Brundage,
Story and Rose
Investment Trust
------------------------------
Semi-Annual Report
------------------------------
May 31,1999
------------------------------
(Unaudited)
------------------------------
------------------------------
Short/Intermediate Term
------------------------------
Fixed-Income Fund
------------------------------
------------------------------
Equity Fund
------------------------------
------------------------------
------------------------------
[LOGO] BRUNDAGE
STORY & ROSE
Investment Counsel Since 1932
<PAGE>
Letter To Shareholders July 12, 1999
- --------------------------------------------------------------------------------
ECONOMIC AND FINANCIAL MARKETS UPDATE--MID-YEAR 1999
Since the end of the last recession in 1991, the U.S. economy has been not only
immune to the economic turmoil that has repeatedly buffeted the global economy
- -- the Mexican peso crisis of 1994, chronic unemployment in Europe, the Asian
economic meltdown of 1997, severe recession in Japan, the Russian/Brazilian
crises of 1998 -- it has arguably thrived on them. In fact, without these
upheavals, the U.S. economy's very strength might have been its undoing. Absent
their dampening effect on our economy, low unemployment in the U.S., a
free-spending consumer and consistently above-trendline growth would likely have
resulted in greater inflationary pressures than realized. This, in turn, would
have led to upward pressure on interest rates and put the economic expansion at
risk.
Instead, the rolling weaknesses, or outright recessions, in the economies of
many of our trading partners over the last eight years have acted as a release
valve for our economy, periodically letting off just enough pressure to prevent
our economy from overheating. In effect, our excess demand has been met by
excess supply from overseas, allowing interest rates to stay low and stock
prices to stay high, creating a "wealth effect" that further enhanced our
economic position.
Of course, there are many other forces at work that have contributed to this
period of extraordinary economic strength, and the benefits to the economy from
these external shocks have not been equally distributed. Nevertheless, on
balance these foreign shocks, combined with astute policy responses by the
Federal Reserve Board, have actually forestalled the day of reckoning for the
U.S. economy and have prolonged both this economic expansion and, in turn, the
extraordinary performance of the U.S. equity market. As we look out over the
balance of this year and into the next millennium, one of the most important
questions is whether or not the world economy is likely to face a globally
synchronized expansion. If so, what are the implications for interest rates,
inflation and our stock market?
The final quarter of 1998 saw the domestic economy grow at an extraordinary 6.4%
annualized rate. While many of us had expected 1998 to finish on an upbeat note,
almost no one predicted that U.S. consumers would accelerate their already
voracious appetite for consumption, dipping into their savings to maintain and
improve their standard of living. Consequently, after first quarter growth of
about 4.4%, we are expecting some moderation in consumption expenditures during
the balance of 1999 with overall economic growth restrained still more by a
record trade deficit. Even with a more restrained consumer and continuing
weakness in net exports, we forecast that stable interest rates, strong wage
gains and the afterglow of a vibrant stock market will fuel another year of good
growth in the U.S. economy.
Across the Atlantic, while the new common European monetary unit, the Euro, was
greeted with much fanfare, European growth has remained disappointing. Despite
gains by some of the smaller European countries and some improvement in France,
Germany, the heart of the European economy, has been plagued by high levels of
unemployment and deteriorating business confidence. Furthermore, Russia, once
thought to represent a great opportunity for German companies, is not only still
mired in a depression but is also a significant liability for the German
financial system. Despite this negative background, the seeds for a recovery in
Europe within the next year have already been sown. Recent easing of monetary
policy has invigorated the European economy and, at the same time, has provided
the basis for improved business sentiment in the crucial German economy. For
this reason, combined with the benefits of closer economic integration, our
expectation is for a gradual improvement in Europe during the second half of
1999, laying the groundwork for a much better year 2000, Y2K notwithstanding.
Across the Pacific, things are more murky but, in our opinion, Japan is turning,
or has already turned, the corner. The government's aggressive stance--by
Japanese standards--in dealing with the country's banking crisis and its
programs of fiscal stimulus indicate that senior policymakers and
1
<PAGE>
politicians have finally gotten serious about dealing with Japan's structural
problems. With short-term interest rates effectively at zero and growing
indications that the Bank of Japan is considering full scale monetization, these
actions should begin to stem the deflationary trend of prices in Japan. It seems
to us important that the economies of Japan's largest trading partners, the U.S.
and developing Asia, are strong or improving while its leading corporations are
undertaking the meaningful restructuring that is a precondition for sustained
recovery. In the case of Japan, the steady, broad rise of the Japanese stock
market this year suggests that investors are looking beyond near-term concerns
and are beginning to anticipate a more sustainable recovery.
Turning to the developing world--the segment of the global economy that has
fared the worst over the last few years--the initial signs of recovery are very
encouraging. From Korea, where economic growth has already begun to accelerate,
to Brazil, where the government recently has been able again to tap the
international capital markets and where austerity programs are beginning to
yield stability, the signs of economic rebound are impressive. Signs of economic
improvement are creating confidence which attracts capital and results in a
still better economic environment.
