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BARR ROSENBERG SERIES TRUST
BARR ROSENBERG MARKET NEUTRAL FUND
BARR ROSENBERG DOUBLE ALPHA MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 9, 1997
REVISED JANUARY 27, 1998
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TABLE OF CONTENTS
PAGE
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INVESTMENT OBJECTIVES AND POLICIES.................................... 3
MISCELLANEOUS INVESTMENT PRACTICES.................................... 5
INVESTMENT RESTRICTIONS............................................... 5
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS........................ 7
MANAGEMENT OF THE TRUST............................................... 9
INVESTMENT ADVISORY AND OTHER SERVICES................................ 11
PORTFOLIO TRANSACTIONS................................................ 13
TOTAL RETURN CALCULATIONS............................................. 14
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES...................... 16
DETERMINATION OF NET ASSET VALUE...................................... 18
PURCHASE AND REDEMPTION OF SHARES..................................... 18
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INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each of the Barr Rosenberg Market
Neutral Fund and Barr Rosenberg Double Alpha Market Fund (each, a "Fund" and
collectively, the "Funds") of Barr Rosenberg Series Trust (the "Trust") are
summarized on the front page of the Prospectus and in the text of the Prospectus
under the headings "Investment Objectives and Policies" and "General Description
of Risks and Fund Investments."
In addition, the following is an additional description of certain
investments of the Fund(s).
SHORT SALES (BOTH FUNDS). The Barr Rosenberg Market Neutral Fund will seek,
and the Barr Rosenberg Double Alpha Market Fund may seek, to realize additional
gains through short sales. Short sales are transactions in which a Fund sells a
security it does not own, in anticipation of a decline in the value of that
security relative to the long positions held by the Fund. To complete such a
transaction, a Fund must borrow the security to make delivery to the buyer. A
Fund then is obligated to replace the security borrowed by purchasing it at the
market price at or prior to the time of replacement. The price at such time may
be more or less than the price at which the security was sold by a Fund. Until
the security is replaced, a Fund is required to repay the lender any dividends
or interest that accrue during the period of the loan. To borrow the security, a
Fund also may be required to pay a premium, which would increase the cost of the
security sold. The net proceeds of the short sale will be retained by the broker
(or by the Fund's custodian in a special custody account), to the extent
necessary to meet margin requirements, until the short position is closed out. A
Fund also will incur transaction costs in effecting short sales.
A Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. A Fund will realize a gain if the security
declines in price between those dates. The amount of any gain will be decreased,
and the amount of any loss increased, by the amount of the premium, dividends,
interest or expenses a Fund may be required to pay in connection with a short
sale. An increase in the value of a security sold short by a Fund over the price
at which it was sold short will result in a loss to the Fund, and there can be
no assurance that the Fund will be able to close out the position at any
particular time or at an acceptable price.
S&P 500 INDEX FUTURES AND RELATED OPTIONS (BARR ROSENBERG DOUBLE ALPHA
MARKET FUND ONLY). An S&P 500 Index Future contract (an "Index Future") is a
contract to buy or sell an integral number of units of the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index") at a specified future date at
a price agreed upon when the contract is made. A unit is the value of the S&P
500 Index from time to time. Entering into a contract to buy units is commonly
referred to as buying or purchasing a contract or holding a long position in the
S&P 500 Index.
Index Futures can be traded through all major commodity brokers. Currently,
contracts are expected to expire on the tenth day of March, June, September and
December. The Barr Rosenberg Double Alpha Market Fund will ordinarily be able to
close open positions on the United States futures exchange on which Index
Futures are then traded at any time up to and including the expiration day.
In contrast to purchases of a common stock, no price is paid or received by
the Barr Rosenberg Double Alpha Market Fund upon the purchase of a futures
contract. Upon entering into a futures contract, the Fund will be required to
deposit with its custodian in a segregated account in the name of the futures
broker a
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specified amount of cash or securities. This is known by participants in the
market as "initial margin". The type of instruments that may be deposited as
initial margin, and the required amount of initial margin, are determined by the
futures exchange(s) on which the Index Futures are traded. The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Subsequent payments, called
"variation margin", to and from the broker, will be made on a daily basis as the
price of the S&P 500 Index fluctuates, making the position in the futures
contract more or less valuable, a process known as "marking to the market". For
example, when the Fund has purchased an Index Future and the price of the S&P
500 Index has risen, that position will have increased in value and the Fund
will receive from the broker a variation margin payment equal to that increase
in value. Conversely, when the Fund has purchased an Index Future and the price
of the S&P 500 Index has declined, the position would be less valuable and the
Fund would be required to make a variation margin payment to the broker. When
the Fund terminates a position in a futures contract, a final determination of
variation margin is made, additional cash is paid by or to the Fund, and the
Fund realizes a gain or a loss.
The price of Index Futures may not correlate perfectly with movement in the
underlying index due to certain market distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which could distort the normal
relationship between the S&P 500 Index and futures markets. Secondly, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market, and as a result the futures market may
attract more speculators than does the securities market. Increased
participation by speculators in the futures market may also cause temporary
price distortions.
