<PAGE>
BARR ROSENBERG SERIES TRUST 497(c)
33-21677
U.S. SMALL CAPITALIZATION SERIES
JAPAN SERIES
INTERNATIONAL SMALL CAPITALIZATION SERIES
3435 STELZER ROAD
COLUMBUS, OHIO 43219
1-800-555-5737 (INSTITUTIONAL SHARES)
1-800-447-3332 (ADVISER AND SELECT SHARES)
JULY 29, 1998
Barr Rosenberg Series Trust (the "Trust") is an open-end management
investment company offering five diversified portfolios with different
investment objectives and strategies including the U.S. Small Capitalization
Series, Japan Series and International Small Capitalization Series. The other
portfolios of the Trust, which are offered under a separate prospectus, are the
Barr Rosenberg Market Neutral Fund and Barr Rosenberg Double Alpha Market Fund.
The U.S. Small Capitalization Series, Japan Series and International Small
Capitalization Series are referred to herein individually as a "Series" or a
"Fund," and collectively as the "Series" or the "Funds." Each Fund's investment
adviser is Rosenberg Institutional Equity Management (the "Manager").
DOMESTIC EQUITY PORTFOLIO
The U.S. SMALL CAPITALIZATION SERIES seeks a total return greater than that
of the Russell 2000 Index through investment primarily in equity securities of
smaller companies that are traded principally in the markets of the United
States. The Fund is designed for long-term investors willing to assume
above-average risk in return for above-average capital growth potential. The
U.S. Small Capitalization Series has been closed to new investors, subject to
certain exceptions. The U.S. Small Capitalization Series will close to new
investments effective January 1, 1999, subject to certain exceptions. See
"Purchase of Shares."
INTERNATIONAL EQUITY PORTFOLIOS
The INTERNATIONAL SMALL CAPITALIZATION SERIES seeks a total return greater
than that of the Cazenove Rosenberg Global Smaller Companies Index excluding the
United States ("CRIexUS") through investment primarily in equity securities of
smaller companies that are traded principally in markets outside of the United
States. The Fund is designed for long-term investors willing to assume
above-average risk in return for above-average capital growth potential.
The JAPAN SERIES seeks a total return greater than that of the Tokyo Stock
Price Index of the Tokyo Stock Exchange ("TOPIX") through investment in Japanese
securities, primarily in common stocks of Japanese companies traded in Japanese
markets. The Fund is designed for long-term investors willing to assume
above-average risk in return for above-average capital growth potential.
The U.S. Small Capitalization Series offers three classes of shares:
Institutional Shares, Adviser Shares and Select Shares. The Japan Series and
International Small Capitalization Series offer two classes of shares:
Institutional Shares and Select Shares. Whether an investor is eligible to
purchase Institutional Shares, Adviser Shares or Select Shares generally depends
on the amount invested in a particular Fund and on whether the investor makes
the investment in the Fund directly or through a financial adviser. The classes
differ primarily with respect to (i) the level of Shareholder Service Fee and
(ii) the level of Distribution Fee borne by each class. See "Multiple Classes."
This Prospectus concisely describes the information that investors ought to
know before investing. Please read this Prospectus carefully and keep it for
future reference.
A Statement of Additional Information dated July 29, 1998 (the "Statement")
is available free of charge by writing to Barr Rosenberg Funds Distributor,
Inc., the Funds' distributor (the "Distributor"), at 3435 Stelzer Road,
Columbus, Ohio 43219 or by telephoning 1-800-555-5737 (for Institutional Share
customers) and 1-800-447-3332 (for Adviser and Select Share customers). The
Statement, which contains more detailed information about the Funds, has been
filed with the Securities and Exchange Commission (the "Commission") and is
incorporated by reference into this Prospectus. The Commission maintains a World
Wide Web site at http://www.sec.gov that contains the Statement, material
incorporated by reference and other information regarding registrants that file
electronically with the Commission.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY,
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
----
FUND EXPENSES......................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 5
INVESTMENT OBJECTIVES AND POLICIES.................................... 10
GENERAL DESCRIPTION OF RISKS AND FUND INVESTMENTS..................... 12
INVESTMENT PERFORMANCE................................................ 16
MANAGEMENT OF THE TRUST............................................... 20
MULTIPLE CLASSES...................................................... 27
PURCHASE OF SHARES.................................................... 29
IRA ACCOUNTS.......................................................... 32
REDEMPTION OF SHARES.................................................. 32
EXCHANGE OF FUND SHARES............................................... 34
DETERMINATION OF NET ASSET VALUE...................................... 35
DISTRIBUTIONS......................................................... 35
TAXES................................................................. 36
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES...................... 36
OTHER INFORMATION..................................................... 38
SHAREHOLDER INQUIRIES................................................. 38
2
<PAGE>
FUND EXPENSES
The annual expenses of each of the Funds are set forth in the following
tables, the forms of which are prescribed by federal securities laws and
regulations.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
OPERATING
OTHER EXPENSES
MANAGEMENT SHAREHOLDER EXPENSES (AFTER WAIVER
FEE (AFTER SERVICE DISTRIBUTION (AFTER REIM- AND/OR
WAIVER) FEE FEE BURSEMENT) REIMBURSEMENT)
---------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
U.S. Small Capitalization Series................ 0.75% None None 0.40%* 1.15%
International Small Capitalization Series....... 0.00% None None 1.50% 1.50%
Japan Series.................................... 0.00% None None 1.50% 1.50%
ADVISER SHARES
U.S. Small Capitalization Series................ 0.75% 0.25% None 0.40%* 1.40%
SELECT SHARES
U.S. Small Capitalization Series................ 0.75% 0.25% 0.25% 0.40%* 1.65%
International Small Capitalization Series....... 0.00% 0.25% 0.25% 1.50% 2.00%
Japan Series.................................... 0.00% 0.25% 0.25% 1.50% 2.00%
</TABLE>
The Manager has agreed to waive its management fee and bear certain expenses
until further notice in order to limit the total annual operating expenses
(which do not include nonrecurring account fees and extraordinary expenses) of
each class to the percentage of a Fund's average daily net assets attributable
to that class listed under Total Fund Operating Expenses above. Absent such
agreement by the Manager to waive its fee and bear such expenses, (1) the U.S.
Small Capitalization Series' management fees would be 0.90% and Total Fund
Operating Expenses would be 1.30% for Institutional Shares, 1.55% for Adviser
Shares and 1.80% for Select Shares; (2) the Japan Series' management fees would
be 1.00%, Other Expenses would be 13.25% and Total Fund Operating Expenses would
be 14.25% for Institutional Shares and 14.75% for Select Shares; and (3) the
International Small Capitalization Series' management fees would be 1.00%, Other
Expenses would be 1.64% and Total Fund Operating Expenses would be 2.64% for
Institutional Shares and 3.14% for Select Shares. See "Management of the Trust."
- -------------------
* Actual Other Expenses without reimbursement of expenses by the Manager.
3
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
YOU WOULD PAY THE FOLLOWING
EXPENSES ON A $1,000
INVESTMENT ASSUMING A 5%
ANNUAL RETURN (WITH OR
WITHOUT A REDEMPTION AT THE
END OF EACH TIME PERIOD):
-----------------------------
1 3 5 10
YEAR YEARS YEARS YEARS
----- ----- ----- -----
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
U.S. Small Capitalization Series................ $12 $37 $ 63 $ 140
International Small Capitalization Series....... $15 $47 $ 82 $ 179
Japan Series.................................... $15 $47 $ 82 $ 179
ADVISER SHARES
U.S. Small Capitalization Series................ $14 $44 $ 77 $ 168
SELECT SHARES
U.S. Small Capitalization Series................ $17 $52 $ 90 $ 195
International Small Capitalization Series....... $20 $63 $ 108 $ 233
Japan Series.................................... $20 $63 $ 108 $ 233
</TABLE>
THE PURPOSE OF THIS TABLE IS TO ASSIST YOU IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES OF THE FUNDS THAT YOU WILL BEAR DIRECTLY OR INDIRECTLY. THE
EXPENSES USED IN THE EXAMPLE, AND THE FIVE PERCENT ANNUAL RETURN, WHICH IS
MANDATED BY THE SECURITIES AND EXCHANGE COMMISSION, ARE NOT REPRESENTATIONS OF
PAST OR FUTURE EXPENSES OR PERFORMANCE; ACTUAL EXPENSES AND/OR PERFORMANCE MAY
BE MORE OR LESS THAN THOSE SHOWN.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables present per share financial information for the periods
listed for each Fund. Each of the Financial Highlights has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report on the
financial statements of the Funds appears in the Funds' Annual Report for the
fiscal year ended March 31, 1998 (the "Annual Report"). These statements should
be read in conjunction with the "Report of Independent Accountants," the other
audited financial statements and related notes which are contained in the Annual
Report and are incorporated by reference into this Prospectus and the Statement
of Additional Information.
U.S. SMALL CAPITALIZATION SERIES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31,
FOR A SHARE OUTSTANDING ------------------------------------------------------------------------------------------------
THROUGHOUT EACH PERIOD 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989(a)
-------- -------- ------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $ 7.13 $ 7.60 $ 6.97 $ 7.36 $ 12.33 $ 12.04 $ 10.74 $ 10.70 $ 10.34 $ 10.00
-------- -------- ------- ------- ------- ------- -------- -------- -------- --------
Income from investment
operations
Net investment
income/(loss)(b)............ 0.02** 0.04 0.03 0.01 0.08 0.13 0.11 0.09 0.08 0.11
Net realized and unrealized
gain/(loss) on
investments................. 3.14 1.39 2.34 0.78 1.28 2.31 1.53 0.05 0.67 0.23
-------- -------- ------- ------- ------- ------- -------- -------- -------- --------
Total from investment
operations.................. 3.16 1.43 2.37 0.79 1.36 2.44 1.64 0.14 0.75 0.34
-------- -------- ------- ------- ------- ------- -------- -------- -------- --------
Distributions to shareholders
from:
Net investment income......... (0.01) (0.05) (0.01) (0.08) (0.14) (0.10) (0.08) (0.07) (0.15) --
Net realized gain on
investments................. (0.52) (1.85) (1.73) (1.10) (6.19) (2.05) (0.26) (0.03) (0.24) --
-------- -------- ------- ------- ------- ------- -------- -------- -------- --------
Total distributions to
shareholders................ (0.53) (1.90) (1.74) (1.18) (6.33) (2.15) (0.34) (0.10) (0.39) --
-------- -------- ------- ------- ------- ------- -------- -------- -------- --------
Net asset value, end of
period........................ $ 9.76 $ 7.13 $ 7.60 $ 6.97 $ 7.36 $ 12.33 $ 12.04 $ 10.74 $ 10.70 $ 10.34
-------- -------- ------- ------- ------- ------- -------- -------- -------- --------
-------- -------- ------- ------- ------- ------- -------- -------- -------- --------
Total return(c)................. 44.95% 19.53% 35.69% 12.21% 12.83% 22.51% 15.79% 1.56% 7.37% 39.06%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of period
(000)......................... $537,891 $82,116 $60,046 $56,910 $52,500 $69,458 $119,343 $171,942 $113,222 $57,058
Net investment income/(loss)
before
waivers/reimbursements........ 0.04% (0.12)% 0.22% 0.33% 0.36% 0.46% 0.62% 1.08% 1.08% 9.14%*
Net investment income/(loss) net
of waivers/reimbursements..... 0.19% 0.35% 0.47% 0.60% 0.60% 0.59% 0.66% 1.22% 1.24% 10.10%*
Expenses before waivers/
reimbursements(d)............. 1.30% 1.54% 1.15% 1.17% 1.14% 1.03% 0.94% 1.04% 1.06% 1.86%*
Expenses net of
waivers/reimbursements........ 1.15% 1.07% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%*
Portfolio turnover rate......... 77.70% 126.83% 71.87% 57.27% 59.61% 32.61% 59.04% 64.97% 60.10% 0.04%
Average commission rate......... $0.0348 $0.0327 -- -- -- -- -- -- -- --
</TABLE>
- -------------------
* Annualized.
** Calculated based on the average shares outstanding during the year.
(a) The Fund commenced operations on February 22, 1989.
(b) Net of fees and expenses waived/reimbursed by the Manager in the amount of
$.01, $.04, $.02, $.01, $.05, $.03, $.01, $.01, $.01 and $.01 per share,
respectively.
(c) Total return would have been lower had certain fees and expenses not been
waived/reimbursed by the Manager.
(d) Increase in expense ratio for 1997 is due to the change in the maximum
expense ratio charged to the Fund during the year.
5
<PAGE>
U.S. SMALL CAPITALIZATION SERIES
<TABLE>
<CAPTION>
ADVISER SHARES SELECT SHARES
---------------------------------- ------------------------------------
FOR THE FOR THE FOR THE FOR THE
FOR A SHARE OUTSTANDING YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
THROUGHOUT EACH PERIOD MARCH 31, 1998 MARCH 31, 1997(a) MARCH 31, 1998 MARCH 31, 1997(a)
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 7.14 $ 7.38 $ 7.13 $ 8.49
----- ----- ----- -----
Income from investment operations:
Net investment income/(loss)(b)........... (0.01)** 0.02 (0.02)** 0.07
Net realized and unrealized gain/(loss) on
investments............................. 3.14 (0.26) 3.14 0.47
----- ----- ----- -----
Total from investment operations.......... 3.13 (0.24) 3.12 0.54
----- ----- ----- -----
Distributions to shareholders from:
Net investment income..................... -- -- -- (0.05)
Net realized gain on investments.......... (0.52) -- (0.52) (1.85)
----- ----- ----- -----
Total distributions to shareholders....... (0.52) -- (0.52) (1.90)
----- ----- ----- -----
Net asset value, end of period.............. $ 9.75 $ 7.14 $ 9.73 $ 7.13
----- ----- ----- -----
----- ----- ----- -----
Total return(c)............................. 44.50% (3.25)% 44.42% 6.84%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA:
Net assets, end of period (000)............. $17,448 $208 $33,724 $2,375
Net investment income/(loss) before waivers/
reimbursements............................ (0.22)% 0.07%* (0.70)% 0.07%*
Net investment income/(loss) net of waivers/
reimbursements............................ (0.06)% 0.46%* (0.24)% 0.46%*
Expenses before waivers/reimbursements...... 1.56% 1.54%* 2.05% 1.54%*
Expenses net of waivers/reimbursements...... 1.40% 1.15%*(d) 1.59% 1.15%*(d)
Portfolio Turnover Rate..................... 77.70% 126.83% 77.70% 126.83%
Average commission rate..................... $0.0348 $0.0327 $0.0348 $0.0327
</TABLE>
- -------------------
* Annualized.
** Calculated based on the average shares outstanding during the year.
(a) The Adviser Shares commenced operations on January 21, 1997 and Select
Shares commenced operations on October 22, 1996.
(b) Net of fees and expenses waived/reimbursed by the Manager for the Adviser
Shares in the amount of $.01 and $.04 and Select Shares in the amount of
$.01 and $.04, respectively.
(c) Total return would have been lower had certain fees and expenses not been
waived/reimbursed by the Manager.
(d) Shareholder Services Fees and/or Distribution Fees were not incurred in
such period.
6
<PAGE>
JAPAN SERIES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31,
FOR A SHARE OUTSTANDING ------------------------------------------------------------------------------------------------------
THROUGHOUT EACH PERIOD 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989(a)
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 6.20 $ 8.77 $ 8.96 $ 8.25 $ 6.94 $ 6.15 $ 7.87 $ 8.23 $ 9.88 $ 10.00
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Income from investment
operations
Net investment
income/(loss)(b)..... (0.04)** (0.05)** 0.04 0.10 (0.01) 0.02 0.04 0.06 0.06 0.02
Net realized and
unrealized gain/
(loss) on investments
and foreign currency
transactions......... (1.44) (2.45) (0.15) 0.63 1.41 0.84 (1.69) 0.09 (1.67) (0.14)
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total from investment
operations........... (1.48) (2.50) (0.11) 0.73 1.40 0.86 (1.65) 0.15 (1.61) (0.12)
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Distributions to
shareholders from:
Net investment
income............... -- (0.04) -- -- -- (0.07) (0.07) (0.07) (0.04) --
In excess of net
investment income.... -- (0.03) (0.08) (0.02) (0.09) -- -- -- -- --
Net realized gain on
investments.......... -- -- -- -- -- -- -- (0.44) -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total distributions to
shareholders......... -- (0.07) (0.08) (0.02) (0.09) (0.07) (0.07) (0.51) (0.04) --
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Net asset value, end of
period................. $ 4.72 $ 6.20 $ 8.77 $ 8.96 $ 8.25 $ 6.94 $ 6.15 $ 7.87 $ 8.23 $ 9.88
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total return(c).......... (23.87)% (28.68)% (1.20)% 8.86% 20.35% 14.24% (21.09)% 1.94% (16.39)% (4.94)%
RATIOS TO AVERAGE NET
ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of period
(000).................. $866 $1,009 $1,378 $1,385 $1,258 $1,044 $915 $1,864 $1,829 $2,186
Net investment
income/(loss) before
waivers/reimbursements... (13.49)% (12.54)% (6.38)% (6.22)% (6.89)% (9.63)% (7.77)% (7.62)% (6.73)% (8.14)%*
Net investment
income/(loss) net of
waivers/reimbursements... (0.74)% (0.63)% (0.22)% (0.20)% (0.26)% 0.37% 0.20% 0.76% 0.62% 0.88%*
Expenses before waivers/
reimbursements......... 14.25% 13.33% 7.16% 7.02% 7.63% 10.70% 8.56% 8.40% 7.35% 9.30%*
Expenses net of waivers/
reimbursements(d)...... 1.50% 1.42% 1.00% 1.00% 1.00% 0.70% 0.59% 0.02% 0.00% 0.28%*
Portfolio turnover
rate................... 102.13% 51.70% 60.60% 57.10% 74.60% 162.10% 53.13% 78.61% 87.72% 0.00%
Average commission
rate................... $0.0099 $0.0165 -- -- -- -- -- -- -- --
</TABLE>
- -------------------
* Annualized.