In summary, it is our opinion that the threat of global depression or recession,
while always a remote possibility, has passed. We feel that by the end of 1999,
economic policymakers and financial markets will be concerned with quite the
opposite: a global economic recovery that threatens to undermine the low
inflation, low interest rate and high excess capacity environment that has made
the U.S. expansion so extraordinary. All in all, though, we would expect a
gradual improvement in the world economy accompanied by modestly higher
inflation, but with no serious revival of that scourge. Here at home, we believe
that the Federal Reserve will hold short-term rates stable in the near term
after the recent 25 basis point "snugging", but that both short and long-term
rates may have a modest bias to the upside going into next year.
One clear implication for the stock market is that domestic companies with
international operations that are sensitive to the business cycle should begin
to recover from the softness of the past eighteen months. A second is that small
and mid-cap companies that suffered from the flight to the perceived quality of
large-cap equities and U. S. Treasury securities, will likely find themselves
benefiting from a reversal of that trend.
Our forecast of a better global economy reinforces our view that the stagnation
in earnings over the last eighteen months has ended. Better still, the earnings
improvement that we expect will encompass a broader group of industries and
companies. If investors are no longer to benefit from steadily declining
interest rates, then current valuations in the stock market as well as future
gains will need better corporate earnings performance to be justified.
We believe the recent broadening of performance in the stock market will
continue and accelerate with long-neglected small and mid-sized businesses
benefiting from the triple positives of lower valuations, improved relative
earnings growth and a reversal of the recent flight to quality. One caveat is
the potential for the Y2K bug to impact economic growth--positively this year as
companies and countries prepare for the problem, but perhaps negatively in the
first part of the year 2000.
BRUNDAGE, STORY AND ROSE SHORT/INTERMEDIATE TERM FUND
Interest rates on U.S. Treasury bonds rose significantly during the six-month
period ended May 31, 1999, and the yield curve continued to flatten. The yields
on intermediate and longer-maturity issues increased by 75 to 110 basis points.
Total rates of return, which include interest accruals and price changes, are
summarized below for various maturity Treasury bonds:
Treasury Issue Total Return
-------------- ------------
3 month 2.22%
1 year 2.00%
3 year 0.10%
5 year -2.37%
10 year -4.51%
30 year -9.11%
2
<PAGE>
The financial crises that peaked in the third quarter of calendar 1998 abated
and the U. S. economy continued to grow at a rapid pace. This resulted in the
reversal of the flight to quality into U.S. Treasury securities which had driven
rates down and, thus, in a rise in interest rates. Corporate and mortgage-backed
bonds have fared relatively well during this period as liquidity has returned to
the marketplace, recession fears have disappeared and prepayment fears have
lessened as interest rates rose.
The Fund's exposure to corporate and mortgage-backed bonds contributed to
relative performance. The total return for the period of -0.31% was in line with
the 0.17% return of the Merrill Lynch 3year Treasury Index and better than the
- -0.56% return of the Lehman Brothers Intermediate Maturity Government/Corporate
Bond Index.
The relative returns for the Fund during the first half of fiscal 1999 were also
helped by good issue selection of individual bonds made by our specialists in
the corporate and mortgage-backed sectors. Our current strategy is to gradually
decrease our corporate and mortgage-backed holdings now that these sectors have
become more fairly priced. If our outlook for interest rates is on the mark,
absolute returns should become substantially positive over the balance of 1999.
BRUNDAGE, STORY AND ROSE EQUITY FUND
In our fiscal 1998 year-end letter, we described 1998 as both satisfactory and
disappointing. Satisfactory because of the rebound from the sell-off of last
summer, yet disappointing because we felt the strength of the companies in your
Fund was not being reflected in its performance.
In the first half of fiscal 1999, the market's renewed focus on valuation and on
a broader group of medium-sized companies has resulted in a reversal of last
year's lagging performance. The 19.0% return of your Fund for the six months
ended May 31, 1999, compares very favorably to the 12.4% return of the S&P 500,
the 13.6% return of the average growth fund and the 12.5% return of the average
diversified equity fund, as compiled by Lipper Analytical Services, Inc.
Of particular benefit to performance in the first half of fiscal 1999 was our
focus on wireless communications (Qualcomm +254%, AirTouch +76%, Nortel Networks
+61%). Your Fund was also helped by good stock selection in the consumer area
(Catalina Marketing +52% and NIKE +53%) and by an overweighting in small
exploration and production energy companies.
Looking ahead, a generally stronger global economy should continue to favor
growth-oriented capital goods and materials companies at the expense of the more
predictable but much more expensive consumer non-durable and interest
rate-sensitive sectors. Should opportunities present themselves, we would expect
to continue building up our exposure to the health care sector as companies
consolidate after a period of strong performance and digest the news surrounding
proposed changes to Medicare and Medicaid. We continue to have concerns about
the potential for a Y2K-related slowdown in the information technology sector
and will remain underweighted until this uncertainty clears.
SUMMARY
Looking forward, the current environment appears attractive both for bond and
for equity investors. Our only concern is that, notwithstanding the strong
fundamental picture, lofty valuations in the equity area, particularly for
Internet-related companies, are fragile and a collapse in this area could spill
over into the broader equity market. In summary, while we expect continued
volatility as the equity markets come to terms with modest upward pressure on
inflation and interest rates, we believe a better economy and an improving
profit outlook will continue to provide good opportunities for the long-term
investor.
Sincerely yours,
/s/ Malcolm D. Clarke, Jr.
Malcolm D. Clarke, Jr.