Options on index futures contracts give the purchaser the right, in return
for the premium paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option. Upon
exercise of the option, the holder would assume the underlying futures position
and would receive a variation margin payment of cash or securities approximating
the increase in the value of the holder's option position. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash based on the difference between the
exercise price of the option and the closing level of the index on which the
futures contract is based on the expiration date. Purchasers of options who fail
to exercise their options prior to the exercise date suffer a loss of the
premium paid.
The ability to establish and close out positions in options on futures
contracts will be subject to the development and maintenance of a liquid
secondary market. It is not certain that such a market will develop. Although
the Barr Rosenberg Double Alpha Market Fund generally will purchase only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options, with the result that the Fund would have to exercise the
options in order to realize any profit.
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MISCELLANEOUS INVESTMENT PRACTICES
PORTFOLIO TURNOVER. A change in securities held by a Fund is known as
"portfolio turnover" and almost always involves the payment by a Fund of
brokerage commissions or dealer markup and other transaction costs on the sale
of securities as well as on the reinvestment of the proceeds in other
securities. Portfolio turnover is not a limiting factor with respect to
investment decisions. As disclosed in the Prospectus, high portfolio turnover
involves correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Funds, and could involve realization
of capital gains that would be taxable when distributed to shareholders of a
Fund. To the extent that portfolio turnover results in the realization of net
short-term capital gains, such gains are ordinarily taxed to shareholders at
ordinary income tax rates. See "Portfolio Transactions" and "Income Dividends,
Distributions and Tax Status".
NOTICE ON SHAREHOLDER APPROVAL. Unless otherwise indicated in the
Prospectus or this Statement of Additional Information, the investment objective
and policies of each of the Funds may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
Without a vote of the majority of the outstanding voting securities of a
Fund, the Trust will not take any of the following actions with respect to such
Fund:
(1) Borrow money in excess of 10% of the value (taken at the lower of
cost or current value) of the Fund's total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as a
temporary measure to facilitate the meeting of redemption requests (not for
leverage) which might otherwise require the untimely disposition of
portfolio investments or for extraordinary or emergency purposes. Such
borrowings will be repaid before any additional investments are purchased.
Short sales and related borrowings of securities are not subject to this
restriction.
(2) Pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of 10% of the Fund's total assets (taken at cost) and then only to
secure borrowings permitted by Restriction 1 above. (For the purposes of
this restriction, collateral arrangements with respect to options, short
sales, stock index, interest rate, currency or other futures, options on
futures contracts and collateral arrangements with respect to initial and
variation margin are not deemed to be a pledge or other encumbrance of
assets. Collateral arrangements with respect to swaps and other derivatives
are also not deemed to be a pledge or other encumbrance of assets.)
(3) Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of purchases and sales of securities.
(For this purpose, the deposit or payment of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.)
(4) Make short sales of securities or maintain a short position if,
when added together, more than 100% of the value of a Fund's net assets
would be (i) deposited as collateral for the obligation to replace
securities borrowed to effect short sales, and (ii) allocated to segregated
accounts in connection with short sales. Short sales "against the box" are
not subject to this limitation.
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(5) Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it
may be deemed to be an underwriter under federal securities laws.
(6) Purchase or sell real estate, although it may purchase securities
of issuers which deal in real estate, including securities of real estate
investment trusts, and may purchase securities which are secured by
interests in real estate.
(7) Concentrate more than 25% of the value of its total assets in any
one industry.
(8) Invest in securities of other investment companies, except to the
extent permitted by the Investment Company Act of 1940, as amended (the
"1940 Act"), or by an exemptive order issued by the Securities and Exchange
Commission.
(9) Purchase or sell commodities or commodity contracts except that
each of the Funds may purchase and sell stock index and other financial
futures contracts and options thereon.
(10) Make loans, except by purchase of debt obligations or by entering
into repurchase agreements or through the lending of the Fund's portfolio
securities.
(11) Issue senior securities. (For the purpose of this restriction none
of the following is deemed to be a senior security: any pledge or other
encumbrance of assets permitted by restriction (2) above; any borrowing
permitted by restriction (1) above; short sales permitted by restriction (4)
above; any collateral arrangements with respect to short sales, swaps,
options, future contracts and options on future contracts and with respect
to initial and variation margin; and the purchase or sale of options, future
contracts or options on future contracts.)
Notwithstanding the latitude permitted by Restrictions 1, 2, 3 and 9 above,
the Funds have no current intention of (a) borrowing money or (b) purchasing
interest rate futures.
It is contrary to the present policy of each of the Funds, which may be
changed by the Trustees of the Trust without shareholder approval, to:
(a) Invest in warrants or rights (other than warrants or rights acquired
by the Fund as a part of a unit or attached to securities at the time of
purchase).
(b) Write, purchase or sell options on particular securities (as opposed
to market indices).
(c) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.
(d) Make investments for the purpose of exercising control of a
company's management.
(e) Invest in (a) securities which at the time of investment are not
readily marketable and (b) repurchase agreements maturing in more than seven
days if, as a result, more than 15% of the Fund's net assets (taken at
current value) would then be invested in such securities.
