA account per year.

Example:

The example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of each period. The example also assumes that your investment has a 5% return each year, that the Portfolio’s operating expenses remain the same, and that you reinvested all dividends and distributions. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

       1 Year      3 Years      5 Years      10 Years

Bedford Shares

     $ 92      $ 358      $ 644      $ 1,460

 

IMPORTANT DEFINITIONS

Management Fees: Fees paid to the investment adviser and administrator for portfolio management services.

Other Expenses: Include transfer agency, custody, professional fees and registration fees.

Distribution and Service Fees: Fees that are paid to the Distributor for distribution of the Portfolio’s Bedford Shares.

 

 

7


FINANCIAL HIGHLIGHTS

 

The table below sets forth certain financial information for the periods indicated, including per share information results for a single Bedford Share. The term “Total Return” indicates how much your investment would have increased or decreased during this period of time and assumes that you have reinvested all dividends and distributions. This information has been derived from the Portfolio’s financial statements audited by Deloitte & Touche LLP (“Deloitte & Touche”), the Portfolio’s independent registered public accounting firm. This information should be read in conjunction with the Portfolio’s financial statements which, together with Deloitte & Touche’s report, are included in the Portfolio’s annual report, which is available upon request (see back cover for ordering instructions).

Financial Highlights

(For a Bedford Share Outstanding Throughout Each Year)

Money Market Portfolio

 

     For the
Year Ended
August 31, 2008
    For the
Year Ended
August 31, 2007
    For the
Year Ended
August 31, 2006
    For the
Year Ended
August 31, 2005
    For the
Year Ended
August 31, 2004
 

Net asset value, beginning of year

   $ 1.00     $ 1.00     $ 1.00     $ 1.00     $ 1.00  
                                        

Income from investment operations:

          

Net investment income

     0.0307       0.0447       0.0388       0.0162       0.0025  

Net gains on securities

     (b)     (b)     (b)     (b)     (b)
                                        

Total net income from investment operations

     0.0307       0.0447       0.0388       0.0162       0.0025  
                                        

Less dividends and distributions

          

Dividends (from net investment income)

     (0.0307 )     (0.0447 )     (0.0388 )     (0.0162 )     (0.0025 )
                                        

Net asset value, end of year

   $ 1.00     $ 1.00     $ 1.00     $ 1.00     $ 1.00  
                                        

Total Return

     3.12%       4.56%       3.95%       1.63%       0.25%  

Ratios/Supplemental Data

          

Net assets, end of year (000’s omitted)

   $ 319,387     $ 218,914     $ 150,657     $ 109,495     $ 72,001  

Ratios of expenses to average net assets (a)

     0.90%       0.90%       0.85%       0.97%       0.94%  

Ratios of net investment income to average net assets

     2.94%       4.47%       3.81%       1.68%       0.24%  

 

(a) Without the waiver of advisory fees and reimbursement of certain operating expenses, the ratios of expenses to average net assets for the Portfolio would have been 1.23%, 1.29%, 1.34%, 1.23% and 1.34% for the years ended August 31, 2008, 2007, 2006, 2005 and 2004, respectively.

 

(b) Amount is less than 0.00005 per share.

 

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PORTFOLIO MANAGEMENT

 

Investment Adviser

BIMC was organized in 1977 to perform advisory services for investment companies and has its principal offices at 100 Bellevue Parkway, Wilmington, Delaware 19809. BIMC is a wholly-owned indirect subsidiary of BlackRock, Inc. (“BlackRock”), one of the largest publicly traded investment management firms in the United States. BIMC and its affiliates had approximately $1.259 trillion in investment company and other portfolio assets under management as of September 30, 2008. BlackRock is an affiliate of The PNC Financial Services Group, Inc. and Merrill Lynch & Co., Inc. While BIMC is ultimately responsible for management of the Company’s portfolio, it is able to draw upon the research and expertise of its asset management affiliates for portfolio decisions and management with respect to certain portfolio securities.

Pursuant to an investment advisory agreement with the Company, the Adviser is entitled to an advisory fee computed daily and payable monthly at the annual rate of up to 0.45% of the Portfolio’s average daily net assets. The Adviser voluntarily waived a portion of its Management Fees and/or reimbursed expenses for the Portfolio during the fiscal year ended August 31, 2008. The Adviser can discontinue this arrangement at any time, but it is expected that the Adviser will continue to voluntarily waive a portion of these fees and/or reimburse expenses through the fiscal year ending August 31, 2009. For the fiscal year ended August 31, 2008, after waivers, BIMC received an advisory fee of 0.16% of the Portfolio’s average net assets.

A discussion regarding the basis for the Company’s Board of Directors approving the Portfolio’s investment advisory agreement with BIMC is available in the Portfolio’s annual report to shareholders dated August 31, 2008.

Disclosure of Portfolio Holdings

A description of the Company’s policies and procedures with respect to the disclosure of the Portfolio’s underlying investments is available in the SAI.

 

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Other Service Providers

The following chart shows the Portfolio’s other service providers and includes their addresses and principal activities.

LOGO

 

10


SHAREHOLDER INFORMATION

 

Pricing Shares

PNC determines the Portfolio’s NAV per share daily at 4:00 p.m., Eastern time, each day on which both the New York Stock Exchange (“NYSE”) and the Federal Reserve Bank of Philadelphia (the “FRB”) are open. These entities are generally open Monday through Friday, except national holidays. Currently, the only days on which the NYSE is open and the FRB is closed are Columbus Day and Veterans Day and the only day on which the NYSE is closed and the FRB is open is Good Friday. The Fund seeks to maintain a net asset value of $1.00 per share. The NAV is calculated by dividing the Portfolio’s total assets, less its liabilities, by the number of shares outstanding. The Portfolio values its securities on the basis of the amortized cost method. This method values a Portfolio holding initially at its cost and then assumes a constant amortization to maturity of any discount or premium. The amortized cost method ignores any impact of changing interest rates.

During certain emergency closings of the NYSE, however, the Portfolio may open for business if it can maintain its operations. In this event, the Portfolio will determine its NAV as described above. To determine if the Portfolio is open for business on a day the NYSE is closed for an emergency, please contact us by calling the telephone number listed on the last page of this prospectus.

On any business day when the Bond Market Association (“BMA”) recommends that the securities markets close early, the Portfolio reserves the right to close at or prior to the BMA recommended closing time. If the Portfolio does so, it will process purchase and redemption orders received after the Portfolio’s closing time on the next business day. The BMA generally recommends that the securities markets close at 2:00 p.m. on the day before a national holiday, the Friday before a national holiday that falls on a Monday, and the Friday after Thanksgiving. In 2009, the BMA recommends (i) a 2:00 p.m. close on January 16, February 13, May 22, July 3, September 4, October 11, November 10, November 25, November 27, December 24 and December 31 and (ii) a 10:30 a.m. close on April 10.

Market Timing

In accordance with the policy adopted by the Company’s Board of Directors, the Company discourages market timing and other excessive trading practices. Excessive short-term (market timing) trading practices may disrupt portfolio management strategies, increase brokerage and administrative costs, harm Portfolio performance and result in dilution in the value of Portfolio shares held by long-term shareholders. The Company and the Adviser reserve the right to reject or restrict purchase requests from any investor. The Company and the Adviser will not be liable for any loss resulting from rejected purchase orders. To minimize harm to the Company and its shareholders (or the Adviser), the Company (or the Adviser) will exercise their right if, in the Company’s (or the Adviser’s) judgment, an investor has a history of excessive trading or if an investor’s trading, in the judgment of the Company or the Adviser, has been or may be disruptive to the Portfolio. No waivers of the provisions of the policy established to detect and deter market timing and other excessive trading activity are permitted that would harm the Portfolio and its shareholders or would subordinate the interests of the Portfolio and its shareholders to those of the Adviser or any affiliated person or associated person of the Adviser.

Pursuant to the policy adopted by the Company’s Board of Directors, the Adviser has developed criteria that it uses to identify trading activity that may be excessive. The Adviser reviews on a regular, periodic basis available information related to the trading activity in the Portfolio in order to assess the likelihood that the Portfolio may be the target of excessive trading. As part of its excessive trading surveillance process, the Adviser, on a periodic basis, examines transactions that exceed certain monetary thresholds or numerical limits within a period of time. If, in its judgment, the Adviser detects excessive, short-term trading, the Adviser may reject or restrict a purchase request and may further seek to close an investor’s account with the Portfolio. The Adviser may modify its surveillance procedures and criteria from time to time without prior notice regarding the detection of excessive trading or to address specific circumstances. The Adviser will apply the criteria in a manner that, in the Adviser’s judgment, will be uniform.

 

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There is no assurance that the Adviser will be able to identify market timers, particularly if they are investing through intermediaries.

If necessary, the Company may prohibit additional purchases of Portfolio shares by a financial intermediary or by certain customers of the financial intermediary. Financial intermediaries may also monitor their customers’ trading activities in the Company. The criteria used by intermediaries to monitor for excessive trading may differ from the criteria used by the Company. If a financial intermediary fails to enforce the Company’s excessive trading policies, the Company may take certain actions, including terminating the relationship.

Purchase of Shares

General. You may purchase Bedford Shares through an account maintained by your brokerage firm (the “Account”) and you may also purchase Shares directly by mail or wire. The minimum initial investment is $1,000, and the minimum subsequent investment is $100. The Company in its sole discretion may accept or reject any order for purchases of Bedford Shares.

Purchases will be effected at the NAV next determined after PNC, the Company’s transfer agent and administrative and accounting agent, has received a purchase order in good order and the Company’s custodian has Federal Funds immediately available to it. In those cases where payment is made by check, Federal Funds will generally become available two business days after the check is received. A “business day” is any day that both the NYSE and the FRB are open. On any business day, orders which are accompanied by Federal Funds and received by the Company by 4:00 p.m. Eastern time, and orders as to which payment has been converted into Federal Funds by 4:00 p.m. Eastern time, will be executed as of 4:00 p.m. Eastern time on that business day. Orders which are accompanied by Federal Funds and received by the Company after the close of regular trading on the NYSE, and orders as to which payment has been converted to Federal Funds after the close of regular trading on the NYSE on a business day will be processed as of 4:00 p.m. Eastern time on the following business day. The Company’s officers are authorized to waive the minimum initial and subsequent investment requirements.

Purchases through an Account. Purchases of Bedford Shares may be effected through an Account with your broker through procedures and requirements established by your broker. In such event, beneficial ownership of Bedford Shares will be recorded by your broker and will be reflected in the Account statements provided to you by your broker. Your broker may impose minimum investment Account requirements. Even if your broker does not impose a sales charge for purchases of Bedford Shares, depending on the terms of your Account with your broker, the broker may charge to your Account fees for automatic investment and other services provided to your Account. Information concerning Account requirements, services and charges should be obtained from your broker, and you should read this prospectus in conjunction with any information received from your broker. Shares are held in the street name account of your broker and if you desire to transfer such shares to the street name account of another broker, you should contact your current broker.

A broker with whom you maintain an Account may offer you the ability to purchase Bedford Shares under an automatic purchase program (a “Purchase Program”) established by a participating broker. If you participate in a Purchase Program, then you will have your “free-credit” cash balances in your Account automatically invested in Shares of the Bedford Class. The frequency of investments and the minimum investment requirement will be established by the broker and the Company. In addition, the broker may require a minimum amount of cash and/or securities to be deposited in your Account to participate in its Purchase Program. The description of the particular broker’s Purchase Program should be read for details, and any inquiries concerning your Account under a Purchase Program should be directed to your broker.

If your broker makes special arrangements under which orders for Bedford Shares are received by PNC prior to 4:00 p.m. Eastern time, and your broker guarantees that payment for such Shares will be made in available Federal Funds to the Company’s custodian prior to the close of regular trading on the NYSE on the same day, such purchase

 

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orders will be effective and Shares will be purchased at the offering price in effect as of 4:00 p.m. Eastern time on the date the purchase order is received by PNC. Otherwise, if the broker has not made such an arrangement, pricing of Shares will occur as described above under “General.”

Direct Purchases. You may also make direct investments at any time in the Bedford Class through any broker that has entered into a dealer agreement with the Distributor (a “Dealer”). You may make an initial investment in the Bedford Class by mail by fully completing and signing an application obtained from a Dealer (the “Application”), and mailing it, together with a check payable to “The RBB Fund – Money Market Portfolio (Bedford Class),” to Bedford Money Market Portfolio, c/o PNC Global Investment Servicing (U.S.) Inc., P.O. Box 9841, Providence, RI 02940-8041; for overnight delivery mail to The RBB Fund – Money Market Portfolio (Bedford Class), c/o PNC Global Investment Servicing (U.S.) Inc., 101 Sabin Street, Pawtucket, RI 02860-1427. The Application will be returned to you unless it contains the name of the Dealer from whom you obtained it. Subsequent purchases may be made through a Dealer or by forwarding payment to the Company’s transfer agent at the foregoing address.

Provided that your investment is at least $2,500, you may also purchase Shares by having your bank or Dealer wire Federal Funds to the Company’s custodian, PFPC Trust Company. Your bank or Dealer may impose a charge for this service. The Company does not currently charge for effecting wire transfers but reserves the right to do so in the future. In order to ensure prompt receipt of your Federal Funds wire, for an initial investment, it is important that you follow these steps:

 

  A. Telephone the Company’s transfer agent, PNC, toll-free at (800) 888-9723 and provide your name, address, telephone number, social security or tax identification number, the amount being wired, and by which bank or Dealer. PNC will then provide you with an account number. (If you have an existing account, you should also notify PNC prior to wiring funds.)

 

  B. Instruct your bank or Dealer to wire the specified amount, together with your assigned account number, to PNC’s account with PNC Bank N.A.

PNC Bank, N.A., Philadelphia, PA

ABA-0310-0005-3.

FROM: (shareholder or account name)

ACCOUNT NUMBER: (assigned account number)

FOR PURCHASE OF: The RBB Fund – Money Market Portfolio (Bedford Class)

AMOUNT: (amount to be invested)

 

  C. Fully complete and sign the Application and mail it to the address shown thereon. PNC will not process initial purchases until it receives a fully completed and signed Application.

For subsequent investments, you should follow steps A and B above.

Good Order. A request to purchase Shares of the Portfolio is in good order if it includes the name of the Portfolio, the dollar amount or number of Shares to be purchased, and a completed Application (initial direct investment through a Dealer). Please see “Purchase of Shares” for instructions. Purchase requests not in good order may be rejected.

Customer Identification Program. Federal law requires the Company to obtain, verify and record identifying information, which may include the name, residential or business street address, date of birth (for an individual), social security or taxpayer identification number or other identifying information for each investor who opens or reopens an account with the Company. Applications without the required information, or without any indication that a social security or taxpayer identification number has been applied for, may not be accepted. After acceptance, to the extent permitted by applicable law or its customer identification program, the Company reserves the right (a) to place limits on transactions in any account until the identity of the investor is verified; or (b) to refuse an investment in a Company portfolio or to involuntarily redeem an investor’s shares and close an account in the event that an investor’s

 

13


identity is not verified. The Company and its agents will not be responsible for any loss in an investor’s account resulting from the investor’s delay in providing all required identifying information or from closing an account and redeeming an investor’s shares when an investor’s identity cannot be verified.

Retirement Plans. Bedford Shares may be purchased in conjunction with individual retirement accounts (“IRAs”) and rollover IRAs where PFPC Trust Company acts as custodian. A $15.00 custodial maintenance fee is charged per IRA account per year. For further information as to applications and annual fees, contact the Distributor or your broker. To determine whether the benefits of an IRA are available and/or appropriate, you should consult with your tax advisor.

Redemption of Shares

General. Redemption orders are effected at the NAV per share next determined after receipt of the order in proper form by the Company’s transfer agent, PNC. You may redeem all or some of your Shares in accordance with one of the procedures described below.

Redemption of Shares in an Account. If you beneficially own Bedford Shares through an Account, you may redeem Bedford Shares in your Account in accordance with instructions and limitations pertaining to your Account by contacting your broker. If the redemption request is received by PNC by 4:00 p.m. Eastern time on any business day, the redemption will be effective as of 4:00 p.m. Eastern time on that day. Payment of the redemption proceeds will be made after 4:00 p.m. Eastern time on the day the redemption is effected, provided that the Company’s custodian is open for business. If the custodian is not open, payment will be made on the next bank business day. If all of your Shares are redeemed, all accrued but unpaid dividends on those Shares will be paid with the redemption proceeds.

Your brokerage firm may also redeem each day a sufficient number of Shares of the Bedford Class to cover debit balances created by transactions in your Account or instructions for cash disbursements. Shares will be redeemed on the same day that a transaction occurs that results in such a debit balance or charge.

Each brokerage firm reserves the right to waive or modify criteria for participation in an Account or to terminate participation in an Account for any reason.

Redemption of Shares Owned Directly. If you own Shares directly, you may redeem any number of Shares by sending a written request to The RBB Fund – Money Market Portfolio (Bedford Class) c/o PNC Global Investment Servicing (U.S.) Inc., P.O. Box 9841, Providence, RI 02940-8041; for overnight delivery mail to The RBB Fund – Money Market Portfolio (Bedford Class), c/o PNC Global Investment Servicing (U.S.) Inc., 101 Sabin Street, Pawtucket, RI 02860-1427. It is recommended that such requests be sent by registered or certified mail if share certificates accompany the request. Redemption requests must be signed by each shareholder in the same manner as the Shares are registered. Redemption requests for joint accounts require the signature of each joint owner. On redemption requests of $5,000 or more, each signature must be guaranteed. A signature guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency or savings association who are participants in a medallion signature guarantee program recognized by the Securities Transfer Association. A medallion imprint or medallion stamp indicates that the financial institution is a member of a medallion signature guarantee program and is an acceptable signature guarantor. The three recognized medallion programs are Securities Transfer Agents Medallion Program (“STAMP”), Stock Exchanges Medallion Program (“SEMP”) and New York Stock Exchange, Inc. Medallion Signature Program (“MSP”). Signature guarantees that are not part of these programs will not be accepted.

If you are a direct investor, you may redeem your Shares without charge by telephone if you have completed and returned an Application containing the appropriate telephone election. To add a telephone option to an existing account that previously did not provide for this option, you must submit a Telephone Authorization Form to PNC. This form is available from PNC. Once this election has been made, you may simply contact PNC by telephone to request the redemption by calling (800) 888-9723. Neither the Company, the Distributor, the Portfolio, PNC nor any other Company agent will be liable for any loss, liability, cost or expense for following the procedures below or for following instructions communicated by telephone that they reasonably believe to be genuine.

 

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The Company’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, and the account social security number, all of which must match the Company’s records; (3) requiring the Company’s service representative to complete a telephone transaction form, listing all of the above caller identification information; (4) requiring that redemption proceeds be sent only by check to the account owners of record at the address of record, or by wire only to the owners of record at the bank account of record; (5) sending a written confirmation for each telephone transaction to the owners of record at the address of record within five business days of the call; and (6) maintaining tapes of telephone transactions for six months, if the Company elects to record shareholder telephone transactions. For accounts held of record by broker-dealers (other than the Distributor), financial institutions, securities dealers, financial planners or other industry professionals, additional documentation or information regarding the scope of 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 attorney-in-fact under power of attorney.

Proceeds of a telephone redemption request will be mailed by check to your registered address unless you have designated in your Application or Telephone Authorization Form that such proceeds are to be sent by wire transfer to a specified checking or savings account. If proceeds are to be sent by wire transfer, a telephone redemption request received prior to the close of regular trading on the NYSE will result in redemption proceeds being wired to your bank account on the next day that a wire transfer can be effected. The minimum redemption for proceeds sent by wire transfer is $2,500. There is no maximum for proceeds sent by wire transfer. The Company may modify this redemption service at any time or charge a service fee upon prior notice to shareholders. A wire charge of $7.50 is assessed and charged to the shareholder.

Redemption by Check. If you are a direct investor or you do not have check writing privileges for your Account, the Company will provide to you forms of drafts (“checks”) payable through PNC Bank. These checks may be made payable to the order of anyone. The minimum amount of a check is $100; however, your broker may establish a higher minimum. If you wish to use this check writing redemption procedure, you should complete specimen signature cards (available from PNC), and then forward such signature cards to PNC. PNC will then arrange for the checks to be honored by PNC Bank. If you own Shares through an Account, you should contact your broker for signature cards. Investors with joint accounts may elect to have checks honored with a single signature. Check redemptions will be subject to PNC Bank’s rules governing checks. An investor will be able to stop payment on a check redemption. The Company or PNC Bank may terminate this redemption service at any time, and neither shall incur any liability for honoring checks, for effecting redemptions to pay checks, or for returning checks which have not been accepted.