President
3
<PAGE>
<TABLE>
<CAPTION>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
STATEMENTS OF ASSETS AND LIABILITIES
May 31, 1999 (Unaudited)
============================================================================================
Short/
Intermediate
Term
Fixed-Income Equity
Fund Fund
- --------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Investment securities:
At amortized cost (original cost $38,504,139
and $29,534,139, respectively) .............. $ 38,517,292 $ 29,534,139
============ ============
At market value (Note 2) .......................... $ 38,078,645 $ 46,438,112
Investments in repurchase agreements (Note 2) ............. 517,000 1,817,000
Cash ...................................................... 541 973
Interest and principal paydowns receivable ................ 462,792 876
Dividends receivable ...................................... -- 40,563
Receivable for capital shares sold ........................ 80,252 25,665
Other assets .............................................. 14,381 17,011
------------ ------------
TOTAL ASSETS ...................................... 39,153,611 48,340,200
------------ ------------
LIABILITIES
Dividends payable ......................................... 21,154 --
Payable for capital shares redeemed ....................... 7,775 2,266
Payable for securities purchased .......................... 259,328 158,792
Payable to affiliates (Note 4) ............................ 13,926 39,199
Other accrued expenses and liabilities .................... 11,444 8,399
------------ ------------
TOTAL LIABILITIES ................................. 313,627 208,656
------------ ------------
NET ASSETS ................................................ $ 38,839,984 $ 48,131,544
============ ============
Net assets consist of:
Paid-in capital ........................................... $ 39,241,646 $ 28,262,230
Distributions in excess of net investment income .......... -- (19,136)
Accumulated net realized gains from security transactions . 36,985 2,984,477
Net unrealized appreciation (depreciation) on investments . (438,647) 16,903,973
------------ ------------
Net assets ................................................ $ 38,839,984 $ 48,131,544
============ ============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) (Note 5) 3,676,237 2,224,539
============ ============
Net asset value, offering price and
redemption price per share (Note 2) ............... $ 10.57 $ 21.64
============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
For the Six Months Ended May 31, 1999 (Unaudited)
===========================================================================================
Short/
Intermediate
Term
Fixed-Income Equity
Fund Fund
- -------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Interest ........................................... $ 1,177,621 $ 36,885
Dividends .......................................... -- 227,286
----------- -----------
TOTAL INVESTMENT INCOME .................... 1,177,621 264,171
----------- -----------
EXPENSES
Investment advisory fees (Note 4) .................. 97,455 144,091
Administrative services fees (Note 4) .............. 39,132 44,536
Accounting services fees (Note 4) .................. 18,000 16,200
Professional fees .................................. 10,206 10,206
Transfer agent and shareholder service fees (Note 4) 7,200 7,200
Trustees' fees and expenses ........................ 6,393 6,393
Registration fees .................................. 7,145 7,131
Postage and supplies ............................... 5,445 5,541
Insurance expense .................................. 4,927 5,114
Reports to shareholders ............................ 2,330 2,645
Pricing expense .................................... 3,416 604
Custodian fees ..................................... 1,226 1,695
Distribution expenses (Note 4) ..................... 584 641
Other expenses ..................................... 2,008 2,933
----------- -----------
TOTAL EXPENSES ............................. 205,467 254,930
Fees waived by the Adviser (Note 4) ................ (78,778) --
----------- -----------
NET EXPENSES ............................... 126,689 254,930
----------- -----------
NET INVESTMENT INCOME ...................................... 1,050,932 9,241
----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions ...... 42,924 3,074,202
Net change in unrealized appreciation/
depreciation on investments .................... (1,246,722) 4,594,173
----------- -----------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS .. (1,203,798) 7,668,375
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ...... $ (152,866) $ 7,677,616
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended May 31, 1999 and November 30, 1998
==============================================================================================================================
Short/Intermediate Term
Fixed-Income Fund Equity Fund
----------------------------- -----------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
May 31, 1999 November 30, May 31, 1999 November 30,
(Unaudited) 1998 (Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ............................. $ 1,050,932 $ 2,122,402 $ 9,241 $ 93,926
Net realized gains from security transactions ..... 42,924 619,402 3,074,202 2,509,249
Net change in unrealized appreciation/depreciation
on investments ............................ (1,246,722) 337,491 4,594,173 1,698,676
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations ..... (152,866) 3,079,295 7,677,616 4,301,851