Unless otherwise indicated, all percentage limitations on investments set
forth herein and in the Prospectus will apply at the time of the making of an
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment.
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The phrase "shareholder approval," as used in the Prospectus and herein, and
the phrase "vote of a majority of the outstanding voting securities", as used
herein, means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of a Fund or the Trust, as the case may be, or (2) 67% or
more of the shares of a Fund or the Trust, as the case may be, present at a
meeting if more than 50% of the outstanding shares are represented at the
meeting in person or by proxy.
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
The tax status of the Funds and the distributions which they may make are
summarized in the Prospectus under the heading "Taxes." The Funds intend to
qualify each year as a regulated investment company under the Internal Revenue
Code. In order to qualify as a "regulated investment company" and to qualify for
the special tax treatment accorded regulated investment companies and their
shareholders, each Fund must, among other things, (a) derive at least 90% of its
gross income from dividends, interest, payments with respect to certain
securities loans, gains from the sale or other disposition of securities or
foreign currencies or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) diversify its holdings so that,
at the close of each quarter of its taxable year, (i) at least 50% of the value
of its total assets consists of cash, cash items, U.S. Government securities,
securities of other regulated investment companies, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of such Fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any issuer (other than U.S. Government securities or
securities of other regulated investment companies); and (c) distribute annually
at least 90% of the sum of its taxable net investment income, its net tax-exempt
income (if any), and, the excess, if any, of net short-term capital gains over
net long-term capital losses for such year. To the extent a Fund qualifies for
treatment as a regulated investment company, the Fund will not be subject to
federal income tax on income paid to its shareholders in the form of dividends
or capital gain distributions.
As described in the Prospectus under the heading "Distributions," each Fund
intends to pay out substantially all of its ordinary income and net short-term
capital gains, and to distribute substantially all of its net capital gains, if
any, after giving effect to any available capital loss carryover. Net capital
gain is the excess of net gains from assets held for more than one year over net
losses from capital assets held for not more than one year. In order to avoid an
excise tax imposed on certain undistributed income, a Fund must distribute prior
to each calendar year end without regard to the Fund's fiscal year end (i) 98%
of the Fund's ordinary income, and (ii) 98% of the Fund's capital gain net
income, if any, realized in the one-year period ending on October 31.
In general, all dividend distributions derived from ordinary income and
short-term capital gain are taxable to investors as ordinary income (eligible
in part for the dividends-received deduction in the case of corporations,
subject to certain conditions). Pursuant to the Taxpayer Relief Act of 1997
(the "1997 Act"), two different tax rates apply to net capital gains. One
rate (generally 28%) applies to net gains on capital assets held for more
than one year but not more than 18 months ("mid-term gains") and a second,
preferred rate (generally 20%) applies to the balance of such net capital
gains ("adjusted net capital gains"). Distributions of net capital gains
will be treated in the hands of shareholders as mid-term gains to the extent
designated by the Fund as deriving from net gains from assets held for more
than one year but not more than
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18 months, and the balance will be treated as adjusted net capital gains.
Distributions of mid-term gains and adjusted net capital gains will be
taxable to shareholders as such, regardless of how long a shareholder has
held the shares in the Fund. Distributions will be taxable as described above
whether received in cash or in shares through the reinvestment of
distributions. The dividends-received deduction for corporations will
generally apply to a Fund's dividends from investment income to the extent
derived from dividends received by the Fund from domestic corporations,
provided the Fund and the shareholder each meet the relevant holding period
requirements.
Certain tax exempt organizations or entities may not be subject to federal
income tax on dividends or distributions from a Fund. Each organization or
entity should review its own circumstances and the federal tax treatment of its
income.
Each Fund is generally required to withhold and remit to the U.S. Treasury
31% of the taxable dividends and other distributions, whether distributed in
cash or reinvested in shares of the Fund, paid or credited to any shareholder
account for which an incorrect or no taxpayer identification number has been
provided or where the Fund is notified that the shareholder has underreported
income in the past (or the shareholder fails to certify that he is not subject
to such withholding). However, the general back-up withholding rules set forth
above will not apply to tax exempt entities so long as each such entity
furnishes a Fund with an appropriate certificate.
To the extent such investments are permissible for a particular Fund, the
Fund's transactions in options, futures contracts, hedging transactions, forward
contracts and straddles will be subject to special tax rules (including
mark-to-market, constructive sale, straddle, wash sale and short sale rules),
the effect of which may be to accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's securities and
convert short-term capital losses into long-term capital losses. These rules
could therefore affect the amount, timing and character of distributions to
shareholders.
Pursuant to the 1997 Act, new "constructive sale" provisions apply to
activities by a Fund which lock in gain on an "appreciated financial position."