** Calculated based on the average shares outstanding during the year.
(a) The Fund commenced operations on January 3, 1989.
(b) Net of fees and expenses waived/reimbursements by the Manager (and
Administrator for 1997 and 1998) in the amount of $.75, $.95, $.38, $.67,
$.49, $.59, $1.64, $.71, $.74, and $.21 per share.
(c) Total return would have been lower had certain fees and expenses not been
waived/reimbursed by the Manager (and Administrator for 1997 and 1998).
(d) Increase in expense ratio for 1997 is due to the change in the maximum
expense ratio charged to the Fund during the year.
7
<PAGE>
JAPAN SERIES
<TABLE>
<CAPTION>
SELECT SHARES
----------------------------------
FOR THE FOR THE
FOR A SHARE OUTSTANDING YEAR ENDED PERIOD ENDED
THROUGHOUT EACH PERIOD MARCH 31, 1998 MARCH 31, 1997(a)
-------------- -----------------
<S> <C> <C>
Net asset value, beginning of
period........................... $ 6.20 $ 8.08
----- -----
Income from investment operations:
Net investment income/loss(b).... (0.04)** (0.01)**
Net realized and unrealized
gain/(loss) on investments and
foreign currency
transactions................... (1.45) (1.80)
----- -----
Total from investment
operations..................... (1.49) (1.81)
----- -----
Distributions to shareholders from:
Net investment income............ -- (0.04)
In excess of net investment
income......................... -- (0.03)
----- -----
Total distributions to
shareholders................... -- (0.07)
----- -----
Net asset value, end of period..... $ 4.71 $ 6.20
----- -----
----- -----
Total return(c).................... (24.03)% (22.59)%
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (000).... $ 50 $ 13
Net investment income/(loss) before
waivers/reimbursements........... (9.10)% (11.83)%*
Net investment income/(loss) net of
waivers/reimbursements........... (0.82)% (0.00)%*
Expenses before
waivers/reimbursements........... 10.12% 13.33%*
Expenses net of
waivers/reimbursements........... 1.85% 1.50%*(d)
Portfolio turnover rate............ 102.13% 51.70%
Average commission rate............ $0.0099 $0.0165
</TABLE>
- -------------------
* Annualized.
** Calculated based on the average shares outstanding during the year.
(a) The Select Shares commenced operations on October 22, 1996.
(b) Net of fees and expenses waived/reimbursed by the Manager in the amount of
$.75 and $.95 per share.
(c) Total return would have been lower had certain fees and expenses not been
waived/reimbursed by the Manager.
(d) Shareholder Service Fees and Distribution Fees were not incurred in such
period.
8
<PAGE>
INTERNATIONAL SMALL CAPITALIZATION SERIES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES SELECT SHARES
---------------------------------- ----------------------------------
FOR THE FOR THE FOR THE FOR THE
FOR A SHARE OUTSTANDING YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
THROUGHOUT EACH PERIOD MARCH 31, 1998 MARCH 31, 1997(a) MARCH 31, 1998 MARCH 31, 1997(a)
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 10.13 $ 10.00 $ 10.13 $ 10.04
------ ------ ------ ------
Income from investment operations:
Net investment
income/(loss)(b)............... 0.08** 0.02** 0.06** 0.02**
Net realized and unrealized
gain/(loss) on investments and
foreign currency
transactions................... 0.14 0.11 0.14 0.07
------ ------ ------ ------
Total from investment
operations..................... 0.22 0.13 0.20 0.09
------ ------ ------ ------
Distributions to shareholders from:
Net investment income............ (0.05) -- (0.04) --
Net realized gain on investment
and foreign currency
transactions................... (0.06) -- (0.06) --
In excess of net realized gain on
investment and foreign currency
transactions................... (0.14) -- (0.14) --
------ ------ ------ ------
Total distributions to
shareholders................... (0.25) -- (0.24) --
------ ------ ------ ------
Net asset value, end of period..... $ 10.10 $ 10.13 $ 10.09 $ 10.13
------ ------ ------ ------
------ ------ ------ ------
Total return(c).................... 2.51% 1.30% 2.22% 0.90%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Net assets, end of period (000).... $39,218 $12,859 $1,375 $185
Net investment income/(loss) before
waivers/reimbursements........... (0.32)% (5.85)%* (0.83)% (5.52)%*
Net investment income/(loss) net of
waivers/reimbursements........... 0.82% 0.11%* 0.61% 0.44%*
Expenses before
waivers/reimbursements........... 2.64% 7.46%* 3.35% 7.46%*
Expenses net of
waivers/reimbursements........... 1.50% 1.50%* 1.91% 1.50%*(d)
Portfolio Turnover Rate............ 77.72% 6.71% 77.72% 6.71%
Average commission rate............ $0.0064 $0.0108 $0.0064 $0.0108
</TABLE>
- -------------------
* Annualized.
** Calculated based on the average shares outstanding during the year.
(a) The Institutional Shares commenced operations on September 23, 1996 and
Select Shares commenced operations on October 29, 1996.
(b) Net of fees and expenses waived/reimbursed by the Manager for the
Institutional Shares in the amount of $.11 and $.31 and Select Shares in the
amount of $.11 and $.31, respectively.
(c) Total return would have been lower had certain fees and expenses not been
waived/reimbursed by the Manager.
(d) Shareholder Service Fees and Distribution Fees were not incurred in such
period.
9
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
U.S. SMALL CAPITALIZATION SERIES
The investment objective of the U.S. Small Capitalization Series is to seek
total return greater than that of the Russell 2000 Index through investment
primarily in equity securities of smaller companies that are traded principally
in the markets of the United States ("small capitalization securities"). Total
return is a combination of capital appreciation and current income (dividend or
interest). The Fund does not seek to MAXIMIZE total return but, as indicated
above, seeks a total return greater than that of the common stocks referred to
above. Because the companies in which the Fund invests typically do not
distribute significant amounts of company earnings to shareholders, the Fund's
objective will place relatively greater emphasis on capital appreciation than on
current income. The Fund's investment objective is non-fundamental and thus may
be changed by the Trustees without shareholder approval.
It is currently expected that, under normal circumstances, most of the
Fund's assets will be invested in small capitalization securities. Investments
in issuers of small capitalization securities may present greater opportunities
for capital appreciation because of high potential earnings growth, but may also
involve greater risk. See "General Description of Risks and Fund Investments --
Companies with Small Market Capitalizations" below.
To meet redemption requests or for investment purposes, the Fund may also
temporarily hold a portion of its assets not invested in small capitalization
securities in full faith and credit obligations of the United States government
(E.G., U.S. Treasury Bills) and in short-term notes, commercial paper or other
money market instruments of high quality (I.E., rated at least "A-2" or "AA" by
Standard & Poor's ("S&P") or Prime 2 or "Aa" by Moody's Investors Service, Inc.
("Moody's")) issued by companies having an outstanding debt issue rated at least
"AA" by S&P or at least "Aa" by Moody's, or determined by the Manager to be of
comparable quality to any of the foregoing. The Fund may also invest in stock
index futures. See "General Description of Risks and Fund Investments -- Stock
Index Futures" below.
Also, the Fund may invest without limit in common stocks of foreign issuers
that are principally traded in the markets of the United States. Investments in
common stocks of foreign issuers may involve certain special risks due to
foreign economic, political and legal developments. See "General Description of
Risks and Fund Investments -- Special Considerations of Foreign Investments"
below. The Fund will not invest in securities which are principally traded
outside of the United States.
FUNDAMENTAL POLICIES. The Fund will normally invest most of its assets in
small capitalization securities, and it is a fundamental policy of the Fund,
which may not be changed without shareholder approval, that at least 65% of the
Fund's total assets will be invested in small capitalization securities.
INTERNATIONAL SMALL CAPITALIZATION SERIES
The investment objective of the International Small Capitalization Series is
to seek total return greater than that of the Cazenove Rosenberg Global Smaller
Companies Index excluding the United States ("CRIexUS") through investment
primarily in equity securities that are traded principally in securities markets
outside of the United States of companies with market capitalizations of between
$15 million and $3 billion at the time of purchase by the Fund ("international
small capitalization companies"). This corresponds with the current defining
range of market capitalization of companies in CRIexUS, which represents the
performance of companies in the lowest 15% by market capitalization in mature
markets other than the United States. The definition of international small
capitalization companies may change from time to time to correspond with the
market capitalizations of companies included in CRIexUS as it may be adjusted
from
10
<PAGE>
time to time. Total return is a combination of capital appreciation and current
income (dividend or interest). The Fund does not seek to MAXIMIZE total return
but, as indicated above, seeks a total return greater than that of the common
stocks referred to above. Because the companies in which the Fund invests
typically do not distribute significant amounts of company earnings to
shareholders, the Fund's objective will place relatively greater emphasis on
capital appreciation than on current income. The Fund's investment objective is
non-fundamental and thus may be changed by the Trustees without shareholder
approval.
There are no prescribed limits on the Fund's geographic asset distribution,
and the Fund has the authority to invest in securities traded in securities
markets of any country in the world. It is currently expected that the Fund will
invest in approximately twenty-one different countries across three regions --
Europe, Pacific and North America (excluding the United States). Under certain
adverse investment conditions, the Fund may restrict the number of securities
markets in which its assets will be invested, although under normal market
circumstances, the Fund's investments will involve securities principally traded
in at least three different countries. See "General Description of Risks and
Fund Investments -- Special Considerations of Foreign Investments" below.
Under normal circumstances, at least 90% of the Fund's net assets will be
invested in common stocks of international small capitalization companies and it
is the non-fundamental policy of the Fund to invest at least 65% of the Fund's
total assets in common stocks of international small capitalization companies.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but may also involve
greater risk. See "General Description of Risks and Fund Investments --
Companies with Small Market Capitalizations" below.
The Fund will not normally invest in securities of United States issuers
traded on United States securities markets.
JAPAN SERIES
The investment objective of the Japan Series is to seek total return greater
than that of the Tokyo Stock Price Index ("TOPIX") of the Tokyo Stock Exchange.
TOPIX is a capitalization-weighted index of all stocks in the First Section of
the Tokyo Stock Exchange. The Fund will seek to meet this objective primarily
through investment in Japanese equity securities, primarily in common stocks of
Japanese companies. Total return is a combination of capital appreciation and
current income (dividend or interest). The Fund does not seek to maximize total
return but, as indicated above, seeks a total return greater than that of the
stocks referred to above. The Fund expects that any income it derives will be
from dividend or interest payments on securities. The Fund's investment
objective is non-fundamental and thus may be changed by the Trustees without
shareholder approval.
It is currently expected that, under normal circumstances, the Fund will
invest at least 90% of its net assets in "Japanese Securities," that is,
securities issued by entities ("Japanese Companies") that are organized under
the laws of Japan and that either have 50% or more of their assets in Japan or
derive 50% or more of their revenues from Japan. Although the Fund will invest
primarily in common stocks of Japanese Companies, it may also invest in other
Japanese Securities, such as convertible preferred stock or debentures, warrants
or rights, as well as short-term government debt securities or other short-term
prime obligations (I.E., high quality debt obligations maturing not more than
one year from the date of issuance). The Fund will not ordinarily purchase
warrants or rights, although it may receive warrants or rights through
distributions on other securities it owns. In those cases, the Fund expects to
sell such warrants and rights within a reasonable period of time following their
distribution to the Fund. The Fund does not currently expect to own warrants or
rights with an aggregate value of greater than 5% of the Fund's net assets.
11
<PAGE>
The Fund currently intends to make its investments in Japanese equity
securities, principally in well-established Japanese Companies that have an
active market for their shares. Japanese Companies will be considered
well-established if they have been subject for at least two years to the
financial accounting rules for a company whose securities are traded on a
Japanese securities exchange. In the discretion of the Fund's management, the
balance of the Fund's investments may be in companies that do not meet such
qualifications, although the nature of the market for the shares will always be
an important consideration in determining whether the Fund will invest in such
shares. The Fund anticipates that most Japanese equity securities in which it
will invest, either directly or indirectly (by means of convertible debentures),
will be listed on securities exchanges in Japan.
INDEX FUTURES. The Fund may also purchase futures contracts or options on
futures contracts on the Tokyo Stock Price Index ("TOPIX") or the NIKKEI 225
Index ("NIKKEI") for investment purposes. TOPIX futures are traded on the
Chicago Board of Trade and NIKKEI futures are traded on the Chicago Mercantile
Exchange. See "General Description of Risks and Fund Investments -- Stock Index
Futures" below.
RISKS OF INVESTING IN JAPANESE SECURITIES. Unlike other mutual funds which
invest in the securities of many countries, the Fund will invest almost
exclusively in Japanese Securities. Generally, the Manager will not vary the
percentage of the Fund's assets which are invested in Japanese Securities based
on its assessment of Japanese economic, political or regulatory developments or
changes in currency exchange rates. However, the Manager has from time to time
hedged up to 21% of the Fund's portfolio value and reserves the right to hedge
up to 100% of the Fund's total assets against a possible decline in the Japanese
Securities market by utilizing futures and options on futures on Japanese stock
indices as described above.
Because a high percentage of the Fund's assets will be invested in Japanese
Securities, investment in the Fund will involve the general risks associated
with investing in foreign securities. See "General Description of Risks and Fund
Investments -- Special Considerations of Foreign Investments" below. In
addition, investors will be subject to the market risk associated with investing
almost exclusively in stocks of companies which are subject to Japanese economic
factors and conditions. Since the Japanese economy is dependent to a significant
extent on foreign trade, the relationships between Japan and its trading
partners and between the yen and other currencies are expected to have a
significant impact on particular Japanese companies and on the Japanese economy
generally. The Fund is designed for investors who are willing to accept the
risks associated with changes in such conditions and relationships.
FUNDAMENTAL POLICIES. The Fund will normally invest at least 90% of its net
assets in Japanese Securities, and it is a fundamental policy of the Fund, which
may not be changed without shareholder approval, that at least 65% of the Fund's
total assets will be invested in Japanese Securities.
GENERAL DESCRIPTION OF RISKS AND FUND INVESTMENTS
INVESTMENT RISKS. An investment in the Funds involves risks similar to
those of investing in common stocks directly. Just as with common stocks, the
value of Fund shares may increase or decrease depending on market, economic,
political, regulatory and other conditions affecting a Fund's portfolio. These
types of risks may be greater with respect to investments in securities of
foreign issuers. Investment in shares of the Funds is, like investment in common
stocks, more volatile and risky than some other forms of investment.
COMPANIES WITH SMALL MARKET CAPITALIZATIONS. As specified above, the U.S.
Small Capitalization Series and the International Small Capitalization Series
will invest a relatively high percentage of their assets in companies with
relatively small market capitalizations. Companies with small market
capitalizations may be dependent upon a single proprietary product or market
niche, may have limited product lines, markets or
12
<PAGE>
financial resources, or may depend on a limited management group. Typically,
such companies have fewer securities outstanding, which may be less liquid than
securities of larger companies. Their common stock and other securities may
trade less frequently and in limited volume and are generally more sensitive to
purchase and sale transactions. Therefore, the prices of such securities tend to
be more volatile than the prices of securities of companies with larger market
capitalizations. As a result, the absolute values of changes in the price of
securities of companies with small market capitalizations may be greater than
those of larger, more established companies.
SPECIAL CONSIDERATIONS OF FOREIGN INVESTMENTS. Investing in foreign
securities (I.E., those which are traded principally in markets outside of the
United States) involves certain risks not typically found in investing in U.S.
domestic securities. These include risks of adverse changes in foreign economic,
political, regulatory and other conditions, and changes in currency exchange
rates, exchange control regulations (including currency blockage), expropriation
of assets or nationalization, imposition of withholding taxes on dividend or
interest payments, and possible difficulty in obtaining and enforcing judgments
against foreign entities. Furthermore, issuers of foreign securities are subject
to different, and often less comprehensive, accounting, reporting and disclosure
requirements than domestic issuers. In certain countries, legal remedies
available to investors may be more limited than those available with respect to
investments in the United States or other countries. The laws of some foreign
countries may limit a Fund's ability to invest in securities of certain issuers
located in those countries. The securities of some foreign issuers and
securities traded principally in foreign securities markets are less liquid and
at times more volatile than securities of comparable U.S. issuers and securities
traded principally in U.S. securities markets. Foreign brokerage commissions and
other fees are also generally higher than those charged in the United States.
There are also special tax considerations which apply to securities of foreign
issuers and securities traded principally in foreign securities markets. See
"Taxes."