When a check is presented to PNC Bank for clearance, PNC Bank, as your agent, will cause the Company to redeem a sufficient number of your full and fractional Shares to cover the amount of the check. Pursuant to rules under the Investment Company Act of 1940, as amended (the “1940 Act”), checks may not be presented for cash payment at the offices of PNC Bank. This limitation does not affect checks used for the payment of bills or cash at other banks.

Additional Redemption Information. The Company ordinarily will make payment for all Shares redeemed within seven days after receipt by PNC of a redemption request in proper form. Although the Company will redeem Shares purchased by check before the check clears, payment of the redemption proceeds may be delayed for a period of up to fifteen days after their purchase, pending a determination that the check has cleared. This procedure does not apply to Shares purchased by wire payment. You should consider purchasing Shares using a certified or bank check or money order if you anticipate an immediate need for redemption proceeds. Redemption proceeds will ordinarily be paid within seven business days after a redemption request is received by the Transfer Agent in proper form. The Fund may suspend the right of redemption or postpone the date at times when the NYSE or the bond market is closed or under any emergency circumstances as determined by the SEC.

 

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The Company does not impose a charge when Shares are redeemed. The Company reserves the right to redeem any account in the Bedford Class involuntarily, on thirty days’ notice, if such account falls below $500 and during such 30-day notice period the amount invested in such account is not increased to at least $500. Payment for Shares redeemed may be postponed or the right of redemption suspended as provided by the rules of the SEC.

If the Company’s Board of Directors determines that it would be detrimental to the best interest of the remaining shareholders of the Portfolio to make payment wholly or partly in cash, redemption proceeds may be paid in whole or in part by an in-kind distribution of readily marketable securities held by the Portfolio instead of cash in conformity with applicable rules of the SEC. Investors generally will incur brokerage charges on the sale of investment securities so received in payment of redemptions. 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 NAV during any 90-day period for any one shareholder of the Portfolio.

The Portfolio may assert the right to redeem your shares at current NAV at any time and without prior notice if, and to the extent that, such redemption is necessary to. reimburse the Portfolio for any loss sustained by reason of your failure to make full payment for shares of the Portfolio you previously purchased or subscribed for.

Proper Form. You must include complete and accurate required information on your redemption request. Please see “Redemption of Shares” for instructions. Redemption requests not in proper form may be delayed.

Dividends and Distributions

The Company will distribute substantially all of the net investment income and net realized capital gains, if any, of the Portfolio to shareholders. All distributions are reinvested in the form of additional full and fractional Shares of the Bedford Class unless a shareholder elects otherwise.

The net investment income (not including any net short-term capital gains) earned by the Portfolio will be declared as a dividend on a daily basis and paid monthly. Dividends are payable to shareholders of record as of the determination of NAV made as of 4:00 p.m. (Eastern time) each day. Shares will begin accruing dividends on the day the purchase order for the Shares is effected and continue to accrue dividends through the day before such shares are redeemed. Net short-term capital gains, if any, will be distributed at least annually.

Taxes

Distributions from the Portfolio will generally be taxable to shareholders. It is expected that all, or substantially all, of these distributions will consist of ordinary income. You will be subject to income tax on these distributions regardless of whether they are paid in cash or reinvested in additional Shares. The Portfolio contemplates declaring as dividends each year all or substantially all of its net taxable income. The one major exception to these tax principles is that distributions on shares held in an IRA (or other tax-qualified plan) will not be currently taxable.

Dividends declared in October, November or December of any year that are payable to shareholders of record on a specified date in such months will be deemed to have been received by shareholders and paid by the Portfolio on December 31 of such year if such dividends are actually paid during January of the following year.

The Portfolio will be required in certain cases to withhold and remit to the United States Treasury a percentage of taxable dividends or gross sale proceeds paid to any shareholder who (i) has failed to provide a correct tax identification number, (ii) is subject to backup withholding by the Internal Revenue Service for failure to properly include on his or her return payments of taxable interest or dividends, or (iii) has failed to certify to the Portfolio that he or she is not subject to backup withholding when required to do so or that he or she is an “exempt recipient.” The current backup withholding rate is 28%.

For nonresident aliens, foreign corporations and other foreign investors, Portfolio distributions will generally be subject to a 30% withholding tax. The withholding tax may, however, be reduced (and, in some cases, eliminated)

 

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under an applicable tax treaty between the United States and a shareholder’s country of residence or incorporation, provided that the shareholder furnishes the Portfolio with a property completed Form W-8BEN to establish entitlement to those treaty benefits.

All foreign investors should consult their own tax advisors regarding the tax consequences in their country of residence of an investment in the Portfolio.

The foregoing is only a summary of certain United States tax considerations under the current law, which may be subject to change in the future. Shareholders may also be subject to state and local taxes on distributions. Except where otherwise noted, the summary assumes you are a U.S. citizen or resident or otherwise subject to U.S. federal income tax. Shareholders who are nonresident aliens, foreign trusts or estates, or foreign corporations or partnerships may be subject to different United States Federal income tax treatment. You should consult your tax advisor for further information regarding federal, state, local and/or foreign tax consequences relevant to your specific situation.

More information about taxes is contained in the SAI.

Participation in U.S. Department of the Treasury Temporary Guarantee Program for Money Market Funds

On October 1, 2008, the Board of Directors of the Company approved the participation by the Portfolio in the Temporary Guarantee Program for Money Market Funds (the “Program”) established by the U.S. Department of the Treasury (the “U.S. Treasury”). On December 5, 2008, the Board of Directors approved the Portfolio’s continued participation in the Program.

Under the Program, the U.S. Treasury guarantees to investors in participating money market funds that they will receive $1.00 for each money market fund share held as of the close of business on September 19, 2008, subject to certain limitations described below. The guarantee will be triggered if the Portfolio “breaks the buck,” that is, if its net asset value per share falls below $0.995 (a “Guarantee Event”).

For each shareholder of the Portfolio, the Program provides a guarantee for the lesser of (a) the number of shares of the Money Market Portfolio owned by the shareholder at the close of business on September 19, 2008, or (b) the number of shares of the Portfolio owned by the shareholder on the date of the Guarantee Event. Any additional investments made by a shareholder after September 19, 2008 in excess of the amount held on that date will not be covered. The Program only covers the shares of investors who were shareholders of the Portfolio on September 19, 2008.

The Program provides coverage only if a Guarantee Event occurs during the term of the Program. If a Guarantee Event occurs, the Portfolio would be required to liquidate and comply with certain other requirements for any shareholder to be entitled to payments under the Program. The Program covers the difference between the amount received by a shareholder in connection with such liquidation and $1.00 per share, for any shares covered by the guarantee, subject to the overall amount available to all funds participating in the Program. In liquidation, those shares not covered by the Program may receive less than $1.00 per share. Guarantee payments under the Program to all participating money market funds will not exceed the amount available within the U.S. Treasury’s Exchange Stabilization Fund on the date of payment. As of the date of this Prospectus, assets available to the Program are approximately $50 billion.

The initial term of the Program expired on December 18, 2008. The current term of the Program is set to expire on April 30, 2009. The U.S. Treasury may extend the Program beyond its current term through the close of business on September 18, 2009, although there is no guarantee that it will do so. If the Program is further extended, the Board of Directors will consider if the Portfolio should continue to participate in the Program. Participation in any further extension of the Program will result in an additional expense to the Portfolio, although there can be no assurance that the Portfolio will elect to participate, or be eligible to participate, in any further extension of the Program. If a Guarantee Event occurs after the Program expires, or, if sooner, after the Portfolio ceases to participate in the Program, neither the Portfolio nor its shareholders will be entitled to any payment under the Program.

 

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DISTRIBUTION ARRANGEMENTS

 

Bedford Shares of the Portfolio are sold without a sales load on a continuous basis by the Distributor, whose principal business address is at 760 Moore Road, King of Prussia, PA 19406.

The Board of Directors of the Company approved a Distribution Agreement and adopted a separate Plan of Distribution for the Bedford Class (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to receive from the Bedford Class a distribution fee, which is accrued daily and paid monthly, of up to 0.65% on an annualized basis of the average daily net assets of the Bedford Class. The actual amount of such compensation is agreed upon from time to time by the Company’s Board of Directors and the Distributor. Under the Distribution Agreement, the Distributor has agreed to accept compensation for its services thereunder and under the Plan in the amount of 0.65% of the average daily net assets of the Bedford Class on an annualized basis in any year. The Distributor may, in its discretion, voluntarily waive from time to time all or any portion of its distribution fee.

Under the Distribution Agreement and the Plan, the Distributor may reallocate an amount up to the full fee that it receives to financial institutions, including broker-dealers, based upon the aggregate investment amounts maintained by and services provided to shareholders of the Bedford Class serviced by such financial institutions. The Distributor may also reimburse broker-dealers for other expenses incurred in the promotion of the sale of Bedford Shares. The Distributor and/or broker-dealers pay for the cost of printing (excluding typesetting) and mailing to prospective investors prospectuses and other materials relating to the Bedford Class as well as for related direct mail, advertising and promotional expenses.

The Plan obligates the Company, during the period it is in effect, to accrue and pay to the Distributor on behalf of the Bedford Class the fee agreed to under the Distribution Agreement. Payments under the Plan are not based on expenses actually incurred by the Distributor, and the payments may exceed distribution expenses actually incurred. Because these fees are paid out of the Portfolio’s assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE PORTFOLIO’S SAI INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE COMPANY OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.

 

18


THE BEDFORD SHARES OF THE

Money Market Portfolio

1-800-888-9723

FOR MORE INFORMATION:

This prospectus contains important information you should know before you invest. Read it carefully and keep it for future reference. More information about the Bedford Shares of The RBB Money Market Portfolio is available free of charge upon request, including:

Annual/Semi-Annual Reports

These reports contain additional information about the Portfolio’s investments, describe the Portfolio’s performance and list its holdings.

Statement of Additional Information

An SAI, dated December 31, 2008, has been filed with the SEC. The SAI, which includes additional information about the Portfolio, and the Portfolio’s annual and semi-annual reports are not available on the Adviser’s website because copies may be obtained free of charge, by calling (800) 888-9723. The SAI, as supplemented from time to time, is incorporated by reference into this prospectus (and is legally considered a part of this prospectus).

Shareholder Account Service Representatives

Representatives are available to discuss account balance information, mutual fund prospectuses, literature, programs and services available. Hours: 8 a.m. to 5 p.m. (Eastern time) Monday-Friday. Call: (800) 888-9723.

Purchases and Redemptions

Call your broker or (800) 888-9723.

Written Correspondence

Bedford Shares

c/o PNC Global Investment Servicing (U.S.) Inc.

101 Sabin Street

Pawtucket, RI 02860-1427

Securities and Exchange Commission

You may view and copy information about the Company and the Portfolio, including the SAI, by visiting the SEC’s Public Reference Room in Washington, D.C. or the EDGAR Database on the SEC’s Internet site at www.sec.gov. You may also obtain copies of Portfolio documents by paying a duplicating fee and sending an electronic request to the following e-mail address: publicinfo@sec.gov., or by sending your written request and a duplicating fee to the SEC’s Public Reference Section, Washington, D.C. 20549-0102. You may obtain information on the operation of the public reference room by calling the SEC at (202) 551-8090.

INVESTMENT COMPANY ACT FILE NO. 811-05518


 

SANSOM STREET SHARES OF THE

Money Market Portfolio

of

The RBB Fund, Inc.

This prospectus gives vital information about this money market mutual fund, advised by BlackRock Institutional Management Corporation (“BIMC” or the “Adviser”), including information on investment policies, risks and fees. For your own benefit and protection, please read it before you invest and keep it on hand for future reference.

Please note that the Money Market Portfolio:

 

  n  

is not a bank deposit;

 

  n  

is not federally insured;

 

  n  

is not an obligation of, or guaranteed or endorsed by PNC Bank, N.A., PFPC Trust Company or any other bank;

 

  n  

is not an obligation of, or guaranteed or endorsed or otherwise supported by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other governmental agency (Notwithstanding the preceding statements, shareholders will be guaranteed to receive $1.00 net asset value for amounts that they held as of September 19, 2008 subject to the terms of the U.S. Department of the Treasury Temporary Guarantee Program for Money Market Funds);

 

  n  

is not guaranteed to achieve its goals; and

 

  n  

may not be able to maintain a stable $1 share price and you may lose money.

 

 

THE SECURITIES DESCRIBED IN THIS PROSPECTUS HAVE BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION (“SEC”). THE SEC, HOWEVER, HAS NOT JUDGED THESE SECURITIES FOR THEIR INVESTMENT MERIT AND HAS NOT DETERMINED THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIMINAL OFFENSE.

 

PROSPECTUS

December 31, 2008


TABLE OF CONTENTS

 

 

A look at the goals, strategies, risks, expenses and financial history of the portfolio.

Details about the service providers.

Policies and instructions for opening, maintaining and closing an account in the portfolio.

Details on the distribution plan.

INTRODUCTION TO THE RISK/RETURN SUMMARY 2

MONEY MARKET PORTFOLIO 3

PORTFOLIO MANAGEMENT

  

Investment Adviser 8

Disclosure of Portfolio Holdings 8

Other Service Providers 9

SHAREHOLDER INFORMATION

  

Pricing Shares 10

Market Timing 10

Purchase of Shares 11

Redemption of Shares 12

Dividends and Distributions 14

Taxes 14

Participation in U.S. Department of the Treasury Temporary
Guarantee Program for Money Market Funds
15

FOR MORE INFORMATION Back Cover

 

1


INTRODUCTION TO THE RISK/RETURN SUMMARY

 

This prospectus has been written to provide you with the information you need to make an informed decision about whether to invest in the Sansom Street shares of the Money Market Portfolio (the “Portfolio”) of The RBB Fund, Inc. (the “Company”).

The class of common stock (the “Sansom Street Class”) of the Company offered by this prospectus represents interests in the Sansom Street Class of the Portfolio.

This prospectus has been organized so that there is a short section with important facts about the Portfolio’s goals, strategies, risks, expenses and financial history. Once you read this short section, read the sections about Purchase and Redemption of shares of the Sansom Street Class (“Sansom Street Shares” or “Shares”).

 

2


MONEY MARKET PORTFOLIO

 

 

IMPORTANT DEFINITIONS

Asset-Backed Securities: Debt securities that are backed by a pool of assets, usually loans such as installment sale contracts or credit card receivables.

Commercial Paper: Short-term securities with maturities of 1 to 397 days which are issued by banks, corporations and others.

Dollar Weighted Average Maturity: The average amount of time until the organizations that issued the debt securities in the Portfolio must pay off the principal amount of the debt. “Dollar weighted” means the larger the dollar value of a debt security in the Portfolio, the more weight it gets in calculating this average.

Liquidity: Liquidity is the ability to convert investments easily into cash without losing a significant amount of money in the process.

Net Asset Value (“NAV”): The value of everything the Portfolio owns, minus everything it owes, divided by the number of shares held by investors.

Repurchase Agreement: A special type of a short-term investment. A dealer sells securities to a fund and agrees to buy them back later at a set price. In effect, the dealer is borrowing the Portfolio’s money for a short time, using the securities as collateral.

Variable or Floating Rate Securities: Securities whose interest rates adjust automatically after a certain period of time and/or whenever a predetermined standard interest rate changes.

 

Investment Goal

The Portfolio seeks to generate current income, to provide you with liquidity and to protect your investment.

Primary Investment Strategies

To achieve this goal, we invest in a diversified investment portfolio of short term, high quality, U.S. dollar-denominated instruments, including government, bank, commercial and other obligations.

Specifically, we may invest in:

 

   

U.S. dollar-denominated obligations issued or supported by the credit of U.S. or foreign banks or savings institutions with total assets of more than $1 billion (including obligations of foreign branches of such banks).

 

 

 

High quality commercial paper and other obligations issued or guaranteed (or otherwise supported) by U.S. and foreign corporations and other issuers rated (at the time of purchase) A-2 or higher by Standard and Poor’s®, Prime-2 or higher by Moody’s Investor’s Service, Inc. or F-2 or higher by Fitch, Inc., as well as high quality corporate bonds rated AA (or Aa) or higher at the time of purchase by those rating agencies. These ratings must be provided by at least two rating agencies or by the only rating agency providing a rating.

 

   

Unrated notes, paper and other instruments that are determined by us to be of comparable quality to the instruments described above.

 

   

Asset-backed securities (including interests in pools of assets such as mortgages, installment purchase obligations and credit card receivables).

 

   

Securities issued or guaranteed by the U.S. government or by its agencies or authorities.

 

   

Dollar-denominated securities issued or guaranteed by foreign governments or their political subdivisions, agencies or authorities.

 

   

Securities issued or guaranteed by state or local governmental bodies.

 

   

Repurchase agreements relating to the above instruments.

The Portfolio seeks to maintain a net asset value of $1.00 per share. At least 25% of the Fund’s total assets will be invested in banking obligations.

 

3


Quality

Under guidelines established by the Company’s Board of Directors, we will only purchase securities if such securities or their issuers have (or such securities are guaranteed or otherwise supported by entities which have) short-term debt ratings at the time of purchase in the two highest rating categories from at least two nationally recognized statistical ratings organizations (“NRSRO”), or one such rating if the security is rated by only one NRSRO. Securities that are unrated must be determined to be of comparable quality.

Maturity

The dollar-weighted average maturity of all the investments of the Portfolio will be 90 days or less. Only those securities which have remaining maturities of 397 days or less (except for certain variable and floating rate instruments and securities collateralizing repurchase agreements) will be purchased.

Key Risks

 

   

The value of money market investments tends to fall when current interest rates rise. Money market investments are generally less sensitive to interest rate changes than longer-term securities.

 

   

The Portfolio’s investment securities may not earn as high a level of income as longer-term or lower quality securities, which generally have greater risk and more fluctuation in value.

 

   

The Portfolio’s concentration of its investments in the banking industry could increase risks. The profitability of banks depends largely on the availability and cost of funds, which can change depending upon economic conditions. Banks are also exposed to losses if borrowers get into financial trouble and cannot repay their loans.

 

   

The obligations of foreign banks and other foreign issuers may involve certain risks in addition to those of domestic issuers, including higher transaction costs, less complete financial information, political and economic instability, less stringent regulatory requirements and less market liquidity.

 

   

Unrated notes, paper and other instruments may be subject to the risk that an issuer may default on its obligation to pay interest and repay principal.

 

   

The obligations issued or guaranteed by state or local governmental bodies may be issued by entities in the same state and may have interest which is paid from revenues of similar projects. As a result, changes in economic, business or political conditions relating to a particular state or types of projects may impact the Portfolio.

 

   

Treasury obligations differ only in their interest rates, maturities and time of issuance. These differences could result in fluctuations in the value of such securities depending upon the market. Obligations of U.S. government agencies and authorities are supported by varying degrees of credit. The U.S. government gives no assurances that it will provide financial support to its agencies and authorities if it is not obligated by law to do so. Default in these issuers could negatively impact the Portfolio.

On September 7, 2008, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) were placed under the conservatorship of the Federal Housing Finance Agency (“FHFA”) to provide stability in the financial markets, mortgage availability and taxpayer protection by preserving Fannie Mae and Freddie Mac’s assets and property and putting Fannie Mae and Freddie Mac in a sound and solvent condition. Under the conservatorship, the management of Fannie Mae and Freddie Mac was replaced. Additionally, Fannie Mae and Freddie Mac are expected to modestly increase their mortgage-backed security portfolios through the end of 2009 and then gradually reduce such portfolios at the rate of 10 percent per year until stabilizing at a smaller size. Please see the Statement of Additional Information (“SAI”) for more information.

 

   

The Portfolio’s investment in asset-backed securities may be negatively impacted by interest rate fluctuations or when an issuer pays principal on an obligation held by the Portfolio earlier or later than expected. These events may affect their value and the return on your investment.

 

   

The Portfolio could lose money if a seller under a repurchase agreement defaults or declares bankruptcy.

 

   

We may purchase variable and floating rate instruments. Like all debt instruments, their value is dependent on the credit paying ability of the issuer. If the issuer were unable to make interest payments or default, the value of the securities would decline. The absence of an active market for these securities could make it difficult to dispose of them if the issuer defaults.