Generally, a "position" is defined to include stock, a debt instrument, or
partnership interest, or an interest in any of the foregoing, including through
a short sale, a swap contract, or a future or forward contract. Under the 1997
Act, the entry into a short sale, a swap contract or a future or forward
contract relating to an appreciated direct position in any stock or debt
instrument, or the acquisition of stock or debt instrument at a time when the
Fund occupies an offsetting (short) appreciated position in the stock or debt
instrument, is treated as a "constructive sale" that gives rise to the immediate
recognition of gain (but not loss). The application of these new provisions may
cause a Fund to recognize taxable income from these offsetting transactions in
excess of the cash generated by such activities.
THE TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY INCLUDED FOR GENERAL
INFORMATION PURPOSES ONLY. EACH SHAREHOLDER IS ADVISED TO CONSULT ITS OWN TAX
ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO IT OF AN INVESTMENT IN
THE FUNDS, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL, FOREIGN, AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
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MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust and their principal occupations
during the past five years are as follows:
<TABLE>
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Kenneth Reid* (47) General Partner and Director of Research, Rosenberg Institutional
President, Trustee Equity Management, June, 1986 to present.
Marlis S. Fritz* (47) General Partner and Director of Marketing, Rosenberg Institutional
Vice President, Trustee Equity Management, April, 1985 to present.
Nils H. Hakansson (60) Sylvan C. Coleman Professor of Finance and Accounting, Haas School
Trustee of Business, University of California, Berkeley, June, 1969 to
present. Director, Supershare Services Corporation (investment
management), Los Angeles, California, November, 1989 to 1995.
Barr M. Rosenberg* (54) Managing General Partner and Chief Investment Officer, Rosenberg
Trustee Institutional Equity Management, January, 1985 to present.
William F. Sharpe (63) STANCO 25 Professor of Finance, Stanford University. Chairman,
Trustee Financial Engines Incorporated, Los Altos, California (electronic
investment advice), March 1996 to present.
Po-Len Hew (31) Accounting Manager, Rosenberg Institutional Equity Management,
Treasurer October, 1989 to present.
Carolyn Demler (53) Administrative Coordinator, Rosenberg Institutional Equity
Clerk Management, December, 1988 to present.
Edward H. Lyman (53) Executive Vice President, Barr Rosenberg Investment Management,
Vice President Inc., and General Counsel to the Rosenberg Group of companies,
1990 to present.
Richard L. Saalfeld President and Chief Executive Officer of mutual fund unit of
(54) Rosenberg Institutional Equity Management from June, 1996 to
Vice President present; Consultant to Rosenberg Institutional Equity Management,
September, 1995 to May, 1996; Chairman and Chief Executive
Officer of CoreLink Resources, Inc. (mutual fund marketing
organization), Concord, California, April, 1993 to August, 1995;
Consultant, December, 1992 to March, 1993.
Harold L. Arbit (50) Vice President and Partner, Rosenberg Alpha L.P., 1984 to present.
Vice President
F. William Jump, Jr. Portfolio engineer, Rosenberg Institutional Equity Management,
(42) August, 1990 to present.
Vice President
</TABLE>
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<TABLE>
<S> <C>
David Bunstine (32) Employee of BISYS Fund Services.
Assistant Treasurer
Gregory Maddox (30) Director, Client Services, BISYS Fund Services.
Assistant Treasurer
Bruce Treff (31) Employee of BISYS Fund Services.
Assistant Clerk
Ellen Stoutamire (48) Employee of BISYS Fund Services.
Assistant Clerk
Jeanette Peplowski (39) Employee of BISYS Fund Services.
Assistant Clerk
Alaina Metz (31) Employee of BISYS Fund Services.
Assistant Clerk
</TABLE>
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* Trustees who are "interested persons" (as defined in the 1940 Act) of the
Trust or the Manager.
The mailing address of each of the officers and Trustees is c/o Barr
Rosenberg Series Trust, 3435 Stelzer Road, Columbus, OH 43219.
The principal occupations of the officers and Trustees for the last five
years have been with the employers as shown above, although in some cases they
have held different positions with such employers.
The Trust pays the Trustees other than those who are interested persons of
the Trust or Manager an annual fee of $37,950 plus $4,125 for each meeting
attended. The Trust does not pay any pension or retirement benefits for its
Trustees. The Trust does not pay any compensation to officers or Trustees of the
Trust other than those Trustees who are not interested persons of the Trust or
Manager. The following table sets forth information concerning the total
compensation paid to each of the Trustees who are not interested persons of the
Trust or Manager in the fiscal year ended March 31, 1997.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM
AGGREGATE REGISTRANT AND
COMPENSATION PENSION OR RETIREMENT ESTIMATED ANNUAL FUND COMPLEX
NAME OF PERSON FROM BENEFITS ACCRUED AS BENEFITS UPON PAID TO
POSITION REGISTRANT PART OF FUND EXPENSES RETIREMENT DIRECTORS
- ----------------------------------------------- -------------- --------------------- --------------------- --------------
<S> <C> <C> <C> <C>
Nils H. Hakansson.............................. $ 33,000 $ 0 $ 0 $ 33,000
Trustee
William F. Sharpe.............................. $ 33,000 $ 0 $ 0 $ 33,000
Trustee
</TABLE>
Messrs. Rosenberg, Reid, Arbit, Lyman and Saalfeld and Ms. Fritz, Demler and
Hew, each being a general partner, limited partner, officer or employee of the
Manager, will each benefit from the management fees paid by the Trust to the
Manager, but receive no direct compensation from the Trust.