The risks of investing in foreign securities may be intensified in the case
of investments in countries with limited or developing capital markets. Prices
of securities of companies in developing markets can be significantly more
volatile than prices of securities of companies in the more developed nations of
the world, reflecting the greater uncertainties of investing in less developed
markets and economies. In particular, countries with developing markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions of repatriation
of assets, and may have less protection of property rights than more developed
countries. The economies of countries with developing markets may be
predominantly based on only a few industries or dependent on revenues from
particular commodities or on international aid or development assistance, may be
highly vulnerable to changes in local or global trade conditions, and may suffer
from extreme and volatile debt burdens or inflation rates. Local securities
markets may trade a small number of securities and may be unable to respond
effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings difficult or impossible at times.
Consequently, securities of issuers located in countries with developing markets
may have limited marketability and may be subject to more abrupt or erratic
price movements. Also, such local markets typically offer less regulatory
protections for investors.
FOREIGN EXCHANGE TRANSACTIONS. The International Equity Portfolios of the
Trust (I.E., the International Small Capitalization Series and the Japan Series)
do not currently intend to hedge the foreign currency risk associated with
investments in securities denominated in foreign currencies. However, in order
to hedge against possible variations in foreign exchange rates pending the
settlement of securities transactions, the International Equity Portfolios
reserve the right to buy or sell foreign currencies or to deal in forward
foreign currency contracts; that is, to agree to buy or sell a specified
currency at a specified price and future date. The International Equity
Portfolios also reserve the right to purchase currency futures contracts and
related options thereon for similar purposes. For example, if the Manager
anticipates that the value of the yen will
13
<PAGE>
rise relative to the dollar, a Fund could purchase a currency futures contract
or a call option thereon or sell (write) a put option to protect against a
currency-related increase in the price of yen-denominated securities such Fund
intends to purchase. If the Manager anticipates a fall in the value of the yen
relative to the dollar, a Fund could sell a currency futures contract or a call
option thereon or purchase a put option on such futures contract as a hedge. If
the International Equity Portfolios change their present intention and decide to
utilize hedging strategies, futures contracts and related options will be used
only as a hedge against anticipated currency rate changes (not for investment
purposes) and all options on currency futures written by a Fund will be covered.
These practices, if utilized, may present risks different from or in addition to
the risks associated with investments in foreign currencies.
STOCK INDEX FUTURES. A stock index futures contract (an "Index Future") is
a contract to buy an integral number of units of the relevant index at a
specified future date at a price agreed upon when the contract is made. A unit
is the value at a given time of the relevant index. An option on an Index Future
gives the purchaser the right, in return for the premium paid, to assume a long
or a short position in an Index Future. A Fund will realize a loss if the value
of an Index Future declines between the time the Fund purchases an Index Future
or takes a long position in an Index Future and may realize a gain if the value
of the Index Future rises between such dates.
In connection with a Fund's investment in common stocks, a Fund may invest
in Index Futures while the Manager seeks favorable terms from brokers to effect
transactions in common stocks selected for purchase. A Fund may also invest in
Index Futures when the Manager believes that there are not enough attractive
common stocks available to maintain the standards of diversity and liquidity set
for the Fund pending investment in such stocks when they do become available.
Through the use of Index Futures, a Fund may maintain a portfolio with
diversified risk without incurring the substantial brokerage costs which may be
associated with investment in multiple issuers. This may permit a Fund to avoid
potential market and liquidity problems (E.G., driving up or forcing down the
price by quickly purchasing or selling shares of a portfolio security) which may
result from increases or decreases in positions already held by a Fund. A Fund
may also use Index Futures in order to hedge its equity positions.
In contrast to purchases of a common stock, no price is paid or received by
a Fund upon the purchase of a futures contract. Upon entering into a futures
contract, a Fund will be required to deposit with its custodian in a segregated
account in the name of the futures broker a specified amount of cash or
securities. This is known by participants in the market as "initial margin." The
type of instruments that may be deposited as initial margin, and the required
amount of initial margin, are determined by the futures exchange 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
particular Index fluctuates, making the position in the futures contract more or
less valuable, a process known as "marking to the market."
A Fund may close out a futures contract purchase by entering into a futures
contract sale. This will operate to terminate the Fund's position in the futures
contract. Final determinations of variation margin are then made, additional
cash is required to be paid by or released to the Fund, and the Fund realizes a
loss or a gain.
A Fund's use of Index Futures involves risk. Positions in Index Futures may
be closed out by a Fund only on the futures exchanges on which the Index Futures
are then traded. There can be no assurance that a liquid
14
<PAGE>
market will exist for any particular contract at any particular time. The
liquidity of the market in futures contracts could be adversely affected by
"daily price fluctuation limits" established by the relevant futures exchange
which limit the amount of fluctuation in the price of an Index Futures contract
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit. In such
events, it may not be possible for a Fund to close its futures contract
purchase, and, in the event of adverse price movements, a Fund would continue to
be required to make daily cash payments of variation margin. The futures market
may also attract more speculators than does the securities market, because
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Increased participation by speculators in
the futures market may also cause price distortions. In addition, the price of
Index Futures may not correlate perfectly with movement in the underlying index
due to certain market disturbances.
A Fund will not purchase Index Futures if, as a result, the Fund's initial
margin deposits on transactions that do not constitute "bona fide hedging" under
relevant regulations of the Commodities Futures Trading Commission would be
greater than 5% of the Fund's total assets. In addition to margin deposits, when
a Fund purchases an Index Future, it is required to maintain, at all times while
an Index Future is held by the Fund, cash, U.S. Government securities or other
high grade liquid securities in a segregated account with its Custodian, in an
amount which, together with the initial margin deposit on the futures contract,
is equal to the current value of the futures contract.
Further, the ability to establish and close out positions in options on
future contracts will be subject to the development and maintenance of a liquid
secondary market. It is not certain that such a market will develop. There is no
assurance that a liquid secondary market will exist for any particular option or
at any particular time.
ILLIQUID SECURITIES. Each Fund may purchase "illiquid securities," defined
as securities which cannot be sold or disposed of in the ordinary course of
business within seven days at approximately the value at which a Fund has valued
such securities, so long as no more than 15% of the Fund's net assets would be
invested in such illiquid securities after giving effect to the purchase.
Investment in illiquid securities involves the risk that, because of the lack of
consistent market demand for such securities, the Fund may be forced to sell
them at a discount from the last offer price.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements, by
which a Fund purchases a security and obtains a simultaneous commitment from the
seller (a bank or, to the extent permitted by the Investment Company Act of
1940, as amended (the "1940 Act") a recognized securities dealer) to repurchase
the security at an agreed-upon price and date (usually seven days or less from
the date of original purchase). The resale price is in excess of the purchase
price and reflects an agreed-upon market rate unrelated to the coupon rate on
the purchased security. Such transactions afford a Fund the opportunity to earn
a return on temporarily available cash. Although the underlying security may be
a bill, certificate of indebtedness, note or bond issued by an agency, authority
or instrumentality of the U.S. Government, the obligation of the seller is not
guaranteed by the U.S. Government and there is a risk that the seller may fail
to repurchase the underlying security. In such event, a Fund would attempt to
exercise rights with respect to the underlying security, including possible
disposition in the market. However, a Fund may be subject to various delays and
risks of loss, including (a) possible declines in the value of the underlying
security during the period while a Fund seeks to enforce its rights thereto and
(b) inability to enforce rights and the expenses involved in attempted
enforcement.
PORTFOLIO TURNOVER. Portfolio turnover is not a limiting factor with
respect to investment decisions. The rate of a Fund's portfolio turnover may
vary significantly from time to time depending on the volatility of
15
<PAGE>
economic and market conditions. High portfolio turnover involves correspondingly
greater brokerage commissions or dealer markup and other transaction costs,
which will be borne directly by a Fund, and could involve realization of capital
gains that would be taxable when distributed to shareholders of such Fund. To
the extent portfolio turnover results in the realization of net short-term
capital gains, such gains ordinarily are taxed to shareholders at ordinary
income tax rates. See "Taxes."
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend some or all of its
portfolio securities to broker-dealers. Securities loans are made to
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or U.S. Government securities at least equal at
all times to the market value of the securities lent. The borrower pays to the
lending Fund an amount equal to any dividends or interest received on the
securities lent. When the collateral is cash, the Fund may invest the cash
collateral in interest-bearing, short-term securities. When the collateral is
U.S. Government securities, the Fund usually receives a fee from the borrower.
Although voting rights or rights to consent with respect to the loaned
securities pass to the borrower, a Fund retains the right to call the loans at
any time on reasonable notice, and it will do so in order that the securities
may be voted by the Fund if the holders of such securities are asked to vote
upon or consent to matters materially affecting the investment. A Fund may also
call such loans in order to sell the securities involved. The risks in lending
portfolio securities, as with other extensions of credit, include possible delay
in recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. However, such loans will be made only to
broker-dealers that are believed by the Manager to be of relatively high credit
standing.
INVESTMENT OBJECTIVES AND POLICIES. Except as explicitly described
otherwise, the investment objective and policies of each of the Funds may be
changed without shareholder approval.
INVESTMENT PERFORMANCE
MANAGER'S DISCUSSION OF U.S. SMALL CAPITALIZATION SERIES PERFORMANCE
For the fiscal year ended March 31, 1998, the total return of the U.S. Small
Capitalization Series (Institutional Shares) was 44.95% after deduction of fees
and expenses, 2.94% above the total return of the Russell 2000 Index. The
Manager believes that the Fund's total return was the result of the Manager's
identification of undervalued U.S. small company stocks combined with an overall
rise in the market. In the last fiscal year, the prices of the U.S. small
company stocks selected by the Manager generally rose towards the Manager's
estimates of their fair value. The total return of the Institutional Shares of
the U.S. Small Capitalization Series has exceeded the total return of the
Russell 2000 Index since inception of the Fund as well as in the latest 3- and
5-year fiscal periods of the Fund.
16
<PAGE>
U.S. SMALL CAPITALIZATION SERIES
(BASED ON THE PERFORMANCE OF INSTITUTIONAL SHARES ONLY)(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. SMALL
CAPITALIZATION
SERIES(2) RUSSELL 2000 INDEX
<S> <C> <C>
1989 $ 1,000,000(1) $ 1,000,000
1990 1,109,590 1,074,854
1991 1,126,873 1,147,749
1992 1,304,847 1,388,965
1993 1,598,522 1,595,238
1994 1,803,561 1,770,762
1995 2,024,074 1,868,145
1996 2,746,344 2,411,079
1997 3,282,825 2,534,300
1998 4,758,410 3,599,041
Portfolio Benchmark
Past performance is not predictive of future
performance.
</TABLE>
(1) Based on minimum initial investment of $1,000,000 for Institutional Shares.
Note that the minimum initial investment for Adviser Shares is $100,000 and
for Select Shares is $2,500.
(2) Fund returns are net of all fees while the Russell 2000 Index returns are
based solely on market returns without deduction of fees or transaction
costs for rebalancing.
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDED 3/31/98)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
U.S. Small Capitalization Series (Institutional Shares)............. 44.95% 32.97% 24.38% 18.68%
(Inception date February 22, 1989)
U.S. Small Capitalization Series (Select Shares).................... 44.42% -- -- 35.19%
(Inception date October 22, 1996)
U.S. Small Capitalization Series (Adviser Shares)................... 44.50% -- -- 32.63%
(Inception date January 21, 1997)
Russell 2000 Index.................................................. 42.01% 24.43% 17.67% 15.14%
</TABLE>
THE NUMBERS REPORTED IN BOTH THE GRAPH AND THE TABLE REPRESENT PAST
PERFORMANCE AND ARE NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE OF
ADVISER SHARES AND SELECT SHARES WILL BE LOWER THAN THE PERFORMANCE OF
INSTITUTIONAL SHARES BECAUSE OF THE HIGHER FEES PAID BY SHAREHOLDERS INVESTING
IN SUCH CLASSES.
17
<PAGE>
MANAGER'S DISCUSSION OF JAPAN SERIES PERFORMANCE
During the fiscal year ended March 31, 1998, the total return of the Japan
Series (Institutional Shares) after deduction of fees and expenses was less than
the total return of its TOPIX benchmark by 9.23%. The Manager believes that the
Fund's total return was the result of a general decline in the Japanese market
combined with a steeper relative decline in the value stocks (high book to price
ratio stocks) that the Manager generally invests in. Since inception in January
1989, the Institutional Shares of the Japan Series have underperformed TOPIX by
an average of .30% per year.
JAPAN SERIES
(BASED ON THE PERFORMANCE OF INSTITUTIONAL SHARES ONLY)(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
JAPAN SERIES(2) TOPIX
<S> <C> <C>
1989 $ 1,000,000(1) $ 1,000,000
1990 825,963 760,601
1991 842,011 759,691
1992 664,446 582,912
1993 759,076 686,635
1994 913,564 847,235
1995 994,336 845,399
1996 982,039 882,838
1997 700,383 642,958
1998 533,195 548,807
Portfolio Benchmark
Past performance is not predictive of future
performance.
</TABLE>
(1) Based on minimum initial investment of $1,000,000 for Institutional Shares.
Note that the minimum initial investment for Select Shares is $2,500.
(2) Fund returns are net of all fees while the TOPIX returns are based solely
on market returns without deduction of fees or transaction costs for
rebalancing.
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDED 3/31/98)
<TABLE>
<CAPTION>
1 3 5 SINCE
YEAR YEARS YEARS INCEPTION
----- ----- ----- --------------
<S> <C> <C> <C> <C>
Japan Series (Institutional
Shares).......................... -23.87% -18.76% -6.82% -6.58%
(Inception date January 3, 1989)
Japan Series (Select Shares)....... -24.03% -- -- -30.87%
(Inception date October 22, 1996)
TOPIX Index........................ -14.64% -13.41% -4.38% -6.28%
</TABLE>
THE NUMBERS REPORTED IN BOTH THE GRAPH AND THE TABLES REPRESENT PAST
PERFORMANCE AND ARE NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE OF
SELECT SHARES WILL BE LOWER THAN THE PERFORMANCE OF INSTITUTIONAL SHARES BECAUSE
OF THE HIGHER FEES PAID BY SHAREHOLDERS INVESTING IN SUCH CLASS.
18
<PAGE>
MANAGER'S DISCUSSION OF INTERNATIONAL SMALL CAPITALIZATION SERIES PERFORMANCE
For the fiscal year ended March 31, 1998, the total return of the
International Small Capitalization Series (Institutional Shares) after deduction
of fees and expenses was 2.51%. This exceeded the Fund's CRIexUS(1) benchmark by
more than 2%. The Manager believes that the Fund's total return was the result
of identifying undervalued international small company stocks. During the last
fiscal year, international small company stocks generally underperformed
international large company stocks. The relative underperformance of
international small company stocks and the continued weakness in Asian markets
were both factors affecting the Fund's total return.
- -------------------
(1) CRIexUS includes 21 developed countries: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland and U.K.
INTERNATIONAL SMALL CAPITALIZATION SERIES
(BASED ON THE PERFORMANCE OF INSTITUTIONAL SHARES ONLY)(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTERNATIONAL SMALL
CAPITALIZATION
SERIES(2) CRIEXUS
<S> <C> <C>
9/23/97 $ 1,000,000(1) $ 1,000,000
1997 1,013,000 991,182
1998 1,038,431 995,775
Portfolio Benchmark
Past performance is not predictive of future
performance.
</TABLE>
(1) Based on minimum initial investment of $1,000,000 for Institutional Shares.
Note that the minimum initial investment for Select Shares is $2,500.
(2) Fund returns are net of all fees while the CRIexUS Index returns are based
solely on market returns without deduction of fees or transaction costs for
rebalancing.
AVERAGE ANNUAL TOTAL RETURN (FOR PERIOD ENDED 3/31/98)
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION
--------- --------------
<S> <C> <C>
International Small Capitalization Series (Institutional Shares)........................... 2.51% 2.52%
(Inception date September 23, 1996)
International Small Capitalization Series (Select Shares).................................. 2.22% 2.20%
(Inception date October 29, 1996)
CRIexUS Index.............................................................................. 0.46% -0.28%
</TABLE>
THE NUMBERS REPORTED IN BOTH THE GRAPH AND THE TABLE REPRESENT PAST
PERFORMANCE AND ARE NOT PREDICTIVE OF FUTURE RESULTS. THE PERFORMANCE OF SELECT
SHARES WILL BE LOWER THAN THE PERFORMANCE OF INSTITUTIONAL SHARES BECAUSE OF THE
HIGHER FEES PAID BY SHAREHOLDERS INVESTING IN SUCH CLASS.
19
<PAGE>
MANAGEMENT OF THE TRUST
Each Fund is advised and managed by Rosenberg Institutional Equity
Management (the "Manager"), which provides investment advisory services to a
number of institutional investors as well as the other portfolios of the Trust.
KEY PERSONNEL OF THE MANAGER
The biography of each of the General Partners of the Manager, each of whom
is also a Trustee of the Trust, is set forth below.
BARR ROSENBERG. Dr. Rosenberg is Managing General Partner and Chief
Investment Officer of the Manager. As such, he has ultimate responsibility for
the Manager's securities valuation and portfolio optimization systems used to
manage the Funds and for the implementation of the decisions developed therein.
His area of special concentration is the design of the Manager's proprietary
securities valuation model.