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ........................ (1,050,932) (2,122,402) (25,433) (91,102)
Distributions in excess of net investment income .. -- -- (19,136) --
From net realized gains from security transactions (245,416) -- (2,598,974) (3,535,218)
------------ ------------ ------------ ------------
Decrease in net assets from distributions to
shareholders ...................................... (1,296,348) (2,122,402) (2,643,543) (3,626,320)
------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS (Note 5):
Proceeds from shares sold ......................... 2,404,018 4,423,714 2,014,727 3,608,905
Net asset value of shares issued in reinvestment of
distributions to shareholders ............. 1,105,003 1,717,736 2,624,110 3,581,991
Payments for shares redeemed ...................... (2,455,584) (4,515,399) (2,227,891) (2,522,915)
------------ ------------ ------------ ------------
Net increase in net assets
from capital share transactions ................... 1,053,437 1,626,051 2,410,946 4,667,981
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS ..................... (395,777) 2,582,944 7,445,019 5,343,512
NET ASSETS:
Beginning of period ............................... 39,235,761 36,652,817 40,686,525 35,343,013
------------ ------------ ------------ ------------
End of period ..................................... $ 38,839,984 $ 39,235,761 $ 48,131,544 $ 40,686,525
============ ============ ============ ============
UNDISTRIBUTED NET INVESTMENT INCOME ....................... $ -- $ -- $ -- $ 16,192
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
SHORT/INTERMEDIATE TERM FIXED-INCOME FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended
May 31, Years Ended November 30,
1999 ------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ............. $ 10.96 $ 10.69 $ 10.69 $ 10.73 $ 9.94 $ 10.77
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income ...................... 0.29 0.60 0.62 0.62 0.64 0.59
Net realized and unrealized
gains (losses) on investments ...... (0.32) 0.27 -- (0.04) 0.79 (0.79)
-------- -------- -------- -------- -------- --------
Total from investment operations ........... (0.03) 0.87 0.62 0.58 1.43 (0.20)
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ....... (0.29) (0.60) (0.62) (0.62) (0.64) (0.59)
Distributions from net realized gains ...... (0.07) -- -- -- -- (0.04)
-------- -------- -------- -------- -------- --------
Total distributions ................................ (0.36) (0.60) (0.62) (0.62) (0.64) (0.63)
-------- -------- -------- -------- -------- --------
Net asset value at end of period ................... $ 10.57 $ 10.96 $ 10.69 $ 10.69 $ 10.73 $ 9.94
======== ======== ======== ======== ======== ========
Total return ....................................... (0.31%) 8.39% 6.03% 5.65% 14.84% (1.98%)
======== ======== ======== ======== ======== ========
Net assets at end of period (000's) ................ $ 38,840 $ 39,236 $ 36,653 $ 33,377 $ 35,272 $ 35,390
======== ======== ======== ======== ======== ========
Ratio of net expenses to average net assets(A) ..... 0.65%(B) 0.65% 0.65% 0.65% 0.60% 0.50%
Ratio of net investment income to average net assets 5.39%(B) 5.58% 5.88% 5.90% 6.21% 5.67%
Portfolio turnover rate ............................ 52%(B) 90% 46% 40% 39% 57%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 1.05%(B) for the six
months ended May 31, 1999 and 1.04%, 1.07%, 1.09%, 1.09% and 1.06% for the
years ended November 30, 1998, 1997, 1996, 1995 and 1994, respectively
(Note 4).
(B) Annualized.
See accompanying notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
EQUITY FUND
FINANCIAL HIGHLIGHTS
=================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended
May 31, Years Ended November 30,
1999 --------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period ................. $ 19.47 $ 19.40 $ 17.18 $ 14.91 $ 12.43 $ 12.70
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income .......................... 0.01 0.04 0.06 0.06 0.07 0.06
Net realized and unrealized
gains on investments ................... 3.43 2.01 3.65 2.97 3.02 0.11
-------- -------- -------- -------- -------- --------
Total from investment operations ....................... 3.44 2.05 3.71 3.03 3.09 0.17
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income ........... (0.01) (0.04) (0.06) (0.07) (0.06) (0.06)
Distributions in excess of net investment income (0.01) -- -- -- -- --
Distributions from net realized gains .......... (1.25) (1.94) (1.43) (0.69) (0.55) (0.38)
-------- -------- -------- -------- -------- --------
Total distributions .................................... (1.27) (1.98) (1.49) (0.76) (0.61) (0.44)
-------- -------- -------- -------- -------- --------
Net asset value at end of period ....................... $ 21.64 $ 19.47 $ 19.40 $ 17.18 $ 14.91 $ 12.43
======== ======== ======== ======== ======== ========
Total return ........................................... 18.99% 11.96% 23.98% 21.27% 26.08% 1.35%
======== ======== ======== ======== ======== ========
Net assets at end of period (000's) .................... $ 48,132 $ 40,687 $ 35,343 $ 27,540 $ 24,191 $ 18,821
======== ======== ======== ======== ======== ========
Ratio of net expenses to average net assets ............ 1.15%(A) 1.15% 1.19% 1.30% 1.45% 1.50%
Ratio of net investment income to average net assets ... 0.04%(A) 0.24% 0.34% 0.42% 0.52% 0.51%
Portfolio turnover rate ................................ 38%(A) 50% 49% 44% 42% 44%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Annualized.