 

4


Although we seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. When you invest in the Portfolio you are not making a bank deposit. Your investment is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any bank or governmental agency. Notwithstanding the preceding statements, shareholders will be guaranteed to receive $1.00 net asset value for amounts that they held as of September 19, 2008 subject to the terms of the U.S. Department of the Treasury Temporary Guarantee Program for Money Market Funds. See “Participation in U.S. Department of the Treasury Temporary Guarantee Program for Money Market Funds” for more information.

Risk/Return Information

The chart and table below illustrate the variability of the Portfolio’s long-term performance for Sansom Street Shares. The information shows you how the Portfolio’s performance has varied year by year and provides some indication of the risks of investing in the Portfolio. The chart and the table both assume reinvestment of dividends and distributions. As with all such investments, past performance is not an indication of future results. Performance reflects fee waivers in effect. If fee waivers were not in place, the Portfolio’s performance would be reduced.

Total Returns for the Calendar Years Ended December 31

LOGO

Best and Worst Quarterly Performance (for the periods reflected in the chart above):

Best Quarter: 1.59% (quarter ended September 30, 2000)

Worst Quarter: 0.23% (quarter ended June 30, 2004)

Year-to-date total return for the nine months ended September 30, 2008: 2.23%

Average Annual Total Returns for the Years Ended December 31, 2007

 

     1 Year        5 Years        10 Years  

Money Market Portfolio

   5.10 %      3.06 %      3.73 %

Current Yield: The seven-day yield for the period ended December 31, 2007 for the Portfolio was 4.67%. Past performance is not an indication of future results. Yields will vary. You may call (800) 430-9618 to obtain the current seven-day yield of the Portfolio.

 

5


Expenses and Fees

As a shareholder you pay certain fees and expenses. Annual fund operating expenses are paid out of Portfolio assets and are reflected in the Portfolio’s price.

The table below describes the fees and expenses that you may pay if you buy and hold Sansom Street Shares of the Money Market Portfolio. The table is based on expenses for the most recent fiscal year.

 

Annual Portfolio Operating Expenses*

 

(Expenses that are deducted from Portfolio assets)

 

Management Fees(1)

  0.45%

Distribution and Service (12b-1) Fees

  None

Other Expenses(1)(2)

  0.13%
   

Total Annual Portfolio Operating Expenses(1)

  0.58%
   

 

  * The table does not reflect charges or credits which investors might incur if they invest through a financial institution. Shareholders requesting redemptions by wire are charged a transaction fee of $7.50.  

 

  1. Management fees include investment advisory and administration fees. The Adviser voluntarily waived a portion of its Management Fees and/or reimbursed  

expenses for the Portfolio during the fiscal year ended August 31, 2008. The Adviser expects that it will continue to voluntarily waive a portion of these fees and/or reimburse expenses through the fiscal year ending August 31, 2009. The Portfolio’s service providers may also voluntarily waive a portion of their fees and/or reimburse expenses during these fiscal years. After these fee waivers and/or reimbursements, the Portfolio’s Management Fees, Other Expenses and ordinary Total Annual Portfolio Operating Expenses are not expected to exceed:

 

Management Fees

   0.12%

Other Expenses

   0.13%
    

Total Annual Portfolio Operating Expenses

   0.25%
    

Although the Adviser expects the waivers and/or reimbursements to continue through August 31, 2009, these fee waivers and/or reimbursements are voluntary and may be terminated at any time.

 

  2. A $15.00 retirement custodial maintenance fee is charged per IRA account per year.

Example

The example is intended to help you compare the cost of investing in the Portfolio with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Portfolio for the time periods indicated and then redeem all of your shares at the end of each period. The example also assumes that your investment has a 5% return each year, that the Portfolio’s operating expenses remain the same, and that you reinvested all dividends and distributions. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

     1 Year      3 Years      5 Years      10 Years

Sansom Street

   $ 26      $ 153      $ 291      $ 694

 

IMPORTANT DEFINITIONS

Management Fees: Fees paid to the investment adviser and administrator for portfolio management services.

Other Expenses: Include transfer agency, custody, professional fees and registration fees.

Distribution and Service Fees: Fees that are paid to the Distributor for distribution of the Portfolio’s Sansom Street Shares.

 

 

6


FINANCIAL HIGHLIGHTS

 

The table below sets forth certain financial information for the periods indicated, including per share information results for a single Sansom Street Share. The term “Total Return” indicates how much your investment would have increased or decreased during this period of time and assumes that you have reinvested all dividends and distributions. This information has been derived from the Portfolio’s financial statements audited by Deloitte & Touche, LLP (“Deloitte & Touche”) the Portfolio’s independent registered public accounting firm. This information should be read in conjunction with the Portfolio’s financial statements which, together with Deloitte & Touche’s report, are included in the Portfolio’s annual report, which is available upon request (see back cover for ordering instructions).

Financial Highlights

(For a Sansom Street Share Outstanding Throughout Each Year)

Money Market Portfolio

 

    For the
Year Ended
August 31, 2008
    For the
Year Ended
August 31, 2007
    For the
Year Ended
August 31, 2006
    For the
Year Ended
August 31, 2005
    For the
Year Ended
August 31, 2004
 

Net asset value, beginning of year

  $ 1.00     $ 1.00     $ 1.00     $ 1.00     $ 1.00  
                                       

Income from investment operations:

         

Net investment income

    0.0365       0.0502       0.0434       0.0239       0.0100  

Net gains on securities

    (b)     (b)     (b)     (b)     (b)
                                       

Total net income from investment operations

    0.0365       0.0502       0.0434       0.0239       0.0100  
                                       

Less dividends and distributions

         

Dividends (from net investment income)

    (0.0365 )     (0.0502 )     (0.0434 )     (0.0239 )     (0.0100 )

Net asset value, end of year

  $ 1.00     $ 1.00     $ 1.00     $ 1.00     $ 1.00  
                                       

Total Return

    3.71%       5.14%       4.42%       2.41%       1.00%  

Ratios/Supplemental Data

         

Net assets, end of year (000’s) omitted

  $ 28,749     $ 15,352     $ 15,525     $ 87,304     $ 141,372  

Ratios of expenses to average net assets (a)

    0.31%       0.35%       0.26%       0.20%       0.20%  

Ratios of net investment income to average net assets

    3.64%       5.02%       4.25%       2.39%       0.98%  

 

(a) Without the waiver of advisory fees and reimbursement of certain operating expenses, the ratios of expenses to average net assets for the Portfolio would have been 0.60%, 0.69%, 0.67%, 0.67% and 0.59% for the years ended August 31, 2008, 2007, 2006, 2005 and 2004, respectively.

 

(b) Amount is less than $0.00005 per share.

 

7


PORTFOLIO MANAGEMENT

 

Investment Adviser

BIMC was organized in 1977 to perform advisory services for investment companies and has its principal offices at 100 Bellevue Parkway, Wilmington, Delaware 19809. BIMC is a wholly-owned indirect subsidiary of BlackRock, Inc. (“BlackRock”), one of the largest publicly traded investment management firms in the United States. BIMC and its affiliates had approximately $1.259 trillion in investment company and other portfolio assets under management as of September 30, 2008. BlackRock is an affiliate of the PNC Financial Services Group, Inc. and Merrill Lynch & Co., Inc. While BIMC is ultimately responsible for management of the Company’s portfolio, it is able to draw upon the research and expertise of its asset management affiliates for portfolio decisions and management with respect to certain portfolio securities.

Pursuant to an investment advisory agreement with the Company, the Adviser is entitled to an advisory fee computed daily and payable monthly at the annual rate of up to 0.45% of the Portfolio’s average daily net assets. The Adviser voluntarily waived a portion of its Management Fees and/or reimbursed expenses for the Portfolio during the fiscal year ended August 31, 2008. The Adviser can discontinue this arrangement at any time, but it is expected that the Adviser will continue to voluntarily waive a portion of these fees and/or reimburse expenses through the fiscal year ending August 31, 2009. For the fiscal year ended August 31, 2008, after waivers, BIMC received an advisory fee of 0.16% of the Portfolio’s average net assets.

A discussion regarding the basis for the Company’s Board of Directors approving the Portfolio’s investment advisory agreement with BIMC is available in the Portfolio’s annual report to shareholders dated August 31, 2008.

Disclosure of Portfolio Holdings

A description of the Company’s policies and procedures with respect to the disclosure of the Portfolio’s underlying investments is available in the Portfolio’s SAI.

 

8


Other Service Providers

The following chart shows the Portfolio’s other service providers and includes their addresses and principal activities.

LOGO

 

9


SHAREHOLDER INFORMATION

 

Pricing Shares

PNC determines the Portfolio’s NAV per share daily at 4:00 p.m., Eastern time, each day on which both the New York Stock Exchange (“NYSE”) and the Federal Reserve Bank of Philadelphia (the “FRB”) are open. These entities are generally open Monday through Friday, except national holidays. Currently, the only days on which the NYSE is open and the FRB is closed are Columbus Day and Veterans Day and the only day on which the NYSE is closed and the FRB is open is Good Friday. The Fund seeks to maintain a net asset value of $1.00 per share. The NAV is calculated by dividing the Portfolio’s total assets, less its liabilities, by the number of shares outstanding. The Portfolio values its securities on the basis of the amortized cost method. This method values a Portfolio holding initially at its cost and then assumes a constant amortization to maturity of any discount or premium. The amortized cost method ignores any impact of changing interest rates.

During certain emergency closings of the NYSE, however, the Portfolio may open for business if it can maintain its operations. In this event, the Portfolio will determine its NAV as described above. To determine if the Portfolio is open for business on a day the NYSE is closed for an emergency, please contact us by calling the telephone number listed on the last page of this prospectus.

On any business day when the Bond Market Association (“BMA”) recommends that the securities markets close early, the Portfolio reserves the right to close at or prior to the BMA recommended closing time. If the Portfolio does so, it will process purchase and redemption orders received after the Portfolio’s closing time on the next business day. The BMA generally recommends that the securities markets close at 2:00 p.m. on the day before a national holiday, the Friday before a national holiday that falls on a Monday, and the Friday after Thanksgiving. In 2009, the BMA recommends (i) a 2:00 p.m. close on January 16, February 13, May 22, July 3, September 4, October 11, November 10, November 25, November 27, December 24 and December 31 and (ii) a 10:30 a.m. close on April 10.

Market Timing

In accordance with the policy adopted by the Company’s Board of Directors, the Company discourages market timing and other excessive trading practices. Excessive short-term (market timing) trading practices may disrupt portfolio management strategies, increase brokerage and administrative costs, harm Portfolio performance and result in dilution in the value of Portfolio shares held by long-term shareholders. The Company and the Adviser reserve the right to reject or restrict purchase requests from any investor. The Company and the Adviser will not be liable for any loss resulting from rejected purchase orders. To minimize harm to the Company and its shareholders (or the Adviser), the Company (or the Adviser) will exercise their right if, in the Company’s (or the Adviser’s) judgment, an investor has a history of excessive trading or if an investor’s trading, in the judgment of the Company or the Adviser, has been or may be disruptive to the Portfolio. No waivers of the provisions of the policy established to detect and deter market timing and other excessive trading activity are permitted that would harm the Portfolio and its shareholders or would subordinate the interests of the Portfolio and its shareholders to those of the Adviser or any affiliated person or associated person of the Adviser.

Pursuant to the policy adopted by the Company’s Board of Directors, the Adviser has developed criteria that it uses to identify trading activity that may be excessive. The Adviser reviews on a regular, periodic basis available information related to the trading activity in the Portfolio in order to assess the likelihood that the Portfolio may be the target of excessive trading. As part of its excessive trading surveillance process, the Adviser, on a periodic basis, examines transactions that exceed certain monetary thresholds or numerical limits within a period of time. If, in its judgment, the Adviser detects excessive, short-term trading, the Adviser may reject or restrict a purchase request and may further seek to close an investor’s account with the Portfolio. The Adviser may modify its surveillance procedures and criteria from time to time without prior notice regarding the detection of excessive trading or to address specific circumstances. The Adviser will apply the criteria in a manner that, in the Adviser’s judgment, will be uniform.

There is no assurance that the Adviser will be able to identify market timers, particularly if they are investing through intermediaries.

If necessary, the Company may prohibit additional purchases of Portfolio shares by a financial intermediary or by certain customers of the financial intermediary. Financial intermediaries may also monitor their customers’ trading activities in the Company. The criteria used by intermediaries to monitor for excessive trading may differ from the criteria used by the Company. If a financial intermediary fails to enforce the Company’s excessive trading policies, the Company may take certain actions, including terminating the relationship.

 

10


Purchase of Shares

General. Shares may be purchased through PNC Bank, N.A. or its affiliates (“PNC Bank”) acting on behalf of its customers, including individuals, trusts, partnerships and corporations who maintain accounts (such as custody, trust or escrow accounts) with PNC Bank and who have authorized PNC Bank to invest in the Sansom Street Class on a customer’s behalf. Shares may also be purchased through a broker-dealer that has entered into a dealer agreement with the Company’s Distributor (a “Dealer”). The minimum initial investment is $1,500. There is no minimum subsequent investment. The Company in its sole discretion may accept or reject any order for purchases of Sansom Street Shares.

Purchases will be effected at the NAV next determined after PNC, the Company’s transfer agent and administrative and accounting agent, has received a purchase order in good order and the Company’s custodian has Federal Funds immediately available to it. In those cases where payment is made by check, Federal Funds will generally become available two business days after the check is received. A “business day” is any day that both the NYSE and the FRB are open. On any business day, orders which are accompanied by Federal Funds and received by the Company by 4:00 p.m. Eastern time, and orders as to which payment has been converted into Federal Funds by 4:00 p.m. Eastern time, will be executed as of 4:00 p.m. Eastern time on that business day. Orders which are accompanied by Federal Funds and received by the Company after the close of regular trading on the NYSE, and orders as to which payment has been converted to Federal Funds after the close of regular trading on the NYSE on a business day will be processed as of 4:00 p.m. Eastern time on the following business day. The Company’s officers are authorized to waive the minimum initial and subsequent investment requirements.

Purchases through an Account with PNC or a Dealer. Sansom Street shares may be purchased through your accounts at PNC Bank or a Dealer through procedures and requirements established by PNC Bank or a Dealer. Confirmations of Share purchases and redemptions will be sent to PNC Bank or the Dealer. Beneficial ownership of Sansom Street Shares will be recorded by PNC Bank or the Dealer and reflected in your account statements provided by them. If you wish to purchase Sansom Street Shares, contact PNC Bank or a Dealer.

PNC Bank may also impose minimum customer account requirements. Although PNC Bank does not impose a sales charge for purchases of Sansom Street Shares, depending upon the terms of your account, PNC Bank may charge account fees for automatic investment and other cash management services. Information concerning these minimum account requirements, services and any charges will be provided by PNC Bank before you authorize the initial purchase of Shares. This prospectus should be read in conjunction with any information you receive from PNC Bank.

Direct Purchases through a Dealer. You may also make an initial investment by mail by fully completing and signing an application obtained from a Dealer (an “Application”) and mailing it, together with a check payable to The RBB Fund – Money Market Portfolio (Sansom Street Class), c/o PNC Global Investment Servicing (U.S.) Inc., P.O. Box 9841, Providence, RI 02940; for overnight delivery mail to The RBB Fund – Money Market Portfolio (Sansom Street Class), c/o PNC Global Investment Servicing (U.S.) Inc., 101 Sabin Street, Pawtucket, RI 02860-1427. An Application will be returned unless it contains the name of the Dealer from whom it was obtained. Subsequent purchases may be made through a Dealer or by forwarding payment to the Company’s transfer agent at the address above.

Conflict of interest restrictions may apply to an institution’s receipt of compensation paid by the Company in connection with the investment of fiduciary funds in Sansom Street Shares. Institutions, including banks regulated by the Comptroller of the Currency and investment advisers and other money managers subject to the jurisdiction of the SEC, the Department of Labor or state securities commissions, are urged to consult their legal advisers before investing fiduciary funds in Sansom Street Shares.

Good Order. A request to purchase Shares of the Portfolio is in good order if it includes the name of the Portfolio, the dollar amount of Shares to be purchased, and a completed Application (initial direct investment through a Dealer). Please see “Purchase of Shares” for instructions. Purchase requests not in good order may be rejected.

Customer Identification Program. Federal law requires the Company to obtain, verify and record identifying information, which may include the name, residential or business street address, date of birth (for an individual), social security or taxpayer identification number or other identifying information for each investor who opens or reopens an account with the Company. Applications without the required information, or without any indication that a social security or taxpayer identification number has been applied for, may not be accepted. After acceptance, to the extent permitted by applicable law or its customer identification program, the Company reserves the right (a) to place limits on transactions in any account until the

 

11


identity of the investor is verified; or (b) to refuse an investment in a Company portfolio or to involuntarily redeem an investor’s shares and close an account in the event that an investor’s identity is not verified. The Company and its agents will not be responsible for any loss in an investor’s account resulting from the investor’s delay in providing all required identifying information or from closing an account and redeeming an investor’s shares when an investor’s identity cannot be verified.

Retirement Plans. Sansom Street Shares may be purchased in conjunction with individual retirement accounts (“IRAs”) and rollover IRAs where PFPC Trust Company acts as custodian. A $15.00 retirement custodial maintenance fee is charged per IRA account per year. For further information as to applications and annual fees, contact the Distributor or your broker. To determine whether the benefits of an IRA are available and/or appropriate, you should consult with your tax advisor.

Redemption of Shares

General. Redemption orders are effected at the NAV per share next determined after receipt of the order in proper form by the Company’s transfer agent, PNC. It is the responsibility of PNC and Dealers to transmit promptly to PNC your redemption request. If you hold share certificates, the certificates must accompany the redemption request. You may redeem all or some of your Shares in accordance with one of the procedures described below.

Redemption of Shares in an Account at PNC Bank. If you beneficially own Shares through an account at PNC Bank, you may redeem Sansom Street Shares in accordance with instructions and limitations pertaining to your account. If the redemption request is received by PNC by 4:00 p.m. Eastern time on any business day, the redemption will be effective as of 4:00 p.m. Eastern time on that day. Payment for redemption orders effected before 4:00 p.m. Eastern time will be wired the same day in Federal Funds to your account at PNC Bank, provided that the Company’s custodian is open for business. If the custodian is not open, payment will be made on the next bank business day. No charge for wiring redemption payments is imposed by the Company, although PNC Bank may charge your account for redemption services.

Redemption of Shares in an Account for non-PNC Bank customers. If you beneficially own Shares through an account at a Dealer, you may redeem Shares in your account in accordance with instructions and limitations pertaining to the account by contacting the Dealer. If such notice is received by PNC from the broker before 4:00 p.m. Eastern time on any business day, the redemption will be effective as of 4:00 p.m. Eastern time on that day. Payment of the redemption proceeds will be made after 4:00 p.m. Eastern time on the day the redemption is effected, provided that the Company’s custodian is open for business. If the custodian is not open, payment will be made on the next bank business day. If all Shares are redeemed, all accrued but unpaid dividends on those Shares will be paid with the redemption proceeds.

A Dealer may also redeem each day a sufficient number of your Shares to cover debit balances created by transactions in your account or instructions for cash disbursements. Shares will be redeemed on the same day that a transaction occurs that results in such a debit-balance or charge.

Each Dealer reserves the right to waive or modify criteria for participation in an account or to terminate participation in an account for any reason.

Redemption of Shares Owned Directly. If you own Shares directly, you may redeem any number of Shares by sending a written request to The RBB Fund – Money Market Portfolio (Sansom Street Class), c/o PNC Global Investment Servicing (U.S.) Inc., P.O. Box 9841, Providence, RI 02940; for overnight delivery mail to The RBB Fund – Money Market Portfolio (Sansom Street Class), c/o PNC Global Investment Servicing (U.S.) Inc., 101 Sabin Street, Pawtucket, RI 02860-1427. It is recommended that such request be sent by registered or certified mail if share certificates accompany the request. Redemption requests must be signed by each shareholder in the same manner as the Shares are registered. Redemption requests for joint accounts require the signature of each joint owner. On redemption requests of $5,000 or more, a signature guarantee is required. A signature guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency or savings association who are participants in a medallion signature guarantee program recognized by the Securities Transfer Association. A medallion imprint or medallion stamp indicates that the financial institution is a member of a medallion signature guarantee program and is an acceptable signature guarantor. The three recognized medallion programs are Securities Transfer Agents Medallion Program (“STAMP”), Stock Exchanges Medallion Program (“SEMP”) and New York Stock Exchange, Inc. Medallion Signature Program (“MSP”). Signature guarantees that are not part of these programs will not be accepted.