Dr. Rosenberg earned a B.A. degree from the University of California,
Berkeley, in 1963. He earned an M.Sc. from the London School of Economics in
1965, and a Ph.D. from Harvard University, Cambridge, Massachusetts, in 1968.
From 1968 until 1983, Dr. Rosenberg was a Professor of Finance, Econometrics,
and Economics at the School of Business Administration at the University of
California, Berkeley. Concurrently, from 1968 until 1974, Dr. Rosenberg worked
as a consultant in applied decision theory in finance, banking, and medicine. In
1975, he founded Barr Rosenberg Associates, a financial consulting firm (now
known as BARRA) where he was a managing partner, and later chief scientist until
his departure in 1986. Dr. Rosenberg, the founder of the Berkeley Program in
Finance, has experience in the modeling of complex processes with substantial
elements of risk.
MARLIS S. FRITZ. Ms. Fritz is a General Partner of the Manager. She has
primary responsibility for the Manager's new business development and secondary
responsibility for client service.
Ms. Fritz earned a B.S. degree from the University of Michigan, Ann Arbor,
in 1971. After working in life insurance management and sales for seven years,
she entered the investment management business in 1978 as Marketing Associate
with Forstmann-Leff Associates, New York. From 1983 until 1985, she was Vice
President, Marketing at Criterion Investment Management Company, Houston, Texas.
KENNETH REID. Dr. Reid is a General Partner and Director of Research of the
Manager. His work is focused on the design and estimation of the Manager's
valuation models and he has primary responsibility for analyzing the empirical
evidence that validates and supports the day-to-day recommendations of the
Manager's securities valuation models. Patterns of short-term price behavior
discussed by Dr. Reid as part of his Ph.D. dissertation have been refined and
incorporated into the Manager's proprietary valuation and trading systems.
Dr. Reid earned both a B.A. degree (1973) and an M.D.S. (1975) from Georgia
State University, Atlanta. In 1982, he earned a Ph.D. from the University of
California, Berkeley, where he was awarded the American Bankers Association
Fellowship. From 1981 until June 1986, Dr. Reid worked as a consultant at
20
<PAGE>
BARRA in Berkeley, California. His responsibilities included estimating
multiple-factor risk models, designing and evaluating active management
strategies, and serving as an internal consultant on econometric matters in
finance.
Marlis S. Fritz and Kenneth Reid each holds a greater than 5% interest in
the Manager. Rosenberg Alpha L.P., a California limited partnership, is a
limited partner of the Manager and holds a greater than 5% interest in the
Manager. Barr M. Rosenberg, the Managing General Partner of the Manager, and his
wife, June Rosenberg, each holds a greater than 5% general partnership interest
in Rosenberg Alpha L.P.
There are 43 professional staff members of the Manager and the Manager's
affiliate, Barr Rosenberg Investment Management, Inc., located in Orinda,
California. Included among the Manager's professional staff are seven
individuals with Ph.D.s and nineteen individuals with other graduate degrees.
Six members of the staff have been awarded C.F.A. certificates.
THE OUTSIDE TRUSTEES
William F. Sharpe and Nils H. Hakansson are Trustees of the Trust who are
not "interested persons" (as defined in the 1940 Act of the Trust or the
Manager.
Dr. Sharpe is the STANCO 25 Professor of Finance at Stanford University's
Graduate School of Business. He is best known as one of the developers of the
Capital Asset Pricing Model, including the beta and alpha concepts used in risk
analysis and performance measurement. He developed the widely-used binomial
method for the valuation of options and other contingent claims. He also
developed the computer algorithm used in many asset allocation procedures. Dr.
Sharpe has published articles in a number of professional journals. He has also
written six books, including PORTFOLIO THEORY AND CAPITAL MARKETS, (McGraw-Hill,
1970), ASSET ALLOCATION TOOLS, (Scientific Press, 1987), FUNDAMENTALS OF
INVESTMENTS (with Gordon J. Alexander and Jeffery Bailey, Prentice-Hall, 1993)
and INVESTMENTS (with Gordon J. Alexander and Jeffery Bailey, Prentice-Hall,
1995). Dr. Sharpe is a past President of the American Finance Association. He
has served as consultant to a number of corporations and investment
organizations. He is also a member of the Board of Trustees of Smith Breeden
Trust, an investment company, and a director at CATS Software and Stanford
Management Company. He received the Nobel Prize in Economic Sciences in 1990.
Professor Hakansson is the Sylvan C. Coleman Professor of Finance and
Accounting at the Haas School of Business, University of California, Berkeley.
He is a former member of the faculty at UCLA as well as at Yale University. At
Berkeley, he served as Director of the Berkeley Program in Finance (1988-1991)
and as Director of the Professional Accounting Program (1985-1988). Professor
Hakansson is a Certified Public Accountant and spent three years with Arthur
Young & Company prior to receiving his Ph.D. from UCLA in 1966. He has twice
been a Visiting Scholar at Bell Laboratories in New Jersey and was, in 1975, the
Hoover Fellow at the University of New South Wales in Sydney, Australia and, in
1982, the Chevron Fellow at Simon Fraser University in British Columbia, Canada.
In 1984, Professor Hakansson was a Special Visiting Professor at the Stockholm
School of Economics, where he was also awarded an honorary doctorate in
economics. He is a past president of the Western Finance Association
(1983-1984). Professor Hakansson has published articles in a number of academic
journals and in professional volumes. Many of his papers address various aspects
of asset allocation procedures as well as topics in securities innovation,
information economics, and financial reporting. He has served on the editorial
boards of several professional journals and been a consultant to the
21
<PAGE>
RAND Corporation and a number of investment organizations. Professor Hakansson
is a member of the board of two foundations and a past board member of
SuperShare Service Corporation and of Theatrix Interactive, Inc. He is also a
Fellow of the Accounting Researchers International Association and a member of
the Financial Economists Roundtable.
INDIVIDUALS RESPONSIBLE FOR THE FUNDS
Management of the portfolio of each Fund is overseen by the Manager's
General Partners who are responsible for design and maintenance of the Manager's
portfolio system, and by a portfolio manager who is responsible for research and
monitoring each Fund's characteristic performance against the relevant benchmark
and for monitoring cash balances.
U.S. SMALL CAPITALIZATION SERIES. Dr. Rosenberg, Dr. Reid and Floyd
Coleman, the portfolio manager, are responsible, and have been responsible since
inception, for the day-to-day management of the U.S. Small Capitalization
Series' portfolio. Dr. Rosenberg and Dr. Reid both have been employed by the
Manager since 1985. Mr. Coleman has been a trader and portfolio manager for the
Manager since 1988. He received a B.S. from Northwestern University in 1982, a
M.S. from Polytechnic Institute, Brooklyn in 1984 and a M.B.A. from Harvard
Business School in 1988.
JAPAN SERIES. Dr. Rosenberg, Dr. Reid, and Cheng S. Liao, the portfolio
manager, are responsible, and have been responsible since inception, for the
day-to-day management of the Japan Series' portfolio. Mr. Liao has been a senior
research associate, programmer and portfolio manager, specializing in the
Japanese market with the Manager since 1989. Mr. Liao has also been a trader for
the Manager in Japanese securities since 1994. He received a B.S. from Tohobu
University, Japan, in 1984, a M.S. from Stanford University in 1986, and a M.S.
in Computer Science from Polytechnic Institute, New York in 1988.
INTERNATIONAL SMALL CAPITALIZATION SERIES. Dr. Rosenberg, Dr. Reid and
Joseph Leung, the portfolio manager, are responsible, and have been responsible
since inception, for the day-to-day management of the International Small
Capitalization Series' portfolio. Mr. Leung has been a senior research
associate, programmer and portfolio manager with the Manager since 1993. He
received a B.S. and a B.A. from Queen's University, Ontario, Canada in 1989 and
a M.B.A. from the University of Chicago in 1993. Mr. Leung is a chartered
financial analyst.
THE MANAGER'S GENERAL INVESTMENT PHILOSOPHY AND STRATEGY
The Manager attempts to add value relative to the designated benchmark
through a quantitative stock selection process, and seeks to diversify
investment risk across the holdings in each of the Funds. In seeking to
outperform each Fund's designated benchmark, the Manager also attempts to
control risk in the Fund's portfolio relative to the securities constituting
that benchmark. Since each Fund is substantially invested in equities at all
times, the Manager does not earn the extraordinary return, or "alpha," by timing
the market. The Manager seeks to avoid constructing portfolios that
significantly differ from the relevant benchmark with respect to characteristics
such as market capitalization, historic volatility or "beta," and industry
weightings. Each Fund seeks to have a similar exposure to these factors as the
designated benchmark.
22
<PAGE>
INVESTMENT PHILOSOPHY. The Manager's investment strategy is based on the
belief that stock prices imperfectly reflect the present value of the expected
future earnings of companies, their "fundamental value." The Manager believes
that market prices will converge towards fundamental value over time, and that
therefore, any investor who can accurately determine fundamental value, and who
applies a disciplined investment process to select those stocks that are
currently undervalued (I.E., the price is less than fundamental value), will
outperform the market over time.
The premise of the Manager's investment philosophy is that there is a link
between the price of a stock and the underlying financial and operational
characteristics of the company. In other words, the price reflects the market's
assessment of how well the company is positioned to generate future earnings
and/or future cash flow. The Manager identifies and purchases those stocks that
are undervalued (I.E., they are currently cheaper than similar stocks with the
same characteristics). The Manager believes that the market will recognize the
"better value" and that the mispricing will be corrected as the stocks in the
Funds' portfolios are purchased by other investors.
In determining whether or not a stock is attractive, the Manager considers
the company's current estimated fundamental value as determined by the Manager's
proprietary Appraisal Model, the company's future earnings, and investor
sentiment toward the stock. The Manager identifies and causes a Fund to purchase
an undervalued stock and to hold it in the relevant Fund's portfolio until the
market recognizes and corrects for the misvaluation.
DECISION PROCESS. The Manager's decision process is a continuum. Its
research function develops models that analyze the more than 12,000 securities
in the global universe, both fundamentally and technically, and determines the
risk characteristics of the relevant Fund's benchmark. The portfolio management
function optimizes each portfolio's composition, executes trades, and monitors
performance and trading costs.
The essence of the Manager's approach is attention to important aspects of
the investment process. Factors crucial to successful stock selection include:
(1) accurate and timely data on a large universe of companies; (2) subtle
quantitative descriptors of value and predictors of changes in value; and (3)
insightful definitions of similar businesses. The Manager assimilates, checks
and structures the input data on which its models rely. The Appraisal Manager
believes that if the data is correct, the recommendations made by the system
will be sound.
STOCK SELECTION. Fundamental valuation of stocks is key to the Manager's
investment process, and the heart of the valuation process lies in the Manager's
proprietary Appraisal Model. Analysis of companies in the United States and
Canada is conducted in a single unified model. The Appraisal Model discriminates
where the two markets are substantially different, while simultaneously
comparing companies in the two markets according to their degrees of similarity.
European companies and Asian companies (other than Japanese companies) are
analyzed in a nearly global model, which includes the United States and Canada
as a further basis for comparative valuation, but which excludes Japan. Japanese
companies are analyzed in an independent national model. The Appraisal Model
incorporates the various accounting standards that apply in different markets
and makes adjustments to ensure meaningful comparisons.
23
<PAGE>
An important feature of the Appraisal Model is the classification of
companies into one or more of 166 groups of "similar" businesses. Currently, in
the United States, 160 groups are applicable; in Japan, 122 groups are
applicable; and in Europe, 154 groups are applicable. Each company is broken
down into its individual business segments, and each segment is compared with
similar business operations of other companies doing business in the same
geographical market. In most cases, the comparison is extended to include
companies with similar business operations in different markets. Subject to the
availability of data in different markets, the Manager appraises the company's
assets, operating earnings and sales within each business segment, accepting the
market's valuation of that category of business as fair. The Manager then
integrates the segment appraisals into balance sheet, income statement, and
sales valuation models for the total company, and simultaneously adjusts the
segment appraisals to include appraisals for variables which are declared only
for the total company, such as taxes, capital structure, and pension funding.
The result is a single valuation for each of the companies followed.
The difference between the Manager's appraisal and the market price is
believed to represent an opportunity for profit. For each stock, the Manager
develops "appraisal alphas" (I.E., the expected rate of extraordinary return) by
adjusting for the rate at which the market has corrected for such misvaluations
in the past.
A second sphere of analysis is captured by the Manager's proprietary
Earnings Change Model, which analyzes more than 20 variables to predict
individual company earnings over a one-year horizon. The variables are
fundamental and fall into three categories: measures of past profitability,
measures of company operations and consensus earnings forecasts. The Earnings
Change Model is independent of the Appraisal Model and projects the change in a
company's earnings in cents/current price. The value of the projected earnings
change is converted to an "earnings change alpha" by multiplying the projected
change by the market's historical response to changes of that magnitude.
Finally, the Manager's proprietary Investor Sentiment Model quantifies
investor sentiment about features of stocks which influence price but which are
not captured by the Appraisal Model or the Earnings Change Model. This Model
measures company quality by looking at past price patterns and by predicting the
probability of deficient earnings. The Investor Sentiment Model also captures
market enthusiasm towards individual stocks by looking at broker recommendations
and analyst estimates. Investor sentiment alphas are developed by multiplying
the Model's sentiment scores by the market's historical response to such scores.
Each company's earnings change alpha and investor sentiment alpha are added
to its appraisal alpha to arrive at a total company alpha. Stocks with large
positive total company alphas are candidates for purchase. Stocks held in a
portfolio with total company alphas that are only slightly positive, zero or
negative are candidates for sale.
Before trading, the Manager systematically analyzes the short-term price
behavior of individual stocks to determine the timing of trades. The Investor
Sentiment Model quantifies investor enthusiasm for each stock by analyzing its
short-term performance relative to similar stocks, changes in analyst and broker
opinions about the stock, and earnings surprises. The Manager develops a
"trading alpha" for each stock (i.e., the expected short-term extraordinary
return) which is designed to enable the Funds to purchase stocks from supply and
to sell stocks into demand, greatly reducing trading costs.
24
<PAGE>
OPTIMIZATION. The Manager's portfolio optimization system attempts to
construct a Fund portfolio that will outperform the relevant benchmark, while
maintaining portfolio risk characteristics similar to those of the Fund's
benchmark. The optimizer simultaneously considers both the results of the
Manager's stock selection models and risk in determining the benefit to a
portfolio of a particular transaction. No transaction will be executed unless
the opportunity offered by a purchase or sale candidate sufficiently exceeds the
potential of an existing holding to justify the transaction costs.
TRADING. The Manager's trading system aggregates the recommended
transactions for each of the Funds and determines the feasibility of each
recommendation in light of the stock's liquidity, the expected transaction
costs, and general market conditions. It relays target price information to a
trader for each stock considered for purchase or sale. Trades are executed
through any one of four trading strategies: traditional brokerage, networks,
accommodation, and package or "basket" trades.
The network arrangements the Manager has developed with Instinet Matching
System (IMS), Portfolio System for Institutional Trading (POSIT), and the
Arizona Stock Exchange (AZX) facilitate large volume trading with little or no
price disturbance and low commission rates.
Accommodative trading (which we also refer to as the Manager's "match
system") allows institutional buyers and sellers of stock to electronically
present the Manager with their "interest" lists each morning. Any matches
between the inventory that the brokers have presented and the Manager's own
recommended trades are signaled to the Manager's traders. Because the broker is
doing agency business and has a client on the other side of the trade, the
Manager expects that the other side will be accommodative in the price. The
Manager's objective in using this match system is to execute most trades on the
Manager's side of the bid/ask spread so as to minimize market impact.
Package trades further allow the Manager to trade large lists of orders
simultaneously using state of the art tools such as the Instinet Real-Time
System, Instinet Order Matching System and Lattice Trading System. Those tools
provide order entry, negotiation and execution capabilities, either directly to
other institutions or electronically to the floor of the exchange. The
advantages of using such systems include speed of execution, low commissions,
anonymity and very low market impact.
The Manager continuously monitors trading costs to determine the impact of
commissions and price disturbances on the Funds' portfolios.
MANAGEMENT CONTRACTS
Under separate Management Contracts with the Trust on behalf of each Fund,
the Manager selects and reviews each Fund's investments and provides executive
and other personnel for the management of the Trust. Pursuant to the Trust's
Agreement and Declaration of Trust, as amended, the Board of Trustees supervises
the affairs of the Trust as conducted by the Manager. In the event that the
Manager ceases to be the manager of a Fund, the right of the Trust to use the
identifying name "Barr Rosenberg" and/or "Rosenberg" may be withdrawn.
Each Fund will pay all other expenses incurred in the operation of such
Fund, including, but not limited to, brokerage commissions and transfer taxes in
connection with the Fund's portfolio transactions, all applicable taxes and
filing fees, distribution fees, shareholder servicing fees, the fees and
expenses for
25
<PAGE>
registration or qualification of its shares under the federal or state
securities laws, the compensation of trustees who are not partners, officers or
employees of the Manager, interest charges, expenses of issue or redemption of
shares, charges of custodians, auditing and legal expenses, expenses of
determining net asset value of Fund shares, reports to shareholders, expenses of
meetings of shareholders, expenses of printing and mailing proxy statements and
proxies to existing shareholders, expenses of printing and mailing prospectuses,
and insurance premiums.