See accompanying notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
SHORT/INTERMEDIATE TERM FIXED-INCOME FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999 (Unaudited)
======================================================================================================
Par Market
Value INVESTMENT SECURITIES -- 98.1% Rate Maturity Value
- ------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 28.1%
<S> <C> <C> <C>
$ 200,000 U.S. Treasury Notes ......................... 6.625% 7/31/01 $ 204,563
300,000 U.S. Treasury Notes ......................... 5.875 11/30/01 302,344
1,300,000 U.S. Treasury Notes ......................... 6.625 3/31/02 1,334,532
1,200,000 U.S. Treasury Notes ......................... 6.000 7/31/02 1,212,750
1,000,000 U.S. Treasury Notes ......................... 5.750 8/15/03 1,001,875
1,550,000 U.S. Treasury Notes ......................... 7.500 2/15/05 1,677,391
1,500,000 U.S. Treasury Notes ......................... 6.500 5/15/05 1,552,969
1,000,000 U.S. Treasury Notes ......................... 6.500 8/15/05 1,035,313
600,000 U.S. Treasury Notes ......................... 7.000 7/15/06 640,125
1,900,000 U.S. Treasury Notes ......................... 6.125 8/15/07 1,936,813
- ------------ ------------
$ 10,550,000 TOTAL U.S. TREASURY OBLIGATIONS
- ------------ (Amortized Cost $11,012,199)................. $ 10,898,675
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 6.4%
$ 1,000,000 FHLMC Notes ................................. 5.750% 7/15/03 $ 997,104
1,500,000 FNMA Notes .................................. 5.625 5/15/04 1,478,813
- ------------ ------------
$ 2,500,000 TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
- ------------ (Amortized Cost $2,528,630) ................. $ 2,475,917
------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES -- 14.7%
$ 184,703 FHLMC GOLD #G-50274 ......................... 7.500% 6/01/00 $ 186,305
5,099 FHLMC GNOME #200068 ......................... 8.000 3/01/02 5,221
21,035 FNMA DWARF #51935 ........................... 8.000 4/01/02 21,688
405,330 FNMA REMIC #93-52E .......................... 6.000 4/25/05 404,993
48,333 FHLMC GOLD #140094 .......................... 7.500 5/01/05 49,081
500,000 FHLMC REMIC #1404-D ......................... 6.800 1/15/06 504,885
37,364 FNMA DWARF #50480 ........................... 8.000 9/01/06 38,563
514,728 FNMA REMIC #92-24H .......................... 7.500 11/25/06 521,595
402,617 GNMA #362109 ................................ 9.000 9/15/08 423,391
727,238 FHLMC REMIC #1523-PE ........................ 6.000 10/15/15 727,980
290,569 FNMA REMIC #93-20PE ......................... 5.900 5/25/16 289,734
473,240 FHLMC REMIC #1522-C ......................... 6.000 8/15/16 474,035
793,262 FNMA REMIC #94-29PE ......................... 6.000 5/25/18 793,761
7,891 GNMA #285639 ................................ 9.000 2/15/20 8,461
824,874 FHLMC REMIC #1699-C ......................... 6.200 2/15/24 828,388
412,403 FNMA REMIC #250322 .......................... 7.500 8/01/25 421,504
- ------------ ------------
$ 5,648,686 TOTAL U.S. GOVERNMENT AGENCY
- ------------ MORTGAGE-BACKED SECURITIES
(Amortized Cost $5,619,257) ................. $ 5,699,585
------------
OTHER MORTGAGE-BACKED SECURITIES -- 2.2%
$ 243,216 Advanta Home Equity Loan Trust #92-1A ....... 7.875% 9/25/08 $ 246,475
628,308 CMC Securities Corp. III #94-B .............. 6.000 2/25/09 627,560
- ------------ ------------
$ 871,524 TOTAL OTHER MORTGAGE-BACKED SECURITIES
- ------------ (Amortized Cost $869,616) ................... $ 874,035
------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SHORT/INTERMEDIATE TERM FIXED-INCOME FUND
PORTFOLIO OF INVESTMENTS (Continued)
======================================================================================================
Par Market
Value INVESTMENT SECURITIES -- 98.1% (Continued) Rate Maturity Value
- ------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 8.4%
<S> <C> <C> <C>
$ 1,000,000 Circuit City Credit Card Trust #94-2-A ...... 8.000% 11/15/99 $ 1,012,440
1,000,000 J.C. Penney Credit Card Trust #B-A .......... 8.950 10/15/01 1,019,200
1,225,000 First Bank Corporate Card Trust #97-1-A ..... 6.400 2/15/03 1,233,097
- ------------ ------------
$ 3,225,000 TOTAL ASSET-BACKED SECURITIES
- ------------ (Amortized Cost $3,249,581) $ 3,264,737
------------
CORPORATE BONDS -- 38.3%
$ 1,000,000 Lehman Brothers, Inc. ....................... 6.125% 2/01/01 $ 994,750
1,000,000 Ford Motor Credit Co. Medium Term Notes ..... 5.900 2/23/01 998,187
1,000,000 General Motors Acceptance Corp. ............. 6.000 2/01/02 992,284
675,000 EOP Operating LP ............................ 6.376 2/15/02 663,641
1,000,000 Asian Development Bank ...................... 5.750 5/19/03 990,717
1,000,000 Sears Roebuck Acceptance Corp. Medium Term Notes 6.760 6/25/03 1,005,229
1,000,000 Salomon Smith Barney Holdings, Inc. ......... 6.625 11/15/03 1,008,993
1,000,000 Bear Stearns Companies, Inc. ................ 6.150 3/02/04 974,100
1,000,000 Potomac Electric Power Co. .................. 6.000 4/01/04 971,800
1,300,000 Household Finance Corp. ..................... 5.875 9/25/04 1,257,083
1,000,000 Chilgener S.A ............................... 6.500 1/15/06 891,913
1,000,000 GTE Southwest, Inc. ......................... 6.230 1/01/07 972,446
850,000 National Rural Utilities Cooperative Finance Corp. 5.750 11/01/08 799,092
1,280,000 Lucent Technologies, Inc. ................... 5.500 11/15/08 1,190,745
500,000 Toyota Motor Credit Corp. ................... 5.500 12/15/08 462,235
725,000 Wachovia Corp. .............................. 6.150 3/15/09 692,481
- ------------ ------------
$ 15,330,000 TOTAL CORPORATE BONDS (Amortized Cost $15,238,009) $ 14,865,696
- ------------ ------------
$ 38,125,210 TOTAL INVESTMENT SECURITIES (Amortized Cost $38,517,292) $ 38,078,645
============ ------------
======================================================================================================
Face Market
Amount REPURCHASE AGREEMENTS(A) -- 1.3% Value
- ------------------------------------------------------------------------------------------------------
$ 517,000 Fifth Third Bank, 4.34%, dated 5/28/99,
============ due 6/01/99, repurchase proceeds $517,249 ... $ 517,000
------------
TOTAL INVESTMENT SECURITIES AND REPURCHASE AGREEMENTS -- 99.4% $ 38,595,645
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.6% 244,339
------------
NET ASSETS -- 100.0% ........................ $ 38,839,984
============
</TABLE>
(A) Repurchase agreements are fully collateralized by U.S. Government
obligations.
