N-CSR 1 g06730nvcsr.txt FORM N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-05518 The RBB Fund, Inc. (Exact name of registrant as specified in charter) 103 Bellevue Parkway, 4th Floor Wilmington, DE 19809 (Address of principal executive offices) (Zip code) Salvatore Faia 103 Bellevue Parkway, 4th Floor Wilmington, DE 19809 (Name and address of agent for service) Registrant's telephone number, including area code: 302-791-2670 Date of fiscal year end: August 31 Date of reporting period: August 31, 2010 Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. ITEM 1. REPORTS TO STOCKHOLDERS. The Report to Shareholders is attached herewith. (BEAR STEARNS LOGO) BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO OF THE RBB FUND, INC. ANNUAL REPORT August 31, 2010 This report is submitted for the general information of the shareholders of the Portfolio. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Portfolio. BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO ANNUAL REPORT FOR THE YEAR ENDED AUGUST 31, 2010 (UNAUDITED) We are pleased to present the Bear Stearns CUFS MLP Mortgage Portfolio ("the Portfolio") annual report covering the period from September 1, 2009 through August 31, 2010. Portfolio performance information, market commentary and our outlook for the period ended August 31, 2010 follows. We encourage you to carefully review the enclosed information to stay informed. PORTFOLIO PERFORMANCE AND MARKET REVIEW: From September 1, 2009 through August 31, 2010 the Portfolio generated a periodic total return of 10.96% net of expenses. The Portfolio's primary benchmark, the Barclays Capital 1- to 3-month U.S. Treasury Bill Index, returned 0.12% during the same period, while an index tracking 1-month U.S. LIBOR returned 0.27%. The 30-day yield of the Portfolio at the end of the period was 3.55%, compared to a yield of 0.13% for the Portfolio's benchmark and 0.26% for 1-month LIBOR. While the recession was officially declared to have ended as of June 2009, the last twelve months will not be remembered as the period of strong economic recovery that might have been expected to follow the deepest post-war recession in U.S. history. Economists debated in the latter part of 2009 whether investors should expect a traditional "V-shaped" recovery, or whether "U" or even "L-shaped" might be better descriptions. The period began with tentative signs of economic strength, but that was in comparison to the weak periods that preceded and was driven mostly by inventory rebuilding and pent-up demand that resulted from the pull-back in consumer and corporate spending during the recession. As the period wore on, it became clearer that tentative levels of private payroll growth as well as an unforeseeable end to the weakness in domestic housing markets would constrain the path of economic recovery. So while many government stimulus programs, including the Federal Reserve's mortgage purchase program, were winding down in early 2010, the discourse regarding future economic policy changed dramatically during the period. In early 2010, investors and policy makers were debating the timing and pace of the reversal of accommodative policy tools. By mid-year, however, investors witnessed a dramatic shift in expectations regarding the global economic recovery. Concerns regarding Greek debt quickly spread to general concerns about European sovereign debt and the continued need for global deleveraging. Macroeconomic data in the U.S deteriorated over the summer, leading to concern that the global economy might experience a "double dip" recession. As a result, the period ended with growing speculation that policymakers might need to use additional tools at their disposal to help stimulate growth. Despite the economic uncertainty, the last twelve months have generally been very favorable for mortgage-backed securities (MBS) markets and for the holdings of the Portfolio. While concerns lingered that the completion of the Federal Reserve's $1.25 trillion agency MBS purchase program in March would leave the market without sustainable support, the sector in fact performed quite well even without Fed participation. With many homeowners faced with weak credit and mortgages in excess of their home values, mortgage refinancing remained relatively light compared to the historically low levels of interest rates. This not only resulted in lower levels of mortgage issuance, but also allowed the existing universe of agency mortgage securities to appreciate in price as investors gained comfort from lower levels of prepayment risk. Non-agency MBS generally benefitted from a strong rebound in prices during the period, though valuations are in many cases still well below their issuance levels. While ongoing housing market concerns continue to weigh on the sector, investors recognize that some of the more draconian potential outcomes for these securities may be avoided and this has allowed for significant price appreciation. Also contributing to performance in that sector was government support through the Public-Private Investment Program as well as broad-based buying from investors looking to take advantage of the distressed nature of the sector. 1 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO ANNUAL REPORT FOR THE YEAR ENDED AUGUST 31, 2010 (CONCLUDED) (UNAUDITED) PORTFOLIO POSITIONING: In April, the Portfolio was closed to new investments to allow the Board of Directors of The RBB Fund, Inc., in conjunction with shareholders, to explore various options regarding the future of the Portfolio. The Portfolio continues to be invested primarily in a combination of agency-backed and private label mortgage securities, although there have been no significant additions to the holdings of mortgage securities since April. Income and principal payments that have accrued in the Portfolio in recent months have been invested in short-term instruments, resulting in Treasury Bill holdings totaling 16.4% of the Portfolio as of August 31, 2010. In addition to cash reinvestment, active portfolio hedging continues to be employed in the management of the Portfolio. 2 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO PERFORMANCE DATA AUGUST 31, 2010 (UNAUDITED) PERFORMANCE The Portfolio's total return from inception on December 19, 2006 through August 31, 2010 was 0.11%, net of all fees and expenses. The Portfolio's benchmark, the Barclays Capital U.S. Treasury Bills 1-3 Month Index(2), returned 1.86% for the same period. COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO VS. BARCLAY'S CAPITAL U.S. TREASURY BILLS 1-3 MONTH INDEX
Barclay's 1-3 month LIBOR 1 month Bear Stearns CUFS T-bill Index index Insitutional ------------------- ------------- ----------------- 12/19/2006 10000 10000 10000 7-Feb 10122.5 10105.3 10133.5 7-Aug 10385.4 10381.3 10309.7 8-Feb 10576.9 10645.2 10520.4 8-Aug 10669.3 10791.8 9818.4 9-Feb 10710.9 10905.5 7842.1 9-Aug 10722.7 10930.6 9050.8 10-Feb 10727.2 10943.8 9701.61 10-Aug 10735.2 10960.3 10042.4
The chart assumes a hypothetical $10,000 initial investment in the Portfolio made on December 19, 2006 (commencement of operations) and reflects Portfolio expenses. Investors should note that the Portfolio is an actively managed mutual fund while the Barclays Capital U.S. Treasury Bills 1-3 Month Index is unmanaged, does not incur expenses and is not available for investment. TOTAL RETURNS AS OF AUGUST 31, 2010
Average Annual Total Returns Since 1 Year Inception* ------ -------------- Bear Stearns CUFS(R) MLP Mortgage Portfolio(1) 10.96% 0.11% Barclay's Capital U.S. Treasury Bills 1-3 Month Index(2) 0.12% 1.86% 1-Month LIBOR(3) 0.27% 2.50%
PERFORMANCE QUOTED IS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE RETURNS QUOTED ABOVE. CALL CUFS(R) AT 1-800-519-CUFS (2837) FOR RETURNS CURRENT TO THE MOST RECENT MONTH-END. THE PORTFOLIO'S GROSS AND NET ANNUAL OPERATING EXPENSES, AS STATED IN THE CURRENT PROSPECTUS IS 0.88%. THE PERFORMANCE DATA REFLECTS FEE WAIVERS AND EXPENSE REIMBURSEMENTS. THE RETURNS WOULD HAVE BEEN LOWER IF THESE WAIVERS AND EXPENSE REIMBURSEMENTS WERE NOT IN EFFECT. PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. ---------- * The inception date of the Portfolio was December 19, 2006. (1) Net of fees and expenses. (2) 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. (3) The 1-Month LIBOR is a constant maturity index of the London Interbank Offering Rate established to reflect the total return of the 1-Month LIBOR rate. Source: Merrill Lynch. 3 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO FUND EXPENSE EXAMPLE (UNAUDITED) As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Portfolio expenses. The example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of $1,000 that was invested at the beginning of the period from March 1, 2010 through August 31, 2010, and held for the entire period. ACTUAL EXPENSES The first line of the accompanying table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the accompanying table provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the accompanying table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the second line of the accompanying table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if any transactional costs were included, your costs would have been higher.
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING MARCH 1, 2010 AUGUST 31, 2010 PERIOD* ----------------------- -------------------- -------------------- Actual $1,000.00 $1,035.10 $4.46 Hypothetical (5% return before expenses) 1,000.00 1,020.76 4.44
---------- * Expenses are equal to the Portfolio's annualized six-month expense ratio of 0.87%, which includes waived fees or reimbursed expenses, multiplied by the number of days (184) in the most recent fiscal half-year, then divided by 365 to reflect the one-half year period. The Portfolio's ending account value on the first line is based on the actual six-month total return of 3.51%. 4 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO PORTFOLIO HOLDINGS SUMMARY TABLE AUGUST 31, 2010 (UNAUDITED)
% OF NET SECURITY TYPE/INDUSTRY CLASSIFICATION ASSETS VALUE ------------------------------------- --------- ------------ GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES 43.9% $ 53,607,058 COLLATERALIZED MORTGAGE OBLIGATIONS 26.8 32,741,703 SHORT TERM OBLIGATIONS 16.4 19,996,111 MORTGAGE DERIVATIVES 10.2 12,449,403 U.S. TREASURY OBLIGATIONS 0.3 400,844 OTHER ASSETS IN EXCESS OF LIABILITIES 2.4 2,870,802 ----- ------------ NET ASSETS 100.0% $122,065,921 ===== ============
Portfolio holdings are subject to change at any time. The accompanying notes are an integral part of the financial statements. 5 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO PORTFOLIO OF INVESTMENTS AUGUST 31, 2010
MOODY'S/ PAR MARKET S&P (b) (000'S) VALUE -------- ------- ------------ GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES--43.9% FEDERAL HOME LOAN MORTGAGE CORPORATION--19.9% 5.000% 05/01/18 Aaa/AAA $ 1,102 $ 1,180,279 5.000% 09/01/19 Aaa/AAA 1,613 1,727,588 5.000% 09/01/20 Aaa/AAA 2,045 2,187,230 4.500% 11/01/20 Aaa/AAA 983 1,051,108 4.500% 06/01/21 Aaa/AAA 1,595 1,701,057 4.500% 12/01/21 Aaa/AAA 1,426 1,523,946 4.500% 08/01/22 Aaa/AAA 2,764 2,948,158 4.500% 08/01/22 Aaa/AAA 2,167 2,316,593 5.882% 08/01/36 (a) Aaa/AAA 3,509 3,696,991 5.970% 09/01/36 (a) Aaa/AAA 1,625 1,721,406 5.779% 11/01/36 (a) Aaa/AAA 1,487 1,570,854 5.812% 08/01/37 (a) Aaa/AAA 2,549 2,713,775 ------------ 24,338,985 ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION--24.0% 5.000% 06/01/18 Aaa/AAA 1,718 1,828,191 5.000% 02/01/19 Aaa/AAA 1,743 1,854,809 5.000% 04/01/19 Aaa/AAA 1,076 1,152,150 5.000% 07/01/19 Aaa/AAA 1,368 1,474,096 4.500% 03/01/20 Aaa/AAA 2,866 3,064,759 5.000% 04/01/21 Aaa/AAA 1,494 1,593,325 2.003% 12/01/34 (a) Aaa/AAA 3,274 3,396,100 5.988% 10/01/36 (a) Aaa/AAA 1,189 1,259,103 6.044% 10/01/36 (a) Aaa/AAA 549 580,778 5.500% 12/01/36 Aaa/AAA 353 378,323 5.658% 12/01/36 (a) Aaa/AAA 731 774,139 5.499% 09/01/37 (a) Aaa/AAA 1,912 2,028,226 4.500% 04/01/40 Aaa/AAA 9,400 9,884,074 ------------ 29,268,073 ------------ TOTAL GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (COST $51,683,428)................ 53,607,058 ------------ MORTGAGE DERIVATIVES--10.2% FANNIE MAE (IO)--6.8% 4.500% 12/01/18 Aaa/AAA 4,864 537,675 4.500% 01/01/19 Aaa/AAA 4,805 529,691 4.500% 03/01/20 Aaa/AAA 1,694 159,572 4.500% 03/01/20 Aaa/AAA 1,755 167,999 5.500% 05/25/23 Aaa/AAA 1,403 182,785 5.500% 12/25/24 Aaa/AAA 4,607 439,815 5.500% 07/25/28 Aaa/AAA 2,258 8,961 5.500% 10/25/31 Aaa/AAA 11,674 811,977 7.586% 04/25/32 (a) Aaa/AAA 2,415 414,638 6.786% 09/25/32 (a) Aaa/AAA 3,536 336,883 5.000% 10/01/33 Aaa/AAA 6,937 956,338 5.000% 12/01/33 Aaa/AAA 1,364 200,313 5.000% 12/01/33 (a) Aaa/AAA 2,295 329,988 5.000% 08/01/34 Aaa/AAA 2,305 356,472 5.500% 04/01/36 Aaa/AAA 4,618 615,880 5.500% 04/01/36 Aaa/AAA 7,331 942,516 7.036% 08/25/36 (a) Aaa/AAA 3,794 497,302 5.000% 10/01/36 Aaa/AAA 5,604 803,906 ------------ 8,292,711 ------------
MOODY'S/ PAR MARKET S&P (000'S) VALUE -------- ------- ------------ MORTGAGE DERIVATIVES--(CONTINUED) FANNIE MAE (PO)--0.3% 5.500% 06/25/36 Aaa/AAA $ 437 $ 418,852 ------------ FREDDIE MAC (IO)--1.7% 5.500% 07/15/16 Aaa/AAA 951 12,214 6.886% 02/25/32 (a) Aaa/AAA 3,978 392,104 6.209% 06/15/36 (a) Aaa/AAA 2,410 388,630 6.304% 09/15/36 (a) Aaa/AAA 4,530 643,054 6.374% 11/15/36 (a) Aaa/AAA 4,450 634,453 ------------ 2,070,455 ------------ FREDDIE MAC (PO)--0.7% 4.000% 09/15/35 Aaa/AAA 488 462,767 5.896% 09/15/36 Aaa/AAA 357 349,950 ------------ 812,717 ------------ NON-AGENCY (IO)--0.7% CWALT Series 2006-43CB (b) 6.000% 02/25/37 Cc /CCC 5,113 854,668 ------------ TOTAL MORTGAGE DERIVATIVES (COST $13,940,689)................ 12,449,403 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS--26.8% Banc of America Mortgage Securities, Inc. Series 2005-H (a) (b) 4.019% 09/25/35 Bbb/B 2,000 1,566,194 Banc of America Mortgage Securities, Inc. Series 2006-B (a) (b) 4.265% 10/20/46 C /CCC 2,600 1,479,195 Banc of America Mortgage Securities, Inc. Series 2007-3 (b) 6.000% 09/25/37 Cc /CCC 3,700 3,299,894 Citigroup Mortgage Loan Trust, Inc. Series 2007-AR8 (a) 5.809% 07/25/37 Caa3/CC 3,312 2,422,184 Countrywide Asset-Backed Certificates Series 2004-AB2 (a) 0.864% 05/25/36 Baa3/B- 500 83,166 Countrywide Home Loan Mortgage Pass-Through Trust Series 2003-3 (a) (b) 0.764% 04/25/18 Aaa/AAA 271 266,270 Countrywide Home Loan Mortgage Pass-Through Trust Series 2007-HY1 (a) (b) 5.551% 04/25/37 C /CC 1,880 354,851 CWALT Series 2006-43CB (b) 6.000% 02/25/37 C /CC 707 546,313 CWALT Series 2006-HY13 (a) (b) 5.784% 02/25/37 C /CC 9,159 1,153,301 CWALT Series 2006-J2 6.000% 04/25/36 Caa1/CC 5,357 4,387,426 CWALT Series 2007-2CB 5.750% 03/25/37 C /CC 3,789 779,104
The accompanying notes are an integral part of the financial statements. 6 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 2010
MOODY'S/ PAR MARKET S&P (b) (000'S) VALUE -------- ------- ------------ COLLATERALIZED MORTGAGE OBLIGATIONS--(CONTINUED) CWALT Series 2007-J2 (b) 6.000% 07/25/37 Caa1/C $ 1,455 $ 1,156,718 Fannie Mae REMICS Series 2005-25 (a) 0.614% 04/25/35 Aaa/AAA 1,740 1,734,934 Fannie Mae REMICS Series 2006-61 6.000% 10/25/30 Aaa/AAA 1,091 1,102,870 First Horizon Asset Securities, Inc. Series 2006-AR1 (a) (b) 5.641% 05/25/36 Cc/CCC 2,772 686,186 Freddie Mac REMICS Series 2752 (a) 0.626% 12/15/30 Aaa/AAA 441 440,623 Freddie Mac REMICS Series 2995 (a) 0.676% 06/15/35 Aaa/AAA 587 585,946 JPMorgan Mortgage Trust Series 2005-A4 (a) (c) 5.159% 07/25/35 Ba1/AAA 722 683,177 JPMorgan Mortgage Trust Series 2005-A6 (a)(b)(c) 3.148% 08/25/35 Aa /B+ 560 486,733 Residential Asset Securitiation Trust Series 2007-A5 6.000% 05/25/37 Caa2/CCC 1,208 963,883 Residential Funding Mortgage Securities I Series 2006-SA4 (a) 6.069% 11/25/36 Caa3/CCC 4,774 3,618,106 Residential Funding Mortgage Securities I Series 2007-SA2 (a) 5.625% 04/25/37 C/D 1,452 60,058 Washington Mutual, Inc. Series 2007-HY3 (a) (b) 5.255% 03/25/37 C/CCC 1,640 106,851 Washington Mutual, Inc. Series 2007-HY4 (a) (b) 5.361% 04/25/37 C/CCC 3,064 2,332,734 Wells Fargo Mortgage Backed Securities Trust Series 2007-10 (b) 6.250% 07/25/37 B2/CCC 2,619 2,444,986 ------------ TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $57,256,679)................ 32,741,703 ------------
PAR MARKET (000'S) VALUE ------- ------------ U.S. TREASURY OBLIGATIONS--0.3% U.S. TREASURY NOTE--0.3% U.S. Treasury Notes (e) 1.500% 10/31/10 $ 400 $ 400,844 ------------ TOTAL U.S. TREASURY OBLIGATIONS (COST $400,230)................... 400,844 ------------ SHORT TERM OBLIGATIONS--16.4% U.S. TREASURY BILL--16.4% U.S. Treasury Bill (d) 0.140% 10/21/10 20,000 19,996,111 ------------ TOTAL SHORT TERM OBLIGATIONS (COST $19,996,111) ............... 19,996,111 ------------ TOTAL INVESTMENTS--97.6% (Cost $143,277,137)............... 119,195,119 ------------ OTHER ASSETS IN EXCESS OF LIABILITIES (f)--2.4%.......... 2,870,802 ------------ NET ASSETS--100.0% .................. $122,065,921 ============
---------- CWALT Countrywide Alternative Loan Trust IO Interest Only PO Principal Only (a) Adjustable rate security. Interest rate varies due to interest rate fluctuations, or, in the case of certain asset-backed securities, interest payment shortfalls. (b) Where Moody's or S&P rating is not available, Fitch rating is substituted, if available. (Unaudited) (c) Security was purchased prior to the Portfolio's affiliation with JPMorgan Chase & Co. (d) Rate represents the yield at the time of purchase. The accompanying notes are an integral part of the financial statements. 7 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO PORTFOLIO OF INVESTMENTS (CONCLUDED) AUGUST 31, 2010 (e) All or a portion of the security held as collateral for the following Futures contracts open at August 31, 2010:
NUMBER VALUE VALUE UNREALIZED OF EXPIRATION AT TRADE AT APPRECIATION CONTRACTS TYPE MONTH DATE 08/31/2010 (DEPRECIATION)* ---------- -------------------------- ---------- ----------- ----------- --------------- Long Positions: 73 U.S. Treasury 5 Year Note 12/2010 $ 8,751,582 $ 8,783,383 $ 31,801 127 U.S. Treasury 10 Year Note 12/2010 15,909,602 15,954,375 44,773 Short Positions: 54 U.S. Treasury 2 Year Note 12/2010 11,836,848 11,833,594 (3,254) -------- $ 73,320 ========
(f) Assets in excess of other liabilities include interest rate swaps as follows:
NOTIONAL TERMINATION AMOUNT FIXED FLOATING VALUE AT UNREALIZED COUNTERPARTY DATE (000) RATE RATE 08/31/2010 (DEPRECIATION)* ------------ ----------- -------- ----- ------------- ----------- --------------- Deutsche Bank** 09/17/2013 $20,000 4.520% 3 MONTH LIBOR $(2,524,957) $(2,524,957) =========== ===========
* Primary risk exposure is interest rate contracts. ** Portfolio pays the fixed rate and receives the floating rate. The following is a summary of the inputs used, as of August 31, 2010, in valuing the Portfolio's investments carried at market value (See Note 1 in the Notes to Financial Statements):
TOTAL MARKET LEVEL 2 LEVEL 3 VALUE AS OF LEVEL 1 SIGNIFICANT SIGNIFICANT AUGUST 31, QUOTED OBSERVABLE UNOBSERVABLE 2010 PRICE INPUTS INPUTS ------------ ------- ------------ ------------ GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES $ 53,607,058 $ -- $ 53,607,058 $-- MORTGAGE DERIVATIVES 12,449,403 -- 12,449,403 -- COLLATERALIZED MORTGAGE OBLIGATIONS 32,741,703 -- 32,741,703 -- SHORT TERM OBLIGATIONS 19,996,111 -- 19,996,111 -- U.S. TREASURY OBLIGATIONS 400,844 -- 400,844 -- ASSET DERIVATIVES INTEREST RATE CONTRACTS* 76,574 76,574 -- -- ------------ ------- ------------ --- TOTAL ASSETS $119,271,693 $76,574 $119,195,119 $-- ============ ======= ============ ===
TOTAL MARKET LEVEL 2 LEVEL 3 VALUE AT LEVEL 1 SIGNIFICANT SIGNIFICANT AUGUST 31, QUOTED OBSERVABLE UNOBSERVABLE 2010 PRICE INPUTS INPUTS ------------- ------- ----------- ------------ LIABILITY DERIVATIVES INTEREST RATE CONTRACTS* $(2,528,211) $(3,254) $(2,524,957) $-- ----------- ------- ----------- --- TOTAL LIABILITIES $(2,528,211) $(3,254) $(2,524,957) $-- =========== ======= =========== ===
* Interest rate contracts include open futures contracts and swap contracts. The accompanying notes are an integral part of the financial statements. 8 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 2010 ASSETS Investments, at value+ ................................................ $119,195,119 Cash and cash equivalents ............................................. 2,197,937 Segregated cash ....................................................... 2,250,000 Receivables Dividends and interest ............................................. 538,839 Investments sold ................................................... 845,027 Variation margin due from broker ................................... 62,773 Prepaid expenses and other assets ..................................... 5,536 ------------ Total assets .................................................... 125,095,231 ------------ LIABILITIES Unrealized depreciation on swap agreements* ........................... 2,524,957 Payables Distributions to shareholders ...................................... 368,214 Investment adviser ................................................. 49,698 Other accrued expenses and liabilities ................................ 86,441 ------------ Total liabilities ............................................... 3,029,310 ------------ Net Assets ............................................................ $122,065,921 ============ NET ASSETS CONSIST OF: Par value ............................................................. $ 15,085 Paid-in capital ....................................................... 150,314,189 Distributions in excess of net investment income ...................... (14,785) Accumulated net realized loss from investments, futures transactions, TBA sales commitments, swap agreements and purchased options ....... (1,714,913) Net unrealized depreciation from investments, futures transactions and swap agreements .................................................... (26,533,655) ------------ Net Assets ......................................................... $122,065,921 ============ Shares outstanding ($0.001 par value, 100,000,000 shares authorized) .. 15,085,138 ------------ Net asset value, offering and redemption price per share .............. $ 8.09 ============ + Investment in securities, at cost .................................. $143,277,137 ============
---------- * Primary risk exposure is interest rate contracts. The accompanying notes are an integral part of the financial statements. 9 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2010 (UNAUDITED) INVESTMENT INCOME Interest .............................................................. $ 5,284,316 ----------- Total investment income ............................................ 5,284,316 ----------- EXPENSES Advisory fees ......................................................... 575,008 Administration and accounting fees .................................... 184,029 Audit fees ............................................................ 58,249 Transfer agent fees ................................................... 47,110 Legal fees ............................................................ 43,322 Custodian fees ........................................................ 29,353 Printing and shareholder reporting fees ............................... 23,569 Registration and filing fees .......................................... 21,628 Directors' and officers' fees ......................................... 17,777 Insurance ............................................................. 15,154 Other expenses ........................................................ 15,321 ----------- Total expenses before waivers ...................................... 1,030,520 Less: waivers ...................................................... (96,834) ----------- Net expenses after waivers ......................................... 933,686 ----------- Net investment income ................................................. 4,350,630 ----------- NET REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS, FUTURES TRANSACTIONS, TBA SALE COMMITMENTS, SWAP AGREEMENTS AND PURCHASED OPTIONS NET REALIZED GAIN/(LOSS) FROM: Investments ........................................................ 913,384 Futures* ........................................................... 1,983,732 TBA sale commitments ............................................... (201,133) Swap agreements* ................................................... (831,926) Purchased options* ................................................. (43,404) ----------- Total realized gain/(loss) from investments, futures transactions, TBA sale commitments, swap agreements and purchased options ............ 1,820,653 ----------- NET CHANGE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON: Investments ........................................................ 6,829,364 Futures* ........................................................... (122,431) TBA sale commitments ............................................... 42,653 Swap agreements* ................................................... (516,060) ----------- Total net changes in unrealized appreciation/(depreciation) on investments, futures transactions, TBA sale commitments and swap agreements ......................................................... 6,233,526 ----------- Net realized and unrealized gain/(loss) on investments, futures transactions, TBA sale commitments, swap agreements and purchased options ............................................................ 8,054,179 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................... $12,404,809 ===========
---------- * Primary risk exposure is interest rate contracts. The accompanying notes are an integral part of the financial statements. 10 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR ENDED ENDED AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income .............................. $ 4,350,630 $ 7,936,487 Net realized gain/(loss) from investments, futures transactions, TBA sale commitments, swap agreements and purchased options ........... 1,820,653 (524,929) Net change in unrealized appreciation/(depreciation) from investments, futures transactions, TBA sale commitments and swap agreements ........ 6,233,526 (18,004,673) ------------ ------------ Net increase/(decrease) in net assets resulting from operations .................................... 12,404,809 (10,593,115) ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income .............................. (6,097,351) (7,602,997) ------------ ------------ Net decrease in net assets from dividends and distributions to shareholders ...................... (6,097,351) (7,602,997) ------------ ------------ CAPITAL TRANSACTIONS: Reinvestment of distributions ...................... 1,318,552 2,748,132 ------------ ------------ Net increase in net assets from capital transactions .. 1,318,552 2,748,132 ------------ ------------ Total increase/(decrease) in net assets ............ 7,626,010 (15,447,980) NET ASSETS: Beginning of year .................................. 114,439,911 129,887,891 ------------ ------------ End of year ........................................ $122,065,921 $114,439,911 ============ ============ Undistributed/(overdistributed) net investment income, end of year ............................. $ (14,785) $ 384,783 ============ ============ SHARE TRANSACTIONS: Shares reinvested .................................. 165,888 374,570 ============ ============ Total share transactions ........................... 165,888 374,570 ============ ============
The accompanying notes are an integral part of the financial statements. 11 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO FINANCIAL HIGHLIGHTS Contained below is per share operating performance data for a share outstanding during each period, total investment return, ratios to average net assets and other supplemental data for the respective periods. This information has been derived from information provided in the financial statements.
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE PERIOD ENDED ENDED ENDED DECEMBER 19, 2006* TO AUGUST 31, 2010 AUGUST 31, 2009 AUGUST 31, 2008 AUGUST 31, 2007 --------------- --------------- --------------- --------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period ...... $ 7.67 $ 8.93 $ 9.92 $ 10.00 -------- -------- -------- -------- Net investment income ..................... 0.29 0.54 0.54 0.38 Net realized and unrealized gain/ (loss) on investments, futures transactions, TBA sale commitments, swap agreements and options ............ 0.54 (1.28) (0.98) (0.08) -------- -------- -------- -------- Net increase/(decrease) in net assets resulting from operations ....... 0.83 (0.74) (0.44) 0.30 -------- -------- -------- -------- Dividends to shareholders from: Net investment income ..................... (0.41) (0.52) (0.55) (0.38) Net realized capital gains ................ -- -- -- -- -------- -------- -------- -------- Net asset value, end of period ............ $ 8.09 $ 7.67 $ 8.93 $ 9.92 ======== ======== ======== ======== Total investment return(1) ................ 10.96% (7.82)% (4.76)% 3.10% ======== ======== ======== ======== RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) ........................ $122,066 $114,440 $129,888 $161,278 Ratio of expenses to average net assets with waivers and expense reimbursements (excluding interest expense) ...................... 0.78% 0.60% 0.60% 0.60%(2) Ratio of expenses to average net assets with waivers and expense reimbursements (including interest expense) ...................... 0.78% 0.60% 0.60% 0.78%(2) Ratio of expenses to average net assets without waivers and expense reimbursements (including interest expense) ............................... 0.86% 0.88% 0.80% 0.95%(2) Ratio of net investment income to average net assets ..................... 3.63% 7.30% 5.56% 5.58%(2) Portfolio turnover rate(3) ................ 180.05% 410.52% 190.88% 259.47%
---------- * Commencement of operations. (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 (see Note 1 in Notes to the Financial Statements) is 42.09% for the year ended August 31, 2010, 35.58% for the year ended August 31, 2009, 32.83% for the year ended August 31, 2008 and 125.15% for the period December 19, 2006 to August 31, 2007, respectively. The accompanying notes are an integral part of the financial statements. 12 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2010 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The RBB Fund, Inc. ("RBB" or the "Company") was incorporated under the laws of the State of Maryland on February 29, 1988 and is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end management investment company. RBB is a "series fund," which is a mutual fund divided into separate portfolios. Each portfolio is treated as a separate entity for certain matters under the Investment Company Act, and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. Currently, RBB has eighteen active investment portfolios, including the Bear Stearns CUFS(R) MLP Mortgage Portfolio (the "Portfolio"), which commenced investment operations on December 19, 2006. RBB has authorized capital of one hundred billion shares of common stock of which 79.373 billion shares are currently classified into one hundred and thirty-three classes of common stock. Each class represents an interest in an active or inactive RBB investment portfolio. On April 5, 2010, the Board of Directors of the Company (the "Board") approved a plan of liquidation and termination providing for the liquidation of the Portfolio on or about April 30, 2010 (the "Liquidation"). Effective April 6, 2010, new account requests and purchase orders for the Portfolio's shares were no longer permissible and daily dividends were sus-pended. Subsequently, at the unanimous request of the shareholders of the Portfolio, the Board postponed indefinitely the Liquidation of the Portfolio while other options with regards to the Portfolio are explored. Daily dividends have resumed; however, the Portfolio remains closed to new investments. In the event that a shareholder of the Portfolio requests a redemption of all or any portion of the shares in the Portfolio held by it, the Board has approved the liquidation of the Portfolio within no more than seven (7) days after the date of such redemption request in order not to disadvantage the Portfolio's remaining shareholders. As of period end and through the date of issuance of the financial statements, no requests for redemptions have been received. PORTFOLIO VALUATION -- The Portfolio's net asset value ("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. 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 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. Fixed income securities having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. Investments in other open-end investment companies, if held, are valued based on the NAV of the investment companies (which may use fair value pricing as discussed in their prospectuses). 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. The inputs and valuation techniques used to measure fair value of the Portfolio's investments are summarized into three levels as described below: - Level 1 -- quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) - Level 3 -- significant unobservable inputs (including the Portfolio's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value the Portfolio's investments as of August 31, 2010 is included in the Portfolio of Investments. 13 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 USE OF ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates and these differences could be significant. INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES -- The Portfolio records security transactions based on trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes in determining realized gains and losses on investments. Interest income is accrued when earned. Paydown gains and losses on mortgage and asset-backed securities are presented as an adjustment to interest income. Dividend income is recorded on the ex-dividend date. Distributions received on securities that represent a return of capital or capital gains are recorded as a reduction of cost of investments and/or as a realized gain. The Portfolio estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. The Portfolio's investment income, expenses and unrealized and realized gains and losses are allocated daily. Expenses incurred for all of the RBB funds (such as director or professional fees) are charged to all funds in proportion to their average net assets of RBB, or in such other manner as the Board of Directors deems fair or equitable. Expenses and fees, including investment advisory and administration fees are accrued daily and taken into account for the purpose of determining the net asset value of the Portfolio. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income are declared daily and paid monthly. Distributions from net realized capital gains, if any, are declared and paid at least annually to shareholders and recorded on ex-date for the Portfolio. Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations which may differ from generally accepted accounting principles in the United States of America. U.S. TAX STATUS -- No provision is made for U.S. income taxes as it is the Portfolio's intention to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to its shareholders which will be sufficient to relieve it from U.S. income and excise taxes. CASH AND CASH EQUIVALENTS -- The Portfolio considers liquid assets deposited into a bank demand deposit account to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Portfolio expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. OTHER -- In the normal course of business, the Portfolio may enter into contracts that provide general indemnifications. The Portfolio's maximum exposure under these arrangements is dependent on claims that may be made against the Portfolio in the future, and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote. MORTGAGE-RELATED SECURITIES -- The Portfolio may invest in mortgage pass-through securities and multiple-class pass-through securities, such as collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or participation certificates as well as other securities collateralized by or representing a direct or indirect interest in mortgage-related securities or mortgage loans. The Portfolio may also invest in certain stripped mortgage-backed securities. Some of these securities may contain "embedded leverage" which can make them more sensitive to small movements in interest rates. The types of mortgage-related securities in which the Portfolio may invest include: mortgage pass-through securities, including CMOs and REMICs, which may or may not be U.S. Government guaranteed, privately issued mortgage-related securities, stripped mortgage-backed securities, including interest only ("IO") or principal only ("PO") class securities, and floating rate and inverse floating rate securities. Stripped mortgage-backed securities represent a participation in, or are secured by and payable from, mortgage loans on real property, and may be structured in classes with rights to receive varying proportions of principal and interest. Payments received for IOs and POs are used to reduce the cost of the security. Payments in excess of cost are recognized as interest income on the Statement of Operations based on a security's yield to maturity. If the underlying mortgage assets experience greater than anticipated payments of principal, the Portfolio may fail to recoup some or all of its initial investment in IO securities. For PO securities, accelerated payments of principal will cause a faster than anticipated return of the initial investment resulting in an increased yield to maturity for the security. The market value of these securities is highly sensitive to changes in interest rates. 14 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 The Portfolio is subject to risks associated with securities with contractual cash flows including mortgage related securities such as collateralized mortgage obligations, mortgage pass-through securities and commercial mortgage-backed securities, including some securities that are backed by sub-prime mortgages. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate value, pre-payments, delinquencies and/or defaults, and may be adversely affected by shifts in the market's perception of the issuers and changes in interest rates. A significant portion of the Portfolio's investments are comprised of mortgage related securities, including some securities that are backed by sub-prime mortgages. TBA COMMITMENTS -- The Portfolio may purchase securities on a to-be-announced ("TBA") basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that their value at delivery may be more or less than the trade date purchase price. 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. MORTGAGE DOLLAR ROLLS - During the period ended August 31, 2010, the Portfolio entered into dollar roll transactions, pursuant to which it sells a mortgage-backed TBA or security and simultaneously purchases a similar, but not identical, TBA with the same issuer, rate and terms. The Portfolio may execute a "roll" to obtain better underlying mortgage securities or to increase yield. The Portfolio accounts for dollar roll transactions as purchases and sales, which has the effect of increasing its portfolio turnover rates. Risks associated with dollar rolls are that actual mortgages received by the Portfolio may be less favorable than those anticipated or that counterparties may fail to perform under the terms of the contracts. FINANCIAL FUTURES CONTRACTS -- The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. The Portfolio may enter into futures contracts to hedge against changes in interest rates and securities prices, or to otherwise manage its term structure, sector selections and duration. Upon entering into a futures contract, the Portfolio is required to deposit with the broker an amount of cash or cash equivalents equal to a certain percentage of the contract amount. This is known as the "initial margin." Subsequent payments ("variation margin") are made or received by the Portfolio each day, depending on the daily fluctuation of the value of the contract. The daily changes in the contract are recorded as unrealized gain or loss. The Portfolio recognizes a realized gain or loss when the contract is closed. The risks associated with entering into financial futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying instruments. In addition, investing in financial futures contracts involves the risk that the Portfolio could lose more than the original margin deposit and subsequent payments required for a futures transaction. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. For the year ended August 31, 2010, the Portfolio's average volume of futures contracts is 177 for long position contracts and 80 for short position contracts. OPTIONS CONTRACTS -- The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. The Portfolio may write covered call and put options on futures, or securities it owns or in which it may invest. Writing put options tends to increase the Portfolio's exposure to the underlying instrument. When the Portfolio writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. These liabilities are reflected as written options outstanding in the Statement of Assets and Liabilities. Payments received or made, if any, from writing options with premiums to be determined on a future date are reflected as such on the Statement of Assets and Liabilities. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options that are exercised or closed are added to the proceeds or offset against amounts paid on the underlying future or security transaction to determine the realized gain or loss. The Portfolio, as a writer of an option, has no control over whether the underlying future or security may be sold (call) or purchased (put), and as a result bears the market risk of an unfavorable change in the price of the future or security underlying the written option. The Portfolio may not be able to enter into a closing transaction because of an illiquid market. The Portfolio may also purchase put and call options. Purchasing call options tends to increase the Portfolio's exposure to the underlying instrument. Purchasing put options tends to decrease the Portfolio's exposure to the underlying instrument. The Portfolio pays a premium which is included in the Portfolio's Statement of Assets and Liabilities as an investment and subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. The risk associated with purchasing put and call options is limited to the premium paid. Premiums paid for purchasing options that are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying future or security transaction to determine the realized gain or loss. During the fiscal year ended August 31, 2010, the Portfolio purchased put options with contracts and cost of 150 and $43,404, respectively. 15 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 SWAP AGREEMENTS -- The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. The Portfolio may invest in swap agreements for the purpose of hedging against changes in interest rates. Swap agreements involve the exchange by the Portfolio with another party of their respective commitments to pay or receive interest with respect to a notional amount of principal. Swaps are marked to market daily based upon quotations from independent market makers and the change, if any, is recorded as unrealized gain or loss in the statement of operations. Net payments of interest are recorded as realized gain or loss. Cash in the amount of $2,250,000 held as collateral for swap agreements is classified as segregated cash on the Portfolio's Statement of Assets and Liabilities. The Portfolio is also subject to counterparty credit risk, which is the risk that a counterparty fails to perform on agreements with the Portfolio such as swap contracts, option contracts, and TBA securities. The Portfolio is party to various derivative contracts governed by International Swaps and Derivatives Association Master Agreements (ISDA agreements). The Portfolio's ISDA agreements, which are separately negotiated with each dealer counterparty, typically contain provisions allowing, absent other considerations, a counterparty to exercise rights, to the extent not otherwise waived, against the Portfolio in the event the Portfolio's net assets decline over time by a pre-determined percentage or fall below a pre-determined floor. Such rights often include the ability to terminate (i.e., close out) open contracts at prices which may favor the counterparty, which could have an adverse impact on the Portfolio. For open swap contracts, see the Portfolio of Investments, which is also indicative of activity for the year ended August 31, 2010. REPURCHASE AGREEMENTS -- Money market instruments may be purchased subject to the seller's agreement to repurchase them at an agreed-upon date and price. The seller will be required on a daily basis to maintain the value of the securities as collateral, subject to the agreement at not less than the repurchase price plus accrued interest. If the value of the collateral falls below this amount, the Portfolio will require the seller to deposit additional collateral by the next Portfolio business day. In the event that the seller under the agreement defaults on its repurchase obligation or fails to deposit sufficient collateral, the Portfolio has the contractual right, subject to the requirements of applicable bankruptcy and insolvency laws, to sell the underlying securities and may claim any resulting loss from the seller. The agreements are conditioned upon the collateral being deposited under the Federal Reserve Book Entry System or with the Portfolio's custodian or a third party sub-custodian. 2. INVESTMENT ADVISER AND OTHER SERVICES Bear Stearns Asset Management Inc. ("BSAM" or the "Adviser"), an indirect wholly-owned subsidiary of JPMorgan Chase & Co., serves as investment adviser to the Portfolio pursuant to an investment advisory agreement with the Company (the "Advisory Agreement"). For its services, the Adviser is paid a monthly fee at the annual rate of 0.48% of the Portfolio's average daily net assets. Through December 31, 2009, BSAM was voluntarily waiving a portion of its advisory fee and reimbursing certain expenses in order to limit the Portfolio's total annual portfolio operating expenses excluding interest expense to 0.60% of the Portfolio's average daily net assets. For the year ended August 31, 2010, investment advisory fees were $575,008, of which $96,834 was waived by the Adviser. As of January 1, 2010, BSAM terminated its voluntary fee waivers and expense reimbursements. BNY Mellon Investment Servicing (US) Inc., ("BNY Mellon") formerly known as PNC Global Investment Servicing (U.S.) Inc., serves as administrator for the Portfolio. For providing administration and accounting services, BNY Mellon is entitled to receive a monthly fee equal to an annual percentage rate of the Portfolio's average daily net assets, subject to certain minimum monthly fees. Included in the administration and accounting fees, are fees for providing regulatory administration services to RBB. For providing these services, BNY Mellon is entitled to receive compensation as agreed to by the Company and BNY Mellon. This fee is allocated to each portfolio in proportion to its net assets of the Company. For providing transfer agent services, BNY Mellon is entitled to receive a monthly fee equal to an annual percentage rate of the Portfolio's average daily net assets, subject to certain minimum monthly fees. PFPC Trust Company ("PFPC Trust") is a member of BNY Mellon and provides certain custodial services to the Portfolio. PFPC Trust is entitled to receive a monthly fee equal to an annual percentage rate of the Portfolio's average daily net assets, subject to certain minimum monthly fees. BNY Mellon Distributors Inc. formerly known as PFPC Distributors Inc., serves as the principal underwriter and distributor of the Portfolio's shares pursuant to a Distribution Agreement with RBB. The Portfolio will not pay BNY Mellon or BNY Mellon's affiliates at a later time for any amounts waived or any amounts assumed. 16 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 3. DIRECTOR COMPENSATION The Directors of the Company receive an annual retainer, meeting fees and out of pocket expenses for meetings attended. The remuneration paid to the Directors by the Portfolio during the fiscal year ended August 31, 2010 was $18,297. Certain employees of BNY Mellon are Officers of the Company. They are not compensated by the Portfolio or the Company. 4. INVESTMENT IN SECURITIES For the year ended August 31, 2010, aggregate purchases and sales of investment securities (excluding short-term investments and including TBA securities) of the Portfolio were as follows:
PURCHASES SALES ------------ ------------ Investments in U.S. Government Securities ......... $234,949,344 $265,849,937 Investments in Non-U.S. Government Securities ..... -- 14,829,019
5. CAPITAL STOCK TRANSACTIONS As of August 31, 2010, the Portfolio had individual shareholder accounts, which individually amounted to more than 10% of the total shares outstanding of the Portfolio as detailed below.
% OF SHARES NUMBER OF OUTSTANDING ACCOUNTS ----------- --------- 100% 5
Significant shareholder transactions, if any, may impact the Portfolio's performance. 6. FEDERAL INCOME TAX INFORMATION Management has analyzed the Portfolio's tax positions taken on federal income tax returns for all open tax years (August 31, 2007 - 2010) and has concluded that no provision for federal income tax is required in the Portfolio's financial statements. The Portfolio's federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. As of August 31, 2010, federal tax cost, aggregate gross unrealized appreciation and depreciation of securities held by the Portfolio were as follows:
FEDERAL TAX UNREALIZED UNREALIZED NET UNREALIZED COST APPRECIATION DEPRECIATION DEPRECIATION ------------ ------------ ------------ -------------- $143,277,137 $3,860,360 $(27,942,378) $(24,082,018)
Distributions to shareholders from net investment income and realized gains are determined in accordance with federal income tax regulations, which may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on the tax treatment; temporary differences do not require such reclassification. The following permanent differences as of August 31, 2010, attributable to swap and paydown adjustments, were reclassified to the following accounts:
UNDISTRIBUTED (OVERDISTRIBUTED) ACCUMULATED NET NET INVESTMENT INCOME REALIZED GAIN (LOSS) --------------------- -------------------- $1,347,153 $(1,347,153)
As of August 31, 2010, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY INCOME LONG-TERM GAINS --------------- --------------- $353,429 $--
17 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONCLUDED) AUGUST 31, 2010 The difference between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for federal income tax purposes. Short-term capital gains are reported as ordinary income dividends for federal tax purposes. The federal income tax character of dividends and distributions paid during the last two fiscal years were as follows:
AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- Ordinary income $6,097,351 $7,602,997 Long-term capital gains -- --
Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes. As of August 31, 2010, the Portfolio had a capital loss carryforward of $1,382,809 available to offset future capital gains. The capital loss carryforward will expire in 2015 $483,278, 2016 $832,226 and 2018 $67,305 if not utilized by future capital gains. Under federal tax law, foreign currency and capital losses realized after October 31 may be deferred and treated as having arisen on the first day of the following fiscal year. For the year ended August 31, 2010, the Portfolio deferred post-October capital losses of $258,784. 7. NEW ACCOUNTING PRONOUNCEMENT In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06, "Improving Disclosures about Fair Value Measurements." ASU No. 2010-06 amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, to require additional disclosures regarding fair value measurements. Certain disclosures required by ASU No. 2010-06 are currently effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management has evaluated the impact and has incorporated the appropriate disclosures required by ASU No. 2010-06 in its financial statement disclosures. 8. SUBSEQUENT EVENT Management has evaluated the impact of all subsequent events on the Portfolio through the date the financial statements were issued, and has determined that there were no subsequent events. 18 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of The RBB Fund, Inc.: In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Bear Stearns CUFS MLP Mortgage Portfolio, a separately managed portfolio of The RBB Fund, Inc., (the "Fund") at August 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2010 by correspondence with the custodian and broker, provide a reasonable basis for our opinion. The financial highlights for the period December 19, 2006 (commencement of operations) through August 31, 2007 were audited by other independent accountants whose report dated October 21, 2007 expressed an unqualified opinion on those financial statements containing those financial highlights. (PRICEWATERHOUSECOOPERS LLP) Philadelphia, Pennsylvania October 22, 2010 19 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO OTHER INFORMATION (UNAUDITED) PROXY VOTING Policies and procedures that the Portfolio uses to determine how to vote proxies relating to portfolio securities as well as information regarding how the Portfolio voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 are available without charge, upon request, by calling Bear Stearns CUFS(R) MLP Mortgage Portfolio at (800) 519-CUFS (2837) and oN the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov. QUARTERLY PORTFOLIO SCHEDULES The Company will file its complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year (quarters ended November 30 and May 31) on Form N-Q. The Company's Form N-Q will be available on the SEC website at http://www.sec.gov and may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. Information on the operation of the SEC Public Reference Room may be obtained by calling (202) 551-8090. APPROVAL OF INVESTMENT ADVISORY AGREEMENT As required by the Investment Company Act, the Board, including all of the Directors who are not "interested persons" of the Company, as that term is defined in the Investment Company Act (the "Independent Directors"), considered the renewal of and approval of the investment advisory agreement between BSAM and the Company (the "Advisory Agreement") on behalf of the Portfolio, at a meeting of the Board held on May 6, 2010. At this meeting, the Board, including all of the Independent Directors, approved the Advisory Agreement for an additional one-year term. The Board's decision to approve the Advisory Agreement reflects the exercise of its business judgment to continue the existing arrangement. In approving the Advisory Agreement, the Board considered information provided by BSAM with the assistance and advice of counsel to the Independent Directors and the Company. In considering the renewal of and approval of the Advisory Agreement, the Directors took into account all the materials provided prior to and during the meeting and at other meetings throughout the past year, the presentations made through-out the year, and the discussions during the meeting and throughout the year. Among other things, the Directors considered (i) the nature, extent, and quality of BSAM's services provided to the Portfolio; (ii) descriptions of the experience and qualifications of BSAM's personnel providing those services; (iii) BSAM's investment philosophies and processes; (iv) BSAM's assets under management and client descriptions; (v) BSAM's trade allocation policies; (vi) BSAM's current advisory fee arrangement with the Company and other similarly managed clients; (vii) BSAM's compliance procedures; (viii) BSAM's financial information, insurance coverage and profitability analysis related to providing advisory services to the Portfolio; (ix) the extent to which economies of scale are relevant to the Portfolio; (x) a report comparing the performance of the Portfolio to the performance of its benchmark; (xi) the recent unanimous request of the shareholders of the Portfolio that the Portfolio not be liquidated; and (xii) the fact that the Portfolio was expected to no longer be part of the Company in the near future. After reviewing the information, the Directors concluded that the investment advisory fees paid by the Portfolio were fair and reasonable and that the Advisory Agreement should be approved and continued for an additional one-year period ending August 16, 2011. 20 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO SHAREHOLDER TAX INFORMATION (UNAUDITED) The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of the Fund's fiscal year end (August 31) as to the U.S. federal tax status of distributions received by the Fund's shareholders in respect of such fiscal year. The federal income tax character of distributions paid during the year ended August 31, 2010 was as follows: Ordinary income $6,097,351 Long-term capital gains --
Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes. Because the Fund's fiscal year is not the calendar year, another notification will be sent with respect to calendar year 2010. The second notification, which will reflect the amount, if any, to be used by calendar year taxpayers on their U.S. federal income tax returns, will be made in conjunction with Form 1099-DIV and will be mailed in January 2011. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of their ordinary income dividends. They will generally not be entitled to a foreign tax credit or deduction for the withholding taxes paid by the Funds, if any. In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult their own tax advisers with respect to the tax consequence of their investment in the Fund. 21 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO FUND MANAGEMENT (UNAUDITED) MANAGEMENT OF THE COMPANY The business and affairs of the Company are managed under the direction of the Company's Board of Directors. The Company is organized under and managed pursuant to Maryland law. The Directors and executive officers of the Company, their dates of birth, business addresses and principal occupations during the past five years are set forth below. The statement of additional information ("SAI") includes information about the Directors and is available without charge, upon request, by calling 1-800-519-CUFS (2837) ext. 9.
NUMBER OF PORTFOLIOS IN POSITION(S) TERM OF OFFICE FUND COMPLEX OTHER NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH WITH FUND TIME SERVED (1) DURING PAST 5 YEARS DIRECTOR* HELD BY DIRECTOR -------------------- ----------- --------------- ----------------------------------- ------------- ------------------- DISINTERESTED DIRECTORS Nicholas A. Giordano Director 2006 to present Consultant, financial services 18 Kalmar Pooled 103 Bellevue Parkway organizations from 1997 to Investment Trust; Wilmington, DE 19809 present. (registered invest- DOB: 3/43 ment company) WT Mutual Fund; (registered investment company) Independence Blue Cross; IntriCon Corporation (body worn device company) Francis J. McKay Director 1988 to present Retired; Executive Vice President 18 None 103 Bellevue Parkway and Chief Operating Officer, Fox Wilmington, DE 19809 Chase Cancer Center (biomedical DOB: 12/35 research and medical care) (1981-2004). Arnold M. Reichman Chairman 2005 to present Director, Gabelli Group Capital 18 None 103 Bellevue Parkway Partners, L.P. (an investment Wilmington, DE 19809 Director 1991 to present partner-ship) from 2000 to 2006. DOB: 5/48 Marvin E. Sternberg Director 1991 to present Since 1974, Chairman, Director and 18 MTI Holding Group, 103 Bellevue Parkway President, MTI Holding Group, Inc. Inc. (formerly Wilmington, DE 19809 (formerly known as Moyco known as Moyco DOB: 3/34 Technologies, Inc.) (manufacturer Technologies, Inc.) of dental products and precision coated and industrial abrasives). Robert A. Straniere Director 2006 to present Since 2009, Administrative Law 18 Reich and Tang 103 Bellevue Parkway Judge, New York City; Founding Group (asset man- Wilmington, DE 19809 Partner, Straniere Law Firm (1980 agement); The DOB: 3/41 to date); Partner, Gotham SPARX Asia Funds Strategies (consulting firm) (2005 Group (registered to 2008); Partner, The Gotham investment Global Group (consulting firm) company) (2005 to 2008); President, The New (until 2009) York City Hot Dog Company (2005 to present); Partner, Kanter-Davidoff (law firm) (2006 to 2007).
22 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO FUND MANAGEMENT (CONTINUED) (UNAUDITED)
NUMBER OF PORTFOLIOS IN POSITION(S) TERM OF OFFICE FUND COMPLEX OTHER NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH WITH FUND TIME SERVED (1) DURING PAST 5 YEARS DIRECTOR* HELD BY DIRECTOR -------------------- ----------- --------------- ----------------------------------- ------------- ------------------- INTERESTED DIRECTORS (2) Julian A. Brodsky Director 1988 to present Since 1969, Director and Vice 18 Comcast 103 Bellevue Parkway Chairman, Comcast Corporation Corporation; Wilmington, DE 19809 (cable television and AMDOCS Limited DOB: 7/33 communications). (service provider to telecommunications companies) Robert Sablowsky Director 1991 to present Since July 2002, Senior Director 18 Kensington Funds 103 Bellevue Parkway and prior thereto, Executive Vice (registered invest- Wilmington, DE 19809 President of Oppenheimer & Co., ment company) DOB: 4/38 Inc., formerly Fahnestock & Co., (until 2009) Inc. (a registered broker-dealer). J. Richard Carnall Director 2002 to present Director of Haydon Bolts, Inc. 18 Cornerstone Bank 103 Bellevue Parkway (bolt manufacturer) and Parkway Wilmington, DE 19809 Real Estate Company (subsidiary of DOB: 9/38 Haydon Bolts, Inc.) since 1984; and Director of Cornerstone Bank since March 2004.
23 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO FUND MANAGEMENT (CONCLUDED) (UNAUDITED)
NUMBER OF PORTFOLIOS IN POSITION(S) TERM OF OFFICE FUND COMPLEX OTHER NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH WITH FUND TIME SERVED (1) DURING PAST 5 YEARS DIRECTOR* HELD BY DIRECTOR -------------------- ----------- --------------- ----------------------------------- ------------- ------------------- OFFICERS Salvatore Faia, President President June President, Vigilant Compliance N/A N/A Esquire, CPA and Chief 2009 to present 2009 Services since 2004; Senior Vigilant Compliance Compliance and Chief Legal Counsel, PNC Global Services Officer Compliance Investment Servicing (U.S.), Inc. Brandywine Two Officer 2004 from 2002 to 2004; and Director 5 Christy Drive, to present of Energy Income Partnership since Suite 209 Chadds 2005. Ford, PA 19317 DOB: 12/62 Joel Weiss Treasurer June 2009 to Since 1993 Vice President and N/A N/A 103 Bellevue Parkway present Managing Director, BNY Mellon Wilmington, DE 19809 Investment Servicing (US) Inc. DOB: 1/63 (formerly PNC Global Investment Servicing (U.S.) Inc.) (financial services company) Jennifer Rogers Secretary 2007 to present Since 2005, Vice President and N/A N/A 301 Bellevue Parkway Counsel, BNY Mellon Investment Wilmington, DE 19809 Servicing (US) Inc. (formerly PNC DOB: 7/74 Global Investment Servicing (U.S.), Inc. (financial services company); Associate, Stradley, Ronon, Stevens & Young, LLC (law firm) from 1999 to 2005. James G. Shaw Assistant 2005 to present Since 1995, Vice President of BNY N/A N/A 103 Bellevue Parkway Treasurer Mellon Investment Servicing (US) Wilmington, DE 19809 Inc. (formerly PNC Global DOB: 10/60 Investment Servicing (U.S.) Inc. (financial services company) Michael P. Malloy Assistant 1999 to present Since 1993, Partner, Drinker Biddle N/A N/A One Logan Square, Secretary & Reath LLP (law firm) Suite 2000 Philadelphia, PA 19103-6996 DOB: 7/59
* Each Director oversees eighteen portfolios of the Company that are currently offered for sale. (1) Subject to the Company's Retirement Policy, each Director may continue to serve as a Director until the last day of the calendar year in which the applicable Director attains age 75 or until the last day of year 2011, whichever is later, or until his successor is elected and qualified or his death, resignation or removal. The Board reserves the right to waive the requirements of the Policy with respect to an individual Director. Each officer holds office at the pleasure of the Board of Directors until the next special meeting of the Company or until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed. (2) Messrs. Brodsky, Carnall and Sablowsky are considered "interested persons" of the Company as that term is defined in the Investment Company Act and are referred to as "Interested Directors." Mr. Brodsky is an "Interested Director" of the Company because a family foundation and certain family trusts own shares of JPMorgan Chase & Co. (JPMorgan Chase) The investment adviser to the Company's Bear Stearns CUFS MLP Mortgage Portfolio, Bear Stearns Asset Management, Inc., is an indirect subsidiary of JPMorgan Chase. Mr. Carnall is an "Interested Director" of the Company because he owns shares of The PNC Financial Services Group, Inc ("PNC). PNC owns a controlling interest in BlackRock, Inc., the parent company of BlackRock Institutional Management Corporation, the investment adviser to the Company's Money Market Portfolio. Mr. Sablowsky is considered an "Interested Director" of the Company by virtue of his position as an officer of Oppenheimer & Co., Inc., a registered broker-dealer. 24 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO PRIVACY NOTICE THE BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO of The RBB Fund, Inc. (the "Portfolio") is committed to protecting the confidentiality and security of your private investment records and personal information. Our policies and procedures are designed to safeguard your information and to permit only appropriate and authorized access to and use of this information. In order to carry out the functions necessary to service your investment account, our service providers collect certain nonpublic personal information from you from the following sources: - Information we receive from you over the telephone, on applications, e-mails or other forms (e.g., your name, social security number and address); and - Information about your transactions with the Portfolio. We restrict access to your personal and account information to those service providers and their employees who need to know that information to service your account. The Portfolio may also share all of the information (as described above) that we collect with companies that perform marketing services on our behalf or with other financial institutions with whom we have joint marketing agreements who may suggest additional Fund services or other investment products which may be of interest to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. You can be assured that the Portfolio considers your data to be private and confidential, and we will not disclose any nonpublic personal information about you to any unaffiliated third parties, except as permitted by law. If you decide to close your account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. If you have any questions or comments about our privacy practices, please call us at 866-414-2837. 25 BEAR STEARNS CUFS(R) MLP MORTGAGE PORTFOLIO INVESTMENT ADVISER Bear Stearns Asset Management c/o JP Morgan Asset Management 245 Park Avenue New York, NY 10167 ADMINISTRATOR BNY Mellon Investment Servicing (US) Inc. 301 Bellevue Parkway Wilmington, DE 19809 TRANSFER AGENT BNY Mellon Investment Servicing (US) Inc. 101 Sabin Street Pawtucket, RI 02860 PRINCIPAL UNDERWRITER BNY Mellon Distributors Inc. 760 Moore Road King of Prussia, PA 19406 CUSTODIAN PFPC Trust Company 301 Bellevue Parkway Wilmington, DE 19809 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP Two Commerce Square, Suite 1700 2001 Market Street Philadelphia, PA 19103 LEGAL COUNSEL Drinker Biddle & Reath LLP One Logan Square, Suite 2000 Philadelphia, PA 19103-6996 THE RBB FUND, INC. MONEY MARKET PORTFOLIO PRIVACY NOTICE (UNAUDITED) The RBB Fund, Inc. MONEY MARKET PORTFOLIO (the "Portfolio") is committed to protecting the confidentiality and security of your private investment records and personal information. Our policies and procedures are designed to safeguard your information and to permit only appropriate and authorized access to and use of this information. In order to carry out the functions necessary to service your investment account, our service providers collect certain nonpublic personal information from you from the following sources: - Information we receive from you over the telephone, on applications, e-mails or other forms (e.g., your name, social security number and address); and - Information about your transactions with the Portfolio. We restrict access to your personal account information to those service providers and their employees who need to know that information to service your account. The Portfolio may also share all of the information (as described above) that we collect with companies that perform marketing services on our behalf or with other financial institutions with whom we have joint marketing agreements who may suggest additional fund services or other investment products which may be of interest to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. You can be assured that the Portfolio considers your data to be private and confidential, and we will not disclose any nonpublic personal information about you to any unaffiliated third parties, except as permitted by law. If you decide to close your account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. If you have any questions or comments about our privacy practices, please call us at (800) 430-9618. 1 THE RBB FUND, INC. MONEY MARKET PORTFOLIO FUND EXPENSE EXAMPLES (UNAUDITED) As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including management f e es, distribution fees, and other Portfolio expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of $1,000 invested at the beginning of the six-month period from March 1, 2010 through August 31, 2010 and held for the entire period. ACTUAL EXPENSES The first line of the accompanying tables provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the accompanying tables provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the accompanying tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees that may be incurred by shareholders of other funds. Therefore, the second line of the accompanying tables is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
MONEY MARKET PORTFOLIO - BEDFORD CLASS ----------------------------------------------- BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING MARCH 1, 2010 AUGUST 31, 2010 PERIOD* ------------- --------------- ------------- Actual $1,000.00 $1,000.30 $1.36 Hypothetical (5% return before expenses) 1,000.00 1,023.83 1.38
MONEY MARKET PORTFOLIO - SANSOM STREET CLASS ----------------------------------------------- BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING MARCH 1, 2010 AUGUST 31, 2010 PERIOD* ------------- --------------- ------------- Actual $1,000.00 $1,000.50 $1.21 Hypothetical (5% return before expenses) 1,000.00 1,023.98 1.23
* Expenses are equal to the Portfolio's annualized six month expense ratio of 0.27% for the Bedford Class shares and 0.24% for the Sansom Street Class shares, which includes waived fees or reimbursed expenses, multiplied by the average account value over the period, multiplied by the number of days (184) in the most recent fiscal half-year, then divided by 365 to reflect the one-half year period. The Portfolio's ending account value on the first line in each table is based on the actual six-month total return of 0.03% for the Bedford Class shares and 0.05% for the Sansom Street Class shares. 2 THE RBB FUND, INC. MONEY MARKET PORTFOLIO PORTFOLIO HOLDINGS SUMMARY TABLE AUGUST 31, 2010 (UNAUDITED)
SECURITY % OF NET TYPE ASSETS VALUE ------------------------------------------------------- -------- ------------ Short Term Investments: Commercial Paper ................................... 34.1% $215,527,940 Certificates of Deposit ............................ 24.5 154,420,334 U.S. Treasury Obligations .......................... 15.8 99,716,188 Agency Obligations ................................. 14.4 90,822,708 Repurchase Agreement ............................... 6.8 43,142,000 Municipal Bonds .................................... 4.1 25,640,000 Variable Rate Obligations .......................... 1.3 7,900,000 Master Note ........................................ 0.6 4,000,000 Liabilities in Excess of Other Assets ................. (1.6) (9,891,205) ----- ------------ NET ASSETS ............................................ 100.0% $631,277,965 ===== ============
Portfolio holdings are subject to change at any time. 3 THE RBB FUND, INC. MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS AUGUST 31, 2010
PAR (000) VALUE ------- ------------ CERTIFICATES OF DEPOSIT--24.5% DOMESTIC CERTIFICATES OF DEPOSIT--0.9% State Street Bank & Trust Co. 0.390%, 02/10/11 ................................... $ 5,500 $ 5,500,000 ------------ YANKEE DOLLAR CERTIFICATES OF DEPOSIT--23.6%(A) Abbey National Treasury Services PLC, Connecticut(b) 0.292%, 11/17/10 ................................... 5,000 5,000,000 Banco Bilbao Vizcaya Argentaria S.A., New York(b) 0.380%, 12/13/10 ................................... 2,000 2,000,000 Bank of Montreal, Chicago(b) 0.312%, 08/29/11 ................................... 4,500 4,500,000 Bank of Nova Scotia, Houston 0.470%, 09/07/10 ................................... 5,000 5,000,000 Bank of Nova Scotia, New York 0.390%, 10/15/10 ................................... 5,000 4,999,970 Barclays Bank PLC, New York 0.420%, 02/18/11 ................................... 5,500 5,500,000 BNP Paribas SA, New York 0.576%, 10/15/10(b) ................................ 5,000 5,000,000 0.600%, 11/01/10 ................................... 7,000 7,000,000 Canadian Imperial Bank of Commerce, New York(b) 0.420%, 01/31/11 ................................... 4,000 4,000,000 Credit Agricole Corp. & Investment Bank, New York(b) 0.588%, 10/12/10 ................................... 5,000 5,000,000 Dexia Credit Local, GTD, New York(b)(d) 1.625%, 09/17/10 ................................... 6,000 6,000,000 KBC Bank NV, New York 0.610%, 12/01/10 ................................... 6,000 6,000,303 Lloyds TSB Bank PLC, New York 0.615%, 02/11/11 ................................... 6,000 6,000,000 Nordea Bank Finland PLC, New York 0.390%, 10/15/10 ................................... 5,000 5,000,000 Rabobank Nederland NV, New York 0.295%, 01/10/11(b) ................................ 3,000 3,000,000 0.279%, 01/13/11(b) ................................ 4,500 4,500,000 0.570%, 01/18/11 ................................... 4,000 4,000,000 Royal Bank of Canada, New York(b) 0.272%, 11/17/10 ................................... 7,000 7,000,000 Royal Bank of Scotland PLC, Connecticut 0.500%, 10/28/10 ................................... 5,000 5,000,000 0.510%, 02/24/11 ................................... 8,000 8,000,000
PAR (000) VALUE ------- ------------ CERTIFICATES OF DEPOSIT--(CONTINUED) YANKEE DOLLAR CERTIFICATES OF DEPOSIT--(CONTINUED) Societe Generale, New York 0.570%, 10/18/10 ................................... $ 7,000 $ 7,000,000 0.460%, 10/27/10 ................................... 4,000 4,000,031 Svenska Handelsbanken, New York 0.425%, 10/25/10 ................................... 4,000 4,000,030 Toronto Dominion Bank, New York(b) 0.300%, 11/05/10 ................................... 4,500 4,500,000 0.303%, 02/04/11 ................................... 2,000 2,000,000 UBS AG, Stamford 0.590%, 11/18/10 ................................... 7,000 7,000,000 Unicredit SPA, New York 0.525%, 09/10/10 ................................... 5,000 5,000,000 0.680%, 11/10/10 ................................... 6,000 6,000,000 Westpac Banking Corp., New York(b) 0.317%, 10/19/10 ................................... 3,220 3,220,000 0.325%, 10/21/10 ................................... 3,700 3,700,000 ------------ 148,920,334 ------------ TOTAL CERTIFICATES OF DEPOSIT (Cost $154,420,334) .......................... 154,420,334 ------------ COMMERCIAL PAPER--34.1% ASSET BACKED--21.3%(E) Antalis US Funding Corp. 0.460%, 10/25/10 ................................... 10,000 9,993,100 0.390%, 11/17/10 ................................... 10,000 9,991,658 CAFCO LLC 0.490%, 10/14/10 ................................... 5,000 4,997,074 0.370%, 11/02/10 ................................... 6,000 5,996,177 Cancara Asset Securitisation LLC 0.470%, 10/20/10 ................................... 2,000 1,998,721 0.380%, 11/03/10 ................................... 5,000 4,996,675 Clipper Receivables Co. LLC 0.500%, 09/14/10 ................................... 5,000 4,999,097 0.440%, 02/15/11 ................................... 4,000 3,991,836 CRC Funding LLC 0.500%, 10/05/10 ................................... 10,000 9,995,278 Fairway Finance Co. LLC 0.500%, 09/02/10 ................................... 2,586 2,585,964 Falcon Asset Securitization Co. 0.460%, 09/03/10 ................................... 10,000 9,999,744 Grampian Funding LLC 0.450%, 09/20/10 ................................... 6,000 5,998,575 0.470%, 10/22/10 ................................... 7,000 6,995,339
See Accompanying Notes to Financial Statements. 4 THE RBB FUND, INC. MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) AUGUST 31, 2010
PAR (000) VALUE ------- ------------ COMMERCIAL PAPER--(CONTINUED) ASSET BACKED--(CONTINUED) Jupiter Securitization Co. LLC 0.460%, 09/01/10 ................................... $ 1,500 $ 1,500,000 Nieuw Amsterdam Receivables Corp. 0.520%, 10/15/10 ................................... 12,000 11,992,373 Old Line Funding LLC 0.480%, 09/15/10 ................................... 10,000 9,998,133 Romulus Funding Corp. 0.430%, 09/08/10 ................................... 930 929,922 0.420%, 10/01/10 ................................... 4,000 3,998,600 Scaldis Capital LLC 0.350%, 11/12/10 ................................... 8,000 7,994,400 Straight-A Funding LLC 0.370%, 10/01/10 ................................... 5,000 4,998,458 Sydney Capital Corp. 0.680%, 09/16/10 ................................... 2,500 2,499,292 0.570%, 10/26/10 ................................... 3,000 2,997,388 Variable Funding Capital Co. LLC 0.380%, 09/03/10 ................................... 5,000 4,999,894 ------------ 134,447,698 BANKS--12.8% .......................................... ------------ BNP Paribas Finance, Inc.(e) 0.420%, 03/01/11 ................................... 4,000 3,991,553 BNZ International Funding, Ltd.(b) 0.383%, 02/04/11 ................................... 4,500 4,500,194 BPCE SA(e) 0.350%, 10/18/10 ................................... 10,000 9,995,431 Danske Corp.(e) 0.380%, 11/12/10 ................................... 19,000 18,985,560 0.360%, 11/12/10 ................................... 5,671 5,666,917 DnB NOR BANK ASA(e) 0.500%, 09/13/10 ................................... 10,000 9,998,333 JPMorgan Chase & Co.(e) 0.280%, 09/01/10 ................................... 5,000 5,000,000 Nordea Bank AB, Inc.(e) 0.499%, 09/15/10 ................................... 4,000 3,999,223 Societe Generale North America, Inc.(e) 0.520%, 10/15/10 ................................... 7,000 6,995,551 State Street Corp.(e) 0.480%, 09/28/10 ................................... 7,000 6,997,480
PAR (000) VALUE ------- ------------ COMMERCIAL PAPER--(CONTINUED) BANKS--(CONTINUED) Westpac Trust Securities New Zealand LTD(b) 0.413%, 11/05/10 ................................... $ 4,950 $ 4,950,000 ------------ 81,080,242 ------------ TOTAL COMMERCIAL PAPER (Cost $215,527,940) .......................... 215,527,940 ------------ MUNICIPAL BONDS--4.1% California Housing Finance Agency Revenue, Series A, RB (LOC: Fannie Mae, Freddie Mac)(b)(d) 0.280%, 09/07/10 ................................... 3,800 3,800,000 Connecticut State, Health & Educational Facilities Authority Revenue, New Haven Hospital, Series K-2, RB (LOC: JPMorgan Chase Bank)(b)(d) 0.240%, 09/07/10 ................................... 5,800 5,800,000 Harris County Texas, Municipal Securities Trust Receipts, Class A, RB (LOC: Societe Generale)(b)(d) 0.300%, 09/07/10 ................................... 3,695 3,695,000 Massachusetts Bay Transportation Authority, General Transportation System, RB (SBPA: Dexia Credit Local)(b)(d) 0.300%, 09/07/10 ................................... 4,000 4,000,000 New York City, Industrial Development Agency Civic Facility Revenue, New York Law School Project, Series A, RB (LOC: JPMorgan Chase Bank)(b)(d) 0.250%, 09/07/10 ................................... 4,445 4,445,000 Texas State, Veterans Housing Assessment Project, Series A-2, GO (Liquidity Facility: JPMorgan Chase & Co.)(b)(d) 0.250%, 09/07/10 ................................... 3,900 3,900,000 TOTAL MUNICIPAL BONDS ........................... ------------ (Cost $25,640,000) ........................... 25,640,000 ------------
See Accompanying Notes to Financial Statements. 5 THE RBB FUND, INC. MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) AUGUST 31, 2010
PAR (000) VALUE ------- ------------ VARIABLE RATE OBLIGATIONS--1.3% BANKS--1.3% Commonwealth Bank of Australia, MTN(b)(c) 0.508%, 11/22/10 ................................... $ 3,000 $ 3,000,000 Rabobank Nederland NV(b)(c)(d) 1.781%, 10/07/10 ................................... 4,900 4,900,000 ------------ 7,900,000 ------------ TOTAL VARIABLE RATE OBLIGATIONS (Cost $7,900,000) ............................ 7,900,000 AGENCY OBLIGATIONS--14.4% ............................. ------------ Fannie Mae 0.245%, 09/01/10(e) ................................ 5,000 5,000,000 0.180%, 09/20/10(e) ................................ 10,250 10,249,026 0.300%, 09/22/10(e) ................................ 3,000 2,999,475 0.252%, 09/27/10(b) ................................ 6,500 6,497,532 0.290%, 11/10/10(e) ................................ 4,300 4,297,575 Federal Home Loan Bank(b) 0.481%, 10/08/10 ................................... 3,100 3,099,906 0.473%, 10/06/11 ................................... 7,000 6,996,882 Freddie Mac 0.516%, 09/03/10(b) ................................ 2,865 2,864,997 0.270%, 09/07/10(e) ................................ 10,000 9,999,550 0.346%, 02/14/11(b) ................................ 12,825 12,824,082 0.593%, 04/01/11(b) ................................ 5,000 5,002,933 0.315%, 05/05/11(b) ................................ 10,000 9,997,966 0.210%, 12/29/11(b) ................................ 5,000 4,996,652 0.275%, 04/03/12(b) ................................ 6,000 5,996,132 ------------ TOTAL AGENCY OBLIGATIONS (Cost $90,822,708) ........................... 90,822,708 ------------ U.S. TREASURY OBLIGATIONS--15.8% U.S. Treasury Bills(e) 0.232%, 09/30/10 ................................... 6,000 5,998,881 0.240%, 09/30/10 ................................... 6,605 6,603,723 0.223%, 10/21/10 ................................... 14,750 14,745,442 0.236%, 10/28/10 ................................... 13,000 12,995,142 0.220%, 11/12/10 ................................... 5,000 4,997,800 0.212%, 11/26/10 ................................... 4,000 3,997,974 0.200%, 01/27/11 ................................... 7,000 6,994,244 0.188%, 02/24/11 ................................... 6,000 5,994,500
PAR (000) VALUE ------- ------------ U.S. TREASURY OBLIGATIONS--(CONTINUED) U.S. Treasury Notes 0.875%, 01/31/11 ................................... $ 7,000 $ 7,018,126 0.875%, 02/28/11 ................................... 10,000 10,029,772 4.500%, 02/28/11 ................................... 6,500 6,637,311 0.875%, 03/31/11 ................................... 8,500 8,531,042 4.875%, 05/31/11 ................................... 5,000 5,172,231 ------------ TOTAL U.S. TREASURY OBLIGATIONS (Cost $99,716,188) ........................... 99,716,188 ------------ MASTER NOTE--0.6% Bank of America Securities LLC(b)(d) 0.380%, 09/01/10 ................................... 4,000 4,000,000 ------------ TOTAL MASTER NOTE (Cost $4,000,000) ............................ 4,000,000 ------------ REPURCHASE AGREEMENT--6.8% Deutsche Bank Securities Inc. (Tri-Party Agreement dated 08/31/10 to be repurchased at $43,142,288, collateralized by $43,362,000 par value, Federal National Mortgage Association Structured Note and Federal Home Loan Mortgage Corp. Structured Notes, 0.00% to 3.50%, due 06/01/12 to 07/07/25, Fair Value of the collateral is $44,005,098) 0.240%, 09/01/10 ........................................... 43,142 43,142,000 ------------ TOTAL REPURCHASE AGREEMENT (Cost $43,142,000) ........................... 43,142,000 ------------ TOTAL INVESTMENTS AT VALUE--101.6% (Cost $641,169,170)* ............................... 641,169,170 ------------ LIABILITIES IN EXCESS OF OTHER ASSETS--(1.6)% ............................... (9,891,205) ------------ NET ASSETS (APPLICABLE TO 593,558,108 BEDFORD SHARES AND 37,708,068 SANSOM STREET SHARES )--100.0% ............................ $631,277,965 ============
See Accompanying Notes to Financial Statements. 6 THE RBB FUND, INC. MONEY MARKET PORTFOLIO SCHEDULE OF INVESTMENTS (CONCLUDED) AUGUST 31, 2010 * Aggregate cost is the same for financial reporting and Federal tax purposes. (a) Issuer is a U.S. branch of a foreign domiciled bank. (b) Variable Rate Security. Rate shown is as of report date. (c) Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors. As of August 31, 2010, these securities amounted to $7,900,000 or 1.3% of net assets. These securities have been determined by the Adviser to be liquid securities. (d) Rate shown is as of report date and the date shown is date on which principal and accrued interest may be recovered through demand. (e) Rate disclosed represents the discount rate at the time of purchase. GO General Obligation LOC Letter of Credit MTN Medium Term Note RB Revenue Bond SBPA Standby Bond Purchase Agreement The following is a summary of the inputs used, as of August 31, 2010, in valuing the Portfolio's investments carried at value (See Note 1 in Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE AUGUST 31, 2010 PRICE INPUTS INPUTS --------------- ------- ------------ ------------ Investments in Securities* $641,169,170 $-- $641,169,170 $-- ============ === ============ ===
* Please refer to the Schedule of Investments for industry and security type breakouts. See Accompanying Notes to Financial Statements. 7 THE RBB FUND, INC. MONEY MARKET PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 2010 ASSETS Investments, at value (Cost $598,027,170) ............................... $598,027,170 Repurchase agreement, at value (Cost $43,142,000) ....................... 43,142,000 Cash .................................................................... 190,248 Receivables Interest receivable .................................................. 230,817 Prepaid expenses and other assets ....................................... 26,562 ------------ Total assets ...................................................... 641,616,797 ------------ LIABILITIES Payables Investments purchased ................................................ 9,999,004 Distribution to shareholders ......................................... 5,522 Investment advisory and administration fees .......................... 47,556 Distribution fees .................................................... 35,739 Professional fees .................................................... 32,719 Custodian fees ....................................................... 11,214 Directors' and officers' fees ........................................ 8,769 Transfer agent fees .................................................. 6,620 Regulatory administration fees ....................................... 3,465 Service organization fees (Sansom Street Class) ...................... 1,722 Other accrued expenses and liabilities .................................. 186,502 ------------ Total liabilities ................................................. 10,338,832 ------------ Net Assets ........................................................ $631,277,965 ============ NET ASSETS CONSIST OF Par Value ............................................................... $ 631,266 Paid-in Capital ......................................................... 630,634,886 Undistributed net investment income ..................................... 11,813 ------------ Net Assets .............................................................. $631,277,965 ============ BEDFORD CLASS Net assets .............................................................. $593,569,902 ------------ Shares outstanding ($0.001 par value, 1,500,000,000 shares authorized) .. 593,558,108 ------------ Net asset value, offering and redemption price per share ................ $ 1.00 ============ SANSOM STREET CLASS Net assets .............................................................. $ 37,708,063 ------------ Shares outstanding ($0.001 par value, 1,500,000,000 shares authorized) .. 37,708,068 ------------ Net asset value, offering and redemption price per share ................ $ 1.00 ============