 

12


If you are a direct investor, you may redeem Shares without charge by telephone if you have completed and returned an Application containing the appropriate telephone election. To add a telephone option to an existing account that previously did not provide for this option, you must submit a Telephone Authorization Form to PNC. This form is available from PNC. Once this election has been made, you may simply contact PNC by telephone to request a redemption by calling (800) 430-9618. Neither the Company, the Portfolio, the Distributor, PNC nor any other Company agent will be liable for any loss, liability, cost or expense for following the procedures described below or for following instructions communicated by telephone that they reasonably believe to be genuine.

The Company’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 the name of the Portfolio, all of which must match the Company’s records; (3) requiring the Company’s service representative to complete a telephone transaction form, listing all of the above caller identification information; (4) requiring that redemption proceeds be sent only by check to the account owners of record at the address of record, or by wire only to the owners of record at the bank account of record; (5) sending a written confirmation for each telephone transaction to the owners of record at the address of record within five business days of the call; and (6) maintaining tapes of telephone transactions for six months, if the Company elects to record shareholder telephone transactions. For accounts held of record by broker-dealers (other than the Distributor), financial institutions, securities dealers, financial planners or 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 power of attorney.

Proceeds of a telephone redemption request will be mailed by check to your registered address unless you have designated in the Application or telephone authorization form that such proceeds are to be sent by wire transfer to a specified checking or savings account. If proceeds are to be sent by wire transfer, a telephone redemption request received prior to the close of regular trading on the NYSE will result in redemption proceeds being wired to your bank account on the next bank business day. The minimum redemption for proceeds sent by wire transfer is $2,500. There is no maximum for proceeds sent by wire transfer. The Company may modify this redemption service at any time or charge a service fee upon prior notice to shareholders. A wire charge of $7.50 is assessed and charged to the shareholder.

Redemption by Check. If you are a direct investor or you do not have check writing privileges for your account, the Company will provide forms of drafts (“checks”) payable through PNC Bank. These checks may be made payable to the order of anyone. The minimum amount of a check is $100; however, a Dealer may establish a higher minimum. If you wish to use this check writing redemption procedure, you should complete specimen signature cards (available from PNC), and forward them to PNC. PNC will then arrange for the checks to be honored by PNC Bank. If you own Shares through an account, you should contact your Dealer for signature cards. Investors with joint accounts may elect to have checks honored with a single signature. Check redemptions will be subject to PNC Bank’s rules governing checks. You will be able to stop payment on a check redemption. The Company or PNC Bank may terminate this redemption service at any time, and neither shall incur any liability for honoring checks, for effecting redemptions to pay checks, or for returning checks which have not been accepted.

When a check is presented to PNC Bank for clearance, PNC Bank, as your agent, will cause the Company to redeem a sufficient number of your full and fractional Shares to cover the amount of the check. Pursuant to rules under the Investment Company Act of 1940, as amended (the “1940 Act”), checks may not be presented for cash payment at the offices of PNC Bank. This limitation does not affect checks used for the payment of bills or cash at other banks.

Additional Redemption Information. The Company ordinarily will make payment for all Shares redeemed within seven days after receipt by PNC of a redemption request in proper form. Although the Company will redeem Shares purchased by check before the check clears, payment of redemption proceeds may be delayed for a period of up to fifteen days after their purchase, pending a determination that the check has cleared. This procedure does not apply to Shares purchased by wire payment. Investors should consider purchasing Shares using a certified or bank check or money order if they anticipate an immediate need for redemption proceeds. Redemption proceeds will ordinarily be paid within seven business days after a

 

13


redemption request is received by the Transfer Agent in proper form. The Fund may suspend the right of redemption or postpone the date at times when the NYSE or the bond market is closed or under any emergency circumstances as determined by the SEC.

The Company does not impose a charge when Shares are redeemed. The Company reserves the right to redeem any account in the Sansom Street Class involuntarily, on thirty days’ notice, if that account falls below $500 as a result of redemptions, not market movement, and if during that thirty-day notice period the amount invested in the account is not increased to at least $500. Payment for Shares redeemed may be postponed or the right of redemption suspended as provided by the rules of the SEC.

If the Company’s Board of Directors determines that it would be detrimental to the best interest of the remaining shareholders of the Portfolio to make payment wholly or partly in cash, redemption proceeds may be paid in whole or in part by an in-kind distribution of readily marketable securities held by the Portfolio instead of cash in conformity with applicable rules of the SEC. Investors generally will incur brokerage charges on the sale of investment securities so received in payment of redemptions. 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 NAV during any 90-day period for any one shareholder of the Portfolio.

The Portfolio may assert the right to redeem your shares at current NAV at any time and without prior notice if, and to the extent that, such redemption is necessary to reimburse the Portfolio for any loss sustained by reason of your failure to make full payment for shares of the Portfolio you previously purchased or subscribed for.

Proper Form. You must include complete and accurate required information on your redemption request. Please see “Redemption of Shares” for instructions. Redemption requests not in proper form may be delayed.

Dividends and Distributions

The Company will distribute substantially all of the net investment income and net realized capital gains, if any, of the Portfolio to its shareholders. All distributions are reinvested in the form of additional full and fractional Shares of the Sansom Street Class unless a shareholder elects otherwise.

The net investment income (not including any net short-term capital gains) earned by the Portfolio will be declared as a dividend on a daily basis and paid monthly. Dividends are payable to shareholders of record as of the determination of NAV made as of 4:00 p.m. (Eastern time) each day. Shares will begin accruing dividends on the day the purchase order for the shares is effected and continue to accrue dividends through the day before such Shares are redeemed. Net short-term capital gains, if any, will be distributed at least annually.

Taxes

Distributions from the Portfolio will generally be taxable to shareholders. It is expected that all, or substantially all, of these distributions will consist of ordinary income. You will be subject to income tax on these distributions regardless of whether they are paid in cash or reinvested in additional Shares. The Portfolio contemplates declaring as dividends each year all or substantially all of its net taxable income. The one major exception to these tax principles is that distributions on Shares held in an IRA (or other tax-qualified plan) will not be currently taxable.

Dividends declared in October, November or December of any year that are payable to shareholders of record on a specified date in such months will be deemed to have been received by shareholders and paid by the Portfolio on December 31 of such year if such dividends are actually paid during January of the following year.

The Portfolio will be required in certain cases to withhold and remit to the United States Treasury a percentage of taxable dividends or gross sale proceeds paid to any shareholder who (i) has failed to provide a correct tax identification number, (ii) is subject to backup withholding by the Internal Revenue Service for failure to properly include on his on her return payments of taxable interest or dividends, or (iii) has failed to certify to the Portfolio that he or she is not subject to backup withholding when required to do so or that he or she is an “exempt recipient.” The current backup withholding rate is 28%.

For nonresident aliens, foreign corporations and other foreign investors, Portfolio distributions will generally be subject to a 30% withholding tax. The withholding tax may, however, be reduced (and, in some cases, eliminated) under an appli-

 

14


cable tax treaty between the United States and a shareholder’s country of residence or incorporation, provided that the shareholder furnishes the Portfolio with a property completed Form W-8BEN to establish entitlement to those treaty benefits.

All foreign investors should consult their own tax advisors regarding the tax consequences in their country of residence of an investment in the Portfolio.

 

The foregoing is only a summary of certain United States tax considerations under the current law, which may be subject to change in the future. Shareholders may also be subject to state and local taxes on distributions. Except where otherwise noted, the summary assumes you are a U.S. citizen or resident or otherwise subject to U.S. federal income tax. Shareholders who are nonresident aliens, foreign trusts or estates, or foreign corporations or partnerships may be subject to different United States federal income tax treatment. You should consult your tax advisor for further information regarding federal, state, local and/or foreign tax consequences relevant to your specific situation. More information about taxes is contained in the SAI.

Participation in U.S. Department of the Treasury Temporary Guarantee Program for Money Market Funds

On October 1, 2008, the Board of Directors of the Company approved the participation by the Portfolio in the Temporary Guarantee Program for Money Market Funds (the “Program”) established by the U.S. Department of the Treasury (the “U.S. Treasury”). On December 5, 2008, the Board of Directors approved the Portfolio’s continued participation in the Program.

Under the Program, the U.S. Treasury guarantees to investors in participating money market funds that they will receive $1.00 for each money market fund share held as of the close of business on September 19, 2008, subject to certain limitations described below. The guarantee will be triggered if the Portfolio “breaks the buck,” that is, if its net asset value per share falls below $0.995 (a “Guarantee Event”).

For each shareholder of the Portfolio, the Program provides a guarantee for the lesser of (a) the number of shares of the Money Market Portfolio owned by the shareholder at the close of business on September 19, 2008, or (b) the number of shares of the Portfolio owned by the shareholder on the date of the Guarantee Event. Any additional investments made by a shareholder after September 19, 2008 in excess of the amount held on that date will not be covered. The Program only covers the shares of investors who were shareholders of the Portfolio on September 19, 2008.

The Program provides coverage only if a Guarantee Event occurs during the term of the Program. If a Guarantee Event occurs, the Portfolio would be required to liquidate and comply with certain other requirements for any shareholder to be entitled to payments under the Program. The Program covers the difference between the amount received by a shareholder in connection with such liquidation and $1.00 per share, for any shares covered by the guarantee, subject to the overall amount available to all funds participating in the Program. In liquidation, those shares not covered by the Program may receive less than $1.00 per share. Guarantee payments under the Program to all participating money market funds will not exceed the amount available within the U.S. Treasury’s Exchange Stabilization Fund on the date of payment. As of the date of this Prospectus, assets available to the Program are approximately $50 billion.

The initial term of the Program expired on December 18, 2008. The current term of the Program is set to expire on April 30, 2009. The U.S. Treasury may extend the Program beyond its current term through the close of business on September 18, 2009, although there is no guarantee that it will do so. If the Program is further extended, the Board of Directors will consider if the Portfolio should continue to participate in the Program. Participation in any further extension of the Program will result in an additional expense to the Portfolio, although there can be no assurance that the Portfolio will elect to participate, or be eligible to participate, in any further extension of the Program. If a Guarantee Event occurs after the Program expires, or, if sooner, after the Portfolio ceases to participate in the Program, neither the Portfolio nor its shareholders will be entitled to any payment under the Program.

 

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE PORTFOLIO’S SAI INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE COMPANY OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.

 

15


THE SANSOM STREET SHARES OF THE

Money Market Portfolio

1-800-430-9618

FOR MORE INFORMATION:

This prospectus contains important information you should know before you invest. Read it carefully and keep it for future reference. More information about the Portfolio is available free of charge upon request, including:

Annual/Semi-Annual Reports

These reports contain additional information about the Portfolio’s investments, describe the Portfolio’s performance and list its holdings.

Statement of Additional Information

An SAI, dated December 31, 2008, has been filed with the SEC. The SAI, which includes additional information about the Portfolio, and the Portfolio’s annual and semi-annual reports are not available on the Adviser’s website because copies may be obtained free of charge, by calling (800) 430-9618. The SAI, as supplemented from time to time, is incorporated by reference into this prospectus (and is legally considered a part of this prospectus).

Shareholder Account Service Representatives

Representatives are available to discuss account balance information, mutual fund prospectuses, literature, programs and services available. Hours: 8 a.m. to 5 p.m. (Eastern time) Monday-Friday. Call: (800) 430-9618.

Written Correspondence

Sansom Street Money Market Portfolio

c/o PNC Global Investment Servicing (U.S.) Inc.

101 Sabin Street

Pawtucket, RI 02860-1427

Securities and Exchange Commission

You may view and copy information about the Company and the Portfolio, including the SAI, by visiting the SEC’s Public Reference Room in Washington, D.C. or the EDGAR Database on the SEC’s Internet site at www.sec.gov. You may also obtain copies of Portfolio documents by paying a duplicating fee and sending an electronic request to the following e-mail address: publicinfo@sec.gov, or by sending your written request and a duplicating fee to the SEC’s Public Reference Section, Washington, D.C. 20549-0102. You may obtain information on the operation of the public reference room by calling the SEC at (202) 551-8090.

INVESTMENT COMPANY ACT FILE NO. 811-05518


 

 

 

 

BOGLE

INVESTMENT MANAGEMENT

SMALL CAP GROWTH FUND

OF THE RBB FUND, INC.

INSTITUTIONAL CLASS

INVESTOR CLASS

PROSPECTUS

December 31, 2008

The securities described in this prospectus have been registered with the Securities and Exchange Commission (“SEC”). The SEC, however, has not judged these securities for their investment merit and has not determined the accuracy or adequacy of this prospectus. Anyone who tells you otherwise is committing a criminal offense.

 

 

 

 

 


 

 

 

 

TABLE OF CONTENTS

 

A LOOK AT OBJECTIVES, STRATEGIES, RISKS AND FINANCIAL HISTORY   

FUND DESCRIPTION

  

Investment Objective

   1

Primary Investment Strategies

   1

Key Risks

   1

Risk/Return Information

   2

Expenses and Fees

   4

Financial Highlights

   6

Additional Information on the Fund’s Investment Objective
and Principal Strategies

   7

Risks of Investing in the Fund

   8

Disclosure of Portfolio Holdings

   8
DETAILS ON THE MANAGEMENT AND OPERATIONS OF THE FUND   

MANAGEMENT OF THE FUND

  

Investment Adviser

   9

Other Service Providers

   10
POLICIES AND INSTRUCTIONS FOR OPENING, MAINTAINING
AND CLOSING AN ACCOUNT IN THE FUND
  

SHAREHOLDER INFORMATION

  

Pricing of Fund Shares

   11

Market Timing

   11

Purchase of Fund Shares

   12

Redemption of Fund Shares

   16

Dividends and Distributions

   18

Taxes

   18

Considerations for Taxable Investors

   21

FOR MORE INFORMATION

   Back Cover

 

 

 

 

 


BOGLE INVESTMENT MANAGEMENT

SMALL CAP GROWTH FUND

(the “Fund”)

On March 7, 2002, the Bogle Investment Management Small Cap Growth Fund of The RBB Fund, Inc. (the “Company”) was closed to new investors. Please read “OTHER PURCHASE INFORMATION” on page 15 for more information.

 

 

INVESTMENT OBJECTIVE

 

The Fund’s investment objective is to provide long-term capital appreciation.

 

 

PRIMARY INVESTMENT STRATEGIES

 

The Fund seeks to achieve its objective by investing under normal circumstances, at the time of purchase, at least 80% of the net assets of the portfolio (including borrowings for investment purposes) in the stocks of U.S. companies with market capitalizations under $2.0 billion (“Small Cap Stocks”) that Bogle Investment Management, L.P. (the “Adviser”) believes are likely to appreciate more than the Russell 2000® Index as defined below. Shareholders will be notified by the Fund sixty days in advance of any change in this policy. The Fund will primarily invest in securities principally traded in the U.S. markets. In seeking this objective, the Fund attempts to achieve a total return greater than the total return of the Russell 2000® Index. The Fund attempts to achieve its objective by taking long positions in Small Cap Stocks that the Adviser believes are undervalued given their future earnings growth prospects.

 

 

KEY RISKS

 

 

 

Common stocks may decline over short or even extended periods of time. Equity markets tend to be cyclical; there are times when stock prices generally increase, and other times when they generally decrease. Therefore, you could lose money by investing in the Fund.

 

 

The Fund will invest in Small Cap Stocks that may be more volatile than investments in issuers with a market value greater than $2.0 billion. Issuers of Small Cap Stocks are not as diversified in their business activities as issuers with market values greater than $2.0 billion and are more susceptible to changes in the business cycle.

 

 

The net asset value (“NAV”) of the Fund will fluctuate with changes in the market value of its portfolio positions.

 

 

Although the Fund will invest in stocks that the Adviser believes to be undervalued, there is no guarantee that the prices of these stocks will not move even lower.

 

1


For more detail on the principal risks summarized here, please see “RISKS OF INVESTING IN THE FUND” on page 8.

 

 

RISK/RETURN INFORMATION

 

The chart below illustrates the long-term performance of the Fund’s Investor Class. The information shows you how the Fund’s performance has varied year by year and provides some indication of the risks of investing in the Fund. The chart assumes reinvestment of dividends and distributions. As with all such investments, past performance (before and after taxes) is not an indication of future results. Performance reflects fee waivers in effect. If fee waivers were not in place, the Fund’s performance would be reduced.

TOTAL RETURNS FOR THE CALENDAR YEARS ENDED DECEMBER 31

Investor Class

LOGO

 

Best and Worst Quarterly Performance (for the periods reflected in the chart above):

Best Quarter:

  24.31% (quarter ended June 30, 2003)

Worst Quarter:

  (18.93)% (quarter ended September 30, 2002)
Year-to-date total return for the nine months ended September 30, 2008:     (27.42)%

 

2


AVERAGE ANNUAL TOTAL RETURNS

The table below compares the Fund’s average annual total returns for the past calendar year, the past five calendar years and the period since inception through December 31, 2007 to the average annual total returns of a broad-based securities market index for the same periods. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts (IRA). After-tax returns are shown for only the Investor Class and may vary for the Institutional Class. The table, like the bar chart, provides some indication of the risks of investing in the Fund by showing how the Fund’s average annual total returns for 1 year, 5 years and since inception compare with those of a broad measure of market performance. Past performance (before and after taxes) is not necessarily an indicator of how the Fund will perform in the future.

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2007

 

       1 Year      5 Years    Annualized
Since Inception*

Investor Class Before Taxes

     (5.60)%      17.54%    15.17%

Investor Class After Taxes on Distributions

     (7.52)%      14.99%    13.46%

Investor Class After Taxes on Distributions
and Sale of Fund Shares

     (1.12)%      14.81%    13.08%

Institutional Class Before Taxes

     (5.50)%      17.66%    15.27%

Russell 2000® Index(1)

     (1.57)%      16.25%      8.68%

 

* Commenced operations on October 1, 1999.

 

(1)

The Russell 2000® Index is an unmanaged index that is comprised of the 2,000 smallest of the 3,000 largest U.S. domiciled corporations, ranked by market capitalizations. As of November 30, 2008 the market capitalization range of the companies in the Russell 2000® Index is $2 million to $3.5 billion. Please note that this range is as of a particular point in time and is subject to change.

 

3


 

EXPENSES AND FEES

 

As a shareholder, you pay certain fees and expenses. Annual Fund operating expenses are paid out of Fund assets and are reflected in the Fund’s price.

The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. The table is based on expenses for the fiscal year ended August 31, 2008.

 

       INSTITUTIONAL
CLASS
    INVESTOR
CLASS
 

ANNUAL FUND OPERATING EXPENSES* (expenses that are deducted from Fund assets)

      

Management fees

     1.00 %   1.00 %

Distribution (12b-1) fees

     None     None  

Other expenses(2)

     0.44 %   0.54 %(1)
              

Total annual Fund operating expenses

     1.44 %   1.54 %

Fee waivers/reimbursements(3)

     (0.19 )%   (0.19 )%
              

Net expenses

     1.25 %   1.35 %
              

 

* Shareholders requesting redemptions by wire are charged a transaction fee of $7.50.

 

(1)

The Fund’s Shareholder Servicing Plan permits the Fund to pay fees to Shareholder Servicing Agents at an annual rate not to exceed 0.25% of the average daily net asset value of Investor Class shares for which such Shareholder Servicing Agents provide services for the benefit of customers. Shareholder Servicing fees are included in “Other expenses” for the Investor Class.

 

(2)

“Other expenses” include audit, administration, custody, shareholder servicing (Investor Class only), legal, registration, transfer agency and miscellaneous other charges for the Institutional Class and Investor Class. A $15.00 custodial maintenance fee is charged per Investor Class IRA account per year. The Adviser may reimburse a portion of this fee, thereby reducing the charge to the retirement investor.

 

(3)

The Adviser has contractually agreed to waive management fees and reimburse expenses through December 31, 2009 to the extent that total annual Fund operating expenses exceed 1.25% and 1.35% for the Institutional Class and Investor Class, respectively. The Adviser, in its discretion, has the right to extend this waiver.

EXAMPLE

This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The table below shows what you would pay if you invested $10,000 in the Fund over the various time periods indicated. The example assumes that:

 

you reinvested all dividends and distributions;

 

the average annual total return was 5%;

 

operating expenses remain the same; and

 

you redeemed all of your investment at the end of the time period.

