File No. 333-17391
811-07959
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 o
Pre-Effective Amendment No. o
Post-Effective Amendment No. 7 x
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 o
Amendment No. 9 x
ADVISORS SERIES TRUST
(Exact name of registrant as specified in charter)
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (including area code): (602) 952-1100
ROBERT H. WADSWORTH
Advisors Series Trust
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
(Name and address of agent for service of process)
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of the registration statement.
It is proposed that this filing will become effective (check appropriate box)
|_| Immediately upon filing pursuant to paragraph (b)
|_| On pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| On pursuant to paragraph (a)(1)
|X| 75 days after filing pursuant to paragraph (a)(2)
|_| On pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has previously elected to register an indefinite number of shares of
beneficial interest, $.001.
The Registrant has not yet filed a 24f-2 Notice.
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<PAGE>
SUBJECT TO COMPLETION - Dated October 1, 1997
VAN DEVENTER & HOCH AMERICAN VALUE FUND
800 North Bend Boulevard
Suite 300
Glendale, California 91203
818-247-5330
December _____, 1997
The Van Deventer & Hoch American Value Fund (the "Fund") is a mutual fund that
seeks to maximize total return, consisting of capital appreciation (both
realized and unrealized) and income, by investing primarily in the equity
securities of well-established U.S. companies (i.e., companies with at least a
five-year operating history) which, in the opinion of the Fund's advisor, are
undervalued by the market. The Fund is not intended to be a complete
investment program, and there is no assurance it will achieve its objective.
The Fund is a separate series of Advisors Trust Series (the "Trust"). Van
Deventer & Hoch serves as the advisor to the Trust (the "Advisor").
This Prospectus explains concisely what you should know before investing.
Please read it carefully and keep it for future reference. You can find more
detailed information about the Fund in its December ___, 1997 Statement of
Additional Information, as amended periodically. For a free copy of the
Statement of Additional Information, call 1-800-_________. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission (the "Commission") and is incorporated into this Prospectus by
reference. In addition, the Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
the Fund's Annual Report to Shareholders and other information regarding the
Fund which has been electronically filed with the Commission.
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 UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
any offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there by any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities law of
any State.
TABLE OF CONTENTS
Expense Table. . . . . . . . . . . . . . . . . . . . . . . . . .3
Investment Objective and Policies. . . . . . . . . . . . . . . .4
Management . . . . . . . . . . . . . . . . . . . . . . . . . . .9
How to Buy, Sell and Exchange Shares . . . . . . . . . . . . . .9
How the Fund Values Its Shares . . . . . . . . . . . . . . . . 12
How Distributions Are Made; Tax Information. . . . . . . . . . 13
Other Information Concerning the Fund. . . . . . . . . . . . . 14
Performance Information. . . . . . . . . . . . . . . . . . . . 16
Make the Most of Your Shareholder Privileges . . . . . . . . . 17
EXPENSE TABLE
Expenses are one of several factors to consider when investing. The following
table summarizes your costs when investing in the Fund based on estimated
expenses for the current fiscal year. The example shows the cumulative
expenses attributable to a hypothetical $1,000 investment over specified
periods.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as a percentage
of offering price). . . . . . . . . . . . . . . . . . None
Maximum Deferred Sales Charge (as a percentage of the
lower of original purchase price or redemption proceeds)None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Investment Advisory Fee (after estimated waiver)* . . 0.00%
12b-1 Fee (after estimated waiver)* **. . . . . . . . .0.00%
Shareholder Servicing Fee (after estimated waiver)* . .0.00%
Other Expenses (after estimated waiver)*. . . . . . . .1.32%
Total Fund Operating Expenses (after waivers of fees)*.1.32%
Example
Your investment of $1,000 would incur the following expenses, assuming 5%
annual return:
1 Year 3 Years
$13 $42
* Reflects current waiver arrangements to maintain Total Fund Operating
Expenses at the level indicated in the table above. Absent such waivers, the
Investment Advisory Fee, 12b-1 Fee, Shareholder Servicing Fee and Other
Expenses would be 0.70%, 0.25%, 0.25% and 1.30%, respectively, and Total Fund
Operating Expenses would be 2.50%. The Advisor has agreed to waive fees
payable to it and/or reimburse expenses until May 6, 1998 to the extent
necessary to prevent annualized Total Fund Operating Expenses from exceeding
2.18% of average net assets during such period.
** Long-term shareholders in mutual funds with 12b-1 fees, such as
shareholders of the Fund, may pay more than the economic equivalent of the
maximum front-end sales charge permitted by rules of the National Association
of Securities Dealers, Inc.
The table is provided to help you understand the expenses of investing in the
Fund and your share of the operating expenses that the Fund incurs. The
example should not be considered a representation of past or future expenses
or returns; actual expenses and returns may be greater or less than shown.
Charges or credits, not reflected in the expense table above, may be incurred
directly by customers of financial institutions in connection with an
investment in the Fund. The Fund understands that Shareholder Servicing
Agents may credit to the accounts of their customers from whom they are
already receiving other fees amounts not exceeding such other fees or the fees
received by the Shareholder Servicing Agent from the Fund with respect to
those accounts. See "Other Information Concerning the Fund."