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INVESTMENT ADVISORY AND OTHER SERVICES
MANAGEMENT CONTRACT
As disclosed in the Prospectus under the heading "Management of the Trust",
under management contracts (each, a "Management Contract") between the Trust, on
behalf of each Fund, and Rosenberg Institutional Equity Management (the
"Manager"), subject to the control of the Trustees of the Trust and such
policies as the Trustees may determine, the Manager will furnish continuously an
investment program for each Fund and will make investment decisions on behalf of
each Fund and place all orders for the purchase and sale of portfolio
securities. Subject to the control of the Trustees, the Manager furnishes office
space and equipment, provides bookkeeping and certain clerical services and pays
all salaries, fees and expenses of officers and Trustees of the Trust who are
affiliated with the Manager. As indicated under "Portfolio Transactions --
Brokerage and Research Services," the Trust's portfolio transactions may be
placed with broker-dealers which furnish the Manager, at no cost, certain
research, statistical and quotation services of value to the Manager in advising
the Trust or its other clients.
As disclosed in the Prospectus, each of the Funds has agreed to pay the
Manager a quarterly management fee at the annual percentage rate of the relevant
Fund's average daily net assets set forth in the Prospectus. The Manager has
informed the Trust that it will voluntarily waive some or all of its management
fees under the Management Contracts and, if necessary, will bear certain
expenses of each Fund until further notice so that each Fund's total annual
operating expenses (including the management fee but not including nonrecurring
account fees and extraordinary expenses) applicable to each class will not
exceed the percentage of each Fund's average daily net assets attributable to
that class as set forth in the Prospectus. In addition, the Manager's
compensation under each Management Contract is subject to reduction to the
extent that in any year the expenses of a Fund (including investment advisory
fees but excluding taxes, portfolio brokerage commissions and any distribution
expenses paid by a class of shares of a Fund pursuant to a distribution plan or
otherwise) exceed the limits on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer and sale.
Each Management Contract provides that the Manager shall not be subject to
any liability to the Trust or to any shareholder of the Trust in connection with
the performance of its services thereunder in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties thereunder.
Each Management Contract will continue in effect for a period of no more
than two years from the date of its execution only so long as its continuance is
approved at least annually by (i) vote, cast in person at a meeting called for
that purpose, of a majority of those Trustees who are not "interested persons"
of the Manager or the Trust, and by (ii) the majority vote of either the full
Board of Trustees or the vote of a majority of the outstanding shares of the
relevant Fund. Each Management Contract automatically terminates on assignment,
and is terminable on not more than 60 days' notice by the Trust to the Manager.
In addition, each Management Contract may be terminated on not more than 60
days' written notice by the Manager to the Trust.
As disclosed in the Prospectus, the general partners of the Manager are Barr
M. Rosenberg, Marlis S. Fritz and Kenneth Reid. Each of these persons may be
deemed a controlling person of the Manager.
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As discussed in this Statement of Additional Information under the heading
"Management of the Trust," Barr M. Rosenberg is a Trustee of the Trust as well
as Managing General Partner and Chief Investment Officer of the Manager; Marlis
S. Fritz is a Trustee and Vice President of the Trust as well as a general
partner of the Manager; and Kenneth Reid is a Trustee and President of the Trust
as well as a general partner and Director of Research of the Manager.
ADMINISTRATIVE SERVICES
The Trust has entered into a Fund Administration Agreement with BISYS Fund
Services (the "Administrator") pursuant to which the Administrator provides
certain management and administrative services necessary for the Funds'
operations including: (i) general supervision of the operation of the Funds
including coordination of the services performed by the Funds' investment
advisor, transfer agent, custodian, independent accountants and legal counsel,
regulatory compliance, including the compilation of information for documents
such as reports to, and filings with, the SEC and state securities commissions,
and preparation of proxy statements and shareholder reports for the Funds; (ii)
general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Funds' officers and Board of
Trustees; and (iii) furnishing office space and certain facilities required for
conducting the business of the Funds. The Trust's principal underwriter is an
affiliate of the Administrator. For these services, the Administrator is
entitled to receive a fee, payable monthly, at the annual rate of 0.15% of the
average daily net assets of the Trust. The Trust has also entered into a Fund
Accounting Agreement with BISYS Fund Services, Inc. (the "Fund Accountant")
pursuant to which the Fund Accountant provides certain accounting services
necessary for the Funds' operations. For these services, the Fund Accountant is
entitled to receive an annual fee of $30,000 for each Fund. The Trust's
principal underwriter is an affiliate of the Fund Accountant.