See Accompanying Notes to Financial Statements. 8 THE RBB FUND, INC. MONEY MARKET PORTFOLIO STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2010 INVESTMENT INCOME Interest ................................................................ $ 2,032,264 ----------- Total investment income .............................................. 2,032,264 ----------- EXPENSES Distribution fees (Bedford Class) (1) ................................... 3,746,040 Investment advisory and administration fees ............................. 2,539,060 Printing and shareholder reporting fees ................................. 226,118 Custodian fees .......................................................... 118,858 Professional fees ....................................................... 111,216 Directors' and officers' fees ........................................... 81,486 Regulatory administration fees .......................................... 56,790 Transfer agent fees ..................................................... 55,429 Insurance fees .......................................................... 44,890 Registration and filing fees ............................................ 42,278 Temporary Guarantee Program Participation fees(2) ....................... 6,879 Other expenses .......................................................... 19,115 ----------- Total expenses before waivers ........................................ 7,048,159 Less: Advisory and Administration waivers ............................ (1,795,569) Distribution fee waivers ............................................. (3,383,880) ----------- Net expenses after waivers .............................................. 1,868,710 ----------- Net investment income ................................................... 163,554 ----------- Net realized gain from investments ...................................... 11,771 ----------- $ 175,325 ===========
(1) See Note 2 in Notes to Financial Statements (2) See Note 5 in Notes to Financial Statements See Accompanying Notes to Financial Statements. 9 THE RBB FUND, INC. MONEY MARKET PORTFOLIO STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE YEAR ENDED YEAR ENDED AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- INCREASE (DECREASE) IN NET ASSETS: FROM OPERATIONS: Net investment income .................................... $ 163,554 $ 3,032,624 Net realized gain from investments ....................... 11,771 52,978 ------------- -------------- Net increase in net assets resulting from operations ........... 175,325 3,085,602 ------------- -------------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income: Bedford Class ............................................ (190,149) (2,706,207) Sansom Street Class ...................................... (40,344) (326,417) ------------- -------------- Net decrease in net assets from dividends to shareholders ...... (230,493) (3,032,624) ------------- -------------- CAPITAL TRANSACTIONS (AT $1.00 PER SHARE): Proceeds from shares sold: Bedford Class ............................................ 811,191,644 1,083,664,728 Sansom Street Class ...................................... 126,322,590 163,775,264 Shares issued on reinvestment of distributions: Bedford Class ............................................ 185,482 2,689,574 Sansom Street Class ...................................... 597 40,581 Shares repurchased: Bedford Class ............................................ (762,949,046) (860,595,942) Sansom Street Class ...................................... (121,108,751) (160,072,689) ------------- -------------- Net increase in net assets derived from capital transactions ... 53,642,516 229,501,516 ------------- -------------- Total increase in net assets ................................... 53,587,348 229,554,494 NET ASSETS: Beginning of year ........................................ 577,690,617 348,136,123 ------------- -------------- End of year .............................................. $ 631,277,965 $ 577,690,617 ============= ============== Undistributed net investment income, end of year ............... $ 11,813 $ 66,958 ============= ============== SHARE TRANSACTIONS: Shares sold Bedford Class ............................................ 806,442,244 1,083,664,728 Sansom Street Class ...................................... 126,322,590 163,775,264 Shares reinvested Bedford Class ............................................ 185,482 2,689,574 Sansom Street Class ...................................... 597 40,581 Shares repurchased Bedford Class ............................................ (758,199,646) (860,595,942) Sansom Street Class ...................................... (121,108,751) (160,072,689) ------------- -------------- Total Share Activity ........................................... 53,642,516 229,501,516 ============= ==============
See Accompanying Notes to Financial Statements. 10 THE RBB FUND, INC. MONEY MARKET PORTFOLIO FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
THE BEDFORD CLASS -------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE FOR THE YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED AUGUST AUGUST AUGUST AUGUST AUGUST 31, 2010 31, 2009 31, 2008 31, 2007 31, 2006 -------- -------- -------- -------- -------- Net asset value, beginning of year .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- -------- -------- -------- -------- Income from investment operations: Net investment income ............................ 0.0003 0.0074 0.0307 0.0447 0.0388 Net gains (losses) on securities ................. --(b) --(b) --(b) --(b) --(b) -------- -------- -------- -------- -------- Total net income from investment operations ... 0.0003 0.0074 0.0307 0.0447 0.0388 -------- -------- -------- -------- -------- Less dividends and distributions: Dividends (from net investment income) ........... (0.0003) (0.0074) (0.0307) (0.0447) (0.0388) -------- -------- -------- -------- -------- Net asset value, end of year ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======== ======== Total Return ..................................... 0.03% 0.74% 3.12% 4.56% 3.95% Ratios/Supplemental Data Net assets, end of year (000's omitted) .......... $593,570 $545,194 $319,387 $218,914 $150,657 Ratios of expenses to average net assets(a) ...... 0.31% 0.69% 0.90% 0.90% 0.85% Ratios of net investment income to average net assets .................................... 0.02% 0.65% 2.94% 4.47% 3.81%
(a) Without the waiver of advisory fees, distribution fees, and/or reimbursement of certain operating expenses, the ratios of expenses to average net assets for the Bedford Class of the Money Market Portfolio would have been 1.18%, 1.24%, 1.23%, 1.29% and 1.34% for the years ended August 31, 2010, 2009, 2008, 2007 and 2006 respectively. (b) Amount is less than $0.00005 per share. See Accompanying Notes to Financial Statements. 11 THE RBB FUND, INC. MONEY MARKET PORTFOLIO FINANCIAL HIGHLIGHTS (CONCLUDED) (FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
THE SANSOM STREET CLASS ----------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE FOR THE YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED AUGUST 31, 2010 AUGUST 31, 2009 AUGUST 31, 2008 AUGUST 31, 2007 AUGUST 31, 2006 --------------- --------------- --------------- --------------- --------------- Net asset value, beginning of year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- -------- -------- -------- -------- Income from investment operations: Net investment income..................... 0.0010 0.0121 0.0365 0.0502 0.0434 Net gains (losses) on securities.......... --(b) --(b) --(b) --(b) --(b) -------- -------- -------- -------- -------- Total net income from investment operations.......................... 0.0010 0.0121 0.0365 0.0502 0.0434 -------- -------- -------- -------- -------- Less dividends and distributions: Dividends (from net investment income).... (0.0010) (0.0121) (0.0365) (0.0502) (0.0434) -------- -------- -------- -------- -------- Net asset value, end of year................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======= ======== Total Return.............................. 0.10% 1.21% 3.71% 5.14% 4.42% Ratios/Supplemental Data Net assets, end of year (000's omitted)... $ 37,708 $ 32,496 $ 28,749 $ 15,352 $ 15,525 Ratios of expenses to average net assets(a).............................. 0.24% 0.25% 0.31% 0.35% 0.26% Ratios of net investment income to average net assets............................. 0.09% 0.93% 3.64% 5.02% 4.25%
(a) Without the waiver of advisory fees and reimbursement of certain operating expenses, the ratios of expenses to average net assets for the Sansom Street Class of the Money Market Portfolio would have been 0.54%, 0.60%, 0.60%, 0.69% and 0.67% for the years ended August 31, 2010, 2009, 2008, 2007 and 2006, respectively. (b) Amount is less than $0.00005 per share. See Accompanying Notes to Financial Statements. 12 THE RBB FUND, INC. MONEY MARKET PORTFOLIO NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2010 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The RBB Fund, Inc. ("RBB" or the "Company") was incorporated under the laws of the State of Maryland on February 29, 1988, and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. RBB is a "series fund," which is a mutual fund divided into separate portfolios. Each portfolio is treated as a separate entity for certain matters under the 1940 Act, and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. Currently, RBB has eighteen active investment portfolios, including the Money Market Portfolio ("Portfolio"). RBB has authorized capital of one hundred billion shares of common stock of which 79.373 billion shares are currently classified into one hundred and thirty-three classes of common stock. Each class represents an interest in an active or inactive RBB investment portfolio. The Portfolio has issued shares with a par value of $0.001. SECURITY VALUATION -- Securities held in the Portfolio are valued under the amortized cost method, which approximates fair value. Under this method, securities are valued at cost when purchased and thereafter a constant accretion of discount or amortization of premium is recorded until maturity of the security. Regular review and monitoring of the valuation is performed to ensure that cost continues to approximate fair value and to avoid dilution or other unfair results to shareholders. The Portfolio seeks to maintain net asset value ("NAV") per share at $1.00. FAIR VALUE MEASUREMENTS -- The inputs and valuation techniques used to measure fair value of the Portfolio's investments are summarized into three levels as described below: - Level 1 -- unadjusted quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) - Level 3 -- significant unobservable inputs (including the Portfolio's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value the Portfolio's investments as of August 31, 2010 is included with the Portfolio's Schedule of Investments. SECURITY TRANSACTIONS, INVESTMENT INCOME, AND EXPENSES -- Security transactions are accounted for on the trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. Interest income is accrued when earned. Certain expenses, such as distribution fee and service organization fees, are class specific expenses and vary by class. Expenses not directly attributable to a specific portfolio or class are allocated based on relative net assets of each portfolio and class. Expenses incurred on behalf of a specific class, fund or fund family are charged directly to the class, fund or fund family (in proportion to net assets). Expenses incurred for all portfolios within the Company (such as director or professional fees) are charged to all portfolios in proportion to their average net assets of RBB, or in such other manner as the Company's Board of Directors deems fair or equitable. Expenses and fees, including investment advisory and administration fees, are accrued daily and taken into account for the purpose of determining the NAV of the Portfolio. 13 THE RBB FUND, INC. MONEY MARKET PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income are declared daily, recorded on the ex-date and paid monthly. All dividends from net investment income are taxed as ordinary income. Any net realized capital gains are distributed at least annually. Income subject to dividends and capital gain subject to distributions are determined in accordance with U.S. federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. FEDERAL INCOME TAXES -- No provision is made for federal income taxes. It is the Company's intention to have the Portfolio continue to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended and make the requisite distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes. REPURCHASE AGREEMENTS -- Money market instruments may be purchased from financial institutions, such as banks and non-bank dealers, subject to the seller's agreement to repurchase them at an agreed upon date and price. Collateral for repurchase agreements may have longer maturities than the maximum permissible remaining maturity of portfolio investments, provided the repurchase agreements themselves mature in 13 months or less. The seller is required on a daily basis to maintain the value of the securities subject to the agreement at no less than the repurchase price. The agreements are conditioned upon the collateral being deposited under the Federal Reserve book entry system or held in a separate account by the Portfolio's custodian or an authorized securities depository. In the event the counterparty defaults and the fair value of the collateral declines, the Portfolio could experience losses, delays and costs in liquidating the collateral. USE OF ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and those differences could be significant. OTHER -- In the normal course of business, the Portfolio may enter into contracts that provide general indemnifications. The Portfolio's maximum exposure under these arrangements is dependent on claims that may be made against the Portfolio in the future and therefore, cannot be estimated; however, based on experience, the risk of material loss for such claims is considered remote. 2. INVESTMENT ADVISER AND OTHER SERVICES Pursuant to an Investment Advisory and Administration Agreement, BlackRock Institutional Management Corp. (the "Adviser" or "BIMC"), an indirect wholly owned subsidiary of BlackRock, Inc., serves as investment adviser and administrator for the Portfolio. BIMC and BNY Mellon Investment Servicing (US) Inc, ("BNY Mellon"), formerly known as PNC Global Investment Servicing (U.S.), Inc., entered into a delegation agreement on behalf of the Portfolio, wherein BNY Mellon has agreed to perform administration and accounting services for an annual fee of 0.10% of the average net assets of the Portfolio, paid out of the fee paid to BIMC. 14 THE RBB FUND, INC. MONEY MARKET PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 2. INVESTMENT ADVISER AND OTHER SERVICES (CONTINUED) For its advisory services, BIMC is entitled to receive the following fees, computed daily and payable monthly, and based on the Portfolio's average daily net assets: ANNUAL RATE 0.45% of first $250 million of net assets; 0.40% of next $250 million of net assets; and 0.35% of net assets in excess of $500 million. BIMC may, at its discretion, voluntarily waive and/or reimburse all or any portion of its advisory fee for the Portfolio. For each class of shares within the Portfolio, the net advisory fee charged to each class is the same on a relative basis. For the year ended August 31, 2010, advisory fees and waivers were as follows:
GROSS ADVISORY NET ADVISORY AND AND ADMINISTRATION ADMINISTRATION FEE WAIVER FEE -------------- ------------ -------------- $2,539,060 $(1,795,569) $743,491
As of August 31, 2010, the Portfolio owed BIMC $47,556 in advisory and administration fees. BNY Mellon and BNY Mellon Distributors Inc., ("BNY Mellon Distributors"), formerly known as PFPC Distributors, Inc., may also voluntarily waive a portion of their fees and/or reimburse expenses. The Portfolio will not pay BIMC, BNY Mellon or BNY Mellon Distributors at a later time for any amounts waived or assumed. For providing regulatory administration services to RBB, BNY Mellon is entitled to receive compensation as agreed to by the Company and BNY Mellon. This fee is allocated to each portfolio in proportion to its net assets of the Company. In addition, BNY Mellon serves as the Portfolio's transfer and dividend disbursing agent. For providing transfer agent services, BNY Mellon is entitled to receive a monthly fee equal to an annual percentage rate of the Portfolio's average daily net assets and is subject to certain minimum monthly fees. For providing custodial services to the Portfolio, PFPC Trust Company, an affiliate of BNY Mellon, is entitled to receive a monthly fee equal to an annual percentage rate of the Portfolio's average daily net assets subject to certain minimum monthly fees. The Portfolio, on behalf of the Bedford Class of shares of the Portfolio, has adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan"). The Portfolio has entered into a Distribution Agreement with BNY Mellon Distributors. The Plan provides for the Bedford Class to make monthly payments, based on average net assets, to BNY Mellon Distributors of up to 0.65% on an annualized basis. BNY Mellon Distributors may voluntarily waive these fees at its discretion. For the year ended August 31, 2010, distribution fees paid to BNY Mellon Distributors for the Bedford Class were as follows: 15 THE RBB FUND, INC. MONEY MARKET PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 2. INVESTMENT ADVISER AND OTHER SERVICES (CONTINUED)
GROSS NET DISTRIBUTION DISTRIBUTION FEE WAIVER FEE ------------ ------------ ------------ Bedford Class $3,746,040 $(3,383,880) $362,160
The Portfolio has entered into service agreements with BNY Mellon which render support services to customers who are the beneficial owners of the Sansom Street Class in consideration of the payment of 0.10% of the daily net asset value of such shares. 3. DIRECTOR COMPENSATION The Directors of the Company receive an annual retainer, meeting fees and out of pocket expenses for meetings attended. The remuneration paid to the Directors by the Portfolio during the year ended August 31, 2010 was $48,017. Certain employees of BNY Mellon are Officers of the Company. They are not compensated by the Portfolio or the Company. 4. FEDERAL INCOME TAX INFORMATION The Portfolio intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Therefore, no federal tax provision is required. Management has analyzed the Portfolio's tax positions taken on federal income tax returns for all open tax years (August 31, 2007 - 2010) and has concluded that no provision for federal income tax is required in the Portfolio's financial statements. The Portfolio's federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. Distributions to shareholders from net investment income and realized gains are determined in accordance with federal income tax regulations, which may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on the tax treatment; temporary differences do not require such reclassification. The following permanent differences as of August 31, 2010, attributable to the redesignation of dividends paid and non-deductible expenses, were reclassified to the following accounts:
UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED PAID-IN INCOME/(LOSS) GAIN/(LOSS) CAPITAL -------------- ------------ ------- $11,794 $(11,771) $(23)
As of August 31, 2010 the Portfolio had $17,335 of undistributed ordinary income for federal tax purposes. The difference between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for Federal income tax purposes. Short-term capital gains are reported as ordinary income dividends for Federal income tax purposes. 16 THE RBB FUND, INC. MONEY MARKET PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONCLUDED) AUGUST 31, 2010 4. FEDERAL INCOME TAX INFORMATION (CONTINUED) The tax character of dividends and distributions paid during the last two fiscal years were as follows:
ORDINARY LONG-TERM INCOME GAINS ---------- --------- 2010 $ 230,493 $ -- 2009 3,031,192 1,432
Dividends paid from net investment income and short-term capital gains are treated as ordinary income distributions for federal income tax purposes. For federal income tax purposes, realized capital losses may be carried forward and applied against future realized gains. As of August 31, 2010, the Portfolio had no capital loss carryforwards. Under federal tax law, foreign currency and capital losses realized after October 31 may be deferred and treated as having arisen on the first day of the following fiscal year. For the year ended August 31, 2010, the Portfolio did not incur a net post-October capital loss. 5. U.S. DEPARTMENT OF THE TREASURY'S GUARANTEE PROGRAM FOR MONEY MARKET FUNDS On October 1, 2008, the Board of Directors of the Company approved the Portfolio's participation in the Guarantee Program for Money Market Funds (the "Guarantee Program") established by the U.S. Department of the Treasury (the "Treasury"). The Guarantee Program provided coverage to shareholders of record in the Portfolio as of the close of business on September 19, 2008 and would be triggered if the Portfolio's NAV fell below $0.9950. On October 6, 2008, the Portfolio paid $35,923 to participate in the Guarantee Program, which amount was amortized through December 18, 2008. The initial term of the Guarantee Program expired on December 18, 2008. On December 5, 2008, the Portfolio paid $53,882 to participate in the first extension of the Guarantee Program which extended the Guarantee Program through April 30, 2009. This amount was amortized through April 30, 2009. On April 9, 2009, the Portfolio paid $53,882 to participate in the second extension of the Guarantee Program. This amount was amortized through September 18, 2009, the date the Guarantee Program expired. 6. NEW ACCOUNTING PRONOUNCEMENT In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06 "Improving Disclosures about Fair Value Measurements." ASU No. 2010-06 amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, to require additional disclosures regarding fair value measurements. Certain disclosures required by ASU No. 2010-06 are currently effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management has evaluated the impact and has incorporated the appropriate disclosures required by ASU No. 2010-06 in its financial statement disclosures. 7. SUBSEQUENT EVENT Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements. 17 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of the Money Market Portfolio and Board of Directors of The RBB Fund, Inc.: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the Money Market Portfolio (the "Portfolio"), one of the portfolios constituting The RBB Fund, Inc., as of August 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Portfolio is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2010, by correspondence with the custodian, brokers and financial intermediaries. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Money Market Portfolio of The RBB Fund, Inc. as of August 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania October 25, 2010 18 THE RBB FUND, INC. MONEY MARKET PORTFOLIO ADDITIONAL INFORMATION (UNAUDITED) PROXY VOTING Policies and procedures that the Portfolio uses to determine how to vote proxies relating to portfolio securities as well as information regarding how the Portfolio voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 are available without charge, upon request, by calling the number shown below and on the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov. Bedford (800) 888-9723 Sansom Street (800) 430-9618 QUARTERLY PORTFOLIO SCHEDULES The Company files its complete schedule of portfolio holdings with the SEC for the first and third fiscal quarter of each fiscal year (quarters ended November 30 and May 31) on Form N-Q. The Company's Form N-Q is available on the SEC website at http://www.sec.gov and may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. Information on the operation of the SEC Public Reference Room may be obtained by calling (202) 551-8090. APPROVAL OF INVESTMENT ADVISORY AGREEMENT As required by the 1940 Act, the Board of Directors (the "Board") of Company, including all of the Directors who are not "interested persons" of the Company, as that term is defined in the 1940 Act (the "Independent Directors"), considered the renewal of the investment advisory agreement between BIMC and the Company (the "Advisory Agreement") on behalf of the Portfolio at a meeting of the Board held on May 6, 2010. At this meeting, the Board, including all of the Independent Directors, approved the Advisory Agreement for an additional one-year term. The Board's decision to approve the Advisory Agreement reflects the exercise of its business judgment to continue the existing arrangement. In approving the Advisory Agreement, the Board considered information provided by BIMC with the assistance and advice of counsel to the Independent Directors and the Company. In considering the renewal of and approval of the Advisory Agreement, the Directors took into account all the materials provided prior to and during the meeting and at other meetings throughout the past year, the presentations made during the meeting, and the discussions during the meeting. Among other things, the Directors considered (i) the nature, extent, and quality of BIMC's services provided to the Portfolio; (ii) descriptions of the experience and qualifications of BIMC's personnel providing those services; (iii) BIMC's investment philosophies and processes; (iv) BIMC's assets under management and client descriptions; (v) BIMC's trade allocation policies; (vi) BIMC's current advisory fee arrangement with the Company and other similarly managed clients; (vii) BIMC's compliance procedures; (viii) BIMC's financial information, insurance coverage and profitability analysis related to providing advisory services to the Portfolio; (ix) the extent to which economies of scale are relevant to the Portfolio; (x) a report prepared by Lipper, Inc. ("Lipper") comparing the Portfolio's management fees and total expense ratio to those of its Lipper peer group and comparing the performance of the Portfolio to the performance of its Lipper peer group; and (xi) a report comparing the performance of the Portfolio to the performance of its benchmark. 19 THE RBB FUND, INC. MONEY MARKET PORTFOLIO ADDITIONAL INFORMATION (UNAUDITED) As part of their review, the Directors considered the nature, extent and quality of the services provided by BIMC. The Directors concluded that BIMC had substantial resources to provide services to the Portfolio and that BIMC's services had been acceptable. The Directors also considered the investment performance of the Portfolio and BIMC. Information on the Portfolio's investment performance was provided for one, two, three, four and five year periods. The Directors considered the Portfolio's investment performance in light of its investment objective and investment strategies. The Directors concluded that the investment performance of the Portfolio as compared to its benchmark and Lipper peer group was acceptable. In reaching this conclusion, the Directors also considered the recent extraordinary market conditions. The Board of Directors also considered the advisory fee rate payable by the Portfolio under the Advisory Agreement. In this regard, information on the fees paid by the Portfolio and the Portfolio's total operating expense ratio (before and after fee waivers and expense reimbursements) were compared to similar information for mutual funds advised by other, unaffiliated investment advisory firms. The Directors noted that although the contractual advisory fee ranked below the peer group median, actual advisory fees of the Portfolio and actual total expenses of the Portfolio were both lower than the peer group median. In addition, the Directors noted that BIMC was voluntarily waiving management fees and reimbursing expenses to limit total annual operating expenses and that BIMC expects to continue these fee waivers and expense reimbursements. After reviewing the information regarding BIMC's costs, profitability and economies of scale, and after considering BIMC's services, the Directors concluded that the investment advisory fees paid by the Portfolio were fair and reasonable and that the Advisory Agreement should be approved and continued for an additional one-year period ending August 16, 2011. 20 THE RBB FUND, INC. MONEY MARKET PORTFOLIO FUND MANAGEMENT (UNAUDITED) The business and affairs of the Company are managed under the direction of the Company's Board of Directors. The Company is organized under and managed pursuant to Maryland law. The Directors and executive officers of the Company, their dates of birth, business addresses and principal occupations during the past five years are set forth below. The statement of additional information ("SAI") includes additional information about the Directors and is available without charge, upon request, by calling (800) 430-9618.
NUMBER OF PORTFOLIOS IN OTHER POSITION(S) TERM OF OFFICE FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR* DIRECTOR -------------------- ------------ ---------------- ------------------------------- ------------- ------------------------- DISINTERESTED DIRECTORS Nicholas A. Giordano Director 2006 to present Consultant, financial services 18 Kalmar Pooled Investment 103 Bellevue Parkway organizations Trust; (registered Wilmington, DE 19809 from 1997 to present. investment company) WT DOB: 3/43 Mutual Fund; (registered investment company) Independence Blue Cross; IntriCon Corporation (body worn device company) Francis J. McKay Director 1988 to present Retired; Executive Vice 18 None 103 Bellevue Parkway President and Chief Operating Wilmington, DE 19809 Officer, Fox Chase Cancer DOB: 12/35 Center (biomedical research and medical care) (1981-2004). Arnold M. Reichman Chairman 2005 to present Director, Gabelli Group 18 None 103 Bellevue Parkway Director 1991 to present Capital Partners, L.P. (an Wilmington, DE 19809 investment partnership) from DOB: 5/48 2000 to 2006.
21 THE RBB FUND, INC. MONEY MARKET PORTFOLIO FUND MANAGEMENT (CONTINUED) (UNAUDITED)
NUMBER OF PORTFOLIOS IN OTHER POSITION(S) TERM OF OFFICE FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR* DIRECTOR -------------------- ------------ ---------------- ------------------------------- ------------- ------------------------- DISINTERESTED DIRECTORS Marvin E. Sternberg Director 1991 to present Since 1974, Chairman, Director 18 MTI Holding Group Inc. 103 Bellevue Parkway and President, MTI Holding (formerly known as Moyco Wilmington, DE 19809 Group, Inc. (formerly known as Technologies, Inc.) DOB: 3/34 Moyco Technologies, Inc.) (manufacturer of dental products and precision coated and industrial abrasives). Robert A. Straniere Director 2006 to present Since 2009, Administrative Law 18 Reich and Tang Group 103 Bellevue Parkway Judge, New York City; Founding (asset management); The Wilmington, DE 19809 Partner, Straniere Law Firm SPARX Asia Funds Group DOB: 3/41 (1980 to present); Partner, (registered investment Gotham Strategies (consulting company) (until 2009) firm) (2005 to 2008); Partner, The Gotham Global Group (consulting firm) (2005 to 2008); President, The New York City Hot Dog Company (2005 to present); Partner, Kanter-Davidoff (law firm) (2006 to 2007).
22 THE RBB FUND, INC. MONEY MARKET PORTFOLIO FUND MANAGEMENT (CONTINUED) (UNAUDITED)
NUMBER OF PORTFOLIOS IN OTHER POSITION(S) TERM OF OFFICE FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR* DIRECTOR -------------------- ------------ ---------------- ------------------------------- ------------- ------------------------- INTERESTED DIRECTORS(2) Julian A. Brodsky Director 1988 to present Since 1969, Director and Vice 18 Comcast Corporation ; 103 Bellevue Parkway Chairman, Comcast Corporation AMDOCS Limited (service Wilmington, DE 19809 (cable television and provider to DOB: 7/33 communications). telecommunications companies) Robert Sablowsky Director 1991 to present Since July 2002, Senior 18 Kensington Funds 103 Bellevue Parkway Director and prior thereto, (registered investment Wilmington, DE 19809 Executive Vice President, of company) (until December, DOB: 4/38 Oppenheimer & Co., Inc., 2009) formerly Fahnestock & Co., Inc. (a registered broker-dealer). J. Richard Carnall Director 2002 to present Director of Haydon Bolts, Inc. 18 Cornerstone Bank 103 Bellevue Parkway (bolt manufacturer) and Wilmington, DE 19809 Parkway Real Estate Company DOB: 9/38 (subsidiary of Haydon Bolts, Inc.) since 1984; and Director of Cornerstone Bank since March 2004.
23 THE RBB FUND, INC. MONEY MARKET PORTFOLIO FUND MANAGEMENT (CONCLUDED) (UNAUDITED)
NUMBER OF PORTFOLIOS IN OTHER POSITION(S) TERM OF OFFICE FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR DIRECTOR -------------------- ------------ ---------------- ------------------------------- ------------- ------------------------- OFFICERS Salvatore Faia, President President June President, Vigilant Compliance N/A N/A Esquire, CPA and Chief 2009 to present Services since 2004; Senior Vigilant Compliance Compliance and Chief Legal Counsel, PNC Global Services Officer Compliance Investment Servicing (U.S.), Brandywine Two Officer 2004 to Inc. from 2002 to 2004; and 5 Christy Drive, present Director of Energy Income Suite 209 Partnership since 2005. Chadds Ford, PA 19317 DOB: 12/62 Joel Weiss Treasurer June 2009 to Since 1993 Vice President and N/A N/A 103 Bellevue Parkway present Managing Director, BNY Mellon Wilmington, DE 19809 Investment Servicing (US) Inc. DOB: 1/63 (formerly PNC Global Investment Servicing (U.S.) Inc.) (financial services company) Jennifer Rogers Secretary 2007 to present Since 2005, Vice President and N/A N/A 301 Bellevue Parkway Counsel, BNY Mellon Investment Wilmington, DE 19809 Servicing (US) Inc. (formerly DOB: 7/74 PNC Global Investment Servicing (U.S.), Inc. (financial services company); Associate, Stradley, Ronon, Stevens & Young, LLC (law firm) from 1999 to 2005. James G. Shaw Assistant 2005 to present Since 1995, Vice President of N/A N/A 103 Bellevue Parkway Treasurer BNY Mellon Investment Wilmington, DE 19809 Servicing (US) Inc. (formerly DOB: 10/60 PNC Global Investment Servicing (U.S.) Inc. (financial services company) Michael P. Malloy Assistant 1999 to present Since 1993, Partner, Drinker N/A N/A One Logan Square, Secretary Biddle & Reath LLP (law firm) Ste. 2000 18th and Cherry Streets Philadelphia, PA 19103-6996 DOB: 7/59
* Each Director oversees eighteen portfolios of the Company that are currently offered for sale. (1) Subject to the Company's Retirement Policy, each Director may continue to serve as a Director until the last day of the calendar year in which the applicable Director attains age 75 or until the last day of year 2011, whichever is later, or until his successor is elected and qualified or his death, resignation or removal. The Board reserves the right to waive the requirements of the Policy with respect to an individual Director. Each officer holds office at the pleasure of the Board of Directors until the next special meeting of the Company or until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed. (2) Messrs. Brodsky, Carnall and Sablowsky are considered "interested persons" of the Company as that term is defined in the 1940 Act and are referred to as "Interested Directors." Mr. Brodsky is an "Interested Director" of the Company because a family foundation and certain family trusts own shares of JPMorgan Chase & Co. The investment adviser to the Company's Bear Stearns CUFS MLP Mortgage Portfolio, Bear Stearns Asset Management, Inc., is an indirect subsidiary of JPMorgan Chase. Mr. Carnall is an "Interested Director" of the Company because he owns shares of The PNC Financial Services Group, Inc. ("PNC"). PNC owns a controlling interest in BlackRock, Inc., the parent company of BlackRock Institutional Management Corporation, the investment adviser to the Company's Money Market Portfolio. Mr. Sablowsky is considered an "Interested Director" of the Company by virtue of his position as an officer of Oppenheimer & Co., Inc., a registered broker-dealer. 24 [THIS PAGE INTENTIONALLY LEFT BLANK.] [THIS PAGE INTENTIONALLY LEFT BLANK.] [THIS PAGE INTENTIONALLY LEFT BLANK.] INVESTMENT ADVISER BlackRock Institutional Management Corporation 100 Bellevue Parkway Wilmington, DE 19809 TRANSFER AGENT BNY Mellon Investment Servicing (US) Inc. 101 Sabin Street Pawtucket, RI 02860 PRINCIPAL UNDERWRITER BNY Mellon Distributors Inc. 760 Moore Road King of Prussia, PA 19406 CUSTODIAN PFPC Trust Company 301 Bellevue Parkway Wilmington, DE 19809 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP 1700 Market Street Philadelphia, PA 19103-3984 COUNSEL Drinker Biddle & Reath LLP One Logan Square, Ste. 2000 Philadelphia, PA 19103-6996 THE BEDFORD CLASS OF THE RBB FUND, INC. MONEY MARKET PORTFOLIO ANNUAL REPORT AUGUST 31, 2010 AN INVESTMENT IN THE PORTFOLIO IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE PORTFOLIO SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT'S POSSIBLE TO LOSE MONEY BY INVESTING IN THE PORTFOLIO. THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE PORTFOLIO. IT IS NOT AUTHORIZED FOR DISTRIBUTION UNLESS PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE PORTFOLIO. BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND PRIVACY NOTICE (UNAUDITED) The BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND of The RBB Fund, Inc. (the "Fund") is committed to protecting the confidentiality and security of your private investment records and personal information. Our policies and procedures are designed to safeguard your information and to permit only appropriate and authorized access to and use of this information. In order to carry out the functions necessary to service your investment account, our service providers collect certain nonpublic personal information from you from the following sources: - Information we receive from you over the telephone, on applications, e-mails or other forms (e.g., your name, social security number and address); and - Information about your transactions with the Fund. We restrict access to your personal and account information to those service providers and their employees who need to know that information to service your account. The Fund may also share all of the information (as described above) that we collect with companies that perform marketing services on our behalf or with other financial institutions with whom we have joint marketing agreements who may suggest additional Fund services or other investment products which may be of interest to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. You can be assured that the Fund considers your data to be private and confidential, and we will not disclose any nonpublic personal information about you to any unaffiliated third parties, except as permitted by law. If you decide to close your account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. If you have any questions or comments about our privacy practices, please call us at (877) 264-5346. 1 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND ANNUAL REPORT (UNAUDITED) Fellow Shareholder: For the fiscal year ended August 31, 2010, the Fund's Investor shares advanced +5.41% (net of fees), the Institutional shares gained +5.56%, and the unmanaged Russell 2000(R) Index of small cap stocks returned +6.60%. The Fund fell behind its benchmark in March as the market rally extended into its thirteenth month and investors continued to favor more speculative stocks. The Fund made up some ground relative to the benchmark over the next five months, but still finished the fiscal year about one percentage point behind the Russell 2000(R). The Fund's returns since inception (Investor and Institutional Classes), as reflected by the dollar value of a $10,000 investment made at the start of the Fund, compared to the same investment in the benchmark, are shown in the charts on the two pages following this letter. The balance of this letter covers the market environment, performance attribution, Fund characteristics, and an update on the mutual fund business at Bogle Investment Management, L.P. MARKET ENVIRONMENT. The 2010 fiscal year got off to a positive start, as U.S. equity markets advanced in September 2009, marking the seventh consecutive month of strongly positive performance. On October 22nd, however, a government release showing an unexpected increase in new weekly jobless claims precipitated strong negative equity market performance through the end of the month. Investors sold off small cap stocks in particular, which fell back to mid-August levels. Markets resumed their upward march in November then briefly stumbled in late-January, reflecting rising concerns about possible Greek government debt default and its potential contagion effects throughout Europe. Investors quickly shook off these concerns and market returns were notably robust from February into April. The extended rally was supported by continued good news on the earnings front, while investors also reacted favorably to improved economic data. At the end of April, investor focus seemed to shift back to concerns about the fiscal stability of European countries and associated non-U.S. currency losses. Additional concerns surrounded the domestic economic outlook, which was clouded by impending financial reform legislation, a generally uncertain government policy environment, and weak job growth. As these issues weighed on investors for most of the last four months of the fiscal year period, markets gave up a considerable amount of ground from late-April through August. Exacerbating negative sentiment was the "flash crash." On May 6th, U.S. stock exchanges experienced extremely high intraday price volatilities, which rattled investor confidence in the fundamental functioning of the U.S. equity markets, re-ignited controversy about short-term trading strategies, and raised fears of market manipulation. In the first eight months of the fiscal year, as the market was generally rising, low absolute share price stocks and volatile stocks outperformed the average stock, but in the last four months of the fiscal period, as the market fell, investors abandoned riskier stocks. Volatile stocks, low absolute price stocks, and relative value strategies sharply underperformed the average stock in May, June and August and ended the fiscal year period modestly behind stocks with the opposite attributes. For the one year ending August 31, 2010, the Russell 2000(R) gained +6.60%, ahead of the larger cap Russell 1000(R) return of +5.54%. Within small cap stocks, the Russell 2000(R) Growth Index outperformed the Russell 2000(R) Value Index, up +7.16% versus +6.60%. Small cap energy, basic industry, and technology stocks produced particularly robust results, while small cap financial and consumer growth stocks generally lagged the overall small cap market for the fiscal period. 2 Market and Fund volatilities declined in the first eight months of the fiscal year as the markets rallied. Volatility then spiked as market returns turned negative; the Fund's volatility (annualized return standard deviation based on trailing three months of daily returns) peaked for the fiscal year on July 27th, measuring 38% relative to an average of 26% since Fund inception. The VIX Index of implied, expected volatility (essentially investors' collective expectations for future return volatility) jumped from 35 on May 19th to 46 on May 20th, reflecting investors' heightened fear. Despite poor market performance for most of the summer, the VIX retreated during the balance of the fiscal year to end August at 26, just modestly above the average of 22 since Fund inception. The breadth of returns within the small cap market, and the market generally, was narrow throughout the fiscal year, as return dispersion across stocks was low and correlation between stock returns was high. This suggested that investors were primarily focused on macroeconomic concerns rather than stock-specific issues for most of the fiscal year period. PERFORMANCE ATTRIBUTION. For the fiscal year, the Fund's Investor Class of shares lagged the benchmark Russell 2000(R) by -1.19%, net of all fees, and the Institutional Class of shares lagged by -1.04%, net of all fees, with most of the relative losses concentrated in March and June of this year. As is usually the case, monthly gains and losses were primarily attributed to stock selection and model performance, rather than to any sector or style biases. Recall that our composite investment model is comprised of fundamentally-based, quantitatively implemented investment signals that evaluate financial quality, earnings improvement, and relative valuation. The earnings sub-model, on a standalone basis, posted the strongest positive performance for the fiscal year, with notably robust returns in the last four months of the period. The financial quality sub-model also strengthened from May through August and added modest value to overall composite model results for the fiscal year. The relative valuation sub-model turned negative in May and detracted from fiscal year returns. It is not unusual for our composite investment model to struggle when market breadth is narrow and investors are focused on the macroeconomy rather than stock specific information. Despite the difficulty, we have added value in these macro-driven markets. We maintain our conviction that these types of environments do not last forever and that they provide opportunities to find fundamentally solid stocks at prices that don't reflect their true values. Stock selection was strongest in technology, energy and basic industry stocks, with technology investments contributing the most to performance due to the sector's significant weighting in the portfolio. Stock selection was most negative in the financial sector due to poor performance from the financial quality sub-model, reflecting investors aggressively buying many financial stocks that our model found unattractive, while showing less enthusiasm for the stocks we owned. The Fund's growth orientation added modestly to the fiscal year's results, while its roughly equal-weighted construction scheme detracted modestly from performance. As of the end of the fiscal year, the Fund was well diversified, holding 158 stocks, with the largest holding representing just 1.0% of portfolio assets. This diversification limits the impact any single stock can have on total Fund performance and helps us to manage risk. In the stock specific examples that follow, we look at two situations where Fund holdings significantly outperformed the benchmark for the fiscal year and one Fund investment that lagged the benchmark. One of the Fund's technology stock winners, CIRRUS LOGIC, INC., is a supplier of analog and digital signal processing components, as well as mixed-signal integrated circuits, to high-end consumer electronics firms. We entered the fiscal year with a position in this stock based on investment signals that suggested positive earnings improvement, relatively clean financials and modestly attractive relative valuation. As quarterly earnings consistently met or beat expectations, the stock price increased from about $5 at the start of the fiscal year to over $17 at the end of June. We began to trim the position in the spring and were out of the position in the early summer, as the stock became expensive relative to peers and the earnings and quality scores were no longer sufficient to boost the company into the top section of our rankings. Another winner was TIMKEN, CO., a global 3 manufacturer of highly engineered bearings, alloy steels, and related components and assemblies. Timken was first identified by our financial quality and relative valuation models and more recently saw significant improvements in its earnings, illustrating how strong financial quality signals can lead to future earnings strength. As its composite score remained strong, we continued to hold this position at the end of the fiscal year. The Fund lost money during the fiscal year in EDUCATION MANAGEMENT CORPORATION. The company provides for-profit, post-secondary education in North America. This industry was hit in August by newly proposed government regulations that would restrict access to student loans when repayment risks are high, therefore reducing future enrollment. The stock entered the portfolio in June on the strength of its attractive earnings improvement score (financial quality and relative valuation scores were modestly positive). With the uncertain regulatory environment, the earnings score has deteriorated sharply over the last few months and we have reduced the position. FUND CHARACTERISTICS. As shown in the table to the right, we have maintained Fund characteristics in line with the benchmark. As of the end of August, the Fund's median market capitalization was lower than benchmark. The Fund continued to have a small bias toward companies with somewhat higher long-term earnings growth rates. The Fund's median price-to-earnings and price-to-sales ratios were below benchmark, reflecting the influence of our relative valuation model. In fact, the spreads between the Fund's and the benchmark's median price-to-earnings ratios remained at historically attractive levels. The Fund's fiscal-year period active volatility (the variability of the difference between Fund and benchmark performance), fell to 4.7% in fiscal 2010, below the Fund's long-term average of 6.9%, annualized. This reflected the market's narrow cross-sectional return spreads, as discussed in the market environment section above. FUNDAMENTAL CHARACTERISTICS AUGUST 31, 2010
RUSSELL MEDIAN BOGLX* 2000(R) ------ ------ ------- Median Market Cap ($mil.) $ 615 $ 890 Long-Term Estimated Earnings Growth Rate** 14.7% 12.8% Price/Historical Earnings 14.5x 17.5x Price/Forward Earnings 11.1x 14.3x Price/Sales 0.8x 1.4x RISK STATISTICS*** - FISCAL YEAR PERIOD Annualized Standard Dev. 27.0% 26.0% Annualized Active Volatility 4.7% Beta with Russell 2000(R) 1.02 Cash 0.2%
---------- * THE BOGLE SMALL CAP GROWTH FUND INVESTOR SHARES. MEDIAN CHARACTERISTICS REFER TO THE FUND'S HOLDINGS, NOT THE FUND ITSELF. ** LONG-TERM ESTIMATED EARNINGS GROWTH RATE IS CALCULATED FOR THE FUND'S PORTFOLIO OF COMPANIES AND THE BENCHMARK COMPANIES FROM FIRST CALL ANALYSTS' MEDIAN ESTIMATED EARNINGS GROWTH RATE OVER THE NEXT 3 TO 5 YEARS. THIS FIGURE IS NOT INDICATIVE OF FUTURE PERFORMANCE OF THE FUND. THE PORTFOLIO AND BENCHMARK COMPANIES' ACTUAL EARNINGS GROWTH RATE WILL VARY FROM THIS FIGURE. *** RISK STATISTICS APPLY TO THE FUND AND BENCHMARK. STANDARD DEVIATION IS A STATISTICAL MEASURE OF THE RANGE OF PERFORMANCE. ACTIVE RISK IS THE STANDARD DEVIATION OF THE DIFFERENCE BETWEEN THE FUND AND BENCHMARK PERFORMANCE. BETA IS A MEASURE OF A PORTFOLIO'S SENSITIVITY TO MARKET MOVEMENTS. REPORT CARD. In this year's self-evaluation of our firm and investment performance we give ourselves a C+. We underperformed our benchmark for the fiscal year by approximately one percentage point, a result well below our long-term outperformance objective (if we had not been in an exceptionally narrow market environment, which made it more difficult to add value, our grade would have been even worse). We remain dedicated to improving the investment process, and you can be assured that we continue to research new ideas and investment insights that will help us add value. While our investment process today is conceptually similar to the way we managed the Fund at its inception in 1999, many details have changed reflecting new sources of information, new insights, and evolving capital markets. Most 4 recently we have changed some of the ways in which the Fund trades, taking advantage of inefficiencies related to trading behavior that help us to better determine relatively attractive entry and exit points for buying and selling stocks. We have also altered our trading strategies to make it harder for other investors to observe our trading. By being more anonymous we prevent others from worsening our executions by getting in front of our trades. Our small asset base also helps us significantly in this regard. On client service we remain at a grade of B. There is always room for improvement in this area, particularly in your day-to-day contact with shareholder services. Although shareholder inquiries and transactions are outsourced to BNY Mellon Investment Servicing (US) Inc., formerly PNC Global Investment Servicing (U.S.) Inc., we encourage you to let us know if we can assist in this area or if you have any feedback on your experience. The transition from PNC to BNY should be almost entirely transparent to you, save for a new (and hopefully improved!) format for your statements. Please let us know if you have any questions about or issues with this transition. PROGRESS AT BOGLE INVESTMENT MANAGEMENT. At the end of August 2010, assets in the Fund were $80 million, decreasing just modestly from the previous fiscal year end. As you know, we reopened the Fund on November 1, 2009 to new shareholders (the Fund has always remained open to existing shareholders), as our assets under management in both the Fund and the firm overall had declined to a level that allowed for us to take on some additional investment. Because we do not aggressively market or distribute the Fund, we do not expect to see rampant asset growth, but hope rather that thoughtful long-term shareholders will find us over time. We will, as always, continually monitor capacity constraints and our assets under management and will reclose the Fund when we think it is in the best interest of the shareholders. Finally, with more than ten years managing the firm and the Fund, we are pleased and proud of the fact that we can continue to claim 100% investment professional retention, an unusual claim, not only in this industry but in the current economic environment. More information about the Fund, including historical NAVs, sector allocation, fundamental characteristics, and top ten holdings, can be viewed on our website, www.boglefunds.com. The NAVs are updated daily while the other Fund information is updated quarterly. Fund information is also available on Morningstar.com and other internet-based financial data providers. As always, we thank you for your ongoing support. Respectfully, Bogle Investment Management, L.P. Management Office: 781-283-5000 Shareholder Services Toll Free: 1-877-BOGLEIM (264-5346) ---------- PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS. THE RUSSELL 2000(R) IS AN INDEX OF STOCKS 1001 THROUGH 3000 IN THE RUSSELL 3000(R) INDEX AS RANKED BY TOTAL MARKET CAPITALIZATION. A DIRECT INVESTMENT IN THE INDEX IS NOT POSSIBLE. INVESTING IN SMALL COMPANIES CAN INVOLVE MORE VOLATILITY, LESS LIQUIDITY, AND LESS PUBLICLY AVAILABLE INFORMATION THAN INVESTING IN LARGE COMPANIES. PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. 5 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND INSTITUTIONAL CLASS(1)(2) VS. RUSSELL 2000(R) INDEX (UNAUDITED) [INSTITUTIONAL CHART]
Bogle Institutional Shares Russell 2000(R) Index -------------------------- --------------------- 9/30/1999 10000 10000 12/31/1999 13017 11844 6/30/2000 15933 12204 12/31/2000 16506 11486 6/30/2001 17541 12274 12/31/2001 17369 11772 6/30/2002 17524 11218 12/31/2002 14316 9361 6/30/2003 17239 11035 12/31/2003 22733 13784 6/30/2004 23707 14716 12/31/2004 25202 16310 6/30/2005 25632 16106 12/31/2005 29583 17052 6/30/2006 32075 18453 12/31/2006 34161 20183 6/30/2007 37315 21487 12/31/2007 32284 19871 6/30/2008 26191 18008 12/31/2008 16728 13155 6/30/2009 19608 13504 12/31/2009 24403 16732 6/30/2010 23311 16404 8/31/2010 23438 16234
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END MAY BE OBTAINED AT 1-877-264-5346. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE QUOTED REFLECTS FEE WAIVERS IN EFFECT AND WOULD HAVE BEEN LESS IN THEIR ABSENCE. THE FUND'S ANNUAL OPERATING EXPENSE RATIO, AS STATED IN THE CURRENT PROSPECTUS DATED DECEMBER 31, 2009, IS 1.57% FOR THE INSTITUTIONAL CLASS PRIOR TO FEE WAIVERS. ---------- (1) The chart and table assume a hypothetical $10,000 initial investment in the Fund made on October 1, 1999 (inception) and reflect Fund expenses. Investors should note that the Fund is an actively managed mutual fund while the index is unmanaged, does not incur expenses and is not available for investment. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (2) Bogle Investment Management waived a portion of its advisory fee and agreed to reimburse a portion of the Fund's operating expenses, if necessary, to maintain the expense limitation as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no waivers and reimbursements of fees and expenses in excess of expense limitations. Returns shown include the reinvestment of all dividends and other distributions. Past performance is not predictive of future performance. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. (3) For the period October 1, 1999 (commencement of operations) through August 31, 2010. 6 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND INVESTOR CLASS(1)(2) VS. RUSSELL 2000(R) INDEX (UNAUDITED) [INVESTOR CHART]
Bogle Investor Shares Russell 2000(R) Index --------------------- --------------------- 9/30/1999 10000 10000 12/31/1999 13008 11844 6/30/2000 15925 12204 12/31/2000 16498 11486 6/30/2001 17524 12274 12/31/2001 17334 11772 6/30/2002 17498 11218 12/31/2002 14290 9361 6/30/2003 17197 11035 12/31/2003 22673 13784 6/30/2004 23630 14716 12/31/2004 25117 16310 6/30/2005 25527 16106 12/31/2005 29451 17052 6/30/2006 31901 18453 12/31/2006 33953 20183 6/30/2007 37088 21487 12/31/2007 32054 19871 6/30/2008 25999 18008 12/31/2008 16607 13155 6/30/2009 19452 13504 12/31/2009 24203 16732 6/30/2010 23091 16404 8/31/2010 23218 16234
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END MAY BE OBTAINED AT 1-877-264-5346. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE QUOTED REFLECTS FEE WAIVERS IN EFFECT AND WOULD HAVE BEEN LESS IN THEIR ABSENCE. THE FUND'S ANNUAL OPERATING EXPENSE RATIO, AS STATED IN THE CURRENT PROSPECTUS DATED DECEMBER 31, 2009, IS 1.67% FOR THE INVESTOR CLASS PRIOR TO FEE WAIVERS. ---------- (1) The chart and table assume a hypothetical $10,000 initial investment in the Fund made on October 1, 1999 (inception) and reflect Fund expenses. Investors should note that the Fund is an actively managed mutual Fund while the index is unmanaged, does not incur expenses and is not available for investment. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (2) Bogle Investment Management waived a portion of its advisory fee and agreed to reimburse a portion of the Fund's operating expenses, if necessary, to maintain the expense limitation as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no waivers and reimbursements of fees and expenses in excess of expense limitations. Returns shown include the reinvestment of all dividends and other distributions. Past performance is not predictive of future performance. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. (3) For the period October 1, 1999 (commencement of operations) through August 31, 2010. 7 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND FUND EXPENSE EXAMPLES (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, shareholder servicing fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of $1,000 invested at the beginning of the six-month period from March 1, 2010 through August 31, 2010, and held for the entire period. ACTUAL EXPENSES The first line of the accompanying tables provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the accompanying tables provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the accompanying tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees. Therefore, the second line of the accompanying tables is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
INSTITUTIONAL CLASS --------------------------------------------------------------------- BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING MARCH 1, 2010 AUGUST 31, 2010 PERIOD* ----------------------- -------------------- -------------------- Actual $ 1,000.00 $ 954.20 $ 6.16 Hypothetical (5% return before expenses) 1,000.00 1,018.82 6.38
8 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND FUND EXPENSE EXAMPLES (CONCLUDED) (UNAUDITED)
INVESTOR CLASS --------------------------------------------------------------------- BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSES PAID DURING MARCH 1, 2010 AUGUST 31, 2010 PERIOD* ----------------------- -------------------- -------------------- Actual $ 1,000.00 $ 953.60 $ 6.65 Hypothetical (5% return before expenses) 1,000.00 1,018.31 6.89
---------- * Expenses are equal to the Fund's annualized six-month expense ratio of 1.25% for the Institutional Class and 1.35% for the Investor Class, which includes waived fees or reimbursed expenses, multiplied by the average account value over the period, multiplied by the number of days (184) in the most recent fiscal half-year, then divided by 365 to reflect the one-half year period. The Fund's ending account values on the first line in each table are based on the actual six-month total return for each class of -4.58% for the Institutional Class and -4.64% for the Investor Class. 9 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND PORTFOLIO HOLDINGS SUMMARY TABLE AUGUST 31, 2010 (UNAUDITED)
% OF NET SECURITY TYPE & SECTOR CLASSIFICATION ASSETS VALUE -------------------------------------------- -------- ------------ COMMON STOCKS: Technology 22.3% $ 17,911,739 Consumer Growth 21.6 17,344,484 Financial 16.7 13,416,882 Industrial 15.8 12,629,822 Consumer Cyclical 12.7 10,153,401 Basic Industry 5.5 4,370,564 Energy 3.9 3,110,707 Utility 1.3 1,046,840 SHORT-TERM INVESTMENTS 0.2 168,989 OTHER ASSETS IN EXCESS OF LIABILITIES 0.0 6,585 -------- ------------ NET ASSETS 100.0% $ 80,160,013 ======== ============
---------- Portfolio holdings are subject to change at any time. The accompanying notes are an integral part of the financial statements. 10 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND PORTFOLIO OF INVESTMENTS AUGUST 31, 2010
NUMBER OF SHARES VALUE --------- ------------ COMMON STOCKS--99.8% BASIC INDUSTRY--5.5% Aurizon Mines Ltd. * ........................................... 65,500 $ 434,920 Cabot Corp...................................................... 20,400 579,972 Clearwater Paper Corp. * ....................................... 10,800 733,968 Gammon Gold, Inc. * ............................................ 91,800 657,288 Golden Star Resources Ltd. * ................................... 119,600 565,708 Innospec, Inc. * ............................................... 59,800 742,118 Rockwood Holdings, Inc. * ...................................... 25,400 656,590 ------------ 4,370,564 ------------ CONSUMER CYCLICAL--12.7% American Axle & Manufacturing Holdings, Inc. * ................. 68,600 574,182 Belo Corp., Class A * .......................................... 100,200 524,046 Bon-Ton Stores, Inc., (The) *................................... 73,200 464,820 Cinemark Holdings, Inc ........................................ 41,200 601,932 CPI Corp........................................................ 29,200 636,852 Culp, Inc. * ................................................... 52,500 486,675 Finish Line, Inc., (The), Class A .............................. 39,800 525,360 Genesco, Inc. * ................................................ 20,400 514,896 Harman International Industries, Inc. * ........................ 7,600 236,892 Jones Apparel Group, Inc. ...................................... 6,100 93,818 Maidenform Brands, Inc. * ...................................... 21,200 565,404 Marcus Corp., (The) ............................................ 51,600 567,600 MarineMax, Inc. * .............................................. 24,100 158,096 Ryder System, Inc. ............................................. 11,000 422,070 Scholastic Corp. ............................................... 10,800 253,044 Shoe Carnival, Inc. * .......................................... 24,000 396,720 Signet Jewelers Ltd. * ......................................... 22,200 586,968 Tenneco, Inc. * ................................................ 31,200 771,264 THQ, Inc. * .................................................... 56,500 200,575 Timberland Co., (The), Class A * ............................... 32,300 519,061 Ulta Salon, Cosmetics & Fragrance, Inc. * ...................... 11,000 249,150 Valassis Communications, Inc. * ................................ 20,000 586,200 Warnaco Group, Inc., (The) * ................................... 5,200 217,776 ------------ 10,153,401 ------------ CONSUMER GROWTH--21.6% Affymax, Inc. * ................................................ 46,900 263,578 Blyth, Inc. .................................................... 13,200 503,184 Cardiome Pharma Corp. * ........................................ 80,100 482,202 Cardtronics, Inc. * ............................................ 37,300 516,605 Continucare Corp. * ............................................ 96,600 313,950 Cott Corp. * ................................................... 76,100 525,090 Coventry Health Care, Inc. * ................................... 28,300 547,605 Education Management Corp. * ................................... 27,800 224,346 Elizabeth Arden, Inc. * ........................................ 38,500 630,245 Emergent Biosolutions, Inc. * .................................. 32,200 584,752 Enzon Pharmaceuticals, Inc. * .................................. 47,800 490,428 Global Cash Access Holdings, Inc. * ............................ 113,400 410,508 Healthspring, Inc. * ........................................... 34,900 724,524 ICON PLC, SP ADR* .............................................. 17,900 393,800 Impax Laboratories, Inc. * ..................................... 36,700 575,089 Inter Parfums, Inc. ............................................ 38,400 630,528 Kenexa Corp. * ................................................. 49,400 550,316 Lincoln Educational Services Corp. * ........................... 36,300 396,396 Medical Action Industries, Inc. * .............................. 15,200 124,184 Medicines Co., (The) * ......................................... 67,500 776,250 Medicis Pharmaceutical Corp., Class A .......................... 29,400 808,500 Medifast, Inc. * ............................................... 20,600 550,432 Nabi Biopharmaceuticals *....................................... 31,100 150,835 Nu Skin Enterprises, Inc., Class A ............................. 17,900 457,703 Orthofix International, N.V. * ................................. 22,500 600,750 Par Pharmaceutical Cos., Inc. * ................................ 22,700 598,599 PerkinElmer, Inc. .............................................. 33,700 708,037 Providence Service Corp. * ..................................... 46,800 632,736 Rural/Metro Corp. * ............................................ 72,300 542,250 Sirona Dental Systems, Inc. * .................................. 17,800 561,056 SXC Health Solutions Corp. * ................................... 10,000 778,000 Tyson Foods, Inc., Class A ..................................... 28,200 461,916 Universal Technical Institute, Inc. ............................ 30,200 466,590 ZymoGenetics, Inc. * ........................................... 72,700 363,500 ------------ 17,344,484 ------------
The accompanying notes are an integral part of the financial statements. 11 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 2010
NUMBER OF SHARES VALUE --------- ------------ ENERGY--3.9% Clayton Williams Energy, Inc. * ................................ 16,400 $ 750,792 Complete Production Services, Inc. * ........................... 42,900 756,756 CVR Energy, Inc. * ............................................. 84,400 600,928 Newpark Resources, Inc. * ...................................... 55,800 487,134 Oil States International, Inc. * ............................... 1,900 78,337 TransGlobe Energy Corp. * ...................................... 61,000 436,760 ------------ 3,110,707 ------------ FINANCIAL--16.7% Advance America Cash Advance Centers, Inc. ..................... 132,500 443,875 Allied World Assurance Co. Holdings Ltd. ....................... 10,800 543,996 American Financial Group, Inc. ................................. 25,200 725,004 American Safety Insurance Holdings Ltd. * ...................... 45,800 715,854 Arch Capital Group Ltd. * ...................................... 6,000 478,800 Artio Global Investors, Inc., Class A .......................... 28,000 387,800 BGC Partners, Inc., Class A .................................... 124,500 642,420 Calamos Asset Management, Inc., Class A ........................ 70,300 665,038 CNinsure, Inc., ADR ............................................ 18,700 408,408 Duff & Phelps Corp., Class A ................................... 21,600 215,784 E*TRADE Financial Corp. * ...................................... 44,300 549,763 Encore Capital Group, Inc. * ................................... 23,000 455,630 FBL Financial Group, Inc., Class A ............................. 29,200 671,600 First Mercury Financial Corp. .................................. 64,000 583,040 GFI Group, Inc.................................................. 92,000 412,160 Hallmark Financial Services, Inc. * ............................ 38,900 324,426 Lender Processing Services, Inc. ............................... 14,200 416,486 Maiden Holdings, Ltd. .......................................... 69,400 508,702 MBIA, Inc. * ................................................... 63,600 595,296 Nelnet, Inc., Class A .......................................... 27,100 593,761 Primerica, Inc.................................................. 15,400 323,862 Pzena Investment Management, Inc., Class A ..................... 88,397 554,249 Southwest Bancorp, Inc. ........................................ 47,800 569,298 Transatlantic Holdings, Inc..................................... 14,000 667,380 United Fire & Casualty Co. ..................................... 32,200 651,406 United Western Bancorp, Inc. ................................... 59,200 24,864 Unitrin, Inc.................................................... 12,100 287,980 ------------ 13,416,882 ------------ INDUSTRIAL--15.8% Administaff, Inc................................................ 22,000 475,640 AerCap Holdings N.V. * ......................................... 57,400 616,476 Air Transport Services Group, Inc. * ........................... 129,100 595,151 Altra Holdings, Inc. * ......................................... 22,200 285,714 AMERCO * ....................................................... 9,500 767,695 CAI International, Inc. * ...................................... 32,500 444,275 Consolidated Graphics, Inc. * .................................. 17,000 675,070 DXP Enterprises, Inc. * ........................................ 31,700 575,355 Federal-Mogul Corp. * .......................................... 32,800 501,676 Great Lakes Dredge & Dock Co. .................................. 93,700 472,716 Kadant, Inc. * ................................................. 27,400 466,896 Navistar International Corp. * ................................. 15,100 632,388 OYO Geospace Corp. * ........................................... 12,300 605,775 Pacer International, Inc. * .................................... 43,200 221,184 Power-One, Inc * ............................................... 79,500 809,310 Quanex Building Products Corp. ................................. 35,300 557,740 R.R. Donnelley & Sons Co. ...................................... 34,500 522,503 Sauer-Danfoss, Inc. * .......................................... 40,700 661,782 TAL International Group, Inc. .................................. 24,200 515,944 Tennant Co. .................................................... 11,200 349,888 Timken Co., (The) .............................................. 22,200 726,162 Tredegar Corp. ................................................. 31,600 518,872 TriMas Corp. * ................................................. 49,000 631,610 ------------ 12,629,822 ------------ TECHNOLOGY--22.3% Acacia Research * .............................................. 33,800 507,676 ACI Worldwide, Inc. * .......................................... 23,800 451,962 Analogic Corp. ................................................. 13,300 551,684 Applied Micro Circuits Corp. * ................................. 47,300 509,894 ASM International N.V. * ....................................... 27,000 594,270 Coherent, Inc. * ............................................... 17,900 664,985 Conexant Systems, Inc. * ....................................... 107,300 159,877
The accompanying notes are an integral part of the financial statements. 12 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND PORTFOLIO OF INVESTMENTS (CONCLUDED) AUGUST 31, 2010
NUMBER OF SHARES VALUE --------- ------------ TECHNOLOGY--(CONTINUED) DST Systems, Inc................................................ 14,100 $ 574,434 Insight Enterprises, Inc. * .................................... 34,700 455,958 Integrated Silicon Solution, Inc. * ............................ 64,400 426,972 Internap Network Services Corp. * .............................. 112,600 463,349 Jabil Circuit, Inc.............................................. 42,400 434,600 Keithley Instruments, Inc....................................... 65,900 609,575 LaserCard Corp. * .............................................. 4,900 16,954 Lattice Semiconductor Corp. * .................................. 108,900 451,935 Limelight Networks, Inc. * ..................................... 103,400 409,464 Manhattan Associates, Inc. * ................................... 16,800 437,556 Mindspeed Technologies, Inc. * ................................. 65,800 421,120 NCR Corp. * .................................................... 48,400 621,940 Newport Corp. * ................................................ 45,700 432,779 OPNET Technologies, Inc. ....................................... 41,400 652,050 PLX Technology, Inc. * ......................................... 89,600 300,160 Progress Software Corp. * ...................................... 6,500 173,615 Quest Software, Inc. * ......................................... 26,400 565,752 RADVision Ltd. * ............................................... 49,949 335,657 RealNetworks, Inc. * ........................................... 159,000 429,300 Renesola Ltd., ADR * ........................................... 93,600 820,872 RF Micro Devices, Inc. * ....................................... 118,000 575,840 Richardson Electronics Ltd. .................................... 43,800 385,440 Spreadtrum Communications, Inc., ADR * ......................... 69,400 798,794 Teradyne, Inc. * ............................................... 62,600 562,148 TriQuint Semiconductor, Inc. * ................................. 74,700 519,165 Unisys Corp. * ................................................. 27,900 623,844 VeriFone Holdings, Inc. * ....................................... 29,800 720,564 Verint Systems, Inc. * ......................................... 26,400 622,512 Vishay Intertechnology, Inc. * ................................. 81,800 629,042 ------------ 17,911,739 ------------ UTILITY--1.3% Laclede Group, Inc., (The) ..................................... 15,600 519,480 NV Energy, Inc. ................................................ 41,200 527,360 ------------ 1,046,840 ------------ TOTAL COMMON STOCKS (Cost $80,438,959) ....................................... 79,984,439 ------------ SHORT-TERM INVESTMENTS--0.2% Columbia Prime Reserves Fund 168,989 ........................... 168,989 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $168,989) .......................................... 168,989 ------------ TOTAL INVESTMENTS--100.0% (Cost $80,607,948) ............................................. 80,153,428 ------------ OTHER ASSETS IN EXCESS OF LIABILITIES--0.0% ............................................ 6,585 ------------ NET ASSETS--100.0% .............................................. $ 80,160,013 ============
---------- * Non-income producing. ADR--American Depositary Receipt. SP ADR--Sponsored American Depositary Receipt. The following is a summary of inputs used, as of August 31, 2010, in valuing the Fund's investments carried at market value (see note 1 in the Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL FAIR LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE AUGUST 31, 2010 PRICE INPUTS INPUTS --------------- ------------ ----------- ------------- TOTAL INVESTMENTS* $ 80,153,428 $ 80,153,428 $ -- $ -- =============== ============ =========== =============
---------- * See Portfolio of Investments detail for security type and sector classification breakout. The accompanying notes are an integral part of the financial statements. 13 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 2010 ASSETS Investments, at value (cost $80,607,948) ................................ $ 80,153,428 Receivables for: Investments sold ..................................................... 1,622,665 Capital shares sold .................................................. 108,391 Dividends ............................................................ 66,100 Prepaid expenses and other assets .................................... 26,153 -------------- Total assets ...................................................... 81,976,737 ============== LIABILITIES Payables for: Investments purchased ................................................ 1,605,582 Capital shares redeemed .............................................. 75,444 Investment advisory fees and shareholder servicing fees .............. 58,487 Directors' and officers' fees ........................................ 2,151 Other accrued expenses and liabilities ............................... 75,060 -------------- Total liabilities ................................................. 1,816,724 -------------- Net assets .............................................................. $ 80,160,013 ============== NET ASSETS CONSIST OF Capital stock, $0.001 par value ......................................... $ 5,457 Paid-in capital ......................................................... 147,075,717 Accumulated net realized loss from investments .......................... (66,466,641) Net unrealized depreciation on investments .............................. (454,520) -------------- Net assets .............................................................. $ 80,160,013 ============== INSTITUTIONAL CLASS Net assets .............................................................. $ 31,713,565 -------------- Shares outstanding ($0.001 par value, 100,000,000 shares authorized) .... 2,141,494 -------------- Net asset value, offering and redemption price per share ................ $ 14.81 ============== INVESTOR CLASS Net assets .............................................................. $ 48,446,448 -------------- Shares outstanding ($0.001 par value, 100,000,000 shares authorized) .... 3,315,753 -------------- Net asset value, offering and redemption price per share ................ $ 14.61 ==============
The accompanying notes are an integral part of the financial statements. 14 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2010 INVESTMENT INCOME Dividends (net of foreign withholding taxes of $4,403) .................. $ 685,554 Other income ............................................................ 312 -------------- Total investment income ........................................... 685,866 -------------- EXPENSES Advisory fees ........................................................... 894,054 Transfer agent fees ..................................................... 145,742 Administration and accounting fees ...................................... 135,265 Shareholder servicing fees .............................................. 54,541 Professional fees ....................................................... 40,665 Printing and shareholder reporting fees ................................. 32,794 Custodian fees .......................................................... 28,822 Registration and filing fees ............................................ 26,909 Directors' and officers' fees ........................................... 19,096 Insurance fees .......................................................... 11,037 Other expenses .......................................................... 20,170 -------------- Total expenses before waivers ........................................ 1,409,095 Less: waivers ........................................................ (236,986) -------------- Net expenses after waivers .............................................. 1,172,109 -------------- Net investment loss ..................................................... (486,243) -------------- NET REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS Net realized gain/(loss) from investments ............................... 19,623,580 Net change in unrealized appreciation/(depreciation) on investments ..... (14,010,093) -------------- Net realized and unrealized gain from investments .......................... 5,613,487 -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................... $ 5,127,244 ==============
The accompanying notes are an integral part of the financial statements. 15 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE YEAR ENDED YEAR ENDED AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment loss ..................................................... $ (486,243) $ (430,465) Net realized gain/(loss) from investments ............................... 19,623,580 (57,964,843) Net change in unrealized appreciation/(depreciation) on investments ..... (14,010,093) 17,425,741 --------------- --------------- Net increase/(decrease) in net assets resulting from operations ............ 5,127,244 (40,969,567) --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS DERIVED FROM CAPITAL TRANSACTIONS: Institutional Class Proceeds from shares sold ............................................ 8,195,988 6,194,651 Distributions for shares redeemed .................................... (13,976,421) (32,754,100) --------------- --------------- Total Institutional Class ............................................ (5,780,433) (26,559,449) Investor Class Proceeds from shares sold ............................................ 5,494,728 2,931,980 Distributions for shares redeemed .................................... (13,630,981) (13,476,265) --------------- --------------- Total Investor Class .................................................... (8,136,253) (10,544,285) --------------- --------------- Net decrease in net assets from capital share transactions ................. (13,916,686) (37,103,734) --------------- --------------- Total decrease in net assets ............................................... (8,789,442) (78,073,301) --------------- --------------- NET ASSETS Beginning of year ....................................................... 88,949,455 167,022,756 --------------- --------------- End of year ............................................................. $ 80,160,013 $ 88,949,455 =============== ===============
The accompanying notes are an integral part of the financial statements. 16 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE FOR THE YEAR ENDED YEAR ENDED AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- INCREASE/(DECREASE) IN SHARES OUTSTANDING DERIVED FROM SHARE TRANSACTIONS: Institutional Class Shares sold .......................................................... 519,898 550,481 Shares redeemed ...................................................... (912,854) (2,890,397) --------------- --------------- Total Institutional Class ............................................ (392,956) (2,339,916) Investor Class Shares sold .......................................................... 360,412 272,329 Shares redeemed ...................................................... (895,346) (1,233,242) --------------- --------------- Total Investor Class ................................................. (534,934) (960,913) --------------- --------------- Total decrease in shares outstanding derived from share transactions .... (927,890) (3,300,829) =============== ===============
The accompanying notes are an integral part of the financial statements. 17 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND FINANCIAL HIGHLIGHTS Contained below is per share operating performance data for each class of shares outstanding, total investment return, ratios to average net assets and other supplemental data for the respective years. This information has been derived from information provided in the financial statements.
INSTITUTIONAL CLASS --------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE FOR THE YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 8/31/10 8/31/09 8/31/08 8/31/07 8/31/06 --------- --------- --------- --------- --------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year .................. $ 14.03 $ 17.35 $ 24.61 $ 27.74 $ 28.78 --------- --------- --------- --------- --------- Net investment loss* ................................ (0.07) (0.05) (0.13) (0.08) (0.16) Net realized and unrealized gain/(loss) from investments ................................. 0.85 (3.27) (3.99) 2.74 3.08 --------- --------- --------- --------- --------- Net increase/(decrease) in net assets resulting from operations ........................ 0.78 (3.32) (4.12) 2.66 2.92 --------- --------- --------- --------- --------- Distributions to shareholders from: Net realized capital gains .......................... -- -- (3.14) (5.79) (3.96) --------- --------- --------- --------- --------- Net asset value, end of year ........................ $ 14.81 $ 14.03 $ 17.35 $ 24.61 $ 27.74 ========= ========= ========= ========= ========= Total investment return(1) .......................... 5.56% (19.08)% (19.33)% 10.29% 12.46% ========= ========= ========= ========= ========= RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's omitted) ............. $ 31,714 $ 35,571 $ 84,546 $ 197,415 $ 189,920 Ratio of expenses to average net assets with waivers and reimbursements .................. 1.25% 1.25% 1.25% 1.25% 1.25% Ratio of expenses to average net assets without waivers and reimbursements ............... 1.51% 1.57% 1.44% 1.43% 1.43% Ratio of net investment loss to average net assets ............................... (0.48)% (0.44)% (0.64)% (0.30)% (0.55)% Portfolio turnover rate ............................. 196.03% 159.14% 162.10% 142.45% 126.64%
---------- * Calculated based on average shares outstanding for the period. (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. The accompanying notes are an integral part of the financial statements. 18 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND FINANCIAL HIGHLIGHTS Contained below is per share operating performance data for each class of shares outstanding, total investment return, ratios to average net assets and other supplemental data for the respective years. This information has been derived from information provided in the financial statements.