In addition, each Fund 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 below. The Manager has agreed to voluntarily waive some or all
of its management fee and, if necessary, to bear certain expenses of each Fund
until further notice to the extent required to limit the total annual operating
expenses (which do not include nonrecurring account fees and extraordinary
expenses) of each class of shares to the percentage of each Fund's average daily
net assets attributable to that class listed in the Expense Limitation column
below. The Manager's fee for management of each of the Funds is higher than that
paid by most other mutual funds.
<TABLE>
<CAPTION>
CONTRACTUAL
MANAGEMENT FEE (AS EXPENSE LIMITATION
A % OF AVERAGE DAILY (AS A % OF AVERAGE
NET ASSETS) DAILY NET ASSETS)
--------------------- ---------------------
<S> <C> <C>
INSTITUTIONAL SHARES
U.S. Small Capitalization Series.......................................... .90% 1.15%
Japan Series.............................................................. 1.00% 1.50%
International Small Capitalization Series................................. 1.00% 1.50%
ADVISER SHARES
U.S. Small Capitalization Series.......................................... .90% 1.40%
SELECT SHARES
U.S. Small Capitalization Series.......................................... .90% 1.65%
Japan Series.............................................................. 1.00% 2.00%
International Small Capitalization Series................................. 1.00% 2.00%
</TABLE>
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
BISYS Fund Services (the "Administrator"), a wholly-owned subsidiary of The
BISYS Group, Inc., serves as the Trust's administrator and generally assists the
Trust in all aspects of its administration and operation. As compensation for
its administrative services, the Administrator receives a monthly fee based upon
an annual percentage rate of 0.15% of the aggregate average daily net assets of
the Trust.
BISYS Fund Services, Inc. (the "Transfer Agent") services as the Trust's
transfer agent and provides dividend disbursing services for the Funds. The
principal business address of the Transfer Agent is 3435 Stelzer Road, Columbus,
Ohio 43219.
State Street Bank and Trust Company (the "Custodian") serves as custodian of
the assets of the Funds. The principal business address of the Custodian is
Mutual Funds Division, Boston, Massachusetts 02102.
26
<PAGE>
DISTRIBUTOR
Adviser Shares of the U.S. Small Capitalization Series and Select Shares of
each Fund are sold on a continuous basis by the Company's distributor, Barr
Rosenberg Funds Distributor, Inc. (the "Distributor"), a wholly-owned subsidiary
of The BISYS Group, Inc. The Distributor's principal offices are located at 90
Park Avenue, New York, New York 10016. Institutional Shares are sold directly by
the Trust.
Solely for the purpose of compensating the Distributor for services and
expenses primarily intended to result in the sale of Select Shares, such shares
are subject to an annual Distribution Fee of up to 0.50% of the average daily
net assets attributable to such shares in accordance with a Distribution Plan
(the "Distribution Plan") adopted by the Trust pursuant to Rule 12b-1 under the
1940 Act. Currently, each Fund pays the Distributor an annual Distribution Fee
of 0.25% of the Fund's average daily net assets attributable to Select Shares.
Activities for which the Distributor may be reimbursed include (but are not
limited to) the development and implementation of direct mail promotions and
advertising for the Funds, the preparation, printing and distribution of
prospectuses for the Funds to recipients other than existing shareholders, and
contracting with one or more wholesalers of the Funds' shares. The Distribution
Plan for Select Shares went into effect on August 5, 1996. The Distribution Plan
is of the type known as a "compensation" plan. This means that, although the
trustees of the Trust are expected to take into account the expenses of the
Distributor in their periodic review of the Distribution Plan, the fees are
payable to compensate the Distributor for services rendered even if the amount
paid exceeds the Distributor's expenses.
The Distributor may also provide (or arrange for another intermediary or
agent to provide) personal and/or account maintenance services to holders of
Adviser Shares of the U.S. Small Capitalization Series and holders of Select
Shares of each of the Funds (the Distributor or such entity is referred to as a
"Servicing Agent" in such capacity). A Servicing Agent will be paid some or all
of the Shareholder Servicing Fees charged with respect to Adviser and Select
Shares pursuant to Servicing Plans for such shares.
YEAR 2000 ISSUES
Many services provided to the Funds depend on the smooth functioning of
computer systems. Many systems in use today cannot distinguish between the year
1900 and the year 2000. Should any of the service systems fail to process
information properly, that could have an adverse impact on the Funds' operations
and services provided to shareholders. The Manager, Distributor, Servicing
Agent, Transfer Agent, Custodian, Administrator and certain other service
providers to the Funds have reported that each is working toward mitigating the
risks associated with the so-called "year 2000 problem." However, there can be
no assurance that the problem will be corrected in all respects and that the
Funds' operations and services provided to shareholders will not be adversely
affected.
MULTIPLE CLASSES
As indicated previously, the U.S. Small Capitalization Series offer three
classes of shares to investors, Institutional Shares, Adviser Shares and Select
Shares and the Japan Series and International Small Capitalization Series offers
two classes of shares to investors, Institutional Shares and Select Shares.
Eligibility to invest in a particular class generally depends on the amount
invested in the particular Fund and
27
<PAGE>
whether the investor makes the investment directly or through a financial
adviser. The following table sets forth basic investment and fee information for
each class.
<TABLE>
<CAPTION>
MINIMUM ANNUAL ANNUAL
FUND SUBSEQUENT METHOD OF SHAREHOLDER DISTRIBUTION
NAME OF CLASS INVESTMENT* INVESTMENTS* INVESTMENT* SERVICE FEE FEE
- ---------------------------------------- ----------- ------------ ------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Institutional........................... $ 1 million $ 10,000 Direct None None
Adviser................................. $ 100,000 $ 1,000 Financial Adviser .25% None
Select.................................. $ 2,500 $ 500 Direct .25% .25%
</TABLE>
- -------------------
* Certain exceptions apply. See " -- Institutional Shares", "-- Adviser
Shares" and "-- Select Shares" below."
The offering price is based on the net asset value per share next determined
after an order is received. See "Purchase of Shares" and "Redemption of Shares."
INSTITUTIONAL SHARES
Institutional Shares may be purchased by institutions such as endowments and
foundations, plan sponsors of 401(a), 401(k), 457 and 403(b) plans and
individuals. In order to be eligible to purchase Institutional Shares, an
institution, plan or individual must make an initial investment of at least $1
million in the particular Fund. In its sole discretion, the Manager may waive
this minimum investment requirement and the Manager intends to do so for
employees of the Manager, for the spouse, parents, children, siblings,
grandparents or grandchildren of such employees, for employees of the
Administrator and for Trustees of the Trust who are not interested persons of
the Trust or Manager and their spouses. Institutional Shares are sold without
any initial or deferred sales charges and are not subject to any ongoing
distribution expenses or shareholder servicing fees.
ADVISER SHARES
Adviser shares may be purchased solely through accounts established under a
fee-based program which is sponsored and maintained by a registered
broker-dealer or other financial adviser approved by the Trust's Distributor and
under which each investor pays a fee to the broker-dealer or other financial
adviser, or its affiliate or agent, for investment advisory or administrative
services. In order to be eligible to purchase Adviser Shares, a broker-dealer or
other financial adviser must make an initial investment of at least $100,000 of
its client's assets in the U.S. Small Capitalization Series. In its sole
discretion, the Manager may waive this minimum asset investment requirement.
Adviser Shares are sold without any initial or deferred sales charges and are
not subject to ongoing distribution expenses, but are subject to a Shareholder
Service Fee at an annual rate equal to 0.25% of the U.S. Small Capitalization
Series average daily net assets attributable to Adviser Shares.
SELECT SHARES
Select Shares may be purchased by institutions, certain individual
retirement accounts and individuals. In order to be eligible to purchase Select
Shares, an investor must make an initial investment of at least $2,500 in
28
<PAGE>
the particular Fund. In its sole discretion, the Manager may waive this minimum
investment requirement. Select Shares are subject to an annual Shareholder
Service Fee equal to 0.25% of the average daily net assets attributable to
Select Shares and an annual Distribution Fee equal to 0.25% of the average daily
net assets attributable to Select Shares. As described above, the Distribution
Plan permits payments of up to 0.50% of the Funds' average daily net assets
attributable to Select Shares. See "Management of the Trust -- Distributor."
GENERAL
The Shareholder Service Fee charged with respect to Adviser Shares and
Select Shares is intended to be compensation for personal services rendered and
for account maintenance with respect to such shares. The Distribution Fee
charged with respect to Select Shares is intended to compensate the Distributor
for services and expenses primarily intended to result in the sale of Select
Shares. See "Management of the Trust -- Distributor."
As described above, shares of the Funds may be sold to corporations or other
institutions such as trusts, foundations or broker-dealers purchasing for the
accounts of others (collectively, "Shareholder Organizations"). Investors
purchasing and redeeming shares of the Funds through a Shareholder Organization
or through financial advisers may be charged a transaction-based fee or other
fee for the services provided by the Shareholder Organization or financial
adviser. Each such Shareholder Organization and financial adviser is responsible
for transmitting to its customers a schedule of any such fees and information
regarding any additional or different conditions regarding purchases and
redemptions of Fund shares. Customers of Shareholder Organizations and financial
advisers should read this Prospectus in light of the terms governing accounts
with their particular organization.
PURCHASE OF SHARES
The offering price for shares of each Fund is the net asset value per share
next determined after receipt of a purchase order. See "Determination of Net
Asset Value." Investors may be charged an additional fee by their broker or
agent if they effect transactions through such persons.
Effective February 20, 1998 (the "Closing Date"), the U.S. Small
Capitalization Series was closed to new investors (except as otherwise provided
below). The following categories of existing shareholders will still be
permitted to purchase shares of the U.S. Small Capitalization Series: (i)
shareholders who own shares of the U.S. Small Capitalization Series on the
Closing Date will be permitted to purchase additional shares of the U.S. Small
Capitalization Series for as long as they continue to own shares of such Fund;
(ii) shareholders who beneficially own shares of the U.S. Small Capitalization
Series on the Closing Date through a registered investment adviser or financial
adviser will be permitted to purchase additional shares of the U.S. Small
Capitalization Series for as long as they beneficially own shares of such Fund;
(iii) participants in any self-directed qualified benefit plan (for example,
401(a), 401(k), 457 and 403(b) plans) will be eligible to direct the purchase of
the shares of the U.S. Small Capitalization Series by their plan account for as
long as the plan continues to own shares of such Fund for any single plan
participant; and (iv) participants in certain "wrap programs" that have entered
into contractual arrangements with the Trust and/or Distributor will be eligible
to purchase shares of the U.S. Small Capitalization Series for as long as the
"wrap program" continues to own shares of such Fund.
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<PAGE>
In the event (i) a shareholder redeems all of his, her or its shares of the
U.S. Small Capitalization Series, (ii) a shareholder who beneficially owns
shares of such Fund through a registered investment adviser or financial adviser
redeems all of his, her or its shares of such Fund, (iii) all participants in a
benefit plan described above redeem their shares of such Fund; and (iv) a "wrap
program" described above ceases to own shares of such Fund, such shareholder who
beneficially owns shares through a registered investment adviser or financial
adviser, the participants in such benefit plan, and the participants in such
"wrap program", respectively, will no longer be eligible to purchase shares of
the U.S. Small Capitalization Series.
The U.S. Small Capitalization Series will be closed to new investments
effective January 1, 1999, except that (i) participants in 401(k) plans may
continue to direct the purchase of investments in the U.S. Small Capitalization
Series by their plan account until and including June 30, 1999; (ii)
participants in certain "wrap programs" that have entered into contractual
arrangements with the Trust and/or Distributor will be eligible to purchase
shares of the U.S. Small Capitalization Series quarterly to rebalance their
accounts for as long as the "wrap program" continues to own shares of such Fund;
and (iii) certain bank "asset allocation programs" that have entered into an
agreement with the Trust and/or Distributor will be eligible to purchase shares
of the U.S. Small Capitalization Series under the terms of the agreement and to
rebalance accounts quarterly.
Shareholders of other Funds will not be permitted to exchange any of their
shares for shares of the U.S. Small Capitalization Series unless such
shareholders are independently eligible to purchase shares of the U.S. Small
Capitalization Series as described above. The Trust reserves the right at any
time to modify the restrictions set forth above, including the suspension of all
sales of shares of the U.S. Small Capitalization Series or the lifting of
restrictions on different classes of investors and/or transactions.
INITIAL CASH INVESTMENTS BY WIRE
Subject to acceptance by the Trust, shares of each Fund may be purchased by
wiring federal funds. Please first contact the Trust at 1-800-447-3332 for
complete wiring instructions. Notification must be given to the Trust at
1-800-447-3332 prior to 4:00 p.m., New York time, of the wire date. Federal
funds purchases will be accepted only on a day on which the Trust, the
Distributor and the Custodian are all open for business. A completed Account
Application must be overnighted to the Trust at Barr Rosenberg Series Trust c/o
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219-8021.
INITIAL CASH INVESTMENTS BY MAIL
Subject to acceptance by the Trust, an account may be opened by completing
and signing an Account Application and mailing it to Barr Rosenberg Series
Trust, P.O. Box 182495, Columbus, Ohio 43219-2495. The Fund(s) to be purchased
should be specified on the Account Application. In all cases, subject to
acceptance by the Trust, payment for the purchase of shares received by mail
will be credited to a shareholder's account at the net asset value per share of
the Fund next determined after receipt, even though the check may not yet have
been converted into federal funds.
ADDITIONAL CASH INVESTMENTS
Additional cash investments may be made at any time by mailing a check to
the Trust at the address noted under "-- Initial Cash Investments by Mail"
(payable to Barr Rosenberg Series Trust) or by wiring
30
<PAGE>
monies as noted under "-- Initial Cash Investments by Wire." Notification must
be given at 1-800-447-3332 prior to 4:00 p.m., New York time, of the wire date.
The minimum amounts for additional cash investments are $10,000 for
Institutional Shares, $1,000 for Adviser Shares and $500 for Select Shares.
INVESTMENTS IN-KIND (INSTITUTIONAL SHARES)
Institutional Shares may be purchased in exchange for common stocks on
deposit at The Depository Trust Company ("DTC") or by a combination of such
common stocks and cash. Purchase of Institutional Shares of a Fund in exchange
for stocks is subject in each case to the determination by the Manager that the
stocks to be exchanged are acceptable. Securities accepted by the Manager in
exchange for Fund shares will be valued as set forth under "Determination of Net
Asset Value" (generally the last quoted sale price) as of the time of the next
determination of net asset value after such acceptance. All dividends,
subscription or other rights which are reflected in the market price of accepted
securities at the time of valuation become the property of the Fund and must be
delivered to the Fund upon receipt by the investor from the issuer. A gain or
loss for federal income tax purposes would be realized by investors subject to
federal income taxation upon the exchange, depending upon the investor's basis
in the securities tendered.
The Manager will not approve the acceptance of securities in exchange for
Fund shares unless (i) the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (ii) the investor
represents and agrees that all securities offered to the Fund are not subject to
any restrictions upon their sale by the Fund under the Securities Act of 1933,
or otherwise; and (iii) the securities may be acquired under the Fund's
investment restrictions.
OTHER PURCHASE INFORMATION
An eligible shareholder may also participate in the Barr Rosenberg Automatic
Investment Program, an investment plan that automatically debits money from the
shareholder's bank account and invests it in Select Shares of one or more of the
Funds through the use of electronic funds transfers. Investors may commence
their participation in this program with a minimum initial investment of $2,500
and may elect to make subsequent investments by transfers of a minimum of $50
into their established Fund account. You may contact the Trust for more
information about the Barr Rosenberg Automatic Investment Program.
For purposes of calculating the purchase price of Fund shares, a purchase
order is received by the Trust on the day that it is in "good order" unless it
is rejected by the Distributor. For a purchase order of Fund Shares to be in
"good order" on a particular day a check or money wire must be received on or
before 4:00 p.m., New York time of that day. In the case of a purchase in-kind
of Institutional Shares, the investor's securities must be placed on deposit at
the DTC prior to 10:00 a.m., New York time. If the consideration is received by
the Trust after the deadline, the purchase price of Fund shares will be based
upon the next determination of net asset value of Fund shares. No third party or
foreign checks will be accepted.
The Trust reserves the right, in its sole discretion, to suspend the
offering of shares of its Funds or to reject purchase orders when, in the
judgment of the Manager, such suspension or rejection would be in the best
interests of the Trust or a Fund.
Purchases of a Fund's shares may be made in full or in fractional shares of
the Fund calculated to three decimal places. In the interest of economy and
convenience, certificates for shares will not be issued.
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<PAGE>
IRA ACCOUNTS
Select Shares of all Funds may be used as a funding medium for IRAs. The
minimum initial investment for an IRA is $2,000. A special application must be
completed in order to create such an account. Contributions to IRAs are subject
to prevailing amount limits set by the Internal Revenue Service. For more
information about IRAs, call the Trust at 1-800-447-3332.
REDEMPTION OF SHARES
Shares of each Fund may be redeemed by mail, or, if authorized by an
investor in an Account Application, by telephone. The value of shares redeemed
may be more or less than the original cost of those shares, depending on the
market value of the investment securities held by the particular Fund at the
time of the redemption.
BY MAIL
The Trust will redeem its shares at the net asset value next determined
after the request is received in "good order." See "Determination of Net Asset
Value." Requests should be addressed to Barr Rosenberg Series Trust, P.O. Box
182495, Columbus, Ohio 43219-2495.