DISTRIBUTOR AND DISTRIBUTION PLAN
As stated in the text of the Prospectus under the heading "Management of the
Trust--Distributor", Investor Shares of each Fund are sold on a continuous basis
by the Trust's distributor, Barr Rosenberg Funds Distributor, Inc. (the
"Distributor"). Under the Distributor's Contract between the Trust and the
Distributor (the "Distributor's Contract"), the Distributor is not obligated to
sell any specific amount of shares of the Trust and will purchase shares for
resale only against orders for shares.
Pursuant to the Distribution Plan (the "Plan") described in the Prospectus,
in connection with the distribution of Investor Shares of the Trust, the
Distributor receives certain distribution fees from the Trust. Subject to the
percentage limitation on the distribution fee set forth in the Prospectus, the
distribution fee may be paid in respect of services rendered and expenses borne
in the past with respect to Investor Shares as to which no distribution fee was
paid on account of such limitation. The Distributor may pay all or a portion of
the distribution fees it receives from the Trust to participating and
introducing brokers.
The Plan may be terminated with respect to Investor Shares of any Fund to
which the Plan relates by vote of a majority of the Trustees of the Trust who
are not interested persons of the Trust (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of the Plan or
the Distributor's Contract (the "Independent Trustees"), or by vote of a
majority of the outstanding voting securities of that class. Any change in the
Plan that would materially increase the cost to the Investors Shares of any Fund
to which the Plan relates requires approval by the Investor shareholders of that
Fund. The
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Trustees of the Trust review quarterly a written report of such costs and the
purposes for which such costs have been incurred. Except as described above, the
Plan may be amended by vote of the Trustees of the Trust, including a majority
of the Independent Trustees, cast in person at a meeting called for the purpose.
For so long as the Plan is in effect, selection and nomination of those Trustees
of the Trust who are not interested persons of the Trust shall be committed to
the discretion of such disinterested persons.
The Distributor's Contract may be terminated with respect to any Fund or
Investor shares thereof at any time by not more than 60 days' nor less than 30
days' written notice without payment of any penalty either by the Distributor or
by such Fund or class and will terminate automatically, without the payment of
any penalty, in the event of its assignment.
The Distributor's Contract and the Plan will continue in effect with respect
to each class of shares to which they relate for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees and (ii) by the vote of a majority of the
entire Board of Trustees (or by vote of a majority of the outstanding shares of
a class, in the case of the Distributor's Contract) cast in person at a meeting
called for that purpose.
If the Distributor's Contract or the Plan are terminated (or not renewed)
with respect to one or more classes, they may continue in effect with respect to
any class of any Fund as to which they have not been terminated (or have been
renewed).
The Trustees of the Trust believe that the Plan will provide benefits to the
Trust. The Trustees believe that the Plan will result in greater sales and/or
fewer redemptions of Investor Shares, although it is impossible to know for
certain the level of sales and redemptions of Investor Shares that would occur
in the absence of the Plan or under alternative distribution schemes. The
Trustees believe that the effect on sales and/or redemptions benefit the Trust
by reducing Fund expense ratios and/or by affording greater flexibility to Fund
managers.
CUSTODIAL ARRANGEMENTS. Custodial Trust Company ("CTC"), Princeton, NJ
08540, is the Trust's custodian. As such, CTC holds in safekeeping certificated
securities and cash belonging to the Trust and, in such capacity, is the
registered owner of securities in book-entry form belonging to a Fund. Upon
instruction, CTC receives and delivers cash and securities of a Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities.
INDEPENDENT ACCOUNTANTS. The Trust's independent accountants are Price
Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse LLP conducts an annual audit of the Trust's financial statements,
assists in the preparation of the Trust's federal and state income tax returns
and the Trust's filings with the Securities and Exchange Commission, and
consults with the Trust as to matters of accounting and federal and state income
taxation.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The purchase and sale of portfolio securities for the
Funds and for the other investment advisory clients of the Manager are made by
the Manager with a view to achieving each client's investment objective. For
example, a particular security may be purchased or sold on behalf of certain
clients of the Manager even though it could also have been purchased or sold for
other clients at the same time.
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Likewise, a particular security may be purchased on behalf of one or more
clients when the Manager is selling the same security on behalf of one or more
other clients. In some instances, therefore, the Manager, acting for one client
may sell indirectly a particular security to another client. It also happens
that two or more clients may simultaneously buy or sell the same security, in
which event purchases or sales are effected prorata on the basis of cash
available or other equitable basis so as to avoid any one account's being
preferred over any other account.
BROKERAGE AND RESEARCH SERVICES. Transactions on stock exchanges and other
agency transactions involve the payment of negotiated brokerage commissions.
Such commissions vary among different brokers. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid for such securities usually includes an undisclosed dealer
commission or mark up. In placing orders for the portfolio transactions of a
Fund, the Manager will seek the best price and execution available, except to
the extent it may be permitted to pay higher brokerage commissions for brokerage
and research services as described below. The determination of what may
constitute best price and execution by a broker-dealer in effecting a securities
transaction involves a number of considerations, including, without limitation,
the overall net economic result to the Fund (involving price paid or received
and any commissions and other costs paid), the efficiency with which the
transaction is effected, the ability to effect the transaction at all where a
large block is involved, availability of the broker to stand ready to execute
possibly difficult transactions in the future and the financial strength and
stability of the broker. Because of such factors, a broker-dealer effecting a
transaction may be paid a commission higher than that charged by another broker-
dealer. Most of the foregoing are judgmental considerations.