FHLMC - Federal Home Loan Mortgage Corporation.
FNMA - Federal National Mortgage Association.
GNMA - Government National Mortgage Association.
DWARF - A 15-year mortgage pool issued by FNMA.
GNOME - A 15-year mortgage pool issued by FHLMC.
REMIC - Real Estate Mortgage Investment Conduit.
GOLD - A 30-year mortgage pool issued by FHLMC with a shorter coupon payment
delay period.
See accompanying notes to financial statements.
10
<PAGE>
EQUITY FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999 (Unaudited)
================================================================================
Market
COMMON STOCKS -- 96.5% Shares Value
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 16.6%
American Express Co. ................................ 11,500 $ 1,393,656
American International Group, Inc. .................. 11,287 1,290,245
BankBoston Corp. .................................... 20,000 947,500
Chubb Corp. ......................................... 20,000 1,401,250
Citigroup, Inc. ..................................... 16,000 1,060,000
Fannie Mae .......................................... 20,700 1,407,600
J.P. Morgan & Co., Inc. ............................. 3,500 487,594
-----------
$ 7,987,845
-----------
CAPITAL GOODS -- 15.0%
AlliedSignal, Inc. .................................. 22,000 $ 1,277,375
Avery Dennison Corp. ................................ 21,000 1,257,375
Danaher Corp. ....................................... 8,500 513,719
Illinois Tool Works, Inc. ........................... 6,400 491,200
Molex, Inc. - Class A ............................... 47,306 1,268,392
Thermo Electron Corp.* .............................. 80,000 1,530,000
Waste Management, Inc. .............................. 17,000 898,875
-----------
$ 7,236,936
-----------
TECHNOLOGY -- 12.6%
Applied Materials, Inc.* ............................ 6,000 $ 329,625
Compaq Computer Corp. ............................... 27,000 639,563
EMC Corp.* .......................................... 4,500 448,312
First Data Corp. .................................... 10,000 449,375
Hewlett-Packard Co. ................................. 10,100 952,556
Intel Corp. ......................................... 14,000 756,875
Microsoft Corp.* .................................... 5,000 403,438
Motorola, Inc. ...................................... 7,000 579,687
Nortel Networks Corp. ............................... 12,000 900,000
QUALCOMM, Inc.* ..................................... 6,000 583,500
Siebel Systems, Inc.* ............................... 68 3,096
-----------
$ 6,046,027
-----------
CONSUMER STAPLES -- 11.6%
Bestfoods ........................................... 23,500 $ 1,175,000
Gillette Co. ........................................ 9,000 459,000
McDonald's Corp. .................................... 25,000 962,500
PepsiCo, Inc. ....................................... 27,800 995,588
Sysco Corp. ......................................... 33,500 994,531
The Walt Disney Co. ................................. 10,000 291,250
Young Broadcasting, Inc. - Class A* ................. 17,000 690,625
-----------
$ 5,568,494
-----------
HEALTH CARE -- 11.1%
Abbott Laboratories ................................. 25,000 $ 1,129,688
American Home Products Corp. ........................ 21,300 1,227,412
Becton, Dickinson & Co. ............................. 28,000 1,085,000
Lilly (Eli) & Co. ................................... 9,300 664,369
Schering-Plough Corp. ............................... 20,000 901,250
SmithKline Beecham Plc - ADR ........................ 5,500 360,938
-----------
$ 5,368,657
-----------
11
<PAGE>
EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
================================================================================
Market
COMMON STOCKS -- 96.5% (Continued) Shares Value
- --------------------------------------------------------------------------------
ENERGY -- 7.0%
Apache Corp. ........................................ 34,000 $ 1,224,000
Exxon Corp. ......................................... 6,000 479,250
Mobil Corp. ......................................... 10,000 1,012,500
Noble Affiliates, Inc. .............................. 25,700 681,050
-----------
$ 3,396,800
-----------
BASIC MATERIALS -- 6.6%
du Pont (E. I.) de Nemours and Co. .................. 12,000 $ 785,250
Ecolab, Inc. ........................................ 36,000 1,530,000
Monsanto Co. ........................................ 9,500 394,250
Willamette Industries, Inc. ......................... 11,300 478,837
-----------
$ 3,188,337
-----------
CONSUMER CYCLICALS -- 6.5%
AutoZone, Inc.* ..................................... 16,700 $ 483,256
Catalina Marketing Corp.* ........................... 7,800 690,788
H&R Block, Inc. ..................................... 21,600 1,040,850
Nike, Inc. - Class B ................................ 14,700 895,781
-----------
$ 3,110,675
-----------
COMMUNICATION SERVICES -- 5.0%
AirTouch Communications, Inc.* ...................... 9,400 $ 944,700
AT&T Corp. .......................................... 25,500 1,415,250
Leap Wireless International, Inc.* .................. 1,750 30,625
-----------
$ 2,390,575
-----------
TRANSPORTATION -- 3.1%
Landstar System, Inc.* .............................. 39,200 $ 1,474,900
-----------
UTILITIES -- 1.4%
Duke Energy Corp. ................................... 11,090 $ 668,866
-----------
TOTAL COMMON STOCKS (Cost $29,534,139) $46,438,112
-----------
================================================================================
Face Market
REPURCHASE AGREEMENTS(A) -- 3.8% Amount Value
- --------------------------------------------------------------------------------
Fifth Third Bank, 4.34%, dated 5/28/99,
due 6/01/99, repurchase proceeds $1,817,876 ......... $ 1,817,000 $ 1,817,000
=========== -----------
TOTAL COMMON STOCKS AND REPURCHASE AGREEMENTS -- 100.3% $48,255,112
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.3%) ..... (123,568)
-----------
NET ASSETS -- 100.0% ................................ $48,131,544
===========
* Non-income producing security.