Requests in "good order" must include the following documentation:
(a) a letter of instruction specifying the number of shares or dollar
amount to be redeemed, signed by all registered owners of the shares in the
exact names in which they are registered;
(b) any required signature guarantees (see "-- Signature Guarantees"
below); and
(c) other supporting legal documents, if required, in the case of
estates, trusts, guardianships, custodianships, corporations, pension and
profit sharing plans and other organizations.
SIGNATURE GUARANTEES
To protect shareholder accounts, the Trust and the Transfer Agent from
fraud, signature guarantees may be required to enable the Trust to verify the
identity of the person who has authorized a redemption from an account.
Signature guarantees are required for (1) redemptions where the proceeds are to
be sent to someone other than the registered shareholder(s) at the registered
address, (2) redemptions of $25,000 or more, and (3) share transfer requests.
Signature guarantees may be obtained from certain eligible financial
institutions, including but not limited to, the following: banks, trust
companies, credit unions, securities brokers and dealers, savings and loan
associations and participants in the Securities and Transfer Association
Medallion Program (STAMP), the Stock Exchange Medallion Program (SEMP) or the
New York Stock Exchange Medallion Signature Program (MSP). Shareholders may
contact the Trust at 1-800-447-3332 for further details.
BY TELEPHONE
Provided the Telephone Redemption Option has been authorized by an investor
in an Account Application, a redemption of shares may be requested by calling
the Transfer Agent at 1-800-447-3332 and
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requesting that the redemption proceeds be mailed to the primary registration
address or wired per the authorized instructions. If the Telephone Redemption
Option or the Telephone Exchange Option (as described below) is authorized, the
Transfer Agent may act on telephone instructions from any person representing
himself or herself to be a shareholder and believed by the Transfer Agent to be
genuine. The Transfer Agent's records of such instructions are binding and the
shareholder, and not the Trust or the Transfer Agent, bears the risk of loss in
the event of unauthorized instructions reasonably believed by the Transfer Agent
to be genuine. The Transfer Agent will employ reasonable procedures to confirm
that
33
<PAGE>
instructions communicated are genuine and, if it does not, it may be liable for
any losses due to unauthorized or fraudulent instructions. The procedures
employed in connection with transactions initiated by telephone include tape
recording of telephone instructions and requiring some form of personal
identification prior to acting upon instructions received by telephone.
Telephone Redemption will be suspended for a period of 10 days following a
telephonic address change.
SYSTEMATIC WITHDRAWAL PLAN
An owner of $12,000 or more of shares of a Fund may elect to have periodic
redemptions made from the investor's account to be paid on a monthly, quarterly,
semiannual or annual basis. The maximum payment per year is 12% of the account
value at the time of the election. The Trust will normally redeem a sufficient
number of shares to make the scheduled redemption payments on a date selected by
the shareholder. Depending on the size of the payment requested and fluctuation
in the net asset value, if any, of the shares redeemed, redemptions for the
purpose of making such payments may reduce or even exhaust the account. A
shareholder may request that these payments be sent to a predesignated bank or
other designated party. Capital gains and dividend distributions paid to the
account will automatically be reinvested at net asset value on the distribution
payment date.
FURTHER REDEMPTION INFORMATION
Purchases of shares of the Funds made by check are not permitted to be
redeemed until payment of the purchase price has been collected, which may take
up to fifteen days after purchase. Shareholders can avoid this delay by
utilizing the wire purchase option.
If the Manager determines, in its sole discretion, that it would not be in
the best interests of the remaining shareholders of a Fund to make a redemption
payment wholly or partly in cash, the Fund may pay the redemption price of
Institutional Shares in whole or in part by a distribution in kind of readily
marketable securities held by the relevant Fund in lieu of cash. Securities used
to redeem Fund shares in kind will be valued in accordance with the Fund's
procedures for valuation described under "Determination of Net Asset Value."
Securities distributed by the Fund in kind will be selected by the Manager in
light of the Fund's objective and will not generally represent a PRO RATA
distribution of each security held in the Fund's portfolio. Investors may incur
brokerage charges on the sale of any such securities so received in payment of
redemptions.
The Trust may suspend the right of redemption and may postpone payment for
more than seven days when the New York Stock Exchange is closed for other than
weekends or holidays, or if permitted by the rules of the Securities and
Exchange Commission, during periods when trading on the Exchange is restricted
or during an emergency which makes it impracticable for the Funds to dispose of
their securities or to fairly determine the value of their net assets, or during
any other period permitted by the Securities and Exchange Commission for the
protection of investors.
EXCHANGE OF FUND SHARES
The Funds offer two convenient ways to exchange shares in one Fund for
shares of another Fund in the Trust. Shares of a particular class of a Fund may
be exchanged only for shares of the same class in another
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<PAGE>
Fund. There is no sales charge on exchanges. Before engaging in an exchange
transaction, a shareholder should read carefully the information in the
Prospectus describing the Fund into which the exchange will occur. A shareholder
may not exchange shares of a class of one Fund for shares of the same class of
another Fund that is not qualified for sale in the state of the shareholder's
residence. Although the Trust has no current intention of terminating or
modifying the exchange privilege, it reserves the right to do so at any time.
An exchange is taxable as a sale of a security on which a gain or loss may
be recognized. Shareholders should receive written confirmation of the exchange
within a few days of the completion of the transaction.
A new account opened by exchange must be established with the same name(s),
address and social security number as the existing account. All exchanges will
be made based on the respective net asset values next determined following
receipt of the request by the Funds containing the information indicated below.
EXCHANGE BY MAIL
To exchange Fund shares by mail, shareholders should simply send a letter of
instruction to the Trust. The letter of instruction must include: (a) the
investor's account number; (b) the class of shares to be exchanged; (c) the Fund
from and the Fund into which the exchange is to be made; (d) the dollar or share
amount to be exchanged; and (e) the signatures of all registered owners or
authorized parties.
EXCHANGE BY TELEPHONE
To exchange Fund shares by telephone or to ask questions about the exchange
privilege, shareholders may call the Trust at 1-800-447-3332. If you wish to
exchange shares, please be prepared to give the telephone representative the
following information: (a) the account number, social security number and
account registration; (b) the class of shares to be exchanged; (c) the name of
the Fund from which and the Fund into which the exchange is to be made; and (d)
the dollar or share amount to be exchanged. Telephone exchanges are available
only if the shareholder so indicates by checking the "yes" box on the Account
Application. The Trust employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. A Fund will not be liable for
acting upon instructions communicated by telephone that it reasonably believes
to be genuine. The Trust reserves the right to suspend or terminate the
privilege of exchanging by mail or by telephone at any time. The telephone
exchange privilege will be suspended for a period of 10 days following a
telephonic address change.
DETERMINATION OF NET ASSET VALUE
The net asset value of each class of shares of the Funds will be determined
once on each day on which the New York Stock Exchange is open as of 4:00 p.m.,
New York time. The net asset value per share of each class of a Fund is
determined by dividing the particular class's proportionate interest in the
total market value of the Fund's portfolio investments and other assets, less
any applicable liabilities, by the total outstanding shares of that class of the
Fund. Specifically, each Fund's liabilities are allocated among its classes. The
total of such liabilities allocated to a particular class plus that class's
shareholder servicing and/or distribution
35
<PAGE>
expenses, if any, and any other expenses specially allocated to that class are
then deducted from the class's proportionate interest in the Fund's assets. The
resulting amount for each class is divided by the number of shares of that class
outstanding to produce the "net asset value" per share.
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.
DISTRIBUTIONS
Each Fund intends to pay out as dividends substantially all of its net
investment income (which comes from dividends and any interest it receives from
its investments and net realized short-term capital gains). Each Fund also
intends to distribute substantially all of its net realized long-term capital
gains, if any, after giving effect to any available capital loss carryover. Each
Fund's policy is to declare and pay distributions of its dividends and interest
annually although it may do so more frequently as determined by the Trustees of
the Trust. The Funds' policy is to distribute net realized short-term capital
gains and net realized long-term gains annually, although it may do so more
frequently as determined by the Trustees of the Trust to the extent permitted by
applicable regulations.
All dividends and/or distributions will be paid out in the form of
additional shares of the Fund to which the dividends and/or distributions relate
at net asset value unless the shareholder elects to receive cash. Shareholders
may make this election by marking the appropriate box on the Account Application
or by writing to the Administrator.
If you elect to receive distributions in cash and checks (i) are returned
and marked as "undeliverable" or (ii) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.
TAXES
Each Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long as
a Fund distributes substantially all of its dividend, interest and certain other
income, its net realized short-term capital gains and its net realized long-term
capital gains to its shareholders and otherwise qualifies for the special rules
governing the taxation of regulated investment companies, the Fund itself will
not pay federal income tax on the amount distributed. Dividend distributions
(I.E., distributions derived from interest, dividends and certain other income,
including,
36
<PAGE>
in general, short-term capital gains) will be taxable to shareholders subject to
income tax as ordinary income. Distributions of any long-term capital gains
(generally taxed at a 20% rate) are taxable as such to shareholders subject to
income tax, regardless of how long a shareholder may have owned shares in such
Fund. A distribution paid to shareholders by a Fund in January of a year is
generally deemed to have been received by shareholders on December 31 of the
preceding year, if the distribution was declared and payable to shareholders of
record on a date in October, November or December of that preceding year. Some
1998 distributions of long-term capital gains recognized in 1997 may be subject
to tax at a 28% rate. Each Fund will provide federal tax information annually,
including information about dividends and distributions paid during the
preceding year.
If more than 50% of a Fund's assets at fiscal year-end is represented by
debt and equity securities of foreign corporations, the Fund may (and the Japan
Series and the International Small Capitalization Series intend to) elect to
permit shareholders who are U.S. citizens or U.S. corporations to claim a
foreign tax credit or deduction (but not both) on their U.S. income tax returns
for their pro rata portion of qualified taxes paid by the Fund to foreign
countries. As a result, the amounts of foreign income taxes paid by such Fund
would be treated as additional income to shareholders of such Fund for purposes
of the foreign tax credit. Each such shareholder would include in gross income
from foreign sources its pro rata share of such taxes. Certain limitations
imposed by the Internal Revenue Code may prevent shareholders from receiving a
full foreign tax credit or deduction for their allocable amount of such taxes.
The foregoing is a general summary of the federal income tax consequences of
investing in a Fund to shareholders who are U.S. citizens or U.S. corporations.
Shareholders should consult their own tax advisers about the tax consequences of
an investment in the Funds in light of each shareholder's particular tax
situation. Shareholders should also consult their own tax advisers about
consequences under foreign, state, local or other applicable tax laws.
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
The Trust is a diversified open-end series management investment company
organized as a Massachusetts business trust under the laws of The Commonwealth
of Massachusetts by an Agreement and Declaration of Trust dated April 1, 1988,
as amended (the "Declaration of Trust"). The U.S. Small Capitalization Series
commenced operations on or about September 13, 1988. The Japan Series commenced
operations on or about January 3, 1989. The International Small Capitalization
Series commenced operations on September 23, 1996.
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest which are presently divided
into five series. Interests in each of the Funds described in this Prospectus
are represented by shares of such Fund. The Declaration of Trust also permits
the Trustees, without shareholder approval, to subdivide any series of shares
into various sub-series of shares with such preferences and other rights as the
Trustees may designate. Although the Trustees have no current intention to
exercise this power, it is intended to allow them to provide for an equitable
allocation of the impact of any future regulatory requirements which might
affect various classes of shareholders differently. The Trustees may also,
without shareholder approval, establish one or more additional separate
portfolios for investments in the Trust, terminate a series of the Trust or
merge two or more existing portfolios. Shareholders' investments in such a
portfolio would be evidenced by a separate series of shares.
37
<PAGE>
The U.S. Small Capitalization Series is further divided into three classes
of shares designated as Institutional Shares, Adviser Shares and Select Shares.
The Japan Series and International Small Capitalization Series are further
divided into Institutional Shares and Select Shares. Each class of shares of
each Fund represents interests in the assets of that 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
Trustees' discretion, 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.
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. Matters submitted to shareholder vote must be approved
by each Fund separately except (i) when required by the 1940 Act, all shares
shall be voted together and (ii) when the Trustees have determined that the
matter does not affect all series, then only shareholders of the series affected
shall be entitled to vote on the matter. All three 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. Shares are freely transferable, are entitled to
dividends as declared by the Trustees and, in liquidation of a Fund portfolio,
are entitled to receive the net assets of that portfolio, but not of the other
portfolios. The Trust does not generally hold annual meetings of shareholders
and will do so only when required by law. Shareholders holding a majority of the
outstanding shares may remove Trustees from office by votes cast in person or by
proxy at a meeting of shareholders or by written consent.
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 each series of the Trust.
Shareholders could, under certain circumstances, be held personally liable
for the obligations of the Trust. However, the risk of a shareholder incurring
financial loss on account of that liability is considered remote since it may
arise only in very limited circumstances.
As of June 30, 1998, Rosenberg Institutional Equity Management may be deemed
to control the Institutional Shares of the Japan Series because it beneficially
owned, either directly or indirectly, more than 25% of such shares of such Fund.
OTHER INFORMATION
The Funds' investment performance may from time to time be included in
advertisements about the Funds. Total return for a Fund is measured by comparing
the value of an investment in a Fund at the beginning of the relevant period to
the redemption value of the investment in such Fund at the end of such period
(assuming immediate reinvestment of any dividends or capital gain
distributions). All data are based
38
<PAGE>
on the Funds' past investment results and do not predict future performance.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with a
Fund's investment objective and policies. These factors should be considered
when comparing a Fund's investment results with those of other mutual funds and
other investment vehicles. Quotations of investment performance for any period
when an expense limitation was in effect will be greater than if the limitation
had not been in effect.
SHAREHOLDER INQUIRIES
Shareholders may direct inquiries to the Trust at Barr Rosenberg Series
Trust, P.O. Box 182495, Columbus, Ohio 43219-2495.
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<PAGE>
SHAREHOLDER SERVICES
1-800-555-5737 (INSTITUTIONAL SHARE CUSTOMERS)
1-800-447-3332 (ADVISER AND SELECT SHARE CUSTOMERS)
Additional Information may be found on the
World Wide Web at http://riem.com
BARR ROSENBERG SERIES TRUST
3435 Stelzer Road
Columbus, OH 43219
MANAGER
Rosenberg Institutional Equity Management
Four Orinda Way, Building E
Orinda, CA 94563
ADMINISTRATOR, TRANSFER AND
DIVIDEND-PAYING AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
DISTRIBUTOR
Barr Rosenberg Funds Distributor, Inc.
90 Park Avenue
New York, NY 10016
CUSTODIAN OF ASSETS
State Street Bank and Trust Company
Mutual Funds Division
Boston, MA 02102
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
555 California Street
San Francisco, CA 94104
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110-2624
BRG-0036
B a r r
R o s e n b e r g
S e r i e s
T r u s t
- - U.S. Small Capitalization Series
- - Japan Series
- - International Small Capitalization Series
Prospectus
July 29, 1998
<PAGE>
BARR ROSENBERG SERIES TRUST
U.S. SMALL CAPITALIZATION SERIES
INTERNATIONAL SMALL CAPITALIZATION SERIES
JAPAN SERIES
STATEMENT OF ADDITIONAL INFORMATION
JULY 29, 1998
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the prospectus of the U.S. Small
Capitalization Series, Japan Series and International Small Capitalization
Series of Barr Rosenberg Series Trust dated July 29, 1998 and should be read in
conjunction therewith. A copy of the Prospectus may be obtained from Barr
Rosenberg Series Trust, 3435 Stelzer Road, Columbus, Ohio 43219.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . .3
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . . . . .6
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
INCOME DIVIDENDS, DISTRIBUTIONS AND TAX STATUS . . . . . . . . . . . . . . . .9
MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . . . 13
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
TOTAL RETURN CALCULATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 18
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES . . . . . . . . . . . . . . 20
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . 26
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . 26
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
-2-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each of the U.S. Small
Capitalization Series, International Small Capitalization Series and Japan
Series (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."
The following is an additional description of certain investments and/or
policies of the Fund(s).
INDEX FUTURES (ALL FUNDS). An index futures contract (an "Index Future")
is a contract to buy or sell an integral number of units of an Index at a
specified future date at a price agreed upon when the contract is made. A unit
is the value of the relevant 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 an Index.
Index Futures contracts can be traded through all major commodity brokers.
Currently, contracts are expected to expire on the tenth day of March, June,
September and December. A 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.
As noted in the Prospectus, upon entering into a futures contract, a Fund
will be required to deposit initial margin with its custodian in a segregated
account in the name of the futures broker. Variation margin will be paid to and
received from the broker on a daily basis as the contracts are marked to market.
For example, when a Fund has purchased an Index Future and the price of the
relevant Index has risen, that position will have increased in value and the
Fund will receive from the broker a variation margin payment equal to that
increase in value. Conversely, when a Fund has purchased an Index Future and
the price of the relevant Index has declined, the position would be less
valuable and the Fund would be required to make a variation margin payment to
the broker.
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 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.
In addition, with respect to the Japan Series, trading hours for Index Futures
may not correspond perfectly to hours of trading on the Tokyo Stock Exchange.