Over-the-counter transactions often involve dealers acting for their own
account. It is the Manager's policy to place over-the-counter market orders for
a Fund with primary market makers unless better prices or executions are
available elsewhere.
Although the Manager does not consider the receipt of research services as a
factor in selecting brokers to effect portfolio transactions for a Fund, the
Manager will receive such services from brokers who are expected to handle a
substantial amount of a Fund's portfolio transactions. Research services may
include a wide variety of analyses, reviews and reports on such matters as
economic and political developments, industries, companies, securities and
portfolio strategy. The Manager uses such research in servicing other clients as
well as the Trust.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended, and subject to such policies as the Trustees of the Trust may
determine, the Manager may pay an unaffiliated broker or dealer that provides
"brokerage and research services" (as defined in the Act) to the Manager an
amount of commission for effecting a portfolio investment transaction in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction.
TOTAL RETURN CALCULATIONS
Each Fund computes its average annual total return separately for its share
classes by determining the average annual compounded rates of return during
specified periods that would equate the initial amount
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invested in a particular share class to the ending redeemable value of such
investment in the class, according to the following formula:
n
P(1 + T) = ERV
Where:
T = Average annual total return
ERV = Ending redeemable value of a hypothetical $1,000 payment
made at the beginning of a period at the end of such period
P = A hypothetical initial payment of $1,000
n = Number of years
The calculation of average annual total return assumes that any dividends
and distributions are reinvested immediately, rather than paid to the investor
in cash. The ending redeemable value (variable "ERV" in the formula) is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all nonrecurring charges at the end of the period covered by
the computations.
Unlike bank deposits or other investments that pay a fixed yield or return
for a stated period of time, the return for each Fund will fluctuate from time
to time and does not provide a basis for determining future returns. Average
annual total return is based on many factors, including market conditions, the
composition of a Fund's portfolio and a Fund's operating expenses.
Average annual total return is calculated separately for Investor Shares and
Institutional Shares. Investor Shares and Institutional Shares are subject to
different fees and expenses and may have different performance for the same
period.
PERFORMANCE COMPARISONS
Investors may judge the performance of the Funds by comparing them to the
performance of other mutual fund portfolios with comparable investment
objectives and policies through various mutual fund or market indices such as
those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation and to
data prepared by Lipper Analytical Services, Inc., a widely recognized
independent service which monitors the performance of mutual funds. Comparisons
may also be made to indices or data published in MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL, MORNINGSTAR, INC., IBBOTSON ASSOCIATES,
CDA/WIESENBERGER, THE NEW YORK TIMES, BUSINESS WEEK, U.S.A. TODAY, INSTITUTIONAL
INVESTOR and other periodicals. In addition to performance information, general
information about the Funds that appears in a publication such as those
mentioned above may be included in advertisements, sales literature and reports
to shareholders. The Funds may also include in advertisements and reports to
shareholders information discussing the performance of the Manager in comparison
to other investment advisers and to other institutions.
From time to time, the Trust may include the following types of information
in advertisements, supplemental sales literature and reports to shareholders:
(1) discussions of general economic or financial principles (such as the effects
of inflation, the power of compounding and the benefits of dollar cost
averaging); (2) discussions of general economic trends; (3) presentations of
statistical data to supplement such discussions; (4) descriptions of past or
anticipated portfolio holdings for the Funds; (5) descriptions of
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investment strategies for the Funds; (6) descriptions or comparisons of various
investment products, which may or may not include the Funds; (7) comparisons of
investment products (including the Funds) with relevant market or industry
indices or other appropriate benchmarks; (8) discussions of fund rankings or
ratings by recognized rating organizations; and (9) testimonials describing the
experience of persons that have invested in a Fund. The Trust may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of a Fund.
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
As more fully described in the Prospectus, the Trust is a diversified
open-end series investment company organized as a Massachusetts business trust.
A copy of the Agreement and Declaration of Trust of the Trust, as amended (the
"Declaration of Trust"), is on file with the Secretary of The Commonwealth of
Massachusetts. The fiscal year of the Trust ends on March 31. The Trust changed
its name to "Barr Rosenberg Series Trust" from "Rosenberg Series Trust" on
August 5, 1996.
Interests in the Trust's portfolios are currently represented by shares of
five series, the Barr Rosenberg Market Neutral Fund, Barr Rosenberg Double Alpha
Market Fund, U.S. Small Capitalization Series, International Small
Capitalization Series and Japan Series, issued pursuant to the Declaration of
Trust. The rights of shareholders and powers of the Trustees of the Trust with
respect to such shares are described in the Prospectus.