(A) Repurchase agreements are fully collateralized by U.S. Government
obligations.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
12
<PAGE>
BRUNDAGE, STORY AND ROSE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
May 31, 1999 (Unaudited)
================================================================================
1. ORGANIZATION
Brundage, Story and Rose Investment Trust (the Trust) was organized as an Ohio
business trust on October 1, 1990. The Trust offers two series of shares to
investors: the Brundage, Story and Rose Short/Intermediate Term Fixed-Income
Fund and the Brundage, Story and Rose Equity Fund (collectively, the Funds). The
Trust commenced operations on December 3, 1990, when Brundage, Story and Rose,
LLC (the Adviser) purchased the initial 5,000 shares of each Fund at $10 per
share. The public offering of shares commenced on January 2, 1991.
The Brundage, Story and Rose Short/Intermediate Term Fixed-Income Fund (the Bond
Fund) seeks to provide a higher and more stable level of income than a money
market fund but with more volatility and with more principal stability than a
mutual fund investing in intermediate and long-term fixed-income securities but
at a lower level of income. The Bond Fund invests primarily in short and
intermediate-term fixed-income securities.
The Brundage, Story and Rose Equity Fund (the Equity Fund) seeks to provide
protection and enhancement of capital, current income and growth of income. The
Equity Fund invests primarily in common stocks and securities convertible into
common stock.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Funds' significant accounting policies:
Securities valuation -- The Funds' portfolio securities are valued as of the
close of the regular session of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time). Securities which are traded on stock exchanges or are
quoted by NASDAQ are valued at the last reported sale price or, if not traded on
a particular day, at the closing bid price. Securities traded in the
overthe-counter market, and which are not quoted by NASDAQ, are valued at the
last sale price, if available, otherwise, at the last quoted bid price. U.S.
Government and agency obligations, asset-backed securities and corporate bonds
are valued at their most recent bid price as obtained from one or more of the
major market makers for such securities or are valued on the basis of prices
provided by an independent pricing service giving consideration to such factors
as maturity, coupon, issuer and type of security. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith in accordance with consistently applied procedures established by and
under the general supervision of the Board of Trustees.
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' custodian at the Federal
Reserve Bank. At the time each Fund enters into a repurchase agreement, the
seller agrees that the value of the underlying securities, including accrued
interest, will be equal to or exceed the face amount of the repurchase
agreement. Each Fund enters into repurchase agreements only with institutions
deemed to be creditworthy by the Adviser, including the Funds' custodian, banks
having assets in excess of $10 billion and primary U.S. Government securities
dealers.
Share valuation -- The net asset value of each Fund is calculated daily by
dividing the total value of that Fund's assets, less liabilities, by the number
of shares outstanding. The offering and redemption price per share of each Fund
are equal to the net asset value per share.
Investment income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Discounts and premiums on securities purchased
are amortized in accordance with income tax regulations.
Distributions to shareholders -- Dividends arising from net investment income
for the Bond Fund are declared daily and paid monthly. Dividends arising from
net investment income for the Equity Fund are declared and paid quarterly. With
respect to each Fund, net realized short-term capital gains, if any, may be
distributed throughout the year and net realized long-term capital gains, if
any, are distributed at least once each year. Income distributions and capital
gain distributions are determined in accordance with income tax regulations.
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are accounted for on a specific identification basis.
13
<PAGE>
Securities traded on a to-be-announced basis -- The Bond Fund periodically
trades portfolio securities on a "to-be-announced" (TBA) basis. In a TBA
transaction, the Fund has committed to purchase securities for which all
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date in mortgage-backed and asset-backed securities
transactions. Securities purchased on a TBA basis are recorded on the trade
date, however, they are not settled until they are delivered to the Fund,
normally 15 to 45 days later. These transactions are subject to market
fluctuations and their current value is determined in the same manner as for
other portfolio securities. When effecting such transactions, assets of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
are placed in a segregated account on the trade date.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
fiscal year ended November 30) plus undistributed amounts from prior years.