This may result in a disparity between the price of Index Futures and the value
of the underlying Index due to the lack of continuous arbitrage between the
Index Futures price and the value of the underlying Index.
FOREIGN CURRENCY TRANSACTIONS (INTERNATIONAL SMALL CAPITALIZATION SERIES
AND JAPAN SERIES). As is disclosed in the Prospectus following the heading
"General Description of Risks and Fund Investments," the Funds do not currently
intend to hedge the foreign currency risk associated with investments in
securities denominated in foreign currencies. However, the Funds reserve the
right to buy or sell foreign currencies or to deal in forward foreign currency
contracts to hedge against possible variations in foreign exchange rates pending
the settlement of securities transactions. The Funds also reserve the right to
use currency futures contracts and related options thereon for similar purposes.
By entering into a futures or forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign currency involved in the
underlying security transactions, a Fund will be able to protect itself against
a possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the date
on which the security is purchased or sold and the date on which payment is made
or received. A Fund's dealing in forward contracts will be limited to this type
of transaction. A Fund will not engage in currency futures transactions for
leveraging purposes. A put option on a futures contract gives a Fund the right
to assume a short position in the futures contract until the expiration of the
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option. A call option on a futures contract gives a Fund the right to assume a
long position in the futures contract until the expiration of the option.
CURRENCY FORWARD CONTRACTS (INTERNATIONAL SMALL CAPITALIZATION SERIES AND
JAPAN SERIES). A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract as agreed by the
parties, at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right to cancel the
contract at maturity by paying a specified fee. The contracts traded in the
interbank market are negotiated directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
CURRENCY FUTURES TRANSACTIONS (INTERNATIONAL SMALL CAPITALIZATION SERIES
AND JAPAN SERIES). A currency futures contract sale creates an obligation by
the seller to deliver the amount of currency called for in the contract in a
specified delivery month for a stated price. A currency futures contract
purchase creates an obligation by the purchaser to take delivery of the
underlying amount of currency in a specified delivery month at a stated price.
Futures contracts are traded only on commodity exchanges -- known as "contract
markets" -- approved for such trading by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures commission merchant,
or brokerage firm, which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or
acceptance, in most cases the contracts are closed out before the settlement
date without the making or taking of delivery. Closing out a futures contract
sale is effected by purchasing a futures contract for the same aggregate amount
of the specific type of financial instrument or commodity and the same delivery
date. If the price of the initial sale of the futures contract exceeds the
price of the offsetting purchase, the seller is paid the difference and realizes
a gain. Conversely, if the price of the offsetting purchase exceeds the price
of the initial sale, the seller realizes a loss. Similarly, the closing out of
a futures contract purchase is effected by the purchaser entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
purchaser realizes a gain, and if the purchase price exceeds the offsetting sale
price, the purchaser realizes a loss.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead,
an amount of cash or U.S. Treasury bills generally not exceeding 5% of the
contract amount must be deposited with the broker. This amount is known as
initial margin. Subsequent payments to and from the broker, known as variation
margin, are made on a daily basis as the price of the underlying futures
contract fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as "marking to the market." At any time
prior to the settlement date of the futures contract, the position may be closed
out by taking an opposite position which will operate to terminate the position
in the futures contract. A final determination of variation margin is then
made, additional cash is required to be paid to or released by the broker, and
the purchaser realizes a loss or gain. In addition, a commission is paid on
each completed purchase and sale transaction.
Unlike a currency futures contract, which requires the parties to buy and
sell currency on a set date, an option on a futures contract entitles its holder
to decide on or before a future date whether to enter into such a contract. If
the holder decides not to enter into the contract, the premium paid for the
option is lost. Since the value of the option is fixed at the point of sale,
there are no daily payments of cash in the nature of "variation" or
"maintenance" margin payments to reflect the change in the value of the
underlying contract as there are by a purchaser or seller of a currency futures
contract.
The ability to establish and close out positions on options on futures will
be subject to the development and maintenance of a liquid secondary market. It
is not certain that this market will develop or be maintained.
The Funds will write (sell) only covered put and call options on currency
futures. This means that a Fund
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will provide for its obligations upon exercise of the option by segregating
sufficient cash or short-term obligations or by holding an offsetting position
in the option or underlying currency future, or a combination of the foregoing.
Set forth below is a description of methods of providing cover that the Funds
currently expect to employ, subject to applicable exchange and regulatory
requirements. If other methods of providing appropriate cover are developed, a
Fund reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements.
A Fund will, so long as it is obligated as the writer of a call option on
currency futures, own on a contract-for-contract basis an equal long position in
currency futures with the same delivery date or a call option on currency
futures with the difference, if any, between the market value of the call
written and the market value of the call or long currency futures purchased
maintained by the Fund in cash, U.S. Government securities, or other high-grade
liquid debt obligations in a segregated account with its custodian. If at the
close of business on any day the market value of the call purchased by a Fund
falls below 100% of the market value of the call written by the Fund, the Fund
will so segregate an amount of cash, U.S. Government securities, or other
high-grade liquid debt obligations equal in value to the difference.
Alternatively, a Fund may cover the call option through segregating with its
custodian an amount of the particular foreign currency equal to the amount of
foreign currency per futures contract option times the number of options written
by the Fund.
In the case of put options on currency futures written by a Fund, the Fund
will hold the aggregate exercise price in cash, U.S. Government securities, or
other high-grade liquid debt obligations in a segregated account with its
custodian, or own put options on currency futures or short currency futures,
with the difference, if any, between the market value of the put written and the
market value of the puts purchased or the currency futures sold maintained by
the Fund in cash, U.S. Government securities, or other high-grade liquid debt
obligations in a segregated account with its custodian. If at the close of
business on any day the market value of the put options purchased or the
currency futures sold by a Fund falls below 100% of the market value of the put
options written by the Fund, the Fund will so segregate an amount of cash, U.S.
Government securities, or other high-grade liquid debt obligations equal in
value to the difference.
A Fund may not enter into currency futures contracts or related options
thereon if immediately thereafter the amount committed to margin plus the amount
paid for premiums for unexpired options on currency futures contracts exceeds 5%
of the market value of the Fund's total assets.
LIMITATIONS ON THE USE OF CURRENCY FUTURES CONTRACTS (INTERNATIONAL SMALL
CAPITALIZATION SERIES AND JAPAN SERIES). A Fund's ability to engage in the
currency futures transactions described above will depend on the availability of
liquid markets in such instruments. Markets in currency futures are relatively
new and still developing. It is impossible to predict the amount of trading
interest that may exist in various types of currency futures. Therefore no
assurance can be given that a Fund will be able to utilize these instruments
effectively for the purposes set forth above. Furthermore, a Fund's ability to
engage in such transactions may be limited by tax considerations.
RISK FACTORS IN CURRENCY FUTURES TRANSACTIONS (INTERNATIONAL SMALL
CAPITALIZATION SERIES AND JAPAN SERIES). Investment in currency futures
contracts involves risk. Some of that risk may be caused by an imperfect
correlation between movements in the price of the futures contract and the price
of the currency being hedged. The hedge will not be fully effective where there
is such imperfect correlation. To compensate for imperfect correlations, a Fund
may purchase or sell futures contracts in a greater amount than the hedged
currency if the volatility of the hedged currency is historically greater than
the volatility of the futures contracts. Conversely, a Fund may purchase or
sell fewer contracts if the volatility of the price of the hedged currency is
historically less than that of the futures contracts. The risk of imperfect
correlation generally tends to diminish as the maturity date of the futures
contract approaches.
The successful use of transactions in futures and related options also
depends on the ability of the Manager to forecast correctly the direction and
extent of exchange rate and stock price movements within a given time frame.
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It is impossible to forecast precisely what the market value of securities a
Fund anticipates buying will be at the expiration or maturity of a currency
forward or futures contract. Accordingly, in cases where a Fund seeks to
protect against an increase in value of the currency in which the securities are
denominated through a foreign currency transaction, it may be necessary for the
Fund to purchase additional foreign currency on the spot market (and bear the
expense of such currency purchase) if the market value of the securities to be
purchased is less than the amount of foreign currency the Fund contracted to
purchase. Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the value
of the securities purchased. When a Fund purchases forward or futures contracts
(or options thereon) to hedge against a possible increase in the price of
currency in which is denominated the securities the Fund anticipates purchasing,
it is possible that the market may instead decline. If a Fund does not then
invest in such securities because of concern as to possible further market
decline or for other reasons, the Fund may realize a loss on the forward or
futures contract that is not offset by a reduction in the price of the
securities purchased. As a result, a Fund's total return for such period may be
less than if it had not engaged in the forward or futures transaction.
Foreign currency transactions that are intended to hedge the value of
securities a Fund contemplates purchasing do not eliminate fluctuations in the
underlying prices of those securities. Rather, such currency transactions
simply establish a rate of exchange which can be used at some future point in
time. Additionally, although these techniques tend to minimize the risk of loss
due to a change in the value of the currency involved, they tend to limit any
potential gain that might result from the increase in the value of such
currency.
The amount of risk a Fund assumes when it purchases an option on a currency
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The liquidity of a secondary market in a currency futures contract may be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges which limit the amount of fluctuation in a futures contract price
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. Prices have in the past
exceeded the daily limit on a number of consecutive trading days.
A Fund's ability to engage in currency forward and futures transactions may
be limited by tax considerations.
WARRANTS (JAPAN SERIES). The Japan Series may from time to time purchase
warrants; however, not more than 5% of its net assets (at the time of purchase)
will be invested in warrants other than warrants acquired in units or attached
to other securities. Of such 5%, not more than 2% of such net assets at the
time of purchase may be invested in warrants that are not listed on the New York
Stock Exchange or American Stock Exchange. Warrants have no voting rights, pay
no dividends and have no rights with respect to the assets of the corporation
issuing them. Warrants represent options to purchase equity securities of an
issuer at a specific price for a specific period of time. They do not represent
ownership of such securities, but only the right to buy them.
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 the 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. The portfolio turnover rate for the U.S. Small
Capitalization Series for the fiscal years ended March 31, 1997 and 1998 was
126.83% and 77.70%, respectively. The portfolio turnover rate for the Japan
Series for the fiscal years ended March 31, 1997 and 1998 was 51.70% and
102.13%,
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respectively. The portfolio turnover rate for the International Small
Capitalization Series for the period ended March 31, 1997 and for the fiscal
year ended March 31, 1998 was 6.71% and 77.72%, respectively. As disclosed in
the Prospectus, high portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs, which will be borne directly
by the Fund, 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 "Income
Dividends, Distributions and Tax Status" and "Portfolio Transactions."
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.
(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, 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. With respect to the
International Small Capitalization Series and the Japan Series, 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 for the
Fund's account unless at all times when a short position is open the Fund owns
an equal amount of such securities or owns securities which, without payment of
any further consideration, are convertible into or exchangeable for securities
of the same issue as, and equal in amount to, the securities sold short.
(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.
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(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"). Under the 1940 Act, no registered investment company may generally (a)
invest more than 10% of its total assets (taken at current value) in securities
of other investment companies, (b) own securities of any one investment company
having a value in excess of 5% of its total assets (taken at current value), or
(c) own more than 3% of the outstanding voting stock of any one investment
company.)
(9) Purchase or sell commodities or commodity contracts except that each
of the Funds may purchase and sell foreign currency, currency futures contracts
and options thereon, 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; any collateral arrangements with respect to options,
future contracts and options on future contracts and with respect to initial and
variation margin; and the purchase or sale of options, forward contracts, future
contracts or options on future contracts.)
Notwithstanding the latitude permitted by Restrictions 1, 2, 3, 4 and 9
above, the Funds have no current intention of (a) borrowing money, (b)
purchasing interest rate futures or (c) entering into short sales.
It is contrary to the present policy of each Fund, which may be changed by
the Trustees of the Trust without shareholder approval, to:
(a) With the exception of the Japan Series, 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 or currencies).
(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, (b) securities the disposition of which is restricted under
the federal securities laws, and (c) 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 securities described in (a), (b) and
(c) above.
(f) With respect to 75% of its total assets, invest in a security if, as a
result of such investment, it would hold more than 10% (taken at the time of
such investment) of the outstanding voting securities of any one issuer, except
that this restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
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.
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
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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 headings "Distributions" "Taxes."
The Funds intend to qualify each year as a regulated investment company under
the Internal Revenue Code of 1986, as amended. 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
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.
The Japan Series and the International Small Capitalization Series may be
subject to foreign withholding taxes on income and gains derived from foreign
investments. Such taxes would reduce the yield on such Funds' investments, but,
as discussed in the Prospectus, may be taken as either a deduction or a credit
by U.S. citizens and corporations. Investment by either Fund in certain
"passive foreign investment companies" could subject the Fund to a U.S. federal
income tax or other charge on distributions received from, or on the sale of its
investment in, such a company. Such a tax cannot be eliminated by making
distributions to Fund shareholders. A Fund may avoid this tax by making an
election to mark such securities to the market annually. Alternatively, where
it is in a position to do so, a Fund may elect to treat a passive foreign
investment company as a "qualified electing fund," in which case different rules
will apply, although the Funds generally do not expect to be in the position to
make such elections.
As described in the Prospectus under the heading "Distributions," each Fund
intends to pay out substantially all of its ordinary income and net realized
short-term capital gains, and to distribute substantially all of its net
realized capital gains, if any, after giving effect to any available capital
loss carryover. Net realized capital gain is the excess of net realized
long-term capital gain over net realized short-term capital loss. Under the Tax
Reform Act of 1986, 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 and
long-term capital gain distributions are taxable to investors as long-term
capital gains (generally taxed at 20%), whether such dividends or
distributions are received in shares or cash. Some 1998 distributions of
long-term capital gains recognized in 1997 may be taxed at 28%. The Fund
generally does not expect its dividends to be eligible for dividends-received
deduction for corporations.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely
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to occur in respect of shares purchased at a time when a Fund's net asset
value reflects gains that are either unrealized, or realized but not
distributed.
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 all dividends from net investment income and capital gain 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). In addition, the Fund will
generally be required to withhold and remit to the U.S. Treasury 31% of the
amount of the proceeds of any redemption of Fund shares from a shareholder
account for which an incorrect or no taxpayer identification number has been
provided. However, the general back-up withholding rules set forth above will
not apply to tax exempt entities so long as each such entity furnishes the Fund
with an appropriate certificate.
The Internal Revenue Service recently revised its regulations affecting the
application to foreign investors of the back-up withholding and withholding tax
rules described above. The new regulations will generally be effective for
payments made after December 31, 1999 (although transition rules will apply).
In some circumstances, the new rules will increase the certification and filing
requirements imposed on foreign investors in order to qualify for exemption from
the 31% back-up withholding tax and for reduced withholding tax rates under
income tax treaties. Foreign investors in the Fund should consult their tax
advisors with respect to the potential application of these new regulations.
To the extent such investments are permissible for a particular Fund, the
Fund's transactions in options, futures contracts, hedging transactions, forward
contracts, straddles and foreign currencies will be subject to special tax rules
(including mark-to-market, straddle, wash sale, constructive 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.
THE TAX DISCUSSION SET FORTH ABOVE IS A SUMMARY INCLUDED FOR GENERAL
INFORMATION PURPOSES ONLY. EACH SHAREHOLDER IS ADVISED TO CONSULT ITS OWN TAX
ADVISOR 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. THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING.
MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust and their principal occupations
during the past five years are as follows:
Kenneth Reid* (48) General Partner and Director of Research,
President, Trustee Rosenberg Institutional Equity Management, June
1986 to present.
Marlis S. Fritz* (48) General Partner and Director of Marketing,
Vice President, Trustee Rosenberg Institutional Equity Management, April
1985 to present.
Nils H. Hakansson (61) Sylvan C. Coleman Professor of Finance and
Trustee Accounting, Haas School of Business, University of
California, Berkeley, June 1969 to present.
Director, Supershare
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Services Corporation Los Angeles, California,
(investment management), November 1989 to present.
Barr M. Rosenberg* (55) Managing General Partner and Chief Investment
Trustee Officer, Rosenberg Institutional Equity
Management, January 1985 to present.
William F. Sharpe (64) STANCO 25 Professor of Finance, Stanford
Trustee University. Chairman, Financial Engines
Incorporated, Los Altos, California (electronic
investment advice), March 1986 to present.
Po-Len Hew (32) Accounting Manager, Rosenberg Institutional Equity
Treasurer Management, October 1989 to present.
Carolyn Demler (54) Administrative Coordinator, Rosenberg
Clerk Institutional Equity Management, December 1988 to
present.
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Edward H. Lyman (54) Executive Vice President, Barr Rosenberg
Vice President Investment Management, Inc., and General Counsel
to the Rosenberg Group of companies, 1990 to
present.
Richard L. Saalfeld (55) President and Chief Executive Officer of mutual
Vice President fund unit of Rosenberg Institutional Equity
Management from June 1996 to 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.
F. William Jump, Jr. (42) Portfolio engineer, Rosenberg Institutional Equity
Vice President Management, August 1990 to present.
Harold L. Arbit (51) Vice President and Partner, Rosenberg Alpha L.P.,
Vice President 1984 to present.