 

4


Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 

       1 YEAR      3 YEARS*      5 YEARS*      10 YEARS*

Institutional Class

     $ 127      $ 437      $ 769      $ 1,708

Investor Class

     $ 137      $ 468      $ 821      $ 1,818

 

* The waiver and reimbursement arrangement agreed to by the Adviser, if not extended, will terminate on December 31, 2009. Thus, the 3 years, 5 years and 10 years examples reflect the waiver and reimbursement arrangement only for the first year.

 

5


 

FINANCIAL HIGHLIGHTS

 

The table below sets forth certain financial information for the periods indicated, including per share information results for a single Fund share. The term “Total investment return” indicates how much your investment would have increased or decreased during this period of time and assumes that you have reinvested all dividends and distributions. This information has been derived from the Fund’s financial statements audited by PricewaterhouseCoopers LLP, the Fund’s independent registered public accounting firm. This information should be read in conjunction with the Fund’s financial statements which, together with the report of the independent registered public accounting firm, are included in the Fund’s annual report, which is available upon request (see back cover for ordering instructions).

 

    For the
Year Ended
August 31, 2008
    For the
Year Ended
August 31, 2007
    For the
Year Ended
August 31, 2006
    For the
Year Ended
August 31, 2005
    For the
Year Ended
August 31, 2004
 
    Institutional
Class
    Investor
Class
    Institutional
Class
    Investor
Class
    Institutional
Class
    Investor
Class
    Institutional
Class
    Investor
Class
    Institutional
Class
    Investor
Class
 

Per Share Operating Performance

                   

Net asset value, beginning of year

  $ 24.61     $ 24.38     $ 27.74     $ 27.56     $ 28.78     $ 28.65     $ 24.99     $ 24.91     $ 22.71     $ 22.65  
                                                                               

Net investment loss

    (0.13 )*     (0.14 )*     (0.08 )*     (0.10 )*     (0.16 )*     (0.18 )*     (0.22 )     (0.23 )     (0.16 )*     (0.18 )*

Net realized and unrealized gain/(loss) on investments

    (3.99 )     (3.96 )     2.74       2.71       3.08       3.05       6.49       6.45       2.44       2.44  
                                                                               

Net increase/(decrease) in net assets resulting from operations

    (4.12 )     (4.10 )     2.66       2.61       2.92       2.87       6.27       6.22       2.28       2.26  
                                                                               

Distributions to shareholders from:

                   

Net realized capital gains

    (3.14 )     (3.14 )     (5.79 )     (5.79 )     (3.96 )     (3.96 )     (2.48 )     (2.48 )            
                                                                               

Net asset value, end of year

  $ 17.35     $ 17.14     $ 24.61     $ 24.38     $ 27.74     $ 27.56     $ 28.78     $ 28.65     $ 24.99     $ 24.91  
                                                                               

Total investment return(1)

    (19.33 )%     (19.45 )%     10.29 %     10.15 %     12.46 %     12.33 %     27.34 %     27.22 %     10.04 %     9.98 %
                                                                               

Ratios/Supplemental Data

                   

Net assets, end of year (000’s omitted)

  $ 84,546     $ 82,477     $ 197,415     $ 135,752     $ 189,920     $ 147,471     $ 177,359     $ 134,054     $ 175,642     $ 124,031  

Ratio of expenses to average net assets with waivers and reimbursements

    1.25 %     1.35 %     1.25 %     1.35 %     1.25 %     1.35 %     1.25 %     1.35 %     1.25 %     1.35 %

Ratio of expenses to average net assets without waivers and reimbursements

    1.44 %     1.54 %     1.43 %     1.53 %     1.43 %     1.53 %     1.46 %     1.56 %     1.44 %     1.54 %

Ratio of net investment loss to average net assets

    (0.64 )%     (0.74 )%     (0.30 )%     (0.40 )%     (0.55 )%     (0.65 )%     (0.73 )%     (0.83 )%     (0.61 )%     (0.70 )%

Portfolio turnover rate

    162.10 %     162.10 %     142.45 %     142.45 %     126.64 %     126.64 %     129.18 %     129.18 %     129.18 %     129.18 %

 

* Calculated based on average shares outstanding for the year.

 

(1)

Total investment return is calculated assuming a purchase of shares on the first day and a sale of shares on the last day of each period reported and includes reinvestments of dividends and distributions, if any.

 

6


 

ADDITIONAL INFORMATION ON THE FUND’S INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

 

The investment objective of the Fund is to provide long-term capital appreciation. In seeking this objective, the Fund attempts to achieve a total return greater than the total return of the Russell 2000® Index. The Russell 2000® Index is an unmanaged index that is comprised of the 2,000 smallest of the 3,000 largest U.S. domiciled corporations, ranked by market capitalizations.

The Fund attempts to achieve its objective by taking long positions in Small Cap Stocks that the Adviser believes are undervalued given their future earnings growth prospects. The Fund will primarily invest in securities principally traded in the U.S. markets. The Fund may also invest in futures contracts and options on futures contracts as an alternative to purchasing a specified type of security.

The Adviser will determine the size of each position by analyzing the tradeoff between the attractiveness of each position and its impact on the risk of the overall portfolio. The Company’s Board of Directors can change the investment objective of the Fund. However, shareholders will be given notice before any change is made.

The Fund’s long positions may involve (without limit) equity securities of foreign issuers that are traded in the markets of the United States as sponsored American Depositary Receipts (“ADRs”). ADRs are receipts issued by a U.S. bank or trust company evidencing ownership of the underlying foreign securities. Generally, ADRs, in registered form, are designed for use in U.S. securities markets. The ADRs may not necessarily be denominated in the same currency as the foreign securities underlying the ADRs. The Fund will not invest directly in equity securities that are principally traded outside of the United States.

In addition to investments expected to meet the preceding criteria, the Fund may also invest in certain instruments related to the Standard & Poor’s 500® Composite Stock Price Index (the “S&P 500® Index”) and the Russell 2000® Index (described above). The S&P 500® Index is an unmanaged index composed of 500 common stocks, most of which are listed on the New York Stock Exchange (the “NYSE”). The S&P 500® Index assigns relative values to the stocks included in the index, weighted according to each stock’s total market value relative to the total market value of the other stocks included in such index. The Fund may invest in S&P 500® Index futures, options on S&P 500® Index futures, Russell 2000® Index futures and equity swap contracts.

The Fund may seek to increase its income by lending portfolio securities to institutions, such as certain broker-dealers. Portfolio securities loans are secured continuously by collateral maintained on a current basis at an amount at least equal to the market value of the securities loaned. The value of the securities loaned by the Fund will not exceed 33 1/3% of the value of the Fund’s total assets. The Fund may experience a loss or delay in the recovery of its securities if the borrowing institution breaches its agreement with the Fund. Lending the Fund’s portfolio securities involves a variety of risks, not limited to the risk of delay in receiving additional collateral if the value of the securities goes up while they are on loan.

The Fund may hold cash or cash equivalents pending investment or to meet redemption requests. In addition, for defensive purposes due to abnormal market or economic situations, as determined by the Adviser, the Fund may reduce its holdings in other securities and invest up to 100% of its assets in cash or certain short-term (less than twelve months to maturity) and medium-term (not greater than five years to maturity) interest-bearing instruments or deposits of U.S. and foreign issuers. Such investments may include, but are not limited to, commercial paper, certificates of deposit, variable or floating rate notes, bankers’ acceptances, time deposits, government securities and money-market deposit accounts. To the extent the Fund employs a temporary investment strategy, the Fund may not achieve its investment objective.

 

7


 

RISKS OF INVESTING IN THE FUND

 

GENERAL

There can be no assurance that the investment methodology employed will satisfy the Fund’s objective of long-term capital appreciation. Additionally, an investment in the Fund will be subject to the risk of poor stock selection by the Adviser. In other words, the Adviser may not be successful in executing its strategy and may invest in stocks that underperform the market.

The value of the fixed income securities held by the Fund, and thus the NAV of the shares of the Fund, generally will vary inversely in relation to changes in prevailing interest rates.

The value of Fund shares may increase or decrease depending on market, economic, political, regulatory and other conditions affecting the Fund’s portfolio. Investment in shares of the Fund is more volatile and risky than some other forms of investment.

SECURITIES OF SMALL COMPANIES

Investments in common stocks in general are subject to market, economic and business risks that will cause their price to fluctuate over time. While securities of small market value companies may offer greater opportunity for capital appreciation than the securities of larger companies, investment in smaller companies presents greater risks than investment in larger, more established companies. Historically, small market value stocks have been more volatile in price than larger market value stocks. Among the reasons for the greater price volatility of small market value stocks are the lower degree of liquidity in the markets for such stocks, and the potentially greater sensitivity of such small companies to changes in or failure of management and changes in competitive, business, industry and economic conditions. Besides exhibiting greater volatility, small company stocks may, to a degree, fluctuate independently of larger company stocks. Small company stocks may decline in price as large company stocks rise, or rise in price as large company stocks decline. You should therefore expect that the price of the Fund’s shares will be more volatile than the shares of a fund that invests in larger capitalization stocks. Additionally, such securities may trade less frequently and in smaller volume than more widely held securities. The values of these securities may fluctuate more sharply than those of other securities, and the Fund may experience some difficulty in establishing or closing out positions in these securities at prevailing market prices. There may be less publicly available information about the issuers of these securities or less market interest in such securities than in the case of larger companies, and it may take a longer period of time for the prices of such securities to reflect the full value of their issuers’ underlying earnings potential or assets. The Fund should not be considered suitable for you if you are unable or unwilling to assume the risks of loss associated with such an investment program, nor should investment in the Fund be considered a balanced or complete investment program.

DISCLOSURE OF PORTFOLIO HOLDINGS

A description of the Company’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the Fund’s Statement of Additional Information (“SAI”).

 

8


MANAGEMENT OF THE FUND

 

 

INVESTMENT ADVISER

 

The Adviser’s principal address is 2310 Washington Street, Suite 310, Newton Lower Falls, Massachusetts 02462. The Adviser manages the Fund’s investment activities, subject to the authority of the Company’s Board of Directors. The Adviser has provided investment management and investment advisory services to the Fund and other institutional accounts since 1999. The Adviser also serves as a shareholder servicing agent to the Investor Class of the Fund pursuant to a Shareholder Servicing Agreement between the Company and the Adviser.

Pursuant to an investment advisory agreement with the Company, the Adviser is entitled to an advisory fee computed daily and payable monthly at the annual rate of 1.00% of the Fund’s average daily net assets. The Adviser has contractually agreed to waive management fees and reimburse expenses through December 31, 2009 to the extent that total annual Fund operating expenses exceed 1.25% and 1.35% for the Institutional Class and Investor Class, respectively. For the fiscal year ended August 31, 2008, after waivers, the Adviser received 0.91% of the Fund’s average net assets in investment advisory fees from the Fund.

A discussion regarding the basis for the Company’s Board of Directors approving the Fund’s investment advisory agreement with the Adviser is available in the Fund’s annual report to shareholders dated August 31, 2008.

PORTFOLIO MANAGER

John C. Bogle, Jr. serves as portfolio manager of the Fund. Mr. Bogle founded the Adviser in 1999 and currently serves as its President. From 1990 to 1999, Mr. Bogle was a Managing Director of Numeric Investors LLC® (formerly Numeric Investors L.P.), a quantitative investment management firm.

The SAI provides additional information about the portfolio manager’s compensation, other accounts managed by the portfolio manager and the portfolio manager’s ownership of securities in the Fund.

 

9


 

Other Service Providers

 

The following chart shows the Fund’s service providers and includes their addresses and principal activities.

LOGO

 

10


SHAREHOLDER INFORMATION

 

 

PRICING OF FUND SHARES

 

Shares of a class of the Fund are priced at their NAV. The NAV of a class of the Fund is calculated as follows:

 

       Value of Assets Attributable to a Class
NAV    =   -  

Value of Liabilities Attributable to the same Class

       Number of Outstanding Shares of the Class

The Fund’s NAV is calculated once daily at the close of regular trading hours on the NYSE (generally 4:00 p.m. Eastern time) on each day the NYSE is open. The NYSE is generally open Monday through Friday, except national holidays. The Fund will effect purchases of Fund shares at the NAV next determined after receipt of your order or request in proper form. The Fund will effect redemptions of Fund shares at the NAV next calculated after receipt of your order in proper form.

The Fund’s equity securities listed on any national or foreign exchange market system will be valued at the last sale price, except for the National Association of Securities Dealers Automatic Quotation System (“NASDAQ”). Equity securities listed on NASDAQ will be valued at the official closing price. Equity securities traded in the over-the-counter market are valued at their closing prices. If there were no transactions on that day, securities traded principally on an exchange or on NASDAQ will be valued at the mean of the last bid and ask prices prior to the market close. Fixed income securities having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. Fixed income securities having a remaining maturity of greater than 60 days are valued using an independent pricing service. When prices are not available from such services or are deemed to be unreliable, securities may be valued by dealers who make markets in such securities.

If market quotations are unavailable or deemed unreliable, securities will be fair valued in accordance with procedures adopted by the Company’s Board of Directors. Relying on prices supplied by pricing services or dealers or using fair valuation involves the risk that the values used by the Fund to price its investments may be higher or lower than the values used by other investment companies and investors to price the same investments.

Investments in other open-end investment companies are valued based on the NAV of those investment companies (which may use fair value pricing as discussed in their prospectuses).

 

 

MARKET TIMING

 

In accordance with the policy adopted by the Company’s Board of Directors, the Company discourages market timing and other excessive trading practices. Purchases should be made with a view to longer-term investment only. Excessive short-term (market timing) trading practices may disrupt portfolio management strategies, increase brokerage and administrative costs, harm Fund performance and result in dilution in the value of Fund shares held by long-term shareholders. The Company and the Adviser reserve the right to reject or restrict purchase requests from any investor. The Company and the Adviser will not be liable for any loss resulting from rejected purchase orders. To minimize harm to the Company and its shareholders (or the

 

11


Adviser), the Company (or the Adviser) will exercise their right if, in the Company’s (or the Adviser’s) judgment, an investor has a history of excessive trading or if an investor’s trading, in the judgment of the Company or the Adviser, has been or may be disruptive to the Fund. No waivers of the provisions of the policy established to detect and deter market timing and other excessive trading activity are permitted that would harm the Fund and its shareholders or would subordinate the interests of the Fund and its shareholders to those of the Adviser or any affiliated person or associated person of the Adviser.

Pursuant to the policy adopted by the Company’s Board of Directors, the Adviser has developed criteria that it uses to identify trading activity that may be excessive. The Adviser reviews on a regular, periodic basis available information related to the trading activity in the Fund in order to assess the likelihood that the Fund may be the target of excessive trading. As part of its excessive trading surveillance process, the Adviser, on a periodic basis, examines transactions that exceed certain monetary thresholds or numerical limits within a period of time. If, in its judgment, the Adviser detects excessive, short-term trading, the Adviser may reject or restrict a purchase request and may further seek to close an investor’s account with the Fund. The Adviser may modify its surveillance procedures and criteria from time to time without prior notice regarding the detection of excessive trading or to address specific circumstances. The Adviser will apply the criteria in a manner that, in the Adviser’s judgment, will be uniform.

There is no assurance that the Fund will be able to identify market timers, particularly if they are investing through intermediaries.

If necessary, the Company may prohibit additional purchases of Fund shares by a financial intermediary or by certain customers of the financial intermediary. Financial intermediaries may also monitor their customers’ trading activities in the Company. The criteria used by intermediaries to monitor for excessive trading may differ from the criteria used by the Company. If a financial intermediary fails to enforce the Company’s excessive trading policies, the Company may take certain actions, including terminating the relationship.

 

 

PURCHASE OF FUND SHARES

 

On March 7, 2002, the Fund was closed to new investors, subject to the limitations discussed on page 15.

PURCHASE OF INSTITUTIONAL SHARES THROUGH AN INSTITUTIONAL ORGANIZATION

Institutional shares of the Fund may be sold to corporations or other institutions such as trusts, foundations or broker-dealers purchasing for the accounts of others (“Institutional Organizations”). If you purchase Institutional shares through an Institutional Organization, you may be charged a transaction-based fee or other fee for the services of such organization. Each Institutional Organization is responsible for transmitting to its customers a schedule of any such fees and information regarding any additional or different conditions regarding purchases. Customers of Institutional Organizations should read this Prospectus in light of the terms governing accounts with their Institutional Organization. The Fund does not pay compensation to or receive compensation from Institutional Organizations for the sale of Institutional shares.

Certain Institutional Organizations may have agreements with the Fund and may be responsible for promptly transmitting client or customer purchase and redemption orders to the Fund in accordance with such agreements. An Institutional Organization or, if applicable, its designee that has entered into such an agreement with the Fund or its agent may enter confirmed purchase orders on behalf of clients and customers,

 

12


with payment to follow no later than the Fund’s pricing on the following business day. If payment is not received by such time, the Institutional Organization could be held liable for resulting fees or losses. The Fund will be deemed to have received a purchase or redemption order when an Institutional Organization, or if applicable, its authorized designee, accepts a purchase or redemption order in good order. Orders received by the Fund in good order will be priced at the Fund’s NAV next computed after they are accepted by the Institutional Organization or its authorized designee. If a purchase order is not received by the Fund in good order, PNC in its capacity as transfer agent (the “Transfer Agent”) will contact the Institutional Organization to determine the status of the purchase order.

The Fund relies upon the integrity of the Institutional Organizations to ensure that orders are timely and properly submitted. The Fund cannot assure you that an Institutional Organization properly submitted to it all purchase and redemption orders received from the Institutional Organization’s customers before the time for determination of the Fund’s NAV in order to obtain that day’s price.

PURCHASE OF INVESTOR SHARES THROUGH A SHAREHOLDER SERVICING AGENT

Purchase orders for Investor shares may be placed through a financial intermediary (“Shareholder Servicing Agent”). Investor shares are subject to such investment minimums and other terms and conditions as may be imposed by Shareholder Servicing Agents from time to time. Shareholder Servicing Agents may offer additional services to their customers. For further information as to how to direct a Shareholder Servicing Agent to purchase Investor shares of the Fund on your behalf, you should contact your Shareholder Servicing Agent or the Fund’s Distributor.

Certain Shareholder Servicing Agents may have agreements with the Fund and may be responsible for promptly transmitting client or customer purchase and redemption orders to the Fund in accordance with such agreements. A Shareholder Servicing Agent or, if applicable, its designee that has entered into such an agreement with the Fund or its agent may enter confirmed purchase orders on behalf of clients and customers, with payment to follow no later than the Fund’s pricing on the following business day. If payment is not received by such time, the Shareholder Servicing Agent could be held liable for resulting fees or losses. The Fund will be deemed to have received a purchase or redemption order when the Shareholder Servicing Agent, or if applicable, its authorized designee, accepts a purchase or redemption order in good order. Orders received by the Fund in good order will be priced at the Fund’s NAV next computed after they are accepted by the Shareholder Servicing Agent or its authorized designee. If a purchase order is not received by the Fund in good order, the Transfer Agent will contact the Shareholder Servicing Agent to determine the status of the purchase order.

The Fund relies upon the integrity of the Shareholder Servicing Agent to ensure that orders are timely and properly submitted. The Fund cannot assure you that a Shareholder Servicing Agent properly submitted to it all purchase and redemption orders received from the Shareholder Servicing Agent’s customers before the time for determination of the Fund’s NAV in order to obtain that day’s price.

PURCHASE OF INSTITUTIONAL AND INVESTOR SHARES THROUGH THE FUND’S TRANSFER AGENT

You may also purchase Institutional and Investor shares directly from the Fund at the NAV per share next calculated after your order is received by the Transfer Agent in proper form. After an initial purchase is made, the Transfer Agent will set up an account for you on the Fund’s records, which will show all of your transactions and the balance of the shares you own. You can only purchase shares on days the NYSE is open and through the means described below. The Fund’s officers are authorized to waive the minimum initial and subsequent investment requirements.

 

13


Initial Investment By Mail. Subject to acceptance by the Fund, an account may be opened by completing and signing an Account Application and mailing it to the Fund at the address noted below, together with a check ($1,000,000 minimum for Institutional shares and $10,000 minimum for Investor shares ($2,000 minimum for IRA accounts accepted for Investor shares)) payable to Bogle Investment Management Small Cap Growth Fund:

Bogle Investment Management Small Cap Growth Fund

c/o PNC Global Investment Servicing (U.S.) Inc.