The following information is based upon federal income tax cost of portfolio
investments (excluding repurchase agreements) as of May 31, 1999:
- --------------------------------------------------------------------------------
Bond Equity
Fund Fund
- --------------------------------------------------------------------------------
Gross unrealized appreciation ................ $ 208,937 $ 17,616,698
Gross unrealized depreciation ................ (647,584) (712,725)
------------ ------------
Net unrealized appreciation (depreciation) ... $ (438,647) $ 16,903,973
============ ============
Federal income tax cost ...................... $ 38,517,292 $ 29,534,139
============ ============
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales and maturities of investment
securities, other than short-term investments, amounted to $12,213,500 and
$9,698,336, respectively, for the Bond Fund, and $9,490,954 and $8,123,260,
respectively, for the Equity Fund during the six months ended May 31, 1999.
4. TRANSACTIONS WITH AFFILIATES
Certain Trustees and officers of the Trust are principals of the Adviser.
Certain officers of the Trust are officers of Countrywide Fund Services, Inc.
(CFS), the administrative services agent, shareholder servicing and transfer
agent, and accounting services agent for the Trust, or of CW Fund Distributors,
Inc., the exclusive underwriter of the Funds' shares.
As of May 31, 1999, the Adviser, principals of the Adviser and certain employee
benefit plans of the Adviser were, collectively, a significant shareholder of
record of each Fund.
ADVISORY AGREEMENT
Each Fund's investments are managed by the Adviser pursuant to the terms of an
Advisory Agreement. Under the Advisory Agreement, the Bond Fund and the Equity
Fund each pay the Adviser a fee, computed and accrued daily and paid monthly, at
an annual rate of 0.50% and 0.65%, respectively, of average daily net assets.
In order to reduce the operating expenses of the Bond Fund, the Adviser
voluntarily waived $78,778 of its investment advisory fees during the six months
ended May 31, 1999.
14
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
Under the terms of an Administrative Services Agreement with the Trust, CFS
supplies non-investment related statistical and research data, internal
regulatory compliance services and executive and administrative services for the
Funds. CFS supervises the preparation of tax returns, reports to shareholders of
the Funds, reports to and filings with the Securities and Exchange Commission
and state securities commissions and materials for meetings of the Board of
Trustees. For these services, CFS receives a monthly fee from each Fund at an
annual rate of 0.20% on each Fund's respective average daily net assets up to
$50 million; 0.175% on such net assets between $50 and $100 million; and 0.15%
on such net assets in excess of $100 million, subject to a $1,000 minimum
monthly fee from each Fund.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with the Trust, CFS maintains the records of each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of each Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, CFS receives a monthly fee at an annual
rate of $19.50 per shareholder account from the Bond Fund and $15.00 per
shareholder account from the Equity Fund, subject to a $1,200 minimum monthly
fee from each Fund. In addition, each Fund pays CFS out-of-pocket expenses
including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement with the Trust, CFS
calculates the daily net asset value per share and maintains the financial books
and records of each Fund. For these services, CFS receives a monthly fee, based
on current asset levels, of $3,000 from the Bond Fund and $2,700 from the Equity
Fund. In addition, each Fund pays certain out-of-pocket expenses incurred by CFS
in obtaining valuations of such Fund's portfolio securities.
PLAN OF DISTRIBUTION
The Trust has adopted a plan of distribution (the Plan) under which each Fund
may directly incur or reimburse the Adviser for expenses related to the
distribution and promotion of Fund shares. The annual limitation for payment of
such expenses under the Plan is 0.25% of the average daily net assets of each
Fund.
5. CAPITAL SHARE TRANSACTIONS
Proceeds and payments on capital shares sold and redeemed as shown in the
Statements of Changes in Net Assets are the result of the following capital
share transactions for the periods shown:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Bond Fund Equity Fund
------------------------- -------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
May 31, November 30, May 31, November 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ........................... 222,453 409,114 102,114 195,597
Shares issued in reinvestment
of distributions to shareholders .... 102,468 158,469 145,475 208,604
Shares redeemed ....................... (227,195) (417,652) (113,174) (135,661)
---------- ---------- ---------- ----------
Net increase in shares outstanding .... 97,726 149,931 134,415 268,540
Shares outstanding, beginning of period 3,578,511 3,428,580 2,090,124 1,821,584
---------- ---------- ---------- ----------
Shares outstanding, end of period ..... 3,676,237 3,578,511 2,224,539 2,090,124
========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
BRUNDAGE,
STORY AND ROSE
INVESTMENT TRUST
- ------------------------------
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
BOARD OF TRUSTEES
- ------------------------------
Francis S. Branin, Jr.
Malcolm D. Clarke, Jr.
Cheryl L.Grandfield
Antoinette Geyelin Hoar
Jerome B. Lieber
William M.R. Mapel
James G. Pepper
Crosby R. Smith
Charles G. Watson
INVESTMENT ADVISER
- ------------------------------
Brundage, Story and Rose, LLC
One Broadway
New York, New York 10004
UNDERWRITER
- ------------------------------
CW Fund Distributors, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TRANSFER AGENT
- ------------------------------
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICES
- ------------------------------
Nationwide: (Toll Free) 800-320-2212