As described in the Prospectus, each Fund is further divided into two
classes of shares designated as Institutional Shares and Investor Shares. Each
class of shares of each Fund represents interests in the assets of the Fund and
has identical dividend, liquidation and other rights and the same terms and
conditions except that expenses, if any, related to the distribution and
shareholder servicing of a particular class are borne solely by such class and
each class may, at the discretion of the Trustees of the Trust, also pay a
different share of other expenses, not including advisory or custodial fees or
other expenses related to the management of the Trust's assets, if these
expenses are actually incurred in a different amount by that class, or if the
class receives services of a different kind or to a different degree than the
other classes. All other expenses are allocated to each class on the basis of
the net asset value of that class in relation to the net asset value of the
particular Fund.
The Declaration of Trust provides for the perpetual existence of the Trust.
The Trust may, however, be terminated at any time by vote of at least two-thirds
of the outstanding shares of the Trust.
VOTING RIGHTS
Shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held) and will vote (to the extent
provided herein) in the election of Trustees and the termination of the Trust
and on other matters submitted to the vote of shareholders. Shareholders will
vote by individual Fund on all matters except (i) when required by the 1940 Act,
shares shall be voted in the aggregate and not by individual Fund, and (ii) when
the Trustees have determined that the matter affects only the interests of one
or more Funds, then only shareholders of such Funds shall be entitled to vote
thereon. Shareholders of one Fund shall not be entitled to vote on matters
exclusively affecting another Fund, such matters including, without
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limitation, the adoption of or change in any fundamental policies or
restrictions of the other Fund and the approval of the investment advisory
contracts of the other Fund.
Each class of shares of each Fund has identical voting rights except that
each class has exclusive voting rights on any matter submitted to shareholders
that relates solely to that class, and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class. Each class of shares has exclusive voting rights
with respect to matters pertaining to any distribution or servicing plan
applicable to that class. All classes of shares of a Fund will vote together,
except with respect to any distribution or servicing plan applicable to a class
or when a class vote is required as specified above or otherwise by the 1940
Act.
There will normally be no meetings of shareholders for the purpose of
electing Trustees, except that in accordance with the 1940 Act (i) the Trust
will hold a shareholders' meeting for the election of Trustees at such time as
less than a majority of the Trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy in the Board of Trustees,
less than two-thirds of the Trustees holding office have been elected by the
shareholders, that vacancy may only be filled by a vote of the shareholders. In
addition, Trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by the holders of at least 1% of the outstanding shares
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a Trustee, the Trust has undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). Except as set forth above, the Trustees shall continue
to hold office and may appoint successor Trustees. Voting rights are not
cumulative.
No amendment may be made to the Declaration of Trust without the affirmative
vote of a majority of the outstanding shares of the Trust except (i) to change
the Trust's name or to cure technical problems in the Declaration of Trust and
(ii) to establish, designate or modify new and existing series, sub-series or
classes of shares of any series of Trust shares or other provisions relating to
Trust shares in response to applicable laws or regulations.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Trust or
the Trustees. The Declaration of Trust provides for indemnification out of all
the property of the relevant Fund for all loss and expense of any shareholder of
that Fund held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote since it is limited to circumstances in which the
disclaimer is inoperative and the Fund of which he is or was a shareholder would
be unable to meet its obligations.
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The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. The Declaration of Trust also provides for indemnification by the
Trust of the Trustees and the officers of the Trust against liabilities and
expenses reasonably incurred in connection with litigation in which they may be
involved because of their offices with the Trust, except if it is determined in
the manner specified in the Declaration of Trust that such Trustees are liable
to the Trust or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties. In addition, the
Manager has agreed to indemnify each Trustee who is not "an interested person"
of the Trust to the maximum extent permitted by the 1940 Act against any
liabilities arising by reason of such Trustee's status as a Trustee of the
Trust.
The officers and trustees of the Trust, as a group, own less than 1% of any
class of outstanding shares of the Trust.
DETERMINATION OF NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund share is
determined on each day on which the New York Stock Exchange is open for trading.
The Trust expects that the days, other than weekend days, that the New York
Stock Exchange will not be open are Christmas Day, New Year's Day, Martin Luther
King's Day, President's Day, Good Friday and Memorial Day, Independence Day
(observed), Labor Day and Thanksgiving Day.
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or, if there is no such reported sale, at the most recent quoted
bid price. Price information on listed securities is generally taken from the
closing price on the exchange where the security is primarily traded. Unlisted
securities for which market quotations are readily available are valued at the
most recent quoted bid price, except that debt obligations with sixty days or
less remaining until maturity may be valued at their amortized cost.
Exchange-traded options, futures and options on futures are valued at the
settlement price as determined by the appropriate clearing corporation. Other
assets and securities for which no quotations are readily available are valued
at fair value as determined in good faith by the Trustees of the Trust or by
persons acting at their direction.
PURCHASE AND REDEMPTION OF SHARES
The procedures for purchasing shares of each of the Funds and for
determining the offering price of such shares are described in the Prospectus.
The Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which the Trust is obligated to redeem shares solely in cash for any
shareholder during any 90-day period up to the lesser of (i) $250,000 or (ii) 1%
of the total net asset value of the Trust at the beginning of such period. The
procedures for redeeming shares of each of the Funds are described in the
Prospectus.
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