INVESTOR CLASS -------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE FOR THE YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED 8/31/10 8/31/09 8/31/08 8/31/07 8/31/06 ----------- ----------- ----------- ----------- ----------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year ............... $ 13.86 $ 17.14 $ 24.38 $ 27.56 $ 28.65 ----------- ----------- ----------- ----------- ----------- Net investment loss* ............................. (0.09) (0.06) (0.14) (0.10) (0.18) Net realized and unrealized gain/(loss) from investments .............................. 0.84 (3.22) (3.96) 2.71 3.05 ----------- ----------- ----------- ----------- ----------- Net increase/(decrease) in net assets resulting from operations ..................... 0.75 (3.28) (4.10) 2.61 2.87 ----------- ----------- ----------- ----------- ----------- Distributions to shareholders from: Net realized capital gains ....................... -- -- (3.14) (5.79) (3.96) ----------- ----------- ----------- ----------- ----------- Net asset value, end of year ..................... $ 14.61 $ 13.86 $ 17.14 $ 24.38 $ 27.56 =========== =========== =========== =========== =========== Total investment return(1) ....................... 5.41% (19.14)% (19.45)% 10.15% 12.33% =========== =========== =========== =========== =========== RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's omitted) .......... $ 48,446 $ 53,379 $ 82,477 $ 135,752 $ 147,471 Ratio of expenses to average net assets with waivers and reimbursements ............... 1.35% 1.35% 1.35% 1.35% 1.35% Ratio of expenses to average net assets without waivers and reimbursements ............ 1.62% 1.67% 1.54% 1.53% 1.53% Ratio of net investment loss to average net assets ............................ (0.58)% (0.56)% (0.74)% (0.40)% (0.65)% Portfolio turnover rate .......................... 196.03% 159.14% 162.10% 142.45% 126.64%
-------------- * Calculated based on average shares outstanding for the period. (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. The accompanying notes are an integral part of the financial statements. 19 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The RBB Fund, Inc. ("RBB" or the "Company") was incorporated under the laws of the State of Maryland on February 29, 1988 and is registered under the Investment Company Act of 1940, as amended, (the "Investment Company Act") as an open-end management investment company. RBB is a "series fund," which is a mutual fund divided into separate portfolios. Each portfolio is treated as a separate entity for certain matters under the Investment Company Act, and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. Currently, RBB has eighteen active investment portfolios, including the Bogle Investment Management Small Cap Growth Fund (the "Fund"), which commenced investment operations on October 1, 1999. As of the date hereof, the Fund offers two classes of shares, Institutional Class and Investor Class. RBB has authorized capital of one hundred billion shares of common stock of which 79.373 billion shares are currently classified into one hundred and thirty-three classes of common stock. Each class represents an interest in an active or inactive RBB investment portfolio. PORTFOLIO VALUATION -- The Fund's net asset value ("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. Securities held by the Fund are valued using the closing price or the last sale price on a national securities exchange or the National Association of Securities Dealers Automatic Quotation System ("NASDAQ") market system where they are primarily traded. 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 greater than 60 days are valued using an independent pricing service. Fixed income securities having a remaining maturity of 60 days or less are amortized to maturity based on their cost. 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). If market quotations are unavailable or deemed unreliable, securities will be 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. FAIR VALUE MEASUREMENTS -- The inputs and valuation techniques used to measure fair value of the Fund's investments are summarized into three levels as described below: - Level 1 - unadjusted quoted prices in active markets for identical securities - Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) - Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) 20 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value the Fund's investments as of August 31, 2010 is included with the Fund's Portfolio of Investments. USE OF ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates and those differences could be significant. INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES -- The Fund records security transactions based on trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes in determining realized gains and losses on investments. Interest income is accrued when earned. Dividend income is recorded on the ex-dividend date. The Fund's net investment income (other than class specific shareholder servicing fees) and unrealized and realized gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class at the beginning of the day. Expenses incurred on behalf of a specific class, fund or fund family are charged directly to the class, fund or fund family (in proportion to net assets). Expenses incurred for all of the RBB funds (such as director or professional fees) are charged to all funds in proportion to their average net assets of RBB, or in such other manner as the Company's Board of Directors deems fair or equitable. Expenses and fees, including investment advisory and administration fees, are accrued daily for the purpose of determining the NAV of the Fund. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income and distributions from net realized capital gains, if any, will be declared and paid at least annually to shareholders and recorded on the ex-dividend date. Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations which may differ from accounting principles generally accepted in the United States. U.S. TAX STATUS -- No provision is made for U.S. income taxes as it is the Fund's intention to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to its shareholders which will be sufficient to relieve it from U.S. income and excise taxes. CASH AND CASH EQUIVALENTS -- The Fund considers liquid assets deposited into bank demand deposit accounts to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Fund expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. OTHER -- In the normal course of business, the Fund may enter into contracts that provide general indemnifications. The Fund's maximum exposure under these arrangements is dependent on claims that may 21 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) be made against the Fund in the future, and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote. 2. INVESTMENT ADVISER AND OTHER SERVICES Bogle Investment Management, L.P. (the "Adviser" or "Bogle") serves as the Fund's investment adviser. For its advisory services, the Adviser is entitled to receive a monthly fee from the Fund calculated at an annual rate of 1.00% of the Fund's average daily net assets. The Adviser has contractually agreed to limit the Fund's total operating expenses (other than acquired fund fees and expenses, brokerage commissions, extraordinary items, interest and taxes) through December 31, 2010 to the extent that such expenses exceed 1.25% of the average daily net assets of the Fund's Institutional Class and 1.35% of the average daily net assets of the Fund's Investor Class. As necessary, this limitation is effected in waivers of advisory fees and reimbursements of expenses exceeding the advisory fee. The contractual fee waiver does not provide for recoupment of fees that were waived or expenses that were reimbursed. For the year ended August 31, 2010, investment advisory fees and waivers of the Fund were as follows:
GROSS NET ADVISORY FEES WAIVERS ADVISORY FEES ------------- ----------- ------------- $ 894,054 $ (225,810) $ 668,244
The Fund will not pay the Adviser at a later time for any amounts waived or any amounts assumed. In addition to serving as the Fund's investment adviser, Bogle provides certain shareholder services to the Investor Class of the Fund. As compensation for such services, the Adviser receives a monthly fee equal to an annual rate of 0.10% of the average daily net assets of the Fund's Investor Class. BNY Mellon Investment Servicing (US) Inc. ("BNY Mellon"), formerly known as PNC Global Investment Servicing (U.S.), Inc., serves as administrator for the Fund. For providing administrative and accounting services, BNY Mellon is entitled to receive a monthly fee equal to an annual percentage rate of the Fund's average daily net assets, subject to certain minimum monthly fees. BNY Mellon has voluntarily agreed to waive a portion of its administration and accounting fees for the Fund. For the year ended August 31, 2010, administration and accounting fees and waivers of the Fund were as follows:
GROSS ADMINISTRATION NET ADMINISTRATION AND ACCOUNTING AND ACCOUNTING FEES WAIVERS FEES -------------------- -------------- ------------------ $ 135,265 $ (11,176) $ 124,089
For providing regulatory administration services to RBB, BNY Mellon is entitled to receive compensation as agreed to by the Company and BNY Mellon. This fee is allocated to each portfolio in proportion to its net assets of the Company. 22 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) In addition, BNY Mellon serves as the Fund's transfer and dividend disbursing agent. For providing transfer agent services, BNY Mellon is entitled to receive a monthly fee equal to an annual percentage rate of the Fund's average daily net assets and is subject to certain minimum monthly fees. For providing custodial services to the Fund, PFPC Trust Company, a member of The Bank of New York Mellon Corporation, is entitled to receive a monthly fee equal to an annual percentage rate of the Fund's average daily net assets subject to certain minimum monthly fees. BNY Mellon Distributors Inc., formerly known as PFPC Distributors, Inc., serves as the principal underwriter and distributor of the Fund's shares pursuant to a Distribution Agreement with RBB. The Fund will not pay The Bank of New York Mellon Corporation or any of its members or BNY Mellon's affiliates at a later time for any amounts waived or any amounts assumed. 3. DIRECTOR COMPENSATION The Directors of the Company receive an annual retainer, meeting fees and out of pocket expenses for meetings attended. The remuneration paid to the Directors by the Fund during the fiscal year ended August 31, 2010 was $12,357. Certain employees of BNY Mellon are Officers of the Company. They are not compensated by the Fund or the Company. 4. INVESTMENT IN SECURITIES For the year ended August 31, 2010, aggregate purchases and sales of investment securities (excluding short-term investments) of the Fund were as follows:
INVESTMENT SECURITIES ----------------------------------- PURCHASES SALES ------------- -------------- $ 172,090,076 $ 186,201,910
5. CAPITAL SHARE TRANSACTIONS As of August 31, 2010, the Fund has 100,000,000 shares of $0.001 par value common stock authorized for the Institutional Class and 100,000,000 shares of $0.001 par value common stock authorized for the Investor Class. As of August 31, 2010, the Fund had two shareholder accounts and/or omnibus accounts (comprised of a group of individual shareholders) that held 34% of the total shares outstanding of the Fund. 6. FEDERAL INCOME TAX INFORMATION Management has analyzed the Fund's tax positions taken on federal income tax returns for all open tax years (current and prior three tax years), and has concluded that no provision for federal income tax is required in the Fund's financial statements. The Fund's federal and state income and federal excise tax 23 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. As of August 31, 2010, federal tax cost, aggregate gross unrealized appreciation and depreciation of securities held by the Fund were as follows:
FEDERAL TAX UNREALIZED UNREALIZED NET UNREALIZED COST APPRECIATION DEPRECIATION DEPRECIATION ------------- ------------- ---------------- ---------------- $ 81,527,416 $ 8,218,829 $ (9,592,817) $ (1,373,988)
Distributions to shareholders from net investment income and realized gains are determined in accordance with federal income tax regulations, which may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on the tax treatment; temporary differences do not require such reclassification. The following permanent differences as of August 31, 2010, primarily attributable to a net operating loss and investments in passive foreign investment companies, were reclassified to the following accounts:
UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED PAID-IN INCOME/(LOSS) GAIN/(LOSS) CAPITAL -------------- ------------ ----------- $ 486,243 $ (69,839) $ (416,404)
The differences between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for federal income tax purposes. Short-term and foreign currency gains are reported as ordinary income for federal income tax purposes. There were no dividends or distributions paid during the fiscal year ended August 31, 2010. Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes. As of August 31, 2010, the Fund had a capital loss carryforward of $65,547,173 available to offset future capital gains. This capital loss carryforward will expire as follows: August 31, 2018 ................ $ 26,317,731 August 31, 2017 ................ $ 36,842,815 August 31, 2016 ................ $ 2,386,627
Under federal tax law, foreign currency and capital losses realized after October 31 may be deferred and treated as having arisen on the first day of the following fiscal year. For the year ended August 31, 2010, the Fund did not incur a net post-October capital loss. 24 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONCLUDED) 7. NEW ACCOUNTING PRONOUNCEMENT In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06, "Improving Disclosures about Fair Value Measurements." ASU No. 2010-06 amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, to require additional disclosures regarding fair value measurements. Certain disclosures required by ASU No. 2010-06 are currently effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management has evaluated the impact and has incorporated the appropriate disclosures required by ASU No. 2010-06 in its financial statement disclosures. 8. SUBSEQUENT EVENT Management has evaluated the impact of all subsequent events on the Fund though the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements 25 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of The RBB Fund, Inc.: In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Bogle Investment Management Small Cap Growth Fund, a separately managed portfolio of The RBB Fund, Inc. (the "Fund") at August 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion. [PRICEWATERHOUSECOOPERS LLP] Philadelphia, Pennsylvania October 22, 2010 26 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND SHAREHOLDER TAX INFORMATION (UNAUDITED) The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of the Fund's fiscal year end (August 31) as to the U.S. federal tax status of distributions received by each Fund's shareholders in respect of such fiscal year. There were no dividends paid during the fiscal year ended August 31, 2010. Because the Fund's fiscal year is not the calendar year, another notification will be sent with respect to calendar year 2010. The second notification, which will reflect the amount, if any, to be used by calendar year taxpayers on their U.S. federal income tax returns, will be made in conjunction with Form 1099-DIV and will be mailed in January 2011. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of their ordinary income dividends. They will generally not be entitled to a foreign tax credit or deduction for the withholding taxes paid by the Fund, if any. In general, dividends received by tax exempt recipients (e.g., IRAs and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult their own tax advisers with respect to the tax consequences of their investment in the Fund. 27 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND OTHER INFORMATION (UNAUDITED) PROXY VOTING Policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities as well as information regarding how the Fund voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 are available without charge, upon request, by calling (877) 264-5346 and on the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov. QUARTERLY PORTFOLIO SCHEDULES The Company will file its complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year (quarters ended November 30 and May 31) on Form N-Q. The Company's Form N-Q will be available on the SEC website at http://www.sec.gov and may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. Information on the operation of the SEC Public Reference Room may be obtained by calling (202) 551-8090. APPROVAL OF INVESTMENT ADVISORY AGREEMENT As required by the Investment Company Act, the Board of Directors (the "Board") of the Company, including all of the Directors who are not "interested persons" of the Company, as that term is defined in the Investment Company Act (the "Independent Directors"), considered the renewal of the investment advisory agreement between Bogle and the Company (the "Advisory Agreement") on behalf of the Fund at a meeting of the Board held on May 6, 2010. At this meeting, the Board, including all of the Independent Directors, approved the Advisory Agreement for an additional one-year term. The Board's decision to approve the Advisory Agreement reflects the exercise of its business judgment to continue the existing arrangement. In approving the Advisory Agreement, the Board considered information provided by the Adviser with the assistance and advice of counsel to the Independent Directors and the Company. In considering the renewal of and approval of the Advisory Agreement, the Directors took into account all the materials provided prior to and during the meeting and at other meetings throughout the past year, the presentations made during the meeting, and the discussions during the meeting. Among other things, the Directors considered (i) the nature, extent, and quality of Bogle's services provided to the Fund; (ii) descriptions of the experience and qualifications of Bogle's personnel providing those services; (iii) Bogle's investment philosophies and processes; (iv) Bogle's assets under management and client descriptions; (v) Bogle's soft dollar commission and trade allocation policies, including information on the types of research and services obtained in connection with soft dollar commissions; (vi) Bogle's current advisory fee arrangement with the Company and other similarly managed clients; (vii) Bogle's compliance procedures; (viii) Bogle's financial information, insurance coverage and profitability analysis related to providing advisory services to the Fund; (ix) the extent to which economies of scale are relevant to the Fund; (x) a report prepared by Lipper Inc. ("Lipper") comparing the Fund's management fees and total expense ratio to those of its Lipper peer group and comparing the performance of the Fund to the performance of its Lipper peer group; and (xi) a report comparing the performance of the Fund to the performance of its benchmark. 28 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND OTHER INFORMATION (CONCLUDED) (UNAUDITED) As part of their review, the Directors considered the nature, extent and quality of the services provided by Bogle. The Directors concluded that Bogle had substantial resources to provide services to the Fund and that Bogle's services had been acceptable. The Directors also considered the investment performance of the Fund and Bogle. Information on the Fund's investment performance was provided for one, two, three, four and five year periods. The Directors considered the Fund's investment performance in light of its investment objective and investment strategies. The Directors concluded that the investment performance of the Fund as compared to its benchmark and Lipper peer group was acceptable. In reaching this conclusion, the Directors noted that the performance of the Fund was better than its peer group median for the one year period. The Board of Directors also considered the advisory fee rate payable by the Fund under the Advisory Agreement. In this regard, information on the fees paid by the Fund and the Fund's total operating expense ratio (before and after fee waivers and expense reimbursements) were compared to similar information for mutual funds advised by other, unaffiliated investment advisory firms. The Directors noted that although the contractual advisory fees of the Fund were higher than the peer group median, the actual advisory fees of the Fund and the actual total expenses of the Fund were both lower than the peer group median. The Directors also noted Bogle's commitment to shareholders to limit the asset base of the Fund in an effort to maximize long-term returns for its shareholders. In addition, the Directors noted that Bogle has contractually agreed to limit total annual operating expenses to agreed upon levels for each class of the Fund through at least December 31, 2010 and that Bogle expects to continue these fee waivers and expense reimbursements. After reviewing the information regarding Bogle's costs, profitability and economies of scale, and after considering Bogle's services, the Directors concluded that the investment advisory fees paid by the Fund were fair and reasonable and that the Advisory Agreement should be approved and continued for an additional one-year period ending August 16, 2011. 29 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND FUND MANAGEMENT (UNAUDITED) The business and affairs of the Company are managed under the direction of the Company's Board of Directors. The Company is organized under and managed pursuant to Maryland law. The Directors and executive officers of the Company, their dates of birth, business addresses and principal occupations during the past five years are set forth below. The statement of additional information ("SAI") includes additional information about the Directors and is available without charge, upon request, by calling (877) 264-5346.
NUMBER OF PORTFOLIOS IN OTHER POSITION(S) TERM OF OFFICE FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR* DIRECTOR -------------------- ----------- --------------- ----------------------------------------- ------------ ---------------------- DISINTERESTED DIRECTORS Nicholas A. Giordano Director 2006 to present Consultant, financial services 18 Kalmar Pooled 103 Bellevue Parkway organizations from 1997 to present. Investment Trust; Wilmington, DE 19809 (registered DOB: 3/43 investment company) WT Mutual Fund; (registered investment company) Independence Blue Cross; IntriCon Corporation (industrial furnaces and ovens) Francis J. McKay Director 1988 to present Retired; Executive Vice President and 18 None 103 Bellevue Parkway Chief Operating Officer, Fox Chase Wilmington, DE 19809 Cancer Center (biomedical research and DOB: 12/35 medical care) (1981-2004). Arnold M. Reichman Chairman 2005 to present Director, Gabelli Group Capital Partners, 18 None 103 Bellevue Parkway L.P. (an investment partnership) from Wilmington, DE 19809 Director 1991 to present 2000 to 2006. DOB: 5/48
---------------- * Each Director oversees eighteen portfolios of the Company that are currently offered for sale. (1) Subject to the Company's Retirement Policy, each Director may continue to serve as a Director until the last day of the calendar year in which the applicable Director attains age 75 or until the last day of year 2011, whichever is later, or until his successor is elected and qualified or his death, resignation or removal. The Board reserves the right to waive the requirements of the Policy with respect to an individual Director. Each officer holds office at the pleasure of the Board of Directors until the next special meeting of the Company or until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed. 30 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND FUND MANAGEMENT (CONTINUED) (UNAUDITED)
NUMBER OF PORTFOLIOS IN OTHER POSITION(S) TERM OF OFFICE FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR* DIRECTOR -------------------- ----------- --------------- ----------------------------------------- ------------ ---------------------- DISINTERESTED DIRECTORS Marvin E. Sternberg Director 1991 to present Since 1974, Chairman, Director and 18 MTI Holding Group, Inc. 103 Bellevue Parkway President, MTI Holding Group, Inc. (formerly known as Wilmington, DE 19809 (formerly known as Moyco Technologies, Moyco Technologies, DOB: 3/34 Inc.) (manufacturer of dental products Inc.) and precision coated and industrial abrasives). Since 1999, Director, Pennsylvania Business Bank. Robert A. Straniere Director 2006 to present Since 2009, Administrative Law Judge, 18 Reich and Tang Group 103 Bellevue Parkway New York City; Founding Partner, (asset management); Wilmington, DE 19809 Straniere Law Firm (1980 to date); The SPARX Asia Funds DOB: 3/41 Partner, Gotham Strategies (consulting (registered investment firm) (2005 to 2008); Partner, The Gotham company) (until 2009) Global Group (consulting firm) (2005 to 2008); President, The New York City Hot Dog Company (2005 to present); and Partner, Kanter-Davidoff (law firm) (2006 to 2007).
------------------- * Each Director oversees eighteen portfolios of the Company that are currently offered for sale. (1) Subject to the Company's Retirement Policy, each Director may continue to serve as a Director until the last day of the calendar year in which the applicable Director attains age 75 or until the last day of year 2011, whichever is later, or until his successor is elected and qualified or his death, resignation or removal. The Board reserves the right to waive the requirements of the Policy with respect to an individual Director. Each officer holds office at the pleasure of the Board of Directors until the next special meeting of the Company or until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed. 31 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND FUND MANAGEMENT (CONTINUED) (UNAUDITED)
NUMBER OF PORTFOLIOS IN OTHER POSITION(S) TERM OF OFFICE FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR* DIRECTOR -------------------- ----------- --------------- ----------------------------------------- ------------- ---------------------- INTERESTED DIRECTORS (2) Julian A. Brodsky Director 1988 to present Since 1969, Director and Vice Chairman, 18 Comcast Corporation; 103 Bellevue Parkway Comcast Corporation (cable television AMDOCS Limited Wilmington, DE 19809 and communications). (service provider to DOB: 7/33 telecommunications companies) Robert Sablowsky Director 1991 to present Since July 2002, Senior Director and prior 18 Kensington Funds 103 Bellevue Parkway thereto, Executive Vice President of (registered investment Wilmington, DE 19809 Oppenheimer & Co., Inc., formerly company) (until 2009) DOB: 4/38 Fahnestock & Co., Inc. (a registered broker-dealer). J. Richard Carnall Director 2002 to present Director of Haydon Bolts, Inc. (bolt 18 Cornerstone Bank 103 Bellevue Parkway manufacturer) and Parkway Real Estate Wilmington, DE 19809 Company (subsidiary of Haydon Bolts, DOB: 9/38 Inc.) since 1984; and Director of Cornerstone Bank since March 2004.
------------------ * Each Director oversees eighteen portfolios of the Company that are currently offered for sale. (1) Subject to the Company's Retirement Policy, each Director may continue to serve as a Director until the last day of the calendar year in which the applicable Director attains age 75 or until the last day of year 2011, whichever is later, or until his successor is elected and qualified or his death, resignation or removal. The Board reserves the right to waive the requirements of the Policy with respect to an individual Director. Each officer holds office at the pleasure of the Board of Directors until the next special meeting of the Company or until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed. (2) Messrs. Brodsky, Carnall and Sablowsky are considered "interested persons" of the Company as that term is defined in the 1940 Act and are referred to as "Interested Directors." Mr. Brodsky is an "Interested Director" of the Company because a family foundation and certain family trusts own shares of JPMorgan Chase & Co. The investment adviser to the Company's Bear Stearns CUFS MLP Mortgage Portfolio, Bear Stearns Asset Management, Inc., is an indirect subsidiary of JPMorgan Chase. Mr. Carnall is an "Interested Director" of the Company because he owns shares of The PNC Financial Services Group, Inc. ("PNC") . PNC owns a controlling interest in BlackRock, Inc., the parent company of BlackRock Institutional Management Corporation, the investment adviser to the Company's Money Market Portfolio. Mr. Sablowsky is considered an "Interested Director" of the Company by virtue of his position as an officer of Oppenheimer & Co., Inc., a registered broker-dealer. 32 BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND FUND MANAGEMENT (CONCLUDED) (UNAUDITED)
NUMBER OF PORTFOLIOS IN OTHER POSITION(S) TERM OF OFFICE FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR* DIRECTOR ---------------------------- ----------- --------------- ----------------------------------------- ------------- ------------- OFFICERS Salvatore Faia, Esquire, President President June President, Vigilant Compliance Services N/A N/A CPA and Chief 2009 to present since 2004; Senior Legal Counsel, PNC Vigilant Compliance Services Compliance and Chief Global Investment Servicing (U.S.), Inc. Brandywine Two Officer Compliance from 2002 to 2004; and Director of Energy 5 Christy Drive, Suite 209 Officer 2004 to Income Partnership since 2005. Chadds Ford, PA 19317 present DOB: 12/62 Joel Weiss Treasurer June 2009 to Since 1993 Vice President and Managing N/A N/A 103 Bellevue Parkway present Director, BNY Mellon Investment Wilmington, DE 19809 Servicing (US) Inc. (formerly PNC Global DOB: 1/63 Investment Servicing (U.S.) Inc.) (finan- cial services company) Jennifer Rogers Secretary 2007 to present Since 2005, Vice President and Counsel, N/A N/A 301 Bellevue Parkway BNY Mellon Investment Servicing (US) 2nd Floor Inc. (formerly PNC Global Investment Wilmington, DE 19809 Servicing (U.S.) Inc. (financial services DOB: 7/74 company); Associate, Stradley, Ronon, Stevens & Young, LLC (law firm) from 1999 to 2005. James G. Shaw Assistant 2005 to present Since 1995, Vice President of BNY Mellon N/A N/A 103 Bellevue Parkway Treasurer Investment Servicing (US) Inc. (formerly Wilmington, DE 19809 PNC Global Investment Servicing (U.S.) DOB: 10/60 Inc. (financial services company) Michael P. Malloy Assistant 1999 to present Since 1993, Partner, Drinker Biddle & N/A N/A One Logan Square, Ste. 2000 Secretary Reath LLP (law firm) Philadelphia, PA 19103-6996 DOB: 7/59
-------------------- * Each Director oversees eighteen portfolios of the Company that are currently offered for sale. (1) Subject to the Company's Retirement Policy, each Director may continue to serve as a Director until the last day of the calendar year in which the applicable Director attains age 75 or until the last day of year 2011, whichever is later, or until his successor is elected and qualified or his death, resignation or removal. The Board reserves the right to waive the requirements of the Policy with respect to an individual Director. Each officer holds office at the pleasure of the Board of Directors until the next special meeting of the Company or until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed. 33 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER Bogle Investment Management, L.P. 2310 Washington Street Suite 310 Newton Lower Falls, MA 02462 ADMINISTRATOR BNY Mellon Investment Servicing (US) Inc. 301 Bellevue Parkway Wilmington, DE 19809 TRANSFER AGENT BNY Mellon Investment Servicing (US) Inc. 101 Sabin Street Pawtucket, RI 02860 PRINCIPAL UNDERWRITER BNY Mellon Distributors Inc. 760 Moore Road King of Prussia, PA 19406 CUSTODIAN PFPC Trust Company 301 Bellevue Parkway Wilmington, DE 19809 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP Two Commerce Square, Suite 1700 2001 Market Street Philadelphia, PA 19103-7042 COUNSEL Drinker Biddle & Reath LLP One Logan Square, Ste. 2000 Philadelphia, PA 19103-6996 =============================================================================== BOGLE INVESTMENT MANAGEMENT SMALL CAP GROWTH FUND OF THE RBB FUND, INC. ANNUAL REPORT AUGUST 31, 2010 This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund. (MARVIN & PALMER ASSOCIATES,INC. LOGO) GLOBAL EQUITY MANAGEMENT MARVIN & PALMER LARGE CAP GROWTH FUND of The RBB Fund, Inc. ANNUAL REPORT August 31, 2010 THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. IT IS NOT AUTHORIZED FOR DISTRIBUTION UNLESS PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUND. SHARES OF THE FUND ARE DISTRIBUTED BY BNY MELLON DISTRIBUTORS INC., 760 MOORE ROAD, KING OF PRUSSIA, PA 19406. (GRAPHIC) MARVIN & PALMER LARGE CAP GROWTH FUND ANNUAL INVESTMENT ADVISER'S REPORT AUGUST 31, 2010 (UNAUDITED) DEAR FELLOW SHAREHOLDER: During the period from September 1, 2009 through August 31, 2010 the Fund gained 5.28%, while the Russell 1000 Growth Index gained 6.14% for the same period. INVESTMENT CLIMATE AND OUTLOOK The year ended August 31, 2010 was a volatile time for investors. There were concerns about the timing of the eventual tightening of monetary policy in the developed economies which contributed to a general mood of caution among market participants. In the United States, fears about a double-dip recession were stoked by rising inventory in the housing market and falling mortgage applications, weaker consumer confidence and no pick-up in the job market. Election uncertainties, particularly in the U.S., also tempered market returns. While these concerns were valid, we believe the resolution of these uncertainties combined with the cheap level of markets (10-12x earnings) offer a very bullish outlook for the next 12-15 months. We believe the economic outlook should continue to improve partially due to strength outside the U.S., especially in the emerging markets. Real pay per worker is rising in the United States, and that benefits those consumers who remain employed. Corporate profits are causing a rebuilding of inventories, and a strong technology upgrade cycle is occurring that reinforces our existing overweight positions in industrials and technology. We believe that in a low-growth environment the market will increasingly favor and reward the kind of high-quality growth companies on which the Fund focuses. INVESTMENT REVIEW AND PORTFOLIO STRATEGY The Marvin & Palmer Large Cap Growth Fund trailed the Russell 1000 Growth Index while slightly outperforming the broader S&P 500 Index during the one year period ended August 31, 2010. Information technology was the Fund's largest contributor to performance, while health care and financials were the largest detractors. The Fund's best performing stocks were Salesforce.com, Cognizant Technology and NetApp. The worst contributing stocks were Seagate Technology, McDonald's Corporation and Gilead Sciences. We remain overweight in the technology, industrials and consumer discretionary sectors. The combination of growth in smart phones and cloud computing and increased corporate spending makes the technology sector especially attractive in a slow growth environment. Capital spending related companies are benefiting from economic strength that comes from the developing world, with the primary beneficiaries being the industrials and technology sectors. We appreciate your support and confidence in our firm's investment philosophy, process and people. David F. Marvin, CFA Chairman Marvin & Palmer Associates, Inc. 1 MARVIN & PALMER LARGE CAP GROWTH FUND ANNUAL REPORT AUGUST 31, 2010 (UNAUDITED) Comparison of Change in Value of $10,000 Investment in Marvin & Palmer vs. Russell 1000(R) Growth Index (PERFORMANCE GRAPH)
Marvin & Palmer Russell 1000 Growth Index --------------- ------------------------- 6/29/2007 10000 10000 8/31/2007 10200 10001 2/29/2008 9782 9345 8/31/2008 9322 9325 2/28/2009 5320 5605 8/31/2009 6665 7764 2/28/2010 7218 8643 8/31/2010 7017 8241
This chart assumes a hypothetical $10,000 initial investment in the Fund made on June 29, 2007 (inception) and reflects Fund expenses. Investors should note that the Fund is a professionally managed mutual fund while the Russell 1000(R) Growth Index is unmanaged, does not incur sales charges and/or expenses and is not available for investment. Total Returns for the Year Ended August 31, 2010
AVERAGE ANNUAL --------------------- SINCE ONE YEAR INCEPTION* -------- ---------- LARGE CAP GROWTH FUND 5.28% -10.57% RUSSELL 1000(R) GROWTH INDEX 6.14% -5.98%
* INCEPTION DATE JUNE 29, 2007. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END MAY BE OBTAINED BY CALLING (877) 821-2117. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE TABLE DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. THE PERFORMANCE QUOTED REFLECTS FEE WAIVERS IN EFFECT AND WOULD HAVE BEEN LESS IN THEIR ABSENCE. THE FUND'S GROSS ANNUAL OPERATING EXPENSE RATIO, AS STATED IN THE CURRENT PROSPECTUS, IS 2.27% AND THE FUND'S NET OPERATING EXPENSE RATIO IS 0.80%. THE EXPENSE RATIO IS CONTRACTUALLY CAPPED AT 0.80% THROUGH DECEMBER 31, 2010, WITHOUT WHICH PERFORMANCE WOULD HAVE BEEN LESS. THIS CAP CAN BE DISCONTINUED AT ANY TIME AFTER DECEMBER 31, 2010. THE FUND'S TOTAL RETURNS SINCE INCEPTION ARE BASED ON A CHANGE IN NET ASSET VALUE FROM $10.00 PER SHARE ON JUNE 29, 2007 (INCEPTION) TO $6.98 PER SHARE ON AUGUST 31, 2010. PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. 2 MARVIN & PALMER LARGE CAP GROWTH FUND FUND EXPENSE DISCLOSURE AUGUST 31, 2010 (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees; and (2) ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the six-month period from March 1, 2010 through August 31, 2010, and held for the entire period. ACTUAL EXPENSES The first line of the accompanying table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the accompanying table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not your Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the accompanying tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees. Therefore, the second line of the accompanying table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
LARGE CAP GROWTH FUND ---------------------------------------------------- BEGINNING ACCOUNT ENDING ACCOUNT VALUE VALUE EXPENSES PAID MARCH 1, 2010 AUGUST 31, 2010 DURING PERIOD* ----------------- --------------- -------------- Actual $1,000.00 $ 972.10 $3.98 Hypothetical (5% return before expenses) 1,000.00 1,025.21 4.08
---------- * Expenses are equal to an annualized six-month expense ratio of 0.80% for the Fund which includes waived fees or reimbursed expenses, multiplied by the average account value over the period, multiplied by the number of days in the most recent period (184), then divided by 365 to reflect the one-half year period. The Fund's ending account values are based on the actual six-month total return for the Fund of -2.79%. 3 MARVIN & PALMER LARGE CAP GROWTH FUND PORTFOLIO HOLDINGS SUMMARY TABLE AUGUST 31, 2010 (UNAUDITED)
% of Net Assets Value -------- ---------- Common Stocks: Software & Services ..................... 20.3% $1,820,257 Capital Goods ........................... 17.4 1,558,713 Technology Hardware & Equipment ......... 15.0 1,345,352 Retailing ............................... 9.5 851,121 Consumer Durables & Apparel ............. 6.0 536,020 Food, Beverage & Tobacco ................ 4.5 401,664 Health Care Equipment & Services ........ 4.1 366,897 Materials ............................... 3.9 355,214 Household Products ...................... 3.6 323,856 Transportation .......................... 3.5 310,548 Semiconductors & Semiconductors Equipment ............................ 3.1 283,069 Energy .................................. 2.9 257,029 Pharmaceuticals, Biotechnology & Life Sciences ........................ 1.3 119,756 Insurance ............................... 1.2 111,254 Banking ................................. 1.1 101,265 Telecommunications ...................... 0.5 46,860 Other Assets In Excess of Liabilities ...... 2.1 191,414 ----- ---------- NET ASSETS ................................. 100.0% $8,980,289 ===== ==========
Portfolio holdings are subject to change at any time. The accompanying notes are an integral part of the financial statements. 4 MARVIN & PALMER LARGE CAP GROWTH FUND PORTFOLIO OF INVESTMENTS AUGUST 31, 2010
Shares Value ------ ---------- COMMON STOCKS -- 97.9% BANKING -- 1.1% Wells Fargo & Co. ....................................... 4,300 $ 101,265 ---------- CAPITAL GOODS -- 17.4% Boeing Co., (The) ....................................... 3,100 189,503 Bucyrus International, Inc. ............................. 1,700 97,733 Caterpillar, Inc. ....................................... 1,800 117,288 Cummins, Inc. ........................................... 3,500 260,435 Joy Global, Inc. ........................................ 3,700 209,938 Precision Castparts Corp. ............................... 3,100 350,858 Rockwell Collins, Inc. .................................. 1,700 91,681 United Technologies Corp. ............................... 3,700 241,277 ---------- 1,558,713 ---------- CONSUMER DURABLES & APPAREL -- 6.0% Hasbro, Inc. ............................................ 3,200 129,152 NIKE, Inc., Class B ..................................... 4,400 308,000 VF Corp. ................................................ 1,400 98,868 ---------- 536,020 ---------- ENERGY -- 2.9% Continental Resources, Inc.* ............................ 2,000 81,040 Schlumberger Ltd. ....................................... 3,300 175,989 ---------- 257,029 ---------- FOOD, BEVERAGES & TOBACCO -- 4.5% Altria Group, Inc. ...................................... 2,800 62,496 General Mills, Inc. ..................................... 3,700 133,792 PepsiCo, Inc. ........................................... 3,200 205,376 ---------- 401,664 ---------- HEALTH CARE EQUIPMENT & SERVICES -- 4.1% CIGNA Corp. ............................................. 2,100 67,662 Express Scripts, Inc.* .................................. 2,800 119,280 McKesson Corp. .......................................... 3,100 179,955 ---------- 366,897 ---------- HOUSEHOLD PRODUCTS -- 3.6% Colgate-Palmolive Co. ................................... 1,800 132,912 Procter & Gamble Co., (The) ............................. 3,200 190,944 ---------- 323,856 ---------- INSURANCE -- 1.2% Prudential Financial, Inc. .............................. 2,200 111,254 ---------- MATERIALS -- 3.9% Cliffs Natural Resources, Inc. .......................... 3,400 208,046 Newmont Mining Corp. .................................... 2,400 147,168 ---------- 355,214 ---------- PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES -- 1.3% Life Technologies Corp.* ................................ 2,800 119,756 ----------
Shares Value ------ ---------- RETAILING -- 9.5% Amazon.com, Inc.* ....................................... 2,800 $ 349,524 Home Depot, Inc. ........................................ 3,700 102,897 O' Reilly Automotive, Inc.* ............................. 1,400 66,178 Target Corp. ............................................ 2,000 102,320 TJX Cos., Inc. (The) .................................... 5,800 230,202 ---------- 851,121 ---------- SEMICONDUCTORS & SEMICONDUCTORS EQUIPMENT -- 3.1% Avago Technologies Ltd. (Singapore)* .................... 5,200 104,780 Micron Technology, Inc.* ................................ 8,900 57,539 Xilinx, Inc. ............................................ 5,000 120,750 ---------- 283,069 ---------- SOFTWARE & SERVICES -- 20.3% Akamai Technologies, Inc.* .............................. 4,600 211,922 Cognizant Technology Solutions Corp., Class A* ............................................. 7,000 403,235 Google, Inc., Class A* .................................. 285 128,256 Intuit, Inc.* ........................................... 3,300 141,240 Oracle Corp. ............................................ 4,000 87,520 Salesforce.com, Inc.* ................................... 4,000 439,520 VMware, Inc., Class A* .................................. 5,200 408,564 ---------- 1,820,257 ---------- TECHNOLOGY HARDWARE & EQUIPMENT -- 15.0% Agilent Technologies, Inc.* ............................. 3,700 99,789 Amphenol Corp., Class A ................................. 2,800 114,016 Apple, Inc.* ............................................ 1,650 401,560 Cisco Systems, Inc.* .................................... 11,300 226,565 EMC Corp.* .............................................. 6,400 116,736 F5 Networks, Inc.* ...................................... 1,000 87,430 NetApp, Inc.* ........................................... 7,400 299,256 ---------- 1,345,352 ---------- TELECOMMUNICATIONS -- 0.5% American Tower Corp., Class A* .......................... 1,000 46,860 ---------- TRANSPORTATION -- 3.5% CSX Corp. ............................................... 1,400 69,846 Union Pacific Corp. ..................................... 3,300 240,702 ---------- 310,548 ---------- TOTAL COMMON STOCKS (Cost $7,581,986) ................................. 8,788,875 ---------- TOTAL INVESTMENTS -- 97.9% (Cost $7,581,986) .................................... 8,788,875 ---------- OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.1% ........... 191,414 ---------- NET ASSETS -- 100.0% .................................... $8,980,289 ==========
---------- * Non-income producing. The accompanying notes are an integral part of the financial statements. 5 MARVIN & PALMER LARGE CAP GROWTH FUND PORTFOLIO OF INVESTMENTS (CONCLUDED) AUGUST 31, 2010 The following is a summary of the inputs used, as of August 31, 2010, in valuing the Fund's investments carried at market value (See note 1 in Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE AUGUST 31, 2010 PRICE INPUTS INPUTS --------------- ---------- ----------- ------------ Investments in Securities* $8,788,875 $8,788,875 $-- $-- ========== ========== === ===
* Please refer to the Portfolio of Investments for industry and security type breakouts. The accompanying notes are an integral part of the financial statements. 6 MARVIN & PALMER LARGE CAP GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 2010 ASSETS Investments, at value (Cost $7,581,986) ................................ $ 8,788,875 Cash and cash equivalents .............................................. 142,590 Receivables Investments sold .................................................... 144,071 Investment adviser .................................................. 32,130 Dividends and interest .............................................. 11,236 Prepaid expenses and other assets ...................................... 10,915 ------------ Total assets ........................................................ 9,129,817 ------------ LIABILITIES Payables for investments purchased ..................................... 95,588 Other accrued expenses and liabilities ................................. 53,940 ------------ Total liabilities ................................................... 149,528 ------------ Net Assets ............................................................. $ 8,980,289 ============ NET ASSETS CONSIST OF Par value .............................................................. $ 1,286 Paid-in capital ........................................................ 18,851,110 Accumulated net realized loss from investments ......................... (11,078,996) Net unrealized appreciation on investments ............................. 1,206,889 ------------ Net Assets ............................................................. $ 8,980,289 ------------ Shares outstanding ($0.001 par value, 100,000,000 shares authorized) ... 1,285,953 ------------ Net asset value, offering and redemption price per share ............... $ 6.98 ============
The accompanying notes are an integral part of the financial statements. 7 MARVIN & PALMER LARGE CAP GROWTH FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2010 INVESTMENT INCOME Dividends ................................................... $ 109,267 Interest .................................................... 253 ----------- Total investment income .................................. 109,520 ----------- EXPENSES Administration and accounting fees .......................... 153,359 Advisory fees ............................................... 89,594 Audit fees .................................................. 24,599 Registration and filing fees ................................ 22,128 Directors' and officers' fees ............................... 21,432 Printing and shareholder reporting fees ..................... 18,740 Legal fees .................................................. 11,067 Transfer agent fees ......................................... 9,118 Insurance ................................................... 5,379 Custodian fees .............................................. 4,117 Other expenses .............................................. 1,991 ----------- Total expenses before waivers and reimbursements ......... 361,524 ----------- Less: waivers and reimbursements ......................... (251,254) ----------- Net expenses after waivers and reimbursements ............ 110,270 ----------- Net investment loss ......................................... (750) ----------- NET REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS NET REALIZED GAIN/(LOSS) FROM: Investments .............................................. 3,394,602 NET CHANGE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON: Investments .............................................. (1,818,562) ----------- Net realized and unrealized gain from investments ........... 1,576,040 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $ 1,575,290 ===========
The accompanying notes are an integral part of the financial statements. 8 MARVIN & PALMER LARGE CAP GROWTH FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR ENDED ENDED AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) ............................................... $ (750) $ 67,304 Net realized gain/(loss) from investments .................................. 3,394,602 (10,342,051) Net change in unrealized appreciation/(depreciation) from investments ...... (1,818,562) 1,991,618 ------------ ------------ Net increase/(decrease) in net assets resulting from operations ............... 1,575,290 (8,283,129) ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ...................................................... (31,926) (63,113) ------------ ------------ Net decrease in net assets from dividends and distributions to shareholders ... (31,926) (63,113) ------------ ------------ CAPITAL TRANSACTIONS: Proceeds from shares sold .................................................. 1,407,000 2,752,950 Reinvestment of distributions .............................................. 31,506 62,459 Shares redeemed ............................................................ (13,344,833) (3,906,142) ------------ ------------ Net decrease in net assets from capital transactions .......................... (11,906,327) (1,090,733) ------------ ------------ Total decrease in net assets .................................................. (10,362,963) (9,436,975) ------------ ------------ NET ASSETS Beginning of year .......................................................... 19,343,252 28,780,227 ------------ ------------ End of year ................................................................ $ 8,980,289 $ 19,343,252 ============ ============ Undistributed net investment income end of year ............................ $ -- $ 31,922 ============ ============ SHARE TRANSACTIONS: Shares sold ................................................................ 191,656 449,528 Shares reinvested .......................................................... 4,376 10,324 Shares redeemed ............................................................ (1,823,327) (633,123) ------------ ------------ Total share transactions ................................................... (1,627,295) (173,271) ============ ============
The accompanying notes are an integral part of the financial statements. 9 MARVIN & PALMER LARGE CAP GROWTH FUND FINANCIAL HIGHLIGHTS Contained below is per share operating performance data for each share outstanding, total investment return, ratios to average net assets and other supplemental data for the respective periods. This information has been derived from information provided in the financial statements.
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE PERIOD ENDED ENDED ENDED JUNE 29, 2007* AUGUST 31, 2010 AUGUST 31, 2009 AUGUST 31, 2008 TO AUGUST 31, 2007 --------------- --------------- --------------- ------------------ PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period .................... $ 6.64 $ 9.32 $ 10.20 $ 10.00 ------- ------- ------- ------- Net investment income/(loss) ............................ --(1) 0.02 0.01 --(1) Net realized and unrealized gain/(loss) on investments .. 0.35 (2.68) (0.89) 0.20 ------- ------- ------- ------- Net increase/(decrease) in net assets resulting from operations ........................................... 0.35 (2.66) (0.88) 0.20 ------- ------- ------- ------- DIVIDENDS TO SHAREHOLDERS FROM: Net investment income ................................... (0.01) (0.02) --(1) -- ------- ------- ------- ------- Net asset value, end of period .......................... $ 6.98 $ 6.64 $ 9.32 $ 10.20 ======= ======= ======= ======= Total investment return(2) .............................. 5.28% (28.51)% (8.61)% 2.00% RATIO/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) ............... $ 8,980 $19,343 $28,780 $15,283 Ratio of expenses to average net assets ................. 0.80% 0.80% 0.80% 0.80%(3) Ratio of expenses to average net assets without waivers and expense reimbursements ................... 2.62% 2.27% 2.09% 3.93%(3) Ratio of net investment income (loss) to average net assets ........................................... (0.01)% 0.37% 0.12% 0.21%(3) Portfolio turnover rate ................................. 138.68% 237.91% 252.37% 28.70%
* Commencement of Operations. (1) Less than $0.005 per share. (2) 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. (3) Annualized. The accompanying notes are an integral part of the financial statements. 10 MARVIN & PALMER LARGE CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2010 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The RBB Fund, Inc. ("RBB" or the "Company") was incorporated under the laws of the State of Maryland on February 29, 1988 and is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end management investment company. RBB is a "series fund," which is a mutual fund divided into separate portfolios. Each portfolio is treated as a separate entity for certain matters under the Investment Company Act, and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. Currently, RBB has eighteen active investment portfolios, including the Marvin & Palmer Large Cap Growth Fund (the "Fund"), which commenced investment operations on June 29, 2007. RBB has authorized capital of one hundred billion shares of common stock of which 79.373 billion shares are currently classified into one hundred and thirty-three classes of common stock. Each class represents an interest in an active or inactive RBB investment portfolio. PORTFOLIO VALUATION -- The Fund's net asset value ("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. Securities held by the Fund are valued using the closing price or the last sale price on a national securities exchange or the National Association of Securities Dealers Automatic Quotation System ("NASDAQ") market system where they are primarily traded. 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 greater than 60 days are valued using an independent pricing service. Fixed income securities having a remaining maturity of 60 days or less are amortized to maturity based on their cost. Foreign securities are valued based on prices from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. Investments in other open-end investment companies are valued based on the NAV of the investment companies (which may use fair value pricing as discussed in their prospectuses). If market quotations are unavailable or deemed unreliable, securities will be 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. FAIR VALUE MEASUREMENTS -- The inputs and valuation techniques used to measure fair value of the Fund's investments are summarized into three levels as described below: - Level 1 -- quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) - Level 3 -- significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value the Fund's investments as of August 31, 2010 is included with the Fund's Schedule of Investments. USE OF ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates and those differences could be significant. INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES -- The Fund records security transactions based on trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes in determining realized gains and losses on investments. Interest income is accrued when earned. Dividend income is recorded on the ex-dividend date. Distributions received on securities that represent a return of capital or capital gains are recorded as a reduction of cost of investments and/or as a realized gain. The Fund estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. The Fund's investment income, expenses and unrealized and realized gains and losses are allocated daily. Expenses incurred on behalf of a specific class, fund or fund family are charged directly to the class, fund or fund family (in proportion to net assets). Expenses incurred for all the RBB funds (such as director or professional fees) are charged to all funds in proportion to their average net assets of RBB, or in such other manner as the Company's Board of Directors deems fair or equitable. Expenses and fees, including investment advisory and administration fees, are accrued daily and taken into account for the purpose of determining the NAV of the Fund. 11 MARVIN & PALMER LARGE CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income and distributions from net realized capital gains, if any, are declared, recorded on the ex-dividend date and paid at least annually to shareholders. Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from generally accepted accounting principles. U.S. TAX STATUS -- No provision is made for U.S. income taxes as it is the Fund's intention to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to its shareholders which will be sufficient to relieve it from U.S. income and excise taxes. CASH AND CASH EQUIVALENTS -- The Fund considers liquid assets deposited into a bank demand deposit account to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Fund expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. OTHER -- In the normal course of business, the Fund may enter into contracts that provide general indemnifications. The Fund's maximum exposure under these arrangements is dependent on claims that may be made against the Fund in the future, and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote. 2. INVESTMENT ADVISER AND OTHER SERVICES Marvin & Palmer Associates, Inc. ("Marvin & Palmer" or the "Adviser") serves as investment adviser to the Fund pursuant to an investment advisory agreement with the Company (the "Advisory Agreement"). For its services, the Adviser is paid a monthly fee at the annual rate of 0.65% of the Fund's average daily net assets. The Adviser has agreed to limit through December 31, 2010 the Fund's total operating expenses (other than acquired fund fees and expenses, brokerage commissions, extraordinary items, interest or taxes) to the extent that such expenses exceed 0.80% of the Fund's average daily net assets. This limitation is effected in waivers of advisory fees and reimbursement of expenses exceeding the advisory fee as necessary. If at any time during the three years ending March 4, 2013 the advisory agreement is in effect, the Fund's total annual operating expenses for that year are less than 0.80% of the Fund's average daily net assets, the Adviser is entitled to reimbursement by the Fund of the advisory fees waived and other payments remitted by the Adviser to the Fund during such three-year period. For the year ended August 31, 2010, investment advisory fees accrued and waived were $89,594 and expenses reimbursed or to be reimbursed by the Adviser were $161,660. As of August 31, 2010, the total fees which were previously waived by the Advisor which may be subject to possible future reimbursements to the Adviser were as follows:
EXPIRATION --------------------------------------------------- AUGUST 31, 2011 AUGUST 31, 2012 AUGUST 31, 2013 --------------- --------------- --------------- $274,994 $268,864 $251,254
BNY Mellon Investment Servicing (US), Inc. ("BNY Mellon"), formerly known as PNC Global Investment Servicing (U.S.), Inc., serves as administrator for the Fund. Administration and accounting fees accrued also include certain Transfer Agent and custodian fees. For providing administrative and accounting services, BNY Mellon is entitled to receive a monthly fee equal to an annual percentage rate of the Fund's average daily net assets, subject to certain minimum monthly fees. Included in the administration and accounting fees are fees for providing regulatory administration services to RBB. For providing these services, BNY Mellon is entitled to receive compensation as agreed to by the Company and BNY Mellon. This fee is allocated to each portfolio in proportion to its net assets of the Company. In addition, BNY Mellon serves as the Fund's transfer and dividend disbursing agent. For providing transfer agent services, BNY Mellon is entitled to receive out of pocket expenses. For providing custodial services to the Fund, PFPC Trust Company, a member of The Bank of New York Mellon Corp., is entitled to receive out of pocket expenses. BNY Mellon Distributors Inc., formerly PFPC Distributors, Inc., serves as the principal underwriter and distributor of the Fund's shares pursuant to a Distribution Agreement with RBB. 12 MARVIN & PALMER LARGE CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 3. DIRECTOR COMPENSATION The Directors of the Company receive an annual retainer, meeting fees and out of pocket expenses for meetings attended. The remuneration paid to the Directors by the Fund during the year ended August 31, 2010, was $7,258. Certain employees of BNY Mellon are Officers of the Company. They are not compensated by the Fund or the Company. 4. INVESTMENT IN SECURITIES For the year ended ended August 31, 2010, aggregate purchases and sales of investment securities (excluding short-term investments) of the Fund were as follows:
PURCHASES SALES ----------- ----------- Investment Securities ... $18,264,652 $30,012,993
5. SIGNIFICANT SHAREHOLDERS As of August 31, 2010, the Fund had 1 shareholder accounts and/or omnibus accounts (comprised of a group of individual shareholders) that amounted to 65% of the total shares outstanding of the Fund. 6. FEDERAL TAX INFORMATION Management has analyzed the Fund's tax positions taken on federal income tax returns for all open tax years (August 31, 2007 - 2010) and has concluded that no provision for federal income tax is required in the Fund's financial statements. The Fund's federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. As of August 31, 2010, federal tax cost, aggregate gross unrealized appreciation and depreciation of securities held by the Fund were as follows:
FEDERAL TAX UNREALIZED UNREALIZED NET UNREALIZED COST APPRECIATION DEPRECIATION APPRECIATION ----------- ------------ ------------ -------------- $7,606,818 $1,559,277 $(377,220) $1,182,057
Distributions to shareholders from net investment income and realized gains are determined in accordance with federal income tax regulations, which may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on the tax treatment; temporary differences do not require such reclassification. The following permanent differences as of August 31, 2010, attributable to the net operating loss, were reclassified to the following accounts:
UNDISTRIBUTED NET INVESTMENT PAID-IN (LOSS) CAPITAL -------------- ------------- $754 $(754)
As of August 31, 2010 the Fund had no tax-basis distributable earnings. The difference between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for federal income tax purposes. Short-term and foreign currency gains are reportable as ordinary income for federal income tax purposes. 13 MARVIN & PALMER LARGE CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONCLUDED) AUGUST 31, 2010 The tax character of distributions paid during the fiscal year ended August 31, 2010 and August 31, 2009, were was as follows:
Fiscal Year Ended Fiscal Year Ended August 31, 2010 August 31, 2009 ----------------- ----------------- Ordinary income ........... $31,926 $63,113 Long-term capital gains ... -- -- ------- ------- Total distributions ....... $31,926 $63,113 ------- -------
Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes. For federal income tax purposes, capital loss carryforwards are available to offset future capital gains. As of August 31, 2010, the Fund had a capital loss carryforward of $11,054,164 which will expire as follows: August 31, 2018 ... $3,287,157 August 31, 2017 ... $7,438,269 August 31, 2016 ... $ 328,738
Under federal tax law, foreign currency and capital losses realized after October 31 may be deferred and treated as having arisen on the first day of the following fiscal year. For the year ended August 31, 2010, the Fund did not incur a net post-October currency or capital loss. 7. NEW ACCOUNTING PRONOUNCEMENT In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06 "Improving Disclosures about Fair Value Measurements." ASU No. 2010-06 amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, to require additional disclosures regarding fair value measurements. Certain disclosures required by ASU No. 2010-06 are currently effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management has evaluated the impact and has incorporated the appropriate disclosures required by ASU No. 2010-06 in its financial statement disclosures. 8. SUBSEQUENT EVENT Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements. 14 MARVIN & PALMER LARGE CAP GROWTH FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE RBB FUND, INC.: In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Marvin & Palmer Large Cap Growth Fund, a separately managed portfolio of The RBB Fund, Inc. (the "Fund") at August 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the years or periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopere LLP Philadelphia, Pennsylvania October 22, 2010 15 MARVIN & PALMER LARGE CAP GROWTH FUND SHAREHOLDER TAX INFORMATION (UNAUDITED) The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of the Fund's fiscal year end (August 31) as of the U.S. federal tax status of distributions received by the Fund's shareholders in respect of such fiscal year. During the fiscal year ended August 31, 2010, the following dividends and distributions were paid by the Fund:
ORDINARY LONG-TERM INCOME CAPITAL GAINS -------- ------------- $31,926 $--
Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal tax purposes. For the fiscal year ended August 31, 2010, certain dividends may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. For individual shareholders, a percentage of their ordinary income dividends for the Fund may qualify for a maximum tax rate of 15%. The percentage of ordinary income dividends that qualify is 100%. For the fiscal year ended August 31, 2010, certain dividends qualify for the dividends-received deduction ("DRD") for corporate shareholders. The percentage of ordinary income dividends that qualify is 100%. Because the Fund's fiscal year is not the calendar year, another notification will be sent with respect to calendar year 2010. The second notification, which will reflect the amount, if any, to be used by calendar year taxpayers on their U.S. federal income tax returns, will be made in conjunction with Form 1099-DIV and will be mailed in January 2011. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of their ordinary income dividends. They will generally not be entitled to a foreign tax credit or deduction for the withholding taxes paid by the Fund, if any. In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult their own tax advisers with respect to the tax consequences of their investment in the Fund. 16 MARVIN & PALMER LARGE CAP GROWTH FUND OTHER INFORMATION (UNAUDITED) PROXY VOTING Policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities as well as information regarding how the Fund voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 are available without charge, upon request, by calling Marvin and Palmer at (877) 821-2117 and on the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov. QUARTERLY PORTFOLIO SCHEDULES The Company will file a complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year (quarters ended November 30 and May 31) on Form N-Q. The Company's Form N-Q will be available on the SEC website at http://www.sec.gov and may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. Information on the operation of the SEC Public Reference Room may be obtained by calling (202) 551-8090. APPROVAL OF INVESTMENT ADVISORY AGREEMENT As required by the Investment Company Act, the Board of Directors (the "Board") of the Company, including all of the Directors who are not "interested persons" of the Company, as that term is defined in the 1940 Act (the "Independent Directors"), considered the renewal of the investment advisory agreement between Marvin & Palmer Associates, Inc. ("Marvin & Palmer") and the Company (the "Advisory Agreement") on behalf of the Fund at a meeting of the Board held on May 6, 2010. At this meeting, the Board, including all of the Independent Directors, approved the Advisory Agreement for an additional one-year term. The Board's decision to approve the Advisory Agreement reflects the exercise of its business judgment to continue the existing arrangement. In approving the Advisory Agreement, the Board considered information provided by Marvin & Palmer with the assistance and advice of counsel to the Independent Directors and the Company. In considering the renewal of and approval of the Advisory Agreement, the Directors took into account all the materials provided prior to and during the meeting and at other meetings throughout the past year, the presentations made during the meeting, and the discussions during the meeting. Among other things, the Directors considered (i) the nature, extent, and quality of Marvin & Palmer's services provided to the Fund; (ii) descriptions of the experience and qualifications of Marvin & Palmer's personnel providing those services; (iii) Marvin & Palmer's investment philosophies and processes; (iv) Marvin & Palmer's assets under management and client descriptions; (v) Marvin & Palmer's soft dollar commission and trade allocation policies, including information on the types of research and services obtained in connection with soft dollar commissions; (vi) Marvin & Palmer's current advisory fee arrangement with the Company and other similarly managed clients; (vii) Marvin & Palmer's compliance procedures; (viii) Marvin & Palmer's financial information, insurance coverage and profitability analysis related to providing advisory services to the Fund; (ix) the extent to which economies of scale are relevant to the Fund; (x) a report prepared by Lipper, Inc. ("Lipper") comparing the Fund's management fees and total expense ratio to those of its Lipper peer group and comparing the performance of the Fund to the performance of its Lipper peer group; (xi) a report comparing the performance of the Fund to the performance of its benchmark; and (xii) a report on the historical performance of Marvin & Palmer's U.S. Equity Strategy. As part of their review, the Directors considered the nature, extent and quality of the services provided by Marvin & Palmer. The Directors concluded that Marvin & Palmer had substantial resources to provide services to the Fund and that Marvin & Palmer's services had been acceptable. The Directors also considered the investment performance of the Fund and Marvin & Palmer. Information on the Fund's investment performance was provided for one and two year periods. The Directors considered the Fund's investment performance in light of its investment objective and investment strategies. The Directors concluded that the investment performance of the Fund as compared to its benchmark and Lipper peer group was acceptable. In reaching this conclusion, the Directors also considered the historic performance of Marvin & Palmer's U.S. Equity Strategy. The Board of Directors also considered the advisory fee rate payable by the Fund under the Advisory Agreement. In this regard, information on the fees paid by the Fund and the Fund's total operating expense ratio (before and after fee waivers and expense reimbursements) were compared to similar information for mutual funds advised by other, unaffiliated investment advisory firms. The Directors noted that the advisory fees of the Fund, before and after waivers, and the actual total expenses of the Fund were all lower than the peer group median. In addition, the Directors noted that Marvin & Palmer has contractually agreed to limit total annual operating expenses to 0.80% of the Fund's average daily net assets through at least December 31, 2010 and that Marvin & Palmer expects to continue these fee waivers and expense reimbursements. After reviewing the information regarding Marvin & Palmer's costs, profitability and economies of scale, and after considering Marvin & Palmer's services, the Directors concluded that the investment advisory fees paid by the Fund were fair and reasonable and that the Advisory Agreement should be approved and continued for an additional one-year period ending August 16, 2011. 17 MARVIN & PALMER LARGE CAP GROWTH FUND FUND MANAGEMENT (UNAUDITED) The business and affairs of the Company are managed under the direction of the Company's Board of Directors. The Company is organized under and managed pursuant to Maryland law. The Directors and executive officers of the Company, their dates of birth, business addresses and principal occupations during the past five years are set forth below. The statement of additional information ("SAI") includes additional information about the Directors and is available with-out charge, upon request, by calling (877) 821-2117.
NUMBER OF PORTFOLIOS IN TERM OF OFFICE FUND COMPLEX OTHER NAME, ADDRESS, POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH WITH FUND TIME SERVED (1) DURING PAST 5 YEARS DIRECTOR* HELD BY DIRECTOR ----------------- ---------------- --------------- ---------------------------------- ------------- ---------------------- DISINTERESTED DIRECTORS Nicholas A. Giordano Director 2006 to present Consultant, financial services 18 Kalmar Pooled 103 Bellevue Parkway organizations from 1997 to Investment Trust; Wilmington, DE 19809 present. (registered investment DOB: 3/43 company) WT Mutual Fund; (registered investment company) Independence Blue Cross; IntriCon Corporation (body worn device company) Francis J. McKay Director 1988 to present Retired; Executive Vice President 18 None 103 Bellevue Parkway and Chief Operating Officer, Fox Wilmington, DE 19809 Chase Cancer Center (biomedical DOB: 12/35 research and medical care) (1981-2004). Arnold M. Reichman Chairman 2005 to present Director, Gabelli Group Capital 18 None 103 Bellevue Parkway Director 1991 to present Partners, L.P. (an investment Wilmington, DE 19809 partnership) from 2000 to 2006. DOB: 5/48 Marvin E. Sternberg Director 1991 to present Since 1974, Chairman, Director and 18 MTI Holding Group 103 Bellevue Parkway President, MTI Holding Group, Inc. Inc. (formerly Wilmington, DE 19809 (formerly known as Moyco known as Moyco DOB: 3/34 Technologies, Inc.) (manufacturer Technologies, Inc.) of dental products and precision coated and industrial abrasives). Robert A. Straniere Director 2006 to present Since 2009, Administrative Law 18 Reich and Tang 103 Bellevue Parkway Judge, New York City; Founding Group (asset Wilmington, DE 19809 Partner, Straniere Law Firm management); The DOB: 3/41 (1980 to present); Partner, SPARX Asia Gotham Strategies (consulting Funds Group (registered firm) (2005 to 2008); Partner, The investment company) Gotham Global Group (consulting (until 2009) firm) (2005 to 2008); President, The New York City Hot Dog Company (2005 to present); Partner, Kanter-Davidoff (law firm) (2006 to 2007).
18 MARVIN & PALMER LARGE CAP GROWTH FUND FUND MANAGEMENT (CONTINUED) (UNAUDITED)
NUMBER OF PORTFOLIOS IN TERM OF OFFICE FUND COMPLEX OTHER NAME, ADDRESS, POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH WITH FUND TIME SERVED (1) DURING PAST 5 YEARS DIRECTOR* HELD BY DIRECTOR ----------------- ---------------- --------------- ---------------------------------- ------------- ---------------------- INTERESTED DIRECTORS (2) Julian A. Brodsky Director 1988 to present Since 1969, Director and Vice 18 Comcast Corporation; 103 Bellevue Parkway Chairman, Comcast Corporation AMDOCS Limited Wilmington, DE 19809 (cable television and (service provider DOB: 7/33 communications). to telecommunications companies) Robert Sablowsky Director 1991 to present Since July 2002, Senior Director 18 Kensington Funds 103 Bellevue Parkway and prior thereto, Executive Vice (registered Wilmington, DE 19809 President, of Oppenheimer & Co., investment company) DOB: 4/38 Inc., formerly Fahnestock & Co., (until 2009) Inc. (a registered broker-dealer). J. Richard Carnall Director 2002 to present Director of Haydon Bolts, Inc. 18 Cornerstone Bank 103 Bellevue Parkway (bolt manufacturer) and Parkway Wilmington, DE 19809 Real Estate Company (subsidiary of DOB: 9/38 Haydon Bolts, Inc.) since 1984; and Director of Cornerstone Bank since March 2004.