- -----------------
* 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, 1998:
<TABLE>
<CAPTION>
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated Annual from Registrant
Name of Person Compensation as Part of Fund Benefits Upon and Fund Complex
Position from Registrant Expenses Retirement Paid to Directors
- -------------- --------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Nils H. Hakansson
Trustee $42,487.50 $ 0 $ 0 $42,487.50
William F. Sharpe
Trustee $42,487.50 $ 0 $ 0 $42,487.50
</TABLE>
Messrs. Rosenberg, Reid, Arbit, Lyman, Saalfeld and Jump 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.
INVESTMENT ADVISORY AND OTHER SERVICES
MANAGEMENT CONTRACTS. 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
-12-
<PAGE>
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 certain bookkeeping and 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.
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 such Fund's total annual operating expenses (which do not
include nonrecurring account fees and extraordinary expenses) applicable to each
class will not exceed the percentage of such 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 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.
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.
During the last three fiscal years, the U.S. Small Capitalization Series
has paid the following amounts as management fees to the Manager pursuant to its
Management Contract:
<TABLE>
<CAPTION>
PERIOD GROSS REDUCTION NET
------ ----- --------- ---
<S> <C> <C> <C>
4/1/95 -3/31/96 $514,386 $157,913 $356,473
4/1/96 -3/31/97 $544,082 $307,646 $236,436
4/1/97 -3/31/98 $2,571,254 $206,166 $2,565,088
</TABLE>
During the last three fiscal years, the Japan Series has paid the following
amounts as management fees to the Manager pursuant to its Management Contract:
-13-
<PAGE>
<TABLE>
<CAPTION>
PERIOD GROSS REDUCTION NET
------ ----- --------- ---
<S> <C> <C> <C>
4/1/95 -3/31/96 $ 12,093 $ 12,093 -0-
4/1/96 -3/31/97 $ 12,153 $ 12,153 -0-
4/1/97 -3/31/98 $ 10,618 $ 10,618 -0-
</TABLE>
For the period from September 23, 1996 (inception date) to March 31, 1997
and the fiscal year ended March 31, 1998, the International Small Capitalization
Series has paid the following amounts as management fees to the Manager pursuant
to its Management Contract:
<TABLE>
<CAPTION>
PERIOD GROSS REDUCTION NET
------ ----- --------- ---
<S> <C> <C> <C>
9/23/96 -3/31/97 $ 35,711 $ 35,711 -0-
4/1/97 -3/31/98 $245,559 $221,059 $24,500
</TABLE>
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 adviser, 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. For the fiscal year ended March
31, 1997, the U.S. Small Capitalization Series, Japan Series and the
International Small Capitalization Series paid $81,281, $1,535 and $5,357 in
administration fees, respectively. For the fiscal year ended March 31, 1998,
the Administrator was entitled to receive $428,543, $1,593 and $36,834 in
administration fees from the U.S. Small Capitalization Series, Japan Series
and International Small Capitalization Series, respectively. The
Administrator waived fees of $142,850, $1,593 and $23,451, from the U.S.
Small Capitalization Series, Japan Series and International Small
Capitalization Series, respectively.
The Trust has also entered into a Fund Accounting Agreement with the
Administrator 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. For the fiscal year ended
March 31, 1997 the U.S. Small Capitalization Series, Japan Trust and the
International Small Capitalization Series paid $61,341, $35,771 and $63,686
in fund accounting fees, respectively. For the fiscal year ended March 31,
1998, the Fund Accountant was entitled to $76,889, $35,288 and $103,482 in
fund accounting fees from the U.S. Small Capitalization Series, Japan Series
and International Small Capitalization Series, respectively. The Fund
Accountant waived fees of $7,500, $7,500 and $7,500, from the U.S. Small
Capitalization Series, Japan Series and International Small Capitalization
Series, respectively.
DISTRIBUTOR AND DISTRIBUTION PLAN. As stated in the Prospectus under
the heading "Management of the Trust -- Distributor," Adviser Shares of the
U.S. Small Capitalization Series and Select Shares of each Fund are sold on a
continuous basis by the Trust's distributor, Barr Rosenberg Funds
Distributor, Inc. (the "Distributor"). The Distributor is an affiliate of
the Administrator and Fund Accountant. 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 Select Shares of the Trust, the
Distributor receives certain distribution fees from the Trust. Subject to the
-14-
<PAGE>
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 each such class 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 Distributor did not charge any distribution fees to
the Trust through the fiscal year ended March 31, 1997. For the fiscal year
ended March 31, 1998, the U.S. Small Capitalization Series, Japan Series and
International Small Capitalization Series incurred distribution expenses in the
amount of $64,573, $154 and $2,457, respectively. Of these amounts the
Distributor retained $19,895, $56 and $575 and waived $36,584, $98 and $1,360
for the U.S. Small Capitalization Series, Japan Series and International Small
Capitalization Series, respectively. The Distributor paid to broker-dealers and
other selling and/or servicing institutions the amounts of $8,094, $0 and $522
for the U.S. Small Capitalization Series, Japan Series and International Small
Capitalization Series, respectively, from the distribution expenses incurred by
the Funds.
The Plan may be terminated with respect to Select Shares by vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust 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 Select Shares requires
approval by holders of Select Shares. The 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 that 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
class of 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 Plan and the Distributor's Contract 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 Plan or the Distributor's Contract 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 of the Trust believe that the Plan will result in
greater sales and/or fewer redemptions of Select Shares, although it is
impossible to know for certain the level of sales and redemptions of Select
Shares that would occur in the absence of the Plan or under alternative
distribution schemes. The Trustees of the Trust believe that the effect on
sales and/or redemptions benefit the Trust by reducing Fund expense ratios
and/or by affording greater flexibility to the Trust.
CUSTODIAL ARRANGEMENTS. State Street Bank and Trust Company ("State Street
Bank"), Boston, Massachusetts 02102, is the Trust's custodian. As such, State
Street Bank 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, State Street Bank
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. State Street Bank has also contracted
with certain foreign banks and depositories to hold portfolio securities outside
of the United States on behalf of the Trust.
INDEPENDENT ACCOUNTANTS. The Trust's independent accountants are
PricewaterhouseCoopers LLP, 555 California Street, San Francisco, California
94104. PricewaterhouseCoopers LLP conducts an annual audit of the
-15-
<PAGE>
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. 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 pro
rata 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 such 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.
The U.S. Small Capitalization Series paid brokerage commissions in the
amounts of $220,066 for the fiscal year ended March 31, 1996, $235,162 for the
fiscal year ended March 31, 1997 and $1,096,445 for the fiscal year ended March
31, 1998. The increase in brokerage commissions incurred during the fiscal year
ended March 31, 1998 was due to an increase in the assets of the U.S. Small
Capitalization Series.
-16-
<PAGE>
The Japan Series paid brokerage commissions in the amounts of $6,509 for
the fiscal year ended March 31, 1996, $2,266 for the fiscal year ended March 31,
1997 and $3,750 for the fiscal year ended March 31, 1998.
The Japan Series may pay brokerage commissions to Nomura Securities
Company, Inc. ("Nomura Securities"), which may be deemed to be an "affiliate of
an affiliate" of the Trust, for acting as the Fund's agent on purchases and
sales of securities for the portfolio of the Fund. Securities and Exchange
Commission rules require that commissions paid to an affiliate of an affiliate
by the Fund for portfolio transactions not exceed "usual and customary"
brokerage commissions. The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time." The
Trustees, including those who are not "interested persons" of the Trust, have
adopted procedures for evaluating the reasonableness of commissions paid to
Nomura Securities and will review these procedures periodically. The Fund did
not pay any brokerage commissions to Nomura Securities during its fiscal years
ended March 31, 1996, March 31, 1997 and March 31, 1998.
The International Small Capitalization Series paid brokerage commissions in
the amount of $32,340 for the period from September 23, 1996 (inception date) to
March 31, 1997 and $100,120 for the fiscal year ended March 31, 1998.
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 invested in a particular
share class to the ending redeemable value of such investment in such 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
investment made at the beginning of a period at the end
of such period
P = A hypothetical initial investment of $1,000
n = Number of years
Each Fund computes its cumulative total return separately for its share
classes by determining the cumulative rates of return during specified periods
that would equate the initial amount invested in a particular share class to the
ending redeemable value of such investment in the class, according to the
following formula:
T = ERV-1,000
---------
1,000
Where:
T = Cumulative rate of return
ERV = Ending redeemable value of a hypothetical $1,000
investment made at the beginning of a period at the end
of such period.
The calculations of average annual total return and cumulative total return
assume that any dividends and distributions are reinvested immediately, rather
than paid to the investor in cash. The ending redeemable value (variable "ERV"
in each 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.
-17-
<PAGE>
Unlike bank deposits or other investments that pay a fixed yield or return
for a stated period of time, the return for a Fund will fluctuate from time to
time and does not provide a basis for determining future returns. Average
annual total return and cumulative total return are based on many factors,
including market conditions, the composition of a Fund's portfolio and a Fund's
operating expenses.
Average annual total return and cumulative return are calculated separately
for Select Shares, Adviser Shares and Institutional Shares. Select Shares,
Adviser Shares and Institutional Shares are subject to different fees and
expenses and may have different performance for the same period.
The average annual total returns for each of the Funds for periods ended
March 31, 1998 were as follows:
<TABLE>
<CAPTION>
U.S. SMALL CAPITALIZATION SERIES
4/1/93 4/1/95 4/1/97 INCEPTION DATE
INCEPTION DATE TO 3/31/98 TO 3/31/98 TO 3/31/98 TO 3/31/98
-------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Institutional Shares 2/22/89 24.38% 32.97% 44.95% 18.68%
Select Shares 10/22/96 -- -- 44.42% 35.19%
Adviser Shares 1/21/97 -- -- 44.50% 32.63%
<CAPTION>
JAPAN SERIES
4/1/93 4/1/95 4/1/97 INCEPTION DATE
INCEPTION DATE TO 3/31/98 TO 3/31/98 TO 3/31/98 TO 3/31/98
-------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Institutional Shares 1/3/89 -6.82% -18.76% -23.87% -6.58%
Select Shares 10/22/96 -- -- -24.03% -30.87%
<CAPTION>
INTERNATIONAL SMALL CAPITALIZATION SERIES
4/1/97 INCEPTION DATE
INCEPTION DATE TO 3/31/98 TO 3/31/98
-------------- ---------- ----------
<S> <C> <C> <C>
Institutional Shares 9/23/96 2.51% 2.52%
Select Shares 10/29/96 2.22% 2.20%
</TABLE>
The cumulative total returns for each of the Funds for periods ended
March 31, 1998 were as follows:
<TABLE>
<CAPTION>
U.S. SMALL CAPITALIZATION SERIES
4/1/93 4/1/95 4/1/97 INCEPTION DATE
INCEPTION DATE TO 3/31/98 TO 3/31/98 TO 3/31/98 TO 3/31/98
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Institutional Shares 2/22/89 197.68% 135.09% 44.95% 375.84%
Select Shares 10/22/96 -- -- 44.42% 54.30%
Adviser Shares 1/21/97 -- -- 44.50% 39.80%
<CAPTION>
JAPAN SERIES
4/1/93 4/1/95 4/1/97 INCEPTION DATE
INCEPTION DATE TO 3/31/98 TO 3/31/98 TO 3/31/98 TO 3/31/98
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Institutional Shares 1/3/89 -29.76% -46.38% -23.87% -46.68%
Select Shares 10/22/96 -- -- -24.03% -41.19%
-18-
<PAGE>
<CAPTION>
INTERNATIONAL SMALL CAPITALIZATION SERIES
4/1/97 INCEPTION DATE
INCEPTION DATE TO 3/31/98 TO 3/31/98
-------------- ---------- -----------
<S> <C> <C> <C>
Institutional Shares 9/23/96 2.51% 3.84%
Select Shares 10/29/96 2.22% 3.14%
</TABLE>
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 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 local 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 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 U.S. Small Capitalization Series, International Small
Capitalization Series, Japan Series, Barr Rosenberg Market Neutral Fund and Barr
Rosenberg Double Alpha Market Fund, 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, the U.S. Small Capitalization Series is
further divided into three classes of shares designated as Institutional Shares,
Adviser Shares and Select Shares and the Japan Series and International Small
Capitalization Series are further divided into Institutional Shares and Select
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
-19-
<PAGE>
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 each series 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 series on all matters except (i) when required by the
1940 Act, shares shall be voted in the aggregate and not by individual series,
and (ii) when the Trustees have determined that the matter affects only the
interests of one or more series, then only shareholders of such series shall be
entitled to vote thereon. Shareholders of one series shall not be entitled to
vote on matters exclusively affecting another series, such matters including,
without limitation, the adoption of or change in any fundamental policies or
restrictions of the other series and the approval of the investment advisory
contracts of the other series.
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 series for
all loss and expense of any shareholder of that series held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring
financial
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<PAGE>
loss on account of shareholder liability is considered remote since it is
limited to circumstances in which the disclaimer is inoperative and the series
of which he is or was a shareholder would be unable to meet its obligations.
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.
OWNERS OF 5% OR MORE OF A FUND'S SHARES. The following chart sets
forth the names, addresses and percentage ownership of those shareholders
owning beneficially and of record (except as otherwise indicated) 5% or more
of the outstanding shares of the U.S. Small Capitalization Series as of June
30, 1998:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OWNERSHIP
OF OWNER OF THE FUND
- ----------------- --------------------
<S> <C>
INSTITUTIONAL SHARES:
Charles Schwab & Co. Inc. 36.85%*
For the Exclusive Use of Our Customers
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
The Evangelical Lutherans 5.54%
For Jeanie Seto
c/o Boston Safe Deposit Trust
Attn Scott Berard
1 Cabot Road
Medford, MA 02155-5158
SELECT SHARES:
Charles Schwab & Co Inc. 34.55%*
For the Exclusive Use of Our Customers
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
ADVISER SHARES:
Prudential Securities 33.06%*
For Exclusive Benefit of Our Customers
Attn Mutual Funds
1 New York Plaza
New York, NY 10292
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<PAGE>
Smith Barney Inc. 17.07%
333 W. 34th Street 7th Floor
New York, NY 10001
FTC and Co. 12.84%
Attn Datalynx House Account
P.O. Box 173736
Denver CO 80217-3736
</TABLE>
* Record ownership only
The following chart sets forth the names, addresses and percentage
ownership of those shareholders owning beneficially and of record (except as
otherwise indicated) 5% or more of the outstanding shares of the Japan Series
as of June 30, 1998:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OWNERSHIP
OF OWNER OF THE FUND
- ----------------- --------------------
<S> <C>
INSTITUTIONAL SHARES:
Rosenberg Institutional 87.21%
Equity Management
4 Orinda Way, Suite 300E
Orinda, CA 94563
Koko M Baker 7.83%
c/o Rosenberg Institutional Equity Management
4 Orinda Way
Orinda, CA 94563
SELECT SHARES:
Donaldson Lufkin Jenrette Securities Corporation 44.52%
P.O. Box 2052
Jersey City, NJ 07303-9998
Fifth Third Bank, Custodian 18.51%
Arthur Y Lyss, IRA
1400 N Woodward Ave., 100
Bloomfield, MI 48304
Sandra B. Cook 11.62%
Trst Sandra B. Cook Family Trust
U/A dtd 08-23-84
1550 Oakland Avenue
Piedmont, CA 94611
National Investor Services Corp. 9.18%
For the Exclusive Benefit of Our Customers
55 Water Street 32nd Floor
New York, NY 10041-3299
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<PAGE>
Henry Crew 9.00%
2558 Idaho Street, Apt 71
Elko, NV 98901
</TABLE>
* Record ownership only
As of June 30, 1998, Rosenberg Institutional Equity Management, a
California limited partnership, may be deemed to control the Institutional
Shares of the Japan Series because it beneficially owned more than 25% of such
shares. As a result, it may not be possible for matters subject to a vote of
a majority of the outstanding voting securities of the Fund to be approved
without the affirmative vote of such shareholder, and it may be possible for
such matters to be approved by such shareholder without the affirmative vote
of any other shareholder.
The following chart sets forth the names, addresses and percentage
ownership of those shareholders owning of record 5% or more of the
outstanding shares of the International Small Capitalization Series as of
June 30, 1998:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE OWNERSHIP
OF OWNER OF THE FUND
- ----------------- --------------------
<S> <C>
INSTITUTIONAL SHARES:
Charles Schwab & Co. Inc. 90.419%
For the Exclusive Use of Our Customers
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
SELECT SHARES:
Charles Schwab & Co. Inc. 69.876%
For the Exclusive Use of Our Customers
Reinvest Account
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
The officers and Trustees of the Trust, as a group, own less than 1% of any
class of outstanding shares of the Trust except of the Japan Series.
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 Independence Day, Labor Day, Thanksgiving
Day, Christmas Day, New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday and Memorial 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
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<PAGE>
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.
FINANCIAL STATEMENTS
The Report of Independent Accountants, financial highlights and financial
statements of the Funds included in their Annual Report for the period ended
March 31, 1998 (the "Annual Report") are incorporated herein by reference to
such Annual Report. Copies of such Annual Report are available without charge
upon request by writing to Barr Rosenberg Series Trust, 3435 Stelzer Road,
Columbus, Ohio 43219 or telephoning 1-800-447-3332.
The financial statements incorporated by reference into this Statement of
Additional Information have been audited by PricewaterhouseCoopers LLP,
independent accountants, and have been so included and incorporated by reference
in reliance upon the report of said firm, which report is given upon their
authority as experts in auditing and accounting.
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