P.O. Box 9809

Providence, RI 02940

or overnight to:

Bogle Investment Management Small Cap Growth Fund

c/o PNC Global Investment Servicing (U.S.) Inc.

101 Sabin Street

Pawtucket, RI 02860-1427

Subject to acceptance by the Fund, payment for the purchase of shares received by mail will be credited to a shareholder’s account at the NAV per share of the Fund next determined after receipt. Such payment need not be converted into federal funds (monies credited to the Fund’s custodian bank by a Federal Reserve Bank) before acceptance by the Fund. No third party endorsed checks (including checks issued by credit card companies) or foreign checks will be accepted as payment for shares.

Initial Investment By Wire. Subject to acceptance by the Fund, shares may be purchased by wiring federal funds ($1,000,000 minimum for Institutional shares and $10,000 minimum for Investor shares ($2,000 minimum for IRA accounts accepted for Investor shares)) to PNC Bank, N.A. (see instructions below). A completed Account Application should be forwarded to the Fund at the address noted above under “Initial Investment By Mail” in advance of the wire. Notification must be given to the Fund at 1-877-264-5346 prior to 4:00 p.m., Eastern time, on the business day prior to the wire date. (Prior notification must also be received from investors with existing accounts.) Funds should be wired to:

PNC Bank, N.A.

Philadelphia, Pennsylvania

ABA# 0310-0005-3

Account # 86-1282-3004

F/B/O Bogle Investment Management Small Cap Growth Fund

Ref. (Account Number)

Shareholder or Account Name

Federal funds wire purchases will be accepted only on days when the Fund and PNC Bank, N.A. are open for business.

Additional Investments. Additional investments may be made at any time ($5,000 minimum for Institutional shares and $250 minimum for Investor shares ($100 minimum for IRA accounts accepted for Investor shares)) by purchasing shares at the NAV per share of the Fund by mailing a check to the Fund at the address noted under “Initial Investment By Mail” (payable to Bogle Investment Management Small Cap Growth Fund) or by wiring monies to the custodian bank as outlined above under “Initial Investment By Wire.” Notification must be given to the Fund at 1-877-264-5346 prior to 4:00 p.m., Eastern time, on the business day prior to the wire

 

14


date. Initial and additional purchases made by check cannot be redeemed until payment of the purchase has been collected, which may take up to fifteen calendar days from the purchase date.

Automatic Investment Plan. Additional investments in shares of the Fund may be made automatically by authorizing the Transfer Agent to withdraw funds from your bank account through the Automatic Investment Plan. Investors who would like to participate in the Automatic Investment Plan should call the Transfer Agent at 1-877-264-5346, or complete the appropriate section of the account application. The minimum initial investment for the Automatic Investment Plan is $10,000 for Investor shares and $1,000,000 for Institutional shares. Minimum monthly payments are $100 for Investor shares and $1,000 for Institutional shares, and minimum quarterly payments are $300 and $3,000 respectively.

Retirement Plans/IRA Accounts. A $15.00 retirement custodial maintenance fee is charged per Investor Class IRA account per year. The Adviser may reimburse a portion of this fee, thereby reducing the charge to the retirement investor. For further information as to applications and annual fees, contact the Transfer Agent at 1-877-264-5346. To determine whether the benefits of an IRA are available and/or appropriate, you should consult with a tax adviser.

OTHER PURCHASE INFORMATION

The Company reserves the right, in its sole discretion, to suspend the offering of Institutional and Investor shares or to reject purchase orders when, in the judgment of management, such suspension or rejection is in the best interests of the Fund. The Adviser will monitor the Fund’s total assets and, subject to Board approval, may decide to close the Fund at any time to new investments or to new accounts due to concerns that a significant increase in the size of the Fund may adversely affect the implementation of the Fund’s strategy. The Adviser, subject to Board approval, may also choose to reopen the Fund to new investments at any time, and may subsequently close the Fund again should concerns regarding the Fund’s size recur. If the Fund closes to new investments, the Fund would be offered only to certain existing shareholders of the Fund and certain other persons, who may be subject to cumulative, maximum purchase amounts, as follows:

 

  a. persons who already hold shares of the Fund directly or through accounts maintained by brokers by arrangement with the Adviser,

 

  b. existing and future clients of the Adviser and of Financial Advisers and Planners whose clients already hold shares of the Fund,

 

  c. employees of the Adviser and their families, and

 

  d. directors of the Company.

Distributions to all shareholders of the Fund will continue to be reinvested unless a shareholder elects otherwise. The Adviser, subject to Board approval, reserves the right to implement other purchase limitations at the time of closing, including limitations on current shareholders.

Purchases of the Fund’s shares will be made in full and fractional shares of the Fund calculated to three decimal places. In the interest of economy and convenience, certificates for shares will not be issued except at the written request of the shareholder. Certificates for fractional shares, however, will not be issued.

Shares may be purchased and subsequent investments may be made by principals and employees of the Adviser, and by their family members, either directly or through their IRAs and by any pension and profit-sharing plan of the Adviser, without being subject to the minimum investment limitation.

 

15


The Company’s officers are authorized to waive the minimum initial and subsequent investment requirements.

Good Order. You must include complete and accurate required information on your purchase request. Please see “Purchase of Fund Shares” for instructions. Purchase requests not in good order may be rejected.

CUSTOMER IDENTIFICATION PROGRAM

Federal law requires the Company to obtain, verify and record identifying information, which may include the name, residential or business street address, date of birth (for an individual), social security or taxpayer identification number or other identifying information for each investor who opens or reopens an account with the Company. Applications without the required information, or without any indication that a social security or taxpayer identification number has been applied for, may not be accepted. After acceptance, to the extent permitted by applicable law or its customer identification program, the Company reserves the right (a) to place limits on transactions in any account until the identity of the investor is verified; or (b) to refuse an investment in a Company portfolio or to involuntarily redeem an investor’s shares and close an account in the event that an investor’s identity is not verified. The Company and its agents will not be responsible for any loss in an investor’s account resulting from the investor’s delay in providing all required identifying information or from closing an account and redeeming an investor’s shares when an investor’s identity cannot be verified.

 

 

REDEMPTION OF FUND SHARES

 

You may redeem Institutional and Investor shares of the Fund at the next NAV calculated after a redemption request is received by the Transfer Agent in proper form. You can only redeem shares of the Fund on days the NYSE is open and through the means described below.

You may redeem Institutional and Investor shares of the Fund by mail, or, if you are authorized, by telephone (excluding retirement accounts where PFPC Trust Company acts as custodian). The value of shares redeemed may be more or less than the purchase price, depending on the market value of the investment securities held by the Fund.

Redemption By Mail. Your redemption requests should be addressed to Bogle Investment Management Small Cap Growth Fund, c/o PNC Global Investment Servicing (U.S.) Inc., P.O. Box 9809, Providence, RI 02940, or for overnight delivery to Bogle Investment Management Small Cap Growth Fund, c/o PNC Global Investment Servicing (U.S.) Inc., 101 Sabin Street, Pawtucket, RI 02860-1427 and must include:

 

 

the share certificates, if issued;

 

 

a letter of instruction, if required, or a stock assignment specifying the number of shares or dollar amount to be redeemed, signed by all registered owners of the shares in the exact names in which they are registered;

 

 

any required Medallion signature guarantees, which are required when (i) the redemption proceeds are to be sent to someone other than the registered shareholder(s), (ii) the redemption request is for $50,000 or more, or (iii) a share transfer request is made. A Medallion signature guarantee is a special signature guarantee that may be obtained from a domestic bank or trust company, broker-dealer, clearing agency or savings association which is a participant in a Medallion signature guarantee program recognized by the Securities Transfer Association. A Medallion imprint or Medallion stamp indicates that the financial institution is a member of a Medallion signature guarantee program and is an acceptable signature guarantor. The three recognized signature guarantee Medallion Programs are Securities Transfer Agent Medallion Program

 

16


 

(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Program (MSP). Signature guarantees which are not a part of these programs will not be accepted. Please note that a notary public stamp or seal is not acceptable; and

 

 

other supporting legal documents, if required, in the case of estates, trusts, guardianships, custodianships, corporations, pension and profit sharing plans and other organizations.

Redemption By Telephone. In order to utilize the Telephone Redemption Option, you must indicate that option on your Account Application. Please note that the Telephone Redemption Option is not available for retirement accounts. You may then initiate a redemption of shares by calling the Fund at 1-877-264-5346 and requesting that the redemption proceeds be mailed to the primary registration address or wired per the authorized instructions. A wire charge of $7.50 is assessed and charged to the shareholder. Shares cannot be redeemed by telephone if share certificates are held for those shares. If the Telephone Redemption Option is authorized, the Fund and its Transfer Agent may act on telephone instructions from any person representing himself or herself to be a shareholder and believed by the Fund or its Transfer Agent to be genuine. The Transfer Agent’s records of such instructions are binding and shareholders, not the Fund or its Transfer Agent, bear the risk of loss in the event of unauthorized instructions reasonably believed by the Fund or its Transfer Agent to be genuine. The Fund and the Transfer Agent will employ reasonable procedures to confirm that instructions communicated are genuine and, if it does not, it may be liable for any losses due to unauthorized or fraudulent instructions. The procedures employed by the Fund and the Transfer Agent in connection with transactions initiated by telephone include tape recording of telephone instructions and requiring some form of personal identification prior to acting upon instructions received by telephone.

Involuntary Redemption. The Fund reserves the right to redeem a shareholder’s account in the Fund (other than those in an IRA account) at any time the value of the account falls below $500. Shareholders will be notified in writing that the value of their account is below $500 and will be allowed 30 days to make additional investments before the involuntary redemption is processed.

The Fund may assert the right to redeem your shares at current NAV at any time and without prior notice if, and to the extent that, such redemption is necessary to reimburse the Fund for any loss sustained by reason of your failure to make full payment for shares of the Fund you previously purchased or subscribed for.

INVESTOR CLASS

If you purchased Investor shares through a Shareholder Servicing Agent, you must place all redemption orders for Investor shares through that Shareholder Servicing Agent in accordance with instructions or limitations pertaining to your account with your Shareholder Servicing Agent. Redemption orders for Investor shares are effected at the NAV next determined after the order is received by the Fund’s Transfer Agent. While no redemption fee is imposed by the Fund, Shareholder Servicing Agents may charge your account for redemption services. You should contact your Shareholder Servicing Agent or the Fund’s Transfer Agent for further information regarding redemption of Investor shares, including the availability of wire or telephone redemption privileges, or whether you may elect to participate in a systematic withdrawal plan.

OTHER REDEMPTION INFORMATION

Redemption proceeds for shares of the Fund recently purchased by check may not be distributed until payment for the purchase has been collected, which may take up to fifteen days from the purchase date. Shareholders can avoid this delay by utilizing the wire purchase option.

 

17


Redemption proceeds will ordinarily be paid within seven business days after a redemption request is received by the Transfer Agent in proper form. The Fund may suspend the right of redemption or postpone the date at times when the NYSE or the bond market is closed or under any emergency circumstances as determined by the SEC.

If the Company’s Board of Directors determines that it would be detrimental to the best interests of the remaining shareholders of the Fund to make payment wholly or partly in cash, the Fund may pay the redemption proceeds in whole or in part by a distribution in-kind of readily marketable securities held by the Fund in lieu of cash in conformity with applicable rules of the SEC. Investors generally will incur brokerage charges on the sale of portfolio securities so received in the payment of redemptions. The Company has elected, however, to be governed by Rule 18f-1 under the Investment Company Act of 1940, as amended, so that the Fund is obligated to redeem its shares solely in cash up to the lesser of $250,000 or 1% of its NAV during any 90-day period for any one shareholder of the Fund.

Proper Form. You must include complete and accurate required information on your redemption request. Please see “Redemption of Fund Shares” for instructions. Redemption requests not in proper form may be delayed.

 

 

DIVIDENDS AND DISTRIBUTIONS

 

The Fund declares and pays dividends of substantially all of its net investment income annually. The Fund distributes, at least annually, substantially all net realized capital gains, if any, earned. The Fund will inform shareholders of the amount and nature of all such income or gains.

Dividends are paid in the form of additional shares of the same class of the Fund, unless you have elected prior to the date of distribution to receive payment in cash. Such election, or any revocation thereof, must be made in writing to the Transfer Agent and will become effective with respect to dividends paid after its receipt. Dividends that are otherwise taxable are taxable to you whether received in cash or in additional shares of the Fund. It is anticipated that expenses incurred by each class of shares of the Fund will differ and, accordingly, that the dividends distributed with respect to each class may differ.

 

 

TAXES

 

The following is a summary of certain U.S. tax considerations relevant under current law, which may be subject to change in the future. Except where otherwise indicated, the discussion relates to investors who are individual U.S. citizens or residents. You should consult your tax adviser for further information regarding federal, state, local and/or foreign tax consequences relevant to your specific situation.

Federal Taxes. The Fund contemplates distributing as dividends each year all or substantially all of its taxable income, including its net capital gain (the excess of net long-term capital gain over net short-term capital loss). Except as otherwise discussed below, you will be subject to federal income tax on Fund distributions regardless of whether they are paid in cash or reinvested in additional shares. Fund distributions attributable to short-term capital gains and net investment income will generally be taxable to you as ordinary income, except as discussed below.

 

18


Distributions attributable to the net capital gain of the Fund will be taxable to you as long-term capital gain, no matter how long you have owned your Fund shares. The maximum long-term capital gain rate applicable to individuals, estates, and trusts is currently 15%. You will be notified annually of the tax status of distributions to you.

Distributions of “qualifying dividends” will also generally be taxable to you at long-term capital gain rates, as long as certain requirements are met. In general, if 95% or more of the gross income of the Fund (other than net capital gain) consists of dividends received from domestic corporations or “qualified” foreign corporations (“qualifying dividends”), then all distributions paid by the Fund to individual shareholders will be taxed at long-term capital gains rates. But if less than 95% of the gross income of the Fund (other than net capital gain) consists of qualifying dividends, then distributions paid by the Fund to individual shareholders will be qualifying dividends only to the extent they are derived from qualifying dividends earned by the Fund. For the lower rates to apply, you must have owned your Fund shares for at least 61 days during the 121-day period beginning on the date that is 60 days before the Fund’s ex-dividend date (and the Fund will need to have met a similar holding period requirement with respect to the shares of the corporation paying the qualifying dividend). The amount of the Fund’s distributions that qualify for this favorable treatment may be reduced as a result of the Fund’s securities lending activities (if any), a high portfolio turnover rate or investments in debt securities or “non-qualified” foreign corporations.

Distributions from the Fund will generally be taxable to you in the taxable year in which they are paid, with one exception. Distributions declared by the Fund in October, November or December and paid in January of the following year are taxed as though they were paid on December 31.

A portion of distributions paid by the Fund to shareholders that are corporations may also qualify for the dividends-received deduction for corporations, subject to certain holding period requirements and debt financing limitations.

If you purchase shares just before a distribution, the purchase price will reflect the amount of the upcoming distribution, but you will be taxed on the entire amount of the distribution received, even though, as an economic matter, the distribution simply constitutes a return of capital. This is known as “buying into a dividend.”

Sales and Exchanges. You will generally recognize taxable gain or loss for federal income tax purposes on a sale, exchange or redemption of your shares based on the difference between your tax basis in the shares and the amount you receive for them. Generally, you will recognize long-term capital gain or loss if you have held your Fund shares for over twelve months at the time you dispose of them. (To aid in computing your tax basis, you should retain your account statements for the periods during which you held shares.)

Any loss realized on shares held for six months or less will be treated as a long-term capital loss to the extent of any capital gain dividends that were received on the shares. Additionally, any loss realized on a disposition of shares of the Fund may be disallowed under “wash sale” rules to the extent the shares disposed of are replaced with other shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to a dividend reinvestment in shares of the Fund. If disallowed, the loss will be reflected in an upward adjustment to the basis of the shares acquired.

IRAs and Other Tax-Qualified Plans. The one major exception to the preceding tax principles is that distributions on, and sales, exchanges and redemptions of, shares held in an IRA (or other tax-qualified plan) will not be currently taxable.

 

19


Backup Withholding. The Fund may be required in certain cases to withhold and remit to the Internal Revenue Service a percentage of taxable dividends or gross proceeds realized upon sale payable to shareholders who have failed to provide a correct tax identification number in the manner required, or who are subject to withholding by the Internal Revenue Service for failure to properly include on their return payments of taxable interest or dividends, or who have failed to certify to the Fund that they are not subject to backup withholding when required to do so or that they are “exempt recipients.” The current withholding rate is 28%.

U.S. Tax Treatment of Foreign Shareholders. For nonresident aliens, foreign corporations and other foreign investors, Fund distributions attributable to net long-term capital gains of the Fund will generally be exempt from U.S. tax, but all other Fund distributions will generally be subject to a 30% withholding tax. The withholding tax may, however, be reduced (and, in some cases, eliminated) under an applicable tax treaty between the United States and a shareholder’s country of residence or incorporation, provided that the shareholder furnishes the Fund with a properly completed Form W-8BEN to establish entitlement for these treaty benefits.

Foreign shareholders will generally not be subject to U.S. tax on gains realized on sale, exchange or redemption of shares of the Fund.

Different U.S. tax rules may apply to a foreign shareholder, however, if the investment in the Fund is connected to a trade or business of the shareholder in the United States or the investor is present in the United States for 183 days or more in a year.

All foreign investors should consult their own tax advisers regarding the tax consequences in their country of residence of an investment in the Fund.

For nonresident aliens, foreign corporations and other foreign investors, Fund distributions attributable to net long-term capital gains of a Fund will generally be exempt from U.S. tax, but all other Fund distributions will generally be subject to a 30% withholding tax. The withholding tax may, however, be reduced (and, in some cases, eliminated) under an applicable tax treaty between the United States and a shareholder’s country of residence or incorporation, provided that the shareholder furnishes the Fund with a properly completed Form W-8BEN to establish entitlement for these treaty benefits.

Foreign shareholders will generally not be subject to U.S. tax on gains realized on sale, exchange or redemption of shares in a Fund.

Different U.S. tax rules may apply to a foreign shareholder, however, if the investment in the Fund is connected to a trade or business of the shareholder in the United States or the investor is present in the United States for 183 days or more in a year.

All foreign investors should consult their own tax advisers regarding the tax consequences in their country of residence of an investment in a Fund.

State and Local Taxes. You may also be subject to state and local taxes on income or gain from Fund shares. State income taxes may not apply, however, to the portions of the Fund’s distributions, if any, that are attributable to interest on U.S. government securities. You should consult your tax adviser regarding the tax status of distributions in your state and locality.

Sunset of Tax Provisions. Some of the tax provisions described above are subject to sunset provisions. Specifically, a sunset provision provides that the 15% long-term capital gain rate and the taxation of dividends at the long-term capital gain rate will change after 2010.

More information about taxes is contained in the Fund’s SAI.

 

20


 

CONSIDERATIONS FOR TAXABLE INVESTORS

 

Those investment strategies that require periodic changes to portfolio holdings with the expectation of outperforming equity indices are typically referred to as “active” strategies. These strategies contrast with “passive” (“index”) strategies that buy and hold only the stocks in the equity indices. Passive strategies tend to trade infrequently — only as the stocks in the indices change (largely due to changes in the sizes of the companies in the indices, takeovers or bankruptcies). Most equity mutual funds pursue active strategies, which have higher portfolio turnover than passive strategies.

The generally higher portfolio turnover of active investment strategies can adversely affect taxable investors, especially those in higher marginal tax brackets, in two ways. First, fund short-term capital gains, which often accompany higher turnover investment strategies, are currently taxed to shareholders as ordinary income. Ordinary income tax rates are higher than long-term capital gain tax rates for middle and upper income taxpayers. Thus, the tax liability is often higher for investors in active strategies. Second, the more frequent realization of gains caused by higher turnover investment strategies means that taxes will be paid sooner. Such acceleration of the tax liability is financially more costly to investors. Less frequent realization of capital gains allows the payment of taxes to be deferred until later years, allowing more of the gains to compound before taxes are paid. Consequently, after-tax compound rates of return will generally be higher for taxable investors using investment strategies with very low turnover, compared with high turnover strategies. The difference is particularly large when the general market rates of return are higher than average.