19 MARVIN & PALMER LARGE CAP GROWTH FUND FUND MANAGEMENT (CONTINUED) (UNAUDITED)
NUMBER OF PORTFOLIOS IN TERM OF OFFICE FUND COMPLEX OTHER NAME, ADDRESS, POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH WITH FUND TIME SERVED (1) DURING PAST 5 YEARS DIRECTOR* HELD BY DIRECTOR ----------------- ---------------- --------------- ---------------------------------- ------------- ---------------------- OFFICERS Salvatore Faia, Esquire, President and President June President, Vigilant Compliance N/A N/A CPAVigilant Compliance Chief 2009 to present Services since 2004; Senior Legal Services Compliance and Chief Counsel, PNC Global Investment Brandywine Two Officer Compliance Servicing (U.S.), Inc. from 2002 5 Christy Drive, Suite 209 Officer to 2004; and Director of Energy Chadds Ford, PA 19317 2004 to Income Partnership since 2005. DOB: 12/62 present Joel Weiss Treasurer June 2009 to Since 1993 Vice President and N/A N/A 103 Bellevue Parkway present Managing Director, BNY Mellon Wilmington, DE 19809 Investment Servicing (US) Inc. DOB: 1/63 (formerly PNC Global Investment Servicing (U.S.) Inc.) (financial services company) Jennifer Rogers Secretary 2007 to present Since 2005, Vice President and N/A N/A 301 Bellevue Parkway Counsel, BNY Mellon Investment Wilmington, DE 19809 Servicing (US) Inc. (formerly PNC DOB: 7/74 Global Investment Servicing (U.S.), Inc. (financial services company); Associate, Stradley, Ronon, Stevens & Young, LLC (law firm) from 1999 to 2005. James G. Shaw Assistant 2005 to present Since 1995, Vice President of BNY N/A N/A 103 Bellevue Parkway Treasurer Mellon Investment Servicing (US) Wilmington, DE 19809 Inc. (formerly PNC Global DOB: 10/60 Investment Servicing (U.S.) Inc. (financial services company) Michael P. Malloy Assistant 1999 to present Since 1993, Partner, Drinker N/A N/A One Logan Square, Ste. Secretary Biddle & Reath LLP (law firm) 2000 Philadelphia, PA 19103-6996 DOB: 7/59
* Each Director oversees eighteen portfolios of the Company that are currently offered for sale. (1) Subject to the Company's Retirement Policy, each Director may continue to serve as a Director until the last day of the calendar year in which the applicable Director attains age 75 or until the last day of year 2011, whichever is later, or until his successor is elected and qualified or his death, resignation or removal. The Board reserves the right to waive the requirements of the Policy with respect to an individual Director. Each officer holds office at the pleasure of the Board of Directors until the next special meeting of the Company or until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed. (2) Messrs. Brodsky, Carnall and Sablowsky are considered "interested persons" of the Company as that term is defined in the Investment Company Act and are referred to as "Interested Directors." Mr. Brodsky is an "Interested Director" of the Company because a family foundation and certain family trusts own shares of JPMorgan Chase & Co. The investment adviser to the Company's Bear Stearns CUFS MLP Mortgage Portfolio, Bear Stearns Asset Management, Inc., is an indirect subsidiary of JPMorgan Chase. Mr. Carnall is an "Interested Director" of the Company because he owns shares of The PNC Financial Services Group, Inc. ("PNC"). PNC owns a controlling interest in BlackRock, Inc., the parent company of BlackRock Institutional Management Corporation, the investment adviser to the Company's Money Market Portfolio, Mr. Sablowsky is considered an "Interested Director" of the Company by virtue of his position as an officer of Oppenheimer & Co., Inc., a registered broker-dealer. 20 MARVIN & PALMER LARGE CAP GROWTH FUND PRIVACY NOTICE (UNAUDITED) THE MARVIN & PALMER LARGE CAP GROWTH FUND of The RBB Fund, Inc. (the "Fund") is committed to protecting the confidentiality and security of your private investment records and personal information. Our policies and procedures are designed to safeguard your information and to permit only appropriate and authorized access to and use of this information. In order to carry out the functions necessary to service your investment account, our service providers collect certain nonpublic personal information from you from the following sources: - Information we receive from you over the telephone, on applications, e-mails or other forms (e.g., your name, social security number and address); and - Information about your transactions with the Fund. We restrict access to your personal and account information to those service providers and their employees who need to know that information to service your account. The Fund may also share all of the information (as described above) that we collect with companies that perform marketing services on our behalf or with other financial institutions with whom we have joint marketing agreements who may suggest additional Fund services or other investment products which may be of interest to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. You can be assured that the Fund considers your data to be private and confidential, and we will not disclose any nonpublic personal information about you to any unaffiliated third parties, except as permitted by law. If you decide to close your account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. If you have any questions or comments about our privacy practices, please call us at (877) 821-2117. 21 Investment Adviser Marvin & Palmer Associates, Inc. 1201 N. Market Street Suite 2300 Wilmington, DE 19801-1165 Administrator BNY Mellon Investment Servicing (US), Inc. 301 Bellevue Parkway Wilmington, DE 19809 Transfer Agent BNY Mellon Investment Servicing (US), Inc. 101 Sabin Street Pawtucket, RI 02860 Principal Underwriter BNY Mellon Investment Servicing (US), Inc. 760 Moore Road King of Prussia, PA 19406 Custodian PFPC Trust Company 301 Bellevue Parkway Wilmington, DE 19809 Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP Two Commerce Square, Suite 1700 2001 Market Street Philadelphia, PA 19103-7042 Counsel Drinker Biddle & Reath LLP One Logan Square, Ste. 2000 Philadelphia, PA 19103-6996 FREE MARKET FUNDS ANNUAL INVESTMENT ADVISER'S REPORT AUGUST 31, 2010 (UNAUDITED) Dear Fellow Shareholder, During the last twelve months, the economy continued its trek toward recovery; confidence had returned to corporate boardrooms; and investors were pouring their "cash-on-the-sidelines" back into risky assets. Just when all seemed right with the world again, tiny Greece (and huge BP) began dominating the headlines. While market watchers would have expected a collective yawn about an economy whose Gross Domestic Product ("GDP") is smaller than that of Houston's, soon Spain, Portugal, Ireland, and others across Europe offered similar debt concerns. Threats of sovereign debt defaults rekindled memories of the subprime debacle, and investors feared a new global banking crisis. Meanwhile, the worst oil spill disaster in history unfolded in the Gulf of Mexico. While investors were considering the long-term implications of these critical events, they were greeted by "high frequency flash trades" that prompted the Dow Jones Industrial Average ("Dow") to plunge 1,000 points in less than an hour on May 6, 2010. If sovereign debt and BP were not enough to rattle nerves, the flash crash did the trick. When the dust settled, the Dow had declined by 10% and suffered its first down quarter since early 2009. The Standard & Poor's ("S&P"), and NASDAQ experienced similar fates, and many global markets fared even worse. The Free Market U.S. Equity Fund, the Free Market International Equity Fund, and the Free Market Fixed Income Fund had returns of 5.88%, 0.86% and 3.96%, respectively, for the twelve months ended August 31, 2010. This compared with a gain of 4.91% for the S&P's 500 Index an unmanaged equity index, a return of 10.06% for the unmanaged Russell 2500 Index, a loss of 1.05% for the MSCI World (excluding U.S.) Index, and a total return of 3.16% for the Citigroup World Bond Index 1-5 years hedged. The period continued to be volatile for equity markets as worries persist about the possibility of a double-dip recession. High unemployment levels, combined with the conclusion of several government stimulus plans, seem to be muting the growth of the U.S. economy. In addition, the uncertainty associated with fall mid-term elections and the sovereign debt problems suggest that we may continue to face a challenging investment environment. If anything's plentiful in the markets these days, it's uncertainty in the short-term. But despite the crosscurrents, seasoned investors, like Free Market Fund shareholders, who have stayed disciplined and diversified have experienced positive returns for the past twelve month period. When you can take the long view, supported by a prudent and well-thought-out strategy, the markets' day-to-day ups and downs don't seem as threatening. Matson Money, Inc. ("Matson Money") strives to deliver the performance of capital markets and add value through Free Market investment strategies and structured market portfolios. Grounded in the conviction that Free Markets work, Matson Money avoids the cost-generating activity of stock picking and market timing. Instead, we focus on the dimensions of capital markets that reward investors as intelligently and effectively as possible. Our disciplined approach to life-long investing provides both the individual investor and the financial professional with the academic foundation upon which to help achieve investment goals. Each Free Market Fund strategy targets a broad and diverse group of stocks or bonds across various markets, using other mutual funds that specifically target certain asset classes. The Funds are broadly diversified and designed to work together in your total investment plan. The work is never complete, however, and Matson Money will continue to research solutions to address your future needs. We invite you to contact your financial professional or explore our website, www.MyMatrix.cc, to learn more about the concepts and strategies of Matson Money's investing. 1 FREE MARKET FUNDS ANNUAL INVESTMENT ADVISER'S REPORT (CONTINUED) AUGUST 31, 2010 (UNAUDITED) We appreciate your support and confidence in our firm's investment philosophy, process and people. As always, we also appreciate your continued investment towards your long term goals. Thank you for investing with Matson Money, Inc. /s/ Mark E Matson Mark E Matson President and Chief Executive Officer Matson Money, Inc. 2 FREE MARKET FUNDS ANNUAL INVESTMENT ADVISER'S REPORT (CONTINUED) AUGUST 31, 2010 (UNAUDITED) FREE MARKET US EQUITY FUND--INVESTMENT REVIEW The twelve-month period ended August 31, 2010 proved rewarding for investors as the U.S. economy and financial markets sprang back from early 2009 lows. The U.S. economic recovery, which started in the third quarter of 2009, is moderating. The GDP grew at a brisk annualized rate of 5.6% in the fourth quarter of 2009 but at a slower pace in 2010. Stronger economic conditions earlier in the period were spurred by improvement in consumer spending patterns and overall confidence, along with signs of modest stabilization in the nation's housing markets. In May and June, concerns mounted in reaction to troubles in the European Union (EU). Here in the U.S., employment news and uncertainty with regard to financial and health care reforms and budget deficits teamed to muzzle a stronger economic recovery, not to mention a huge oil spill in the Gulf of Mexico. Nobody knows where the stock market will go from here, particularly in the shorter term. However, the magnitude and speed of the stock market's recent swings underscore the importance of avoiding changes to your portfolio based on emotions. It also underscores the importance of maintaining a broadly diversified portfolio. Returns for the broad U.S. market, as measured by the Russell 3000 Index, were 5.64%. Asset class returns ranged from 4.91% for the S&P 500 Index (U.S. large cap) to 6.60% for the Russell 2000 Index (U.S. small cap). Despite the volatility for the twelve months ended August 31, 2010, all asset classes experienced positive returns for the period. For the twelve months ended August 31, 2010, the Free Market U.S. Equity Fund provided a total return of 5.88%, at net asset value. This compares with a return of 10.06% for the Fund's benchmark, the Russell 2500 Index. Nevertheless, as a result of the Free Market Fund's diversified investment approach, performance principally was determined by broad structural trends in global equity markets, rather than the behavior of a limited number of stocks, which the underlying funds held. Among the most important factors explaining differences in the behavior of diversified equity funds, like the Free Market U.S. Equity Fund, are company size and company value/growth characteristics of the underlying fund holdings. Size is measured by market capitalization and "value" classification is a function of stock price relative to one or more fundamental characteristics. U.S. Small Company Stocks performed better than Large Company Stocks, however Micro Cap Company Stocks performed slightly under both. As noted, the Russell 2000 Index has returned 6.60% from September 1, 2009 through August 31, 2010, while the S&P 500 Index was up 4.91%. Furthermore, for the same time period, the Russell 2000 Value Index was up 6.06% and the Russell 1000 Value Index returned 4.96%. In summary, U.S. small cap stocks performed better than large cap stocks and helped to bring returns up. Furthermore, U.S. small value stocks did slightly worse than U.S. Small Growth Stocks, which also contributed to returns of the Fund. The same is true for U.S. Large Value which was outperformed by U.S. Large Growth. Today's environment underscores that markets are highly unpredictable over the short term. In other words, anything can happen, so a balanced, diversified, long-term approach is favored. 3 FREE MARKET FUNDS FREE MARKET U.S. EQUITY FUND ANNUAL INVESTMENT ADVISER'S REPORT (CONTINUED) AUGUST 31, 2010 (UNAUDITED) Comparison of Change in Value of $10,000 Investment in Free Market U.S. Equity Fund vs. Russell 2500(R) Index and Composite Index (PERFORMANCE GRAPH)
free market russell 2500 composite ----------- ------------ --------- 12/31/2007 10000 10000 10000 1/31/2008 10470 9389 9477 2/29/2008 10250 9130.8 9118.77 3/31/2008 10260 9063.23 9136.1 4/30/2008 10630 9550.84 9526.21 5/31/2008 10970 10004.5 9744.36 6/30/2008 9900 9189.13 8883.93 7/31/2008 10010 9252.54 9053.61 8/31/2008 10290 9517.16 9314.36 9/30/2008 9470 8571.16 8640.93 10/31/2008 7510 6724.93 7023.35 11/30/2008 6690 5995.95 6360.34 12/31/2008 6948 6321.53 6589.32 1/31/2009 6128 5752.59 5842.75 2/28/2009 5348 5130.73 5111.82 3/31/2009 5865 5599.17 5560.64 4/30/2009 6827 6462 6277.96 5/31/2009 7171 6659.09 6544.14 6/30/2009 7202 6734.34 6553.96 7/31/2009 7941 7341.78 7159.55 8/31/2009 8316 7642.06 7453.8 9/30/2009 8751 8085.3 7798.91 10/31/2009 8255 7617.16 7433.15 11/30/2009 8579 7924.13 7763.92 12/31/2009 9059 8495.46 8142.8 1/31/2010 8784 8210.86 7877.34 2/28/2010 9201 8618.94 8182.98 3/31/2010 9914 9277.43 8780.34 4/30/2010 10433 9717.18 9161.41 5/31/2010 9548 8993.25 8423 6/30/2010 8784 8351.13 7837.6 7/31/2010 9466 8939.05 8382.31 8/31/2010 8805 8409.86 7876.86
The chart assumes a hypothetical $10,000 initial investment in the Fund made on December 31, 2007 (commencement of operations) and reflects Fund expenses. Investors should note that the Fund is a professionally managed mutual fund while the Russell 2500(R) Index and Composite Index are unmanaged, do not incur sales charges and/or expenses and are not available for investment. The Composite Index is comprised of the S&P 500(R) Index, Russell 1000(R) Value Index, Russell 2000(R) Index and Russell 2000(R) Value Index, each weighted 25%. Total Returns for the Period Ended August 31, 2010
AVERAGE ANNUAL ------------------- SINCE 1 YEAR INCEPTION* ------ ---------- FREE MARKET U.S. EQUITY FUND 5.88% -4.66% RUSSELL 2500(R) INDEX 10.06% -6.46% COMPOSITE INDEX 5.67% -8.62%
* Annualized - The Fund commenced operations on December 31, 2007. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. RETURNS SHOWN INCLUDE THE REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, PLEASE CALL 1-866-780-0357 EXT. 3863. THE FUND'S ANNUAL OPERATING EXPENSE RATIO, AS STATED IN THE CURRENT PROSPECTUS, IS 1.04% (INCLUDED IN THE RATIO IS 0.32%, ATTRIBUTABLE TO ACQUIRED FUND FEES AND EXPENSES). The Fund's aggregate total return since inception is based on a decrease in net asset value from $10.00 per share on December 31, 2007 (commencement of operations) to $8.65 per share on August 31, 2010. Portfolio composition is subject to change. The Free Market U.S. Equity Fund's underlying fund's invest in small-cap and micro-cap stocks, large-cap and other equity securities. In addition to the ordinary risks of equity investing, small companies entail special risk. Small companies tend to have more risk than large companies. An investor in the Fund will incur the expenses of the underlying funds in addition to the Fund expenses. 4 FREE MARKET FUNDS ANNUAL INVESTMENT ADVISER'S REPORT (CONTINUED) AUGUST 31, 2010 (UNAUDITED) FREE MARKET INTERNATIONAL EQUITY FUND--INVESTMENT REVIEW Global stocks declined in the first half of 2010, as gains through April were erased by a sharp correction in May and June. The remarkable rally that started in March 2009 was initially disrupted by the emergence of a severe Greek debt crisis. Investors worried that the crisis could spread to other highly indebted European nations and perhaps weigh down the wider global economy. Indeed, the U.S. reported disappointing economic news in May and June, including poor employment figures. Losses accelerated late in the spring as more troubling news emerged. Efforts to tighten monetary policy and lending practices in China enhanced worries about the global economy. Rising military tensions between North and South Korea elevated geopolitical risk. U.S. financial sector reform efforts, on top of recently passed health care reforms, seemed to be shifting the ground under investors' feet. Finally, the massive Gulf of Mexico oil spill also weighed on investor sentiment and generated uncertainty about local economies. The correction that ensued was widespread and affected virtually all global market sectors. Markets outside the U.S. posted the weakest results, particularly developed markets in Europe. A strong rise in the value of the U.S. dollar--triggered by a global flight to safety--further weighed down the international indexes. However, emerging markets, with fewer financial problems and account surpluses, were a bright spot internationally and outperformed developed markets. For the twelve months ended August 31, 2010, the Free Market International Equity Fund provided a total return of 0.86%, at net asset value. This compares with a return of -1.05% for the Fund's benchmark, the MSCI World (excluding U.S.) Index. A contributing factor to the outperformance of the Fund compared to the benchmark was the Fund's tilt towards small-cap stocks as well as exposure to emerging markets. Nevertheless, as a result of the Free Market International Equity Fund's diversified investment approach, performance principally was determined by broad structural trends in global equity markets, rather than the behavior of a limited number of stocks which the underlying funds held. Among the most important factors explaining differences in the behavior of diversified equity funds, like the Free Market International Equity Fund, are company size and company value/growth characteristics of the underlying fund holdings and broad exposure to emerging market equities. International Large Company Stocks fared worse than International Small Company Stocks. The MSCI EAFE Index (net of dividends) has returned -2.34% from September 1, 2009 through August 31, 2010, while the MSCI EAFE Small Cap Index was up 2.11%. Furthermore, for the same time period, the MSCI EAFE Value Index (net of dividends) was down 6.57% and the MSCI Emerging Markets Index (net of dividends) soared 18.02%. In summary, factors that helped lift the Fund's return over the benchmark included international small cap asset classes as well as all categories of emerging markets. While international large and value asset classes pulled the Fund's performance lower. The Fund's increased exposure, when compared to the MSCI World (excluding U.S.) Index, to small and emerging markets' companies contributed to the Fund's higher return. Today's environment underscores that markets are highly unpredictable over the short term. In other words, anything can happen, so a balanced, diversified, long-term approach is favored. 5 FREE MARKET FUNDS FREE MARKET INTERNATIONAL EQUITY FUND ANNUAL INVESTMENT ADVISER'S REPORT (CONTINUED) AUGUST 31, 2010 (UNAUDITED) Comparison of Change in Value of $10,000 Investment in Free Market International Equity Fund vs. MSCI World (excluding U.S.) Index and Composite Index (PERFORMANCE GRAPH)
Free Market MSCI International World Composite Equity Fund Index Index ------------- ------- --------- 12/31/2007 10000 10000 10000 1/31/2008 9880 9236 8981 2/29/2008 10060 9182.43 9278.27 3/31/2008 10090 9094.28 9111.26 4/30/2008 10440 9572.64 9608.74 5/31/2008 10560 9718.14 9707.71 6/30/2008 9580 8942.64 8835.96 7/31/2008 9240 8724.43 8517.86 8/31/2008 8850 8602.29 8109.86 9/30/2008 7630 7310.23 6834.17 10/31/2008 5830 5700.52 5265.05 11/30/2008 5480 5370.46 4978.63 12/31/2008 5948 5676.57 5305.73 1/31/2009 5347 5174.76 4857.39 2/28/2009 4787 4691.96 4415.37 3/31/2009 5225 5068.72 4794.65 4/30/2009 6100 5759.59 5539.74 5/31/2009 7027 6539.44 6301.45 6/30/2009 6976 6467.5 6286.33 7/31/2009 7699 7100.03 6878.5 8/31/2009 8168 7362.73 7235.49 9/30/2009 8606 7666.81 7621.87 10/31/2009 8331 7543.37 7522.79 11/30/2009 8514 7729.69 7674.75 12/31/2009 8652 7852.59 7812.12 1/31/2010 8331 7484.31 7507.45 2/28/2010 8310 7476.82 7450.39 3/31/2010 8972 7958.33 7968.94 4/30/2010 8972 7839.75 7959.38 5/31/2010 7887 6974.24 7074.3 6/30/2010 7773 6873.12 7003.55 7/31/2010 8590 7508.19 7648.58 8/31/2010 8238 7283.7 7432.89
The chart assumes a hypothetical $10,000 initial investment in the Fund made on December 31, 2007 (commencement of operations) and reflects Fund expenses. Investors should note that the Fund is a professionally managed mutual fund while the MSCI World (excluding U.S.) Index and Composite Index are unmanaged, do not incur sales charges and/or expenses and are not available for investment. The Composite Index is comprised of the MSCI EAFE Index, MSCI EAFE Value Index, MSCI EAFE Small Company Index and MSCI Emerging Markets Free Index, each weighted 25%. Total Returns for the Period Ended to August 31, 2010
AVERAGE ANNUAL ------------------- SINCE 1 YEAR INCEPTION* ------ ---------- FREE MARKET INTERNATIONAL EQUITY FUND 0.86% -7.01% MSCI WORLD (EXCLUDING U.S.) INDEX -1.05% -12.52% COMPOSITE INDEX 2.73% -10.65%
* Annualized - The Fund commenced operations on December 31, 2007. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. RETURNS SHOWN INCLUDE THE REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, PLEASE CALL 1-866-780-0357 EXT. 3863. THE FUND'S ANNUAL OPERATING EXPENSE RATIO, AS STATED IN THE CURRENT PROSPECTUS, IS 1.26% (INCLUDED IN THE RATIO IS 0.53%, ATTRIBUTABLE TO ACQUIRED FUND FEES AND EXPENSES). The Fund's aggregate total return since inception is based on a decrease in net asset value from $10.00 per share on December 31, 2007 (commencement of operations) to $7.97 per share on August 31, 2010. Portfolio composition is subject to change. The Free Market International Equity Fund's underlying funds invest in common stock, preferred stock, securities convertible into stocks and other equity securities issued by foreign companies. In addition to the ordinary risks of equity investing, foreign and small companies entail special risk. The return on foreign equities may be adversely affected by currency fluctuations. Emerging markets may be subject to social instability and lack of market liquidity. Small companies tend to have more risk than large companies. An investor in the Fund will incur the expenses of the underlying funds in addition to the Fund expenses. 6 FREE MARKET FUNDS ANNUAL INVESTMENT ADVISER'S REPORT (CONTINUED) AUGUST 31, 2010 (UNAUDITED) FREE MARKET FIXED INCOME FUND--INVESTMENT REVIEW With regard to the bond markets, benign inflation levels, a snap-back in corporate and mortgage-backed bond prices, and a flight to safer investments late in the period ushered in solidly positive returns for fixed-income investors. The broad proxy for the U.S. bond market, the Barclays Capital U.S. Aggregate Bond Index, produced a 9.18% total return for the twelve-month period ended August 31, 2010. In comparison, the Bank of America Merrill Lynch Three Month Treasury Bill Index returned 0.14%. Early in the year when investors were more confident in economic recovery, high yield bonds did well. When conditions turned sour in the spring, investors turned to the investment-grade universe. Long-term Treasuries produced the strongest returns for the period. Short-term U.S. government issues and municipal securities lagged. Outside the U.S., emerging market bonds fared considerably better than developed market bonds, which were hampered in the wake of the Greek financial crisis. The Fund focuses on mutual funds that invest in global high quality and shorter-term Government and Corporate fixed income assets. For the twelve months ended August 31, 2010, the Free Market Fixed Income Fund provided a total return of 3.96%, at net asset value. This compares with a return of 3.16% for the Fund's benchmark, the Citigroup World Government Bond 1 - 5 Year Currency Hedged U.S. Dollar Index. A bright spot for investors so far this year is that high quality bonds / fixed income markets have provided a positive return for the period September 1, 2009 through August 31, 2010. The Free Market Fund performed slightly better than its benchmark for the period and performed as expected. A contributing factor to the performance of the Fund compared to the benchmark was the Fund's shorter average maturity compared to its benchmark, as well as a slightly lower exposure to certain foreign fixed income markets which experienced some set backs during the period. 7 FREE MARKET FUNDS FREE MARKET FIXED INCOME FUND ANNUAL INVESTMENT ADVISER'S REPORT (CONCLUDED) AUGUST 31, 2010 (UNAUDITED) Comparison of Change in Value of $10,000 Investment in Free Market Fixed Income Fund vs. Citigroup World Govt. Bond 1-5 Year Currency Hedged U.S. Dollar Index and Composite Index (PERFORMANCE GRAPH)
Free Market Citigroup World Fixed Income Govt. Bond Composite Fund Index Index ------------ --------------- --------- 12/31/2007 10000 10000 10000 1/31/2008 10010 10150 10157 2/29/2008 10040 10217 10214.9 3/31/2008 10046 10215 10245.5 4/30/2008 9976 10147.5 10194.3 5/31/2008 9956 10089.7 10147.4 6/30/2008 9981 10090.7 10165.7 7/31/2008 10021 10165.4 10189.1 8/31/2008 10061 10228.4 10248.2 9/30/2008 10029 10294.9 10219.5 10/31/2008 10100 10445.2 10169.4 11/30/2008 10241 10557 10373.8 12/31/2008 10384 10662.5 10559.5 1/31/2009 10353 10666.8 10504.6 2/28/2009 10333 10689.2 10486.7 3/31/2009 10384 10744.8 10571.7 4/30/2009 10404 10746.9 10581.2 5/31/2009 10424 10751.2 10609.8 6/30/2009 10445 10769.5 10622.5 7/31/2009 10475 10808.3 10689.4 8/31/2009 10526 10846.1 10750.3 9/30/2009 10576 10879.7 10806.2 10/31/2009 10586 10890.6 10836.5 11/30/2009 10668 10948.3 10924.3 12/31/2009 10552 10907.8 10811.7 1/31/2010 10635 10950.3 10912.3 2/28/2010 10667 10995.2 10940.7 3/31/2010 10647 10990.8 10916.6 4/30/2010 10699 10996.3 10974.5 5/31/2010 10730 11067.8 11039.2 6/30/2010 10797 11095.5 11135.2 7/31/2010 10870 11137.6 11199.8 8/31/2010 10943 11187.8 11277.1
The chart assumes a hypothetical $10,000 initial investment in the Fund made on December 31, 2007 (commencement of operations) and reflects Fund expenses. Investors should note that the Fund is a professionally managed mutual fund while the Citigroup World Govt. Bond 1-5 Year Currency Hedged U.S. Dollar Index and Composite Index are unmanaged, do not incur sales charges and/or expenses and are not available for investment. The Composite Index is comprised of the Three-Month Treasury Bill Index, Lehman Brothers Intermediate Government Bond Index, Merrill Lynch 1-3 Year U.S. Government/Corporate Index and Lehman Brothers Aggregate Bond Index, each weighted 25%. Total Returns for the Period Ended to August 31, 2010
AVERAGE ANNUAL ------------------- SINCE 1 YEAR INCEPTION* ------ ---------- FREE MARKET FIXED INCOME FUND 3.96% 3.44% CITIGROUP WORLD GOVT. BOND 1-5 YEAR CURRENCY HEDGED U.S. DOLLAR INDEX 3.16% 4.29% COMPOSITE INDEX 4.90% 4.62%
* Annualized - The Fund commenced operations on December 31, 2007. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. RETURNS SHOWN INCLUDE THE REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, PLEASE CALL 1-866-780-0357 EXT. 3863. THE FUND'S ANNUAL OPERATING EXPENSE RATIO, AS STATED IN THE CURRENT PROSPECTUS, IS 0.98% (INCLUDED IN THE RATIO IS 0.23%, ATTRIBUTABLE TO ACQUIRED FUND FEES AND EXPENSES). The Fund's aggregate total return since inception is based on an increase in net asset value from $10.00 per share on December 31, 2007 (commencement of operations) to $10.50 per share on August 31, 2010. Portfolio composition is subject to change. The Free Market Fixed Income Fund's underlying funds invest in fixed income securities. The underlying funds may invest their assets and bonds and other debt securities issued by domestic and foreign governments and companies. Debt instruments involve the risk that their prices will fall when interest rates rise, and they are subject to the risk that the borrower may default. In addition, the return on foreign debt securities may be adversely affected by currency fluctuations. An investor in the Fund will incur expenses of the underlying funds in addition to the Fund expenses. 8 FREE MARKET FUNDS FUND EXPENSE EXAMPLES (UNAUDITED) As a shareholder of the Fund(s), you incur two types of costs: (1) transaction costs, including redemption fees; and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund(s) and to compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of $1,000 invested at the beginning of the six-month period from March 1, 2010 through August 31, 2010, and held for the entire period. ACTUAL EXPENSES The first line of the accompanying tables provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the accompanying tables provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not your Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the accompanying tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees. Therefore, the second line of the accompanying tables is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
FREE MARKET U.S. EQUITY FUND ----------------------------------------------- BEGINNING ENDING ACCOUNT ACCOUNT EXPENSES VALUE VALUE PAID DURING MARCH 1, 2010 AUGUST 31, 2010 PERIOD* ------------- --------------- ------------- Actual $1,000.00 $ 956.80 $3.30 Hypothetical (5% return before expenses) 1,000.00 1,021.79 3.42
FREE MARKET INTERNATIONAL EQUITY FUND ----------------------------------------------- BEGINNING ENDING ACCOUNT ACCOUNT EXPENSES VALUE VALUE PAID DURING MARCH 1, 2010 AUGUST 31, 2010 PERIOD* ------------- --------------- ------------- Actual $1,000.00 $ 991.30 $3.46 Hypothetical (5% return before expenses) 1,000.00 1,021.68 3.52
9 FREE MARKET FUNDS FUND EXPENSE EXAMPLES (CONCLUDED) (UNAUDITED)
FREE MARKET FIXED INCOME ----------------------------------------------- BEGINNING ENDING ACCOUNT ACCOUNT EXPENSES VALUE VALUE PAID DURING MARCH 1, 2010 AUGUST 31, 2010 PERIOD* ------------- --------------- ------------- Actual $1,000.00 $1,025.90 $3.42 Hypothetical (5% return before expenses) 1,000.00 1,021.79 3.42
* Expenses are equal to an annualized six-month expense ratio of 0.67% for the Free Market U.S. Equity Fund, 0.69% for the Free Market International Equity Fund and 0.67% for the Free Market Fixed Income Fund, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 365 to reflect the one-half year period. The annualized expense ratios do not reflect fees and expenses associated with the underlying funds. If such fees and expenses had been included, the expenses would have been higher. The range of weighted expense ratios of the underlying funds held by the Funds, as stated in their current prospectuses, were as follows:
FREE MARKET FREE MARKET U.S. FREE MARKET INTERNATIONAL FIXED EQUITY FUND EQUITY FUND INCOME FUND ---------------- ------------------------- ----------- 0.01%-0.14% 0.01%-0.28% 0.01%-0.08%
Each Fund's ending account values on the first line in each table are based on the actual six-month total return for each Fund of -4.32% for the Free Market U.S. Equity Fund, -0.87% for the Free Market International Equity Fund and 2.59% for the Free Market Fixed Income Fund. 10 FREE MARKET FUNDS FREE MARKET U.S. EQUITY FUND PORTFOLIO OF INVESTMENTS AUGUST 31, 2010
NUMBER OF SHARES VALUE ---------- ------------ EQUITY FUNDS -- 99.9% U.S. Large Cap Value Portfolio III(a) .... 11,570,721 $145,675,376 U.S. Large Company Portfolio(a) .......... 8,736,839 72,603,134 U.S. Micro Cap Portfolio(b) .............. 6,933,262 72,729,921 U.S. Small Cap Portfolio(b) .............. 4,476,952 72,660,936 U.S. Small Cap Value Portfolio(b) ........ 6,333,603 121,225,159 ------------ TOTAL EQUITY FUNDS (Cost $490,517,003) ................... 484,894,526 ------------ TOTAL INVESTMENTS -- 99.9% (Cost $490,517,003) ................... 484,894,526 ------------ OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1% ................... 296,465 ------------ NET ASSETS -- 100.0% ..................... $485,190,991 ============
PORTFOLIO HOLDINGS SUMMARY TABLE (UNAUDITED)
% OF NET ASSETS VALUE -------- ------------ Equity Funds ............................. 99.9% $484,894,526 Other Assets In Excess of Liabilities .... 0.1% 296,465 ----- ------------ NET ASSETS ............................... 100.0% $485,190,991 ===== ============
---------- (a) A portfolio of Dimensional Investment Group Inc. (b) A portfolio of DFA Investment Dimensions Group Inc. Portfolio holdings are subject to change at any time. The following is a summary of the inputs used, as of August 31, 2010, in valuing the Fund's assets carried at value (See Note 1 in Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE AUGUST 31, 2010 PRICE INPUT INPUT --------------- ------------ ----------- ------------ Investments in Securities* $484,894,526 $484,894,526 $-- $-- ============ ============ === ===
* Please refer to the Portfolio of Investments for further details. The accompanying notes are an integral part of the financial statements. 11 FREE MARKET FUNDS FREE MARKET INTERNATIONAL EQUITY FUND PORTFOLIO OF INVESTMENTS AUGUST 31, 2010
NUMBER OF SHARES VALUE ---------- ------------ INTERNATIONAL EQUITY FUNDS -- 99.9% Asia Pacific Small Company Portfolio(a) ........ 347,446 $ 7,449,235 Continental Small Company Portfolio(a) ......... 1,007,829 14,200,313 DFA International Small Cap Value Portfolio(a) ................................ 10,351,311 145,849,971 DFA International Value Portfolio III(b) ....... 7,514,317 109,784,174 Emerging Markets Portfolio(a) .................. 715,611 19,393,049 Emerging Markets Small Cap Portfolio(a) ........ 844,214 17,660,963 Emerging Markets Value Portfolio(a) ............ 574,224 18,042,118 Japanese Small Company Portfolio(a) ............ 534,798 7,396,257 Large Cap International Portfolio(a) ........... 1,067,055 18,278,655 United Kingdom Small Company Portfolio(a) ...... 341,909 7,156,161 ------------ TOTAL INTERNATIONAL EQUITY FUNDS (Cost $364,055,785) ......................... 365,210,896 ------------ TOTAL INVESTMENTS -- 99.9% (Cost $364,055,785) ......................... 365,210,896 ------------ OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1% ......................... 254,303 ------------ NET ASSETS -- 100.0% ........................... $365,465,199 ============
PORTFOLIO HOLDINGS SUMMARY TABLE (UNAUDITED)
% OF NET ASSETS VALUE -------- ------------ International Equity Funds ............... 99.9% $365,210,896 Other Assets In Excess of Liabilities .... 0.1% 254,303 ----- ------------ NET ASSETS ............................... 100.0% $365,465,199 ===== ============
---------- (a) A portfolio of DFA Investment Dimensions Group Inc. (b) A portfolio of Dimensional Investment Group Inc. Portfolio holdings are subject to change at any time. The following is a summary of the inputs used, as of August 31, 2010,in valuing the Fund's assets carried at value (See Note 1 in Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE AUGUST 31, 2010 PRICE INPUT INPUT --------------- ------------ ----------- ------------ Investments in Securities* $ 365,210,896 $365,210,896 $-- $-- ============= ============ === ===
* Please refer to the Portfolio of Investments for further details. The accompanying notes are an integral part of the financial statements. 12 FREE MARKET FUNDS FREE MARKET FIXED INCOME FUND PORTFOLIO OF INVESTMENTS AUGUST 31, 2010
NUMBER OF SHARES VALUE ---------- ------------ FIXED INCOME FUNDS -- 99.9% DFA Five-Year Global Fixed Income Portfolio(a) .................... 9,860,617 $114,876,193 DFA Five-Year Government Portfolio(a) .................... 3,312,039 36,763,632 DFA Inflation-Protected Securities Portfolio(a) .................... 2,008,137 23,073,498 DFA Intermediate Government Fixed Income Portfolio(a) ............. 4,278,187 55,103,050 DFA One-Year Fixed Income Portfolio(a) .................... 11,025,068 114,329,955 DFA Two-Year Global Fixed Income Portfolio(a) .................... 11,133,827 114,678,416 ------------ TOTAL FIXED INCOME FUNDS (Cost $446,402,458) ............. 458,824,744 ------------ TOTAL INVESTMENTS -- 99.9% (Cost $446,402,458) ................ 458,824,744 ------------ OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1% ............. 457,018 ------------ NET ASSETS -- 100.0% ............... $459,281,762 ============
PORTFOLIO HOLDINGS SUMMARY TABLE (UNAUDITED)
% OF NET ASSETS VALUE -------- ------------ Fixed Income Funds 99.9% $458,824,744 Other Assets In Excess of Liabilities 0.1% 457,018 ------ ------------ NET ASSETS 100.0% $459,281,762 ====== ============
---------- (a) A portfolio of DFA Investment Dimensions Group Inc. Portfolio holdings are subject to change at any time. The following is a summary of the inputs used, as of August 31, 2010, in valuing the Fund's assets carried at value (See Note 1 in Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE AUGUST 31, 2010 PRICE INPUT INPUT --------------- ------------ ----------- ------------ Investments in Securities* $458,824,744 $458,824,744 $-- $-- ============ ============ === ===
* Please refer to the Portfolio of Investments for further details. The accompanying notes are an integral part of the financial statements. 13 FREE MARKET FUNDS STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 2010
FREE MARKET FREE MARKET FREE MARKET U.S. EQUITY INTERNATIONAL FIXED INCOME FUND EQUITY FUND FUND ------------ ------------- ------------ ASSETS Investments in non-affiliated funds, at value + .............. $484,894,526 $365,210,896 $458,824,744 Cash and cash equivalents .................................... 1,023,340 886,308 324,000 Receivables Receivable for capital shares sold ........................ 910,658 647,434 1,066,445 Dividends and interest receivable ......................... 355 241 12 Prepaid expenses and other assets ............................ 23,206 22,242 20,176 ------------ ------------ ------------ Total assets ........................................... 486,852,085 366,767,121 460,235,377 ------------ ------------ ------------ LIABILITIES Payables Investments purchased ..................................... 663,228 530,000 -- Capital shares redeemed ................................... 691,378 532,271 676,713 Investment adviser ........................................ 212,064 158,171 192,027 Other accrued expenses and liabilities ....................... 94,424 81,480 84,875 ------------ ------------ ------------ Total liabilities ...................................... 1,661,094 1,301,922 953,615 ------------ ------------ ------------ Net Assets ................................................... $485,190,991 $365,465,199 $459,281,762 ============ ============ ============ NET ASSETS CONSISTS OF Par value .................................................... $ 56,106 $ 45,838 $ 43,749 Paid-in capital .............................................. 493,979,541 366,809,334 446,733,960 Undistributed / accumulated net investment income (loss) ..... -- 2,896,870 -- Accumulated net realized gain/(loss) from investments ........ (3,222,179) (5,441,954) 81,767 Net unrealized appreciation/(depreciation) on investments .... (5,622,477) 1,155,111 12,422,286 ------------ ------------ ------------ Net Assets ................................................... $485,190,991 $365,465,199 $459,281,762 ============ ============ ============ Shares outstanding ($0.001 par value, 100,000,000 shares authorized) ........................................ 56,105,946 45,838,335 43,748,626 ------------ ------------ ------------ Net asset value, offering and redemption price per share ..... $ 8.65 $ 7.97 $ 10.50 ============ ============ ============ + Investment in non-affiliated funds, at cost ................ $490,517,003 $364,055,785 $446,402,458 ============ ============ ============
The accompanying notes are an integral part of the financial statements. 14 FREE MARKET FUNDS STATEMENTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2010
FREE MARKET FREE MARKET FREE MARKET U.S. EQUITY INTERNATIONAL FIXED INCOME FUND EQUITY FUND FUND ----------- ------------- ------------ INVESTMENT INCOME Dividends from non-affiliated funds .......................... $ 3,808,450 $ 6,192,927 $ 6,760,549 Interest from non-affiliated funds ........................... 204 232 205 ----------- ----------- ----------- Total investment income ................................... 3,808,654 6,193,159 6,760,754 ----------- ----------- ----------- EXPENSES Advisory fees (Note 2) ....................................... 2,138,040 1,570,240 1,704,185 Administration and accounting fees (Note 2) .................. 483,194 369,828 395,304 Professional fees ............................................ 85,629 72,564 72,242 Directors' and officers' fees ................................ 51,852 46,660 45,490 Printing and shareholder reporting fees ...................... 37,866 29,736 26,543 Transfer agent fees (Note 2) ................................. 15,768 15,959 15,486 Custodian fees (Note 2) ...................................... 10,768 13,642 18,743 Other expenses ............................................... 39,235 32,570 30,450 ----------- ----------- ----------- Total expenses ............................................ 2,862,352 2,151,199 2,308,443 ----------- ----------- ----------- Net investment income ........................................ 946,302 4,041,960 4,452,311 ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS NET REALIZED GAIN/(LOSS) FROM: Non-affiliated funds ...................................... (1,664,650) (4,658,310) 115,236 Capital gain distributions from non-affiliated fund investments ....................................... -- 539,621 462,347 NET CHANGE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON: Non-affiliated funds ...................................... 12,498,101 148,229 9,412,700 ----------- ----------- ----------- Net realized and unrealized gain/(loss) on investments ....... 10,833,451 (3,970,460) 9,990,283 ----------- ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ $11,779,753 $ 71,500 $14,442,594 =========== =========== ===========
The accompanying notes are an integral part of the financial statements. 15 FREE MARKET U.S. EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE YEAR ENDED YEAR ENDED AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income ..................................................... $ 946,302 $ 2,805,875 Net realized loss from investments ........................................ (1,664,650) (1,339,474) Net change in unrealized appreciation (depreciation) from investments ..... 12,498,101 (17,705,184) ------------ ------------ Net increase/(decrease) in net assets resulting from operations .............. 11,779,753 (16,238,783) ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ..................................................... (1,601,122) (2,401,803) Return of capital ......................................................... (327,363) -- ------------ ------------ Net decrease in net assets from dividends and distributions to shareholders .. (1,928,485) (2,401,803) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold ................................................. 239,392,683 165,094,648 Reinvestment of distributions ............................................. 1,928,485 2,401,259 Shares redeemed ........................................................... (78,085,179) (23,790,681) ------------ ------------ Net increase in net assets from capital shares ............................... 163,235,989 143,705,226 ------------ ------------ Total increase in net assets ................................................. 173,087,257 125,064,640 NET ASSETS: Beginning of year ......................................................... 312,103,734 187,039,094 ------------ ------------ End of year ............................................................... $485,190,991 $312,103,734 ============ ============ Undistributed / accumulated net investment income (loss), end of year ........ $ -- $ 452,185 ============ ============ CAPITAL SHARE TRANSACTIONS: Shares sold ............................................................... 26,371,487 22,974,273 Shares reinvested ......................................................... 216,684 350,038 Shares redeemed ........................................................... (8,483,879) (3,503,840) ------------ ------------ Total share transactions ..................................................... 18,104,292 19,820,471 ============ ============
The accompanying notes are an integral part of the financial statements. 16 FREE MARKET INTERNATIONAL EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE YEAR ENDED YEAR ENDED AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income ..................................................... $ 4,041,960 $ 3,203,164 Net realized gain/(loss) from investments ................................. (4,118,689) 56,839 Net change in unrealized appreciation from investments .................... 148,229 16,019,226 ------------ ------------ Net increase in net assets resulting from operations ......................... 71,500 19,279,229 ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ..................................................... (3,144,188) (2,609,280) Net realized capital gains ................................................ (1,183,603) -- ------------ ------------ Net decrease in net assets from dividends and distributions to shareholders .. (4,327,791) (2,609,280) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold ................................................. 177,149,715 130,210,322 Reinvestment of distributions ............................................. 4,327,791 2,608,705 Shares redeemed ........................................................... (70,388,120) (21,677,551) ------------ ------------ Net increase in net assets from capital shares ............................... 111,089,386 111,141,476 ------------ ------------ Total increase in net assets ................................................. 106,833,095 127,811,425 NET ASSETS: Beginning of year ......................................................... 258,632,104 130,820,679 ------------ ------------ End of year ............................................................... $365,465,199 $258,632,104 ============ ============ Undistributed net investment income, end of year ............................. $ 2,896,870 $ 1,869,067 ============ ============ CAPITAL SHARE TRANSACTIONS: Shares sold ............................................................... 21,412,066 20,582,378 Shares reinvested ......................................................... 517,060 446,696 Shares redeemed ........................................................... (8,352,036) (3,557,044) ------------ ------------ Total share transactions ..................................................... 13,577,090 17,472,030 ============ ============
The accompanying notes are an integral part of the financial statements. 17 FREE MARKET FIXED INCOME FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE YEAR ENDED YEAR ENDED AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income ..................................................... $ 4,452,311 $ 3,252,139 Net realized gain from investments ........................................ 577,583 1,202,325 Net change in unrealized appreciation from investments .................... 9,412,700 2,453,228 ------------ ------------ Net increase in net assets resulting from operations ......................... 14,442,594 6,907,692 ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ..................................................... (6,051,846) (2,191,528) Net realized capital gains ................................................ (1,159,271) -- ------------ ------------ Net decrease in net assets from dividends and distributions to shareholders .. (7,211,117) (2,191,528) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold ................................................. 288,483,371 127,993,708 Reinvestment of distributions ............................................. 7,211,117 2,191,099 Shares redeemed ........................................................... (53,751,044) (53,776,508) ------------ ------------ Net increase in net assets from capital shares ............................... 241,943,444 76,408,299 ------------ ------------ Total increase in net assets ................................................. 249,174,921 81,124,463 NET ASSETS: Beginning of year ......................................................... 210,106,841 128,982,378 ------------ ------------ End of year ............................................................... $459,281,762 $210,106,841 ============ ============ Undistributed / accumulated net investment income (loss), end of year ........ $ -- $ 1,268,126 ============ ============ CAPITAL SHARE TRANSACTIONS: Shares sold ............................................................... 27,950,700 12,560,233 Shares reinvested ......................................................... 707,254 216,781 Shares redeemed ........................................................... (5,205,656) (5,331,134) ------------ ------------ Total share transactions ..................................................... 23,452,298 7,445,880 ============ ============
The accompanying notes are an integral part of the financial statements. 18 FREE MARKET FUNDS FREE MARKET U.S. EQUITY FUND FINANCIAL HIGHLIGHTS Contained below is per share operating performance data for each share outstanding, total investment return, ratios to average net assets and other supplemental data for the respective periods. This information has been derived from information provided in the financial statements.
FOR THE PERIOD DECEMBER 31, FOR THE YEAR FOR THE YEAR 2007(1) ENDED ENDED THROUGH AUGUST 31, 2010 AUGUST 31, 2009 AUGUST 31, 2008 --------------- --------------- --------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period ............................. $ 8.21 $ 10.29 $ 10.00 -------- -------- -------- Net investment income ............................................ 0.02(2) 0.10(2) --(3) Net realized and unrealized gain/(loss) on investments ........... 0.46 (2.09) 0.29 -------- -------- -------- Net increase/(decrease) in net assets resulting from operations .. 0.48 (1.99) 0.29 -------- -------- -------- Dividends and distributions to shareholders from: Net investment income ............................................ (0.03) (0.09) -- Tax return of capital ............................................ (0.01) -- -- -------- -------- -------- Total dividends and distributions to shareholders ................ (0.04) (0.09) -- -------- -------- -------- Net asset value, end of period ................................... $ 8.65 $ 8.21 $ 10.29 ======== ======== ======== Total investment return(4) ....................................... 5.88% (19.19)% 2.90%(5) ======== ======== ======== RATIO/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) ........................ $485,191 $312,104 $187,039 Ratio of expenses to average net assets(6) ....................... 0.67% 0.72% 0.84%(7) Ratio of net investment income to average net assets(6) .......... 0.22% 1.37% 0.02%(7) Portfolio turnover rate .......................................... 3% 1% 0%(5)
---------- (1) Commencement of operations. (2) The selected per share data was calculated using the average shares outstanding method for the period. (3) Amount less than $0.005 per share. (4) 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. (5) Not annualized. (6) 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. (7) Annualized. The accompanying notes are an integral part of the financial statements. 19 FREE MARKET FUNDS FREE MARKET INTERNATIONAL EQUITY FUND FINANCIAL HIGHLIGHTS Contained below is per share operating performance data for each share outstanding, total investment return, ratios to average net assets and other supplemental data for the respective periods. This information has been derived from information provided in the financial statements.
FOR THE PERIOD DECEMBER 31, FOR THE YEAR FOR THE YEAR 2007(1) ENDED ENDED THROUGH AUGUST 31, 2010 AUGUST 31, 2009 AUGUST 31, 2008 --------------- --------------- --------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period ............................. $ 8.02 $ 8.85 $ 10.00 -------- -------- -------- Net investment income ............................................ 0.11(2) 0.13(2) 0.08 Net realized and unrealized gain/(loss) on investments ........... (0.04) (0.85) (1.23) -------- -------- -------- Net increase/(decrease) in net assets resulting from operations .. 0.07 (0.72) (1.15) -------- -------- -------- Dividends and distributions to shareholders from: Net investment income ............................................ (0.09) (0.11) -- Net realized capital gains ....................................... (0.03) -- -- -------- -------- -------- Total dividends and distributions to shareholders ................ (0.12) (0.11) -- -------- -------- -------- Net asset value, end of period ................................... $ 7.97 $ 8.02 $ 8.85 ======== ======== ======== Total investment return(3) ....................................... 0.86% (7.71)% (11.50)%(4) ======== ======== ======== RATIO/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) ........................ $365,465 $258,632 $130,821 Ratio of expenses to average net assets(5) ....................... 0.68% 0.73% 0.92%(6) Ratio of net investment income to average net assets(5) .......... 1.29% 2.01% 2.94%(6) Portfolio turnover rate .......................................... 8% 2% 0%(4)
---------- (1) Commencement of operations. (2) The selected per share data was calculated using the average shares outstanding method for the period. (3) 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. (4) Not annualized. (5) 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. (6) Annualized. The accompanying notes are an integral part of the financial statements. 20 FREE MARKET FUNDS FREE MARKET FIXED INCOME FUND FINANCIAL HIGHLIGHTS Contained below is per share operating performance data for each share outstanding, total investment return, ratios to average net assets and other supplemental data for the respective periods. This information has been derived from information provided in the financial statements.
FOR THE PERIOD DECEMBER 31, FOR THE YEAR FOR THE YEAR 2007(1) ENDED ENDED THROUGH AUGUST 31, 2010 AUGUST 31, 2009 AUGUST 31, 2008 --------------- --------------- --------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period ..................... $ 10.35 $ 10.04 $ 10.00 -------- -------- -------- Net investment income .................................... 0.13(2) 0.21(2) 0.02 Net realized and unrealized gain on investments .......... 0.27 0.25 0.04 -------- -------- -------- Net increase in net assets resulting from operations ..... 0.40 0.46 0.06 -------- -------- -------- Dividends and distributions to shareholders from: Net investment income .................................... (0.21) (0.15) (0.02) Net realized capital gains ............................... (0.04) -- -- Tax return of capital .................................... -- -- --(3) -------- -------- -------- Total dividends and distributions to shareholders ........ (0.25) (0.15) (0.02) -------- -------- -------- Net asset value, end of period ........................... $ 10.50 $ 10.35 $ 10.04 ======== ======== ======== Total investment return(4) ............................... 3.96% 4.62% 0.61%(5) ======== ======== ======== RATIO/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) ................ $459,282 $210,107 $128,982 Ratio of expenses to average net assets(6) ............... 0.68% 0.75% 0.97%(7) Ratio of net investment income to average net assets(6) .. 1.31% 2.06% 0.26%(7) Portfolio turnover rate .................................. 1% 84% 0%(5)
---------- (1) Commencement of operations. (2) The selected per share data was calculated using the average shares outstanding method for the period. (3) Amount less than $0.005 per share. (4) 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. (5) Not annualized. (6) 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. (7) Annualized. The accompanying notes are an integral part of the financial statements. 21 FREE MARKET FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2010 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The RBB Fund, Inc. ("RBB" or the "Company") was incorporated under the laws of the State of Maryland on February 29, 1988 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. RBB is a "series fund," which is a mutual fund divided into separate portfolios. Each portfolio is treated as a separate entity for certain matters under the 1940 Act, and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. Currently, RBB has eighteen active investment portfolios, including the Free Market U.S. Equity Fund, Free Market International Equity Fund, and the Free Market Fixed Income Fund (each a "Fund," collectively the "Funds"). Each Fund operates as a "Fund of Funds" and commenced investment operations on December 31, 2007. RBB has authorized capital of one hundred billion shares of common stock of which 79.373 billion shares are currently classified into one hundred and thirty-three classes of common stock. Each class represents an interest in an active or inactive RBB investment portfolio. PORTFOLIO VALUATION -- Investments in the underlying funds are valued at each fund's net asset value determined as of the close of business on the New York Stock Exchange (generally 4:00 p.m. Eastern time). As required, some securities and assets may be valued at fair value as determined in good faith by the Company's Board of Directors. Direct investments in fixed income securities having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. Fair Value Measurements -- The inputs and valuations techniques used to measure fair value of the Funds' investments are summarized into three levels as described below: - Level 1 -- quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) - Level 3 -- significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. There were no significant transfers between Level 1 and 2 as of the year ended August 31, 2010. A summary of the inputs used to value the Funds' investments as of August 31, 2010 is included with each Fund's Portfolio of Investments. USE OF ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates and those differences could be significant. 22 FREE MARKET FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES -- Transactions are accounted for on the trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes in determining realized gains and losses on investments. Interest income is accrued when earned. Dividend income is recorded on the ex-dividend date. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The Funds estimate the components of distributions received that may be considered return of capital distributions or capital gain distributions. Each Fund's investment income, expenses and unrealized and realized gains and losses are allocated daily. Expenses incurred on behalf of a specific class, fund or fund family are charged directly to the class, fund or fund family (in proportion to net assets). Expenses incurred for all of the RBB funds (such as director or professional fees) are charged to all funds in proportion to their average net assets of RBB, or in such other manner as the Board of Directors deems fair or equitable. Expenses and fees, including investment advisory and administration fees, are accrued daily and taken into account for the purpose of determining the net asset value of the Funds. In addition to the net annual operating expenses that the Funds bear directly, the shareholders indirectly bear the Fund's pro-rata expenses of the underlying mutual funds in which each Fund invests. During the year ended August 31, 2009, the Free Market Fixed Income Fund recognized its pro-rata share of net investment income and realized and unrealized gains/ losses on a daily basis from its investment in the DFA One-Year Fixed Income Series and the DFA Two-Year Global Fixed Income Series which were treated as partnerships for both federal income tax and U.S. GAAP purposes for a portion of the year. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income and distributions from net realized capital gains, if any, are declared and paid at least annually to shareholders and recorded on ex-dividend date for all Funds with the exception of the Free Market Fixed Income Fund which declares and pays quarterly dividends from net investment income. Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations which may differ from U.S. generally accepted accounting principles. U.S. TAX STATUS -- No provision is made for U.S. income taxes as it is each Fund's intention to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to its shareholders which will be sufficient to relieve it from U.S. income and excise taxes. CASH AND CASH EQUIVALENTS -- The Funds consider liquid assets deposited with a bank demand deposit account to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Fund expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. OTHER -- In the normal course of business, the Funds may enter into contracts that provide general indemnifications. The Funds' maximum exposure under these arrangements is dependent on claims that may be made against the Funds in the future, and, therefore, cannot be estimated; however, based on experience, the risk of material loss for such claims is considered remote. 23 FREE MARKET FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 2. INVESTMENT ADVISER AND OTHER SERVICES Matson Money, Inc. (formerly known as Abundance Technologies, Inc.) ("Matson Money" or the "Adviser"), serves as each Fund's investment adviser. For its advisory services, Matson Money is entitled to receive 0.50% of each Fund's average daily net assets, computed daily and payable monthly. The Adviser has voluntarily agreed to waive its advisory fee and/or reimburse certain expenses in order to limit total annual fund operating expenses of Free Market U.S. Equity Fund, Free Market International Equity Fund and the Free Market Fixed Income Fund to 1.13%, 1.35% and 1.00%, respectively, of the particular Fund's average daily net assets. The expense limitations include expenses incurred as a result of investing in other investment companies. The Adviser may discontinue these arrangements at any time. The Funds will not pay Matson Money at a later time for any amounts they may waive or any amounts that Matson Money has assumed. BNY Mellon Investment Servicing (US) Inc. ("BNY") (formerly known as PNC Global Investment Servicing (U.S.), Inc.), a member of Bank of New York Mellon Corporation ("BNY Mellon") serves as administrator for the Funds. Administration and accounting fees accrued also include transfer agent, custodian fees and administrative service fees. For providing administrative and accounting services, BNY Mellon is entitled to receive a monthly fee equal to an annual percentage rate of the Fund's average daily net assets and is subject to certain minimum monthly fees. Included in the administration and accounting fees are fees for providing regulatory administration services to RBB. For providing these services, BNY Mellon is entitled to receive compensation as agreed to by the Company and BNY Mellon. This fee is allocated to each portfolio in proportion to its assets of the Company. For providing transfer agent services, BNY is entitled to receive out-of-pocket expenses. For providing custodian services to the Funds, PFPC Trust Company, a member of BNY Mellon is entitled to receive out of pocket expenses. BNY Mellon Distributors Inc. (formerly known as PFPC Distributors, Inc.), a member of BNY Mellon, serves as the principal underwriter and distributor of the Funds' shares pursuant to a Distribution Agreement with RBB. 3. DIRECTOR COMPENSATION The Directors of the Company receive an annual retainer, meeting fees and out of pocket expenses for meetings attended. The aggregate remuneration paid to the Directors by the Funds during the year ended August 31, 2010 was $85,052. Certain employees of BNY Mellon are Officers of the Company. They are not compensated by the Funds or the Company. 24 FREE MARKET FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 4. INVESTMENT IN SECURITIES For the year ended August 31, 2010, aggregate purchases and sales of investment securities (excluding short-term investments) of the Funds were as follows:
PURCHASES SALES ------------ ----------- Free Market U.S. Equity Fund $174,931,779 $12,282,962 Free Market International Equity Fund 136,052,728 24,433,543 Free Market Fixed Income Fund 244,043,886 3,953,844
5. CAPITAL SHARE TRANSACTION As of August 31 2010, the following shareholders held 10% or more of the outstanding shares of the Funds. These shareholders may be omnibus accounts which are comprised of many individual shareholders. Free Market U.S. Equity Fund (2 shareholders) 98% Free Market International Equity Fund (2 shareholders) 98% Free Market Fixed Income Fund (2 shareholders) 98%
6. FEDERAL INCOME TAX INFORMATION Management has analyzed each Fund's tax positions taken on federal income tax returns for all open tax years (tax years August 31, 2007-2010) and has concluded that no provision for federal income tax is required in the Funds' financial statements. The Funds' federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. As of August 31, 2010, federal tax cost, aggregate gross unrealized appreciation and depreciation of securities held by each Fund were as follows:
NET UNREALIZED FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION COST APPRECIATION DEPRECIATION (DEPRECIATION) ------------ ------------ ------------ -------------- Free Market U.S. Equity Fund $493,739,182 $ 4,559,743 $(13,404,399) $(8,844,656) Free Market International Equity Fund 369,385,900 11,102,609 (15,277,613) (4,175,004) Free Market Fixed Income Fund 446,529,333 12,422,286 (126,875) 12,295,411
Distributions to shareholders from net investment income and realized gains are determined in accordance with federal income tax regulations, which may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on the tax treatment; temporary differences do not require such reclassification. 25 FREE MARKET FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 The following permanent differences as of August 31, 2010, primarily attributable to redesignation of dividends paid and reclassifications of short term capital gain distributions were reclassified to the following accounts:
UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED PAID-IN INCOME GAIN/(LOSS) CAPITAL -------------- ------------ ------- Free Market U.S. Equity Fund $202,635 $(202,635) $-- Free Market International Equity Fund 130,031 (130,031) -- Free Market Fixed Income Fund 331,409 (331,409) --
As of August 31, 2010, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY INCOME LONG-TERM GAINS --------------- --------------- Free Market U.S. Equity Fund $ -- $ -- Free Market International Equity Fund 2,896,870 -- Free Market Fixed Income Fund -- 208,642
The difference between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for Federal income tax purposes. Short-term and foreign currency gains are reportable as ordinary income for Federal income tax purposes. The tax character of distributions paid during the fiscal year ended August 31, 2010 were as follows:
ORDINARY LONG-TERM RETURN OF INCOME GAINS CAPITAL TOTAL ---------- ---------- --------- ---------- Free Market U.S. Equity Fund $1,398,503 $ 202,619 $327,363 $1,928,485 Free Market International Equity Fund 3,144,179 1,183,612 -- 4,327,791 Free Market Fixed Income Fund 6,962,760 248,357 -- 7,211,117
The tax character of distributions paid during the fiscal year ended August 31, 2009 were as follows:
ORDINARY LONG-TERM RETURN OF INCOME GAINS CAPITAL TOTAL ---------- --------- --------- ---------- Free Market U.S. Equity Fund $2,401,803 $-- $-- $2,401,803 Free Market International Equity Fund 2,609,280 -- -- 2,609,280 Free Market Fixed Income Fund 2,191,528 -- -- 2,191,528
Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes. For federal income tax purposes, capital loss carryforwards are available to offset future capital gains. As of August 31, 2010, the Free Market International Equity Fund had a capital loss carryforward of $111,839 available to offset future capital gains. This capital loss carryforward will expire on August 31, 2018. 26 FREE MARKET FUNDS NOTES TO FINANCIAL STATEMENTS (CONCLUDED) AUGUST 31, 2010 Under federal tax law, foreign currency and capital losses realized after October 31 may be deferred and treated as having arisen on the first day of the following fiscal year. For the year ended August 31, 2010, the Funds did not incur any net Post-October currency or capital losses. 7. NEW ACCOUNTING PRONOUNCEMENT In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06 "Improving Disclosures about Fair Value Measurements". ASU No. 2010-06 amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, to require additional disclosures regarding fair value measurements. Certain disclosures required by ASU No. 2010-06 are currently effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management has evaluated the impact and has incorporated the appropriate disclosures required by ASU No. 2010-06 in its financial statement disclosures. 8. SUBSEQUENT EVENT Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements. 27 FREE MARKET FUNDS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of The RBB Fund, Inc.: In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Free Market U.S. Equity Fund, Free Market International Equity Fund, and Free Market Fixed Income Fund, separately managed portfolios of The RBB Fund, Inc. (the "Funds") at August 31, 2010, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the years or periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion. (PRICEWATERHOUSECOOPERS LLP) Philadelphia, Pennsylvania October 22, 2010 28 FREE MARKET FUNDS SHAREHOLDER TAX INFORMATION (UNAUDITED) Each Fund is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of each Fund's fiscal year end (August 31) as of the U.S. federal tax status of distributions received by each Fund's shareholders in respect of such fiscal year. During the fiscal year ended August 31, 2010, the following dividends and distributions were paid by each of the Funds:
ORDINARY LONG-TERM RETURN OF INCOME GAINS CAPITAL TOTAL ---------- ---------- --------- ---------- Free Market U.S. Equity Fund $1,398,503 $ 202,619 $327,363 $1,928,485 Free Market International Equity Fund 3,144,179 1,183,612 -- 4,327,791 Free Market Fixed Income Fund 6,962,760 248,357 -- 7,211,117
Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes. The percentage of total ordinary income dividends qualifying for the 15% dividend income tax rate is 100% for the Free Market U.S. Equity Fund and 88.44% for the Free Market International Equity Fund. The percentage of total ordinary income dividends qualifying for the corporate dividends received deduction is 100% for the Free Market U.S. Equity Fund. These amounts were reported to shareholders as income in 2009. Because each Fund's fiscal year is not the calendar year, another notification will be sent with respect to calendar year 2010. The second notification, which will reflect the amount, if any, to be used by calendar year taxpayers on their U.S. federal income tax returns, will be made in conjunction with Form 1099-DIV and will be mailed in January 2011. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of their ordinary income dividends. They will generally not be entitled to a foreign tax credit or deduction for the withholding taxes paid by the Funds, if any. In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult their own tax advisers with respect to the tax consequences of their investment in the Funds. 29 FREE MARKET FUNDS OTHER INFORMATION (UNAUDITED) PROXY VOTING Policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities as well as information regarding how the Funds voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 are available without charge, upon request, by calling Free Market Funds at (866) 780-0357, ext. 3863 and on the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov. QUARTERLY PORTFOLIO SCHEDULES The Company files a complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year (quarters ended November 30 and May 31) on Form N-Q. The Company's Form N-Q is available on the SEC website at http://www.sec.gov and may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. Information on the operation of the SEC Public Reference Room may be obtained by calling (202) 551-8090. APPROVAL OF INVESTMENT ADVISORY AGREEMENT As required by the 1940 Act, the Board of Directors (the "Board") of the Company, including all of the Directors who are not "interested persons" of the Company, as that term is defined in the 1940 Act (the "Independent Directors"), considered the renewal of the investment advisory agreement between Matson Money and the Company (the "Advisory Agreements") on behalf of each Fund at a meeting of the Board held on May 6, 2010. At this meeting, the Board, including all of the Independent Directors, approved the Advisory Agreements for additional one-year terms. The Board's decision to approve the Advisory Agreements reflects the exercise of its business judgment to continue the existing arrangement. In approving the Advisory Agreements, the Board considered information provided by Matson Money with the assistance and advice of counsel to the Independent Directors and the Company. In considering the renewal of and approval of the Advisory Agreements, the Directors took into account all the materials provided prior to and during the meeting and at other meetings throughout the past year, the presentations made during the meeting, and the discussions during the meeting. Among other things, the Directors considered (i) the nature, extent, and quality of Matson Money's services provided to the Funds; (ii) descriptions of the experience and qualifications of Matson Money's personnel providing those services; (iii) Matson Money's investment philosophies and processes; (iv) Matson Money's assets under management and client descriptions; (v) Matson Money's current advisory fee arrangements with the Company and other similarly managed clients; (vi) Matson Money's compliance procedures; (vii) Matson Money's financial information, insurance coverage and profitability analysis related to providing advisory services to the Funds; (vii) the extent to which economies of scale are relevant to the Funds; (ix) a report prepared by Lipper, Inc. ("Lipper") comparing each Fund's management fees and total expense ratio to those of its Lipper peer group and comparing the performance of each Fund to the performance of its Lipper peer group; and (x) a report comparing the performance of each Fund to the performance of its benchmark. As part of their review, the Directors considered the nature, extent and quality of the services provided by Matson Money. The Directors concluded that Matson Money had substantial resources to provide services to the Funds and that Matson Money's services had been acceptable. 30 FREE MARKET FUNDS OTHER INFORMATION (CONCLUDED) (UNAUDITED) The Directors also considered the investment performance of the Funds and Matson Money. Information on the Funds' investment performance was provided for one and two year periods. The Directors considered the Funds' investment performance in light of their investment objectives and investment strategies. The Directors concluded that the investment performance of each of the Funds as compared to their respective benchmarks and Lipper peer groups was acceptable. In reaching these conclusions, the Directors noted that the performance of the Free Market U.S. Equity Fund and Free Market International Equity Fund ranked above their respective peer group medians for all periods. The Board of Directors also considered the advisory fee rates payable by the Funds under the Advisory Agreements. In this regard, information on the fees paid by the Funds and the Funds' total operating expense ratios (before and after fee waivers and expense reimbursements) were compared to similar information for mutual funds advised by other, unaffiliated investment advisory firms. The Directors noted that the advisory fees of the Funds, before and after waivers, and the actual total expenses of the Funds were all lower than their respective peer group medians. After reviewing the information regarding Matson Money's costs, profitability and economies of scale, and after considering Matson Money's services, the Directors concluded that the investment advisory fees paid by the Funds were fair and reasonable and that each Advisory Agreement should be approved and continued for an additional one-year period ending August 16, 2011. 31 FREE MARKET FUNDS FUND MANAGEMENT (UNAUDITED) The business and affairs of the Company are managed under the direction of the Company's Board of Directors. The Company is organized under and managed pursuant to Maryland law. The Directors and executive officers of the Company, their dates of birth, business addresses and principal occupations during the past five years are set forth below. The statement of additional information ("SAI") includes additional information about the Directors and is available without charge, upon request, by calling 866-780-0357, ext. 3863.
NUMBER OF PORTFOLIOS IN FUND OTHER POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED (1) DURING PAST 5 YEARS DIRECTOR* DIRECTOR -------------------------- ----------- ------------------ ------------------------------------------ ----------- -------------- DISINTERESTED DIRECTORS Nicholas A. Giordano Director 2006 to present Consultant, financial services 18 Kalmar Pooled 103 Bellevue Parkway organizations from 1997 to present. Investment Wilmington, DE 19809 Trust; DOB: 3/43 (registered investment company) WT Mutual Fund; (registered investment company) Independence Blue Cross; IntriCon Corporation (body worn device company) Francis J. McKay Director 1988 to present Retired; Executive Vice President and 18 None 103 Bellevue Parkway Chief Operating Officer, Fox Chase Cancer Wilmington, DE 19809 Center (biomedical research and medical DOB: 12/35 care) (2000-1981). Arnold M. Reichman Chairman 2005 to present Director, Gabelli Group Capital Partners, 18 None 103 Bellevue Parkway Director 1991 to present L.P. (an investment partnership) from Wilmington, DE 19809 2000 to 2006. DOB: 5/48 Marvin E. Sternberg Director 1991 to present Since 1974, Chairman, Director and 18 MTI Holding 103 Bellevue Parkway President, MTI Holding Group, Inc. Group Inc. Wilmington, DE 19809 (formerly known as Moyco Technologies, (formerly DOB: 3/34 Inc.) (manufacturer of dental products known as Moyco and precision coated and industrial Technologies, abrasives). Inc.) Robert A. Straniere Director 2006 to present Since 2009, Administrative Law Judge, New 18 Reich and Tang 103 Bellevue Parkway York City; Founding Partner, Straniere Group (asset Wilmington, DE 19809 Law Firm (1980 to present); Partner, management); DOB: 3/41 Gotham Strategies (consulting firm) (2005 The SPARX Asia to 2008); Partner, The Gotham Global Funds Group Group (consulting firm) (2005 to 2008); (registered President, The New York City Hot Dog investment Company (2005 to present); Partner, company) Kanter-Davidoff (law firm) (2006 to 2007). (until 2009)
32 FREE MARKET FUNDS FUND MANAGEMENT (CONTINUED) (UNAUDITED)
NUMBER OF PORTFOLIOS IN FUND OTHER POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED (1) DURING PAST 5 YEARS DIRECTOR* DIRECTOR -------------------------- ----------- ------------------ ------------------------------------------ ----------- -------------- INTERESTED DIRECTORS(2) Julian A. Brodsky Director 1988 to present Since 1969, Director and Vice Chairman, 18 Comcast 103 Bellevue Parkway Comcast Corporation (cable television Corporation; Wilmington, DE 19809 and communications). AMDOCS Limited DOB: 7/33 (service provider to telecommunica- tions companies) Robert Sablowsky Director 1991 to present Since July 2002, Senior Director and 18 Kensington 103 Bellevue Parkway prior thereto, Executive Vice Funds Wilmington, DE 19809 President, of Oppenheimer & Co., Inc., (registered DOB: 4/38 formerly Fahnestock & Co., Inc. (a investment registered broker dealer company) (until 2009) J. Richard Carnall Director 2002 to present Director of Haydon Bolts, Inc. (bolt 18 Cornerstone 103 Bellevue Parkway manufacturer) and Parkway Real Estate Bank Wilmington, DE 19809 Company (subsidiary of Haydon Bolts, DOB: 9/38 Inc.) since 1984; and Director of Cornerstone Bank since March 2004. OFFICERS Salvatore Faia, Esquire, President President June President, Vigilant Compliance Services N/A N/A CPA Vigilant Compliance and Chief 2009 to present since 2004; Senior Legal Counsel, PNC Services Compliance and Chief Global Investment Servicing (U.S.), Brandywine Two Officer Compliance Officer Inc. from 2002 to 2004; and Director of 5 Christy Drive, Suite 209 2004 to present Energy Income Partnership since 2005. Chadds Ford, PA 19317 DOB: 12/62
33 FREE MARKET FUNDS FUND MANAGEMENT (CONTINUED) (UNAUDITED)
POSITION(S) TERM OF OFFICE NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) AND DATE OF BIRTH WITH FUND TIME SERVED (1) DURING PAST 5 YEARS ---------------------- ----------- --------------- --------------------------------------------------------------------------- OFFICERS Joel Weiss Treasurer June 2009 to Since 1993 Vice President and Managing Director, BNY Mellon Investment 103 Bellevue Parkway present Servicing (US) Inc. (formerly PNC Global Investment Servicing (U.S.) Inc.) Wilmington, DE 19809 (financial services company) DOB: 1/63 Jennifer Rogers Secretary 2007 to present Since 2005, Vice President and Counsel, BNY Mellon Investment Servicing 301 Bellevue Parkway (US) Inc. (formerly PNC Global Investment Servicing (U.S.), Inc. (financial Wilmington, DE 19809 services company); Associate, Stradley, Ronon, Stevens & Young, LLC (law DOB: 7/74 firm) from 1999 to 2005. James G. Shaw Assistant 2005 to present Since 1995, Vice President of BNY Mellon Investment Servicing (US) Inc. 103 Bellevue Parkway Treasurer (formerly PNC Global Investment Servicing (U.S.) Inc. (financial Wilmington, DE 19809 services company) DOB: 10/60 Michael P. Malloy Assistant 1999 to present Since 1993, Partner, Drinker Biddle & Reath LLP (law firm) One Logan Square, Ste. Secretary 2000 18th and Cherry Streets Philadelphia, PA 19103-6996 DOB: 7/59
* Each Director oversees eighteen portfolios of the Company that are currently offered for sale. (1) Subject to the Company's Retirement Policy, each Director may continue to serve as a Director until the last day of the calendar year in which the applicable Director attains age 75 or until the last day of year 2011, whichever is later, or until his successor is elected and qualified or his death, resignation or removal. The Board reserves the right to waive the requirements of the Policy with respect to an individual Director. Each officer holds office at the pleasure of the Board of Directors until the next special meeting of the Company or until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed. (2) Messrs. Brodsky, Carnall and Sablowsky are considered "interested persons" of the Company as that term is defined in the 1940 Act and are referred to as "Interested Directors." Mr. Brodsky is an "Interested Director" of the Company because a family foundation and certain family trusts own shares of JPMorgan Chase & Co. The investment adviser to the Company's Bear Stearns CUFS MLP Mortgage Portfolio, Bear Stearns Asset Management, Inc., is an indirect subsidiary of JPMorgan Chase. Mr. Carnall is an "Interested Director" of the Company because he owns shares of The PNC Financial Services Group, Inc. ("PNC"). PNC owns a controlling interest in BlackRock, Inc., the parent company of BlackRock Institutional Management Corporation, the investment adviser to the Company's Money Market Portfolio. Mr. Sablowsky is considered an "Interested Director" of the Company by virtue of his position as an officer of Oppenheimer & Co., Inc., a registered broker-dealer. 34 FREE MARKET FUNDS PRIVACY NOTICE THE FREE MARKET FUNDS of The RBB Fund, Inc. (the "Funds") are committed to protecting the confidentiality and security of your private investment records and personal information. Our policies and procedures are designed to safeguard your information and to permit only appropriate and authorized access to and use of this information. In order to carry out the functions necessary to service your investment account, our service providers collect certain nonpublic personal information from you from the following sources: - Information we receive from you over the telephone, on applications, e-mails or other forms (e.g., your name, social security number and address); and - Information about your transactions with the Funds. We restrict access to your personal and account information to those service providers and their employees who need to know that information to service your account. The Funds may also share all of the information (as described above) that we collect with companies that perform marketing services on our behalf or with other financial institutions with whom we have joint marketing agreements who may suggest additional fund services or other investment products which may be of interest to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. You can be assured that the Funds consider your data to be private and confidential, and we will not disclose any nonpublic personal information about you to any unaffiliated third parties, except as permitted by law. If you decide to close your account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. If you have any questions or comments about our privacy practices, please call us at (866) 780-0357, ext. 3863. 35 INVESTMENT ADVISER MATSON MONEY, INC. 5955 Deerfield Blvd. Mason, OH 45040 ADMINISTRATOR BNY Mellon Investment Servicing (US) Inc. 301 Bellevue Parkway Wilmington, DE 19809 TRANSFER AGENT BNY Mellon Investment Servicing (US) Inc. 101 Sabin Street Pawtucket, RI 02860 PRINCIPAL UNDERWRITER BNY Mellon Distributors Inc. 760 Moore Road King of Prussia, PA 19406 CUSTODIAN PFPC Trust Company 301 Bellevue Parkway Wilmington, DE 19809 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP Two Commerce Square, Suite 1700 2001 Market Street Philadelphia, PA 19103-7042 COUNSEL Drinker Biddle & Reath LLP One Logan Square, Ste. 2000 Philadelphia, PA 19103-6996 FREE MARKET U.S. EQUITY FUND FREE MARKET INTERNATIONAL EQUITY FUND FREE MARKET FIXED INCOME FUND OF THE RBB FUND, INC. ANNUAL REPORT August 31, 2010 This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Funds. Shares of the Free Market Funds are distributed by BNY Mellon Distributors Inc., 760 Moore Road, King of Prussia, PA 19406. ROBECO INVESTMENT FUNDS OF THE RBB FUND, INC. ANNUAL REPORT AUGUST 31, 2010 ROBECO BOSTON PARTNERS SMALL CAP VALUE FUND II ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND ROBECO BOSTON PARTNERS ALL-CAP VALUE FUND ROBECO WPG SMALL CAP VALUE FUND SAM SUSTAINABLE GLOBAL ACTIVE FUND This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Funds. Shares of Robeco Investment Funds are distributed by BNY Mellon Distributors Inc., 760 Moore Road, King of Prussia, PA 19406. (ROBECO LOGO) ROBECO INVESTMENT FUNDS PRIVACY NOTICE (unaudited) ROBECO BOSTON PARTNERS SMALL CAP VALUE FUND II ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND ROBECO BOSTON PARTNERS ALL-CAP VALUE FUND ROBECO WPG SMALL CAP VALUE FUND SAM SUSTAINABLE GLOBAL ACTIVE FUND (THE "ROBECO INVESTMENT FUNDS") The Robeco Investment Funds of The RBB Fund, Inc. (the "Funds") are committed to protecting the confidentiality and security of your private investment records and personal information. Our policies and procedures are designed to safeguard your information and to permit only appropriate and authorized access to and use of this information. In order to carry out the functions necessary to service your investment account, our service providers collect certain nonpublic personal information from you from the following sources: - Information we receive from you over the telephone, on applications, e-mails or other forms (e.g., your name, social security number and address); and - Information about your transactions with the Fund. We restrict access to your personal and account information to those service providers and their employees who need to know that information to service your account. The Fund may also share all of the information (as described above) that we collect with companies that perform marketing services on our behalf or with other financial institutions with whom we have joint marketing agreements who may suggest additional Fund services or other investment products which may be of interest to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your non-public personal information. You can be assured that the Fund considers your data to be private and confidential, and we will not disclose any nonpublic personal information about you to any unaffiliated third parties, except as permitted by law. If you decide to close your account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. If you have any questions or comments about our privacy practices, please call us at (888) 261-4073. ANNUAL REPORT 2010 | 1 ROBECO INVESTMENT FUNDS GENERAL MARKET COMMENTARY As of the August close, equity market performance capped what has been a very choppy environment all year. Despite periods of steady upward movement, U.S. stocks have yet to regain the highs established just last April. The S&P 500(R), for instance, has declined from its 1,217 peak that month to as low as 1,022 in July and finished August 31st at 1,049. It was a bumpy ride, with the index declining 14% from its peak and rising 3% from its trough. During this period, U.S. macroeconomic data has generally been downbeat, marked by deteriorating employment conditions and a stub-born housing market. Other headlines also weighed on investor sentiment, such as debt problems in peripheral European Union countries, ongoing worries about potentially harsh banking reforms, the potential risks of a hard landing in China, and oil pouring into the Gulf of Mexico. These items have dominated the news flow and have pushed aside unmistakably good results from corporate America, where U.S. earnings have generally been robust and, we believe, are likely to support solid potential for U.S. equity markets prospectively. That said, risk levels in general are elevated. Government debt loads in many countries are high and rising, which would point to increases in interest rates and inflation down the road. There are also substantial growth challenges faced by developed economies, including the US. It is critical to keep these headlines in perspective, especially in an environment characterized by heightened uncertainty. It is very hard-- if not impossible--to find a coherent link between macro themes and earnings or other key valuation inputs such as interest rates and risk premiums. Furthermore, a preoccupation with macroeconomic scenarios loses sight of the "creative destruction" that takes place during tough times. It changes the fundamental landscape in ways that create a wealth of opportunities and that can provide a basis for future growth. Take, for example, the changes corporate America has made over the last couple of years. Companies have rapidly implemented drastic cost reductions in response to the recession. Operating expenses, capital spending and investment in working capital have been cut dramatically, allowing companies to weather the downturn with high cash flow. As a result, the U.S. equity market is in remarkably better fundamental shape today than it was a year ago. A look back over the past year reveals a number of positive observations. For example, corporate America rolled on in the second quarter, reporting positive results amidst a strong earnings recovery. Operating earnings for the first quarter 2010 (reported during the past three months) increased 92% year-over-year for S&P 500 companies and approximately three-quarters of core S&P 1500 companies reported positive earnings surprises. Although cost cutting has been significantly contributing to the stream of positive earnings surprises reported over the past twelve months, sales growth has also been making a difference. For example, approximately 80% of the companies reporting a positive earnings surprise for the first quarter grew sales for the period. That is up from approximately 50% in the fourth quarter of 2009 and nearly triple the number of companies that were growing sales a year ago.(1) As we have stated before, our investment process is data driven, objectively addressing the facts to assess a stock's risk/reward profile in the context of earnings and valuation. Earnings drive share prices over time, and the price paid for earnings ultimately drives the investor's return. Throughout the past year, the numbers and facts have been encouraging on both counts. As we have noted in past updates, incremental sales are a huge driver of earnings growth given the exceptional operating leverage in corporate America created by its cost restructuring during the recession. According to data for the first quarter of 2010, an incremental $1 of sales increased pre-tax profits by 34 cents for S&P 500 companies. That is a large pickup over a base rate of roughly 12 cents to pre-tax earnings for every dollar of total sales.(2) However, given the S&P 500(R) Index's price/earnings multiple of 12.6x estimated 2010 earnings of approximately $82 per share, the market is saying that economic growth will slow dramatically (and perhaps double-dip) in the coming months. As stated before, uncertainty emanating from Europe and China, as well as the deficit and slower-than-expected employment gains in the U.S., has also clouded the out-look for growth and weighed on equity prices. Yet, in terms of the actual results so far this year, economic growth in the U.S. and for the globe has exceeded expectations according to the International Monetary Fund.(3) The IMF has raised forecast GDP for the U.S. to 3.3% for 2010 and to 2.9% for 2011. Its forecast for world output has been raised to 4.6% for 2010 (with half of the increase attributable to the U.S.) and held steady for 2011 at 4.3%. As the IMF aptly pointed out in its report, "the overarching policy challenge is to restore financial market confidence without choking the recovery." We will leave that work to the experts. What we have been focused on as stock pickers is that this tug-of-war between opposing micro-and macroeconomic conditions has resulted in virtually all U.S. stocks being painted by the same brush. In fact, the correlation of price movements among U.S. stocks last quarter was historic, having only been stronger three percent of the time over the past eighty-four years.(4) This has unlocked attractive risk/reward trade-offs to embracing calculated uncertainty on a stock-specific basis. Indiscriminate conditions favor our strengths as bottom-up stock pickers. We have been finding opportunities to own companies at attractive valuations that have improving operating performance, strong free cash flow generation and favorable competitive advantages in their markets. These attributes work over time, and we look forward to discussing with you in our portfolio commentaries how we have been positioning your investment with us for the future. Sincerely, Robeco Investment Funds ---------- (1) HOLT ValueSearch, Factset. The S&P 1500 (ex Financials, REITs, Insurance). The sample covers only firms that have reported calendar 1Q'10 financials that were available as of 05/17/10. The S&P Composite 1500 covers approximately 85% of the U.S. market capitalization. (2) Empirical Research Partners. (3) IMF, World Economic Update, July 7, 2010. (4) Empirical Research Partners, June 2010. Large cap universe. 2 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS ROBECO BOSTON PARTNERS SMALL CAP VALUE FUND II (unaudited) Dear Shareholder: As August wore wearily to a close, the small cap value asset class was down year-to-date, but remained in positive territory for the one-year period ended August 31st, 2010. With the large drop across the equity markets that began in mid-June, even small cap finally capitulated and gave back its appreciation. However, the recent market retreat could not erase the strong up market of the past 12-months, and over the longer-term period the small cap value market has provided appreciation of about 6.60% annualized for the 10-year period ended August 31st, 2010 For the 1-year period ended August 31, 2010, The Robeco Boston Partners Small Cap Value Fund II underperformed its benchmark, the Russell 2000(R) Value Index. The Fund has outperformed its benchmark for the 3-year, 5-year and 10-year periods. As a result of declines in May and June, the Index was down significantly for the quarter with negative returns posted in all sectors. Returns ranged from down only 3% for the Utilities sector to down 17% for Consumer Durables, an area which includes companies such as home builders, auto parts stores and home furnishings. Within the representative portfolio, an allocation away from Utilities, with its more benign loss, as well as stock selection in Technology and Transportation detracted from performance. On the positive side, stock selection within Health Care and Basic Industries added the most relative value, particularly among Health Care Services and Packaging companies. While we are disappointed with the returns for the 1-year period, we believe the portfolio is positioned well for outperformance in the future. With stock price declines come opportunity and we are indeed seeing disparities amongst company valuations as well as mispricings versus our estimate of fair value for many companies. Certainly our outlook for the portfolio is brighter than recent market sentiment. For example, we continue to find selective banks and savings & loans that have been overly penalized, but that have good fundamentals. In the current environment, as always, we aim to stick to our process that has created value over the long term - investing in a portfolio of stocks that at the stock level, as well as in aggregate, exhibits the characteristics that we have found to provide long-term outperformance. Sincerely, David Dabora Portfolio Manager, RBP Small Cap Value Fund II Small company stocks are generally riskier than large company stocks due to greater volatility and less liquidity. Investors should note that the Fund is an actively managed mutual fund while the Russell indices are unmanaged, do not incur expenses and are not available for investment.
TOP TEN POSITIONS (AS OF 8/31/10) % OF NET ASSETS --------------------------------- --------------- Anworth Mortgage Asset Corp. 1.88% Nelnet, Inc., Class A 1.72% U.S. Physical Therapy, Inc. 1.59% Bowne & Co., Inc. 1.58% UTI Worldwide, Inc. 1.49% Graham Packaging Co., Inc. 1.45% Bristow Group, Inc. 1.42% MFA Financial, Inc. 1.38% Platinum Underwriters Holdings Ltd. 1.30% EnerSys 1.25%
PORTFOLIO REVIEW (AS OF 8/31/10) -------------------------------- P/E: Price/Earnings: 10.9x P/B: Price/Book: 1.1x Holdings: 164 Weighted Average Market Capitalization (millions): $ 890 ROE: Return on Equity: 9.6 OROA: Operating Return on Operating Assets: 34.1
Portfolio holdings are subject to change at any time. ANNUAL REPORT 2010 | 3 ROBECO INVESTMENT FUNDS ROBECO BOSTON PARTNERS SMALL CAP VALUE FUND II (unaudited) (concluded) Comparison of Change in Value of $10,000 Investment in Robeco Boston Partners Small Cap Value Fund II vs. Russell Indices (PERFORMANCE GRAPH)
Small Cap Russell 2000 Value Small Cap Value RUSSELL Fund II-- Value Fund II-- Aggregate 2000 Institutional Investor Index Index Class --------------- ------------ ------- ------------- 8/31/2000 10000 10000 10000 10000 8/31/2001 15427 11802 8838 15457 8/31/2002 14264 11142 7474 14315 8/31/2003 18280 13780 9647 18403 8/31/2004 20783 16467 10742 20972 8/31/2005 25421 20189 13225 25722 8/31/2006 26976 22755 14460 27365 8/31/2007 29744 26152 16104 30248 8/31/2008 26651 24185 15221 27177 8/31/2009 24198 19181 11980 24740 8/31/2010 25471 20345 12771 26093
The chart assumes a hypothetical $10,000 initial investment in the Fund made on August 31, 2000 and reflects Fund expenses. Investors should note that the Fund is an actively managed mutual fund while the Russell indices are unmanaged, do not incur expenses and are not available for investment. For Period Ended August 31, 2010
AVERAGE ANNUAL TOTAL RETURN GROSS NET ---------------------------------- EXPENSE EXPENSE 1 YEAR 3 YEAR 5 YEAR 10 YEAR RATIO RATIO ------ ------ ------ ------- ------- ------- Small Cap Value Fund II -- Institutional Class 5.47% -4.81% 0.29% 10.07% 1.74% 1.30% Small Cap Value Fund II -- Investor Class 5.26% -5.04% 0.04% 9.80% 1.99% 1.55% Russell 2000(R) Value Index 6.06% -8.03% -1.33% 6.56% n/a n/a Russell 2000(R) Index(1) 6.60% -7.44% -0.69% 2.48% n/a n/a
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. ROBECO INVESTMENT MANAGEMENT, INC. WAIVED A PORTION OF ITS ADVISORY FEE AND AGREED TO REIMBURSE A PORTION OF THE FUND'S OPERATING EXPENSES, IF NECESSARY, TO MAINTAIN THE EXPENSE LIMITATION AS SET FORTH IN THE NOTES TO THE FINANCIAL STATEMENTS. TOTAL RETURNS SHOWN INCLUDE FEE WAIVERS AND EXPENSE REIMBURSEMENTS, IF ANY; TOTAL RETURNS WOULD HAVE BEEN LOWER HAD THERE BEEN NO ASSUMPTION OF FEES AND EXPENSES IN EXCESS OF EXPENSE LIMITATIONS. THE FUND'S ANNUAL OPERATING EXPENSE RATIOS ABOVE ARE AS STATED IN THE CURRENT PROSPECTUSES. THESE RATES CAN FLUCTUATE AND MAY DIFFER FROM THE ACTUAL EXPENSES INCURRED BY THE FUND FOR THE PERIOD COVERED BY THIS REPORT. RETURNS SHOWN INCLUDE THE REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, PLEASE CALL 1-888-261-4073 OR VISIT OUR WEB SITE AT www.robecoinvest.com. (1) This is not a benchmark of the Fund. Results of index performance are presented for general comparative purposes. The Russell 2000(R) Value Index is an unmanaged index considered representative of small-cap value stocks. The Russell 2000(R) Index measures the performance of the 2,000 smallest companies in the Russell 3000(R) Index, which represents approximately 8% of the total market capitalization of the Russell 3000(R) Index and is considered representative of small-cap stocks. 4 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND (unaudited) Dear Shareholder: The Robeco Long/Short Equity Fund outperformed the benchmark, the S&P 500(R), for the 1-year period ended August 31, 2010. The Fund has also outperformed its benchmark for the 3-year, 5-year and 10-year periods. While we are pleased with the performance, it is our expectation to outperform more meaning-fully during such periods of sharp decline as we have experienced throughout the year. Our lack of meaningful exposure on the short side of the portfolio has been the principal factor. The portfolio averaged approximately 22% exposure to the short side of the ledger during that period. We simply have not been finding an abundance of short selling candidates that appear excessively valued and have deteriorating business trends. It has been particularly difficult to find stocks that offer the latter attribute as we are only a couple of quarters into the economic recovery and most stocks are handily beating expectations for earnings and estimates for future earnings, in aggregate, are rising. While certainly some businesses are seeing a stronger recovery than others, there are few, if any, businesses where trends are still deteriorating in absolute terms. The correlation among equities during the second quarter was near all time record levels. Simply put, this means that there was indiscriminate selling of equities as an asset class and, as such, there was little opportunity to add value through superior stock selection. Certain "defensive" sectors of the market did relatively well (i.e. Consumer staples and utilities), but, by our calculation, nine out of twelve economic sectors comprising the S&P 500 declined by 10% or more during the quarter. The fears that drove the selling of "risk" assets, such as equities, during the mid-June market sell-off, originated in several "macro" developments that have been developing over the past year. Within a relatively short time span, China's economic growth, which has served as an important engine to overall global growth, showed signs of slowing (even though this was orchestrated by the Chinese government and is a long term positive, it has been heralded as a short-term risk), southern Europe experienced a sovereign debt crisis which lead to currency instability, and the oil industry experienced its worst disaster in history. Throughout this "big picture" turmoil, we have remained in regular communication with companies involved in day to day commerce across many different industries and geographies. The overwhelming majority of those we speak to continue to see improving trends in business activity and remain cautiously optimistic regarding short - to intermediate-term prospects (including those with sizeable exposure to Europe). Despite these currently favorable trends, equity investors have chosen to shoot first and ask questions later regarding the sustainability of such trends. While certainly there are risks to the durability of the recovery sustained thus far, we would submit, as always, that what counts the most is the degree to which such risks are already discounted in the valuations of stocks. We feel that we have successfully found many situations where the price more than sufficiently reflects such risks. In summary, we are finding situations where, even in the event of a "double-dip," we have the ability to invest on the long side with what we believe to be a high margin of safety over the intermediate term. Of course, as the second quarter proves, short-term fluctuations can be very difficult to predict. As of August 31, 2010, the portfolio had a net long exposure of approximately 81.40%. From a capitalization perspective, the long portfolio had a median market capitalization of $15.6 billion compared to $2.3 billion on the short portfolio. The Fund is well diversified with approximately 163 positions on the long side and 82 positions on the short side.
TOP TEN LONG POSITIONS (AS OF 8/31/10) % OF NET ASSETS -------------------------------------- --------------- JPMorgan Chase & Co. 2.15% MIPS Technologies, Inc. 1.59% Maiden Holdings Ltd. 1.58% Hewlett-Packard Co. 1.45% Microsoft Corp. 1.27% Lithia Motors, Inc., Class A 1.25% Schawk, Inc. 1.11% Multi-Color Corp. 1.09% Ducommun, Inc. 1.07% Pfizer, Inc. 1.04%
PORTFOLIO REVIEW (AS OF 8/31/10) LONG SHORT -------------------------------- ------- ------ P/E: Price/Earnings: 12.2x 21.1x P/B: Price/Book: 1.1x 4.0x Holdings: 163 82 Weighted Average Market Capitalization (millions): $15,674 $2,345 ROE: Return on Equity: 4.3% 13.0 OROA: Operating Return on Operating Assets: 27.6% 46.5
Portfolio holdings are subject to change at any time. Our bottom-up value discipline has yielded a portfolio that is attractively positioned relative to the short portfolio from both a valuation and profitability standpoint. The long portfolio trades at 12.2x price-to-earnings and 1.1x price-to-book value, and the short portfolio trades at 21.1x price-to-earnings and 4.0x price-to-book value. We believe that consistently positioning the portfolio with these general characteristics increases the probability of success over the long term and it continues to be the focus of our efforts. Sincerely, Robert Jones Portfolio Manager, RBP Long/Short Equity Fund Long/Short Equity is an absolute return product that balances long and short portfolio strategies and seeks to achieve stable absolute returns with approximately half the risk of the S&P 500(R) Index. However, this product is not risk neutral. It is exposed to style, capitalization, sector and short-implementation risk. Use of the S&P 500(R) Index is for comparative purposes only since Long/Short returns are not correlated to equity market returns. An absolute return benchmark of 15% is the more appropriate measure for this product. Investors should note that the Fund is an actively managed mutual fund while the S&P 500(R) Index is unmanaged, does not incur expenses and is not available for investment. ANNUAL REPORT 2010 | 5 ROBECO INVESTMENT FUNDS ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND (unaudited) (concluded) Comparison of Change in Value of $10,000 Investment in Robeco Boston Partners Long/Short Equity Fund vs. S&P 500(R) Index (PERFORMANCE GRAPH)
Investor S&P 500 Stock index Long/Short Equity Fund -- Institutional Class -------- ------------------- --------------------------------------------- 8/31/2000 10000 10000 10000 8/31/2001 15151 7561 15185 8/31/2002 14932 6201 15007 8/31/2003 14735 6949 14837 8/31/2004 15096 7745 15242 8/31/2005 18318 8717 18549 8/31/2006 20642 9490 20948 8/31/2007 21126 10926 21493 8/31/2008 21313 9709 21733 8/31/2009 27627 7937 28258 8/31/2010 30315 8327 31236
The chart assumes a hypothetical $10,000 initial investment in the Fund made on August 31, 2000 and reflects Fund expenses. Investors should note that the Fund is an actively managed mutual fund while the S&P 500(R) Index is unmanaged, does not incur expenses and is not available for investment. For Period Ended August 31, 2010
AVERAGE ANNUAL TOTAL RETURN GROSS NET ---------------------------------- EXPENSE EXPENSE 1 YEAR 3 YEAR 5 YEAR 10 YEAR RATIO RATIO ------ ------ ------ ------- ------- ------- Long/Short Equity Fund -- Institutional Class 10.54% 13.27% 10.99% 12.06% 4.04% 3.35% Long/Short Equity Fund -- Investor Class 9.73% 12.79% 10.60% 11.73% 4.29% 3.60% S&P 500(R) Index 4.91% -8.66% -0.91% -1.81% n/a n/a
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. ROBECO INVESTMENT MANAGEMENT, INC. WAIVED A PORTION OF ITS ADVISORY FEE AND AGREED TO REIMBURSE A PORTION OF THE FUND'S OPERATING EXPENSES, IF NECESSARY, TO MAINTAIN THE EXPENSE LIMITATION AS SET FORTH IN THE NOTES TO THE FINANCIAL STATEMENTS. TOTAL RETURNS SHOWN INCLUDE FEE WAIVERS AND EXPENSE REIMBURSEMENTS, IF ANY; TOTAL RETURNS WOULD HAVE BEEN LOWER HAD THERE BEEN NO ASSUMPTION OF FEES AND EXPENSES IN EXCESS OF EXPENSE LIMITATIONS. THE FUND'S ANNUAL OPERATING EXPENSE RATIOS ABOVE (INCLUDING INTEREST AND DIVIDEND EXPENSE ON SHORT SALES) ARE AS STATED IN THE CURRENT PROSPECTUSES. THESE RATES CAN FLUCTUATE AND MAY DIFFER FROM THE ACTUAL EXPENSES INCURRED BY THE FUND FOR THE PERIOD COVERED BY THIS REPORT. RETURNS SHOWN INCLUDE THE REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, PLEASE CALL 1-888-261-4073 OR VISIT OUR WEB SITE AT www.robecoinvest.com. The S&P 500(R) Index is an unmanaged index that measures the performance of 500 large-cap stocks. 6 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS ROBECO BOSTON PARTNERS ALL-CAP VALUE FUND (unaudited) Dear Shareholder: The broad-based market downturn that began in mid-June left the Russell 3000 Value(R) Index posting negative returns for the year-to-date period ended August 31, 2010, but nonetheless remained in positive territory for the past 12 months. For the 1-year period ended August 31, 2010, the Robeco Boston Partners All-Cap Fund underperformed its benchmark, the Russell 3000(R) Value Index. However, the Fund has outperformed its benchmark for the 3-year, 5-year and since inception periods. The portfolio's positioning in best-of-class global technology businesses was the main detractor from relative performance over the period, costing 0.5 percentage points in relative return. More than half of that figure came from positions like Microsoft and Hewlett Packard whose performance reflected domination of macroeconomic uncertainty over underlying fundamentals. We believe owning businesses at attractive valuations that have the benefits of scale, global exposure, global brand awareness and access to capital has positioned the portfolio well for favorable performance longer term. In the near term, however, U.S. markets have been experiencing a dramatic tug-of-war between opposing macro- and microeconomic conditions. As these condition persist, we can expect further choppy market conditions over the coming months. However, the portfolio's differentiation from the market has been key to its long-term success. It is particularly important in today's market environment because of the attractive risk/reward trade-off to embracing calculated uncertainty on a stock-specific basis. We have been taking advantage of this to differentiate the portfolio by maintaining exposure to businesses with significant earnings leverage to an economic and financial recovery, by favoring higher-quality companies that are better positioned to navigate a bumpy economic recovery, and by proactively adjusting holdings to keep the portfolio's underlying business momentum positive amidst a strong earnings recovery. The portfolio's technology holdings, for example, offer a mix of businesses at attractive valuations that have stable earnings bases and/or significant earnings leverage to incremental improvements in demand. The portfolio's technology holdings represent approximately 16% of its market weight, which is three times the Russell 3000 Value Index. Our consumer holdings, approximately one-quarter of the portfolio's market weight, generally reflect the portfolio's bias for well-run businesses that generate excess cash flow and have a record of astutely creating shareholder value. We continue to believe the economy's recovery will be a bumpy road. The mid-June market pothole yielded a host of stock-specific opportunities to further position the portfolio for the future. Indiscriminate conditions favor our strengths as bottom-up stock pickers over time, and we look forward to keeping you informed of what we're doing for your portfolio along the way. Sincerely, Duilio Ramallo Portfolio Manager, RBP All Cap Value Fund ---------- (1) Holt ValueSearch, May 2010. This sample covers only firms that have reported calendar Q1 financials that are available as of 05/17/2010 and is the S&P 1500, less financials, REITs and insurance.
TOP TEN POSITIONS (AS OF 8/31/10) % OF NET ASSETS -------------------------------------- --------------- JPMorgan Chase & Co. 3.54% Pfizer, Inc. 3.29% International Business Machines Corp. 2.60% Bank of America Corp. 2.47% Chevron Corp. 2.34% Loews Corp. 2.30% Noble Energy, Inc. 2.27% Vodafone Group PLC - Sponsored ADR 2.20% Microsoft Corp. 2.01% Amgen, Inc. 1.95%
PORTFOLIO REVIEW (AS OF 8/31/10) -------------------------------- P/E: Price/Earnings: 11.1x P/B: Price/Book: 1.4x Holdings: 111 Weighted Average Market Capitalization (millions): $50,819 ROE: Return on Equity: 19.4 OROA: Operating Return on Operating Assets: 38.2
Portfolio holdings are subject to change at any time. (2) Empirical Research Partners, June 2010. Large cap universe. Small and mid size company stocks are generally riskier than large company stocks due to greater volatility and less liquidity. Investors should note that the Fund is an actively managed mutual fund while the Russell indices are unmanaged, do not incur expenses and are not available for investment. ANNUAL REPORT 2010 | 7 ROBECO INVESTMENT FUNDS ROBECO BOSTON PARTNERS ALL-CAP VALUE FUND (unaudited) (concluded) Comparison of Change in Value of $10,000 Investment in Robeco Boston Partners All-Cap Value Fund vs. Russell Indices (PERFORMANCE GRAPH)
Russell 3000 Value Index Rusell 3000 Index All-Cap Value Fund -- Institutional Class ------------------------ ----------------- ----------------------------------------- 7/1/2002 10000 10000 10000 10000 8/31/2002 9440 9089.49 9248.26 9450 2/28/2003 8636.63 8375.69 8577.32 8665.51 8/31/2003 10820.8 10221.5 10535.6 10851.9 2/29/2004 13324 12042.3 12122 13381.6 8/31/2004 13324 12024.3 11725.8 13401.8 2/28/2005 15296.9 13692.2 13047.2 15391.5 8/31/2005 16262.8 14109.6 13523.2 16393.7 2/28/2006 17058.8 15269 14691.9 17212 8/31/2006 17518.3 16175 14995.8 17697 2/28/2007 19389.3 17771.9 16462.3 19602.4 8/31/2007 19998.6 18166.3 17236.4 20241.5 2/29/2008 18490.8 16223.5 15716.9 18755.7 8/31/2008 18235.3 15603.1 15473.8 18510.8 2/28/2009 11838 11254.7 10956.3 12054.1 8/31/2009 17114.6 16282.4 15538.7 17422.3 2/28/2010 18705 17694 17088 19063 8/31/2010 17629 17109 16414 17999
The chart assumes a hypothetical $10,000 initial investment in the Fund made on July 1, 2002 (commencement of operations) and reflects Fund expenses. Investors should note that the Fund is an actively managed mutual fund while the Russell indices are unmanaged, do not incur expenses and are not available for investment. For Period Ended August 31, 2010
AVERAGE ANNUAL TOTAL RETURN --------------------------------------------- GROSS NET SINCE EXPENSE EXPENSE 1 YEAR 3 YEAR 5 YEAR INCEPTION(2) RATIO RATIO ------------ ------ ------ ------------ ------- ------- All-Cap Value Fund -- Institutional Class 3.31% -3.84% 1.89% 7.46% 1.50% 0.70% All-Cap Value Fund -- Investor Class 3.01% -4.12% 1.63% 7.19% 1.75% 0.95% Russell 3000(R) Value Index 5.08% -10.40% -1.66% 3.24% n/a n/a Russell 3000(R) Index(1) 5.64% -8.27% -0.72% 3.31% n/a n/a
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. ROBECO INVESTMENT MANAGEMENT, INC. WAIVED A PORTION OF ITS ADVISORY FEE AND AGREED TO REIMBURSE A PORTION OF THE FUND'S OPERATING EXPENSES, IF NECESSARY, TO MAINTAIN THE EXPENSE LIMITATION AS SET FORTH IN THE NOTES TO THE FINANCIAL STATEMENTS. TOTAL RETURNS SHOWN INCLUDE FEE WAIVERS AND EXPENSE REIMBURSEMENTS, IF ANY; TOTAL RETURNS WOULD HAVE BEEN LOWER HAD THERE BEEN NO ASSUMPTION OF FEES AND EXPENSES IN EXCESS OF EXPENSE LIMITATIONS. THE FUND'S ANNUAL OPERATING EXPENSE RATIOS ABOVE ARE AS STATED IN THE CURRENT PROSPECTUSES. THESE RATES CAN FLUCTUATE AND MAY DIFFER FROM THE ACTUAL EXPENSES INCURRED BY THE FUND FOR THE PERIOD COVERED BY THIS REPORT. RETURNS SHOWN INCLUDE THE REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, PLEASE CALL 1-888-261-4073 OR VISIT OUR WEB SITE AT www.robecoinvest.com. (1) This is not a benchmark of the Fund. Results of index performance are presented for general comparative purposes. (2) For the period July 1, 2002 (commencement of operations) through August 31, 2010. The Russell 3000(R) Value Index is an unmanaged index considered representative of broad value stocks. The Russell 3000(R) Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equitY market. 8 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS ROBECO WPG SMALL CAP VALUE FUND (unaudited) Dear Shareholder: For the 1-year period ended August 31, 2010, the Robeco WPG Small Cap Value Fund outperformed its benchmark, the Russell 2000(R) Value Index. Over the period, the portfolio benefitted from a mix of strong stock selection while asset allocation had little impact on overall performance. Consumer Services,Technology, and Consumer Non-Durables were the biggest contributors to relative performance over the period. Consumer Services benefitted from strong performance in one of the composite's largest holdings, a diversified consulting company. Strong performance from two technology companies were the main reason for outperformance in the Technology sector and Consumer Non-Durables benefitted from strong stock picking, although there were no single individual performers. The largest detractors to performance were the Capital Goods, REITs and Communication sectors. Our equal weight in Capital Goods underperformed because of stock picking, particularly in one of our engineering and construction positions because of renewed fears about a contraction in construction projects. REITs underperformed largely because of our decision to underweight the sector in a relatively strong 1-year period and Communications underperformed because of Euro translation fears at one of our positions. The largest change to the portfolio has been our continued reduction in our overweight in Finance. The decision has largely been driven by our concerns about credit quality, which has not recovered to our expectations. Losses at many financial institutions continued to surprise negatively, something we'd normally not see during this part of an economic recovery. This coupled with anemic new loan growth has us concerned about a change in catalyst at several of our financial positions. As such, we've reduced or eliminated some of these positions entirely. Looking forward, we expect the high volatility in the market to continue, especially for small cap stocks. Renewed fears about the health of the recovery and sovereign debts has investors on edge. Although we share some of their concerns, the companies we're invested in continue to show positive fundamentals and strong catalysts. We'll continue to use the pullback to invest in those companies in which we feel have the greatest risk/reward profile. Sincerely, Richard Shuster Portfolio Manager,WPG Small Cap Value Fund Small and mid size company stocks are generally riskier than large company stocks due to greater volatility and less liquidity. Investors should note that the Fund is an actively managed mutual fund while the Russell indices are unmanaged, do not incur expenses and are not available for investment.
TOP TEN POSITIONS (AS OF 8/31/10) % OF NET ASSETS --------------------------------- --------------- Geo Group, Inc., (The) 3.99% MDC Partners, Inc., Class A 3.62% ICU Medical, Inc. 2.90% Meadowbrook Insurance Group, Inc. 2.77% AirTran Holdings, Inc. 2.72% Chiquita Brands International, Inc. 2.53% Scorpio Tankers, Inc. 2.25% Del Monte Foods Co. 2.17% FTI Consulting, Inc. 2.10% Digital River, Inc. 1.55%
PORTFOLIO REVIEW (AS OF 8/31/10) -------------------------------- P/E: Price/Earnings: 11.8x P/B: Price/Book: 1.1x Holdings: 115 Weighted Average Market Capitalization (millions): $ 839 ROE: Return on Equity: 2.2 OROA: Operating Return on Operating Assets: 25.5
Portfolio holdings are subject to change at any time. ANNUAL REPORT 2010 | 9 ROBECO INVESTMENT FUNDS ROBECO WPG SMALL CAP VALUE FUND (unaudited) (concluded) Comparison of Change in Value of $10,000 Investment in Robeco WPG Small Cap Value Fund vs. Russell Index (PERFORMANCE GRAPH)
Russell 2000 Value Aggregate Institutional ---------------------------- ------------- 8/31/2000 10000 10000 8/31/2001 11801.8 6608.39 8/31/2002 11141.6 5269.48 8/31/2003 13780 6608.79 8/31/2004 16466.6 7763.36 8/31/2005 20188.8 8940.03 8/31/2006 22755.4 9579.83 8/31/2007 24268.6 10948 8/31/2008 22443.1 9284.96 8/31/2009 18021 8084.64 8/31/2010 19114.4 8936.76
The chart assumes a hypothetical $10,000 initial investment in the Fund made on August 31, 2000 and reflects Fund expenses. Investors should note that the Fund is an actively managed mutual fund while the Russell index is unmanaged, does not incur expenses and is not available for investment. For Period Ended August 31, 2010
AVERAGE ANNUAL TOTAL RETURN GROSS NET ---------------------------------- EXPENSE EXPENSE 1 YEAR 3 YEAR 5 YEAR 10 YEAR RATIO RATIO ------ ------ ------ ------- ------- ------- WPG Small Cap Value Fund -- Institutional Class 10.54% -6.54% -0.01% -1.12% 1.95% 1.70% Russell 2000(R) Value Index 6.06% -8.03% -1.33% 6.56% n/a n/a
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. ROBECO INVESTMENT MANAGEMENT, INC. AGREED TO WAIVE A PORTION OF ITS ADVISORY FEE AND REIMBURSE A PORTION OF THE FUND'S OPERATING EXPENSES, IF NECESSARY, TO MAINTAIN THE EXPENSE LIMITATION AS SET FORTH IN THE NOTES TO THE FINANCIAL STATEMENTS. TOTAL RETURNS SHOWN INCLUDE FEE WAIVERS AND EXPENSE REIMBURSEMENTS, IF ANY; TOTAL RETURNS WOULD HAVE BEEN LOWER HAD THERE BEEN NO ASSUMPTION OF FEES AND EXPENSES IN EXCESS OF EXPENSE LIMITATIONS. THE FUND'S ANNUAL OPERATING EXPENSE RATIOS ABOVE ARE AS STATED IN THE CURRENT PROSPECTUS. THIS RATE CAN FLUCTUATE AND MAY DIFFER FROM THE ACTUAL EXPENSES INCURRED BY THE FUND FOR THE PERIOD COVERED BY THIS REPORT. RETURNS SHOWN INCLUDE THE REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, PLEASE CALL 1-888-261-4073 OR VISIT OUR WEB SITE AT www.robecoinvest.com. The Russell 2000(R) Value Index is an unmanaged index considered representative of small-cap value stocks. 10 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS SAM SUSTAINABLE GLOBAL ACTIVE FUND (unaudited) Dear Shareholder: The year ended August 30, 2010 has been positive for global equity markets. The MSCI World Index returned 1.54% over the 1-year period ended August 31, 2010 (in USD terms). On a regional level, Asian equities were the best performing up almost 20% over the period (as measured by MSCI AC Asia ex-Japan) while Japanese equities underperformed in relative terms. The year was also characterized by the European sovereign debt crisis. Investors were focused on the rising public deficit in Greece, Ireland, Portugal and Spain. The unsustainable level of sovereign debt has affected investor's sentiment by increasing volatility on the equity markets and credit default spreads among European countries. Despite negative market sentiment and concerns due to the sovereign crisis, global equity markets have recovered over the last quarter. The recovery was certainly driven by a good earnings season. Companies both in the U.S. and Europe delivered better than expected numbers and confirmed a positive outlook for the rest of 2010. In addition, the banking Basel Committee decision to soften some of the proposed capital and liquidity rules for the European banking sector has also had a positive impact on market sentiment. Furthermore, monetary authorities around the world signaled that they are ready to take further action to support the recovery. For the 1-year period ended August 31, 2010, the SAM Sustainable Global Active Fund outperformed its benchmark, the MSCI World(R) Index. Stock selection was the main driver of Fund performance as sustainability leaders with attractive valuation out-performed the market. While stock selection was effective across all sectors, it was particularly good within Healthcare, Consumer Discretionary and Materials. On a sector level, the Fund kept an overweight exposure in Healthcare, Consumer Staples and Telecom stocks while underweighting Industrials, Financials and IT stocks. Sector exposure, however, did not affect the Fund's deviations versus the benchmark were constrained. Looking ahead, the macro data continue to show signs of a recovery, notably in Asia and Europe. Concerns regarding a possible double dip seem to be set aside even though the overall economic recovery will likely remain subdued for the foreseeable future. With the global equity markets offering attractive valuations and given the combination of a low interest rate environment and investor's risk appetite coming back, we expect the overall equity markets to remain benign going into the end of the year. Our investment strategy remains focused on investing in sustainable companies with attractive valuations and stable earnings outlooks. Sincerely, Diego d' Argenio Senior Portfolio Manager, SAM Sustainable Global Active Fund Investors should note that the Fund is an actively managed mutual fund while the index is unmanaged, does not incur expenses and is not available for investment. The Fund is non-diversified. The Fund may invest more of its assets in a smaller number of companies. Gains or losses on a single stock may have a greater impact on the Fund. The Fund's sustainability investment criteria may limit the number of investment opportunities available to the Fund. Moreover, companies that promote sustainability goals may not perform as well as companies that do not pursue such goals. International investing is subject to currency volatility, political, social or economic instability, taxation, auditing and other financial practices.
TOP TEN POSITIONS (AS OF 8/31/10) % OF NET ASSETS --------------------------------- --------------- Health Net, Inc. 3.69% Sherritt International Corp. 3.49% International Business Machines Corp. 3.36% Procter & Gamble Co. 3.19% Travis Perkins PLC 3.05% Hartford Financial Services Group, Inc. 3.03% Barclays PLC 2.80% Canadian Imperial Bank of Commerce 2.64% Pfizer, Inc. 2.60% Portugal Telecom, SGPS SA 2.54%
PORTFOLIO REVIEW (AS OF 8/31/10) -------------------------------- P/E: Price/Earnings: 11.1x P/B: Price/Book: 1.6x Holdings: 79 Weighted Average Market Capitalization (millions): $58,199 ROE: Return on Equity: 19.6 OROA: Operating Return on Operating Assets: 29.8
Portfolio holdings are subject to change at any time. ANNUAL REPORT 2010 | 11 ROBECO INVESTMENT FUNDS SAM SUSTAINABLE GLOBAL ACTIVE FUND (unaudited) (concluded) Comparison of Change in Value of $10,000 Investment in SAM Sustainable Global Active Fund vs. MSCI World Index (PERFORMANCE GRAPH)
MSCI World SAM Sustainable Index global active Class ----------- ------------------- 6/19/2009 10000 10000 6/30/2009 10128 9970 8/31/2009 11439 11300 11/30/2009 12161 12270 2/28/2010 12035 12248 5/31/2010 11558 12009 8/31/2010 11616 11912
MSCI World SAM Sustainable Index global active Class ----------- ------------------- 7/15/2009 10000 10000 7/31/2009 11053 10809 8/31/2009 11509 11155 11/30/2009 12235 12113 2/28/2010 12108 12081 5/31/2010 11628 11846 8/31/2010 11687 11728
The chart assumes a hypothetical $10,000 initial investment in the Fund made on the commencement of operations and reflects Fund expenses. Investors should note that the Fund is an actively managed mutual fund while the MSCI World Index is unmanaged, does not incur expenses and is not available for investment. For Period Ended August 31, 2010
GROSS NET SINCE EXPENSE EXPENSE 1 YEAR INCEPTION RATIO RATIO -------- --------- ------- ------- SAM Sustainable Global Active Fund -- Institutional Class(1) 5.42% 15.66% 4.06% 1.20% MSCI World Index 1.54% 13.20% n/a n/a SAM Sustainable Global Active Fund -- Investor Class(2) 5.14% 15.17% 4.31% 1.45% MSCI World Index 1.54% 14.71% n/a n/a
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. ROBECO INVESTMENT MANAGEMENT, INC. WAIVED A PORTION OF ITS ADVISORY FEE AND AGREED TO REIMBURSE A PORTION OF THE FUND'S OPERATING EXPENSES, IF NECESSARY, TO MAINTAIN THE EXPENSE LIMITATION AS SET FORTH IN THE NOTES TO THE FINANCIAL STATEMENTS. TOTAL RETURNS SHOWN INCLUDE FEE WAIVERS AND EXPENSE REIMBURSEMENTS, IF ANY; TOTAL RETURNS WOULD HAVE BEEN LOWER HAD THERE BEEN NO ASSUMPTION OF FEES AND EXPENSES IN EXCESS OF EXPENSE LIMITATIONS. THE FUND'S ANNUAL OPERATING EXPENSE RATIOS ABOVE ARE AS STATED IN THE CURRENT PROSPECTUSES. THESE RATES CAN FLUCTUATE AND MAY DIFFER FROM THE ACTUAL EXPENSES INCURRED BY THE FUND FOR THE PERIOD COVERED BY THIS REPORT. RETURNS SHOWN INCLUDE THE REINVESTMENT OF ALL DIVIDENDS AND OTHER DISTRIBUTIONS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, PLEASE CALL 1-888-261-4073 OR VISIT OUR WEB SITE AT www.robecoinvest.com. (1) For the period June 18, 2009 (commencement of operations) through August 31, 2010. (2) For the period July 15, 2009 (commencement of operations) through August 31, 2010. The MSCI World Index is an unmanaged index of companies representative of the market structure of 23 developed market countries in North America, Europe, and the Asia/Pacific Region. 12 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS FUND EXPENSE EXAMPLES (unaudited) As a shareholder of the Fund(s), you incur two types of costs: (1) transaction costs, including redemption fees; and (2) ongoing costs, including management fees, distribution fees and other Fund expenses. The examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund(s) and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the six-month period from March 1, 2010 through August 31, 2010, and held for the entire period. ACTUAL EXPENSES The first line of the accompanying tables provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the accompanying tables provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the accompanying tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees. Therefore, the second line of the accompanying tables is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
BEGINNING ACCOUNT ENDING ACCOUNT ANNUALIZED EXPENSES VALUE VALUE EXPENSE PAID DURING EXPENSE TABLE MARCH 1, 2010 AUGUST 31, 2010 RATIO PERIOD* ------------- ----------------- --------------- ---------- ----------- ROBECO BOSTON PARTNERS SMALL CAP VALUE FUND II INSTITUTIONAL Actual ................................................. $1,000.00 $ 918.30 1.30% $ 6.29 Hypothetical ........................................... 1,000.00 1,018.57 1.30% 6.64 INVESTOR Actual ................................................. $1,000.00 $ 917.10 1.55% $ 7.49 Hypothetical ........................................... 1,000.00 1,017.29 1.55% 7.91 ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND INSTITUTIONAL Actual ................................................. $1,000.00 $ 990.30 3.48%(1) $17.46 Hypothetical ........................................... 1,000.00 1,007.44 3.48%(1) 17.76 INVESTOR Actual ................................................. $1,000.00 $ 988.80 3.73%(1) $18.70 Hypothetical ........................................... 1,000.00 1,006.17 3.73%(1) 19.04 ROBECO BOSTON PARTNERS ALL-CAP VALUE FUND INSTITUTIONAL Actual ................................................. $1,000.00 $ 944.10 0.70% $ 3.43 Hypothetical ........................................... 1,000.00 1,021.63 0.70% 3.57 INVESTOR Actual ................................................. $1,000.00 $ 942.50 0.95% $ 4.65 Hypothetical ........................................... 1,000.00 1,020.36 0.95% 4.85
ANNUAL REPORT 2010 | 13 ROBECO INVESTMENT FUNDS FUND EXPENSE EXAMPLES (unaudited) (concluded)
BEGINNING ACCOUNT ENDING ACCOUNT ANNUALIZED EXPENSES VALUE VALUE EXPENSE PAID DURING MARCH 1, 2010 AUGUST 31, 2010 RATIO PERIOD* ----------------- --------------- ---------- ----------- ROBECO BOSTON PARTNERS WPG SMALL CAP VALUE FUND INSTITUTIONAL Actual ................................................. $1,000.00 $1,009.50 1.69% $8.56 Hypothetical ........................................... 1,000.00 1,016.58 1.69% 8.63 SAM SUSTAINABLE GLOBAL ACTIVE FUND INSTITUTIONAL Actual ................................................. $1,000.00 $ 972.60 1.20% $5.97 Hypothetical ........................................... 1,000.00 1,019.08 1.20% 6.13 INVESTOR Actual ................................................. $1,000.00 $ 970.80 1.45% $7.20 Hypothetical ........................................... 1,000.00 1,017.80 1.45% 7.40
* Expenses are equal to the Fund's annualized six-month expense ratios in the table below, which include waived fees or reimbursed expenses, multiplied by the average account value over the period, multiplied by the number of days (184) in the most recent fiscal half-year, then divided by 365 to reflect the one-half year period. (1) These amounts include dividends paid on securities which the Fund has sold short ("short-sale dividends") and related interest expense. The annualized amount of short-sale dividends and related interest expense was 0.98% of average net assets for the most recent fiscal half-year. 14 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 PORTFOLIO HOLDINGS SUMMARY TABLES ROBECO BOSTON PARTNERS SMALL CAP VALUE FUND II
% of Net Security Type/Sector Classification Assets Value ---------------------------------------------------- --------- ------------- COMMON STOCK Finance ......................................... 22.1% $ 19,193,257 Consumer Services ............................... 20.9 18,140,719 Health Care ..................................... 12.7 11,031,886 Capital Goods ................................... 9.6 8,369,104 Real Estate Investment Trusts ................... 6.9 6,028,121 Technology ...................................... 6.7 5,838,824 Consumer Non-Durables ........................... 6.6 5,740,812 Basic Industries ................................ 4.0 3,467,803 Energy .......................................... 2.6 2,266,240 Transportation .................................. 2.2 1,925,544 Utilities ....................................... 0.9 768,425 Consumer Durables ............................... 0.7 630,470 Communications .................................. 0.7 628,678 SECURITIES LENDING COLLATERAL ...................... 25.4 22,097,610 LIABILITIES IN EXCESS OF OTHER ASSETS .............. (22.0) (19,130,526) ----- ------------- NET ASSETS ......................................... 100.0% $ 86,996,967 ===== =============
Portfolio holdings are subject to change at any time. ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND
% of Net Security Type/Sector Classification Assets Value ---------------------------------------------------- --------- ------------- COMMON STOCK Finance ......................................... 21.6% $ 53,181,594 Technology ...................................... 20.6 50,839,616 Consumer Services ............................... 15.0 36,996,014 Capital Goods ................................... 10.9 26,936,552 Health Care ..................................... 9.1 22,375,517 Consumer Non-Durables ........................... 6.0 14,861,311 Consumer Durables ............................... 4.6 11,337,977 Basic Industries ................................ 3.9 9,588,819 Communications .................................. 1.9 4,609,203 Transportation .................................. 1.7 4,228,858 Energy .......................................... 1.6 3,909,116 Real Estate Investment Trusts ................... 0.3 806,357 PREFERRED STOCK .................................... 1.2 3,000,093 SECURITIES LENDING COLLATERAL ...................... 6.8 16,667,599 WARRANTS ........................................... 0.0 -- SECURITIES SOLD SHORT .............................. (22.8) (56,167,231) OTHER ASSETS IN EXCESS OF LIABILITIES .............. 17.6 43,354,240 ----- ------------- NET ASSETS ......................................... 100.0% $ 246,525,635 ===== =============
Portfolio holdings are subject to change at any time. ROBECO BOSTON PARTNERS ALL-CAP VALUE FUND
% of Net Security Type/Sector Classification Assets Value ---------------------------------------------------- --------- ------------- COMMON STOCK Finance ......................................... 28.8% $ 36,164,003 Consumer Services ............................... 17.6 22,017,756 Technology ...................................... 16.4 20,586,817 Health Care ..................................... 13.3 16,727,457 Energy .......................................... 9.0 11,337,999 Consumer Non-Durables ........................... 5.5 6,900,424 Capital Goods ................................... 3.7 4,610,463 Communications .................................. 2.6 3,282,951 Consumer Durables ............................... 0.9 1,083,891 Real Estate Investment Trusts ................... 0.8 945,626 Utilities ....................................... 0.4 552,362 PREFERRED STOCK .................................... 0.1 71,645 CORPORATE BONDS .................................... 0.1 67,950 SECURITIES LENDING COLLATERAL ...................... 15.1 19,033,543 WRITTEN OPTIONS .................................... (0.7) (864,137) LIABILITIES IN EXCESS OF OTHER ASSETS .............. (13.6) (17,065,584) ----- ------------- NET ASSETS ......................................... 100.0% $ 125,453,166 ===== =============
Portfolio holdings are subject to change at any time. ROBECO WPG SMALL CAP VALUE FUND
% of Net Security Type/Sector Classification Assets Value ---------------------------------------------------- --------- ------------- COMMON STOCK Finance ......................................... 26.2% $ 8,492,070 Consumer Services ............................... 16.3 5,298,003 Capital Goods ................................... 10.0 3,238,149 Health Care ..................................... 8.2 2,652,978 Transportation .................................. 6.9 2,230,794 Real Estate Investment Trusts ................... 6.6 2,136,997 Consumer Non-Durables ........................... 6.3 2,047,114 Technology ...................................... 6.0 1,930,594 Utilities ....................................... 5.6 1,818,318 Energy .......................................... 3.1 994,710 Communications .................................. 1.5 501,030 Basic Industries ................................ 1.5 474,962 Consumer Durables ............................... 1.3 424,974 PREFERRED STOCK Energy .......................................... 0.2 74,710 SECURITIES LENDING COLLATERAL ...................... 30.2 9,762,890 LIABILITIES IN EXCESS OF OTHER ASSETS .............. (29.9) (9,684,747) ----- ------------- NET ASSETS ......................................... 100.0% $ 32,393,546 ===== =============
Portfolio holdings are subject to change at any time. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 15 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 PORTFOLIO HOLDINGS SUMMARY TABLES SAM SUSTAINABLE GLOBAL ACTIVE FUND
% of Net Security Type/Sector Classification Assets Value ---------------------------------------------------- --------- ------------- COMMON STOCK Financials ...................................... 18.7% $ 3,129,330 Consumer Staples ................................ 12.6 2,114,129 Health Care ..................................... 11.9 1,997,322 Energy .......................................... 10.4 1,737,802 Industrial ...................................... 9.9 1,664,172 Information Technology .......................... 8.8 1,476,401 Materials ....................................... 7.9 1,317,446 Consumer Discretionary .......................... 7.4 1,250,188 Telecommunciation Services ...................... 6.4 1,080,926 Utilities ....................................... 4.2 698,815 SECURITIES LENDING COLLATERAL ................... 5.1 846,682 LIABILITIES IN EXCESS OF OTHER ASSETS ........... (3.3) (547,841) ----- ------------- NET ASSETS ......................................... 100.0% $ 16,765,372 ===== =============
Portfolio holdings are subject to change at any time.
% of Net Country Diversification Assets Value ---------------------------------------------------- --------- ------------- United States ................................... 45.2% $ 7,580,451 United Kingdom .................................. 12.5 2,094,715 Canada .......................................... 9.8 1,645,962 Japan ........................................... 7.9 1,318,243 Germany ......................................... 5.4 906,575 Spain ........................................... 4.1 695,286 Portugal ........................................ 3.2 529,383 Norway .......................................... 3.1 524,406 Sweden .......................................... 2.5 423,789 Australia ....................................... 2.2 363,026 Switzerland ..................................... 1.7 289,899 Italy ........................................... 0.6 94,796 SECURITIES LENDING COLLATERAL ................... 5.1 846,682 LIABILITIES IN EXCESS OF OTHER ASSETS ........... (3.3) (547,841) ----- ------------- NET ASSETS ......................................... 100.0% $ 16,765,372 ===== =============
Portfolio holdings are subject to change at any time. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 16 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO BOSTON PARTNERS SMALL CAP VALUE FUND II PORTFOLIO OF INVESTMENTS
Number of Shares Value --------- ------------- COMMON STOCK--96.6% BASIC INDUSTRIES--4.0% Graham Packaging Co., Inc. *..................... 112,815 $ 1,261,272 International Coal Group, Inc. * (a)............. 92,920 424,644 Schweitzer-Mauduit International, Inc.(a)........ 13,690 737,070 Sensient Technologies Corp....................... 14,525 402,778 Spartech Corp. * (a)............................. 43,010 384,079 USEC, Inc. * (a)................................. 54,885 257,960 ------------- 3,467,803 ------------- CAPITAL GOODS--9.6% Actuant Corp., Class A........................... 26,830 531,771 Acuity Brands, Inc............................... 17,795 689,378 Beacon Roofing Supply, Inc. *.................... 67,860 945,290 Brady Corp., Class A............................. 10,548 271,716 Drew Industries, Inc. * (a)...................... 20,940 400,582 Globe Specialty Metals, Inc. *................... 59,255 647,657 Granite Construction, Inc.(a).................... 19,970 439,540 Griffon Corp. *.................................. 76,410 816,823 Hillenbrand, Inc.(a)............................. 28,980 551,489 Insituform Technologies, Inc., Class A *......... 5,450 110,962 LSI Industries, Inc.............................. 20,210 104,082 Mueller Industries, Inc.......................... 10,540 248,533 Mueller Water Products, Inc., Class A............ 92,090 218,253 Olin Corp........................................ 16,470 294,978 Rofin-Sinar Technologies, Inc. *................. 6,210 126,684 RTI International Metals, Inc. *................. 23,395 645,702 Tutor Perini Corp. *............................. 35,380 699,109 WESCO International, Inc. * (a).................. 19,410 626,555 ------------- 8,369,104 ------------- COMMUNICATIONS--0.7% EarthLink, Inc.(a)............................... 48,210 412,678 Neutral Tandem, Inc. * (a)....................... 19,115 216,000 ------------- 628,678 ------------- CONSUMER DURABLES--0.7% Tempur-Pedic International, Inc. *............... 23,525 630,470 ------------- CONSUMER NON-DURABLES--6.6% Alliance One International, Inc. * (a)........... 81,710 285,985 Brown Shoe Co., Inc.............................. 37,562 395,152 Callaway Golf Co.(a)............................. 80,430 502,687 Dole Food Co., Inc. * (a)........................ 90,035 777,902 Fresh Del Monte Produce, Inc. *.................. 23,500 516,295 Matthews International Corp., Class A............ 10,035 316,002 Nu Skin Enterprises, Inc., Class A(a)............ 25,420 649,989 RC2 Corp. *...................................... 43,825 806,818 Skechers U.S.A., Inc., Class A * (a)............. 12,090 307,932 Steven Madden Ltd. * (a)......................... 15,492 533,390 Take-Two Interactive Software, Inc. * (a) 19,095 158,870 Universal Corp.(a) 13,735 489,790 ------------- 5,740,812 ------------- CONSUMER SERVICES--20.9% ABM Industries, Inc.............................. 20,350 399,063 Asbury Automative Group, Inc. *.................. 50,135 598,111
Number of Shares Value --------- ------------- CONSUMER SERVICES--(CONTINUED) Asset Acceptance Capital Corp. * (a)............. 25,845 $ 98,986 BJ's Wholesale Club, Inc. *...................... 20,480 859,341 Bowne & Co., Inc. (a)............................ 124,555 1,378,824 Brink's Co., (The)............................... 49,115 926,800 Charming Shoppes, Inc. * (a)..................... 134,425 453,012 Dress Barn, Inc., (The) * (a).................... 39,680 827,328 Ennis, Inc....................................... 20,165 310,339 Finish Line, Inc., (The), Class A (a)............ 71,610 945,252 Franklin Covey Co. *............................. 38,245 233,295 G&K Services, Inc., Class A...................... 17,022 341,972 Geo Group, Inc., (The) * (a)..................... 19,640 434,044 Group 1 Automotive, Inc. * (a)................... 16,935 427,439 Gymboree Corp., (The) * (a)...................... 6,835 257,201 Heidrick & Struggles International, Inc.......... 36,670 636,958 International Speedway Corp., Class A............ 37,818 865,654 KAR Auction Services, Inc. *..................... 49,320 597,265 Knoll, Inc....................................... 56,323 755,855 Knot, Inc., (The) *.............................. 40,280 284,377 Live Nation Entertainment, Inc. * (a)............ 67,855 586,267 MAXIMUS, Inc..................................... 14,775 793,565 Men's Wearhouse, Inc., (The)..................... 23,965 462,045 Navigant Consulting, Inc. *...................... 57,750 571,725 Regis Corp....................................... 37,470 628,372 Rent-A-Center, Inc. (a).......................... 29,315 588,645 Service Corp. International...................... 57,205 439,906 SFN Group, Inc. *................................ 103,975 565,624 Steiner Leisure Ltd. *........................... 7,460 265,651 Steinway Musical Instruments *................... 17,925 277,300 Weight Watchers International, Inc. (a).......... 11,295 322,133 World Fuel Services Corp. (a).................... 39,482 1,008,370 ------------- 18,140,719 ------------- ENERGY--2.6% Approach Resources, Inc. *....................... 26,095 227,026 Bristow Group, Inc. *............................ 37,365 1,233,045 Helix Energy Solutions Group, Inc. *............. 31,145 283,420 Petroleum Development Corp. *.................... 6,910 185,879 Rosetta Resources, Inc. * (a).................... 17,100 336,870 ------------- 2,266,240 ------------- FINANCE--22.1% Alterra Capital Holdings Ltd..................... 29,115 539,792 Ameris Bancorp * (a)............................. 22,273 174,620 AMERISAFE, Inc. *................................ 17,435 306,333 Apollo Investment Corp........................... 53,655 513,478 Centerstate Banks, Inc........................... 51,625 445,007 Citizens Republic Bancorp, Inc. * (a)............ 436,730 340,649 CNA Surety Corp. *............................... 13,525 226,679 Columbia Banking System, Inc. (a)................ 26,685 475,260 Cowen Group, Inc., Class A * (a)................. 25,905 88,854 Cypress Sharpridge Investments, Inc.............. 54,660 736,270 FBR Capital Markets Corp. *...................... 115,340 394,463 Fifth Street Finance Corp........................ 87,245 860,236 First American Financial Corp. (a)............... 31,865 472,558 First Citizens Bancshares, Inc., Class A......... 3,160 530,785
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 17 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO BOSTON PARTNERS SMALL CAP VALUE FUND II (continued) PORTFOLIO OF INVESTMENTS
Number of Shares Value --------- ------------- FINANCE--(CONTINUED) First Financial Bancorp (a)...................... 28,550 $ 455,373 Flagstone Reinsurance Holdings S.A............... 22,390 225,467 Gladstone Capital Corp. (a)...................... 14,790 154,260 Global Indemnity PLC *........................... 13,448 222,161 Heritage Financial Corp. *....................... 7,075 89,853 Horace Mann Educators Corp....................... 24,125 395,650 Infinity Property & Casualty Corp................ 10,545 488,761 JMP Group, Inc................................... 63,475 363,712 Knight Capital Group, Inc., Class A * (a)........ 90,295 1,072,705 Maiden Holdings Ltd.............................. 123,745 907,051 MGIC Investment Corp. * (a)...................... 81,215 586,372 Nara Bancorp, Inc. *............................. 86,660 517,360 Navigators Group, Inc., (The) *.................. 8,405 351,581 Nelnet, Inc., Class A............................ 68,311 1,496,694 Park Sterling Bank *............................. 41,315 249,956 PHH Corp. * (a).................................. 50,630 937,161 Platinum Underwriters Holdings Ltd............... 28,155 1,132,113 ProAssurance Corp. *............................. 3,970 210,212 Safety Insurance Group, Inc...................... 9,535 388,551 State Auto Financial Corp........................ 12,110 169,298 Student Loan Corp., (The)........................ 17,895 333,742 SVB Financial Group * (a)........................ 10,195 378,948 Symetra Financial Corp........................... 73,240 786,598 TradeStation Group, Inc. *....................... 53,395 313,429 United Rentals, Inc. * (a)....................... 12,565 141,356 Washington Federal, Inc.......................... 27,040 385,861 Wilmington Trust Corp. (a)....................... 37,960 334,048 ------------- 19,193,257 ------------- HEALTH CARE--12.7% Addus HomeCare Corp. *.......................... 48,256 252,379 AmSurg Corp. *.................................. 19,950 332,566 Centene Corp. * (a)............................. 17,030 344,347 Conmed Corp. *.................................. 23,750 439,613 Haemonetics Corp. *............................. 16,165 841,873 Hanger Orthopedic Group, Inc. *................. 28,720 374,796 Invacare Corp. (a).............................. 14,135 323,692 Kindred Healthcare, Inc. *...................... 41,925 492,619 LHC Group, Inc. * (a)........................... 16,290 325,963 LifePoint Hospitals, Inc. *..................... 22,090 671,978 Owens & Minor, Inc.............................. 15,842 422,348 PharMerica Corp. *.............................. 18,640 144,646 PSS World Medical, Inc. * (a)................... 23,480 431,093 Psychiatric Solutions, Inc. *................... 29,955 998,999 RehabCare Group, Inc. * (a)..................... 37,330 618,185 Res-Care, Inc. *................................ 32,910 408,084 Select Medical Holdings Corp. * (a)............. 84,360 603,174 Skilled Healthcare Group, Inc., Class A *....... 182,480 613,133 Symmetry Medical, Inc. *........................ 112,720 1,013,353 U.S. Physical Therapy, Inc. *................... 86,029 1,379,045 ------------- 11,031,886 ------------- REAL ESTATE INVESTMENT TRUSTS--6.9% Anworth Mortgage Asset Corp. (a)................ 239,882 1,633,596 Capstead Mortgage Corp.......................... 29,400 341,628 Chatham Lodging Trust *......................... 48,820 794,301 Colony Financial, Inc........................... 21,080 373,538
Number of Shares Value --------- ------------- REAL ESTATE INVESTMENT TRUSTS--(CONTINUED) Gladstone Commercial Corp....................... 17,050 $ 287,634 Hatteras Financial Corp. (a).................... 11,010 319,070 MFA Financial, Inc.............................. 162,485 1,197,514 Monmouth Real Estate Investment Corp., Class A............................... 66,655 476,583 Redwood Trust, Inc.............................. 43,755 604,257 ------------- 6,028,121 ------------- TECHNOLOGY--6.7% Bel Fuse, Inc., Class B......................... 15,095 279,710 Belden, Inc..................................... 38,105 834,499 CIBER, Inc. *................................... 82,670 226,516 Coherent, Inc. * (a)............................ 6,885 255,778 Electronics For Imaging, Inc. *................. 26,765 284,913 EnerSys *....................................... 49,090 1,083,416 Generac Holdings, Inc. *........................ 22,410 271,609 Heartland Payment Systems, Inc.................. 56,000 792,400 Imation Corp. * (a)............................. 28,930 247,641 Insight Enterprises, Inc. *..................... 18,465 242,630 Ness Technologies, Inc. *....................... 34,690 148,126 NETGEAR, Inc. *................................. 27,300 576,576 SYNNEX Corp. * (a).............................. 18,165 418,885 Verigy Ltd. *................................... 21,055 176,125 ------------- 5,838,824 ------------- TRANSPORTATION--2.2% AirTran Holdings, Inc. *........................ 56,995 257,047 Arkansas Best Corp. (a)......................... 17,885 368,789 UTI Worldwide, Inc.............................. 92,770 1,299,708 ------------- 1,925,544 ------------- UTILITIES--0.9% PNM Resources, Inc.............................. 67,170 768,425 ------------- TOTAL COMMON STOCK (Cost $85,045,593)........................ 84,029,883 ------------- SECURITIES LENDING COLLATERAL--25.4% Institutional Money Market Trust................ 22,097,610 22,097,610 ------------- TOTAL SECURITIES LENDING COLLATERAL (Cost $22,097,610)........................ 22,097,610 ------------- TOTAL INVESTMENTS--122.0% (Cost $107,143,203)............................. 106,127,493 ------------- LIABILITIES IN EXCESS OF OTHER ASSETS--(22.0)%........................... (19,130,526) ------------- NET ASSETS--100.0%................................. $ 86,996,967 =============
---------- * -- Non-income producing. (a) -- All or a portion of the security is on loan. See Notes to Portfolio of Investments. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 18 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO BOSTON PARTNERS SMALL CAP VALUE FUND II (concluded) PORTFOLIO OF INVESTMENTS A summary of the inputs used to value the Fund's investments as of August 31, 2010 is as follows (see note 1 in the Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AS OF QUOTED OBSERVABLE UNOBSERVABLE 08/31/10 PRICE INPUTS INPUTS ------------ ------------ ----------- ------------ Investments in securities * $106,127,493 $106,127,493 $-- $-- ------------ ------------ --- --- Total Assets $106,127,493 $106,127,493 $-- $-- ============ ============ === ===
* see Portfolio of Investments detail for industry and security type breakout. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 19 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND PORTFOLIO OF INVESTMENTS
Number of Shares Value --------- ------------- LONG POSITIONS--105.2% COMMON STOCK--97.2% BASIC INDUSTRIES--3.9% AEP Industries, Inc. * + ........................ 30,200 $ 714,230 Cytec Industries, Inc. + ........................ 36,675 1,739,495 Haynes International, Inc. * (a) + .............. 79,420 2,325,418 International Coal Group, Inc. * (a) ............ 461,990 2,111,294 Material Sciences Corp. * ....................... 222,612 870,413 Thompson Creek Metals Co., Inc. * + ............. 213,050 1,827,969 ------------- 9,588,819 ------------- CAPITAL GOODS--10.9% Chase Corp. + ................................... 111,910 1,421,257 Columbus McKinnon Corp. * ....................... 75,780 969,984 Ducommun, Inc. + ................................ 137,730 2,644,416 Dynamics Research Corp. * ....................... 110,160 1,082,873 Global Power Equipment Group, Inc. * (a) ........ 147,706 2,311,599 Griffon Corp. * + ............................... 134,836 1,441,397 Harsco Corp. .................................... 67,800 1,351,932 Hubbell, Inc., Class B + ........................ 40,298 1,812,604 Innovative Solutions and Support, Inc. * ........ 215,802 1,132,961 Mohawk Industries, Inc. * (a) + ................. 42,880 1,900,013 NCI Building Systems, Inc. * (a) ................ 244,585 2,152,348 NN, Inc. * ...................................... 317,091 2,346,473 Preformed Line Products Co. ..................... 43,942 1,441,737 Stanley Black & Decker, Inc. + .................. 40,995 2,198,972 Thermadyne Holdings Corp. * + ................... 175,065 1,930,967 Zagg, Inc. * (a) ................................ 231,020 797,019 ------------- 26,936,552 ------------- COMMUNICATIONS--1.9% SureWest Communications ......................... 370,965 2,281,435 Web.com Group, Inc. ............................. 532,670 2,327,768 ------------- 4,609,203 ------------- CONSUMER DURABLES--4.6% D.R. Horton, Inc. + ............................. 140,160 1,438,042 Dana Holding Corp. * (a) + ...................... 145,565 1,493,497 Hooker Furniture Corp. .......................... 73,937 691,311 Libbey, Inc. * (a) .............................. 154,005 1,727,936 LoJack Corp. * .................................. 252,995 839,943 Magna International, Inc., Class A * (a) + .............................. 27,805 2,162,395 Pulte Homes, Inc. * (a) + ....................... 151,100 1,213,333 Stanley Furniture Co., Inc. * ................... 103,177 395,168 Toll Brothers, Inc. * + ......................... 79,650 1,376,352 ------------- 11,337,977 ------------- CONSUMER NON-DURABLES--6.0% Brunswick Corp. (a) + ........................... 197,375 2,508,636 Coach, Inc. + ................................... 33,628 1,205,227 Coca-Cola Femsa S.A. de C.V. -Sponsored ADR + ... 28,470 2,137,243 Lorillard, Inc. + ............................... 22,420 1,704,144 Matthews International Corp., Class A + .................................... 51,520 1,622,365 Perry Ellis International, Inc. * + ............. 53,730 986,483 Steven Madden Ltd. * (a) ........................ 30,372 1,045,708
Number of Shares Value --------- ------------- CONSUMER NON-DURABLES--(CONTINUED) Timberland Co., (The), Class A * ................ 74,735 $ 1,200,991 VF Corp. + ...................................... 34,700 2,450,514 ------------- 14,861,311 ------------- CONSUMER SERVICES--15.0% AFC Enterprises, Inc. * + ....................... 160,291 1,723,128 Barrett Business Services, Inc. + ............... 103,380 1,367,717 Benihana, Inc., Class A * ....................... 222,945 1,437,995 Century Casinos, Inc. * ......................... 768,896 1,476,280 CRA International, Inc. * + ..................... 49,055 779,974 Dress Barn, Inc., (The) * + ..................... 49,075 1,023,214 Famous Dave's of America, Inc. * + .............. 153,196 1,269,995 Genesco, Inc. * + ............................... 75,150 1,896,786 Hackett Group, Inc. (The) * ..................... 464,119 1,837,911 Harte-Hanks, Inc. + ............................. 77,935 797,275 Heidrick & Struggles International, Inc. ........ 86,185 1,497,033 Hudson Highland Group, Inc. * ................... 518,350 1,555,050 Industrial Services of America, Inc. * + ........ 53,047 697,568 LECG Corp. * .................................... 448,825 583,473 Lithia Motors, Inc., Class A (a) + .............. 401,955 3,070,936 Luby's, Inc. * (a) .............................. 173,985 852,527 MarineMax, Inc. * (a) + ......................... 241,076 1,581,459 Medifast, Inc. * ................................ 15,560 415,763 Multi-Color Corp. + ............................. 188,706 2,698,496 Saga Communications, Inc., Class A * ............ 73,467 1,285,673 Schawk, Inc. + .................................. 180,218 2,739,314 Stage Stores, Inc. .............................. 217,185 2,423,785 Steiner Leisure Ltd. * + ........................ 34,285 1,220,889 Viad Corp. + .................................... 72,040 1,141,834 Walgreen Co. .................................... 60,340 1,621,939 ------------- 36,996,014 ------------- ENERGY--1.6% Bristow Group, Inc. * ........................... 38,795 1,280,235 GulfMark Offshore, Inc., Class A * + ............ 47,680 1,285,453 Mitcham Industries, Inc. ........................ 104,795 672,784 Seahawk Drilling, Inc. * (a) .................... 93,145 670,644 ------------- 3,909,116 ------------- FINANCE--21.6% ACE Ltd. (a) + .................................. 34,745 1,857,815 Advance America Cash Advance Centers, Inc. ....... 172,395 577,523 Alterra Capital Holdings Ltd. + ................. 47,965 889,271 Aon Corp. ....................................... 39,930 1,447,063 Banco Santander SA-Sponsored ADR + .............. 127,010 1,484,747 Bank of America Corp. ........................... 91,905 1,144,217 BankFinancial Corp. ............................. 51,996 467,964 Beacon Federal Bancorp, Inc. .................... 37,425 382,858 Brown & Brown, Inc. + ........................... 78,595 1,496,449 Capital One Financial Corp. + ................... 48,260 1,827,124 CapitalSource, Inc. ............................. 350,295 1,768,990 Citigroup, Inc. * ............................... 660,845 2,458,343 ESSA Bancorp, Inc. * (a) ........................ 46,105 515,454 FBR Capital Markets Corp. ....................... 320,995 1,097,803
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 20 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND (continued) PORTFOLIO OF INVESTMENTS
Number of Shares Value --------- ------------- FINANCE--(CONTINUED) Fidelity National Financial, Inc., Class A + .... 88,010 $ 1,277,025 First American Financial Corp. + ................ 51,120 758,110 First California Financial Group, Inc. * ........ 228,765 617,665 First Place Financial Corp. * ................... 39,105 142,342 First Southern Bancorp, Inc., Class B 144A * +++.................................... 64,350 657,657 Fox Chase Bancorp, Inc. * ....................... 57,781 548,920 Goldman Sachs Group, Inc., (The) ................ 13,558 1,856,633 HF Financial Corp. .............................. 18,363 176,285 Hudson City Bancorp, Inc. ....................... 104,130 1,200,098 Investors Title Co. + ........................... 6,324 183,396 JPMorgan Chase & Co. + .......................... 146,111 5,312,596 KKR Financial Holdings LLC + .................... 152,470 1,186,217 Loews Corp. + ................................... 62,395 2,192,560 Maiden Holdings Ltd. + .......................... 529,762 3,883,155 Morgan Stanley + ................................ 48,583 1,199,514 NBH Holdings Corp., Class A 144A * +++........... 79,735 1,578,753 New Hampshire Thrift Bancshares, Inc. ........... 13,670 138,067 Nicholas Financial, Inc. (a) .................... 136,017 1,134,382 Oriental Financial Group, Inc. (a) + ............ 189,865 2,515,711 SLM Corp. * + ................................... 140,110 1,548,216 Stewart Information Services Corp. (a) ...... ... 94,275 983,288 Teche Holding Co. ............................... 6,695 200,850 TradeStation Group, Inc. * + .................... 171,615 1,007,380 United Bancshares, Inc. ......................... 5,026 46,088 Validus Holdings, Ltd. + ........................ 71,857 1,830,198 WESCO Financial Corp. + ......................... 2,390 866,471 West Coast Bancorp * ............................ 307,340 725,322 White Mountains Insurance Group Ltd. + .......... 6,585 1,999,074 ------------- 53,181,594 ------------- HEALTH CARE--9.1% Accelrys, Inc. * ................................ 221,689 1,343,435 Alpha PRO Tech Ltd. * (a) ....................... 664,605 1,016,846 AmSurg Corp. * + ................................ 67,880 1,131,560 Anika Therapeutics, Inc. * ...................... 231,960 1,148,202 BioClinica, Inc. * .............................. 280,261 944,479 Cooper Cos., Inc., (The) (a) + .................. 50,615 2,041,809 Hooper Holmes, Inc. * ........................... 671,908 369,549 Kendle International, Inc. * + .................. 100,462 786,617 Lincare Holdings, Inc. * (a) + .................. 59,294 1,364,948 Merck & Co., Inc. + ............................. 66,923 2,353,013 NovaMed, Inc. * (a) ............................. 281,063 2,462,112 Pfizer, Inc. + .................................. 161,640 2,574,925 Res-Care, Inc. * ................................ 124,265 1,540,886 Synergetics USA, Inc. * ......................... 610,406 1,715,241 Theragenics Corp. * ............................. 413,205 462,790 Varian Medical Systems, Inc. * (a) + ............ 21,020 1,119,105 ------------- 22,375,517 ------------- REAL ESTATE INVESTMENT TRUSTS--0.3% Reis, Inc. * .................................... 123,108 806,357 -------------
Number of Shares Value --------- ------------- TECNOLOGY--20.6% ADPT Corp. * .................................... 632,925 $ 1,822,824 Amdocs Ltd. * + ................................. 86,775 2,276,108 Avnet, Inc. * + ................................. 106,795 2,445,605 Coleman Cable, Inc. * (a) ....................... 320,599 1,705,587 Compuware Corp. * + ............................. 280,630 2,014,923 Concurrent Computer Corp. * ..................... 279,392 1,447,250 CoreLogic, Inc. + ............................... 51,120 882,842 Digi International, Inc. * + .................... 144,652 1,096,462 Entegris, Inc. * ................................ 617,130 2,375,950 Hewlett-Packard Co. + ........................... 92,908 3,575,100 Hurco Cos., Inc. * .............................. 69,170 1,081,127 Microsoft Corp. ................................. 133,770 3,140,920 MIPS Technologies, Inc. * + ..................... 594,205 3,915,811 MRV Communications, Inc. * ...................... 1,155,935 1,364,003 NumereX Corp., Class A * ........................ 181,090 995,995 Oracle Corp. + .................................. 103,999 2,275,498 Photronics, Inc. * (a) .......................... 549,505 2,362,872 Richardson Electronics Ltd. + ................... 219,386 1,930,597 Rimage Corp. * .................................. 132,599 2,028,765 Salary.com, Inc. * .............................. 453,900 1,289,076 SL Industries, Inc. * ........................... 57,710 724,261 Sykes Enterprises, Inc. * + ..................... 121,880 1,457,685 Technitrol, Inc. ................................ 293,728 1,089,731 Telular Corp. * + ............................... 589,499 1,756,707 Tier Technologies, Inc., Class B * + ............ 249,920 1,212,112 Tyco Electronics Ltd. + ......................... 57,735 1,415,662 Virtusa Corp. * + ............................... 206,668 1,822,812 Vishay Intertechnology, Inc. * (a) .............. 173,385 1,333,331 ------------- 50,839,616 ------------- TRANSPORTATION--1.7% American Commercial Lines, Inc. * (a) ........... 84,185 2,363,073 FedEx Corp. + ................................... 23,905 1,865,785 ------------- 4,228,858 ------------- COMMON STOCK (Cost $250,489,955) ....................... 239,670,934 ------------- PREFERRED STOCK--1.2% FINANCE--1.2% Bank of America Corp. Capital Trust IV Pfd. 5.875% ....................................... 17,410 397,470 Bank of America Corp. Pfd. 6.375% ............... 81,885 1,817,847 Citigroup Capital XVI Pfd. 6.450% ............... 13,955 320,965 First Southern Bancorp, Inc. 5.000% 144A +++..... 110 262,698 SLM Corp. Pfd. 6.970% ........................... 5,170 201,113 ------------- TOTAL PREFERRED STOCK (Cost $2,410,912) ......................... 3,000,093 ------------- SECURITIES LENDING COLLATERAL--6.8% Institutional Money Market Trust ................ 16,667,599 16,667,599 ------------- TOTAL SECURITIES LENDING COLLATERAL (Cost $16,667,599) ........................ 16,667,599 ------------- TOTAL LONG POSITIONS--105.2% (Cost $269,568,466) ............................. 259,338,626 -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 21 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND (continued) PORTFOLIO OF INVESTMENTS
Number of Shares Value --------- ------------- SECURITIES SOLD SHORT--(22.8%) COMMON STOCK BASIC INDUSTRIES--(0.9%) Beard Co. * ..................................... (9,710) $ (10,195) China Green Agriculture, Inc. * ................. (20,615) (197,904) Ethanex Energy, Inc. * .......................... (648) (45) NewMarket Corp. ................................. (14,155) (1,423,002) Seabridge Gold, Inc. * .......................... (18,890) (567,456) ------------ (2,198,602) ------------ CAPITAL GOODS--(1.6%) Applied Energetics, Inc. * ...................... (238,070) (271,400) Applied Nanotech Holdings, Inc. * ............... (8,285) (2,320) DynaMotive Energy Systems Corp. * ............... (72,185) (7,796) FLIR Systems, Inc. * ............................ (21,870) (549,374) PMFG, Inc. * .................................... (49,985) (805,258) SulphCo, Inc. * ................................. (34,495) (15,298) Trex Co., Inc. * ................................ (107,565) (2,156,678) ------------ (3,808,124) ------------ COMMUNICATIONS--(3.4%) Akamai Technologies, Inc. * ..................... (45,465) (2,094,572) CTC Communications Group, Inc. * +++.................................... (98,900) (10) Equinix, Inc. * ................................. (8,610) (785,318) GSI Commerce, Inc. * ............................ (75,990) (1,730,292) Interliant, Inc. * .............................. (600) 0 LogMeIn, Inc. * ................................. (42,355) (1,387,973) Rackspace Hosting, Inc. * ....................... (121,975) (2,401,688) ------------ (8,399,853) ------------ CONSUMER DURABLES--(0.3%) Kandi Technolgies Corp. * ....................... (32,850) (99,864) Middleby Corp., (The) * ......................... (12,885) (708,546) QSound Labs, Inc. * ............................. (4,440) (1,110) ------------ (809,520) ------------ CONSUMER NON-DURABLES--(0.5%) Amish Naturals, Inc. * .......................... (25,959) (208) Cal-Maine Foods, Inc. ........................... (29,535) (876,599) Smart Balance, Inc. * ........................... (101,780) (370,479) Valence Technology, Inc. * ...................... (27,585) (21,792) ------------ (1,269,078) ------------ CONSUMER SERVICES--(5.3%) Arbitron, Inc. .................................. (72,420) (1,842,365) EnerNOC, Inc. * ................................. (14,125) (460,192) Industrial Services of America, Inc. * .......... (79,657) (1,047,490) Internet Brands Inc., Class A * ................. (82,240) (851,184) Lululemon Athletica, Inc. * ..................... (19,585) (646,697) Medifast, Inc. * ................................ (47,155) (1,259,982) Netflix, Inc. * ................................. (16,165) (2,029,031) New Oriental Education & Technology Group- Sponsored ADR * .............................. (8,205) (808,931) PokerTek, Inc. * ................................ (6,110) (3,605) Ritchie Bros. Auctioneers, Inc. ................. (80,985) (1,476,357) Sharps Compliance Corp. * ....................... (51,085) (231,926) Spectrum Group International, Inc. * ............ (4,616) (9,463)
Number of Shares Value --------- ------------- CONSUMER SERVICES--(CONTINUED) Sturm Ruger & Co., Inc. ......................... (126,640) $ (1,629,857) VistaPrint NV * ................................. (24,545) (753,041) ------------ (13,050,121) ------------ ENERGY--(0.4%) Houston American Energy Corp. ................... (40,645) (365,805) InterOil Corp. * + .............................. (11,445) (672,394) ------------ (1,038,199) ------------ FINANCE--(0.3%) China Logistics, Inc. * ......................... (26) 0 Value Line, Inc. ................................ (45,954) (607,512) ------------ (607,512) ------------ HEALTH CARE--(2.6%) Bodytel Scientific, Inc. * ...................... (4,840) (25) Conceptus, Inc. * ............................... (48,575) (671,064) DexCom, Inc. * .................................. (115,655) (1,416,774) HeartWare International, Inc. * ................. (12,740) (825,042) IDEXX Laboratories, Inc. * ...................... (12,125) (670,149) MAKO Surgical Corp. * ........................... (46,500) (485,460) Mindray Medical International Ltd.-ADR .......... (47,640) (1,286,280) Savient Pharmaceuticals, Inc. * ................. (40,755) (587,687) Spectranetics Corp. * ........................... (94,170) (457,666) ------------ (6,400,147) ------------ TECHNOLOGY--(7.1%) Acme Packet, Inc. * ............................. (68,010) (2,285,136) Advanced Micro Devices, Inc. * .................. (81,095) (455,754) Aixtron AG-Sponsored ADR ........................ (75,735) (1,868,382) American Superconductor Corp. * ................. (24,635) (662,435) ANSYS, Inc. * ................................... (17,505) (678,844) ANTS Software, Inc. * ........................... (10,334) (10,541) China Fire & Security Group, Inc. * ............. (76,420) (557,102) Cirrus Logic, Inc. * ............................ (44,200) (668,304) Comverge, Inc. * ................................ (69,785) (462,675) ConSyGen, Inc. * ................................ (200) 0 Cree, Inc. * .................................... (12,310) (659,077) Ener1, Inc. * ................................... (100,020) (317,063) EZchip Semiconductor Ltd. * ..................... (45,760) (1,001,686) First Solar, Inc. * ............................. (7,440) (951,204) Microvision, Inc. * ............................. (147,395) (383,227) Nestor, Inc. * .................................. (15,200) (19) OmniVision Technologies, Inc. * ................. (34,205) (701,202) Salesforce.com, Inc. * .......................... (10,155) (1,115,831) Solarwinds, Inc. * .............................. (56,755) (818,407) Sonic Solutions * ............................... (63,580) (511,819) SuccessFactors, Inc. * .......................... (59,950) (1,264,945) Tiger Telematics, Inc. * ........................ (6,510) (7) Tower Semiconductor Ltd. * ...................... (514,365) (709,824) VMware, Inc. Class A * .......................... (9,500) (746,415) Wave Systems Corp., Class A * ................... (267,400) (556,192) WorldGate Communications, Inc. * ................ (582,655) (233,062) Xybernaut Corp. * +++............................ (35,000) 0 ------------ (17,619,153) ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 22 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND (continued) PORTFOLIO OF INVESTMENTS
Number of Shares Value ---------- ------------- UTILITIES--(0.4%) Clean Energy Fuels Corp. * ..................... (66,915) $ (966,922) ------------- TOTAL COMMON STOCK (Proceeds $60,027,489) ................... (56,167,231) ------------- WARRANTS--0.0% UTILITIES--0.0% Greenhunter Energy, Inc. Exercise Price $27.50, Exp. 09/15/11 ................. (423) 0 ------------- TOTAL WARRANTS (Proceeds $0) ............................. 0 ------------- TOTAL SECURITIES SOLD SHORT--(22.8%) (Proceeds $60,027,489) ................... (56,167,231) ------------- OTHER ASSETS IN EXCESS OF LIABILITIES--17.6% ...... 43,354,240 ------------- NET ASSETS--100.0% ................................ $ 246,525,635 =============
ADR -- American Depositary Receipt 144A -- Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. As of August 31, 2010, these securities amounted to $2,499,108 or 1.0% of net assets. These 144A securities have not been deemed illiquid. * -- Non-income producing. (a) -- All or a portion of the security is on loan. See note 6 of the Notes to Financial Statements. + -- Security position is either entirely or partially held in a segregated account as collateral for securities sold short. +++ -- Security has been valued at fair market value as determined in good faith by or under the direction of The RBB Fund, Inc.'s Board of Directors. As of August 31, 2010, long positions amounted to $2,499,108 and short positions amounted to ($10), or 1.0% and 0.0%, respectively, of net assets. A summary of the inputs used to value the Fund's investments as of August 31, 2010 is as follows (see note 1 in the Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AS OF QUOTED OBSERVABLE UNOBSERVABLE 08/31/10 PRICE INPUTS INPUTS ------------ ------------ ----------- ------------ Common Stock Basic Industries $ 9,588,819 $ 9,588,819 $-- $ -- Capital Goods 26,936,552 26,936,552 -- -- Communications 4,609,203 4,609,203 -- -- Consumer Durables 11,337,977 11,337,977 -- -- Consumer Non-Durables 14,861,311 14,861,311 -- -- Consumer Services 36,996,014 36,996,014 -- -- Energy 3,909,116 3,909,116 -- -- Finance 53,181,594 50,945,184 -- 2,236,410 Health Care 22,375,517 22,375,517 -- -- Real Estate Investment Trusts 806,357 806,357 -- -- Technology 50,839,616 50,839,616 -- -- Transportation 4,228,858 4,228,858 -- -- Preferred Stocks 3,000,093 2,737,395 -- 262,698 Securities Lending Collateral 16,667,599 16,667,599 -- -- ------------ ------------ --- ---------- Total Assets $259,338,626 $256,839,518 $-- $2,499,108 ============ ============ === ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 23 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND (concluded) PORTFOLIO OF INVESTMENTS
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AS OF QUOTED OBSERVABLE UNOBSERVABLE 08/31/10 PRICE INPUTS INPUTS ------------ ------------ ----------- ------------ Securities Sold Short Basic Industries $ (2,198,602) $ (2,198,602) $-- $ -- Capital Goods (3,808,124) (3,808,124) -- -- Communications (8,399,853) (8,399,843) -- (10) Consumer Durables (809,520) (809,520) -- -- Consumer Non-Durables (1,269,078) (1,269,078) -- -- Consumer Services (13,050,121) (13,050,121) -- -- Energy (1,038,199) (1,038,199) -- -- Finance (607,512) (607,512) -- -- Health Care (6,400,147) (6,400,147) -- -- Technology (17,619,153) (17,619,153) -- -- Utilities (966,922) (966,922) -- -- ------------ ------------ --- ---- Total Liabilities $(56,167,231) $(56,167,221) $-- $(10) ============ ============ === ====
The following is a reconciliation of the Fund's Level 3 investments for which significant unobservable inputs were used to determine fair value.
COMMON PREFERRED STOCK STOCK TOTAL ---------- --------- INVESTMENTS FINANCE FINANCE ----------- ---------- --------- Balance as of August 31, 2009 $ -- $ -- $ -- Accrued discounts/premiums -- -- -- Net realized gain/(loss) -- -- -- Change in unrealized appreciation/(depreciation) (563,377) (716,075) 152,698 Net purchases/(sales) 3,062,485 2,952,485 110,000 Transfers in and/or out of Level 3* -- -- -- ---------- ---------- -------- Balance as of August 31, 2010 $2,499,108 $2,236,410 $262,698 ========== ========== ========
SECURITIES SOLD SHORT TOTAL --------------------------- INVESTMENTS COMMUNICATIONS TECHNOLOGY ----------- -------------- ---------- Balance as of August 31, 2009 $ -- $ -- $ -- Accrued discounts/premiums -- -- -- Net realized gain/(loss) -- -- -- Change in unrealized appreciation/(depreciation) 980 -- 980 Net purchases/(sales) -- -- -- Transfers in and/or out of Level 3* (990) (10) (980) ----- ---- ----- Balance as of August 31, 2010 $ (10) $(10) $ -- ===== ==== =====
* Transfers in and/or out of Level 3 are recognized as of the actual date of the event or change in circumstances that caused the transfer The transfer occurred because of lack of observable market data due to decrease in market activity for this security.The Fund presents unrealized appreciation/(depreciation) on the Statement of Operations as net change in unrealized appreciation/(depreciation) on investments.The change in unrealized appreciation/(depreciation) related to investments still held at August 31, 2010 was $(563,377). THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 24 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO BOSTON PARTNERS ALL-CAP VALUE FUND PORTFOLIO OF INVESTMENTS
Number of Shares Value ---------- ------------- COMMON STOCK--99.0% CAPITAL GOODS--3.7% Actuant Corp., Class A ......................... 29,735 $ 589,348 Dover Corp. .................................... 37,765 1,690,361 Illinois Tool Works, Inc. ...................... 13,155 542,775 Parker-Hannifin Corp. .......................... 17,982 1,063,815 Tyco International Ltd. (a) .................... 19,425 724,164 ------------- 4,610,463 ------------- COMMUNICATIONS--2.6% Monster Worldwide, Inc*(a) ..................... 47,885 528,172 Vodafone Group PLC - Sponsored ADR ............................... 113,928 2,754,779 ------------- 3,282,951 ------------- CONSUMER DURABLES--0.9% Lennar Corp., Class A# ......................... 82,300 1,083,891 ------------- CONSUMER NON-DURABLES--5.5% Del Monte Foods Co. ............................ 53,970 703,769 Electronic Arts, Inc.* ......................... 81,355 1,239,850 Jones Apparel Group, Inc.(a) ................... 40,185 618,045 Mattel, Inc. ................................... 60,320 1,266,117 Matthews International Corp., Class A ..................................... 10,525 331,432 Nestle S.A.- Sponsored ADR ..................... 13,735 708,039 Oxford Industries, Inc. ........................ 12,555 247,585 Philip Morris International, Inc ............... 27,180 1,398,139 Timberland Co., (The), Class A* ................ 24,110 387,448 ------------- 6,900,424 ------------- CONSUMER SERVICES--17.6% AutoZone, Inc.*(a) ............................. 3,050 639,829 Best Buy Co., Inc.(a) .......................... 36,575 1,148,089 CEC Entertainment, Inc.* ....................... 22,965 720,412 eBay, Inc.*(a) ................................. 76,435 1,776,349 Equifax, Inc. .................................. 35,940 1,059,152 Expedia, Inc.(a) ............................... 74,658 1,706,682 Family Dollar Stores, Inc.# .................... 26,095 1,116,605 GameStop Corp., Class A*(a) .................... 86,095 1,543,683 Harte-Hanks, Inc. (a) .......................... 59,610 609,810 Herbalife Ltd. ................................. 14,495 805,632 Hewitt Associates, Inc., Class A* .............. 18,675 901,442 HSN, Inc.*# .................................... 24,760 650,940 Interval Leisure Group, Inc* ................... 37,210 465,497 Manpower, Inc. ................................. 28,355 1,205,088 Omnicom Group, Inc. ............................ 41,770 1,462,368 Pantry, Inc. (The)* ............................ 18,885 355,416 Regis Corp. .................................... 72,320 1,212,806 Rent-A-Center, Inc.(a) ......................... 55,680 1,118,054 Towers Watson & Co., Class A(a) ................ 20,690 928,981 Viacom, Inc., Class B .......................... 22,750 714,805 Wal Mart Stores, Inc. .......................... 25,855 1,296,370 Wright Express Corp.* .......................... 18,055 579,746 ------------- 22,017,756 ------------- ENERGY--9.0% Apache Corp. ................................... 11,105 997,784 Chevron Corp. .................................. 39,615 2,937,848 EOG Resources, Inc.# ........................... 27,185 2,361,561 Noble Energy, Inc.#(a) ......................... 40,870 2,851,909 Occidental Petroleum Corp. ..................... 15,450 1,129,086
Number of Shares Value ---------- ------------- ENERGY--(CONTINUED) PetroBakken Energy Ltd., Class A ............... 27,900 $ 529,347 Pride International, Inc.* ..................... 22,525 530,464 ------------- 11,337,999 ------------- FINANCE--28.8% ACE Ltd. (a) .................................. 21,680 1,159,230 Alleghany Corp.* ............................... 4,771 1,420,088 American Express Co. ........................... 38,430 1,532,204 Bank of America Corp. .......................... 248,860 3,098,307 BB&T Corp. ..................................... 47,450 1,049,594 Bond Street Holdings LLC, Class A 144A* +++............................ 63,670 1,276,583 Capital One Financial Corp. (a) ............... 29,605 1,120,845 Citigroup, Inc.* # ............................. 561,670 2,089,412 Federated Investors, Inc., Class B (a) ......... 34,285 714,842 First American Financial Corp. (a) ............ 31,295 464,105 First Southern Bancorp, Inc., Class B 144A* ++ ............................ 17,550 179,361 Flagstone Reinsurance Holdings S.A. ............ 96,560 972,359 Goldman Sachs Group, Inc., (The)*# ..................................... 4,700 643,618 Hanover Insurance Group, Inc., (The) (a) ................................... 15,985 693,429 J.G.Wentworth, Inc 144A* ++ +/- (Triangle) .... -- 0 JPMorgan Chase & Co. ........................... 122,065 4,438,283 Loews Corp. .................................... 82,104 2,885,135 Maiden Holdings Ltd. ........................... 21,675 158,878 Morgan Stanley ................................. 42,450 1,048,091 NBH Holdings Corp., Class A 144A* +++ (Triangle) ................ 40,025 792,495 Peoples Choice Financial Corp. 144A* +++ (Triangle) ................. 1,465 0 SLM Corp.* ..................................... 143,360 1,584,128 Solar Capital Ltd. ............................. 7,171 140,838 State Street Corp. ............................. 34,945 1,225,871 THL Credit, Inc. ............................... 30,300 351,177 Travelers Companies., Inc., (The) .............. 41,315 2,023,609 Unum Group ..................................... 45,616 914,601 Validus Holdings, Ltd. ......................... 45,892 1,168,869 Wells Fargo & Co. .............................. 66,730 1,571,492 White Mountains Insurance Group Ltd. ........................................ 4,765 1,446,559 ------------- 36,164,003 ------------- HEALTH CARE--13.3% Amgen, Inc* .................................... 47,845 2,442,009 Becton, Dickinson & Co.(a) ..................... 16,690 1,138,091 Cardinal Health, Inc. .......................... 36,610 1,096,836 Humana, Inc* ................................... 22,025 1,052,575 Johnson & Johnson .............................. 41,725 2,379,160 McKesson Corp. ................................. 22,525 1,307,576 Medtronic, Inc. ................................ 35,815 1,127,456 Patterson Companies, Inc. ...................... 24,045 608,098 Pfizer, Inc. ................................... 259,361 4,131,621 UnitedHealth Group, Inc. ....................... 23,300 739,076 WellPoint, Inc.* ............................... 14,190 704,959 ------------- 16,727,457 -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 25 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO BOSTON PARTNERS ALL-CAP VALUE FUND (continued) PORTFOLIO OF INVESTMENTS
Number of Shares Value ---------- ------------- REAL ESTATE INVESTMENT TRUSTS--0.8% Ashford Hospitality Trust, Inc.*(a) ............ 60,680 $ 487,260 Colony Financial, Inc. ......................... 11,965 212,020 Terreno Realty Corp.* .......................... 14,215 246,346 TMST, Inc.*+++ ................................. 191,097 0 ------------- 945,626 ------------- TECHNOLOGY--16.4% Accenture PLC, Class A ......................... 39,270 1,437,282 Arrow Electronics, Inc.* ....................... 35,125 803,660 Avnet, Inc.* ................................... 35,370 809,973 BancTec, Inc., 144A*+++ ........................ 15,732 136,239 CA, Inc. ....................................... 69,650 1,254,397 CoreLogic, Inc. ................................ 19,980 345,055 Heartland Payment Systems, Inc. ................ 36,180 511,947 Hewlett-Packard Co. ............................ 50,830 1,955,938 Intel Corp. .................................... 48,075 851,889 International Business Machines Corp ........................................ 26,420 3,255,737 Micron Technology, Inc.*(a) .................... 95,345 616,405 Microsoft Corp. ................................ 107,215 2,517,408 Oracle Corp. ................................... 60,045 1,313,785 Symantec Corp.* ................................ 69,230 943,605 Tech Data Corp.*(a) ............................ 25,755 932,331 Texas Instruments, Inc.(a) ..................... 46,130 1,062,374 Tyco Electronics Ltd. .......................... 50,135 1,229,310 Western Union Co. (The) ........................ 38,870 609,482 ------------- 20,586,817 ------------- UTILITIES--0.4% Allegheny Energy, Inc. ......................... 24,495 552,362 ------------- TOTAL COMMON STOCK (Cost $128,463,488) ...................... 124,209,749 ------------- PREFERRED STOCK--0.1% FINANCE--0.1% First Southern Bancorp, Inc. 5.000% 144A +++ (Triangle) .................. 30 71,645 ------------- TOTAL PREFERRED STOCK (Cost $30,000) ........................... 71,645 ------------
Par (000) ---------- CORPORATE BONDS--0.1% MBIA Insurance Corp.144A+## 14.00% 01/15/33 ............................. $ 151 67,950 Thornburg Mortgage, Inc. (PIK)@+++ (Triangle) 18.00% 03/31/15 ............................. 74 0 Thornburg Mortgage, Inc. 144A@+++ (Triangle) 18.00% 03/31/15 ............................. 824 0 ------------- TOTAL CORPORATE BONDS (Cost $981,298) .......................... 67,950 -------------
Number of Shares Value ---------- ------------- SECURITIES LENDING COLLATERAL--15.1% Institutional Money Market Trust ............... 19,033,543 $ 19,033,543 ------------- TOTAL SECURITIES LENDING COLLATERAL (Cost $19,033,543) ....................... 19,033,543 ------------- TOTAL INVESTMENTS--114.3% (Cost $148,508,329) ............................ 143,382,887 -------------
Number of Contracts ---------- OPTIONS WRITTEN~ --(0.7%) Citigroup, Inc Call Options Expires 01/22/11 Strike Price $5 ............ (2,714) (18,998) Citigroup, Inc Call Options Expires 01/21/12 Strike Price $4 ............ (1,640) (111,520) EOG Resources, Inc Call Options Expires 10/16/10 Strike Price $125 ........................... (49) (539) EOG Resources, Inc Call Options Expires 10/16/10 Strike Price $110 ........................... (45) (1,170) Family Dollar Stores, Inc. Call Options Expires 10/16/10 Strike Price $40 ............................ (260) (103,480) Goldman Sachs Group, Inc., (The) Call Options Expires 01/22/11 Strike Price $135 ........................... (47) (61,805) HSN, Inc Call Options Expires 09/18/10 Strike Price $35 ........... (161) (1,208) Lennar Corp., Class A Call Options Expires 01/21/12 Strike Price $10 ........... (823) (397,097) Noble Energy, Inc Call Options Expires 02/19/11 Strike Price $70 ........... (263) (168,320) ------------- TOTAL OPTIONS WRITTEN (Premiums received $1,000,610) ........... (864,137) ------------- LIABILITIES IN EXCESS OF OTHER ASSETS--(13.6)% .......................... (17,065,584) ------------- NET ASSETS--100.0% ................................ $ 125,453,166 =============
144A -- Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. As of August 31, 2010, these securities amounted to $2,524,273 or 2.0% of net assets. Not all 144A securities have been deemed illiquid See Note 7 of the Notes to Financial Statements for additional information related to 144A securities that have been deemed illiquid. ADR -- American Depositary Receipt PIK -- Payment In Kind * -- Non-income producing. @ -- Security in default. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 26 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO BOSTON PARTNERS ALL-CAP VALUE FUND (concluded) PORTFOLIO OF INVESTMENTS +++ -- Security has been valued at fair market value as determined in good faith by or under the direction of The RBB Fund, Inc.'s Board of Directors. As of August 31, 2010, these securities amounted to $2,456,323 or 2.0% of net assets. +/- -- Total shares owned by the Fund as of August 31, 2010 were less than one share. + -- Adjustable rate security. # -- Security segregated as collateral for options written. ## -- Callable security. (a) -- All or a portion of the security is on loan. See Note 6 of the Notes to Financial Statements. (Triangle) -- 0.7% of the Fund's net assets were reported illiquid by the portfolio manager under the Funds' policy. ~ -- Primary risk exposure is equity contracts. A summary of the inputs used to value the Fund's investments as of August 31, 2010 is as follows (see note 1 in the Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AS OF QUOTED OBSERVABLE UNOBSERVABLE 08/31/10 PRICE INPUTS INPUTS ------------ ------------ ----------- ------------ Common Stock Capital Goods $ 4,610,463 $ 4,610,463 $ -- $ -- Communications 3,282,951 3,282,951 -- -- Consumer Durables 1,083,891 1,083,891 -- -- Consumer Non-Durables 6,900,424 6,900,424 -- -- Consumer Services 22,017,756 22,017,756 -- -- Energy 11,337,999 11,337,999 -- -- Finance 36,164,003 33,915,564 -- 2,248,439 Health Care 16,727,457 16,727,457 -- -- Real Estate Investment Trusts 945,626 945,626 Technology 20,586,817 20,450,578 -- 136,239 Utilities 552,362 552,362 -- -- Preferred Stocks 71,645 -- -- 71,645 Corporate Bonds 67,950 -- 67,950 -- Securities Lending Collateral 19,033,543 19,033,543 -- -- ------------ ------------ ------- ---------- Total Assets $143,382,887 $140,858,614 $67,950 $2,456,323 ============ ============ ======= ==========
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AS OF QUOTED OBSERVABLE UNOBSERVABLE 08/31/10 PRICE INPUTS INPUTS ----------- ------- ----------- ------------ Options Written $(864,137) $-- $(864,137) $-- --------- --- --------- --- Total Liabilities $(864,137) $-- $(864,137) $-- ========= === ========= ===
The following is a reconciliation of the Fund's Level 3 investments for which significant unobservable inputs were used to determine fair value.