Although tax considerations should not typically drive investment decisions, the Adviser recommends that all of its investors consider their ability to allocate tax-deferred assets (such as IRAs and other retirement plans) to active strategies, and taxable assets to lower turnover passive strategies, when considering their investment options.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND’S SAI INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE COMPANY OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.

 

21


BOGLE INVESTMENT MANAGEMENT

SMALL CAP GROWTH FUND

P.O. Box 9809

PROVIDENCE, RI 02940

1-877-264-5346

 

 

FOR MORE INFORMATION:

 

This prospectus contains important information you should know before you invest. Read it carefully and keep it for future reference. More information about the Fund is available free of charge, upon request, including:

ANNUAL/SEMI-ANNUAL REPORTS

These reports contain additional information about the Fund’s investments, describe the Fund’s performance, list portfolio holdings and discuss recent market conditions and economic trends. The annual report includes Fund strategies that significantly affected the Fund’s performance during its last fiscal year. The Fund’s annual and semi-annual reports to shareholders are not available on the Adviser’s website because a copy may be obtained by calling 1-877-264-5346.

STATEMENT OF ADDITIONAL INFORMATION

An SAI, dated December 31, 2008, has been filed with the SEC. The SAI, which includes additional information about the Fund, and the Fund’s Annual and Semi-Annual reports, may be obtained free of charge by calling 1-877-264-5346. The SAI, as supplemented from time to time, is incorporated by reference into this prospectus and is legally considered a part of this prospectus. The SAI is not available on the Adviser’s website because a copy may be obtained by calling 1-877-264-5346.

SHAREHOLDER INQUIRIES

Representatives are available to discuss account balance information, mutual fund prospectuses, literature, programs and services available. Hours: 8 a.m. to 6 p.m. (Eastern time) Monday-Friday. Call: 1-877- 264-5346.

PURCHASES AND REDEMPTIONS

Call your registered representative or 1-877-264-5346.

WRITTEN CORRESPONDENCE

 

Post Office Address:   

Bogle Investment Management Small Cap Growth Fund

c/o PNC Global Investment Servicing (U.S.) Inc., PO Box 9809, Providence, RI 02940

Street Address:   

Bogle Investment Management Small Cap Growth Fund

c/o PNC Global Investment Servicing (U.S.) Inc., 101 Sabin Street, Pawtucket, RI 02860-1427

SECURITIES AND EXCHANGE COMMISSION

You may view and copy information about the Company and the Fund, including the SAI, by visiting the SEC’s Public Reference Room in Washington, D.C. or the EDGAR Database on the SEC’s Internet site at www.sec.gov. You may also obtain copies of Fund documents by paying a duplicating fee and sending an electronic request to the following e-mail address: publicinfo@sec.gov, or by sending your request and a duplicating fee to the SEC’s Public Reference Section, Washington, D.C. 20549-0102. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090.

INVESTMENT COMPANY ACT FILE NO. 811-05518


 

FOR MORE INFORMATION

This Prospectus contains important information you should know before you invest. Read it carefully and keep it for future reference. More information about the Senbanc Fund is available free of charge, upon request, including:

Annual/Semi-Annual Reports

These reports will contain additional information about the Fund’s investments, describe the Fund’s performance, list portfolio holdings, and discuss recent market conditions and economic trends. The annual report will include Fund strategies that significantly affected the Fund’s performance during its last fiscal year. The annual and semi-annual reports of the Fund and the Predecessor Fund are available on the Adviser’s website at www.hilliard.com.

Statement of Additional Information (SAI).

An SAI dated December 31, 2008 has been filed with the SEC. The SAI, which includes additional information about the Fund, may be obtained free of charge, along with the Fund’s annual and semi-annual reports, by calling (800) 444-1854. The Fund’s most recent SAI is available on the Fund’s website at www.hilliard.com. The SAI, as supplemented from time to time, is incorporated by reference into this Prospectus and is legally considered a part of this Prospectus.

Shareholder Account Service Representatives

Representatives are available to discuss account balance information, mutual fund prospectuses, literature, programs and services available. Hours: 8:30 a.m. to 5:00 p.m. (Eastern time) Monday-Friday. Call: (800) 444-1854.

Purchases and Redemptions

Call (800) 444-1854.

Written Correspondence

Senbanc Fund

500 West Jefferson Street

Louisville, Kentucky 40202

Securities and Exchange Commission

You may view and copy information about the Company and the Fund, including the SAI, by visiting the SEC’s Public Reference Room in Washington, D.C. or the EDGAR Database on the SEC’s Internet site at www.sec.gov. You may also obtain copies of Fund documents by paying a duplicating fee and sending an electronic request to the following e-mail address: publicinfo@sec.gov, or by sending your written request and a duplicating fee to the SEC’s Public Reference Section, Washington, D.C. 20549-0102. You may obtain information on the operation of the public reference room by calling the SEC at (202) 551-8090.

Investment Company Act File No.: 811-05518

 

LOGO

 

LOGO

 

PROSPECTUS

DECEMBER 31, 2008

THE SECURITIES DESCRIBED IN THIS PROSPECTUS HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”). THE SEC, HOWEVER, HAS NOT JUDGED THESE SECURITIES FOR THEIR INVESTMENT MERIT AND HAS NOT DETERMINED THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIMINAL OFFENSE.

 

NOT FDIC

INSURED

 

MAY LOSE VALUE

NO BANK GUARANTEE


SENBANC FUND

 

 

Table of Contents   SUMMARY   1
  PERFORMANCE   3
  FEES & EXPENSES   5
  ADDITIONAL INFORMATION ON THE FUND’S
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
  6
 

Investment Objective and Principal Types of Investments

  6
 

Investment Philosophy

  7
 

Main Risks

  8
 

Other Types of Investments and Considerations

  9
 

Portfolio Holdings

  10
  MANAGEMENT OF THE FUND   10
 

Adviser

  10
 

Portfolio Manager

  11
 

Other Service Providers

  12
  SHAREHOLDER INFORMATION   13
 

Pricing of Fund Shares

  13
 

Sales Charges

  14
 

Market Timing

  16
 

Purchase of Fund Shares

  17
 

Redemption of Fund Shares

  20
 

Dividends and Distributions

  22
 

Taxes

  22
  FINANCIAL HIGHLIGHTS   26
  FOR MORE INFORMATION     Back Cover

 

 

i


SENBANC FUND

 

 

SUMMARY

Investment Objective

The Senbanc Fund (the “Fund”) seeks long-term capital appreciation.

Main Investment Strategies

Under normal circumstances, the Fund will invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in securities of banks and financial institutions (which are generally referred to herein as “Banks”). Securities of Banks are publicly traded equity securities of banks and financial institutions conducting at least 50% of their business through banking subsidiaries. Banks may include commercial banks, industrial banks, consumer banks and bank holding companies that receive at least 50% of their income through their bank subsidiaries, as well as regional and money center banks. The Fund generally invests in equity securities of Banks that have at least $500 million in consolidated total assets; however, the Fund’s investments are not influenced by a Bank’s market capitalization (large, medium or small).

Hilliard Lyons Research Advisors (the “Adviser”), a division of J.J.B. Hilliard, W.L. Lyons, LLC (“Hilliard Lyons”) and the investment adviser to the Fund, uses a value investment style for the Fund. The Adviser seeks to identify the most undervalued Banks by using an investment model that considers financial ratios and other quantitative information. Generally, such Banks have at least six years of current or predecessor operating history and well-managed organizations and operations. The Fund’s portfolio is weighted most heavily to the equity securities of Banks that the investment model indicates are most undervalued for the longest period of time.

 

  Main Risks of Investing

Your investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation (the “FDIC”) or any other government entity. You could lose money by investing in the Fund. Your investment in the Fund is subject to the following main risks:

 

 

Market Risk:

   The Fund is designed for long-term investors who can accept the risks of investing in a portfolio with significant holdings of equity securities. Equity securities tend to be more volatile than other investment choices, such as debt and money market instruments. The value of your investment may decrease in response to overall stock market movements or the value of individual securities held by the Fund.

 

 

1


SENBANC FUND

 

 

 

Industry Concentration Risk:

   Because the Fund concentrates in a single industry (banking), its performance is largely dependent on that specific industry’s performance, which may differ in direction and degree from that of the overall stock market. Volatile interest rates or deteriorating economic conditions can adversely affect the banking industry and, therefore, the performance of the equity securities of Banks.
 

Portfolio Management Risk:

   The skill of the Adviser will play a significant role in the Fund’s ability to achieve its investment objective.
 

Smaller and Medium-Sized Company Risk:

   Investment in smaller and medium-sized companies involves greater risk than investment in larger, more established companies. The equity securities of smaller and medium-sized companies often fluctuate in price to a greater degree than equity securities of larger, more mature companies. In addition, such companies may have more limited financial resources and less liquid trading markets for their securities.
 

Nondiversification Risk:

   This is a nondiversified fund; compared to other funds, the Fund may invest a greater percentage of its assets in a particular issuer or a small number of issuers. As a consequence, the Fund may be subject to greater risks and larger losses than diversified funds.

 

 

2


SENBANC FUND

 

 

PERFORMANCE

The Fund began operations on July 8, 1999 as a series (the “Predecessor Fund”) of Hilliard Lyons Research Trust (the “Trust”). After the close of business on August 31, 2005, the Predecessor Fund was reorganized as a new series of The RBB Fund, Inc. (the “Company”). The returns shown below for periods prior to September 1, 2005 are for the Predecessor Fund.

 

 

The performance information shown below provides an indication of the risks of investing in the Fund by showing changes in the Fund’s performance for each full calendar year since the Fund commenced operations. This information also shows how the average annual returns for the Fund compare with those of a relevant, broad-based benchmark, the S&P 500® Index, as well as a bank-related benchmark. Sales loads are not reflected in the bar chart; if these amounts were reflected, returns would be less than those shown. The returns assume that all dividends and capital gains distributions have been reinvested. Performance reflects fee waivers in effect from July 8, 1999 through February 28, 2003. If fee waivers were not in place, the Fund’s performance would be reduced. The Fund’s past performance is not indicative of future results.

Total Returns for the Calendar Years Ended December 31

LOGO

Best and Worst Quarterly Performance (for the periods reflected in the chart above)

Best Quarter:   13.81% (quarter ended September 30, 2000)
Worst Quarter:   (17.53)% (quarter ended December 31, 2007)

Year to Date Total Return as of September 30, 2008: (23.65)%

 

 

3


SENBANC FUND

 

 

Average Annual Total Returns

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on your tax situation and may differ from those shown and are not relevant if you hold your shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The Fund’s past performance, both before and after taxes, is not necessarily an indication of how the Fund will perform in the future.

 

Average Annual Total Returns as of 12/31/07(1)

   1 Year      5 Year    Since Inception*

Before Taxes

   (29.55)%      1.85%    6.44%

After Taxes on Distributions

   (29.91)%      0.84%    5.28%

After Taxes on Distributions and Sale of Fund Shares

   17.40%      1.58%    5.34%

S&P 500 Index(3) (reflects no deduction for fees, expenses or taxes)

   5.49%      12.82%    2.26%

Nasdaq Bank Index(2) (reflects no deduction for fees, expenses or taxes)

   (19.91)%      6.22%    6.94%

 

(1)

 

Prior to September 1, 2005, the average annual total returns are based on the historical performance of the Predecessor Fund. The returns assume the reinvestment of dividends and capital gains distributions and include the impact of the maximum sales charges.

(2)

 

The Nasdaq Bank Index is an unmanaged index of unlisted banks. The index returns assume reinvestment of all dividends.

(3)

 

The S&P 500 Index is an unmanaged stock market index. The index returns assume reinvestment of all dividends.

*   The Fund’s inception was July 8, 1999.

 

 

4


SENBANC FUND

 

 

FEES &
EXPENSES

Investor Expenses

 

  The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees are paid directly from your investment. Annual Fund operating expenses are paid out of the Fund’s assets and are reflected in the Fund’s share price and dividends; therefore, such expenses are paid indirectly by shareholders. The table is based on expenses of the Fund for the fiscal year ended August 31, 2008.

 

 

Shareholder Fees (fees paid directly from your investment)

    
 

Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)

     2.25 %(1)
 

Maximum Deferred Sales Charge (Load)

     None (2)
 

Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions

     None  
 

Redemption Fee(3)

     None  
 

Annual Fund Operating Expenses (expenses that are paid out of the Fund’s assets)

    
 

Management Fees

     0.60 %
 

Distribution (12b-1) Fees(4)

     0.60 %
 

Other Expenses(5)

     0.59 %
          
 

Total Annual Fund Operating Expenses(6)

     1.79 %
          

 

  (1) The Fund has a maximum front-end sales charge of 2.25%; however, cumulative investments of at least $500,000 over thirteen (13) months will be assessed a sales charge of 1.75% and cumulative investments of at least $1,000,000 over thirteen (13) months will not be assessed a sales charge. For more detailed information, refer to the section of this Prospectus entitled “Shareholder Information — Sales Charges.”

 

  (2) Purchases of $1,000,000 or more are not subject to an initial sales charge; however, a contingent deferred sales charge is payable on these investments, in the event of a share redemption within 12 months following the share purchase, at the rate of 1% of the lesser of the value of the shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the total cost of such shares.

 

  (3) Shareholders requesting redemptions by wire are charged a wire redemption fee, currently $7.50.

 

  (4) Amount represents the actual distribution fees incurred by the Fund for the fiscal year ended August 31, 2008. The Company’s Board of Directors has authorized the payment of distribution fees up to 0.60% of the Fund’s average daily net assets annually.

 

  (5) “Other expenses” include audit, administration, custody, legal, registration, transfer agency and miscellaneous other charges. A $15.00 retirement custodial maintenance fee is charged per IRA account per year.

 

  (6) The Adviser has agreed to voluntarily cap the Fund’s Total Annual Fund Operating Expenses at 1.75% of the Fund’s average daily net assets. The Adviser may terminate the voluntary cap upon notice to the Company’s Board of Directors.

 

 

5


SENBANC FUND

 

 

  Example

 

  This hypothetical example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. The example assumes that:

 

   

You invest $10,000 for the time periods indicated;

 

   

You redeem all of your shares at the end of the periods shown;

 

   

Your investment has a 5% return each year; and

 

   

The Fund’s operating expenses remain the same.

 

  Although actual annual returns and Fund operating expenses may be higher or lower, based on these assumptions, your costs would be:

 

1 Year

   3 Years    5 Years    10 Years
$225    $596    $992    $2,098

ADDITIONAL INFORMATION ON THE FUND’S INVESTMENT OBJECTIVES, STRATEGIES AND RISKS

 

  Investment Objective and Principal Types of Investments

 

  The Fund seeks long-term capital appreciation. Under normal circumstances, the Fund will invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in securities of banks and financial institutions (which are generally referred to herein as “Banks”). See, however, “Investment Philosophy” and “Cash Management and Temporary Defensive Investments.” Securities of Banks are publicly traded equity securities of banks and financial institutions conducting at least 50% of their business through banking subsidiaries. Banks may include commercial banks, industrial banks, consumer banks, and bank holding companies that receive at least 50% of their income through their bank subsidiaries, as well as regional and money center banks. A regional bank is one that provides full-service banking (i.e., savings accounts, checking accounts, commercial lending and real estate lending), has assets that are primarily of domestic origin, and typically has a principal office outside of a large metropolitan area (e.g., New York City or Chicago). A money center bank is one with a strong international banking business and a significant percentage of international assets, and is typically located in a large metropolitan area. To the extent that the Fund invests in the equity securities of bank holding companies, a portion of the Fund’s assets may be indirectly invested in nonbanking entities, since bank holding companies may derive a portion of their income from such entities.

 

 

6


SENBANC FUND

 

 

  Generally, the equity securities in which the Fund will invest are common stocks; however, the Fund may also at times acquire (through its common stock holdings) preferred stock, warrants, rights or other securities that are convertible into common stock. Although the Fund seeks opportunities for long-term capital appreciation, the Banks in which the Fund invests may also pay regular dividends.

 

  The Board will provide shareholders of the Fund with at least 60 days’ prior notice of any change in the Fund’s 80% investment policy.

Investment Philosophy

 

  The Adviser uses a value investment style for the Fund. The Adviser seeks to identify the most undervalued Banks on a monthly basis by using an investment model that generates information which allows the Adviser to compare its determinations of current net worth with the underlying market prices of Banks. The investment model considers financial ratios and other quantitative information in evaluating and rating Banks which have twenty-four consecutive quarters of current and predecessor operating history, and at least $500 million in assets. The Fund’s portfolio is weighted most heavily to the equity securities of Banks that the investment model indicates are most undervalued for the longest period of time.

 

  The Adviser intends to build the Fund’s portfolio by investing a portion of available cash each month, if practicable, in the top ten most undervalued Banks eligible for purchase, as determined by its investment model. Comparable dollar amounts will be invested in each of the top ten eligible Banks each month, insofar as liquidity of those issues and the liquid resources of the Fund allow. If the cash amount is less than $3,000,000 prior to the Fund investing each month, then no investment is made. The monthly investment target is calculated to be one sixth of the cash available to the Fund rounded up to the nearest one million dollars at the beginning of each month, to secure an expectation of continuous and consistent investment at a similar level for the next six months. The disciplined approach seeks to assure a steady and constant rate of investment by the Fund, and seeks to avoid the weighting of investment in one particular month solely because of an increase or decrease in the flow of new money into the Fund. The Adviser generally does not expect significant turnover within the top ten most undervalued Banks from month to month. Therefore, limited turnover will lead to multiple purchases of the securities of the Banks that stay in the top ten for greater than one month. If the Fund receives significant net purchases, this disciplined method of investing may result in the Fund holding a greater percentage of its assets in cash or debt and money market instruments. As a result, the Fund may, from time to time, hold less than 80% of its net assets in securities of Banks.

 

 

7


SENBANC FUND

 

 

  Generally, securities in the Fund’s portfolio will be sold when they are adequately valued (as determined by the investment model) and when the initial purchase of a Bank’s securities has been held for a minimum of 366 days. However, if a Bank has announced a major reorganization (e.g. it is being merged into or acquired by another Bank), the Fund will generally sell that Bank’s securities regardless of the length of time the original Bank’s securities have been held by the Fund, unless the surviving Bank itself is ranked by the model as undervalued. In this case, the original securities would be held until the reorganization takes place, and the replacement securities would then be subject to the sell discipline outlined above. If a Bank is no longer evaluated by the investment model for any reason, the Bank’s securities will be sold by the Fund. In addition, sales may be made in order to comply with various regulatory limitations, or in order to enhance the Fund’s cash position in the case of unusually large redemption requests of the Fund’s shares or as a temporary defensive measure, and such sales would be of those Bank securities then ranked as least undervalued.

 

  The Adviser generally expects the Fund’s portfolio to represent Banks of wide geographic dispersion within the United States. In addition, the Fund generally invests in equity securities of Banks which have at least $500 million in consolidated total assets; however, the Fund’s investments are not influenced by a Bank’s market capitalization (large, medium or small).

 

  Main Risks

 

  All investments (including those in mutual funds) have risks, and you could lose money by investing in the Fund. No investment is suitable for all investors. The Fund is intended for long-term investors who can accept the risks entailed in investing in the equity securities of Banks. Of course, there can be no assurance that the Fund will achieve its objective.

 

  Your investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation (the “FDIC”) or any other government entity. Because the Fund’s investments are concentrated in the banking industry, an investment in the Fund may be subject to greater market fluctuations than an investment in a fund that does not concentrate in a particular industry. Thus, you should consider an investment in the Fund as only one portion of your overall investment portfolio.

 

  Market Risk. Equity securities tend to be more volatile than other investment choices, such as debt and money market instruments. The value of your investment may decrease in response to overall stock market movements or the value of individual securities held by the Fund.

 

 

8


SENBANC FUND

 

 

  Industry Concentration Risk. Since the Fund’s investments will be concentrated in the banking industry, they will be subject to risks in addition to those that apply to the general equity market. Events may occur that significantly affect the entire banking industry; therefore, the Fund’s share value may at times increase or decrease at a faster rate than the share value of a mutual fund with investments in many industries. The profitability of Banks is largely dependent upon the availability and cost of capital funds, and may show significant fluctuation as a result of volatile interest rate levels. Healthy economic conditions are important to the operations of Banks, and exposure to credit losses resulting from possible financial difficulties of borrowers can have an adverse effect on the financial performance and condition of Banks. In addition, despite some measure of deregulation, Banks are still subject to extensive governmental regulation which may limit their activities as well as the amounts and types of loans and other financial commitments that may be made and the interest rates and fees that may be charged.