PREFERRED COMMON STOCK STOCK TOTAL ----------------------- --------- INVESTMENTS FINANCE TECHNOLOGY FINANCE ----------- ---------- ---------- --------- Balance as of August 31, 2009 $ 239,717 $ 147,056 $ 92,661 $ -- Accrued discounts/premiums -- -- -- -- Net realized gain/(loss) -- -- -- -- Change in unrealized appreciation/(depreciation) (473,225) (512,510) (2,360) 41,645 Net purchases/(sales) 2,844,482 2,768,544 45,938 30,000 Transfers in and/or out of Level 3 * (154,651) (154,651) -- -- ---------- ---------- -------- ------- Balance as of August 31, 2010 $2,456,323 $2,248,439 $136,239 $71,645 ========== ========== ======== =======
* Transfers in and/or out of Level 3 are recognized as of the actual date of the event or change in circumstances that caused the transfer. The transfer occurred because the security listed and began trading on an exchange, thereby providing market activity. The Fund pres-ents unrealized appreciation/(depreciation) on the Statement of Operations as net change in unrealized appreciation/(depreciation) on investments.The change in unrealized appreciation/(depreciation) related to investments still held at August 31, 2010 was $779,667. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 27 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO WPG SMALL CAP VALUE FUND PORTFOLIO OF INVESTMENTS
Number of Shares Value --------- ------------- COMMON STOCK--99.5% BASIC INDUSTRIES--1.5% GrafTech International Ltd. * ................... 13,900 $ 195,434 Graham Packaging Co., Inc. * .................... 7,600 84,968 OM Group, Inc. * ................................ 7,600 194,560 ------------- 474,962 ------------- CAPITAL GOODS--10.0% BE Aerospace, Inc. * ............................ 5,000 134,750 Beacon Roofing Supply, Inc. * ................... 18,400 256,312 Buckeye Technologies, Inc. ...................... 37,100 440,748 Columbus McKinnon Corp. * ....................... 16,600 212,480 Globe Specialty Metals, Inc. * .................. 40,800 445,944 Granite Construction, Inc. (a) .................. 13,800 303,738 Lakeland Industries, Inc. * ..................... 25,200 238,140 Matrix Service Co. * ............................ 19,400 165,094 RTI International Metals, Inc. * ................ 6,100 168,360 Teleflex, Inc. (a) .............................. 3,400 163,404 Tutor Perini Corp. * ............................ 18,300 361,608 Wabash National Corp. * (a) ..................... 56,700 347,571 ------------- 3,238,149 ------------- COMMUNICATIONS--1.5% Digital River, Inc. * (a) ....................... 19,000 501,030 ------------- CONSUMER DURABLES--1.3% - Libbey, Inc. * .................................. 27,300 306,306 Lifetime Brands, Inc. * ......................... 8,700 118,668 ------------- 424,974 ------------- CONSUMER NON-DURABLES--6.3% Brown Shoe Co., Inc. ............................ 18,800 197,776 Chiquita Brands International, Inc. * (a) ....... 65,200 818,912 Del Monte Foods Co. ............................. 53,900 702,856 Iconix Brand Group, Inc. * ...................... 10,300 156,921 Skechers U.S.A., Inc., Class A * ................ 6,700 170,649 ------------- 2,047,114 ------------- CONSUMER SERVICES--16.3% America's Car-Mart, Inc. * ...................... 9,600 240,000 Casual Male Retail Group, Inc. * (a) ............ 57,400 184,254 FTI Consulting, Inc. * (a) ...................... 20,800 681,824 Geo Group, Inc., (The) * (a) .................... 58,480 1,292,408 Global Cash Access Holdings, Inc. * ............. 75,100 271,862 Hackett Group, Inc. (The) * ..................... 95,800 379,368 LECG Corp. * .................................... 73,400 95,420 MDC Partners, Inc., Class A ..................... 100,500 1,173,840 New Frontier Media, Inc. * ...................... 77,900 144,894 Pantry, Inc. (The) * ............................ 6,300 118,566 Pool Corp. (a) .................................. 6,900 127,305 Princeton Review, Inc. (The) * .................. 7,400 13,838 Providence Service Corp. * ...................... 20,800 281,216 Regis Corp. ..................................... 9,500 159,315 Shoe Carnival, Inc. * ........................... 8,100 133,893 ------------- 5,298,003 ------------- ENERGY--3.1% Approach Resources, Inc. * ...................... 49,300 428,910 GeoMet, Inc. * .................................. 73,700 67,804 Global Geophysical Services, Inc. * (a) ......... 9,400 55,554 GMX Resources, Inc. * (a) ....................... 25,500 108,375
Number of Shares Value --------- ------------- ENERGY--(CONTINUED) Goodrich Petroleum Corp. * (a) .................. 13,600 $ 180,608 Holly Corp. ..................................... 5,900 153,459 ------------- 994,710 ------------- FINANCE--26.2% A.B.Whatley Group, Inc., 144A * ................. 93,855 732 Alterra Capital Holdings Ltd. ................... 14,300 265,122 Aspen Insurance Holdings Ltd. (a) ............... 11,900 337,960 Bancorp Rhode Island, Inc. ...................... 13,200 375,144 Boston Private Financial Holdings, Inc. (a) ..... 63,100 395,637 Cathay General Bancorp (a) ...................... 37,400 358,666 Delphi Financial Group, Inc., Class A (a) ....... 17,400 388,020 Encore Bancshares, Inc. * (a) ................... 12,700 76,454 ESSA Bancorp, Inc. (a) .......................... 12,600 140,868 FBR Capital Markets Corp. * ..................... 124,800 426,816 First Financial Bancorp (a) ..................... 11,200 178,640 Great American Group, Inc. * .................... 84,750 71,614 Home Bancshares, Inc. ........................... 16,600 357,564 Home Federal Bancorp, Inc. ...................... 13,000 161,720 Maiden Holdings Ltd. ............................ 39,900 292,467 Meadowbrook Insurance Group, Inc. (a) ........... 104,300 895,937 National Penn Bancshares, Inc. (a) .............. 25,500 148,155 Navios Maritime Acquisition Corp. * (a) ......... 52,200 297,540 Nelnet, Inc., Class A ........................... 16,900 370,279 Old National Bancorp (a) ........................ 22,100 203,762 Radian Group, Inc. .............................. 46,200 292,446 Renasant Corp. (a) .............................. 16,400 219,924 SCBT Financial Corp. ............................ 6,900 198,375 SeaBright Insurance Holdings, Inc. .............. 10,700 75,649 Simmons First National Corp., Class A ........... 7,200 182,736 Stifel Financial Corp * (a) ..................... 3,369 145,810 Susquehanna Bancshares, Inc. (a) ................ 20,400 161,364 Texas Capital Bancshares, Inc. * (a) ............ 9,900 151,470 THL Credit, Inc. ................................ 19,800 229,482 United Financial Bancorp, Inc. .................. 9,900 133,254 Validus Holdings, Ltd. .......................... 14,000 356,580 ViewPoint Financial Group ....................... 20,440 183,960 Wilmington Trust Corp. (a) ...................... 15,200 133,760 WSFS Financial Corp. ............................ 7,900 284,163 ------------- 8,492,070 ------------- HEALTH CARE--8.2% Accuray, Inc. * ................................. 25,600 168,448 Alere, Inc. * ................................... 17,200 481,084 Assisted Living Concepts, Inc., Class A * (a) ... 14,000 380,520 Cantel Medical Corp. ............................ 2,700 38,799 Exactech, Inc. * ................................ 17,300 251,023 ICU Medical, Inc. * ............................. 26,400 940,632 RehabCare Group, Inc. * ......................... 23,700 392,472 ------------- 2,652,978 ------------- REAL ESTATE INVESTMENT TRUSTS--6.6% American Campus Communities, Inc. (a) ........... 8,100 241,299
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 28 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO WPG SMALL CAP VALUE FUND (continued) PORTFOLIO OF INVESTMENTS
Number of Shares Value --------- ------------- REAL ESTATE INVESTMENT TRUSTS--(CONTINUED) Chatham Lodging Trust * ......................... 12,300 $ 200,121 Chimera Investment Corp. ........................ 70,100 275,493 Dupont Fabros Technology, Inc. .................. 12,200 301,462 Highwoods Properties, Inc. (a) .................. 12,200 381,616 Kennedy-Wilson Holdings, Inc. * (a) ............. 14,400 142,560 Starwood Property Trust, Inc. ................... 14,500 275,790 Washington Real Estate Investment Trust (a) ..... 10,400 318,656 ------------- 2,136,997 ------------- TECHNOLOGY--6.0% CDC Software Corp. - ADR * (a) .................. 67,900 369,376 CIBER, Inc. * ................................... 74,600 204,404 Digi International, Inc. * ...................... 58,800 445,704 Generac Holdings, Inc. * ........................ 23,000 278,760 ManTech International Corp., Class A * (a) ...... 7,100 251,269 Plantronics, Inc. (a) ........................... 6,300 172,053 Safeguard Scientifics, Inc. * ................... 3,000 34,500 Zoran Corp. * ................................... 21,600 174,528 ------------- 1,930,594 ------------- TRANSPORTATION--6.9% Air Transport Services Group, Inc. * (a) ........ 13,600 62,696 AirTran Holdings, Inc. * (a) .................... 195,700 882,607 Arkansas Best Corp. (a) ......................... 6,300 129,906 Celadon Group, Inc. * ........................... 23,900 279,869 Scorpio Tankers, Inc. * (a) ..................... 67,400 729,268 US Airways Group, Inc. * (a) .................... 16,200 146,448 ------------- 2,230,794 ------------- UTILITIES--5.6% Aegean Marine Petroleum Network, Inc. (a) ....... 11,000 163,790 California Water Service Group .................. 4,800 167,088
Number of Shares Value --------- ------------- UTILITIES--(CONTINUED) Nicor, Inc. (a) ................................. 4,100 $ 173,389 Portland General Electric Co. ................... 17,000 339,660 StealthGas, Inc. * .............................. 36,900 173,430 UGI Corp. ....................................... 15,200 419,520 UIL Holdings Corp. (a) .......................... 8,100 214,569 Vectren Corp. ................................... 6,800 166,872 ------------- 1,818,318 ------------- TOTAL COMMON STOCK (Cost $30,759,816) ........................ 32,240,693 ------------- PREFERRED STOCK--0.2% ENERGY--0.2% GeoMet, Inc., Series A * +++ .................... 7,471 74,710 ------------- TOTAL PREFERRED STOCK (Cost $74,710) ............................ 74,710 ------------- SECURITIES LENDING COLLATERAL--30.2% Institutional Money Market Trust . 9,762,890 ... 9,762,890 9,762,890 ------------- TOTAL SECURITIES LENDING COLLATERAL (Cost $9,762,890) ......................... 9,762,890 ------------- TOTAL INVESTMENTS--129.9% (Cost $40,597,416) ............................ 42,078,293 ------------- LIABILITIES IN EXCESS OF OTHER ASSETS--(29.9)% ..... (9,684,747) ------------- NET ASSETS--100.0% ................................. $ 32,393,546 =============
---------- ADR -- American Depositary Receipt * -- Non-income Producing +++ -- Security has been valued at fair market value as determined in good faith by or under the direction of The RBB Fund, Inc.'s Board of Directors. As of August 31, 2010, this security amounted to $74,710 or 0.2% of net assets. (a) -- All or a portion of the security is on loan. See Note 6 of the Notes to Financial Statements. A summary of the inputs used to value the Fund's investments as of August 31, 2010 is as follows (see note 1 in the Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AS OF QUOTED OBSERVABLE UNOBSERVABLE 08/31/10 PRICE INPUTS INPUTS ----------- ----------- ----------- ------------ Common Stock * $32,240,693 $32,240,693 $-- $ -- Preferred Stock - Energy 74,710 -- -- 74,710 Securities Lending Collateral 9,762,890 9,762,890 -- -- ----------- ----------- --- ------- Total Assets $42,078,293 $42,003,583 $-- $74,710 =========== =========== === =======
* see Portfolio of Investments detail for industry and security type breakout. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 29 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 ROBECO WPG SMALL CAP VALUE FUND (concluded) PORTFOLIO OF INVESTMENTS The following is a reconciliation of the Fund's Level 3 investments for which significant unobservable inputs were used to determine fair value.
PREFERRED STOCK --------------------- TOTAL INVESTMENTS ENERGY ----------- ------- Balance as of August 31, 2009 $ -- $ -- Accrued discounts/premiums -- -- Net realized gain/(loss) -- -- Change in unrealized appreciation/(depreciation) -- -- Net purchases/(sales) 74,710 74,710 Transfers in and/or out of Level 3 * -- -- ------- ------- Balance as of August 31, 2010 $74,710 $74,710 ======= =======
* Transfers in and/or out of Level 3 are recognized as of the actual date of the event or change in circumstances that caused the transfer. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 30 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 SAM SUSTAINABLE GLOBAL ACTIVE FUND PORTFOLIO OF INVESTMENTS
Number of Shares Value --------- ------------- COMMON STOCK--98.2% AUSTRALIA--2.2% Challenger Financial Services Group Ltd. (Financial) ....................... 35,000 $ 117,397 National Australia Bank Ltd. (Financial) .................................. 11,900 245,629 ------------- 363,026 ------------- CANADA--9.8% Bank of Nova Scotia (Financial) (a) ............. 4,700 226,446 BCE, Inc. (Telecommunication Services) ................. 9,969 311,966 Canadian Imperial Bank of Commerce (Financial) ......................... 6,500 441,928 Sherritt International Corp. (Materials) .................................. 91,100 585,207 Teck Resources Ltd., Class B (Materials) .................................. 2,404 80,415 ------------- 1,645,962 ------------- GERMANY--5.4% Deutsche Bank AG (Financial) .................... 3,200 201,057 Henkel AG & Co. KGaA (Consumer Staples) ........................... 4,176 196,334 MTU Aero Engines Holding AG (Industrials) ................................ 3,500 194,691 Muenchener Rueckversicherungs- Gesellschaft AG (Financial) .................. 2,462 314,493 ------------- 906,575 ------------- ITALY--0.6% Ansaldo STS SpA (Industrials) ................... 7,920 94,796 ------------- JAPAN--7.9% Asahi Breweries Ltd. (Consumer Staples) ........................... 16,800 316,962 ITOCHU Corp. (Industrials) ...................... 39,600 323,361 Mitsubishi Corp. (Industrials) .................. 7,900 169,266 Mitsui O.S.K. Lines, Ltd. (Industrials) ......... 59,000 370,813 Takeda Pharmaceutical Co., Ltd. (Health Care) ................................ 3,000 137,841 ------------- 1,318,243 ------------- NORWAY--3.1% Aker Solutions ASA (Energy) ..................... 30,200 333,010 Norsk Hydro ASA (Materials) ..................... 40,173 191,396 ------------- 524,406 ------------- PORTUGAL--3.2% EDP - Energias de Portugal, SA (Utilities) .................................. 34,300 104,320 Portugal Telecom, SGPS SA (Telecommunication Services) ................. 36,301 425,063 ------------- 529,383 ------------- SPAIN--4.1% Iberdrola Renovables SA (Utilities) ............. 65,554 214,412 Repsol YPF SA (Energy) .......................... 6,000 136,977 Telefonica SA (Telecommunication Services) ................. 15,507 343,897 ------------- 695,286 -------------
Number of Shares Value --------- ------------- SWEDEN--2.5% Boliden AB (Materials) .......................... 12,402 $ 140,521 Svenska Cellulosa AB, Class B (Materials) .................................. 21,300 283,268 ------------- 423,789 ------------- SWITZERLAND--1.7% Zurich Financial Services AG (Financial) .................................. 1,300 289,899 ------------- UNITED KINGDOM--12.5% AstraZeneca PLC (Health Care) ................... 6,237 308,770 Barclays PLC (Financial) ........................ 101,260 469,619 BG Group PLC (Energy) ........................... 15,331 246,762 Legal & General Group PLC (Financial) .................................. 160,000 227,348 Logica PLC (Information Technology) ..................... 198,900 330,971 Travis Perkins PLC (Industrials) * .............. 43,747 511,245 ------------- 2,094,715 ------------- UNITED STATES--45.2% Abbott Laboratories (Health Care) ............... 2,000 98,680 Chevron Corp. (Energy) .......................... 4,231 313,771 CIGNA Corp. (Health Care) ....................... 8,100 260,982 Del Monte Foods Co. (Consumer Staples) ........................... 24,000 312,960 Forest Oil Corp. (Energy) * ..................... 11,911 311,115 Hartford Financial Services Group, Inc. (Financial) ............................. 25,200 508,032 Health Net, Inc. (Health Care) * ................ 25,881 618,038 Hewlett-Packard Co. (Information Technology) ..................... 6,248 240,423 International Business Machines Corp. (Information Technology) ............... 4,565 562,545 Johnson Controls, Inc. (Consumer Discretionary) ..................... 15,100 400,603 JPMorgan Chase & Co. (Financial) ................ 2,406 87,482 Kimberly-Clark Corp. (Consumer Staples) ........................... 5,766 371,330 Limited Brands, Inc. (Consumer Discretionary) ..................... 13,036 307,650 McDonald's Corp. (Consumer Discretionary) ..................... 2,656 194,047 McKesson Corp. (Health Care) .................... 2,364 137,230 Microsoft Corp. (Information Technology) ..................... 11,900 279,412 National Semiconductor Corp. (Information Technology) (a) ................. 5,000 63,050 Northeast Utilities (Utilities) ................. 8,000 231,760 Occidental Petroleum Corp. (Energy) ..................................... 5,421 396,167 Pfizer, Inc. (Health Care) ...................... 27,356 435,781 PG&E Corp. (Utilities) .......................... 3,172 148,323 Procter & Gamble Co. (Consumer Staples) (a) ....................... 8,962 534,763 Reynolds American, Inc. (Consumer Staples) ........................... 7,000 381,780
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 31 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 SAM SUSTAINABLE GLOBAL ACTIVE FUND (concluded) PORTFOLIO OF INVESTMENTS
Number of Shares Value --------- ------------- UNITED STATES--(CONTINUED) Target Corp. (Consumer Discretionary) ..................... 6,800 $ 347,888 Temple-Inland, Inc. (Materials) ................. 2,300 36,639 ------------- 7,580,451 ------------- TOTAL COMMON STOCK (Cost $16,501,849) ........................ 16,466,531 ------------- SECURITIES LENDING COLLATERAL--5.1% Institutional Money Market Trust ................ 846,682 846,682 ------------- TOTAL SECURITIES LENDING COLLATERAL (Cost $846,682) ........................... 846,682 ------------- TOTAL INVESTMENTS--103.3% (Cost $17,348,531) .............................. 17,313,213 ------------- LIABILITIES IN EXCESS OF OTHER ASSETS--(3.3)% ............................ (547,841) ------------- NET ASSETS--100.0% ................................. $ 16,765,372 =============
---------- * -- Non-income producing. (a) -- All or a portion of the security is on loan. See Note 6 of the Notes to Financial Statements. A summary of the inputs used to value the Fund's investments as of August 31, 2010 is as follows (see note 1 in the Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AS OF QUOTED OBSERVABLE UNOBSERVABLE 08/31/10 PRICE INPUTS INPUTS ----------- ----------- ----------- ------------ Investments in securities * $17,313,213 $17,313,213 $-- $-- ----------- ----------- --- --- Total Assets $17,313,213 $17,313,213 $-- $-- =========== =========== === ===
* see Portfolio of Investments detail for country and security type breakout. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 32 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 STATEMENTS OF ASSETS AND LIABILITIES
ROBECO BOSTON ROBECO BOSTON ROBECO BOSTON PARTNERS PARTNERS PARTNERS SMALL CAP LONG/SHORT ALL-CAP VALUE FUND II EQUITY FUND VALUE FUND ------------- ------------- ------------- ASSETS Investments in securities, at value + ###.......................... $106,127,493 $259,338,626 $143,382,887 Cash .............................................................. 2,515,852 20,915,568 1,831,424 Receivables Investments sold ............................................... 794,222 3,048,396 31,401 Deposits with brokers for securities sold short ................ -- 57,875,230 -- Dividends and interest ......................................... 68,566 185,846 196,575 Capital shares sold ............................................ 19,230 289,998 13,259 Prepaid expenses and other assets ................................. 21,725 38,962 24,087 ------------ ------------ ------------ Total assets ................................................ 109,547,088 341,692,626 145,479,633 ------------ ------------ ------------ LIABILITIES Securities sold short, at fair value +++ .......................... $ -- $ 56,167,231 $ -- Options written, at value * ....................................... -- -- 864,137 Payables Securities lending collateral .................................. 22,097,610 16,667,599 19,033,543 Investments purchased .......................................... 245,021 2,882,658 -- Capital shares redeemed ........................................ 67,380 552,770 31,537 Due to prime broker ............................................ -- 18,351,565 -- Investment advisory fees ....................................... 72,577 433,002 42,614 Distribution and service fees .................................. 13,493 18,225 3,605 Dividends on securities sold-short ............................. -- 8,707 -- Interest payable ............................................... -- 356 -- Other accrued expenses and liabilities ............................ 54,040 84,878 51,031 ------------ ------------ ------------ Total liabilities ........................................... 22,550,121 95,166,991 20,026,467 ------------ ------------ ------------ Net Assets ........................................................ $ 86,996,967 $246,525,635 $125,453,166 ============ ============ ============ NET ASSETS CONSIST OF Par value ......................................................... $ 8,104 $ 14,333 $ 9,765 Paid-in capital ................................................... 118,605,930 237,422,630 130,400,151 Undistributed net investment income/(accumulated net investment loss) ............................................... 61,717 (7,781) 724,650 Accumulated net realized gain/(loss) from investments ............. (30,663,074) 15,466,035 (692,431) Net unrealized depreciation on investments, securities sold short, written options and foreign currency translation ... (1,015,710) (6,369,582) (4,988,969) ------------ ------------ ------------ Net Assets .................................................. $ 86,996,967 $246,525,635 $125,453,166 ============ ============ ============ INSTITUTIONAL CLASS Net assets ........................................................ $ 25,736,486 $164,437,597 $112,436,681 Shares outstanding ................................................ 2,334,791 9,446,832 8,747,389 ------------ ------------ ------------ Net asset value, offering and redemption price per share .......... $ 11.02 $ 17.41 $ 12.85 ============ ============ ============ INVESTOR CLASS Net assets ........................................................ $ 61,260,481 $ 82,088,038 $ 13,016,485 Shares outstanding ................................................ 5,769,208 4,886,500 1,017,549 ------------ ------------ ------------ Net asset value, offering and redemption price per share .......... $ 10.62 $ 16.80 $ 12.79 ============ ============ ============ + Investment in securities, at cost ............................... $107,143,203 $269,568,466 $148,508,329 ## Includes market value of securities on loan .................... $ 20,765,330 $ 15,633,569 $ 18,262,988 +++ Proceeds received, securities sold short ...................... -- $ 60,027,489 -- * Premiums received, options written .............................. -- -- $ 1,000,610
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 33 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 STATEMENTS OF ASSETS AND LIABILITIES (concluded)
SAM ROBECO WPG SUSTAINABLE SMALL CAP GLOBAL ACTIVE VALUE FUND FUND ------------- ------------- ASSETS Investments in securities, at value +### ................................................ $ 42,078,293 $ 17,313,213 Cash .................................................................................... 184,106 278,069 Receivables Investments sold ..................................................................... 28,851 -- Dividends and interest ............................................................... 25,595 41,152 Capital shares sold .................................................................. 12,243 -- Investment adviser ................................................................... -- 17,903 Prepaid expenses and other assets ....................................................... 13,596 5,749 ------------ ------------ Total assets ...................................................................... 42,342,684 17,656,086 ------------ ------------ LIABILITIES Payables Securities lending collateral ........................................................ 9,762,890 846,682 Investments purchased ................................................................ 129,666 -- Capital shares redeemed .............................................................. 114 -- Investment advisory fees ............................................................. 7,185 -- Distribution and service fees ........................................................ -- 2 Other accrued expenses and liabilities .................................................. 49,283 44,030 ------------ ------------ Total liabilities ................................................................. 9,949,138 890,714 ------------ ------------ Net Assets .............................................................................. $ 32,393,546 $ 16,765,372 ============ ============ NET ASSETS CONSIST OF Par value ............................................................................... $ 2,782 $ 1,525 Paid-in capital ......................................................................... 42,924,655 16,040,494 Undistributed net investment income ..................................................... -- 206,426 Accumulated net realized gain/(loss) from investments ................................... (12,014,768) 552,216 Net unrealized appreciation/(depreciation) on investments, securities sold short, written options and foreign currency translation ............................................. 1,480,877 (35,289) ------------ ------------ Net Assets ........................................................................ $ 32,393,546 $ 16,765,372 ============ ============ INSTITUTIONAL CLASS Net assets .............................................................................. $ 32,393,546 $ 16,756,328 Shares outstanding ...................................................................... 2,781,719 1,523,865 ------------ ------------ Net asset value, offering and redemption price per share ................................ $ 11.65 $ 11.00 ============ ============ INVESTOR CLASS Net assets .............................................................................. $ -- $ 9,044 Shares outstanding ...................................................................... -- 824 ------------ ------------ Net asset value, offering and redemption price per share ................................ $ -- $ 10.98 ============ ============ + Investment in securities, at cost ..................................................... $ 40,597,416 $ 17,348,531 ### Includes market value of securities on loan.......................................... $ 9,167,909 $ 824,259
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS 34 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 STATEMENTS OF OPERATIONS
ROBECO BOSTON ROBECO BOSTON ROBECO BOSTON PARTNERS PARTNERS PARTNERS SMALL CAP LONG/SHORT ALL-CAP VALUE FUND II EQUITY FUND VALUE FUND ------------- ------------- ------------- INVESTMENT INCOME Dividends + ................................................... $ 1,354,377 $ 2,447,470 $ 1,518,588 Interest ...................................................... 886 6,227 23,449 Income from securities loaned (Note 6) ........................ 33,912 60,793 8,928 ----------- ------------ ----------- Total investment income .................................... 1,389,175 2,514,490 1,550,965 ----------- ------------ ----------- EXPENSES Advisory fees ................................................. 772,225 4,333,220 795,214 Distribution fees (Investor Class) ............................ 127,269 186,291 30,425 Administration and accounting fees ............................ 90,351 190,991 106,848 Transfer agent fees ........................................... 83,825 128,191 70,612 Registration and filing fees .................................. 38,874 46,580 38,105 Audit Fees .................................................... 22,613 35,461 28,455 Custodian fees ................................................ 18,573 70,912 29,503 Legal Fees .................................................... 17,110 27,481 21,567 Directors' and officers' fees ................................. 14,591 30,615 25,102 Printing and shareholder reporting fees ....................... 11,827 55,268 21,890 Dividend expense on securities sold-short ..................... -- 442,677 -- Prime broker interest expense ................................. -- 1,300,803 -- Other expenses ................................................ 2,160 2,497 3,061 ----------- ------------ ----------- Total expenses before waivers and reimbursements ........... 1,199,418 6,850,987 1,170,782 Less: waivers and reimbursements ........................... (68,849) (106,526) (344,480) ----------- ------------ ----------- Net expenses after waivers and reimbursements ................. 1,130,569 6,744,461 826,302 ----------- ------------ ----------- Net investment income/(loss) .................................. 258,606 (4,229,971) 724,663 ----------- ------------ ----------- Net realized gain/(loss) from: Investments ................................................ 6,061,178 27,555,402 3,988,595 Investments sold-short ..................................... -- 3,525,680 -- Foreign currency transactions .............................. -- 22 -- Written options * .......................................... -- -- (82,739) Net change in unrealized appreciation/(depreciation) on: Investments ................................................ (4,534,988) (22,836,156) (7,025,698) Investments sold short ..................................... -- 3,369,930 -- Written options * .......................................... -- -- 271,022 ----------- ------------ ----------- Net realized and unrealized gain/(loss) on investments ........ 1,526,190 11,614,878 (2,848,820) ----------- ------------ ----------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .. $ 1,784,796 $ 7,384,907 $(2,124,157) =========== ============ =========== + Net of foreign witholding taxes of ............................. $ -- $ (13,959) $ (13,042) =========== ============ ===========
* Primary risk is equity contracts. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 35 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 STATEMENTS OF OPERATIONS (concluded)
SAM ROBECO WPG SUSTAINABLE SMALL CAP GLOBAL ACTIVE VALUE FUND FUND ------------ ------------- INVESTMENT INCOME Dividends + ............................................ $ 453,450 $ 424,367 Interest ............................................... 529 92 Income from securities loaned (Note 6) ................. 16,403 545 ----------- --------- Total investment income ............................. 470,382 425,004 ----------- --------- EXPENSES Advisory fees .......................................... 323,541 122,289 Distribution fees (Investor Class) ..................... -- 18 Administration and accounting fees ..................... 86,232 85,712 Transfer agent fees .................................... 95,876 62,752 Registration and filing fees ........................... 27,870 63,114 Audit Fees ............................................. 22,587 23,926 Custodian fees ......................................... 34,126 35,961 Legal Fees ............................................. 16,289 12,222 Directors' and officers' fees .......................... 20,034 20,257 Printing and shareholder reporting fees ................ 5,566 1,393 Other expenses ......................................... 5,382 2,596 ----------- --------- Total expenses before waivers and reimbursements .... 637,503 430,240 Less: waivers and reimbursements .................... (28,448) (246,789) ----------- --------- Net expenses after waivers and reimbursements .......... 609,055 183,451 ----------- --------- Net investment income/(loss) ........................... (138,673) 241,553 ----------- --------- Net realized gain/(loss) from: Investments ......................................... 5,294,081 853,885 Foreign currency transactions ....................... -- 6,421 Net change in unrealized appreciation/(depreciation) on: Investments ......................................... (1,468,131) (694,954) Foreign currency translation ........................ -- (1,805) ----------- --------- Net realized and unrealized gain from investments ...... 3,825,950 163,547 ----------- --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...... $ 3,687,277 $ 405,100 =========== ========= + Net of foreign witholding taxes of ...................... $ (4,429) $ (28,719) =========== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS 36 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 STATEMENTS OF CHANGES IN NET ASSETS
ROBECO BOSTON PARTNERS ROBECO BOSTON PARTNERS SMALL CAP VALUE FUND II LONG/SHORT EQUITY FUND --------------------------------- --------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 31, 2010 AUGUST 31, 2009 AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income/(loss) ....................... $ 258,606 $ 666,651 $ (4,229,971) $ (651,398) Net realized gain/(loss) from investments, securities sold short and foreign currency ...... 6,061,178 (30,907,801) 31,081,104 (5,018,842) Net change in unrealized appreciation/(depreciation) from investments, securities sold short and foreign currency ............................... (4,534,988) 8,902,011 (19,466,226) 16,031,112 ------------ ------------- ------------- ------------ Net increase/(decrease) in net assets resulting from operations ......................................... 1,784,796 (21,339,139) 7,384,907 10,360,872 ------------ ------------- ------------- ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Institutional Class ............................. (95,191) (428,811) -- -- Investor Class .................................. (94,823) (550,302) -- -- Net realized capital gains Institutional Class ............................. -- (141,170) -- (3,859,743) Investor Class .................................. -- (222,896) -- (1,041,399) Return of capital Institutional Class ............................. -- (117,965) -- -- Investor Class .................................. -- (151,361) -- -- ------------ ------------- ------------- ------------ Net decrease in net assets from dividends and distributions to shareholders ...................... (190,014) (1,612,505) -- (4,901,142) ------------ ------------- ------------- ------------ CAPITAL TRANSACTIONS: Institutional Class Proceeds from shares sold ....................... 6,525,815 5,138,859 132,696,590 23,055,972 Subscriptions issued in reorganization (Note 10) .................................... -- -- -- 8,000,331 Reinvestment of distributions ................... 93,687 672,856 -- 3,803,772 Shares redeemed ................................. (3,316,755) (29,398,473) (27,301,878) (20,373,730) Redemption fees (Note 8) ........................ 476 3,551 365,813 11,244 Investor Class Proceeds from shares sold ....................... 27,718,964 2,306,110 70,371,181 23,337,683 Reinvestment of distributions ................... 93,851 911,751 -- 1,037,134 Shares redeemed ................................. (10,587,822) (13,838,158) (22,909,284) (2,802,031) Redemption fees (Note 8) ........................ 734 6,768 234,720 3,256 ------------ ------------- ------------- ------------ Net increase/(decrease) in net assets from capital transactions ....................................... 20,528,950 (34,196,736) 153,457,142 36,073,631 ------------ ------------- ------------- ------------ Total increase/(decrease) in net assets ............... 22,123,732 (57,148,380) 160,842,049 41,533,361 NET ASSETS Beginning of year ............................... 64,873,235 122,021,615 85,683,586 44,150,225 ------------ ------------- ------------- ------------ End of year ..................................... $ 86,996,967 $ 64,873,235 $ 246,525,635 $ 85,683,586 ============ ============= ============= ============ Undistributed net investment income/(loss), end of year .................................. $ 61,717 $ -- $ (7,781) $ (52,079) ============ ============= ============= ============ SHARE TRANSACTIONS: Institutional Class Shares sold ..................................... 555,555 624,057 7,534,517 1,699,043 Shares issued in reorganization (Note 10) ....... -- -- -- 746,155 Shares reinvested ............................... 8,233 91,297 -- 425,002 Shares redeemed ................................. (275,515) (3,442,537) (1,561,805) (1,750,768) ------------ ------------- ------------- ------------ Net increase/(decrease) ............................... 288,273 (2,727,183) 5,972,712 1,119,432 ------------ ------------- ------------- ------------ Investor Class Shares sold ..................................... 2,391,723 270,214 4,227,832 1,636,225 Shares reinvested ............................... 8,540 128,055 -- 118,937 Shares redeemed ................................. (923,475) (1,823,957) (1,364,973) (241,075) ------------ ------------- ------------- ------------ Net increase/(decrease) ............................... 1,476,788 (1,425,688) 2,862,859 1,514,087 ------------ ------------- ------------- ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 37 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 STATEMENTS OF CHANGES IN NET ASSETS (continued)
ROBECO BOSTON PARTNERS ROBECO ALL-CAP VALUE FUND WPG SMALL CAP VALUE FUND --------------------------------- --------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 31, 2010 AUGUST 31, 2009 AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income/(loss) ....................... $ 724,663 $ 810,659 $ (138,673) $ 109,509 Net realized gain/(loss) from investments, written options and foreign currency .................... 3,905,856 (4,534,091) 5,294,081 (10,265,024) Net change in unrealized appreciation/(depreciation) from investments, written options and foreign currency ........................................ (6,754,676) 2,649,667 (1,468,131) 3,986,476 ------------ ----------- ----------- ------------ Net increase/(decrease) in net assets resulting from operations ......................................... (2,124,157) (1,073,765) 3,687,277 (6,169,039) ------------ ----------- ----------- ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Institutional Class ............................. (728,026) (456,682) (107,006) (50,712) Investor Class .................................. (63,358) (17,485) -- -- Net realized capital gains Institutional Class ............................. -- (335,000) -- (38,110) Investor Class .................................. -- (18,253) -- -- ------------ ----------- ----------- ------------ Net decrease in net assets from dividends and distributions to shareholders ...................... (791,384) (827,420) (107,006) (88,822) ------------ ----------- ----------- ------------ CAPITAL TRANSACTIONS: Institutional Class Proceeds from shares sold ....................... 53,342,730 17,515,574 311,566 3,279,900 Reinvestment of distributions ................... 617,838 791,556 93,748 83,238 Shares redeemed ................................. (3,296,424) (5,127,776) (6,997,084) (4,838,738) Redemption fees (Note 8) ........................ -- -- 61 5,244 Investor Class Proceeds from shares sold ....................... 20,987,057 2,710,752 -- -- Reinvestment of distributions ................... 61,116 31,921 -- -- Shares redeemed ................................. (11,615,247) (762,358) -- -- ------------ ----------- ----------- ------------ Net increase/(decrease) in net assets from capital transactions ....................................... 60,097,070 15,159,669 (6,591,709) (1,470,356) ------------ ----------- ----------- ------------ Total increase/(decrease) in net assets ............... 57,181,529 13,258,484 (3,011,438) (7,728,217) NET ASSETS Beginning of year ............................... 68,271,637 55,013,153 35,404,984 43,133,201 ------------ ----------- ----------- ------------ End of year ..................................... $125,453,166 $68,271,637 $32,393,546 $ 35,404,984 ============ =========== =========== ============ Undistributed net investment income, end of year ......................................... $ 724,650 $ 791,371 $ -- $ 107,004 ============ =========== =========== ============ SHARE TRANSACTIONS: Institutional Class Shares sold ..................................... 3,931,770 1,609,618 26,105 366,216 Shares reinvested ............................... 46,176 78,063 8,453 10,672 Shares redeemed ................................. (251,720) (475,846) (602,576) (567,013) ------------ ----------- ----------- ------------ Net increase/(decrease) ............................... 3,726,226 1,211,835 (568,018) (190,125) ------------ ----------- ----------- ------------ Investor Class Shares sold ..................................... 1,472,751 252,948 -- -- Shares reinvested ............................... 4,581 3,155 -- -- Shares redeemed ................................. (874,208) (74,947) -- -- ------------ ----------- ----------- ------------ Net increase .................................... 603,124 181,156 -- -- ------------ ----------- ----------- ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 38 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 STATEMENTS OF CHANGES IN NET ASSETS (concluded)
SAM SUSTAINABLE GLOBAL ACTIVE FUND ----------------------------------- FOR THE PERIOD YEAR ENDED JUNE 18, 2009* TO AUGUST 31, 2010 AUGUST 31, 2009 --------------- ----------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income ......................................... $ 241,553 $ 5,576 Net realized gain from investments and foreign currency ....... 860,306 640,253 Net change in unrealized appreciation/(depreciation) from investments and foreign currency ........................... (696,759) 661,470 ----------- ----------- Net increase in net assets resulting from operations ............. 405,100 1,307,299 ----------- ----------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Institutional Class ........................................ (51,677) -- Investor Class ............................................. (21) -- Net realized capital gains Institutional Class ........................................ (936,892) -- Investor Class ............................................. (456) -- ----------- ----------- Net decrease in net assets from dividends and distributions to shareholders ............................................... (989,046) -- ----------- ----------- CAPITAL TRANSACTIONS: Institutional Class Proceeds from shares sold .................................. 6,210,174 10,306,820 Reinvestment of distributions .............................. 861,288 -- Shares redeemed ............................................ (1,345,517) -- Redemption fees (Note 8) ................................... 277 -- Investor Class Proceeds from shares sold .................................. 5,500 3,000 Reinvestment of distributions .............................. 477 -- ----------- ----------- Net increase in net assets from capital transactions ............. 5,732,199 10,309,820 ----------- ----------- Total increase in net assets ..................................... 5,148,253 11,617,119 NET ASSETS Beginning of period ........................................ 11,617,119 -- ----------- ----------- End of period .............................................. $16,765,372 $11,617,119 =========== =========== Undistributed net investment income/(loss), end of period .. $ 206,426 $ 10,150 =========== =========== SHARE TRANSACTIONS: Institutional Class Shares sold ................................................ 536,115 1,027,702 Shares reinvested .......................................... 75,551 -- Shares redeemed ............................................ (115,503) -- ----------- ----------- Net increase ..................................................... 496,163 1,027,702 ----------- ----------- Investor Class Shares sold ................................................ 472 310 Shares reinvested .......................................... 42 -- ----------- ----------- Net increase ..................................................... 514 310 ----------- -----------
* Commencement of operations. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 39 ROBECO INVESTMENT FUNDS AUGUST 31, 2010 STATEMENT OF CASH FLOWS
ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND ------------- CASH FLOWS PROVIDED FROM (USED IN) OPERATING ACTIVITIES: Net increase in net assets resulting from operations ............... $ 7,384,907 Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities: Purchases of long-term portfolio investments ....................... (312,166,560) Proceeds from disposition of long-term portfolio investments ....... 155,893,285 Purchases to cover short sales ..................................... 97,219,579 Proceeds from short sales .......................................... (50,379,212) Net realized gain on investments and investments sold short ........ (31,081,082) Net change in unrealized depreciation on investments and investments sold short ...................................................... 19,466,226 Increase in securities lending collateral .......................... (16,667,599) Increase in deposits with brokers for securities sold short ........ (42,623,444) Increase in receivable for securities sold ......................... (937,592) Increase in dividend and interest receivable ....................... (153,463) Increase in prepaid expenses and other assets ...................... (24,874) Decrease in payable for investments purchased ...................... (1,466,768) Increase in payable for securities lending collateral .............. 16,667,599 Increase in dividend payable for short sales ....................... 8,120 Decrease in interest payable ....................................... (5,085) Increase in payable to adviser ..................................... 310,595 Increase in accrued expenses ....................................... 12,980 ------------- Net cash used in operating activities .............................. (158,542,388) ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in payable to Prime Broker ................................ 10,531,276 Net payment for fund share activity ................................ 155,489,191 ------------- Net cash provided by financing activities .......................... 166,020,467 ------------- NET INCREASE IN CASH ............................................... 7,478,079 CASH AT BEGINNING OF YEAR .......................................... 13,437,489 ------------- CASH AT END OF YEAR ................................................ $ 20,915,568 ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest expense ................... $ 1,305,888 =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 40 | ANNUAL REPORT 2010 [THIS PAGE INTENTIONALLY LEFT BLANK] ROBECO INVESTMENT FUNDS FINANCIAL HIGHLIGHTS PER SHARE OPERATING PERFORMANCE Contained below is per share operating performance data for each class of shares outstanding, total investment return, ratios to average net assets and other supplemental data for the respective periods. This information has been derived from information provided in the financial statements.
DISTRIBUTIONS NET DIVIDENDS TO TO ASSET NET NET REALIZED TOTAL SHAREHOLDERS SHAREHOLDERS VALUE, INVESTMENT AND UNREALIZED FROM FROM NET FROM NET BEGINNING INCOME/ GAIN/(LOSS) ON INVESTMENT INVESTMENT REALIZED RETURN TOTAL OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME GAINS OF CAPITAL DISTRIBUTIONS --------- ---------- -------------- ---------- ------------ ------------- ---------- ------------- ROBECO BOSTON PARTNERS SMALL CAP VALUE FUND II INSTITUTIONAL CLASS 8/31/10 $10.49 $ 0.06* $ 0.52 $ 0.58 $(0.05) $ -- $ -- $(0.05) 8/31/09 11.87 0.11* (1.26) (1.15) (0.14) (0.05) (0.04) (0.23) 8/31/08 21.47 0.07* (1.97) (1.90) -- (7.70) -- (7.70) 8/31/07 22.82 (0.01)* 2.41 2.40 (0.09) (3.67) -- (3.76) 8/31/06 24.75 (0.08)* 1.57 1.49 -- (3.42) -- (3.42) INVESTOR CLASS 8/31/10 $10.11 $ 0.03* $ 0.50 $ 0.53 $(0.02) $ -- $ -- $(0.02) 8/31/09 11.43 0.07* (1.20) (1.13) (0.11) (0.05) (0.03) (0.19) 8/31/08 21.02 0.03* (1.92) (1.89) -- (7.70) -- (7.70) 8/31/07 22.40 (0.07)* 2.37 2.30 (0.02) (3.67) -- (3.69) 8/31/06 24.35 (0.13)* 1.54 1.41 -- (3.36) -- (3.36) ROBECO BOSTON PARTNERS LONG/SHORT EQUITY FUND INSTITUTIONAL CLASS 8/31/10 $15.75 $(0.37)* $ 1.98 $ 1.61 $ -- $ -- $ -- $ -- 8/31/09 15.47 (0.22)* 2.98 2.76 -- (2.48) -- (2.48) 8/31/08 17.23 (0.36)* 0.50 0.14 -- (1.90) -- (1.90) 8/31/07 18.57 (0.21)* 0.73 0.52 -- (1.86) -- (1.86) 8/31/06 17.89 (0.26)* 2.40 2.14 -- (1.47) -- (1.47) INVESTOR CLASS 8/31/10 $15.31 $(0.40)* $ 1.84 $ 1.44 $ -- $ -- $ -- $ -- 8/31/09 15.17 (0.25)* 2.87 2.62 -- (2.48) -- (2.48) 8/31/08 16.97 (0.39)* 0.49 0.10 -- (1.90) -- (1.90) 8/31/07 18.36 (0.26)* 0.73 0.47 -- (1.86) -- (1.86) 8/31/06 17.74 (0.30)* 2.38 2.08 -- (1.47) -- (1.47)
---------- * Calculated based on average shares outstanding for the period. (1) Total return is calculated by assuming a purchase of shares on the first day and a sale of shares on the last day of the period. (2) Redemption fees are reflected in total return calculations. (3) Amount is less than $0.01 per share. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 42 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS FINANCIAL HIGHLIGHTS (continued) PER SHARE OPERATING PERFORMANCE
RATIO OF EXPENSES TO RATIO OF NET AVERAGE NET INVESTMENT RATIO OF ASSETS WITH RATIO OF INCOME/(LOSS) NET NET EXPENSES TO WAIVERS AND EXPENSES TO TO AVERAGE ASSET ASSETS, AVERAGE NET REIMBURSEMENTS AVERAGE NET NET ASSETS VALUE, TOTAL END OF ASSETS WITH (EXCLUDING ASSETS WITHOUT WITH WAIVERS PORTFOLIO REDEMPTION END OF INVESTMENT PERIOD WAIVERS AND DIVIDEND AND WAIVERS AND AND TURNOVER FEES PERIOD RETURN(1,2) (000) REIMBURSEMENTS INTEREST EXPENSE) REIMBURSEMENTS REIMBURSEMENTS RATE ---------- ------ ----------- -------- -------------- ----------------- -------------- -------------- --------- $ --(3) $11.02 5.47% $ 25,736 1.30% N/A 1.39% 0.51% 43% --(3) 10.49 (8.97) 21,466 1.30 N/A 1.74 1.29 66 --(3) 11.87 (10.15) 56,652 1.39 N/A 1.54 0.47 54 0.01 21.47 10.53 94,337 1.55 N/A 1.56 (0.09) 46 --(3) 22.82 6.39 114,153 1.52 N/A 1.53 (0.34) 34 $ --(3) $10.62 5.26% $61,260 1.55% N/A 1.63% 0.25% 43% --(3) 10.11 (9.20) 43,408 1.55 N/A 2.00 0.90 66 --(3) 11.43 (10.40) 65,370 1.64 N/A 1.79 0.19 54 0.01 21.02 10.26 154,546 1.80 N/A 1.81 (0.32) 46 --(3) 22.40 6.12 230,362 1.77 N/A 1.78 (0.58) 34 $0.05 $17.41 10.54% $164,438 3.40% 2.50% 3.46% (2.10)% 81% --(3) 15.75 30.02 54,703 3.35 2.50 4.04 (1.85) 172 --(3) 15.47 1.12 36,423 3.98 2.50 4.36 (2.27) 124 --(3) 17.23 2.61 73,770 3.44 2.50 3.60 (1.17) 93 0.01 18.57 12.93 90,313 3.24 2.50 3.40 (1.51) 109 $0.05 $16.80 9.73% $ 82,088 3.65% 2.75% 3.70% (2.35)% 81% --(3) 15.31 29.63 30,980 3.55 2.75 4.19 (2.09) 172 --(3) 15.17 0.88 7,728 4.23 2.75 4.61 (2.51) 124 --(3) 16.97 2.35 14,664 3.69 2.75 3.85 (1.42) 93 0.01 18.36 12.69 20,706 3.48 2.75 3.65 (1.77) 109
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 43 ROBECO INVESTMENT FUNDS FINANCIAL HIGHLIGHTS (continued) PER SHARE OPERATING PERFORMANCE Contained below is per share operating performance data for each class of shares outstanding, total investment return, ratios to average net assets and other supplemental data for the respective periods. This information has been derived from information provided in the financial statements.
NET DIVIDENDS TO DISTRIBUTIONS TO ASSET NET REALIZED TOTAL SHAREHOLDERS SHAREHOLDERS VALUE, NET AND UNREALIZED FROM FROM NET FROM NET BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT REALIZED TOTAL REDEMPTION OF PERIOD INCOME/(LOSS) INVESTMENTS OPERATIONS INCOME GAINS DISTRIBUTIONS FEES --------- ------------- -------------- ---------- ------------ ---------------- ------------- ---------- ROBECO BOSTON PARTNERS ALL-CAP VALUE FUND INSTITUTIONAL CLASS 8/31/10 $12.56 $ 0.10* $ 0.32 $ 0.42 $(0.13) $ -- $(0.13) $-- 8/31/09 13.61 0.19* (1.03) (0.84) (0.12) (0.09) (0.21) -- 8/31/08 16.47 0.23* (1.54) (1.31) (0.16) (1.39) (1.55) -- 8/31/07 15.69 0.16* 2.05 2.21 (0.13) (1.30) (1.43) -- 8/31/06 15.54 0.15* 1.03 1.18 (0.08) (0.95) (1.03) -- INVESTOR CLASS 8/31/10 $12.52 $ 0.07* $ 0.31 $ 0.38 $(0.11) $ -- $(0.11) $-- 8/31/09 13.56 0.16* (1.03) (0.87) (0.08) (0.09) (0.17) -- 8/31/08 16.41 0.16* (1.51) (1.35) (0.11) (1.39) (1.50) -- 8/31/07 15.63 0.11* 2.06 2.17 (0.09) (1.30) (1.39) -- 8/31/06 15.49 0.11* 1.03 1.14 (0.05) (0.95) (1.00) -- ROBECO WPG SMALL CAP VALUE FUND INSTITUTIONAL CLASS 8/31/10 $10.57 $(0.05)* $ 1.16 $ 1.11 $(0.03) $ -- $(0.03) $--(3) 8/31/09 12.18 0.03* (1.62) (1.59) (0.01) (0.01) (0.02) -- 8/31/08 17.05 0.05 (2.46) (2.41) (0.01) (2.45) (2.46) -- 8/31/07 16.54 0.01 2.31 2.32 -- (1.81) (1.81) -- 8/31/06 17.42 --(3) 1.10 1.10 -- (1.98) (1.98) -- SAM SUSTAINABLE GLOBAL ACTIVE FUND INSTITUTIONAL CLASS 8/31/10 $11.30 $ 0.18* $ 0.47 $ 0.65 $(0.05) $(0.90) $(0.95) $--(3) 6/18/09** through 8/31/09 10.00 0.01* 1.29 1.30 -- -- -- -- INVESTOR CLASS 8/31/10 $11.30 $ 0.16* $ 0.46 $ 0.62 $(0.04) $(0.90) $(0.94) $--(3) 7/15/09** through 8/31/09 10.13 --*(4) 1.17 1.17 -- -- -- --
* Calculated based on average shares outstanding. (1) Total return is calculated by assuming a purchase of shares on the first day and a sale of shares on the last day of the period and is not annualized if period is less than one year. (2) Redemption fees are reflected in total return calculations. (3) Amount is less than $0.01. (4) Annualized. (5) Not Annualized. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 44 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS FINANCIAL HIGHLIGHTS (continued) PER SHARE OPERATING PERFORMANCE
RATIO OF NET INVESTMENT RATIO OF RATIO OF INCOME/(LOSS) NET NET EXPENSES TO EXPENSES TO TO AVERAGE ASSET ASSETS, AVERAGE NET AVERAGE NET NET ASSETS VALUE, TOTAL END OF ASSETS WITH ASSETS WITHOUT WITH WAIVERS PORTFOLIO END OF INVESTMENT PERIOD WAIVERS AND WAIVERS AND AND TURNOVER PERIOD RETURN(1,2) (000) REIMBURSEMENTS REIMBURSEMENTS REIMBURSEMENTS RATE ------ ----------- -------- -------------- -------------- -------------- --------- $12.85 3.31% $112,437 0.80% 1.15% 0.75% 48% 12.56 (5.88) 63,085 0.95 1.50 1.79 55 13.61 (8.55) 51,850 0.95 1.70 1.59 44 16.47 14.38 13,720 0.95 2.24 0.92 45 15.69 7.95 9,374 1.09 2.93 0.94 51 $12.79 3.01% $ 13,016 1.03% 1.39% 0.55% 48% 12.52 (6.15) 5,187 1.20 1.75 1.51 55 13.56 (8.82) 3,164 1.20 1.95 1.10 44 16.41 14.16 4,021 1.20 2.49 0.67 45 15.63 7.72 3,739 1.34 3.19 0.69 51 $11.65 10.54% $ 32,394 1.69% 1.77% (0.39)% 94% 10.57 (12.93) 35,405 1.61 1.95 0.37 137 12.18 (15.12) 43,133 1.61 1.65 0.11 131 17.05 14.28 53,962 1.47 1.47 0.09 138 16.54 7.16 48,607 1.43 1.43 0.02 139 $11.00 5.42% $ 16,756 1.20% 2.81% 1.58% 88% 11.30 13.00 11,614 1.20(4) 4.06(4) 0.27(4) 72(5) $10.98 5.14% $ 9 1.45% 3.06% 1.38% 88% 11.30 11.55 4 1.45(4) 4.20(4) 0.13(4) 72(5)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. ANNUAL REPORT 2010 | 45 ROBECO INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The RBB Fund, Inc. ("RBB" or the "Company") was incorporated under the laws of the State of Maryland on February 29, 1988 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. RBB is a "series trust," which is a mutual fund divided into separate portfolios. Each portfolio is treated as a separate entity for certain matters under the 1940 Act, and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. Currently, RBB has eighteen active investment portfolios, including Robeco Boston Partners Small Cap Value Fund II ("BP Small Cap Value Fund II"), Robeco Boston Partners Long/Short Equity Fund ("BP Long/Short Equity Fund"), Robeco Boston Partners All-CapValue Fund ("BP All-CapValue Fund") (collectively "BP Funds"), Robeco WPG Small Cap Value Fund ("WPG Small Cap Value Fund"), and SAM Sustainable Global Active Fund (each a "Fund," collectively the "Funds"). As of August 31, 2010, the BP Funds and SAM Sustainable Global Active Fund each offer two classes of shares, Institutional Class and Investor Class. The WPG Small Cap Value Fund is a single class fund, offering only the Institutional Class of shares. RBB has authorized capital of one hundred billion shares of common stock of which 79.373 billion shares are currently classified into one hundred and thirty-three classes of common stock. Each class represents an interest in an active or inactive RBB investment portfolio. PORTFOLIO VALUATION -- Each Fund's net asset value ("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. Securities held by a Fund are valued using the closing price or the last sale price on a national securities exchange or the National Association of Securities Dealers Automatic Quotation System ("NASDAQ") market system where they are primarily traded. 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 greater than 60 days are valued using an independent pricing service, which considers such factors as security prices, yields, maturities and ratings, and are deemed representative of market values at the close of the market. Fixed income securities having a remaining maturity of 60 days or less are valued at amortized cost. Foreign securities are valued based on prices from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. Investments in other open-end investment companies are valued based on the NAV of the investment companies (which may use fair value pricing as discussed in their prospectuses). If market quotations are unavailable or deemed unreliable, securities will be 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. Such procedures use fundamental valuation methods, which may include, but are not limited to, an analysis of the effect of any restrictions on the resale of the security, industry analysis and trends, significant changes in the issuer's financial position, and any other event which could have a significant impact on the value of the security. Determination of fair value involves subjective judgment as the actual market value of a particular security can be established only by negotiations between the parties in a sales transaction, and the difference between the recorded fair value and the value that would be received in a sale could be significant. The inputs and valuation techniques used to measure fair value of the Funds' investments are summarized into three levels as described below: - Level 1 -- quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) - Level 3 -- significant unobservable inputs (including the Funds' own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value each Fund's investments as of August 31, 2010 is included in each Fund's Portfolio of Investments. As of August 31, 2010, management has evaluated the activity in Levels 1 and 2 and has concluded that there were no significant changes to report. 46 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS (continued) USE OF ESTIMATES -- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates and those differences could be significant. INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES -- The Funds record security transactions based on trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes in determining realized gains and losses on investments. Interest income is accrued when earned. Dividend income is recorded on the ex-dividend date. Distributions received on securities that represent a return of capital or capital gains are recorded as a reduction of cost of investments and/or as a realized gain. The Funds estimate the components of distributions received from Real Estate Investment Trusts that may be considered return of capital distributions or capital gain distributions. The Funds' investment income, expenses (other than class specific distribution fees) and unrealized and realized gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class at the beginning of the day. Expenses incurred on behalf of a specific class, fund or fund family are charged directly to the class, fund or fund family (in proportion to net assets). Expenses incurred for all of the RBB funds (such as director or professional fees) are charged to all funds in proportion to their average net assets of RBB, or in such other manner as the Company's Board of Directors deems fair or equitable. Expenses and fees, including investment advisory and administration fees are accrued daily and taken into account for the purpose of determining the NAV of the Funds. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income and distributions from net realized capital gains, if any, are declared and paid at least annually to shareholders and recorded on ex-dividend date for all Funds. Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations which may differ from U.S. generally accepted accounting principles. U.S.TAX STATUS -- No provision is made for U.S. income taxes as it is each Fund's intention to qualify or continue to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to its shareholders which will be sufficient to relieve it from U.S. income and excise taxes. CASH AND CASH EQUIVALENTS -- The Funds consider liquid assets deposited into a bank demand deposit account to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Fund expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. OTHER -- In the normal course of business, the Funds may enter into contracts that provide general indemnifications. The Funds' maximum exposure under these arrangements is dependent on claims that may be made against the Funds in the future, and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote. FOREIGN CURRENCY TRANSLATION -- The books and records of the portfolios are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated at the exchange rate prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions. The resulting exchange gains and losses are included in the Statement of Operations. FOREIGN SECURITIES -- There are certain risks resulting from investing in foreign securities in addition to the usual risks inherent in domestic investments. Such risks include political, economic and currency exchange developments, including investment restrictions and changes in foreign laws. OPTIONS WRITTEN -- The Funds are subject to equity price risk in the normal course of pursuing their investment objectives and may enter into options written to hedge against changes in the value of equities. The BP All-Cap Value Fund, the WPG Small Cap Value Fund and the SAM Sustainable Global Active Fund write covered call and secured put options. Such options may relate to particular securities or domestic stock indices, and may or may not be listed on a domestic securities exchange or issued by the Options Clearing Corporation. The risk in writing a call option is that a Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that a Fund may incur a loss if the market price of the security decreases and the option is exercised. A Fund also has the additional risk of being unable to enter into a closing transaction at an acceptable price if a liquid secondary market does not exist. A Fund also ANNUAL REPORT 2010 | 47 ROBECO INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS (continued) may write over-the-counter options where completing the obligation depends upon the credit standing of the other party. Option contracts also involve the risk that they may result in loss due to unanticipated developments in market conditions or other causes. Written options are recorded as liabilities to the extent of premiums received. Gains or losses are realized when the option transaction expires or closes. When an option is exercised, the proceeds on sales for a written call option or the purchase cost for a written put option is adjusted by the amount of the premium received or paid. The BP All-Cap Value Fund had transactions in options written during the year ended August 31, 2010 as follows:
NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- ---------- Options outstanding at August 31, 2009... 1,704 $ 900,977 Options written.......................... 6,711 1,183,507 Options closed........................... (1,304) (670,702) Options expired.......................... (584) (91,379) Options exercised........................ (525) (321,793) ------ ---------- Options outstanding at August 31, 2010... 6,002 $1,000,610 ====== ==========
SHORT SALES -- When the investment adviser believes that a security is overvalued, the BP Long/Short Equity Fund and the BP All-Cap Value Fund may sell the security short by borrowing the same security from a broker or other institution and selling the security. A Fund will incur a loss as a result of a short sale if the price of the borrowed security increases between the date of the short sale and the date on which the Fund buys and replaces such borrowed security. A Fund will realize a gain if there is a decline in price of the security between those dates where the decline in price exceeds the costs of borrowing the security and other transaction costs. There can be no assurance that a Fund will be able to close out a short position at any particular time or at an acceptable price. Although a Fund's gain is limited to the amount at which it sold a security short, its potential loss is unlimited. Until a Fund replaces a borrowed security, it will maintain at all times cash, U.S. Government securities, or other liquid securities in an amount which, when added to any amount deposited with a broker as collateral, will at least equal the current market value of the security sold short. Depending on arrangements made with brokers, a Fund may not receive any payments (including interest) on collateral deposited with them. In accordance with the terms of its prime brokerage agreements, the Fund may receive rebate income or be charged a fee on borrowed securities. Such income or fee is calculated on a daily basis based upon the market value of each borrowed security and a variable rate that is dependent upon the availability of such security. The Funds record these prime broker charges on a net basis as interest income or interest expense. For the year ended August 31, 2010, the BP Long/Short Equity Fund had net charges of $1,224,525 on borrowed securities. Such amounts are included in prime broker interest expense on the statement of operations. As of August 31, 2010, the BP Long/Short Equity Fund had securities sold short valued at $56,167,231 for which securities of $56,201,727 and cash deposits of $39,677,881 were pledged as collateral. In accordance with the Special Custody and Pledge Agreement with Goldman Sachs (the Fund's prime broker), the BP Long/Short Equity Fund may borrow from Goldman Sachs to the extent necessary to maintain required margin cash deposits on short positions. Interest on such borrowings is charged to the Fund based on the LIBOR rate plus an agreed upon spread. The BP Long/Short Equity Fund utilized cash borrowings from Goldman Sachs to meet required margin cash deposits as follows during the year ended August 31, 2010:
AVERAGE DAILY WEIGHTED AVERAGE DAYS UTILIZED BORROWINGS INTEREST RATE ------------- ------------- ---------------- 365 $7,070,391 1.06%
As of August 31, 2010, the Fund had borrowings of $18,197,348. Interest expense for the year ended August 31, 2010 totaled $76,278. 2. TRANSACTIONS WITH INVESTMENT ADVISERS AND OTHER SERVICES Robeco Investment Management, Inc. ("Robeco") provides investment advisory services to the BP Funds and the WPG Small Cap Value Fund. For its advisory services with respect to the BP Funds, Robeco is entitled to receive 1.00% of the BP Small Cap Value Fund II's average daily net assets, 2.25% of the BP Long/Short Equity Fund's average daily net assets and 0.80% of the BP All-Cap Value Fund's average daily net assets, each accrued daily and payable monthly. 48 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS (continued) Until December 31, 2011, Robeco has contractually agreed to limit the BP Funds' total operating expenses (other than brokerage commissions, extraordinary items, interest, dividends on short sales, or taxes) to the extent that such expenses exceed the ratios in the table below. This limit is calculated daily based on each Fund's average daily net assets. This limitation is effected in waivers of advisory fees and reimbursements of expenses exceeding the advisory fee as necessary. Robeco may not recoup any of its waived investment advisory fees.
INSTITUTIONAL INVESTOR ------------- -------- BP Small Cap Value Fund II 1.30% 1.55% BP Long/Short Equity Fund 2.50% 2.75% BP All-Cap Value Fund 0.95% 1.20%
Effective March 1, 2010, Robeco has contractually agreed to waive additional fees for the BP All-Cap Value Fund through December 31, 2011. Robeco has agreed to limit total operating expenses (other than brokerage commissions, extraordinary items, interest, dividends on short sales or taxes) to the extent that such expenses exceed the following ratios:
INSTITUTIONAL INVESTOR ------------- -------------- BP All-Cap Value Fund 0.70% 0.95%
For its advisory services with respect to the WPG Small Cap Value Fund, Robeco is entitled to receive advisory fees, accrued daily and paid monthly, as follows: WPG Small Cap Value Fund 0.90% of net assets up to $300 million 0.80% of net assets $300 million to $500 million 0.75% of net assets in excess of $500 million
Until December 31, 2011, Robeco has contractually agreed to limit the WPG Small Cap Value Fund's operating expenses to 1.70% as a percentage of each Fund's average daily net assets. Robeco may not recoup any of its waived investment advisory fees. For the year ended August 31, 2010, Robeco has waived fees as follows:
INVESTMENT ADVISER FUNDS EXPENSE WAIVED ----- ------------------ Robeco Small Cap Value Fund II $ 68,849 Robeco Long/Short Equity Fund 106,526 Robeco All-Cap Value Fund 344,480 Robeco WPG Small Cap Value Fund 28,448
Sustainable Asset Management USA, Inc. ("SAM") provides investment advisory services to the SAM Sustainable Global Active Fund. SAM is an affiliate of Robeco Investment Management, Inc., and a subsidiary of Robeco Groep. SAM is entitled to an advisory fee at the annual rate of 0.80% of SAM Sustainable Global Active Fund's average daily net assets, computed daily and payable monthly. Until December 31, 2011, SAM has contractually agreed to limit the SAM Sustainable Global Active Fund total operating expenses (other than brokerage commissions, extraordinary items, interest or taxes) to the extent that such expenses exceed certain ratios. For the Institutional Class, SAM has agreed to waive fees and reimburse expenses to the extent that the total operating expenses of the Fund exceed 1.20% of the first $50 million of the Fund's average daily net assets, 1.10% of the Fund's average daily net assets between $50 million and $100 million and 1.00% of the Fund's average daily net assets in excess of $100 million. For the Investor Class, SAM has agreed to waive fees and reimburse expenses to the extent that the total operating expenses of the Fund exceed 1.45% of the first $50 million of the Fund's average daily net assets, 1.35% of the Fund's average daily net assets between $50 million and $100 million and 1.25% of the Fund's average daily net assets in excess of $100 million. SAM may not recoup any of its waived investment advisory fees. For the year ended August 31, 2010, SAM waived fees of and reimbursed expense of $122,289 and 124,500, respectively. BNY Mellon Investment Servicing (US) Inc. ("BNY"), a member of The Bank of New York Mellon Corporation, serves as administrator for the Funds. For providing administration and accounting services, BNY is entitled to receive a monthly fee equal to an annual percentage rate of each Fund's average daily net assets, subject to certain minimum monthly fees. Included in the administration and accounting service fees, shown on the Statement of Operations, are fees for providing regulatory administrative services to RBB. For providing these services, BNY is entitled to receive compensation as agreed to by the Company and BNY. This fee is allocated to each Fund in proportion to its net assets of the Company. ANNUAL REPORT 2010 | 49 ROBECO INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS (continued) In addition, BNY serves as the Funds' transfer and dividend disbursing agent. For providing transfer agency services, BNY is entitled to receive a monthly fee, subject to certain minimum. PFPC Trust Company ("PFPC Trust") is a member of The Bank of New York Mellon Corporation and provides certain custodial services to the Funds. PFPC Trust is entitled to receive a monthly fee equal to an annual percentage rate of the Funds' average daily net assets, subject to certain minimum monthly fees. The Board of Directors of the Company has approved a Distribution Agreement for the Funds and adopted a separate Plan of Distribution for the Investor Class (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, BNY Distributors Inc. (the "Distributor") is entitled to receive from the Funds a distribution fee with respect to the Investor Class, which is accrued daily and paid monthly, of up to 0.25% on an annualized basis of the average daily net assets of the Class. Amounts paid to the Distributor under the Plan may be used by the Distributor to cover expenses that are related to (i) the sale of the Shares, (ii) ongoing servicing and/or maintenance of the accounts of share-holders, and (iii) sub-transfer agency services, subaccounting services or administrative services related to the sale of the Investor Class, all as set forth in the Funds' 12b-1 Plan. 3. DIRECTORS/COMPENSATION The Directors of the Company receive an annual retainer, meeting fees and out of pocket expenses for meetings attended. The aggregate remuneration paid to the Directors by the Funds during the fiscal year ended August 31, 2010 was $55,193. Certain employees of BNY are Officers of the Company. They are not compensated by the Funds or the Company. 4. INVESTMENT IN SECURITIES For the year ended August 31, 2010, aggregate purchases and sales of investment securities (excluding short-term investments and U.S. government obligations) were as follows:
PURCHASES SALES ------------- ------------ BP Small Cap Value Fund II $ 51,879,029 $ 32,376,434 BP Long/Short Equity Fund 308,490,346 147,274,558 BP All-Cap Value Fund 105,521,608 46,073,655 WPG Small Cap Value Fund 32,359,755 36,905,678 SAM Sustainable Global Active Fund 17,844,788 12,935,006
5. CAPITAL SHARE TRANSACTIONS As of August 31, 2010, each class of each Fund has 100,000,000 shares of $0.001 par value common stock authorized except for the Institutional Class of the WPG Small Cap Value Fund, which has 50,000,000 shares of $0.001 par value common stock authorized. As of August 31, 2010, the following Funds had shareholders that held 10% or more of the outstanding shares of the Funds. These shareholders may be omnibus accounts which are comprised of many underlying shareholders. BP Small Cap Value Fund II (2 shareholders) 61% BP Long/Short Equity Fund (4 shareholders) 82% BP All-Cap Value Fund (2 shareholder) 50% SAM Sustainable Global Active Fund (2 shareholders) 97%
6. SECURITIES LENDING Securities may be loaned to financial institutions, such as broker-dealers, and are required to be secured continuously by collateral in cash, cash equivalents, letter of credit or U.S. Government securities maintained on a current basis at an amount at least equal to the market value of the securities loaned. Cash collateral received, pursuant to investment guide-lines established by the Fund and approved by the Board of Directors, is invested in the Institutional Money Market Trust. All such investments are made at the risk of the Fund and, as such, the Fund is liable for investment losses. Such loans would involve risks of delay in receiving additional collateral in the event the value of the collateral decreased below the value of the securities loaned or of delay in recovering the securities loaned or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers deemed by the Adviser to be of good standing and only when, in the Adviser's judgment, the income to be earned from the loans justifies the attendant risks. Any 50 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS (continued) loans of a Fund's securities will be fully collateralized and marked to market daily. During the year ended August 31, 2010, the Funds participated in securities lending. The market value of securities on loan and collateral as of August 31, 2010 and the income generated from the program during the year ended August 31, 2010 with respect to such loans are as follows:
MARKET VALUE INCOME RECEIVED OF SECURITIES MARKET VALUE FROM SECURITIES FUND LOANED OF COLLATERAL LENDING ------ ------------- ------------- ---------------- BP Small Cap Value Fund II $20,765,330 $22,097,610 $33,912 BP Long/Short Equity Fund 15,633,569 16,667,599 60,793 BP All-Cap Value Fund 18,262,988 19,033,543 8,928 WPG Small Cap Value Fund 9,167,909 9,762,890 16,403 SAM Sustainable Global Active Fund 824,259 846,682 545
7. RESTRICTED SECURITIES A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933 (the "1933 Act") or pursuant to the resale limitations provided by Rule 144 under the 1933 Act, or an exemption from the registration requirements of the 1933 Act. Certain restricted securities may be resold in transactions exempt from registration, normally to qualified institutional buyers, and may be deemed liquid by the Investment Adviser based on procedures established by the Board of Directors. Therefore, not all restricted securities are considered illiquid. At August 31, 2010, the following Funds held restricted securities that were illiquid:
ACQUISITION % OF BP ALL-CAP VALUE FUND ACQUISITION DATE COST SHARES/PAR VALUE NET ASSETS --------------------- ----------------- ----------- ---------- ----- ----------- COMMON STOCKS: J.G.Wentworth, Inc. 144A 08/02/07-03/26/08 $181,980 -- -- 0.0 Peoples Choice Financial Corp., 144A 12/21/04-01/23/06 14,293 1,465 -- 0.0 CORPORATE BOND: Thornburg Mortgage, Inc., 144A 10/01/08 758,149 824,000 -- 0.0 -------- ------- --- --- $954,422 825,465 $-- 0.0% ======== ======= === ===
8. REDEMPTION FEES There is a 1.00% redemption fee on shares redeemed which have been held 60 days or less on the BP Small Cap Value Fund II and the SAM Sustainable Global Active Fund. There is a 2.00% redemption fee on shares redeemed which have been held 365 days or less on the BP Long/Short Equity Fund. The WPG Small Cap Value Fund has a 2.00% redemption fee on shares redeemed within 60 days of purchase. The redemption fees are retained by the Funds for the benefit of the remaining shareholders and recorded as paid-in capital. 9. FEDERAL INCOME TAX INFORMATION Management has analyzed each Fund's tax positions taken on federal income tax returns for all open tax years (August 31, 2007 - 2010) and has concluded that no provision for federal income tax is required in the Funds' financial statements. The Funds' federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. ANNUAL REPORT 2010 | 51 ROBECO INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS (continued) As of August 31, 2010, federal tax cost and aggregate gross unrealized appreciation and depreciation of securities held by each Fund were as follows:
NET UNREALIZED FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION FUND COST APPRECIATION (DEPRECIATION) /(DEPRECIATION) ---- ------------ ------------ -------------- --------------- BP Small Cap Value Fund II $109,047,142 $ 8,897,151 $(11,816,800) $ (2,919,649) BP Long/Short Equity Fund 270,460,360 13,022,524 (24,144,258) (11,121,734) BP All-Cap Value Fund 150,169,648 4,170,720 (10,957,481) (6,786,761) WPG Small Cap Value Fund 41,852,924 4,126,985 (3,901,616) 225,369 SAM Sustainable Global Active Fund 17,416,777 856,082 (959,646) (103,564)
Distributions to shareholders from net investment income and realized gains are determined in accordance with Federal income tax regulations, which may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on the tax treatment; temporary differences do not require such reclassification. The following permanent differences as of August 31, 2010, were reclassified among the following accounts. They are primarily attributable to net investment loss, gains and losses on foreign currency transactions, tax reclassification of distributions received, capitalization of short sale dividends, investments in partnerships and investments in trust preferred securities.
INCREASE/ INCREASE/ (DECREASE) (DECREASE) ACCUMULATED INCREASE/ UNDISTRIBUTED NET REALIZED (DECREASE) NET INVESTMENT GAIN/(LOSS) ADDITIONAL FUND INCOME/(LOSS) ON INVESTMENTS PAID-IN CAPITAL ---- -------------- -------------- --------------- BP Small Cap Value Fund II $ (6,875) $ 6,875 $ -- BP Long/Short Equity Fund 4,274,269 (4,255,498) (18,771) WPG Small Cap Value Fund 138,675 4,216 (142,891) SAM Sustainable Global Active Fund 6,421 (6,421) --
As of August 31 2010, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ORDINARY LONG-TERM FUND INCOME GAINS ---- ------------- ------------- BP Small Cap Value Fund II $ 61,717 $ -- BP Long/Short Equity Fund 18,920,984 -- BP All-Cap Value Fund 1,859,277 -- WPG Small Cap Value Fund -- -- SAM Sustainable Global Active Fund 788,803 38,085
The differences between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for federal income tax purposes. Short-term and foreign currency gains are reported as ordinary income for federal tax purposes. The tax character of distributions paid during the fiscal year ended August 31, 2010 and 2009 were as follows:
2010 2009 ------------------------------------------- ----------------------------------------------- ORDINARY LONG-TERM RETURN OF ORDINARY LONG-TERM RETURN OF FUND INCOME GAINS CAPITAL TOTAL INCOME GAINS CAPITAL TOTAL ---- -------- --------- --------- -------- ---------- --------- --------- ---------- BP Small Cap Value Fund II $190,014 -- -- $190,014 $1,343,179 $ -- $269,326 $1,612,505 BP Long/Short Equity Fund -- -- -- -- 4,901,142 -- -- 4,901,142 BP All-Cap Value Fund 791,384 -- -- 791,384 474,174 353,246 -- 827,420 WPG Small Cap Value Fund 107,006 -- -- 107,006 88,822 -- -- 88,822 SAM Sustainable Global Active Fund 989,046 -- -- 989,046 -- -- -- --
Distributions from net investment income and short-term capital gains are treated as ordinary income for federal income tax purposes. 52 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS (concluded) For Federal income tax purposes, capital loss carryforwards represent net realized capital losses of a Fund that may be carried forward for a maximum of eight years and applied against future net capital gains. As of August 31, 2010, the following Funds had capital loss carryforwards available to offset future realized capital gains through the expiration dates indicated below:
FUND 2016 2017 2018 TOTAL ---- ---------- ----------- ----------- ----------- BP Small Cap Value Fund II $ -- $15,908,734 $12,850,401 $28,759,135 BP Long/Short Equity Fund 2,529,702 -- -- 2,529,702 WPG Small Cap Value Fund -- 7,340,717 3,418,543 10,759,260
During the year ended August 31, 2010, the following funds utilized capital loss carry forwards to offset capital gain: BP Long/Short Equity Fund $2,527,202 BP All-Cap Value Fund 1,022,337
Due to limitations imposed by the Internal Revenue Code and the regulations thereunder, the capital losses from the BP Long/Short Equity Fund that were acquired in its reorganization with WPG 130/30 Large Cap Core Fund could not be fully used against its current year capital gains. The remaining loss of $2,529,702 is carried forward and $421,617 can be utilized annually against the Fund's realized capital gains through August 31, 2016. Under federal tax law, foreign currency and capital losses realized after October 31 may be deferred and treated as having arisen on the first day of the following fiscal year. For the fiscal year ended August 31, 2010, the following Fund will defer post-October capital and foreign currency losses to the fiscal year ending August 31, 2011.
FUND CAPITAL FOREIGN CURRENCY ---- ------- ---------------- BP Long/Short Equity Fund $-- $1,268
10. FUND REORGANIZATION The Board of Directors of the Company and the stockholders of the WPG 130/30 Large Cap Core Fund approved a plan of reorganization pursuant to which the assets and identified liabilities of the WPG 130/30 Large Cap Core Fund were transferred into the BP Long/Short Equity Fund in exchange for 746,155 Institutional Class shares of the BP Long/Short Equity Fund with a Net Asset Value of $10.72. The reorganization was a tax-free event and took place on April 20, 2009. The following information relates to the Funds immediately prior and immediately after the consummation of the reorganization:
SHARES UNREALIZED CAPITAL LOSS FUND OUTSTANDING NET ASSETS DEPRECIATION CARRYFORWARD ---- ----------- ----------- ------------ ------------ WPG 130/30 Large Cap Core Fund (before reorganization) 834,162 $ 8,000,331 $(1,467,735) $(5,435,283) BP Long/Short Equity Fund (before reorganization) 1,872,054 25,301,128 N/A N/A BP Long/Short Equity Fund (after reorganization) 2,618,209 33,301,459 N/A N/A
11. NEW ACCOUNTING PRONOUNCEMENT In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06, "Improving Disclosures about Fair Value Measurements." ASU No. 2010-06 amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, to require additional disclosures regarding fair value measurements. Certain disclosures required by ASU No. 2010-06 are currently effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management has evaluated the impact and has incorporated the appropriate disclosures required by ASU No. 2010-06 in its financial statement disclosure. 12. SUBSEQUENT EVENTS Management has evaluated the impact of all subsequent events on the Fund(s) through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements. ANNUAL REPORT 2010 | 53 ROBECO INVESTMENT FUNDS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of The RBB Fund, Inc.: We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Robeco Boston Partners Small Cap Value Fund II, Robeco Boston Partners Long/Short Equity Fund, Robeco Boston Partners All-Cap Value Fund, Robeco WPG Small Cap Value Fund, and SAM Sustainable Global Active Fund (five of the series constituting The RBB Fund, Inc.)(the "Funds") as of August 31, 2010, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years or periods presented in the two-year period then ended, and the financial highlights for each of the years or periods presented in the four-year period then ended. We have also audited the statement of cash flows of the Robeco Boston Partners Long/Short Equity Fund for the year ended August 31, 2010. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year ended August 31, 2006 were audited by other auditors, whose report dated October 26, 2006 expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2010, by correspondence with the custodian and brokers or by other appropriate procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Robeco Boston Partners Small Cap Value Fund II, Robeco Boston Partners Long/Short Equity Fund, Robeco Boston Partners All-Cap Value Fund, Robeco WPG Small Cap Value Fund, and SAM Sustainable Global Active Fund of The RBB Fund, Inc. at August 31, 2010, the results of their operations for the year then ended, the changes in their net assets for each of the years or periods presented in the two-year period then ended, their financial highlights for each of the years or periods presented in the four-year period then ended, and the statement of cash flows of the Robeco Boston Partners Long/Short Equity Fund for the year then ended, in conformity with U.S. generally accepted accounting principles. ERNST & YOUNG LLP Philadelphia, Pennsylvania October 27, 2010 54 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS SHAREHOLDER TAX INFORMATION (unaudited) Each Fund is required by subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of each Fund's fiscal year end (August 31, 2010) as to the U.S. federal tax status of distributions received by each Fund's shareholders in respect of such fiscal year. During the fiscal year ended August 31, 2010, the following dividends and distributions were paid by each of the Funds:
ORDINARY LONG-TERM RETURN OF INCOME CAPITAL GAINS CAPITAL -------- ------------- --------- BP Small Cap Value Fund II ................. $190,014 $-- $-- BP All-Cap Value Fund ...................... 791,384 -- -- WPG Small Cap Value Fund ................... 107,006 -- -- SAM Sustainable Global Active Fund ......... 989,046 -- --
Distributions from net investment income and short-term capital gains are treated as ordinary income for federal tax purposes. The percentage of total ordinary income dividends paid qualifying for the 15% dividend income tax rate for each Fund is as follows: BP Small Cap Value Fund II ................. 100.00% BP All-Cap Value Fund ...................... 100.00% WPG Small Cap Value Fund ................... 100.00% SAM Sustainable Global Active Fund ......... 13.48%
The percentage of total ordinary income dividends paid qualifying for the corporate dividends received deduction for each Fund is as follows: BP Small Cap Value Fund II ................. 100.00% BP All-Cap Value Fund ...................... 90.70% WPG Small Cap Value Fund ................... 100.00% SAM Sustainable Global Active Fund ......... 5.40%
The SAM Sustainable Global Active Fund paid foreign taxes and recognized foreign source income as follows:
FOREIGN FOREIGN TAXES PAID SOURCE INCOME ---------- ------------- $28,437 $276,884
These amounts were reported to shareholders as income in 2009. Because each Fund's fiscal year is not the calendar year, another notification will be sent with respect to calendar year 2010.The second notification, which will reflect the amount, if any, to be used by calendar year taxpayers on their U.S. federal income tax returns, will be made in conjunction with Form 1099-DIV and will be mailed in January 2011. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of their ordinary income dividends. They will generally not be entitled to a foreign tax credit or deduction for the withholding taxes paid by each Fund, if any. In general, dividends received by tax exempt recipients (e.g., IRAs and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult their own tax advisers with respect to the tax consequences of their investment in the Funds. ANNUAL REPORT 2010 | 55 ROBECO INVESTMENT FUNDS OTHER INFORMATION (unaudited) PROXY VOTING Policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities as well as information regarding how the Funds voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 are available without charge, upon request, by calling (888) 261-4073 and on the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov. QUARTERLY PORTFOLIO SCHEDULE The Company files a complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year (quarters ended November 30 and May 31) on Form N-Q. The Company's Form N-Q is available on the SEC website at http://www.sec.gov and may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. Information on the operation of the SEC Public Reference Room may be obtained by calling (202) 551-8090. APPROVAL OF INVESTMENT ADVISORY AGREEMENTS ROBECO INVESTMENT MANAGEMENT, INC. As required by the 1940 Act, the Board of Directors (the "Board") of the Company, including all of the Directors who are not "interested persons" of the Company, as that term is defined in the 1940 Act (the "Independent Directors"), considered the renewal of the investment advisory agreements between Robeco and the Company on behalf of the Robeco Boston Partners Long/Short Equity Fund, Robeco Boston Partners Small Cap Value Fund II, Robeco Boston Partners All-Cap Value Fund, and Robeco WPG Small Cap Value Fund (each a "Fund" and together, the "Funds") (the "Advisory Agreements") at a meeting of the Board held on May 6, 2010. At the meeting, the Board, including all of the Independent Directors, approved the Advisory Agreements for an additional one-year term. The Board's decision to approve the Advisory Agreements reflects the exercise of its business judgment to continue the existing arrangements. In approving the Advisory Agreements, the Board considered information provided by Robeco with the assistance and advice of counsel to the Independent Directors and the Company. In considering the renewal of and approval of the Advisory Agreements, the Directors took into account all the materials provided prior to and during the meeting and at other meetings throughout the past year, the presentations made during the meeting, and the discussions during the meeting. Among other things, the Directors considered (i) the nature, extent, and quality of Robeco's services provided to the Funds; (ii) descriptions of the experience and qualifications of Robeco's personnel providing those services; (iii) Robeco's investment philosophies and processes; (iv) Robeco's assets under management and client descriptions; (v) Robeco's soft dollar commission and trade allocation policies, including information on the types of research and services obtained in connection with soft dollar commissions; (vi) Robeco's current advisory fee arrangements with the Company and other similarly managed clients; (vii) Robeco's compliance procedures; (viii) Robeco's financial information and insurance coverage; (ix) the extent to which economies of scale are relevant to the Funds; (x) a report prepared by Lipper, Inc. ("Lipper") comparing each Fund's management fees and total expense ratio to those of its Lipper peer group and comparing the performance of each Fund to the performance of its Lipper peer group; and (xi) a report comparing the performance of each Fund to the performance of its benchmark. As part of their review, the Directors considered the nature, extent and quality of the services provided by Robeco. The Directors concluded that Robeco had substantial resources to provide services to the Funds and that Robeco's services had been acceptable. The Directors also considered the investment performance of the Funds and Robeco. Information on the Funds' investment performance was provided for one, two, three, four and five year periods, as applicable. The Directors considered the Funds' investment performance in light of their investment objectives and investment strategies. The Directors concluded that the investment performance of each of the Funds as compared to their respective benchmarks and Lipper peer groups was acceptable. 56 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS OTHER INFORMATION (unaudited) (concluded) The Board of Directors also considered the advisory fee rates payable by the Funds under the Advisory Agreements. In this regard, information on the fees paid by the Funds and the Funds' total operating expense ratios (before and after fee waivers and expense reimbursements) were compared to similar information for mutual funds advised by other, unaffiliated investment advisory firms. The Directors noted that the advisory fees, after fee waivers, of the Funds, with the exception of the Boston Partners Long/Short Equity Fund and WPG Small Cap Value Fund, were lower than median fees of each Fund's respective peer group. It was noted that the expense structure for the Boston Partners Long/Short Equity Fund is higher due to the operation of two separate investment portfolios and the cost of short sales. It was also noted that the contractual advisory fees for the WPG Small Cap Value Fund approximated the median contractual advisory fees for its respective peer group. In addition, the Directors noted that Robeco had contractually agreed to waive management fees and reimburse expenses through December 31, 2011 to limit total annual operating expenses to agreed upon levels for each Fund. After reviewing the information regarding Robeco's costs, profitability and economies of scale, and after considering Robeco's services, the Directors concluded that the investment advisory fees paid by the Funds were fair and reasonable and that the Advisory Agreement should be approved and continued for an additional one-year period ending August 16, 2011. SUSTAINABLE ASSET MANAGEMENT, USA As required by the 1940 Act, the Board of the Company including all of the Independent Directors, considered the renewal of the investment advisory agreement between SAM and the Company (the "Advisory Agreement") on behalf of the SAM Sustainable Global Active Fund (the "Fund") at a meeting of the Board held on May 6, 2010 for an additional one-year term. The Board's decision to approve the Advisory Agreement reflects the exercise of its business judgment to continue the existing arrangement. In considering the renewal of and approval of the Advisory Agreement, the Directors took into account all the materials provided prior to and during the meeting and at other meetings throughout the past year, the presentations made during the meeting, and the discussions during the meeting. Among other things, the Directors considered (i) the nature, extent, and quality of SAM's services provided to the Fund; (ii) the experience and qualifications of SAM's personnel providing those services; (iii) SAM's investment philosophies and processes; (iv) SAM's assets under management and client descriptions; (v) SAM's trade allocation policies; (vi) SAM's current advisory fee arrangements with the Company and other similarly managed clients; (vii) SAM's compliance procedures; (viii) SAM's financial information; (ix) the extent to which economies of scale are relevant to the Fund; (x) a report comparing the performance of the Fund to the performance of its benchmark; and (xi) the fact that the Fund was expected to liquidate in the near future. After reviewing the information, and noting that SAM had contractually agreed to waive management fees and reimburse expenses through December 31, 2011 to limit total annual operating expenses to agreed upon levels for the Fund, the Directors concluded that the investment advisory fees paid by the Fund were fair and reasonable and that the Advisory Agreement should be approved and continued for an additional one-year period ending August 16, 2011. ANNUAL REPORT 2010 | 57 ROBECO INVESTMENT FUNDS FUND MANAGEMENT (unaudited) The business and affairs of the Company are managed under the direction of the Company's Board of Directors. The Company is organized under and managed pursuant to Maryland law. The Directors and executive officers of the Company, their dates of birth, business addresses and principal occupations during the past five years are set forth below. The Statement of Additional Information ("SAI") includes additional information about the Directors and is available without charge by calling (888) 261-4073.
NUMBER OF TERM OF PORTFOLIOS IN OTHER POSITION(S) OFFICE AND FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED (1) DURING PAST 5 YEARS DIRECTOR* DIRECTOR ----------------- ----------- --------------- -------------------------------------------- ------------- ----------------------- DISINTERESTED DIRECTORS Nicholas A. Giordano Director 2006 to present Consultant, financial services organizations 18 Kalmar Pooled 103 Bellevue Parkway from 1997 to present. Investment Trust; Wilmington, DE 19809 (registered DOB: 3/43 investment company) WT Mutual Fund; (registered investment company) Independence Blue Cross; IntriCon Corporation (body worn device company) Francis J. McKay Director 1988 to present Retired; Executive Vice President and Chief 18 None 103 Bellevue Parkway Operating Officer, Fox Chase Cancer Wilmington, DE 19809 Center (biomedical research and medical DOB: 12/35 care) (1981-2004). Arnold M. Reichman Chairman 2005 to present Director, Gabelli Group Capital Partners, 18 None 103 Bellevue Parkway L.P. (an investment partnership) from 2000 Wilmington, DE 19809 Director 1991 to present to 2006. DOB: 5/48 Marvin E. Sternberg Director 1991 to present Since 1974, Chairman, Director and 18 MTI Holding 103 Bellevue Parkway President, MTI Holding Group, Inc. (formerly Group Inc. (formerly Wilmington, DE 19809 known as Moyco Technologies, Inc.) (manu- known as Moyco DOB: 3/34 facturer of dental products and precision Technologies, Inc.) coated and industrial abrasives). Robert A. Straniere Director 2006 to present Since 2009,Administrative Law Judge, New 18 Reich and Tang Group 103 Bellevue Parkway York City; Founding Partner, Straniere Law (asset management); Wilmington, DE 19809 Firm (1980 to present); Partner, Gotham The SPARX Asia DOB: 3/41 Strategies (consulting firm) (2005 to 2008); Funds Group (registered Partner,The Gotham Global Group (con- investment company) sulting firm) (2005 to 2008); President,The (until 2009) New York City Hot Dog Company (2005 to present); Partner, Kanter-Davidoff (law firm) (2006 to 2007).
58 | ANNUAL REPORT 2010 ROBECO INVESTMENT FUNDS FUND MANAGEMENT (unaudited) (continued)
NUMBER OF TERM OF PORTFOLIOS IN OTHER POSITION(S) OFFICE AND FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED (1) DURING PAST 5 YEARS DIRECTOR* DIRECTOR ----------------- ----------- --------------- -------------------------------------------- ------------- ----------------------- INTERESTED DIRECTORS(2) Julian A. Brodsky Director 1988 to present Since 1969, Director and Vice Chairman, 18 Comcast Corporation; 103 Bellevue Parkway Comcast Corporation (cable television and AMDOCS Limited (service Wilmington, DE 19809 communications). provider to DOB: 7/33 telecommunications companies) Robert Sablowsky Director 1991 to present Since July 2002, Senior Director and prior 18 Kensington Funds 103 Bellevue Parkway thereto, Executive Vice President, of (registered investment Wilmington, DE 19809 Oppenheimer & Co., Inc., formerly company) (until DOB: 4/38 Fahnestock & Co., Inc. (a registered 2009) broker-dealer). J. Richard Carnall Director 2002 to present Director of Haydon Bolts, Inc. (bolt manu- 18 Cornerstone Bank 103 Bellevue Parkway facturer) and Parkway Real Estate Company Wilmington, DE 19809 (subsidiary of Haydon Bolts, Inc.) since DOB: 9/38 1984; and Director of Cornerstone Bank since March 2004.
ANNUAL REPORT 2010 | 59 ROBECO INVESTMENT FUNDS FUND MANAGEMENT (unaudited) (concluded)
NUMBER OF TERM OF PORTFOLIOS IN OTHER POSITION(S) OFFICE AND FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND DATE OF BIRTH WITH FUND TIME SERVED DURING PAST 5 YEARS DIRECTOR DIRECTOR ----------------- ----------- --------------- -------------------------------------------- ------------- ----------------------- OFFICERS Salvatore Faia, President President June President,Vigilant Compliance Services since N/A N/A Esquire, CPA and Chief 2009 to present 2004; Senior Legal Counsel, PNC Global Vigilant Compliance Compliance and Chief Investment Servicing (U.S.), Inc. from 2002 Services Officer Compliance to 2004; and Director of Energy Income Brandywine Two Officer 2004 to Partnership since 2005. 5 Christy Drive, present Suite 209 Chadds Ford, PA 19317 DOB: 12/62 Joel Weiss Treasurer June 2009 to Since 1993 Vice President and Managing N/A N/A 103 Bellevue Parkway present Director, BNY Mellon Investment Servicing Wilmington, DE 19809 (US) Inc. (formerly PNC Global Investment DOB: 1/63 Servicing (U.S.) Inc.) (financial services company) Jennifer Rogers Secretary 2007 to present Since 2005,Vice President and Counsel, N/A N/A 301 Bellevue Parkway BNY Mellon Investment Servicing (US) Inc. Wilmington, DE 19809 (formerly PNC Global Investment Servicing DOB: 7/74 (U.S.), Inc. (financial services company); Associate, Stradley, Ronon, Stevens & Young, LLC (law firm) from 1999 to 2005. James G. Shaw Assistant 2005 to present Since 1995,Vice President of BNY Mellon N/A N/A 103 Bellevue Parkway Treasurer Investment Servicing (US) Inc. (formerly Wilmington, DE 19809 PNC Global Investment Servicing (U.S.) Inc. DOB: 10/60 (financial services company) Michael P. Malloy Assistant 1999 to present Since 1993, Partner, Drinker Biddle & N/A N/A One Logan Square, Secretary Reath LLP (law firm) Ste. 2000 Philadelphia, PA 19103-6996 DOB: 7/59
* Each Director oversees eighteen portfolios of the Company that are currently offered for sale. (1) Subject to the Company's Retirement Policy, each Director may continue to serve as a Director until the last day of the calendar year in which the 1 applicable Director attains age 75 or until the last day of year 2011, whichever is later, or until his successor is elected and qualified or his death, resignation or removal. The Board reserves the right to waive the requirements of the Policy with respect to an individual Director. Each officer holds office at the pleasure of the Board of Directors until the next special meeting of the Company or until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed. (2) Messrs. Brodsky, Carnall and Sablowsky are considered "interested persons" of the Company as that term is defined in the 1940 Act and are referred 2 to as "Interested Directors." Mr. Brodsky is an "Interested Director" of the Company because a family foundation and certain family trusts own shares of JPMorgan Chase & Co. The investment adviser to the Company's Bear Stearns CUFS MLP Mortgage Portfolio, Bear Stearns Asset Management, Inc., is an indirect subsidiary of JPMorgan Chase. Mr. Carnall is an "Interested Director" of the Company because he owns shares of The PNC Financial Services Group, Inc. ("PNC"). PNC owns a controlling interest in BlackRock, Inc., the parent company of BlackRock Institutional Management Corporation, the investment adviser to the Company's Money Market Portfolio. Mr. Sablowsky is considered an "Interested Director" of the Company by virtue of his position as an officer of Oppenheimer & Co., Inc., a registered broker-dealer. 60 | ANNUAL REPORT 2010 INVESTMENT ADVISERS Robeco Investment Management Inc. 909 Third Avenue New York, NY 10022 or Sustainable Asset Management USA, Inc. 909 Third Avenue, 32nd Floor New York, NY 10022 and Josefstrasse 218 CH-8005 Zurich, Switzerland ADMINISTRATOR BNY Mellon Investment Servicing (US) Inc. 301 Bellevue Parkway Wilmington, DE 19809 TRANSFER AGENT BNY Mellon Investment Servicing (US) Inc. 101 Sabin Street Pawtucket, RI 02860 PRINCIPAL UNDERWRITER BNY Mellon Distributors Inc. 760 Moore Road King of Prussia, PA 19406 CUSTODIAN PFPC Trust Company 301 Bellevue Parkway Wilmington, DE 19809 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Two Commerce Square 2001 Market Street, Suite 4000 Philadelphia, PA 19103 COUNSEL Drinker Biddle & Reath LLP One Logan Square, Ste. 2000 Philadelphia, PA 19103-6996 THE SCHNEIDER FUNDS ANNUAL INVESTMENT ADVISER'S REPORT AUGUST 31, 2010 (UNAUDITED) Fellow Shareholder: This annual report for the Schneider Funds covers the fiscal year ended August 31, 2010. U.S. equities posted modest gains during the period as both the global economy and U.S. economy began to recover from the deep recession aggravated by the global financial crisis. The broad market Russell 3000 Index rose 5.64%. Early in the calendar year, many market participants were overly optimistic in pricing in a typical V-shaped, cyclical recovery. However, expectations for a more vibrant rebound in the U.S. were temporarily challenged by the shock from the European debt crisis. These events were followed by economic data in the summer that signaled a slowdown in the pace of the recovery. Worries increased that the U.S. could dip back into recession, and investors wanted more assurance that the global financial system was not in danger of relapsing towards the lows of the 2008 financial crisis. Investors took some risk off the table, as evidenced by the slump in equities from May through August, and by the performance of U.S. Treasuries, which had their best start to a year since 1995. We believe that the U.S. economy is in a sustained, but sluggish, expansion. Our early expectation for modest growth with some staying power remains intact despite the slowdown in recent months. As a result, we did not substantially alter our portfolio strategy in the period, and during the summer sell-off we stepped in to acquire some outstanding values. Although the U.S. economy is still vulnerable to a major shock, investors might be giving too little credit to the tailwinds that should help prevent a rare relapse into recession: U.S. monetary policy is very accommodative and is likely to remain so, although its impact from here will be less potent; inflation is not a near-term concern; public corporations possess solid balance sheets and a leaner cost structure; business capital spending relative to gross domestic product is likely to continue to rise from 40-year lows; consumers have made significant progress to shore up their finances; vigorous demand from emerging markets and a lower dollar should continue to provide a boost to exports; and the banking system is much healthier than during the 2007-2008 crisis. According to the FDIC, bank capital as a percent of assets is the highest in decades. Looking beyond the near-term outlook for the U.S. economy, the government's deficit commission has been addressing our medium-term fiscal challenges and will propose recommendations in December for repairing the damage done to our country's balance sheet over the last couple of years. The composition of our fiscal adjustment is critical. Numerous academic studies show that economies grow at much faster rates when deficits are reigned in by spending cuts rather than tax increases. The United Kingdom has recently adopted this approach. We think traditional deep value investing is poised for a very rewarding period. Based on our historical valuation measures, both Funds appear to offer uncommon investment potential. Our companies possess enormous earnings leverage for the next few years as they rebound from severely depressed levels. Pockets of the energy, financial and technology sectors that have been temporarily stressed offer a compelling blend of low investor expectations and tremendous upside potential against the backdrop of a moderately-paced, subpar economic expansion. We also hold investments in other economically-sensitive industries where capacity is constrained and where operating rates and margins are capable of sufficient improvement to spark a healthy earnings rebound. Although the current atmosphere is thick with uncertainty, we believe sizeable rewards await the patient value investor who takes a longer-term perspective. We appreciate your support and the confidence you have placed in us. /s/ Arnold C. Schneider III Arnold C. Schneider III, CFA Portfolio Manager Schneider Capital Management 1 THE SCHNEIDER FUNDS ANNUAL INVESTMENT ADVISER'S REPORT (CONTINUED) AUGUST 31, 2010 (UNAUDITED) SCHNEIDER SMALL CAP VALUE FUND - PORTFOLIO REVIEW The Small Cap Value Fund outpaced its benchmark for the fiscal year, returning 7.48% versus 6.06% for the Russell 2000 Value Index. Long-term results also exceeded the Russell 2000 Value Index (see table on page 3). Timely stock selection in the technology, energy and transportation sectors made a favorable contribution to returns. Weak performance in financials detracted from performance. The fundamental recovery in the tech sector has advanced since we increased our exposure in late 2008. We have taken profits when stocks hit their target price, but have still been able to find value and earnings growth potential in select segments to maintain our relative overweight position. Business spending is still improving from the depressed levels caused by the deep global recession. Storage company Xyratex, which was sold, and semiconductor equipment firm Axcelis Technologies were notable performers in the period. The Fund has a substantial investment in thermal (utility) coal producers. Coal prices have been depressed due to a huge supply/demand imbalance that is slowly but steadily being worked off. Thanks to rising industrial activity and higher exports, weather-adjusted coal demand improved materially in 2010, while coal production is slightly down for the year. We expect Central Appalachian production to ultimately decline by over 25% from 2008 levels as a result of recently enacted Environmental Protection Agency policies. These trends have already greatly reduced the massive inventory overhang that has plagued the industry for the past two years. Inventories in the east should return to levels that stimulate market demand in 2011, while inventories are at normal levels in the western part of the U.S. We expect the utility market to tighten next year and lead to higher prices for thermal coal. Should the global economy continue to exhibit even a modest level of improvement, the steam coal market could receive a further lift in 2011 from a rebound in exports to Europe. We favor coal producers Arch Coal and Cloud Peak Energy, which have a strong presence in the Powder River Basin of Wyoming, where large-scale surface mining takes place on a very cost-efficient basis. The highest-quality banks, which were the best performing during the period, are usually off a deep value investor's radar screen due to their richer valuations, and investing in deeper value situations near the bottom of the cycle resulted in a few early disappointments. We believe, however, that the worst is past for the banking sector, and we have been able to sift through a large number of candidates to uncover some compelling opportunities. Investing in regional and community banks requires patience at this stage, but the huge upside potential over the next several years compels us to stake our claim. TEN LARGEST HOLDINGS Arch Coal Inc 8.2% Cloud Peak Energy Inc 6.5% Meritage Homes Corp 5.6% Axcelis Technologies Inc 3.5% Regions Financial Corp 3.5% Carrizo Oil & Gas Inc 3.4% RRI Energy Inc 3.3% Citizens Republic Bancorp Inc 3.1% FreightCar America Inc 2.9% Entegris Inc 2.9%
As a percentage of net assets on August 31, 2010 THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO MOST RECENT MONTH-END, PLEASE CALL 1-888-520-3277. The Funds are actively managed on a daily basis, and the securities mentioned herein may not be representative of current or future portfolio composition. For more specific information about Fund holdings, please refer to the Portfolio of Investments section in this report. Small company stocks are generally riskier than large company stocks due to greater volatility and less liquidity. Value investing involves risk that the Fund's investment in companies whose securities are believed to be undervalued, relative to their underlying profitability, will not appreciate in value as anticipated. Unmanaged indices are not available for direct investment and do not incur expenses or sales charges. 2 THE SCHNEIDER FUNDS SCHNEIDER SMALL CAP VALUE FUND ANNUAL INVESTMENT ADVISER'S REPORT (CONCLUDED) AUGUST 31, 2010 (UNAUDITED) Comparison of Change in Value of $10,000 Investment in Schneider Small Cap Value Fund vs. Russell 2000(R) Value Index (PERFORMANCE GRAPH)
Schneider Small Russell 2000 Cap Value Fund Value Index --------------- ------------ 9/2/1998 10000 10000 8/31/1999 18246 11087 8/31/2000 20750 12605 8/31/2001 24888 14880 8/31/2002 22210 14046 8/31/2003 34003 17372 8/31/2004 46921 20759 8/31/2005 61732 25451 8/31/2006 66540 28687 8/31/2007 67020 30594 8/31/2008 53765 28293 8/31/2009 46667 22439 8/31/2010 50157 23801
The chart assumes a hypothetical $10,000 initial investment in the Fund made on September 2, 1998 and reflects Fund expenses. Investors should note that the Fund is a professionally managed mutual fund while the Russell 2000(R) Value Index is unmanaged, does not incur sales charges and/or expenses and is not available for investment. Total Returns for the Periods Ended August 31, 2010
AVERAGE ANNUAL ---------------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION ----- ------ ----- --------- SCHNEIDER SMALL CAP VALUE 7.48% -4.07% 9.23% 14.39% RUSSELL 2000(R) VALUE INDEX 6.06% -1.33% 6.56% 7.58%
The performance data quoted represents past performance. Past performance is not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher. Schneider Capital Management contractually agreed to waive a portion of its advisory fee and reimburse a portion of the Fund's operating expenses, as necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no waiver or reimbursement of fees and expenses in excess of expense limitations. Returns shown include the reinvestment of all dividends and other distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. For performance data current to the most recent month-end, please call 1-888-520-3277. The Fund's gross and net annual operating expenses, as stated in the current prospectus, are 1.43% and 1.16%, respectively. Shares of the Fund not purchased through reinvested dividends or capital gains and held less than one year are subject to a 1.75% redemption fee. The Fund's annualized total return since inception is based on an increase in net asset value from $10.00 per share on September 2, 1998 (inception) to $13.19 per share on August 31, 2010, adjusted for dividends and distributions totaling $29.52 per share paid from net investment income and realized gains. Small company stocks are generally riskier than large company stocks due to greater volatility and less liquidity. Portfolio composition is subject to change. 3 THE SCHNEIDER FUNDS ANNUAL INVESTMENT ADVISER'S REPORT (CONTINUED) AUGUST 31, 2010 (UNAUDITED) SCHNEIDER VALUE FUND - PORTFOLIO REVIEW The -1.30% return for the Value Fund during the fiscal year compared to a 4.96% return for the Russell 1000 Value Index. Since inception, the Fund's longer-term performance surpassed the benchmark (see table on page 5). The performance shortfall was due in part to high uncertainty during the summer months that led cautious investors to seek out the perceived safety of assets like utilities and REITs that we consider fully valued. Even though in aggregate our companies' long-term business fundamentals were undiminished, some cyclical holdings were hit negatively as investors feared that the recovering U.S. economy could dip back into recession. Both the relatively high weighting in energy stocks and favorable security selection within the sector contributed positively to Fund returns during the period. Investments in homebuilders and banks weighed on performance. We have a favorable view toward most segments of the energy sector, and the Fund maintained an overweight position. The largest exposure is to coal mining, where improved demand trends in the face of declining U.S. production should provide stimulus for improved pricing and profitability in 2011. Growth in global demand for thermal coal could outstrip supply for a number of years. Arch Coal had a very favorable impact on performance during the period. We expect the production rate of non-OPEC crude oil output to flatten, which should trim the currently moderate levels of spare global capacity and be supportive of higher oil prices over time. We initiated a position in BP at very attractive prices after the Macondo spill. The exposure to U.S. natural gas dramatically declined with the successful sale of Forest Oil. Undisciplined U.S. gas producers have increased their drilling activity despite the weak pricing environment in order to hold recently acquired leases in promising shale deposits. However, we expect the natural gas rig count to drop in 2011 as these leases begin to expire and contribute to an eventual rebalancing of supply and demand. Homebuilding stocks were weak due to broad concerns about the pace of the economic recovery, depressed buying activity and uncertainty surrounding the extent to which federal tax credits had been supporting the market. D.R. Horton and NVR are low-cost producers that are generating profits, possess solid balance sheets, and should be able to pick up market share at the expense of the non-public homebuilders. Margins should rise as sales migrate from older communities with higher land costs into newer developments with lower land costs. The Fund moved to an overweight position in banks during the fiscal year. We believe the worst is past for the banking sector, given the peaking in non-performing assets and the capital raising activity over the past couple of years. Most of the larger banks are either overcapitalized or are benefiting from a high internal generation of capital, and risks due to pending regulatory changes seem manageable. We expect a substantial improvement in bank fundamentals over the next two years, which should lead to a surge in earnings and pickup in dividend increases, stock buybacks and acquisition activity in the years ahead. We believe that the financial institutions we own are fundamentally healthy, possess the flexibility to deploy excess capital, and trade at compelling valuations. TEN LARGEST HOLDINGS Arch Coal Inc 7.4% JPMorgan Chase & Co 5.5% Wells Fargo & Co 5.0% Dell Inc 4.7% Consol Energy Inc 4.7% Bank of America Corp 4.6% Chesapeake Energy Corp 4.2% Allegheny Energy Inc 3.7% NVR Inc 3.6% International Rectifier Corp 3.5%
As a percentage of net assets on August 31, 2010 THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO MOST RECENT MONTH-END, PLEASE CALL 1-888-520-3277. The Funds are actively managed on a daily basis, and the securities mentioned herein may not be representative of current or future portfolio composition. For more specific information about Fund holdings, please refer to the Portfolio of Investments section in this report. Value investing involves risk that the Fund's investment in companies whose securities are believed to be undervalued, relative to their underlying profitability, will not appreciate in value as anticipated. Unmanaged indices are not available for direct investment and do not incur expenses or sales charges. 4 THE SCHNEIDER FUNDS SCHNEIDER VALUE FUND ANNUAL INVESTMENT ADVISER'S REPORT (CONTINUED) AUGUST 31, 2010 (UNAUDITED) Comparison of Change in Value of $10,000 Investment in Schneider Value Fund vs. Russell 1000(R) Value Index (PERFORMANCE GRAPH)
Russell 1000 Value Index Aggregate Schneider Value Inst & Investor --------------- --------------- 9/30/2002 10000 10000 8/31/2003 14846 12418.1 8/31/2004 19033.7 14593.5 8/31/2005 22719.7 17052.9 8/31/2006 25184.8 19428.1 8/31/2007 28932 21927.1 8/31/2008 21684 18709.2 8/31/2009 16901 14917.6 8/31/2010 16682 15658.9
The chart assumes a hypothetical $10,000 initial investment in the Fund made on September 30, 2002 (inception) and reflects Fund expenses. Investors should note that the Fund is a professionally managed mutual fund while the Russell 1000(R) Value Index is unmanaged, does not incur sales charges and/or expenses and is not available for investment. Total Returns for the Periods Ended August 31, 2010
AVERAGE ANNUAL ------------------- ONE FIVE SINCE YEAR YEARS INCEPTION* ----- ------ ---------- SCHNEIDER VALUE -1.30% -5.99% 6.68% RUSSELL 1000(R) VALUE INDEX 4.96% -1.69% 5.83%
* INCEPTION DATE 9/30/02 The performance data quoted represents past performance. Past performance is not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher. Schneider Capital Management contractually agreed to waive a portion of its advisory fee and reimburse a portion of the Fund's operating expenses, as necessary, to maintain the expense limitation, as set forth in the notes to the financial statements. Total returns shown include fee waivers and expense reimbursements, if any; total returns would have been lower had there been no waiver or reimbursement of fees and expenses in excess of expense limitations. Returns shown include the reinvestment of all dividends and other distributions and do not reflect taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. For performance data current to the most recent month-end, please call 1-888-520-3277. The Fund's gross and net annual operating expenses, as stated in the current prospectus, are 1.14% and 0.90%, respectively. Shares of the Fund not purchased through reinvested dividends or capital gains and held less than 90 days are subject to a 1.00% redemption fee. The Fund's aggregate total return since inception is based on an increase in net asset value from $10.00 per share on September 30, 2002 (inception) to $11.72 per share on August 31, 2010, adjusted for dividends and distributions totaling $6.44 per share paid from net investment income and realized gains. Portfolio composition is subject to change. 5 THE SCHNEIDER FUNDS FUND EXPENSE EXAMPLES (UNAUDITED) As a shareholder of the Fund(s), you incur two types of costs: (1) transaction costs, including redemption fees; and (2) ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund(s) and to compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of $1,000 invested at the beginning of the six months from March 1, 2010 through August 31, 2010, and held for the entire period. ACTUAL EXPENSES The first line of the accompanying tables provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the accompanying tables provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not your Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the accompanying tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees. Therefore, the second line of the accompanying tables is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
SCHNEIDER SMALL CAP VALUE FUND ------------------------------------------------ BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID MARCH 1, 2010 AUGUST 31, 2010 DURING PERIOD* ------------- --------------- -------------- Actual $1,000.00 $ 925.60 $5.58 Hypothetical (5% return before expenses) 1,000.00 1,019.34 5.87
SCHNEIDER VALUE FUND ------------------------------------------------ BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID MARCH 1, 2010 AUGUST 31, 2010 DURING PERIOD* ------------- --------------- -------------- Actual $1,000.00 $ 902.90 $4.32 Hypothetical (5% return before expenses) 1,000.00 1,020.61 4.59
* Expenses are equal to an annualized six-month expense ratio of 1.15% for the Schneider Small Cap Value Fund and 0.90% for the Schneider Value Fund, which includes waived fees or reimbursed expenses, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 365 to reflect the one-half year period. The Fund's ending account values on the first line in each table are based on the actual six-month total return for each Fund of -7.74% for the Schneider Small Cap Value Fund and -9.71% for the Schneider Value Fund. 6 THE SCHNEIDER FUNDS SCHNEIDER SMALL CAP VALUE FUND PORTFOLIO HOLDINGS SUMMARY TABLE AUGUST 31, 2010 (UNAUDITED)
% OF NET ASSETS VALUE -------- ------------- Common Stocks: Coal ............................................. 14.7% $ 10,795,885 Semiconductors ................................... 12.5 9,165,030 Banks ............................................ 11.2 8,177,586 Home Builders .................................... 7.1 5,171,496 Commercial Services .............................. 6.5 4,766,684 Aerospace & Defense .............................. 4.7 3,461,071 Internet ......................................... 4.7 3,414,673 Oil & Gas ........................................ 3.7 2,741,223 Energy & Utilities ............................... 3.3 2,413,614 Industrial ....................................... 2.9 2,132,828 Real Estate Investment Trusts .................... 2.8 2,086,296 Computers ........................................ 2.6 1,926,377 Retail ........................................... 2.5 1,803,117 Chemicals ........................................ 2.3 1,668,928 Insurance ........................................ 2.0 1,437,090 Airlines ......................................... 1.6 1,191,384 Savings & Loans .................................. 1.4 1,041,919 Metals Fabricating ............................... 1.3 986,120 Apparel .......................................... 1.3 919,488 Real Estate ...................................... 1.2 869,417 Software ......................................... 1.2 846,602 Building Materials ............................... 1.1 793,425 Healthcare - Services ............................ 1.0 721,614 Electronics ...................................... 1.0 719,169 Diversified Financial Services ................... 0.9 673,802 Automobile Parts & Equipment ..................... 0.8 552,167 Food ............................................. 0.5 393,972 Healthcare - Products ............................ 0.5 335,886 Machinery - Diversified .......................... 0.1 109,344 Preferred Stock ..................................... 1.8 1,320,200 Exchange Traded Fund ................................ 0.8 577,736 Corporate Bonds ..................................... 0.0 10,441 Securities Lending Collateral ....................... 13.8 10,120,291 Liabilities In Excess of Other Assets ............... (13.8) (10,101,966) ----- ------------- NET ASSETS .......................................... 100.0% $ 73,242,909 ===== =============
---------- Portfolio holdings are subject to change at any time. The accompanying notes are an integral part of the financial statements. 7 THE SCHNEIDER FUNDS SCHNEIDER VALUE FUND PORTFOLIO HOLDINGS SUMMARY TABLE AUGUST 31, 2010 (UNAUDITED)
% OF NET ASSETS VALUE -------- ------------- Common Stocks: Banks ............................................ 18.8% $ 18,640,596 Coal ............................................. 12.2 12,049,289 Oil & Gas ........................................ 8.6 8,477,083 Insurance ........................................ 7.8 7,703,093 Semiconductors ................................... 7.4 7,348,500 Energy & Utilities ............................... 6.8 6,755,578 Home Builders .................................... 6.7 6,611,460 Computers ........................................ 4.7 4,675,315 Real Estate Investment Trusts .................... 3.5 3,491,267 Automobile Parts & Equipment ..................... 3.5 3,403,604 Life & Health Insurance .......................... 2.6 2,584,007 Aerospace & Defense .............................. 2.3 2,314,687 Automobile Manufacturers ......................... 2.2 2,169,635 Commercial Services .............................. 2.2 2,160,941 Media ............................................ 2.1 2,074,672 Retail ........................................... 2.0 1,929,779 Electronics ...................................... 1.9 1,886,960 Health Care - Services ........................... 1.4 1,405,861 Leisure Time ..................................... 1.2 1,173,771 Food ............................................. 0.1 136,218 Corporate Bonds .................................. 0.9 895,665 Exchange Traded Fund ............................. 0.9 874,320 Securities Lending Collateral .................... 17.2 17,006,161 Liabilities In Excess Of Other Assets ............ (17.0) (16,815,607) ----- ------------- NET ASSETS 100.0% $ 98,952,855 ===== =============
---------- Portfolio holdings are subject to change at any time. The accompanying notes are an integral part of the financial statements. 8 THE SCHNEIDER FUNDS SCHNEIDER SMALL CAP VALUE FUND PORTFOLIO OF INVESTMENTS AUGUST 31, 2010
SHARES VALUE -------------- ------------- COMMON STOCKS -- 97.4% AEROSPACE & DEFENSE -- 4.7% AAR Corp. * (a) ............................... 120,365 $ 1,848,806 BE Aerospace, Inc. * .......................... 44,935 1,210,998 Triumph Group, Inc. ........................... 6,045 401,267 ------------- 3,461,071 ------------- AIRLINES -- 1.6% AirTran Holdings, Inc. * (a) .................. 264,165 1,191,384 ------------- APPAREL -- 1.3% Barry (R.G.) Corp. ............................ 85,059 919,488 ------------- AUTOMOBILE PARTS & EQUIPMENT -- 0.8% Magna International, Inc., Class A ............ 7,100 552,167 ------------- BANKS -- 11.2% Associated Banc-Corp. (a) ..................... 54,300 654,858 Cathay General Bancorp (a) .................... 89,080 854,277 Citizens Republic Bancorp, Inc. * (a) ......... 2,933,415 2,288,064 MainSource Financial Group, Inc. .............. 131,236 796,603 Regions Financial Corp. (a) ................... 398,110 2,559,847 Sandy Spring Bancorp, Inc. .................... 19,887 290,947 Sterling Financial Corp. * ++ ................. 328,000 114,800 United Community Banks, Inc. * ................ 249,270 618,190 ------------- 8,177,586 ------------- BUILDING MATERIALS -- 1.1% Builders FirstSource, Inc. * (a) .............. 394,739 793,425 ------------- CHEMICALS -- 2.3% A Schulman, Inc. .............................. 43,871 797,136 Kraton Performance Polymers, Inc. * ........... 26,600 718,732 Spartech Corp. * .............................. 17,140 153,060 ------------- 1,668,928 ------------- COAL -- 14.7% Arch Coal, Inc. ............................... 267,935 6,031,217 Cloud Peak Energy, Inc. * ..................... 301,180 4,764,668 ------------- 10,795,885 ------------- COMMERCIAL SERVICES -- 6.5% Administaff, Inc. ............................. 40,286 870,983 Aegean Marine Petroleum Network, Inc. ......... 60,645 903,004 Hudson Highland Group, Inc. * ................. 570,665 1,711,995
SHARES VALUE -------------- ------------- COMMERCIAL SERVICES -- (CONTINUED) Monster Worldwide, Inc. * (a) ................. 93,590 $ 1,032,298 PHH Corp. * (a) ............................... 13,420 248,404 ------------- 4,766,684 ------------- COMPUTERS -- 2.6% Insight Enterprises, Inc. * ................... 92,830 1,219,786 Ness Technologies, Inc. * ..................... 165,478 706,591 ------------- 1,926,377 ------------- DIVERSIFIED FINANCIAL SERVICES -- 0.9% Artio Global Investors, Inc. .................. 48,650 673,802 ------------- ELECTRONICS -- 1.0% Technitrol, Inc. .............................. 193,846 719,169 ------------- ENERGY & UTILITIES -- 3.3% RRI Energy, Inc. * ............................ 695,566 2,413,614 ------------- FOOD -- 0.5% Sanderson Farms, Inc. ......................... 9,160 393,972 ------------- HEALTHCARE - PRODUCTS -- 0.5% Orthofix International N.V. * ................. 12,580 335,886 ------------- HEALTHCARE - SERVICES -- 1.0% Emeritus Corp. * (a) .......................... 46,919 721,614 ------------- HOME BUILDERS -- 7.1% KB HOME (a) ................................... 101,335 1,044,764 Meritage Homes Corp. * (a) .................... 231,060 4,126,732 ------------- 5,171,496 ------------- INDUSTRIAL -- 2.9% FreightCar America, Inc. ...................... 91,577 2,132,828 ------------- INSURANCE -- 2.0% Platinum Underwriters Holdings, Ltd. .......... 22,730 913,973 Stewart Information Services Corp. ............ 50,155 523,117 ------------- 1,437,090 ------------- INTERNET -- 4.7% Internet Capital Group, Inc. * ................ 186,900 1,572,763 ModusLink Global Solutions, Inc. * ............ 226,060 1,313,409 Openwave Systems, Inc. * ...................... 326,235 528,501 ------------- 3,414,673 -------------
The accompanying notes are an integral part of the financial statements. 9 THE SCHNEIDER FUNDS SCHNEIDER SMALL CAP VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 2010
SHARES VALUE -------------- ------------- MACHINERY - DIVERSIFIED -- 0.1% Flow International Corp. * .................... 50,389 $ 109,344 ------------- METALS FABRICATING -- 1.3% RTI International Metals, Inc. * .............. 35,729 986,120 ------------- OIL & GAS -- 3.7% Abraxas Petroleum Corp. * ..................... 16,330 39,355 Carrizo Oil & Gas, Inc. * ..................... 118,830 2,490,677 Penn Virginia Corp. ........................... 15,150 211,191 ------------- 2,741,223 ------------- REAL ESTATE -- 1.2% Forestar Group, Inc. * ........................ 49,210 732,245 Thomas Properties Group, Inc. ................. 43,825 137,172 ------------- 869,417 ------------- REAL ESTATE INVESTMENT TRUSTS -- 2.8% Associated Estates Realty Corp. ............... 9,850 133,566 FelCor Lodging Trust, Inc. * .................. 91,130 362,697 Redwood Trust, Inc. ........................... 81,295 1,122,684 Strategic Hotels & Resorts, Inc. * ............ 130,910 467,349 ------------- 2,086,296 ------------- RETAIL -- 2.5% AC Moore Arts & Crafts, Inc. * ................ 71,940 127,334 Coldwater Creek, Inc. * (a) ................... 104,780 451,602 MarineMax, Inc. * ............................. 143,554 941,714 Pacific Sunwear of California, Inc. * (a) ..... 74,925 282,467 ------------- 1,803,117 ------------- SAVINGS & LOANS -- 1.4% First Financial Holdings, Inc. ................ 31,120 281,325 Flagstar Bancorp, Inc. * ...................... 333,594 760,594 ------------- 1,041,919 ------------- SEMICONDUCTORS -- 12.5% Alliance Semiconductor Corp. .................. 453,290 92,924 Atmi , Inc. * ................................. 67,465 861,865 Axcelis Technologies, Inc. * (a) .............. 1,917,316 2,607,550 BE Semiconductor Industries N.V. * ............ 288,578 1,456,078 Entegris, Inc. * .............................. 551,082 2,121,666 International Rectifier Corp. * ............... 47,565 872,818 MEMC Electronic Materials, Inc. * ............. 46,950 483,116
SHARES VALUE -------------- ------------- SEMICONDUCTORS -- (CONTINUED) Photronics, Inc. * (a) 4,742 $ 20,391 Verigy Ltd. * 77,540 648,622 ------------- 9,165,030 ------------- SOFTWARE -- 1.2% Take-Two Interactive Software, Inc. * (a) 101,755 846,602 ------------- TOTAL COMMAN STOCK (Cost $61,878,810) 71,316,207 ------------- PREFERRED STOCK -- 1.8% BANKS -- 1.8% Sterling Financial Corp., Series A, 5.00% * (b) ++ 8,200 1,320,200 ------------- TOTAL PREFERRED STOCK (Cost $754,400) 1,320,200 ------------- EXCHANGE TRADED FUND -- 0.8% FINANCE -- 0.8% iShares Russell 2000 Value Index Fund 10,280 577,736 ------------- TOTAL EXCHANGE TRADED FUND (Cost $572,939) 577,736 ------------- SECURITIES LENDING COLLATERAL -- 13.8% Institutional Money Market Trust 10,120,291 10,120,291 ------------- TOTAL SECURITIES LENDING COLLATERAL (Cost $10,120,291) 10,120,291 -------------
The accompanying notes are an integral part of the financial statements. 10 THE SCHNEIDER FUNDS SCHNEIDER SMALL CAP VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 2010
PAR (000) VALUE -------------- ------------- CORPORATE BONDS -- 0.0% LandAmerica Financial Group, Inc. + CONV 3.25%, 05/15/34 ............................ $ 131 $ 10,441 ------------- TOTAL CORPORATE BONDS (Cost $10,453) .......................... 10,441 ------------- TOTAL INVESTMENTS -- 113.8% (Cost $73,336,893) ......................... 83,344,875 ------------- LIABILITIES IN EXCESS OF OTHER ASSETS -- (13.8)% .......................... (10,101,966) ------------- NET ASSETS -- 100.0% .......................... $ 73,242,909 =============
* Non-income producing. (a) -- All or a portion of the security is on loan. See note 7 in the Notes to Financial Statements. (b) -- PIPE Security-Private Investment in Public Entity + Security in default. ++ Security has been valued at fair market value as deter- mined in good faith by or under the direction of The RBB Fund, Inc's. Board of Directors. As of August 31, 2010, these securities amounted to $1,435,000 or 2.0% of net assets. CONV Convertible The following is a summary of inputs used, as of August 31, 2010, in valuing the Fund's investments carried at market value (See note 1 in the Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AS OF QUOTED OBSERVABLE UNOBSERVABLE AUGUST 31, 2010 PRICE INPUTS INPUTS --------------- ----------- ----------- ------------- Common Stocks Aerospace & Defense ............. $ 3,461,071 $ 3,461,071 $-- $ -- Airlines ........................ 1,191,384 1,191,384 -- -- Apparel ......................... 919,488 919,488 -- -- Automobile Parts & Equipment .... 552,167 552,167 -- -- Banks ........................... 8,177,586 8,062,786 -- 114,800 Building Materials .............. 793,425 793,425 -- -- Chemicals ....................... 1,668,928 1,668,928 -- -- Coal ............................ 10,795,885 10,795,885 -- -- Commercial Services ............. 4,766,684 4,766,684 -- -- Computers ....................... 1,926,377 1,926,377 -- -- Diversified Financial Services .. 673,802 673,802 -- -- Electronics ..................... 719,169 719,169 -- -- Energy & Utilities .............. 2,413,614 2,413,614 -- -- Food ............................ 393,972 393,972 -- -- Healthcare - Products ........... 335,886 335,886 -- --
The accompanying notes are an integral part of the financial statements. 11 THE SCHNEIDER FUNDS SCHNEIDER SMALL CAP VALUE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) AUGUST 31, 2010
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AS OF QUOTED OBSERVABLE UNOBSERVABLE AUGUST 31, 2010 PRICE INPUTS INPUTS --------------- ----------- ----------- ------------- Healthcare - Services $ 721,614 $ 721,614 $ -- $ -- Home Builders 5,171,496 5,171,496 -- -- Industrial 2,132,828 2,132,828 -- -- Insurance 1,437,090 1,437,090 -- -- Internet 3,414,673 3,414,673 -- -- Machinery - Diversified 109,344 109,344 -- -- Metals Fabricating 986,120 986,120 -- -- Oil & Gas 2,741,223 2,741,223 -- -- Real Estate 869,417 869,417 -- -- Real Estate Investment Trusts 2,086,296 2,086,296 -- -- Retail 1,803,117 1,803,117 -- -- Savings & Loans 1,041,919 1,041,919 -- -- Semiconductors 9,165,030 9,165,030 -- -- Software 846,602 846,602 -- -- Corporate Bonds 10,441 -- 10,441 -- Preferred Stock 1,320,200 -- -- 1,320,200 Exchange Traded Fund 577,736 577,736 -- -- Securities Lending Collateral 10,120,291 -- 10,120,291 -- ----------- ----------- ----------- ---------- Total $83,344,875 $71,779,143 $10,130,732 $1,435,000 =========== =========== =========== ==========
The accompanying notes are an integral part of the financial statements. 12 THE SCHNEIDER FUNDS SCHNEIDER SMALL CAP VALUE FUND PORTFOLIO OF INVESTMENTS (CONCLUDED) AUGUST 31, 2010 The following is a reconciliation of the Fund's Level 3 investments for which significant unobservable inputs were used to determine fair value.
COMMON PREFERRED STOCK STOCK TOTAL -------- ---------- INVESTMENTS BANKS BANKS ----------- -------- ---------- Balance as of August 31, 2009 $ -- $ -- $ -- Accrued discounts/premiums -- -- -- Net realized gain/(loss) -- -- -- Change in unrealized appreciation (depreciation)* 615,000 49,200 565,800 Net purchases/(sales) 820,000 65,600 754,400 Transfers in and/or out of Level 3 -- -- -- ---------- -------- ---------- Balance as of August 31, 2010 $1,435,000 $114,800 $1,320,200 ========== ======== ==========
* The net unrealized appreciation/(depreciation) in the table above relates to investments held at August 31, 2010. The Fund presents this unrealized appreciation/(depreciation) on the Statement of Operations as a net change in unrealized appreciation/(depreciation) on investments. The accompanying notes are an integral part of the financial statements. 13 THE SCHNEIDER FUNDS SCHNEIDER VALUE FUND PORTFOLIO OF INVESTMENTS AUGUST 31, 2010
SHARES VALUE ----------- ------------ COMMON STOCKS -- 98.0% AEROSPACE & DEFENSE -- 2.3% Boeing Co. (The)...................... 37,865 $ 2,314,687 ------------ AUTOMOBILE MANUFACTURERS -- 2.2% Navistar International Corp. * (a).... 51,806 2,169,635 ------------ AUTOMOBILE PARTS & EQUIPMENT -- 3.5% Magna International, Inc., Class A (a)................................ 43,765 3,403,604 ------------ BANKS -- 18.8% Bank of America Corp.................. 363,935 4,530,991 JPMorgan Chase & Co................... 149,035 5,418,913 PNC Financial Services Group, Inc..... 35,838 1,826,305 Regions Financial Corp................ 294,435 1,893,217 Wells Fargo & Co. .................... 211,090 4,971,170 ------------ 18,640,596 ------------ COAL -- 12.2% Arch Coal, Inc........................ 328,425 7,392,847 Consol Energy, Inc. .................. 144,610 4,656,442 ------------ 12,049,289 ------------ COMMERCIAL SERVICES -- 2.2% Aegean Marine Petroleum Network, Inc....................... 145,127 2,160,941 ------------ COMPUTERS -- 4.7% Dell, Inc. *.......................... 397,223 4,675,315 ------------ ELECTRONICS -- 1.9% Avnet, Inc. *......................... 82,400 1,886,960 ------------ ENERGY & UTILITIES -- 6.8% Allegheny Energy, Inc................. 164,140 3,701,357 RRI Energy, Inc. * ................... 880,179 3,054,221 ------------ 6,755,578 ------------ FOOD -- 0.1% Smithfield Foods, Inc. *.............. 8,445 136,218 ------------ HEALTH CARE - SERVICES -- 1.4% Brookdale Senior Living, Inc. * (a)... 104,915 1,405,861 ------------
SHARES VALUE ----------- ------------ HOME BUILDERS -- 6.7% D.R. Horton, Inc...................... 294,085 $ 3,017,312 NVR, Inc. * (a)....................... 5,949 3,594,148 ------------ 6,611,460 ------------ INSURANCE -- 7.8% Allstate Corp., (The)................. 92,110 2,542,236 Assured Guaranty, Ltd. (a)............ 173,531 2,681,054 Brown & Brown, Inc.................... 66,010 1,256,830 RenaissanceRe Holdings, Ltd. (a)...... 21,535 1,222,973 ------------ 7,703,093 ------------ LEISURE TIME -- 1.2% Carnival Corp. (a).................... 37,645 1,173,771 ------------ LIFE & HEALTH INSURANCE -- 2.6% AFLAC, Inc............................ 32,297 1,526,033 Lincoln National Corp................. 45,290 1,057,974 ------------ 2,584,007 ------------ MEDIA -- 2.1% Liberty Media Corp., Series A *....... 46,022 2,074,672 ------------ OIL & GAS -- 8.6% BP plc, SP ADR........................ 57,415 1,999,764 Chesapeake Energy Corp. (a)........... 201,921 4,175,726 EQT Corp.............................. 70,601 2,301,593 ------------ 8,477,083 ------------ REAL ESTATE INVESTMENT TRUSTS -- 3.5% Annaly Capital Management, Inc........ 130,333 2,265,188 Redwood Trust, Inc.................... 88,782 1,226,079 ------------ 3,491,267 ------------ RETAIL -- 2.0% Best Buy Co, Inc...................... 15,510 486,859 J.C. Penney Co., Inc.................. 72,146 1,442,920 ------------ 1,929,779 ------------
The accompanying notes are an integral part of the financial statements. 14 THE SCHNEIDER FUNDS SCHNEIDER VALUE FUND PORTFOLIO OF INVESTMENTS (CONCLUDED) AUGUST 31, 2010
SHARES VALUE ----------- ------------ SEMICONDUCTORS -- 7.4% International Rectifier Corp. *....... 187,648 $ 3,443,341 Lam Research Corp. * ................. 33,865 1,222,865 MEMC Electronic Materials, Inc. * (a)................................ 260,670 2,682,294 ------------ 7,348,500 TOTAL COMMON STOCKS ------------ (Cost $97,233,928) ............ 96,992,316 ------------ EXCHANGE TRADED FUND -- 0.9% FINANCE -- 0.9% iShares Russell 1000 Value Index Fund............................... 15,865 874,320 TOTAL EXCHANGE TRADED FUND ------------ (Cost $856,770).................. 874,320 ------------ SECURITIES LENDING COLLATERAL -- 17.2% Institutional Money Market Trust...... 17,006,161 17,006,161 TOTAL SECURITIES LENDING COLLATERAL ------------ (Cost $17,006,161) ............. 17,006,161 ------------
PAR (000) VALUE ----------- ------------ CORPORATE BONDS -- 0.9% AIRLINES -- 0.9% UAL Corp. CONV 6.00%, 10/15/29.................... $ 348 $ 895,665 ------------ TOTAL CORPORATE BONDS (Cost $786,306)................. 895,665 ------------ TOTAL INVESTMENTS -- 117.0% (Cost $115,883,165)................ 115,768,462 ------------ LIABILITIES IN EXCESS OF OTHER ASSETS -- (17.0)%............ (16,815,607) ------------ NET ASSETS -- 100.0%.................. $ 98,952,855 ============
* Non-income producing. (a) -- All or a portion of the security is on loan. See note 7 in the Notes to Financial Statements. SP ADR Sponsored American Depositary Receipt CONV Convertible The following is a summary of inputs used, as of August 31, 2010, in valuing the Fund's investments carried at market value (See note 1 in the Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AS OF QUOTED OBSERVABLE UNOBSERVABLE AUGUST 31, 2010 PRICE INPUTS INPUTS --------------- ----------- ----------- ------------ Common Stocks* $ 96,992,316 $96,992,316 $ -- $-- Corporate Bonds 895,665 -- 895,665 -- Exchange Traded Fund 874,320 874,320 -- -- Securities Lending Collateral 17,006,161 -- 17,006,161 -- ------------ ----------- ----------- --- Total $115,768,462 $97,866,636 $17,901,826 $-- ============ =========== =========== ===
* Please refer to the Portfolio of Investments for industry and security type breakouts. The accompanying notes are an integral part of the financial statements. 15 THE SCHNEIDER FUNDS STATEMENTS OF ASSETS & LIABILITIES AUGUST 31, 2010
SCHNEIDER SMALL CAP SCHNEIDER VALUE FUND VALUE FUND ------------ ------------- ASSETS Investments, at value +## ............................................ $ 83,344,875 $ 115,768,462 Cash and cash equivalents ............................................ 65,089 170,318 Receivables Investments sold .................................................. 558,582 43,032 Capital shares sold ............................................... 23,550 -- Dividends and interest ............................................ 35,119 140,104 Prepaid expenses and other assets .................................... 23,076 20,879 ------------ ------------- Total assets 84,050,291 116,142,795 ------------ ------------- LIABILITIES Payables Securities lending collateral ..................................... 10,120,291 17,006,161 Investments purchased ............................................. 475,244 -- Capital shares redeemed ........................................... 96,676 47,271 Investment adviser ................................................ 37,637 51,592 Other accrued expenses and liabilities ............................... 77,534 84,916 ------------ ------------- Total liabilities .............................................. 10,807,382 17,189,940 ------------ ------------- Net Assets ........................................................ $ 73,242,909 $ 98,952,855 ============ ============= NET ASSETS CONSIST OF Par value ............................................................ $ 5,554 $ 8,441 Paid-in capital ...................................................... 87,650,153 245,099,787 Undistributed/accumulated net investment income/loss ................. -- 632,885 Accumulated net realized loss from investments ....................... (24,420,780) (146,673,555) Net unrealized appreciation (depreciation) on investments ............ 10,007,982 (114,703) ------------ ------------- Net Assets ........................................................ $ 73,242,909 $ 98,952,855 ============ ============= Shares outstanding ($0.001 par value, 100,000,000 shares authorized).. 5,553,583 8,441,492 ------------ ------------- Net asset value, offering and redemption price per share ............. $ 13.19 $ 11.72 ============ ============= + Investment in securities, at cost .................................. $ 73,336,893 $ 115,883,165 ============ ============= ## Includes market value of securities on loan ....................... $ 8,866,017 $ 16,420,540 ============ =============
The accompanying notes are an integral part of the financial statements. 16 THE SCHNEIDER FUNDS STATEMENTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2010
SCHNEIDER SMALL CAP SCHNEIDER VALUE FUND VALUE FUND ------------ ----------- INVESTMENT INCOME Dividends +............................................... $ 391,620 $ 1,718,681 Securities Lending Income................................. 84,808 12,242 Interest.................................................. 1,190 6,939 ------------ ----------- Total investment income................................ 477,618 1,737,862 ------------ ----------- EXPENSES Advisory fees............................................. 952,250 859,363 Administration and accounting fees........................ 149,555 183,109 Transfer agent fees....................................... 63,812 49,265 Custodian fees............................................ 61,669 24,072 Professional fees......................................... 48,417 48,207 Directors' and officers' fees............................. 29,536 27,644 Registration and filing fees.............................. 24,782 23,751 Printing and shareholder reporting fees................... 22,172 32,186 Insurance fees............................................ 10,087 11,087 Other expenses............................................ 558 2,560 ------------ ----------- Total expenses before waivers and reimbursements....... 1,362,838 1,261,244 Less: waivers and reimbursements....................... (267,751) (156,348) ------------ ----------- Net expenses after waivers and reimbursements.......... 1,095,087 1,104,896 ------------ ----------- Net investment income/(loss).............................. (617,469) 632,966 ------------ ----------- NETREALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS NET REALIZED GAIN/(LOSS) FROM: Investments............................................ 25,790,509 6,805,902 NET CHANGE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON: Investments............................................ (14,571,289) (7,051,493) ------------ ----------- Net realized and unrealized gain/(loss) on investments.... 11,219,220 (245,591) ------------ ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......... $ 10,601,751 $ 387,375 ============ =========== + Net of foreign withholding taxes of.................. $ (1,429) $ (5,010) ============ ===========
The accompanying notes are an integral part of the financial statements. 17 THE SCHNEIDER FUNDS SCHNEIDER SMALL CAP VALUE FUND STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR ENDED ENDED AUGUST 31, AUGUST 31, 2010 2009 ------------ ------------ INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss).............................................. $ (617,469) $ 816,361 Net realized gain/(loss) from investments................................. 25,790,509 (39,533,004) Net change in unrealized appreciation/(depreciation) from investments..... (14,571,289) 39,577,628 ------------ ------------ Net increase in net assets resulting from operations......................... 10,601,751 860,985 ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income..................................................... (543,270) (1,113,054) Net realized capital gains................................................ -- (12,861) ------------ ------------ Net decrease in net assets from dividends and distributions to shareholders........................................................... (543,270) (1,125,915) ------------ ------------ CAPITAL TRANSACTIONS: Proceeds from shares sold................................................. 16,951,483 50,730,024 Reinvestment of distributions............................................. 446,678 979,117 Redemption fees*.......................................................... 130,734 569,400 Shares redeemed........................................................... (52,627,087) (45,421,894) ------------ ------------ Net increase/(decrease) in net assets from capital share transactions........ (35,098,192) 6,856,647 ------------ ------------ Total increase/(decrease) in net assets...................................... (25,039,711) 6,591,717 ------------ ------------ NET ASSETS: Beginning of year......................................................... 98,282,620 91,690,903 ------------ ------------ End of year............................................................... $ 73,242,909 $ 98,282,620 ============ ============ Undistributed net investment income/(loss), end of year................... $ -- $ 543,266 ============ ============ SHARE TRANSACTIONS: Shares sold............................................................... 1,139,224 5,988,310 Shares reinvested......................................................... 35,507 125,207 Shares redeemed........................................................... (3,582,571) (4,456,499) ------------ ------------ Total share transactions.................................................. (2,407,840) 1,657,018 ============ ============
* There is a 1.75% redemption fee on shares redeemed which have been held less than one year in the Schneider Small Cap Value Fund. The redemption fees are retained by the Fund for the benefit of the remaining shareholders and recorded as paid-in capital. The accompanying notes are an integral part of the financial statements. 18 THE SCHNEIDER FUNDS SCHNEIDER VALUE FUND STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR ENDED ENDED AUGUST 31, AUGUST 31, 2010 2009 ------------ ------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income...................................................... $ 632,966 $ 2,533,628 Net realized gain/(loss) from investments.................................. 6,805,902 (97,077,057) Net change in unrealized appreciation/(depreciation) from investments...... (7,051,493) 34,119,050 ------------ ------------- Net increase/(decrease) in net assets resulting from operations............... 387,375 (60,424,379) ------------ ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income...................................................... (2,533,672) (4,861,935) ------------ ------------- Net decrease in net assets from dividends and distributions to shareholders... (2,533,672) (4,861,935) ------------ ------------- CAPITAL TRANSACTIONS: Proceeds from shares sold.................................................. 20,439,350 19,397,418 Reinvestment of distributions.............................................. 2,086,849 3,890,232 Redemption fees*........................................................... 716 15,540 Shares redeemed............................................................ (39,894,769) (64,586,179) ------------ ------------- Net decrease in net assets from capital share transactions.................... (17,367,854) (41,282,989) ------------ ------------- Total decrease in net assets.................................................. (19,514,151) (106,569,303) ------------ ------------- NET ASSETS: Beginning of year.......................................................... 118,467,006 225,036,309 ------------ ------------- End of year................................................................ $ 98,952,855 $ 118,467,006 ============ ============= Undistributed net investment income/(loss), end of year.................... $ 632,885 $ 2,533,591 ============ ============= SHARE TRANSACTIONS: Shares sold................................................................ 1,597,175 1,955,016 Shares reinvested.......................................................... 175,365 456,600 Shares redeemed............................................................ (3,092,662) (6,393,319) ------------ ------------- Total share transactions................................................... (1,320,122) (3,981,703) ============ =============
* There is a 1.00% redemption fee on shares redeemed which have been held less than 90 days in the Schneider Value Fund. The redemption fees are retained by the Fund for the benefit of the remaining shareholders and recorded as paid-in capital. The accompanying notes are an integral part of the financial statements. 19 THE SCHNEIDER FUNDS SCHNEIDER SMALL CAP VALUE FUND FINANCIAL HIGHLIGHTS Contained below is per share operating performance data for a share outstanding during each period, total investment return, ratios to average net assets and other supplemental data for the respective periods. This information has been derived from information provided in the financial statements.
FOR THE YEARS ENDED AUGUST 31, ------------------------------------------------- 2010 2009 2008 2007 2006 ------- ------- ------- -------- -------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year............... $ 12.34 $ 14.54 $ 19.06 $ 21.96 $ 24.94 ------- ------- ------- -------- -------- Net investment income/(loss)..................... (0.11) 0.12 0.16 0.43 0.05 Net realized and unrealized gain/(loss) on investments and foreign currency transactions.................................. 1.01 (2.20) (3.81) 0.15 1.66 ------- ------- ------- -------- -------- Net increase/(decrease) in net assets resulting from operations..................... 0.90 (2.08) (3.65) 0.58 1.71 ------- ------- ------- -------- -------- Dividends and distributions to shareholders from: Net investment income............................ (0.07) (0.18) (0.32) (0.20) -- Net realized capital gains....................... -- --+ (0.55) (3.28) (4.69) ------- ------- ------- -------- -------- Total dividends and distributions to shareholders.................................. (0.07) (0.18) (0.87) (3.48) (4.69) ------- ------- ------- -------- -------- Redemption fees.................................. 0.02 0.06 --+ --+ --+ ------- ------- ------- -------- -------- Net asset value, end of year..................... $ 13.19 $ 12.34 $ 14.54 $ 19.06 $ 21.96 ======= ======= ======= ======== ======== Total investment return(1)....................... 7.48% (13.20)% (19.78)% 0.72% 7.79% ======= ======= ======= ======== ======== RATIO/SUPPLEMENTAL DATA Net assets, end of year (000's omitted).......... $73,243 $98,283 $91,691 $101,052 $105,092 Ratio of expenses to average net assets(2)....... 1.15% 1.14% 1.10% 1.10% 1.10% Ratio of expenses to average net assets without waivers and expense reimbursements.... 1.43% 1.42% 1.49% 1.50% 1.56% Ratio of net investment income/(loss) to average net assets(2)................................. (0.65)% 0.97% 0.92% 1.81% 0.29% Portfolio turnover rate.......................... 83.39% 122.36% 116.34% 75.21% 91.45%
---------- + Amount is 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) Reflects waivers and reimbursements. The accompanying notes are an integral part of the financial statements. 20 THE SCHNEIDER FUNDS SCHNEIDER VALUE FUND FINANCIAL HIGHLIGHTS Contained below is per share operating performance data for a share outstanding during each period, total investment return, ratios to average net assets and other supplemental data for the respective periods. This information has been derived from information provided in the financial statements.