 

  Nondiversification Risk. The Fund is nondiversified, meaning that it is not limited in the proportion of its assets that it may invest in the obligations of a single issuer. However, the Fund will comply with diversification requirements imposed by the Internal Revenue Code for qualification as a regulated investment company. As a nondiversified Fund, the Fund may invest a greater proportion of its assets in the securities of a small number of issuers, and may be subject to greater risk and substantial losses as a result of changes in the financial condition or the market’s assessment of the issuers.

 

  Smaller and Medium Sized Company Risk. The Adviser may invest the Fund’s assets in smaller and medium-sized companies. Investment in smaller companies involves greater risk than investment in larger companies. The stocks of smaller companies often fluctuate in price to a greater degree than stocks of larger companies. Smaller companies may have more limited financial resources and less liquid trading markets for their stock. The Fund’s share price may experience greater volatility when the Fund is more heavily invested in smaller and medium-sized companies.

 

  Other Types of Investments and Considerations

Cash Management and Temporary Defensive Investments. For cash management purposes, as part of the Adviser’s disciplined investment approach or when the Adviser believes that market conditions warrant it (i.e., a temporary defensive position), the Fund may hold part or all of its assets in cash or debt and money market instruments. Except when pursuing such temporary defensive positions in response to cash flows, adverse market, economic, political or other conditions, the Fund’s investment in debt, including money market instruments, will not exceed 20% of its net assets. Investments in

 

 

9


SENBANC FUND

 

 

debt and money market instruments will generally be limited to (1) obligations of the U.S. government, its agencies and instrumentalities; and (2) corporate notes, bonds and debentures rated at least AA by Standard & Poor’s Corporation (“Standard & Poor’s”) or Aa by Moody’s Investors Service (“Moody’s”) (see Appendix A to the Statement of Additional Information (“SAI”) — “Description of Securities Ratings”).

Investments in debt and money market instruments are subject to interest rate risk and credit risk. In general, the market value of debt instruments in the Fund’s portfolio will decrease as interest rates rise and increase as interest rates fall. In addition, to the extent the Fund invests in debt instruments, there is the risk that an issuer will be unable to make principal and interest payments when due. The risks of these types of investments and strategies are described further in the SAI. To the extent that the Fund holds cash or invests in debt and money market instruments (including for the purpose of pursuing a temporary defensive position), the Fund may not achieve its investment objective. There are also specific restrictions on the Fund’s investments. These restrictions are detailed in the SAI.

Securities Lending

 

 

The Fund may seek to increase its income by lending portfolio securities to institutions, such as certain broker-dealers. Portfolio securities loans are secured continuously by collateral maintained on a current basis at an amount at least equal to the market value of the securities loaned. The value of the securities loaned by the Fund will not exceed 33 1/3% of the value of the Fund’s total assets. The Fund may experience a loss or delay in the recovery of its securities if the borrowing institution breaches its agreement with the Fund.

Portfolio Holdings

 

  A description of the Company’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the Fund’s SAI.

 

MANAGEMENT
OF THE FUND

Adviser

 

  The Adviser, which is located at Hilliard Lyons Center, 500 West Jefferson Street, Louisville, Kentucky 40202, is responsible for providing investment advisory and management services to the Fund, subject to the direction of the Company’s Board of Directors. Hilliard Lyons, of which the Adviser is a division, is a registered investment adviser, registered broker-dealer and member firm of the New York Stock Exchange, Inc. (“NYSE”), other principal exchanges and the Financial Industry Regulatory Authority, Inc. (“FINRA”). Hilliard Lyons is a subsidiary of HL Financial Services, LLC, a company owned by employees of Hilliard Lyons and their financial partner, Houchens Industries, Inc.

 

 

10


SENBANC FUND

 

 

  Together with predecessor firms, Hilliard Lyons has been in the investment banking business since 1854 and has been registered as an investment adviser since 1973. The Adviser serves as investment adviser to the Hilliard Lyons Government Fund, Inc., an open-end money market mutual fund with assets as of November 30, 2008 of approximately $1.89 billion. As of November 30, 2008, Hilliard Lyons managed individual, corporate, fiduciary and institutional accounts with assets totaling approximately $2 billion. For the fiscal year ended August 31, 2008, the Adviser received advisory fees from the Fund at the effective rate of 0.60% of the Fund’s average daily net assets. The Adviser has voluntarily agreed to waive its management fee and/or reimburse the Fund for expenses such that the Fund’s total annual operating expenses for any year does not exceed 1.75% of average daily net assets. This arrangement may be terminated by the Adviser upon notice to the Company’s Board of Directors.

 

  A discussion concerning the basis for the Company’s Board of Directors approving the Adviser’s investment advisory agreement with the Company on behalf of the Fund is included in the Fund’s Annual Report to shareholders for the fiscal year ended August 31, 2008.

 

  Portfolio Manager

 

  Alan F. Morel is the person primarily responsible for the day-to-day operations of the Fund. He is also the designer and originator of the proprietary programs, upon which the Fund’s investment model is based. Therefore, the investment success of the Fund will depend significantly on the efforts of Mr. Morel. Accordingly, the death, incapacity, removal or resignation of Mr. Morel could adversely affect the Fund’s performance. Mr. Morel, who has managed the Fund since its inception as the Predecessor Fund, is a Senior Vice President of Hilliard Lyons and has been employed by Hilliard Lyons as an analyst since 1976. Neither Hilliard Lyons nor the Adviser currently has a written employment agreement with Mr. Morel.

The SAI provides more information about Mr. Morel’s compensation, other accounts managed by him and his ownership of shares in the Fund.

 

 

11


SENBANC FUND

 

 

Other Service Providers

The following chart shows the Fund’s other service providers and includes their addresses and principal activities.

LOGO

 

 

12


SENBANC FUND

 

 

SHAREHOLDER INFORMATION

Pricing of Fund Shares

 

 

  Shares of the Fund are sold at their net asset value (“NAV”) plus a front-end sales charge, if applicable. This is commonly referred to as the “public offering price.” The NAV of the Fund is calculated as follows:

 

  NAV =      Value of Assets Attributable to the Fund
       Value of Liabilities Attributable to the Fund
       Number of Outstanding Shares of the Fund

 

  The Fund’s NAV is calculated once daily at the close of regular trading hours on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m. Eastern time) on each day the NYSE is open. The NYSE is generally open Monday through Friday, except national holidays. The Fund will effect purchases of Fund shares at the public offering price next determined after receipt of your order or request in proper form. The Fund will effect redemptions of Fund shares at the NAV next calculated after receipt of your order in proper form.

 

  The Fund’s equity securities listed on any national or foreign exchange market system will be valued at the last sale price, except for the National Association of Securities Dealers Automatic Quotation System (“NASDAQ”). Equity securities listed on NASDAQ will be valued at the official closing price. Equity securities traded in the over-the-counter market are valued at their closing prices. If there were no transactions on that day, securities traded principally on an exchange or on NASDAQ will be valued at the mean of the last bid and ask prices prior to the market close. Fixed income securities having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. Fixed income securities having a remaining maturity of greater than 60 days are valued using an independent pricing service. When prices are not available from such services or are deemed to be unreliable, securities may be valued by dealers who make markets in such securities.

 

  If market quotations are unavailable or deemed unreliable, securities will be fair valued in accordance with procedures adopted by the Company’s Board of Directors. Relying on prices supplied by pricing services or dealers or using fair valuation involves the risk that the values used by the Fund to price its investments may be higher or lower than the values used by other investment companies and investors to price the same investments.

 

  Investments in other open-end investment companies are valued based on the NAV of those investment companies (which may use fair value pricing as discussed in their prospectuses).

 

 

13


SENBANC FUND

 

 

  Sales Charges

 

  General. Purchases of the Fund’s shares are subject to a front-end sales charge of two and one-quarter percent (2.25%) of the total purchase price; however, sales charges may be reduced for large purchases as indicated below. Sales charges are not imposed on shares that are purchased with reinvested dividends or other distributions. The table below indicates the front-end sales charge as a percentage of both the offering price and the net amount invested. The term “offering price” includes the front-end sales charge.

 

    

Amount of Purchase

  

Sales Charge as a
% of Offering
Price

 

Sales Charge as a
% of Net Amount
Invested

 

Less than $500,000

   2.25%   2.30%
 

At least $500,000 but less than $1,000,000

   1.75%   1.78%
 

$1,000,000 or greater

   0.00%   0.00%

 

  No sales charge is payable at the time of purchase on investments of $1 million or more; however, a 1% contingent deferred sales charge is imposed in the event of redemption within 12 months following any such purchase. See the section entitled “Contingent Deferred Sales Charge on Certain Redemptions.” The Underwriter may pay a commission at the rate of 1% to certain brokerage firms, financial institutions and other industry professionals, including Hilliard Lyons investment brokers (collectively “Service Organizations”), who initiate and are responsible for purchases of $1 million or more.

 

 

Combined Purchase Privilege. Certain purchases of Fund shares made at the same time by you, your spouse and your children under age 25 may be combined for purposes of determining the “Amount of Purchase.” The combined purchase privilege may also apply to certain employee benefit plans and trust estates. The following purchases may be combined for purposes of determining the “Amount of Purchase:” (a) individual purchases, if made at the same time, by a single purchaser, the purchaser’s spouse and children under the age of 25 purchasing shares for their own accounts, including shares purchased by a qualified retirement plan(s) exclusively for the benefit of such individual(s) (such as an IRA, individual-type section 403(b) plan or single-participant Keogh-type plan) or by a “Company,” as defined in Section 2(a)(8) of the Investment Company Act of 1940, as amended (the “1940 Act”), solely controlled, as defined in the 1940 Act, by such individual(s), or (b) individual purchases by trustees or other fiduciaries purchasing shares (i) for a single trust estate or a single fiduciary account, including an employee benefit plan, or (ii) concurrently by two or more employee benefit plans of a single employer or of employers affiliated with each other in accordance with Section 2(a)(3)(c) of the 1940 Act (excluding in either case an

 

 

14


SENBANC FUND

 

 

 

employee benefit plan described in (a) above), provided such trustees or other fiduciaries purchase shares in a single payment. Purchases made for nominee or street name accounts may not be combined with purchases made for such other accounts. You may also further discuss the combined purchase privilege with your investment broker or other Service Organization. In order to take advantage of the combined purchase privilege, the purchases combined must be brought to the attention of your investment broker or other Service Organization at the time of your purchase.

 

  Cumulative Quantity Discount. You may combine the value of shares held in the Fund, along with the dollar amount of shares being purchased, to qualify for a cumulative quantity discount. The value of shares held is the higher of their cost or current net asset value. For example, if you hold shares having a value of $475,000 and purchase $25,000 of additional shares, the sales charge applicable to the additional investment would be 1.75%, the rate applicable to a single purchase of $500,000. In order to receive the cumulative quantity discount, the value of shares held must be brought to the attention of your investment broker or other Service Organization at the time of your purchase.

 

  Letter of Intent. If you anticipate purchasing at least $500,000 of shares within a 13-month period, the shares may be purchased at a reduced sales charge by completing and returning a Letter of Intent (the “Letter”), which can be provided to you by your investment broker or other Service Organization. The reduced sales charge may also be obtained on shares purchased within the 90 days prior to the date of receipt of the Letter. Shares purchased under the Letter are eligible for the same reduced sales charge that would have been available had all the shares been purchased at the same time. There is no obligation to purchase the full amount of shares indicated in the Letter. Should you invest more or less than indicated in the Letter during the 13-month period, the sales charge will be recalculated based on the actual amount purchased. A portion of the amount of the intended purchase normally will be held in escrow in the form of Fund shares pending completion of the intended purchase.

 

  Sales Charge Waivers. The Fund sells shares at net asset value without imposition of a sales charge to the following persons:

 

   

current and retired (as determined by Hilliard Lyons) employees of Hilliard Lyons and its affiliates, their spouses and children under the age of 25 and employee benefit plans for such employees, provided orders for such purchases are placed by the employee;

 

   

any other investment company in connection with the combination of such company with the Fund by merger, acquisition of assets or otherwise;

 

   

Directors of the Company and registered representatives of Service Organizations;

 

 

15


SENBANC FUND

 

 

   

existing advisory clients of the Adviser on purchases effected by transferring all or a portion of their investment management or trust account to the Fund, provided that such account had been maintained for a period of six months prior to the date of purchase of Fund shares;

 

   

trust companies, bank trust departments and registered investment advisers purchasing for accounts over which they exercise investment authority and which are held in a fiduciary, agency, advisory, custodial or similar capacity, provided that the amount collectively invested or to be invested in the Fund by such entity or adviser during the subsequent 13-month period totals at least $100,000;

 

   

employer-sponsored retirement plans with assets of at least $100,000 or 25 or more eligible participants; and

 

   

accounts established under a fee-based program sponsored and maintained by a registered broker-dealer or other financial intermediary and approved by the Distributor.

 

  In order to take advantage of a sales charge waiver, a purchaser must certify to the Service Organization eligibility for a waiver and must notify the Service Organization whenever eligibility for a waiver ceases to exist. A Service Organization reserves the right to request additional information from a purchaser in order to verify that such purchaser is so eligible. Such information may include account statements or other records regarding shares of the Fund held by you or your immediate family household members.

 

  Information regarding sales charges, discounts and waivers is available free of charge at www.hilliard.com.

 

  Contingent Deferred Sales Charge on Certain Redemptions. Purchases of $1 million or more are not subject to an initial sales charge; however, a contingent deferred sales charge is payable on these investments in the event of a share redemption within 12 months following the share purchase, at the rate of 1% of the lesser of the value of the shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the total cost of such shares. In determining whether a contingent deferred sales charge is payable, and the amount of the charge, it is assumed that shares purchased with reinvested dividends and capital gain distributions and then other shares held the longest are the first redeemed. The contingent deferred sales charge is further discussed in the SAI.

 

  Market Timing

 

 

In accordance with the policy adopted by the Company’s Board of Directors, the Company discourages market timing and other excessive trading practices. Purchases should be made with a view to longer-term investment only.

 

 

16


SENBANC FUND

 

 

 

Excessive short-term (market timing) trading practices may disrupt portfolio management strategies, increase brokerage and administrative costs, harm Fund performance and result in dilution in the value of Fund shares held by long-term shareholders. The Company and the Adviser reserve the right to reject or restrict purchase requests from any investor. The Company and the Adviser will not be liable for any loss resulting from rejected purchase orders. To minimize harm to the Company and its shareholders (or the Adviser), the Company (or the Adviser) will exercise their right if, in the Company’s (or the Adviser’s) judgment, an investor has a history of excessive trading or if an investor’s trading, in the judgment of the Company or the Adviser, has been or may be disruptive to the Fund. No waivers of the provisions of the policy established to detect and deter market timing and other excessive trading activity are permitted that would harm the Fund and its shareholders or would subordinate the interests of the Fund and its shareholders to those of the Adviser or any affiliated person or associated person of the Adviser.

 

  Pursuant to the policy adopted by the Board of Directors, the Adviser has developed criteria that it uses to identify trading activity that may be excessive. The Adviser reviews on a regular, periodic basis available information related to the trading activity in the Fund in order to assess the likelihood that the Fund may be the target of excessive trading. As part of its excessive trading surveillance process, the Adviser, on a periodic basis, examines transactions that exceed certain monetary thresholds or numerical limits within a period of time. If, in its judgment, the Adviser detects excessive, short-term trading, the Adviser may reject or restrict a purchase request and may further seek to close an investor’s account with the Fund. The Adviser may modify its surveillance procedures and criteria from time to time without prior notice regarding the detection of excessive trading or to address specific circumstances. The Adviser will apply the criteria in a manner that, in the Adviser’s judgment, will be uniform.

 

  There is no assurance that the Fund will be able to identify market timers, particularly if they are investing through intermediaries.

 

  Purchase of Fund Shares

 

  Shares representing interests in the Fund are offered continuously for sale by PFPC Distributors, Inc. (the “Underwriter”). The Board of Directors of the Company has approved and adopted a Plan of Distribution for the Fund (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Underwriter is reimbursed from the Fund for distribution expenses actually incurred, up to 0.60% on an annualized basis of the average daily net assets of the Fund. Because these fees are paid out of the Fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

 

 

17


SENBANC FUND

 

 

  Amounts reimbursed to the Underwriter under the Plan may be for expenses in connection with the sale of shares of the Fund, including ongoing servicing and/or maintenance of the accounts of shareholders. The Underwriter may delegate some or all of these functions to Service Organizations (which may include Hilliard Lyons). See “Purchases Through Intermediaries” below.

 

  General. Initial investments in the Fund must be at least $250, and subsequent minimum investments must be at least $100. For purposes of meeting the minimum initial purchase, clients which are part of endowments, foundations or other related groups may be aggregated. The Fund’s officers are authorized to waive the minimum initial and subsequent investment requirements. After an initial purchase is made, PNC, the Fund’s transfer agent (the “Transfer Agent”), will set up an account for you in the Company records.

 

  Purchases Through Intermediaries. Shares of the Fund are available through Service Organizations, including Hilliard Lyons. Service Organizations may impose transaction or administrative charges or other direct fees, which would not be imposed if shares of the Fund were purchased directly from the Company. Therefore, investors should contact the Service Organization acting on their behalf concerning the fees, if any, charged in connection with a purchase or redemption of shares of the Fund and should read this Prospectus in light of the terms governing their accounts with the Service Organization. Service Organizations will be responsible for promptly transmitting client or customer purchase and redemption orders to the Company in accordance with their agreements with the Company and with clients and customers. A Service Organization or, if applicable, its designee that has entered into such an agreement with the Company or its agent may enter confirmed purchase orders on behalf of clients and customers, with payment to follow no later than the Fund’s pricing on the following business day. If payment is not received by such time, the Service Organization could be held liable for resulting fees or losses. The Company will be deemed to have received a purchase or redemption order when a Service Organization, or if applicable, its authorized designee, accepts a purchase or redemption order in good order. Orders received by the Fund in good order will be executed at the Fund’s public offering price next determined after they are accepted by the Service Organization or its authorized designee. If a purchase order is not received by the Company in good order, the Transfer Agent will contact the Service Organization to determine the status of the purchase order.

 

  The Company relies upon the integrity of Service Organizations to ensure that orders are timely and properly submitted. The Fund cannot assure you that Service Organizations have properly submitted to it all purchase and redemption orders received from the Service Organizations’ customers before the time for determination of the Fund’s public offering price in order to obtain that day’s price.

 

 

18


SENBANC FUND

 

 

  Automatic Investment Plan. The automatic investment plan enables you to make regular monthly or quarterly investments in shares through automatic charges to your bank account. With your authorization and bank approval, your bank account is automatically charged by your Service Organization for the amount specified ($100 minimum), which is automatically invested in shares at the public offering price on or about the date you specify. Bank accounts are charged on the day or a few days before investments are credited, depending on the bank’s capabilities, and you will receive a confirmation statement showing the current transaction. To participate in the automatic investment plan, contact your Service Organization for an authorization agreement, which contains details about the automatic investment plan. If your bank account cannot be charged due to insufficient funds, a stop payment order or the closing of your account, the automatic investment plan may be terminated and the related investment reversed. You may change the amount of the investment or discontinue the automatic investment plan at any time by notifying your Service Organization.

 

  Retirement Plans. Shares of the Fund may be purchased in connection with various retirement plans, including Individual Retirement Accounts (“IRAs”), section 403(b) plans and retirement plans for self-employed individuals, partnerships and corporations and their employees. Detailed information concerning retirement plans is available from your Service Organization. A $15.00 retirement custodial maintenance fee is charged per IRA account per year. For further information as to applications and annual fees, contact your Service Organization. To determine whether the benefits of an IRA are available and/or appropriate, you should consult with a tax advisor.

 

  Other Purchase Information. The Company reserves the right, in its sole discretion, to suspend the offering of shares or to reject purchase orders when, in the judgment of management, such suspension or rejection is in the best interest of the Fund. The Adviser will monitor the Fund’s total assets and may, subject to Board approval, decide to close the Fund at any time to new investments or to new accounts due to concerns that a significant increase in the size of the Fund may adversely affect the implementation of the Fund’s strategy. The Adviser, subject to Board approval, may also choose to reopen the Fund to new investments at any time, and may subsequently close the Fund again should concerns regarding the Fund’s size recur. If the Fund closes to new investments, the Fund may be offered only to certain existing shareholders of the Fund and certain other per