FOR THE YEARS ENDED AUGUST 31, --------------------------------------------------- 2010 2009 2008 2007 2006 ------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of year............... $ 12.14 $ 16.37 $ 23.13 $ 21.16 $ 20.55 ------- -------- -------- -------- -------- Net investment income............................ 0.08 0.34 0.37 0.14 0.10 Net realized and unrealized gain/(loss) from investments and foreign currency transactions.................................. (0.23) (4.14) (5.89) 2.99 1.99 ------- -------- -------- -------- -------- Net increase/(decrease) in net assets resulting from operations..................... (0.15) (3.80) (5.52) 3.13 2.09 ------- -------- -------- -------- -------- Dividends and distributions to shareholders from: Net investment income............................ (0.27) (0.43) (0.14) (0.08) (0.08) Net realized capital gains....................... -- -- (1.10) (1.08) (1.40) ------- -------- -------- -------- -------- Total dividends and distributions to shareholders.................................. (0.27) (0.43) (1.24) (1.16) (1.48) ------- -------- -------- -------- -------- Redemption fees+................................. -- -- -- -- -- ------- -------- -------- -------- -------- Net asset value, end of year..................... $ 11.72 $ 12.14 $ 16.37 $ 23.13 $ 21.16 ======= ======== ======== ======== ======== Total investment return(1)....................... (1.30)% (22.06)% (25.05)% 14.88% 10.85% ======= ======== ======== ======== ======== RATIO/SUPPLEMENTAL DATA Net assets, end of year (000's omitted).......... $98,953 $118,467 $225,036 $364,793 $139,288 Ratio of expenses to average net assets(2)....... 0.90% 0.88% 0.85% 0.85% 0.85% Ratio of expenses to average net assets without waivers and expense reimbursements.... 1.03% 1.14% 1.09% 1.12% 1.27% Ratio of net investment income to average net assets(2)................................. 0.52% 2.24% 1.61% 0.77% 0.69% Portfolio turnover rate.......................... 79.30% 107.13% 101.98% 131.75% 104.92%
---------- + Amount is 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) Reflects waivers and reimbursements. The accompanying notes are an integral part of the financial statements. 21 THE SCHNEIDER FUNDS NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2010 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The RBB Fund, Inc. ("RBB" or the "Company") was incorporated under the laws of the State of Maryland on February 29, 1988 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. RBB is a "series fund," which is a mutual fund divided into separate portfolios. Each portfolio is treated as a separate entity for certain matters under the 1940 Act, and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. Currently, RBB has eighteen active investment portfolios, including the Schneider Small Cap Value Fund (the "Small Cap Value Fund") and the Schneider Value Fund (the "Value Fund") (each a "Fund," collectively the "Funds"), which commenced investment operations on September 2, 1998 and September 30, 2002, respectively. As of the date hereof, each Fund offers Institutional Class shares. RBB has authorized capital of one hundred billion shares of common stock of which 79.373 billion shares are currently classified into one hundred and thirty-three classes of Common Stock. Each class represents an interest in an active or inactive RBB investment portfolio. PORTFOLIO VALUATION -- Each Fund's net asset value ("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. Securities held by the Funds are valued using the closing price or the last sale price on a national securities exchange or the National Association of Securities Dealers Automatic Quotation System ("NASDAQ") market system where they are primarily traded. 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 greater than 60 days are valued using an independent pricing service. Fixed Income securities having a remaining maturity of 60 days or less are amortized to maturity based on their cost. Foreign securities are valued based on prices from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. Investments in other open-end investment companies are valued based on the NAV of the investment companies (which may use Fair Value Pricing as discussed in their prospectuses). If market quotations are unavailable or deemed unreliable, securities will be 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. The inputs and valuation techniques used to measure fair value of the Funds' investments are summarized into three levels as described in the hierarchy below: - Level 1 -- quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) - Level 3 -- significant unobservable inputs (including the Funds' own assumptions in determining the fair value of investments) 22 THE SCHNEIDER FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value each Fund's investments as of August 31, 2010 is included with each Fund's Portfolio of Investments. USE OF ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates and those differences could be significant. INVESTMENT TRANSACTIONS, INVESTMENT INCOME, AND EXPENSES -- Transactions are accounted for on the trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes in determining realized gains and losses on investments. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain. Each fund estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. Expenses incurred on behalf of a specific class, fund or fund family are charged directly to the class, fund or fund family (in proportion to net assets). Expenses incurred for all of the RBB funds (such as director or professional fees) are charged to all funds in proportion to their average net assets of RBB, or in such other manner as the Board of Directors deems fair or equitable. Expenses and fees, including investment advisory and administration fees, are accrued daily and taken into account for the purpose of determining the NAV of the Funds. FOREIGN CURRENCY TRANSLATION -- Foreign securities and other foreign assets and liabilities are valued using the foreign currency exchange rate effective at the end of the reporting period. The books and records of the Funds are maintained in U.S. dollars. Cost of investments is translated at the currency exchange rate effective at the trade date. The gain or loss resulting from a change in currency exchange rates between the trade and settlement dates of a portfolio transaction is treated as a gain or loss on foreign currency. Likewise, the gain or loss resulting from a change in currency exchange rates, between the date income is accrued and paid, is treated as a gain or loss on foreign currency. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income and distributions from net realized capital gains, if any, are declared, recorded on the ex-dividend date and paid at least annually to shareholders. Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from generally accepted accounting principles. U.S. TAX STATUS -- No provision is made for U.S. income taxes as it is each Fund's intention to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to its shareholders which will be sufficient to relieve it from U.S. income and excise taxes. CASH AND CASH EQUIVALENTS -- The Funds consider liquid assets deposited into a bank demand deposit account to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Fund expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. 23 THE SCHNEIDER FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 OTHER -- In the normal course of business, the Funds may enter into contracts that provide general indemnifications. The Funds' maximum exposure under these arrangements is dependent on claims that may be made against the Funds in the future, and, therefore, cannot be estimated; however, based on experience, the risk of material loss for such claims is considered remote. 2. INVESTMENT ADVISER AND OTHER SERVICES Schneider Capital Management Company ("SCM" or the "Adviser") serves as each Fund's investment adviser. For its advisory services, SCM is entitled to receive 1.00% of the Small Cap Value Fund's average daily net assets and 0.70% of the Value Fund's average daily net assets, computed daily and payable monthly. The Adviser contractually agreed to limit the Small Cap Value Fund's and the Value Fund's total operating expenses to the extent that such expenses exceeded 1.15% and 0.90%, respectively, of the Fund's average daily net assets (excluding acquired fund fees and expenses, brokerage commissions, extraordinary items, interest and taxes). As necessary, this limitation is effected in waivers of advisory fees and reimbursements of other Fund expenses. For the year ended August 31, 2010, investment advisory fees and waivers of expenses were as follows:
GROSS ADVISORY FEES WAIVERS NET ADVISORY FEES ------------------- ---------- ----------------- Schneider Small Cap Value Fund $952,250 $(267,751) $684,499 Schneider Value Fund 859,363 (156,348) 703,015
The Funds will not pay SCM at a later time for any amounts it may waive or any amounts that SCM has assumed. BNY Mellon Investment Servicing (US) Inc. ("BNY Mellon"), formerly known as PNC Global Investment Servicing (U.S.), Inc., serves as administrator for the Funds. For providing administration and accounting services, BNY Mellon is entitled to receive a monthly fee equal to an annual percentage rate of each Fund's average daily net assets, and is subject to certain minimum monthly fees. BNY Mellon voluntarily agreed to waive $7,000 annually of its administration and accounting services fees for the Small Cap Value Fund. The waiver may end at any time. Included in the administration and accounting services fees and expenses, are fees for providing regulatory administration services to RBB. For providing these services, BNY Mellon is entitled to receive compensation as agreed to by the Company and BNY Mellon. This fee is allocated to each portfolio of the Company in proportion to its net assets of the Company. In addition, BNY Mellon serves as the Funds' transfer and dividend disbursing agent. For providing transfer agent services, BNY Mellon is entitled to receive a monthly fee equal to an annual percentage rate of each Fund's average daily net assets, subject to certain minimum monthly fees. For providing custodian services to the Funds, PFPC Trust Company, a member of The Bank of New York Mellon Corp., is entitled to receive a monthly fee equal to an annual percentage rate of each Fund's average daily gross assets, subject to certain minimum monthly fees. BNY Mellon Distributors Inc., formerly PFPC Distributors, Inc., serves as the principal underwriter and distributor of the Funds' shares pursuant to a Distribution Agreement with RBB. 24 THE SCHNEIDER FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 3. DIRECTOR COMPENSATION The Directors of the Company receive an annual retainer, meeting fees and out of pocket expenses for meetings attended. The aggregate remuneration paid to the Directors by the Funds during the fiscal year ended August 31, 2010, was $28,063. Certain employees of PNC are Officers of the Company. They are not compensated by the Funds or the Company. 4. INVESTMENT IN SECURITIES For the year ended August 31, 2010, aggregate purchases and sales of investment securities (excluding short-term investments) were as follows:
PURCHASES SALES ----------- ------------ Schneider Small Cap Value Fund $75,627,461 $109,505,474 Schneider Value Fund 93,340,811 113,188,591
5. CAPITAL SHARE TRANSACTIONS As of August 31, 2010, the following shareholders held 10% or more of the outstanding shares of the Funds. These shareholders may be omnibus accounts which are comprised of many individual shareholders. Schneider Small Cap Value Fund (1 shareholder) 17% Schneider Value Fund (1 shareholder) 24%
6. FEDERAL INCOME TAX INFORMATION Management has analyzed each Fund's tax positions taken on federal income tax returns for all open tax years (August 31, 2007-2010) and has concluded that no provision for federal income tax is required in the Funds' financial statements. The Funds' federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. As of August 31, 2010, federal tax cost, aggregate gross unrealized appreciation and depreciation of securities held by the Funds were as follows:
NET UNREALIZED FEDERAL TAX UNREALIZED UNREALIZED APPRECIATION/ COST APPRECIATION DEPRECIATION DEPRECIATION ------------ ------------ ------------ -------------- Schneider Small Cap Value Fund $ 75,721,255 $15,875,579 $ (8,251,959) $ 7,623,620 Schneider Value Fund 128,065,857 11,306,007 (23,603,402) (12,297,395)
Distributions to shareholders from net investment income and realized gains are determined in accordance with federal income tax regulations, which may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on the tax treatment; temporary differences do not require such reclassification. 25 THE SCHNEIDER FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 The following permanent differences as of August 31, 2010, attributable to the net investment loss and taxable interest on defaulted securities, were reclassified to the following accounts:
UNDISTRIBUTED NET INVESTMENT ACCUMULATED NET PAID-IN INCOME (LOSS) REALIZED LOSS CAPITAL -------------- --------------- ---------- Schneider Small Cap Value Fund $617,473 $(121) $(617,352)
As of August 31, 2010, the components of distributable earnings on a tax basis were as follows:
UNDISTRIBUTED ORDINARY UNDISTRIBUTED INCOME LONG-TERM GAINS -------------- --------------- Schneider Small Cap Value Fund $ -- $-- Schneider Value Fund 632,885 --
The difference between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for federal income tax purposes. Short-term and foreign currency gains are reportable as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the last two fiscal years were as follows:
ORDINARY LONG-TERM INCOME GAINS TOTAL ---------- --------- ---------- Schneider Small Cap Value Fund 2010 $ 543,270 $ -- $ 543,270 2009 1,113,058 12,857 1,125,915 Schneider Value Fund 2010 $2,533,672 $ -- $2,533,672 2009 4,861,935 -- 4,861,935
Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes. For federal income tax purposes, capital loss carryforwards are available to offset future capital gains. As of August 31, 2010, the Schneider Small Cap Value Fund and the Schneider Value Fund had capital loss carryforwards of $22,036,418 and $130,704,964, respectively, that will expire as follows:
AUGUST 31, 2016 AUGUST 31, 2017 AUGUST 31, 2018 --------------- --------------- --------------- Schneider Small Cap Value Fund $ -- $12,220,752 $ 9,815,666 Schneider Value Fund 11,810,397 75,945,572 42,948,995
During the fiscal year ended August 31, 2010, the Funds did not utilize any of their capital loss carryforwards. Under federal tax law, foreign currency and capital losses realized after October 31 may be deferred and treated as having arisen on the first day of the following fiscal year. For the year ended August 31, 2010, the Schneider Value Fund incurred net post-October capital losses of $3,785,899. 26 THE SCHNEIDER FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 7. SECURITIES LENDING The Funds may make secured loans of their portfolio securities to brokers, dealers and other financial institutions to earn additional income and receive cash collateral equal to at least 102% of the current market value of the loaned securities, as marked to market each day that the NAV of the Funds is determined. The Funds will pay administrative and custodial fees in connection with the loan of securities. Collateral is invested in short-term investments and the Funds will bear the risk of loss of the invested collateral. Securities lending will expose the Funds to the risk of loss should a borrower default on its obligation to return the borrowed securities. The market value of the securities on loan and collateral as of August 31, 2010 and the income received for the year ending August 31, 2010 were as follows:
INCOME RECEIVED MARKET VALUE OF MARKET VALUE FROM SECURITIES SECURITIES LOANED OF COLLATERAL LENDING ----------------- ------------- --------------- Schneider Small Cap Value Fund $ 8,866,017 $10,120,291 $84,808 Schneider Value Fund 16,420,540 17,006,161 12,242
8. NEW ACCOUNTING PRONOUNCEMENT In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06 "Improving Disclosures about Fair Value Measurements". ASU 2010-06 amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, to require additional disclosures regarding fair value measurements. Certain disclosures required by ASU No. 2010-06 are currently effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management has evaluated the impact and has incorporated the appropriate disclosures required by ASU No. 2010-06 in its financial statement disclosures. 9. SUBSEQUENT EVENTS Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and have determined that there were no subsequent events requiring recognition or disclosure in the financial statements. 27 THE SCHNEIDER FUNDS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE RBB FUND, INC.: In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Schneider Value Fund and Schneider Small Cap Value Fund, separately managed portfolios of The RBB Fund, Inc. (the "Funds") at August 31, 2010, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion. (PRICEWATERHOUSECOOPERS LLP) Philadelphia, Pennsylvania October 22, 2010 28 THE SCHNEIDER FUNDS SHAREHOLDER TAX INFORMATION (UNAUDITED) Each Fund is required by Subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of each Fund's fiscal year end (August 31) as of the U.S. federal tax status of distributions received by each Fund's shareholders in respect of such fiscal year. During the fiscal year ended August 31, 2010, the following dividends and distributions were paid by each of the Funds:
ORDINARY INCOME LONG-TERM GAINS --------------- --------------- Schneider Small Cap Value Fund $ 543,270 $-- Schneider Value Fund 2,533,672 --
Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes. The percentage of total ordinary income dividends qualifying for the 15% dividend income tax rate is 76% for the Schneider Small Cap Value Fund and 65% for the Schneider Value Fund. The percentage of total ordinary income dividends qualifying for the corporate dividends received deduction is 76% for the Schneider Small Cap Value Fund and 63% for the Schneider Value Fund. These amounts were reported to shareholders as income in 2009. Because each Fund's fiscal year is not the calendar year, another notification will be sent with respect to calendar year 2010. The second notification, which will reflect the amount, if any, to be used by calendar year taxpayers on their U.S. federal income tax returns, will be made in conjunction with Form 1099-DIV and will be mailed in January 2011. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of their ordinary income dividends. They will generally not be entitled to a foreign tax credit or deduction for the withholding taxes paid by the Funds, if any. In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult their own tax advisers with respect to the tax consequences of their investment in the Funds. 29 THE SCHNEIDER FUNDS OTHER INFORMATION (UNAUDITED) PROXY VOTING Policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities as well as information regarding how the Funds voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 are available without charge, upon request, by calling (888) 520-3277 and on the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov. QUARTERLY PORTFOLIO SCHEDULES The Company will file a complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year (quarters ended November 30 and May 31) on Form N-Q. The Company's Form N-Q will be available on the SEC website at http://www.sec.gov and may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. Information on the operation of the SEC Public Reference Room may be obtained by calling (202) 551-8090. APPROVAL OF INVESTMENT ADVISORY AGREEMENTS As required by the 1940 Act, the Board of Directors (the "Board") of the Company, including all of the Directors who are not "interested persons" of the Company, as that term is defined in the 1940 Act (the "Independent Directors"), considered the renewal of the investment advisory agreements between the Adviser and the Company (the "Advisory Agreements") on behalf of the Funds at a meeting of the Board held on May 6, 2010. At this meeting, the Board, including all of the Independent Directors, approved the Advisory Agreements for an additional one-year term. The Board's decision to approve the Advisory Agreements reflects the exercise of its business judgment to continue the existing arrangement. In approving the Advisory Agreements, the Board considered information provided by the Adviser with the assistance and advice of counsel to the Independent Directors and the Company. In considering the renewal of and approval of the Advisory Agreements, the Directors took into account all the materials provided prior to and during the meeting and at other meetings throughout the past year, the presentations made during the meeting, and the discussions during the meeting. Among other things, the Directors considered (i) the nature, extent, and quality of the Adviser's services provided to the Funds; (ii) descriptions of the experience and qualifications of the Adviser's personnel providing those services; (iii) the Adviser's investment philosophies and processes; (iv) the Adviser's assets under management and client descriptions; (v) the Adviser's soft dollar commission and trade allocation policies, including information on the types of research and services obtained in connection with soft dollar commissions; (vi) the Adviser's current advisory fee arrangements with the Company and other similarly managed clients; (vii) the Adviser's compliance procedures; (viii) the Adviser's financial information, insurance coverage and profitability analysis related to providing advisory services to the Funds; (ix) the extent to which economies of scale are relevant to the Funds; (x) a report prepared by Lipper, Inc. ("Lipper") comparing each Fund's management fees and total expense ratio to those of its Lipper peer group and comparing the performance of each Fund to the performance of its Lipper peer group; and (xi) a report comparing the performance of each Fund to the performance of its benchmark. As part of their review, the Directors considered the nature, extent and quality of the services provided by the Adviser. The Directors concluded that the Adviser had substantial resources to provide services to the Funds and that the Adviser's services had been acceptable. 30 THE SCHNEIDER FUNDS OTHER INFORMATION (CONCLUDED) (UNAUDITED) The Directors also considered the investment performance of the Funds and the Adviser. Information on the Funds' investment performance was provided for one, two, three, four and five year periods, as applicable. The Directors considered the Funds' investment performance in light of their investment objectives and investment strategies. The Directors concluded that the investment performance of each of the Funds as compared to their respective benchmarks and Lipper peer groups was acceptable. In reaching these conclusions, the Directors noted that the performance of each Fund was better than its respective peer group median for the one year period. The Board of Directors also considered the advisory fee rates payable by the Funds under the Advisory Agreements. In this regard, information on the fees paid by the Funds and the Funds' total operating expense ratios (before and after fee waivers and expense reimbursements) were compared to similar information for mutual funds advised by other, unaffiliated investment advisory firms. The Directors noted that advisory fees, before and after waivers, and actual total expenses of the Funds were all lower than their respective peer group medians. In addition, the Directors noted that the Adviser had contractually agreed to waive management fees and reimburse expenses through December 31, 2011 to limit total annual operating expenses to agreed upon levels for each Fund. After reviewing the information regarding the the Adviser's costs, profitability and economies of scale, and after considering the Adviser's services, the Directors concluded that the investment advisory fees paid by the Funds were fair and reasonable and that the Advisory Agreement should be approved and continued for an additional one-year period ending August 16, 2011. 31 THE SCHNEIDER FUNDS FUND MANAGEMENT (UNAUDITED) The business and affairs of the Company are managed under the direction of the Company's Board of Directors. The Company is organized under and managed pursuant to Maryland law. The Directors and executive officers of the Company, their dates of birth, business addresses and principal occupations during the past five years are set forth below. The statement of additional information ("SAI") includes additional information about the Directors and is available without charge, upon request, by calling (888) 520-3277
NUMBER OF PORTFOLIOS TERM OF IN POSITION(S) OFFICE FUND COMPLEX OTHER NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH WITH FUND TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR* HELD BY DIRECTOR -------------------- ----------- --------------- ---------------------------------- ------------ ------------------------- DISINTERESTED DIRECTORS Nicholas A. Giordano Director 2006 to present Consultant, financial services 18 Kalmar Pooled Investment 103 Bellevue Parkway organizations from 1997 to present Trust; (registered Wilmington, DE 19809 investment company) WT DOB: 3/43 Mutual Fund; (registered investment company) Independence Blue Cross; IntriCon Corporation (body worn device company) Francis J. McKay Director 1988 to present Retired; Executive Vice President 18 None 103 Bellevue Parkway and Chief Operating Officer, Fox Wilmington, DE 19809 Chase Cancer Center (biomedical DOB: 12/35 research and medical care) (1981-2004). Arnold M. Reichman Chairman 2005 to present Director, Gabelli Group Capital 18 None 103 Bellevue Parkway Director 1991 to present Partners, L.P. (an investment Wilmington, DE 19809 partnership) from 2000 to 2006. DOB: 5/48 Marvin E. Sternberg Director 1991 to present Since 1974, Chairman, Director and 18 MTI Holding Group Inc. 103 Bellevue Parkway President, MTI Holding Group, Inc. (formerly known as Moyco Wilmington, DE 19809 (formerly known as Moyco Technologies, Inc.) DOB: 3/34 Technologies, Inc.) (manu- facturer of dental products and precision coated and industrial abrasives). Robert A. Straniere Director 2006 to present Since 2009, Administrative Law 18 Reich and Tang Group 103 Bellevue Parkway Judge, New York City; Founding (asset management); The Wilmington, DE 19809 Partner, Straniere Law Firm (1980 SPARX Asia Funds Group DOB: 3/41 to present); Partner, Gotham (registered investment Strategies (consulting firm) (2005 company) (until 2009) to 2008); Partner, The Gotham Global Group (consulting firm) (2005 to 2008); President, The New York City Hot Dog Company (2005 to present); Partner, Kanter-Davidoff (law firm) (2006 to 2007).
32 THE SCHNEIDER FUNDS FUND MANAGEMENT (CONTINUED) (UNAUDITED)
NUMBER OF PORTFOLIOS TERM OF IN POSITION(S) OFFICE FUND COMPLEX OTHER NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH WITH FUND TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR* HELD BY DIRECTOR -------------------- ----------- --------------- ---------------------------------- ------------ ------------------------- INTERESTED DIRECTORS(2) Julian A. Brodsky Director 1988 to present Since 1969, Director and Vice 18 Comcast Corporation; 103 Bellevue Parkway Chairman, Comcast Corporation AMDOCS Limited (service Wilmington, DE 19809 (cable television and provider to DOB: 7/33 communications). telecommunications companies) Robert Sablowsky Director 1991 to present Since July 2002, Senior Director 18 Kensington Funds 103 Bellevue Parkway and prior thereto, Executive Vice (registered investment Wilmington, DE 19809 President, of Oppenheimer & Co., company)(until 2009) DOB: 4/38 Inc., formerly Fahnestock & Co., Inc. (a registered broker- dealer). J. Richard Carnall Director 2002 to present Director of Haydon Bolts, Inc. 18 Cornerstone Bank 103 Bellevue Parkway (bolt manufacturer) and Parkway Wilmington, DE 19809 Real Estate Company (subsidiary of DOB: 9/38 Haydon Bolts, Inc.) since 1984; and Director of Cornerstone Bank since March 2004. OFFICERS Salvatore Faia, President President June President, Vigilant Compliance N/A N/A Esquire, CPA and 2009 to present Services since 2004; Senior Legal Vigilant Compliance Chief and Chief Counsel, PNC Global Investment Services Brandywine Compliance Compliance Servicing (U.S.), Inc. from 2002 Two 5 Christy Drive, Officer Officer 2004 to to 2004; and Director of Energy Suite 209 Chadds present Income Partnership since 2005. Ford, PA 19317 DOB: 12/62
33 THE SCHNEIDER FUNDS FUND MANAGEMENT (CONCLUDED) (UNAUDITED)
NUMBER OF PORTFOLIOS TERM OF IN POSITION(S) OFFICE FUND COMPLEX OTHER NAME, ADDRESS, HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH WITH FUND TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR* HELD BY DIRECTOR -------------------- ----------- --------------- ---------------------------------- ------------ ------------------------- OFFICERS Joel Weiss Treasurer June 2009 to Since 1993 Vice President and N/A N/A 103 Bellevue Parkway present Managing Director, BNY Mellon Wilmington, DE 19809 Investment Servicing (US) Inc. DOB: 1/63 (formerly PNC Global Investment Servicing (U.S.) Inc.) (financial services company) Jennifer Rogers Secretary 2007 to present Since 2005, Vice President and N/A N/A 301 Bellevue Parkway Counsel, BNY Mellon Investment Wilmington, DE 19809 Servicing (US) Inc. (formerly PNC DOB: 7/74 Global Investment Servicing (U.S.), Inc. (financial services company); Associate, Stradley, Ronon, Stevens & Young, LLC (law firm) from 1999 to 2005. James G. Shaw Assistant 2005 to present Since 1995, Vice President of BNY N/A N/A 103 Bellevue Parkway Treasurer Mellon Investment Servicing (US) Wilmington, DE 19809 Inc. (formerly PNC Global DOB: 10/60 Investment Servicing (U.S.) Inc. (financial services company) Michael P. Malloy Assistant 1999 to present Since 1993, Partner, Drinker N/A N/A One Logan Square, Secretary Biddle & Reath LLP (law firm) Suite 2000 Philadelphia, PA 19103-6996 DOB: 7/59
* Each Director oversees eighteen portfolios of the Company that are currently offered for sale. 1 Subject to the Company's Retirement Policy, each Director may continue to serve as a Director until the last day of the calendar year in which the applicable Director attains age 75 or until the last day of year 2011, whichever is later, or until his successor is elected and qualified or his death, resignation or removal. The Board reserves the right to waive the requirements of the Policy with respect to an individual Director. Each officer holds office at the pleasure of the Board of Directors until the next special meeting of the Company or until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed. 2 Messrs. Brodsky, Carnall and Sablowsky are considered "interested persons" of the Company as that term is defined in the 1940 Act. Mr. Brodsky is an "interested Director" of the Company because a family foundation and certain family trusts own shares of JPMorgan Chase & Co. The investment adviser to the Company's Bear Stearns CUFS MLP Mortgage Portfolio, Bear Stearns Asset Management, Inc. is an indirect subsidiary of JPMorgan Chase & Co. Mr. Carnall is an "interested Director" of the Company because he owns shares of The PNC Financial Services Group, Inc ("PNC"). PNC owns a control-ling interest in BlackRock, Inc., the parent company of BlackRock Institutional Management Corporation, the investment adviser to the Company's Money Market Portfolio. Mr. Sablowsky is considered an "interested Director" of the Company by virtue of his position as an employee of Oppenheimer & Co., Inc., a registered broker-dealer. 34 THE SCHNEIDER FUNDS PRIVACY NOTICE THE SCHNEIDER FUNDS of The RBB Fund, Inc. (the "Funds") are committed to protecting the confidentiality and security of your private investment records and personal information. Our policies and procedures are designed to safeguard your information and to permit only appropriate and authorized access to and use of this information. In order to carry out the functions necessary to service your investment account, our service providers collect certain nonpublic personal information from you from the following sources: - Information we receive from you over the telephone, on applications, e-mails or other forms (e.g., your name, social security number and address); and - Information about your transactions with the Funds. We restrict access to your personal and account information to those service providers and their employees who need to know that information to service your account. The Funds may also share all of the information (as described above) that we collect with companies that perform marketing services on our behalf or with other financial institutions with whom we have joint marketing agreements who may suggest additional Fund services or other investment products which may be of interest to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. You can be assured that the Funds consider your data to be private and confidential, and we will not disclose any nonpublic personal information about you to any unaffiliated third parties, except as permitted by law. If you decide to close your account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. If you have any questions or comments about our privacy practices, please call us at (888) 520-3277. 35 (THE SCHNEIDER FUNDS LOGO) OF THE RBB FUND, INC. SCHNEIDER SMALL CAP VALUE FUND SCHNEIDER VALUE FUND ANNUAL REPORT AUGUST 31, 2010 INVESTMENT ADVISER Schneider Capital Management 460 E. Swedesford Road Suite 1080 Wayne, PA 19087 ADMINISTRATOR BNY Mellon Investment Servicing (US) Inc. 301 Bellevue Parkway Wilmington, DE 19809 TRANSFER AGENT BNY Mellon Investment Servicing (US) Inc. 101 Sabin Street Pawtucket, RI 02860 PRINCIPAL UNDERWRITER BNY Mellon Distributors Inc. 760 Moore Road King of Prussia, PA 19406 CUSTODIAN PFPC Trust Company 301 Bellevue Parkway Wilmington, DE 19809 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP Two Commerce Square, Suite 1700 2001 Market Street Philadelphia, PA 19103-7042 COUNSEL Drinker Biddle & Reath LLP One Logan Square, Suite 2000 Philadelphia, PA 19103-6996 (SCHNEIDER CAPITAL MANAGEMENT LOGO) This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Funds. YEAR ENDED AUGUST 31, 2010 TO: SHAREHOLDERS OF SENBANC FUND The quantitative approach to financial analysis brings rigorous discipline to assessment of the known facts. Investment on the basis of information versus speculation requires a longer term view, because it is rare, even in banks and even in the last two years, for quarterly results to be sufficiently out of line to significantly change the underlying value of a corporation built up over several decades. Usually a decline in earnings from one quarter to the next is an increase in value if those earnings exceed the dividend paid. Losses in one year equivalent to the earnings of the prior year only retard value by twelve months. Stock prices do not respond rationally to this pragmatic view, but long term investing is about disciplined purchases of known value, and it is the irrational response to bad news that favors the prepared mind. There was, on average, no earnings for banks in 2009. But there was value. Bank pre-tax earnings were diverted to reserves for loan losses against the time when downgraded assets are liquidated. In previous reports we have noted in detail the potential beneficial accounting treatment of these reserves as they flow back to pre-tax earnings as, first, a reduction of provisions for loan losses, and second, as the economy sustains a recovery, an absolute reduction of reserves to normal levels. In the last three quarters, Senbanc's portfolio of banks has seen this first stage begin. Looking at our top ten holdings, this process of earnings supplemented by lower provisions is common, as is the continued build-up of reserves at a slower pace. Our focus on value takes account of these reserves as a restoration of value. We had previously set the first calendar quarter of 2010 as the initial stage of a return to normalcy. We were not disappointed, but earnings reports forced an adjustment to our assessment of the future for bank stock valuations. Our miscalculation arises from banks' continued careful management of reported earnings. What we had projected as a two step plan for reserves - elimination of additional reserves and then the flow back of previously reserved amounts - is in practice a three step exercise. Reserves are actually being funded, but at a slower rate, giving an extended but more gradual boost to quarterly earnings. We conclude that recovery of bank earnings is likely to be more consistent over a longer period of time. With modest loan expansion, and as net charge-offs diminish in a strengthening economy, we expect reserves to maintain their current high ratio to loans outstanding. Any significant expansion of loan portfolios during this period will reduce the Reserve ratio, but loans would typically need to more than double for Reserves to approach normal proportions. We place the highest probability on a 10%-15% annual increase in loan growth over the next three years, with reserve ratios stabilized at current levels into the second quarter of 2011. It is at this point that the process of reserve contribution is likely to transform into reserve redemption, as previously reserved amounts flow back through earnings as taxable income. A growing economy and increasing loan demand would indicate lower delinquencies, and less need for high reserve ratios. The process of reserve redemption might require a further six quarters from mid-2011, to bring reserve ratios back to historically acceptable levels. In 2011 and 2012, investors should see banks as the engine of economic recovery, and premiums over book value per share should emerge even as equity for banks expands. It is this confluence of events that should mark 2012 and 2013 as the high water mark for bank stock valuations. Very truly yours, /s/ Alan F. Morel Alan F. Morel Hilliard Lyons Research Advisors Portfolio Manager Senbanc Fund 1 SENBANC FUND PERFORMANCE DATA AUGUST 31, 2010 SENBANC FUND GROWTH OF $10,000 VS. THE NASDAQ BANK INDEX AND THE S&P 500(R) INDEX AVERAGE ANNUAL TOTAL RETURNS (AS OF 08/31/10) (Unaudited)
1 Year 5 Years 10 Years* ------ ------- --------- Senbanc Fund (N.A.V.) -11.98% -17.00% -1.18% Senbanc Fund (Load) -13.91% -17.38% -1.41%
1 Year 5 Years 10 Years* ------ ------- --------- Nasdaq Bank Index** 6.38% 10.39% 1.89% S&P 500(R) Index** 4.91% -0.91 -1.81%
(PERFORMANCE GRAPH)
Nasdaq Bank S&P Index Senbanc Senbanc Index (10 yrs (10 yrs Fund Fund 8/31/00- 8/31/00- (N.A.V.) (Load) 8/31/10) 8/31/10) -------- ------- ------------- --------- 8/31/2000 10000 9775 10000 10000 9/30/2000 10272 10041 10662 9472 10/31/2000 10304 10072 10522 9432 11/30/2000 10440 10205 10593 8689 12/31/2000 11023 10775 11695 8732 1/31/2001 11670 11408 11808 9042 2/28/2001 11575 11314 11580 8217 3/31/2001 11543 11283 11422 7696 4/30/2001 11861 11594 11714 8294 5/31/2001 12593 12310 12242 8350 6/30/2001 12784 12497 12848 8147 7/31/2001 13018 12725 13276 8066 8/31/2001 12986 12694 12805 7561 9/30/2001 12509 12227 12622 6950 10/31/2001 12349 12071 12172 7083 11/30/2001 12646 12362 12693 7627 12/31/2001 13300 13000 13162 7694 1/31/2002 13496 13192 13478 7581 2/28/2002 13842 13531 13730 7435 3/31/2002 14754 14422 14499 7715 4/30/2002 15447 15099 15072 7247 5/31/2002 15574 15223 14986 7193 6/30/2002 15551 15201 14992 6681 7/31/2002 14731 14400 14390 6161 8/31/2002 15228 14885 14795 6201 9/30/2002 14627 14298 13785 5527 10/31/2002 14905 14569 14061 6014 11/30/2002 15343 14998 14122 6368 12/31/2002 15933 15574 14076 5993 1/31/2003 16224 15858 14021 5836 2/28/2003 16575 16202 14037 5749 3/31/2003 16551 16178 13829 5805 4/30/2003 17582 17186 14655 6283 5/31/2003 18006 17601 15695 6614 6/30/2003 18018 17612 15696 6699 7/31/2003 18867 18442 16324 6816 8/31/2003 18988 18561 16641 6949 9/30/2003 19097 18667 16648 6876 10/31/2003 19995 19544 17907 7265 11/30/2003 20528 20066 18440 7329 12/31/2003 21130 20655 18727 7713 1/31/2004 21323 20843 18963 7854 2/29/2004 22093 21596 19270 7964 3/31/2004 22157 21658 19160 7843 4/30/2004 20963 20491 18185 7720 5/31/2004 21438 20956 18666 7826 6/30/2004 21233 20755 19020 7978 7/31/2004 21156 20680 18653 7714 8/31/2004 21541 21056 19232 7745 9/30/2004 21939 21445 19558 7829 10/31/2004 22542 22035 20200 7948 11/30/2004 23017 22499 21248 8270 12/31/2004 23637 23105 21287 8551 1/31/2005 23027 22509 20401 8343 2/28/2005 22723 22211 20106 8518 3/31/2005 22113 21615 19746 8367 4/30/2005 21628 21141 19130 8208 5/31/2005 22016 21520 19802 8469 6/30/2005 22349 21845 20377 8481 7/31/2005 23055 22536 21360 8797 8/31/2005 22543 22035 20886 8717 9/30/2005 21905 21412 20380 8787 10/31/2005 22071 21574 20796 8640 11/30/2005 22833 22319 21303 8967 12/31/2005 22665 22155 20875 8970 1/31/2006 23191 22669 21347 9207 2/28/2006 23575 23044 21578 9232 3/31/2006 23660 23127 22106 9348 4/30/2006 24201 23656 22210 9473 5/31/2006 23347 22822 21879 9200 6/30/2006 23091 22571 21940 9213 7/31/2006 23589 23058 22232 9270 8/31/2006 23561 23030 22452 9491 9/30/2006 24001 23461 22625 9736 10/31/2006 24314 23767 23030 10053 11/30/2006 24087 23544 23213 10244 12/31/2006 24783 24225 23755 10387 1/31/2007 24916 24355 23430 10544 2/28/2007 24323 23775 23151 10338 3/31/2007 24070 23528 22827 10453 4/30/2007 23892 23354 22431 10917 5/31/2007 24115 23572 22871 11298 6/30/2007 23195 22673 22180 11110 7/31/2007 21755 21265 20452 10766 8/31/2007 21800 21309 21306 10927 9/30/2007 21651 21164 21403 11336 10/31/2007 20479 20018 20820 11516 11/30/2007 19292 18858 20037 11035 12/31/2007 17857 17455 19028 10958 1/31/2008 18905 18479 19575 10301 2/29/2008 16943 16561 17922 9966 3/31/2008 16577 16204 18363 9923 4/30/2008 17225 16838 18453 10406 5/31/2008 15646 15294 17984 10541 6/30/2008 12337 12059 14889 9652 7/31/2008 13401 13099 16358 9571 8/31/2008 13717 13408 17011 9710 9/30/2008 13634 13327 17741 8844 10/31/2008 12138 11864 16478 7359 11/30/2008 10259 10028 15064 6831 12/31/2008 9721 9502 15200 6904 1/31/2009 7898 7721 11902 6322 2/28/2009 6683 6533 10522 5649 3/31/2009 7673 7500 11407 6143 4/30/2009 8593 8399 12010 6731 5/31/2009 9270 9061 12239 7108 6/30/2009 8853 8654 11768 7122 7/31/2009 9565 9349 12779 7661 8/31/2009 10086 9859 12889 7937 9/30/2009 9981 9757 12945 8233 10/31/2009 9391 9180 12072 8080 11/30/2009 9461 9248 12292 8565 12/31/2009 9681 9463 12724 8730 1/31/2010 9576 9361 13314 8416 2/28/2010 9908 9685 13571 8677 3/31/2010 10660 10420 14468 9201 4/30/2010 10974 10727 15405 9346 5/31/2010 9978 9753 14043 8600 6/30/2010 9157 8951 13083 8150 7/31/2010 9734 9514 13492 8721 8/31/2010 8877 8677 12095 8327
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, PLEASE CALL 1-800-444-1854 OR VISIT OUR WEB SITE AT WWW.HILLIARD.COM. THE SENBANC FUND'S (THE "FUND") GROSS ANNUAL OPERATING EXPENSES, AS STATED IN THE CURRENT PROSPECTUS, ARE 2.26%. TOTAL RETURNS SHOWN INCLUDE FEE WAIVERS AND EXPENSE REIMBURSEMENTS. RETURNS COULD HAVE BEEN LOWER IF THESE WAIVERS WERE NOT IN EFFECT. THE MAXIMUM SALES CHARGE, AS STATED IN THE PROSPECTUS, IS 2.25%. THE ADVISER HAS AGREED TO VOLUNTARILY WAIVE FEES AND/OR REIMBURSE EXPENSES TO THE EXTENT THAT THE FUND'S TOTAL ANNUAL FUND OPERATING EXPENSES EXCEED 1.75% OF THE FUND'S AVERAGE DAILY NET ASSETS. THE ADVISER MAY TERMINATE THE VOLUNTARY FEE WAIVERS AND REIMBURSEMENTS UPON NOTICE TO THE RBB FUND, INC.'S BOARD OF DIRECTORS. THE PERFORMANCE IN THE ABOVE TABLE DOES NOT REFLECT THE DEDUCTION OF TAXES A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR REDEMPTION OF FUND SHARES. * The Fund commenced operations on July 8, 1999 as a series (the "Predecessor Fund") of Hilliard Lyons Research 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 "Reorganization"). The performance shown for periods prior to September 1, 2005 represents the performance of the Predecessor Fund. ** The Nasdaq Bank Index is an unmanaged index of NASDAQ-listed banks. The S&P 500(R) Index is an unmanaged stock market index. The index returns assume reinvestment of all dividends but, unlike the Fund, do not include any expenses associated with operating a mutual fund. *** As a result of the Reorganization, the Fund changed its fiscal year end from June 30 to August 31. The Fund may have invested in stocks that experienced significant gains; there is no guarantee that these gains will continue. As a non-diversified fund, a greater percentage of the Fund's portfolio may be invested in one company's securities than the portfolio of a diversified fund. As a result, the Fund may experience greater volatility in investment performance. PORTFOLIO HOLDINGS SUMMARY TABLE AUGUST 31, 2010 (UNAUDITED)
% of Industry Classification Net Assets ----------------------- ---------- Savings, Credit & Other Financial Institutions .. 90.8% State & National Banks .......................... 6.1 ----- Total Investments ............................... 96.9 Other Assets in Excess of Liabilities ........... 3.1 ----- Net Assets ...................................... 100.0% =====
Portfolio holdings are subject to change at any time. 2 SENBANC FUND FUND EXPENSE EXAMPLES (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the six-month period from March 1, 2010 to August 31, 2010, and held for the entire period. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Ending Account Value Value Expenses Paid 3/01/10 8/31/10 During Period* ----------------- -------------- -------------- Actual ....................... $1,000.00 $ 895.90 $8.36 Hypothetical (5% return before expenses) ................. 1,000.00 1,016.27 8.93
---------- * Expenses are equal to the Fund's annualized six-month expense ratio of 1.75%, which includes waived fees or reimbursed expenses, multiplied by the average account value over the period, multiplied by the number of days (184) in the most recent fiscal half-year, then divided by 365 to reflect the one-half year period. The Fund's ending account value is based on the actual six-month total return of -10.41%. 3 SENBANC FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2010 COMMON STOCK -- 96.9%
SHARES DESCRIPTION VALUE ------ ----------- ----------- SAVINGS, CREDIT & OTHER FINANCIAL INSTITUTIONS -- 90.8% 116,400 Bank of America Corp. ................................. $ 1,449,180 42,478 C&F Financial Corp. ................................... 776,073 35,700 Comerica, Inc. ........................................ 1,228,437 42,600 Financial Institutions, Inc. .......................... 611,736 6,900 First Bancorp ......................................... 83,766 19,200 First Financial Bancorp ............................... 306,240 5,600 IBERIABANK Corp. ...................................... 273,000 187,500 JPMorgan Chase & Co. .................................. 6,817,500 150,400 KeyCorp ............................................... 1,108,448 119,111 National Bankshares, Inc. ............................. 2,775,286 12,191 NB&T Financial Group, Inc. ............................ 231,446 186,199 Northrim BanCorp, Inc. ................................ 2,995,942 26,600 Peoples Bancorp of North Carolina, Inc. ............... 134,064 12,000 Peoples Financial Corp. ............................... 172,800 112,994 Premier Financial Bancorp ............................. 757,060 156,800 Regions Financial Corp. ............................... 1,008,224 3,100 SCBT Financial Corp. .................................. 89,125 34,472 United Security Bancshares, Inc. ...................... 368,161 ----------- $21,186,488 -----------
See Notes to Financial Statements. 4 SENBANC FUND SCHEDULE OF INVESTMENTS (CONCLUDED) AUGUST 31, 2010 COMMON STOCK -- (CONTINUED)
SHARES DESCRIPTION VALUE ------- ----------- ----------- STATE & NATIONAL BANKS -- 6.1% 7,800 Bar Harbor Bankshares ................................. $ 216,841 23,100 Evans Bancorp, Inc. ................................... 288,750 26,379 Mackinac Financial Corp.* ............................. 131,895 38,300 Monarch Financial Holdings, Inc. ...................... 294,144 8,374 Republic Bancorp, Inc. ................................ 162,623 67,897 Rurban Financial Corp. ................................ 242,392 16,700 Wilber Corp. .......................................... 97,194 ----------- 1,433,839 ----------- TOTAL COMMON STOCK (COST $38,221,833) .............. 22,620,327 ----------- TOTAL INVESTMENTS -- 96.9% - (COST $38,221,833) ................................. 22,620,327 ----------- OTHER ASSETS IN EXCESS OF LIABILITIES -- 3.1% ...... 719,072 ----------- NET ASSETS -- 100% ................................. $23,339,399 ===========
* Non-income producing security. The following is a summary of the inputs used, as of August 31, 2010, in valuing the Fund's investments carried at value (See Note 1 in Notes to Financial Statements):
LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE AUGUST 31, 2010 PRICES INPUTS INPUTS --------------- ------------ ----------- ------------ Investments in Securities* $22,620,327 $22,620,327 $-- $-- =========== =========== === ===
* Please refer to the Schedule of Investments for industry and security type breakouts. See Notes to Financial Statements. 5 SENBANC FUND STATEMENT OF ASSETS & LIABILITIES AUGUST 31, 2010 ASSETS Investments, at value (Cost $38,221,833) ............................. $ 22,620,327 Cash and cash equivalents ............................................ 840,997 Receivables Investment adviser ................................................ 18,606 Dividends and interest ............................................ 4,278 Capital shares sold ............................................... 977 Prepaid expenses and other assets .................................... 15,692 ------------ Total assets ................................................... 23,500,877 ------------ LIABILITIES Payables Capital shares redeemed ........................................... 67,017 Professional fees ................................................. 32,327 Distribution fees ................................................. 19,475 Transfer agent fees ............................................... 18,854 Administration and accounting fees ................................ 10,133 Other accrued expenses and liabilities ............................... 13,672 ------------ Total liabilities .............................................. 161,478 ------------ Net Assets ........................................................... $ 23,339,399 ============ NET ASSETS CONSIST OF Par value ............................................................ $ 4,591 Paid-in capital ...................................................... 73,445,774 Accumulated net realized loss from investments ....................... (34,509,460) Net unrealized depreciation on investments ........................... (15,601,506) ------------ Net Assets ........................................................... $ 23,339,399 ============ Shares outstanding ($0.001 par value, 50,000,000 shares authorized) .. 4,590,986 ------------ Net asset value per share ............................................... $ 5.08(a) ============ Maximum offering price per share (NAV / 1 - 2.25%) ...................... $ 5.20(b) ============
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. (b) On sales of $500,000 or more, the offering price is reduced. See Notes to Financial Statements. 6 SENBANC FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2010 INVESTMENT INCOME Dividends ................................................. $ 424,614 Interest .................................................. 976 ------------ Total investment income ................................ 425,590 ------------ EXPENSES Advisory fees ............................................. 169,384 Distribution fees ......................................... 132,211 Transfer agent fees ....................................... 128,408 Administration and accounting fees ........................ 108,055 Professional fees ......................................... 39,720 Printing and shareholder reporting fees ................... 30,188 Registration and filing fees .............................. 18,454 Directors' and officers' fees ............................. 18,244 Custodian fees ............................................ 17,976 Insurance fees ............................................ 4,630 Other expenses ............................................ 1,648 ------------ Total expenses before waivers and reimbursements ....... 668,918 Less: waivers and reimbursements ....................... (174,881) ------------ Net expenses after waivers and reimbursements .......... 494,037 ------------ Net investment loss ....................................... (68,447) ------------ NET REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS NET REALIZED GAIN/(LOSS) FROM: Investments ............................................ (18,475,583) NET CHANGE IN UNREALIZED APPRECIATION/(DEPRECIATION) ON: Investments ............................................ 15,208,788 ------------ Net realized and unrealized loss from investments ......... (3,266,795) ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ......... $ (3,335,242) ============
See Notes to Financial Statements. 7 SENBANC FUND STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE YEAR ENDED YEAR ENDED AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) .............................. $ (68,447) $ 464,107 Net realized loss from investments ........................ (18,475,583) (9,750,866) Net change in unrealized appreciation/depreciation from investments ....................................... 15,208,788 (4,149,144) ------------ ------------ Net decrease in net assets resulting from operations ......... (3,335,242) (13,435,903) ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ..................................... (145,047) (1,363,146) Net realized capital gains ................................ -- (9,202) Return of Capital ......................................... (32,914) -- ------------ ------------ Net decrease in net assets from dividends and distributions to shareholders ........................................... (177,961) (1,372,348) ------------ ------------ CAPITAL TRANSACTIONS: Proceeds from shares sold ................................. 1,206,774 1,528,070 Reinvestment of distributions ............................. 165,569 1,273,840 Shares redeemed ........................................... (6,145,293) (8,234,912) ------------ ------------ Net decrease in net assets from capital transactions ......... (4,772,950) (5,433,002) ------------ ------------ Total decrease in net assets ................................. (8,286,153) (20,241,253) NET ASSETS: Beginning of year ......................................... 31,625,552 51,866,805 ------------ ------------ End of year ............................................... $ 23,339,399 $ 31,625,552 ============ ============ Undistributed net investment income, end of year ............. $ -- $ 145,047 ============ ============ SHARE TRANSACTIONS: Shares sold ............................................... 211,834 273,976 Shares reinvested ......................................... 31,122 230,768 Shares redeemed ........................................... (1,092,989) (1,353,080) ------------ ------------ Total share transactions ..................................... (850,033) (848,336) ============ ============
See Notes to Financial Statements. 8 SENBANC FUND FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED, AUGUST 31, ------------------------------------------------- 2010 2009 2008 2007 2006 ------- ------- ------- -------- -------- PER SHARE OPERATING PERFORMANCE Net asset value: Beginning of year ......................... $ 5.81 $ 8.25 $ 14.69 $ 16.57 $ 16.27 ------- ------- ------- -------- -------- Net investment income/(loss) ................. (0.01) 0.10 0.39 0.41 0.29 Net realized and unrealized gain/(loss) on investments ............................ (0.67) (2.30) (5.52) (1.56) 0.44 ------- ------- ------- -------- -------- Total from investment operations ............. (0.68) (2.20) (5.13) (1.15) 0.73 ------- ------- ------- -------- -------- Less distributions from: Net investment income ........................ (0.04) (0.24) (0.61) (0.31) (0.12) Net realized gain on investments ............. -- --* (0.70) (0.42) (0.31) Return of capital ............................ (0.01) -- -- -- -- ------- ------- ------- -------- -------- Total distributions .......................... (0.05) (0.24) (1.31) (0.73) (0.43) ------- ------- ------- -------- -------- Net asset value: End of year ............................... $ 5.08 $ 5.81 $ 8.25 $ 14.69 $ 16.57 ======= ======= ======= ======== ======== Total investment return ...................... (11.98)% (26.47)% (37.08)% (7.47)% 4.52% (excludes sales charge) RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's omitted) ...... $23,339 $31,626 $51,867 $111,119 $185,593 Ratio of expenses to average net assets, including waivers ............. 1.75% 1.73% 1.75% 1.53% 1.38% Ratio of expenses to average net assets, excluding waivers ............. 2.37% 2.26% 1.79% 1.53% 1.38% Ratio of net investment income/(loss) to average net assets, including waivers .. (0.24)% 1.43% 2.79% 1.84% 1.53% Ratio of net investment income/(loss) to average net assets, excluding waivers .. (0.86)% 0.90% 2.75% 1.84% 1.53% Portfolio turnover rate ...................... 9.80% 3.11% 11.01% 9.74% 7.47%
---------- * Less than $(0.005) per share. See Notes to Financial Statements. 9 SENBANC FUND NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2010 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The RBB Fund, Inc. ("RBB" or the "Company") was incorporated under the laws of the State of Maryland on February 29, 1988 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. RBB is a "series fund," which is a mutual fund divided into separate portfolios. Each portfolio is treated as a separate entity for certain matters under the 1940 Act, and for other purposes, and a shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. Currently, RBB has eighteen active investment portfolios, including the Senbanc Fund (the "Fund"). As of the date hereof, the Fund offers one class of shares and is a non-diversified fund. RBB has authorized capital of one hundred billion shares of common stock of which 79.373 billion shares are currently classified into one hundred and thirty-three classes of common stock. Each class represents an interest in an active or inactive RBB investment portfolio. The Fund commenced operations on July 8, 1999, as a separate portfolio (the "Predecessor Fund") of the Hilliard Lyons Research Trust. After the close of business on August 31, 2005, all of the assets and liabilities of the Predecessor Fund were transferred to the Fund, a newly created portfolio of the Company, that is continuing the business, including carrying forward the financial and performance history, of the Predecessor Fund. PORTFOLIO VALUATION -- The Fund's net asset value ("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. Securities held by the Fund are valued using the closing price or the last sale price on a national securities exchange or the National Association of Securities Dealers Automatic Quotation System ("NASDAQ") market system where they are primarily traded. 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 greater than 60 days are valued using an independent pricing service. Fixed income securities having a remaining maturity of 60 days or less are valued under the amortized cost method, which approximates fair value. Investments in other open-end investment companies are valued based on the NAV of the investment companies (which may use fair value pricing as discussed in their prospectuses). If market quotations are unavailable or deemed unreliable, securities will be 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. FAIR VALUE MEASUREMENTS -- The inputs and valuation techniques used to measure fair value of the Fund's investments are summarized into three levels as described below: - Level 1 -- quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) - Level 3 -- significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) See Notes to Financial Statements. 10 SENBANC FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value the Fund's investments as of August 31, 2010 is included with the Fund's Schedule of Investments. USE OF ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates and those differences could be significant. INVESTMENT TRANSACTIONS, INVESTMENT INCOME AND EXPENSES -- The Fund records security transactions based on trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes in determining realized gains and losses on investments. Interest income is accrued when earned. Dividend income is recorded on the ex-dividend date. Expenses incurred on behalf of a specific class, fund or fund family are charged directly to the class, fund or fund family (in proportion to net assets). Expenses incurred for all of the RBB funds (such as directors' or professional fees) are charged to all funds in proportion to their average net assets of RBB or in such other manner as the Company's Board of Directors deems fair or equitable. Expenses and fees, including investment advisory and administration fees, are accrued daily and taken into account for the purpose of determining the NAV of the Fund. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income and distributions from net realized capital gains, if any, will be declared and paid at least annually to shareholders and recorded on the ex-dividend date. Income dividends and capital gain distributions are determined in accordance with U.S. federal income tax regulations which may differ from accounting principles generally accepted in the United States of America. U.S. TAX STATUS -- No provision is made for U.S. income taxes as it is the Fund's intention to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to its shareholders which will be sufficient to relieve it from U.S. income and excise taxes. CASH AND CASH EQUIVALENTS -- The Fund considers liquid assets deposited into a bank demand deposit account to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Fund expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. OTHER -- In the normal course of business, the Fund may enter into contracts that provide general indemnifications. The Fund's maximum exposure under these arrangements is dependent on claims that may be made against the Fund in the future, and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote. 11 SENBANC FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 2. INVESTMENT ADVISER AND OTHER SERVICES Hilliard Lyons Research Advisors (the "Adviser"), a division of J.J.B. Hilliard, W.L. Lyons, LLC, provides management and investment advisory services to the Fund pursuant to an investment advisory agreement with the Company. For its services, the Adviser is paid a monthly fee at the annual rate of 0.60% of the Fund's average daily net assets. The Adviser has voluntarily agreed to limit the Fund's total operating expenses to 1.75%. This limit is calculated daily based on the Fund's average daily net assets. This limitation is effected in waivers of advisory fees and reimbursement of expenses exceeding the advisory fees as necessary. The Fund will not pay the Adviser at a later time for any amounts waived or any amounts assumed. The Adviser may terminate the voluntary limit at any time upon notice to the Company's Board of Directors. BNY Mellon Investment Servicing (US) Inc. ("BNY Mellon"), formerly known as PNC Global Investment Servicing (U.S.), Inc., serves as administrator for the Fund. For providing administrative and accounting services, BNY Mellon is entitled to receive a monthly fee equal to an annual percentage rate of the Fund's average daily net assets subject to certain minimum monthly fees. Included in the administration and accounting fees shown on the Statement of Operations are fees for providing regulatory administration services to RBB. For providing those services, BNY Mellon is entitled to receive compensation as agreed to by the Company and BNY Mellon. This fee is allocated to the Fund in proportion to its net assets of the Company. In addition, BNY Mellon serves as the Fund's transfer and dividend disbursing agent. For providing transfer agent services, BNY Mellon is entitled to receive a monthly fee equal to an annual percentage rate of the Fund's average daily net assets subject to certain minimum monthly fees. PFPC Trust Company ("PFPC Trust") is a member of The Bank of New York Mellon Corp. and provides certain custodial services to the Fund. PFPC Trust is entitled to receive a monthly fee equal to an annual percentage rate of the Fund's average daily net assets and is subject to certain minimum monthly fees. BNY Mellon Distributors Inc., formerly known as PFPC Distributors, Inc., provides certain administrative services to the Fund. The Board of Directors has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, to allow the Fund to reimburse BNY Mellon Distributors for certain expenses incurred in connection with distribution activities. The Directors have authorized a payment of up to 0.60% of the Fund's average net assets annually to reimburse BNY Mellon Distributors for such expenses. For the year ended August 31, 2010, BNY Mellon Distributors earned $1,616 in underwriting concessions. Commissions on sales of $12,721 were paid by the Adviser for the year ended August 31, 2010. Fund shares are subject to a maximum front-end sales charge of 2.25%. There is no sales charge on share purchases 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. 12 SENBANC FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 3. DIRECTOR COMPENSATION The Directors of the Company receive an annual retainer, meeting fees and out of pocket expenses for meetings attended. The remuneration paid to the Directors by the Fund during the fiscal year ended August 31, 2010 was $8,086. Certain employees of BNY Mellon are Officers of the Company. They are not compensated by the Fund or the Company. 4. INVESTMENT IN SECURITIES For the year ended August 31, 2010, aggregate purchases and sales of investment securities (excluding short-term investments) were as follows:
Investment Securities ----------------------- Purchases Sales ---------- ---------- $2,706,361 $8,456,569
5. FEDERAL INCOME TAX INFORMATION Management has analyzed the Fund's tax positions taken on federal income tax returns for all open tax years (August 31, 2007-2010) and has concluded that no provision for federal income tax is required in the Fund's financial statements. The Fund's federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. As of August 31, 2010, federal tax cost, aggregate gross unrealized appreciation and depreciation of securities held by the Fund were as follows: Cost of investments for tax purposes ............................ $ 38,221,833 ------------ Gross tax unrealized appreciation ............................... $ 132,340 Gross tax unrealized depreciation ............................... (15,733,846) ------------ Net tax unrealized depreciation on investments .................. $(15,601,506) ============
Distributions to shareholders from net investment income and realized gains are determined in accordance with federal income tax regulations, which may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on the tax treatment; temporary differences do not require such reclassification. 13 SENBANC FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2010 The following permanent differences as of August 31, 2010, attributable to the net investment loss, were reclassified to the following accounts:
UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED PAID-IN INCOME/(LOSS) GAIN/(LOSS) CAPITAL -------------- ------------ -------- $68,447 $-- $(68,447)
The difference between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for Federal income tax purposes. Short-term and foreign currency gains are reportable as ordinary income for Federal income tax purposes. The tax character of dividends and distributions paid were as follows: FOR THE YEARS ENDED --------------------------------- AUGUST 31, 2010 AUGUST 31, 2009 --------------- --------------- Distributions paid from: Ordinary income ......................... $145,047 $1,363,168 Long-term capital gains ................. -- 9,180 Return of Capital ....................... 32,914 -- -------- ---------- $177,961 $1,372,348 ======== ==========
Dividends paid from short-term capital gains are treated as ordinary income dividends for federal income tax purposes. For federal income tax purposes, capital loss carryforwards are available to offset future capital gains. As of August 31, 2010, the Fund had a capital loss carryforward of $21,028,861 that will expire as follows: August 31, 2018 ............................... $ 6,562,067 August 31, 2017 ............................... $14,466,794
Under federal tax law, foreign currency and capital losses realized after October 31 may be deferred and treated as having arisen on the first day of the following fiscal year. For the year ended August 31, 2010, the Fund deferred post-October capital losses of $13,480,599. 6. INDUSTRY CONCENTRATION RISK Since the Fund's investments are concentrated in the banking industry, as well as certain single large portfolio holdings, they are subject to risks in addition to those that apply to the general equity market. Events may occur that significantly affect the entire banking industry or single security; 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 or smaller concentrations in single issuers. 14 SENBANC FUND NOTES TO FINANCIAL STATEMENTS (CONCLUDED) AUGUST 31, 2010 7. NEW ACCOUNTING PRONOUNCEMENT In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06, "Improving Disclosures about Fair Value Measurements." ASU No. 2010-06 amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, to require additional disclosures regarding fair value measurements. Certain disclosures required by ASU No. 2010-06 are currently effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management has evaluated the impact and has incorporated the appropriate disclosures required by ASU No. 2010-06 in its financial statement disclosures. 8. SUBSEQUENT EVENT Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements. 15 SENBANC FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of Senbanc Fund and Board of Directors of The RBB Fund, Inc.: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the Senbanc Fund (the "Fund"), one of the portfolios constituting The RBB Fund, Inc., as of August 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2010, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Senbanc Fund of The RBB Fund, Inc. as of August 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania October 25, 2010 16 SENBANC FUND SUPPLEMENTAL INFORMATION AUGUST 31, 2010 (UNAUDITED) SHAREHOLDER TAX INFORMATION The Fund is required by subchapter M of the Internal Revenue Code of 1986, as amended, to advise its shareholders within 60 days of the Fund's fiscal year end, August 31, as to the U.S. federal tax status of distributions received by the Fund's shareholders in respect of such fiscal year. During the fiscal year ended August 31, 2010, the following dividends and distributions were paid by the Fund:
ORDINARY INCOME ----------------------- Net Investment Short-Term Long-Term Return of Income Gains Gains Capital ---------- ---------- --------- --------- $145,047 $-- $-- $32,914
Dividends paid from short-term capital gains are treated as ordinary income dividends for federal tax purposes. The percentage of total ordinary income dividends paid qualifying for the corporate dividend received deduction for the Fund is 100%. The percentage of total ordinary income dividends paid qualifying for the 15% tax rate for the Fund is 100%. These amounts were reported to shareholders as income in 2010. Because the Fund's fiscal year is not the calendar year, another notification will be sent with respect to calendar year 2010. The second notification, which will reflect the amount, if any, to be used by calendar year taxpayers on their U.S. federal income tax return, will be made in conjunction with Form 1099-DIV and will be mailed in January 2011. Foreign shareholders will generally be subject to U.S. withholding tax on the amount of their ordinary income dividends. They will generally not be entitled to a foreign tax credit or deduction for the withholding taxes paid by the Fund, if any. In general, dividends received by tax exempt recipients (e.g., IRAs and Keoghs) need not be reported as taxable income for U.S. federal income tax purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need this information for their annual information reporting. Shareholders are advised to consult their own tax advisors with respect to the tax consequences of their investments in the Fund. 17 SENBANC FUND OTHER INFORMATION AUGUST 31, 2010 (UNAUDITED) PROXY VOTING A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies relating to portfolio securities for the most recent 12-month period ended June 30 are available without charge, upon request by calling Senbanc Fund at (800) 444-1854, at www.hilliard.com and on the SEC's website at http://www.sec.gov. QUARTERLY PORTFOLIO SCHEDULES The Fund files its complete schedule of portfolio holdings with the SEC for the first and third fiscal quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the SEC's Public Reference Room may be obtained by calling (202) 551-8090. APPROVAL OF INVESTMENT ADVISORY AGREEMENT As required by the 1940 Act, the Board of Directors (the "Board") of the Company, including all of the Directors who are not "interested persons" of the Company, as that term is defined in the 1940 Act (the "Independent Directors"), considered the renewal of the investment advisory agreement between the Adviser and the Company (the "Advisory Agreement") on behalf of the Fund at a meeting of the Board held on May 6, 2010. At this meeting, the Board, including all of the Independent Directors, approved the Advisory Agreement for an additional one-year term. The Board's decision to approve the Advisory Agreement reflects the exercise of its business judgment to continue the existing arrangement. In approving the Advisory Agreement, the Board considered information provided by the Adviser with the assistance and advice of counsel to the Independent Directors and the Company. In considering the renewal of and approval of the Advisory Agreement, the Directors took into account all the materials provided prior to and during the meeting and at other meetings throughout the past year, the presentations made during the meeting, and the discussions during the meeting. Among other things, the Directors considered (i) the nature, extent, and quality of the Adviser's services provided to the Fund; (ii) descriptions of the experience and qualifications of the Adviser's personnel providing those services; (iii) the Adviser's investment philosophies and processes; (iv) the Adviser's assets under management and client descriptions; (v) the Adviser's soft dollar commission and trade allocation policies, including information on the types of research and services obtained in connection with soft dollar commissions; (vi) the Adviser's current advisory fee arrangement with the Company and other similarly managed clients; (vii) the Adviser's compliance procedures; (viii) the Adviser's financial information, insurance coverage and profitability analysis related to providing advisory services to the Fund; (ix) the extent to which economies of scale are relevant to the Fund; (x) a report prepared by Lipper Inc. ("Lipper") comparing the Fund's management fees and total expense ratio to those of its Lipper peer group and comparing the performance of the Fund to the performance of its Lipper peer group; and (xi) a report comparing the performance of the Fund to the performance of its benchmark. As part of their review, the Directors considered the nature, extent and quality of the services provided by the Adviser. The Directors concluded that the Adviser had substantial resources to provide services to the Fund and that the Adviser's services had been acceptable. 18 SENBANC FUND OTHER INFORMATION (CONCLUDED) AUGUST 31, 2010 (UNAUDITED) The Directors also considered the investment performance of the Fund and the Adviser. Information on the Fund's investment performance was provided for one, three, four and five year periods. The Directors considered the Fund's investment performance in light of its investment objective and investment strategies. The Directors concluded that the investment performance of the Fund as compared to its benchmark and Lipper peer group was acceptable. In reaching this conclusion, the Directors also considered the recent extraordinary market conditions and the Fund's policy to hold 80% of its assets in financial and bank stocks. The Board of Directors also considered the advisory fee rate payable by the Fund under the Advisory Agreement. In this regard, information on the fees paid by the Fund and the Fund's total operating expense ratio (before and after fee waivers and expense reimbursements) were compared to similar information for mutual funds advised by other, unaffiliated investment advisory firms. The Directors noted that the advisory fees of the Fund, before and after waivers, were the lowest in its peer group. In addition, the Directors noted that the Adviser was voluntarily waiving management fees and reimbursing expenses to limit total annual operating expenses to 1.75% of the Fund's average daily net assets and that the Adviser expects to continue these fee waivers and expense reimbursements. After reviewing the information regarding the Adviser's costs, profitability and economies of scale, and after considering the Adviser's services, the Directors concluded that the investment advisory fees paid by the Fund were fair and reasonable and that the Advisory Agreement should be approved and continued for an additional one-year period ending August 16, 2011. 19 FUND MANAGEMENT (UNAUDITED) The business and affairs of the Company are managed under the direction of the Company's Board of Directors. The Company is organized under and managed pursuant to Maryland law. The Directors and executive officers of the Company, their dates of birth, business addresses and principal occupations during the past five years are set forth below. The statement of additional information ("SAI") includes additional information about the Directors and is available without charge, upon request, by calling (800) 444-1854.
NUMBER OF TERM OF OFFICE PORTFOLIOS IN OTHER POSITION(S) AND LENGTH OF FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD TIME SERVED PRINCIPAL OCCUPATION(S) OVERSEEN HELD BY AND DATE OF BIRTH WITH FUND (1) DURING PAST 5 YEARS BY DIRECTOR* DIRECTOR ----------------- ----------- --------------- --------------------------------- ------------- ------------- DISINTERESTED DIRECTORS Nicholas A. Giordano Director 2006 to present Consultant, financial services 18 Kalmar 103 Bellevue Parkway organizations from 1997 to Pooled Wilmington, DE 19809 present. Investment DOB: 3/43 Trust; (registered investment company) WT Mutual Fund; (registered investment company) Independence Blue Cross; IntriCon Corporation (body worn device company) Francis J. McKay Director 1988 to present Retired; Executive Vice President 18 None 103 Bellevue Parkway and Chief Operating Officer, Fox Wilmington, DE 19809 Chase Cancer Center (biomedical DOB: 12/35 research and medical care) (1981-2004). Arnold M. Reichman Chairman 2005 to present Director, Gabelli Group Capital 18 None 103 Bellevue Parkway Director 1991 to present Partners, L.P. (an investment Wilmington, DE 19809 partnership) from 2000 to 2006. DOB: 5/48 Marvin E. Sternberg Director 1991 to present Since 1974, Chairman, Director 18 MTI Holding 103 Bellevue Parkway and President, MTI Holding Group, Group Inc. Wilmington, DE 19809 Inc. (formerly known as Moyco (formerly DOB: 3/34 Technologies, Inc.) (manufacturer known as of dental products and precision Moyco coated and industrial abrasives). Technologies, Inc.)
20 FUND MANAGEMENT (CONTINUED) (UNAUDITED)
NUMBER OF TERM OF OFFICE PORTFOLIOS IN OTHER POSITION(S) AND LENGTH OF FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD TIME SERVED PRINCIPAL OCCUPATION(S) OVERSEEN HELD BY AND DATE OF BIRTH WITH FUND (1) DURING PAST 5 YEARS BY DIRECTOR* DIRECTOR ----------------- ----------- --------------- --------------------------------- ------------- ------------- DISINTERESTED DIRECTORS Robert A. Straniere Director 2006 to present Since 2009, Administrative Law 18 Reich and 103 Bellevue Parkway Judge, New York City; Founding Tang Group Wilmington, DE 19809 Partner, Straniere Law Firm (1980 (asset DOB: 3/41 to present); Partner, Gotham management); Strategies (consulting firm) The SPARX (2005 to 2008); Partner, The Asia Funds Gotham Global Group (consulting Group firm) (2005 to 2008); President, (registered The New York City Hot Dog Company investment (2005 to present); Partner, company) Kanter-Davidoff (law firm) (2006 (until 2009) to 2007).
21 FUND MANAGEMENT (CONTINUED) (UNAUDITED)
NUMBER OF TERM OF OFFICE PORTFOLIOS IN OTHER POSITION(S) AND LENGTH OF FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD TIME SERVED PRINCIPAL OCCUPATION(S) OVERSEEN HELD BY AND DATE OF BIRTH WITH FUND (1) DURING PAST 5 YEARS BY DIRECTOR* DIRECTOR ----------------- ----------- --------------- --------------------------------- ------------- ------------- INTERESTED DIRECTORS(2) Julian A. Brodsky Director 1988 to present Since 1969, Director and Vice 18 Comcast 103 Bellevue Parkway Chairman, Comcast Corporation Corporation; Wilmington, DE 19809 (cable television and AMDOCS DOB: 7/33 communications). Limited (service provider to telecommuni- cations companies) Robert Sablowsky Director 1991 to present Since July 2002, Senior Director 18 Kensington 103 Bellevue Parkway and prior thereto, Executive Vice Funds (regis- Wilmington, DE 19809 President, of Oppenheimer & Co., tered DOB: 4/38 Inc., formerly Fahnestock & Co., investment Inc. (a registered broker- company) dealer). (until 2009) J. Richard Carnall Director 2002 to present Director of Haydon Bolts, Inc. 18 Cornerstone 103 Bellevue Parkway (bolt manufacturer) and Parkway Bank Wilmington, DE 19809 Real Estate Company (subsidiary DOB: 9/38 of Haydon Bolts, Inc.) since 1984; and Director of Cornerstone Bank since March 2004.
22 FUND MANAGEMENT (CONCLUDED) (UNAUDITED)
NUMBER OF TERM OF OFFICE PORTFOLIOS IN OTHER POSITION(S) AND LENGTH OF FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS, HELD TIME SERVED PRINCIPAL OCCUPATION(S) OVERSEEN HELD BY AND DATE OF BIRTH WITH FUND (1) DURING PAST 5 YEARS BY DIRECTOR* DIRECTOR ----------------- ----------- --------------- --------------------------------- ------------- ------------- OFFICERS Salvatore Faia, President President June President, Vigilant Compliance N/A N/A Esquire, and Chief 2009 to present Services since 2004; Senior CPA Compliance and Chief Legal Counsel, PNC Global Vigilant Compliance Officer Compliance Investment Servicing (U.S.), Services Officer 2004 to Inc. from 2002 to 2004; and Brandywine Two present Director of Energy Income 5 Christy Drive, Partnership since 2005. Suite 209 Chadds Ford, PA 19317 DOB: 12/62 Joel Weiss Treasurer June 2009 to Since 1993 Vice President and N/A N/A 103 Bellevue Parkway present Managing Director, BNY Mellon Wilmington, DE 19809 Investment Servicing (US) Inc. DOB: 1/63 (formerly PNC Global Investment Servicing (U.S.) Inc.) (financial services company) Jennifer Rogers Secretary 2007 to present Since 2005, Vice President and N/A N/A 301 Bellevue Parkway Counsel, BNY Mellon Investment Wilmington, DE 19809 Servicing (US) Inc. (formerly DOB: 7/74 PNC Global Investment Servicing (U.S.), Inc. (financial services company); Associate, Stradley, Ronon, Stevens & Young, LLC (law firm) from 1999 to 2005. James G. Shaw Assistant 2005 to present Since 1995, Vice President of N/A N/A 103 Bellevue Parkway Treasurer BNY Mellon Investment Servicing Wilmington, DE 19809 (US) Inc. (formerly PNC Global DOB: 10/60 Investment Servicing (U.S.) Inc. (financial services company) Michael P. Malloy Assistant 1999 to present Since 1993, Partner, Drinker N/A N/A One Logan Square. Secretary Biddle & Reath LLP (law firm) Ste 2000 Philadelphia, PA 19103-6996 DOB: 7/59
* Each Director oversees eighteen portfolios of the Company that are currently offered for sale. (1) Subject to the Company's Retirement Policy, each Director may continue to serve as a Director until the last day of the calendar year in which the applicable Director attains age 75 or until the last day of year 2011, whichever is later, or until his successor is elected and qualified or his death, resignation or removal. The Board reserves the right to waive the requirements of the Policy with respect to an individual Director. Each officer holds office at the pleasure of the Board of Directors until the next special meeting of the Company or until his or her successor is duly elected and qualified, or until he or she dies, resigns or is removed. (2) Messrs. Brodsky, Carnall and Sablowsky are considered "interested persons" of the Company as that term is defined in the 1940 Act and are referred to as "Interested Directors." Mr. Brodsky is an "Interested Director" of the Company because a family foundation and certain family trusts own shares of JPMorgan Chase & Co. The investment adviser to the Company's Bear Stearns CUFS MLP Mortgage Portfolio, Bear Stearns Asset Management, Inc., is an indirect subsidiary of JPMorgan Chase. Mr. Carnall is an "Interested Director" of the Company because he owns shares of The PNC Financial Services Group, Inc. ("PNC"). PNC owns a controlling interest in BlackRock, Inc., the parent company of BlackRock Institutional Management Corporation, the investment adviser to the Company's Money Market Portfolio. Mr. Sablowsky is considered an "Interested Director" of the Company by virtue of his position as an officer of Oppenheimer & Co., Inc., a registered broker-dealer. 23 SENBANC FUND PRIVACY NOTICE (UNAUDITED) The Senbanc Fund of The RBB Fund, Inc. (the "Fund") is committed to protecting the confidentiality and security of your private investment records and personal information. Our policies and procedures are designed to safeguard your information and to permit only appropriate and authorized access to and use of this information. In order to carry out the functions necessary to service your investment account, our service providers collect certain nonpublic personal information from you from the following sources: - Information we receive from you over the telephone, on applications, e-mails or other forms (e.g., your name, social security number and address); and - Information about your transactions with the Fund. We restrict access to your personal account information to those service providers and their employees who need to know that information to service your account. The Fund may also share all of the information (as described above) that we collect with companies that perform marketing services on our behalf or with other financial institutions with whom we have joint marketing agreements who may suggest additional Fund services or other investment products which may be of interest to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. You can be assured that the Fund considers your data to be private and confidential, and we will not disclose any nonpublic personal information about you to any unaffiliated third parties, except as permitted by law. If you decide to close your account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. If you have any questions or comments about our privacy practices, please call us at (800) 444-1854. 24 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] (HILLARD LYONS LOGO) SENBANC FUND SENBANC OF THE RBB FUND, INC. ANNUAL REPORT AUGUST 31, 2010 This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund. Shares of Senbanc Fund are distributed by BNY Mellon Distributors Inc., 760 Moore Road, King of Prussia, PA 19406. INVESTMENT ADVISER Hilliard Lyons Research Advisors 500 West Jefferson Street Louisville, KY 40202 ADMINISTRATOR BNY Mellon Investment Servicing (US) Inc. 301 Bellevue Parkway Wilmington, DE 19809 TRANSFER AGENT BNY Mellon Investment Servicing (US) Inc. 101 Sabin Street Pawtucket, RI 02860 UNDERWRITER BNY Mellon Distributors Inc. 760 Moore Road King of Prussia, PA 19406 CUSTODIAN PFPC Trust Company 301 Bellevue Parkway Wilmington, DE 19809 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP 1700 Market Street Philadelphia, PA 19103-3984 LEGAL COUNSEL Drinker Biddle & Reath LLP One Logan Square, Ste. 2000 Philadelphia, PA 19103-6996 ITEM 2. CODE OF ETHICS. (a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (c) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. (d) The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item's instructions. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. As of the end of the period covered by the report, the registrant's board of directors has determined that the registrant has at least one audit committee financial expert serving on its audit committee. Julian A. Brodsky, Nicholas A. Giordano, Francis J. McKay, and Marvin E. Sternberg are the registrant's audit committee financial experts. Nicholas A. Giordano, Francis J. McKay, and Marvin E. Sternberg are "independent." Julian A. Brodsky is not "independent" because a family foundation and certain family trusts own shares of JPMorgan Chase & Co. The investment adviser to the registrant's Bear Stearns CUFS MLP Mortgage Portfolio, Bear Stearns Asset Management, Inc., is an indirect subsidiary of JPMorgan Chase & Co. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. AUDIT FEES (a) The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $442,385 for 2009 and $426,535 for 2010. AUDIT-RELATED FEES (b) The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item were $0 for 2009 and $0 for 2010. TAX FEES (c) The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were $12,000 for 2009 and $10,780 for 2010. These fees were for the preparation and review of excise tax returns. ALL OTHER FEES (d) The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for 2009 and $0 for 2010. (e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. PRE-APPROVAL OF AUDIT AND PERMITTED NON-AUDIT SERVICES 1. PRE-APPROVAL REQUIREMENTS OF THE COMPANY. The Committee shall pre-approve all auditing services and permissible non-audit services (e.g., tax services) to be provided to the Company by the Auditor, including the fees associated with those services. 2. PRE-APPROVAL REQUIREMENTS OF AFFILIATES. Additionally, the Committee shall pre-approve any engagement of the Auditor to provide non-audit services to an investment adviser of a Portfolio or to any affiliate of such investment adviser that provides ongoing services to the Company, if the engagement relates directly to the operations and financial reporting of the Company. 3. DELEGATION. The Committee may delegate to the Chairman of the Committee, or if the Chairman is not available, one or more of its members, the authority to grant pre-approvals. The decisions of any member to whom authority is delegated shall be presented to the full Committee at its next scheduled meeting. 4. PROHIBITED SERVICES. The Committee shall confirm with the Auditor that the Auditor is not performing contemporaneously with the Company's audit any prohibited non-audit services for the Company, any investment adviser of a Portfolio, or any affiliates of the Company or such investment advisers. The Auditor is responsible for informing the Committee of whether it believes that a particular service is permissible or prohibited pursuant to applicable regulations and standards. (e)(2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows: (b) 100% (c) Not applicable (d) 100% (f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%. (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were $0 for 2009 and $0 for 2010. (h) Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. INVESTMENTS. (a) Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this Form. (b) Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Senior Officer Code of Ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. (a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. (a)(3) Not applicable. (b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) The RBB Fund, Inc. By (Signature and Title)* /s/ Salvatore Faia -------------------------------------- Salvatore Faia, President (principal executive officer) Date October 27, 2010 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ Salvatore Faia -------------------------------------- Salvatore Faia, President (principal executive officer) Date October 27, 2010 By (Signature and Title)* /s/ Joel Weiss -------------------------------------- Joel Weiss, Treasurer (principal financial officer) Date October 28, 2010 * Print the name and title of each signing officer under his or her signature.