INVESTMENT OBJECTIVE AND POLICIES
Investment approach
The equity securities in which the Fund invests generally consist of common
stock, preferred stock and securities convertible into or exchangeable for
common or preferred stock. Under normal market conditions, at least 65% of
the value of the Fund's total assets will be invested in the equity securities
of U.S. companies. The Fund may invest in companies without regard to market
capitalization, although it generally does not expect to invest in companies
with market capitalizations of less than $200 million. The securities in
which the Fund invests are expected to be either listed on an exchange or
traded in an over-the-counter market.
In selecting investments for the Fund, the Advisor generally seeks companies
which it believes exhibit characteristics of financial soundness and are
undervalued by the market. In seeking to identify financially sound
companies, the Fund's Advisor looks for companies with strongly capitalized
balance sheets, an ability to generate substantial cash flow, relatively low
levels of leverage, an ability to meet debt service requirements and a history
of paying dividends. In seeking to identify undervalued companies, the
Advisor looks for companies with substantial tangible assets such as land,
timber, oil and other natural resources, or important brand names, patents,
franchises or other intangible assets which may have greater value than what
is reflected in the company's financial statements. The Fund's Advisor will
often select investments for the Fund which are considered to be unattractive
by other investors or are unpopular with the financial press.
Although the Fund invests primarily in equity securities, it may invest up to
25% of the value of its total assets in high quality, short- term money market
instruments, repurchase agreements and cash. In addition, the Fund may make
substantial temporary investments in investment grade U.S. debt securities and
invest without limit in money market instruments when the Fund's Advisor
believes a defensive posture is warranted. To the extent that the Fund
departs from its investment policies during temporary defensive periods, its
investment objective may not be achieved.
The Fund is classified as a "diversified" fund under federal securities law.
Instead of investing directly in underlying securities, the Fund is authorized
to seek to achieve its objective by investing all of its investable assets in
an investment company having substantially the same investment objective and
policies as the Fund.
Other investment practices
The Fund may also engage in the following investment practices, when
consistent with the Fund's overall objective and policies. These practices,
and certain associated risks, are more fully described in the Statement of
Additional Information.
Foreign securities
The Fund may invest up to 20% of its total assets in foreign securities,
including American Depositary Receipts, which are described below. The Fund
expects that its investments in foreign issuers, if any, will generally be in
companies which generate substantial revenues from U.S. operations and which
are listed on U.S. securities exchanges. Since foreign securities are
normally denominated and traded in foreign currencies, the values of the
Fund's foreign investments may be influenced by currency exchange rates and
exchange control regulations. There may be less information publicly available
about foreign issuers than U.S. issuers, and they are not generally subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the U.S. Foreign securities may be less liquid and more
volatile than comparable U.S. securities. Foreign settlement procedures and
trade regulations may involve certain expenses and risks. One risk would be
the delay in payment or delivery of securities or in the recovery of the
Fund's assets held abroad. It is possible that nationalization or
expropriation of assets, imposition of currency exchange controls, taxation by
withholding Fund assets, political or financial instability and diplomatic
developments could affect the value of the Fund's investments in certain
foreign countries. Foreign laws may restrict the ability to invest in
certain issuers or countries and special tax considerations will apply to
foreign securities. The risks can increase if the Fund invests in emerging
market securities.
The Fund may invest its assets in securities of foreign issuers in the form of
American Depositary Receipts, which are securities representing securities of
foreign issuers. The Fund treats American Depositary Receipts as interests in
the underlying securities for purposes of its investment policies. The Fund
will limit its investment in American Depositary Receipts not sponsored by the
issuer of the underlying securities to no more than 5% of the value of its net
assets (at the time of investment).
Money market instruments
The Fund may invest in cash or high-quality, short-term money market
instruments. These may include U.S. Government securities, commercial paper
of domestic issuers and obligations of domestic banks.
Investment grade debt securities
Investment grade debt securities are securities rated in the category BBB or
higher by Standard & Poor's Corporation ("S&P"), or Baa or higher by Moody's
Investors Service, Inc. ("Moody's") or the equivalent by another nationally
recognized securities rating organization, or, if unrated, determined by the
Advisor to be of comparable quality.
Repurchase agreements, securities loans and forward commitments
The Fund may enter into agreements to purchase and resell securities at an
agreed-upon price and time. The Fund also has the ability to lend portfolio
securities in an amount equal to not more than 30% of its total assets to
generate additional income. These transactions must be fully collateralized
at all times. The Fund may purchase securities for delivery at a future date,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date. These
transactions involve some risk to the Fund if the other party should default
on its obligation and the Fund is delayed or prevented from recovering the
collateral or completing the transaction.
Borrowings and reverse repurchase agreements
The Fund may borrow money from banks for temporary or short-term purposes, but
will not borrow money to buy additional securities, known as "leveraging."
The Fund may also sell and simultaneously commit to repurchase a portfolio
security at an agreed-upon price and time. The Fund may use this practice to
generate cash for shareholder redemptions without selling securities during
unfavorable market conditions. Whenever the Fund enters into a reverse
repurchase agreement, it will establish a segregated account in which it will
maintain liquid assets on a daily basis in an amount at least equal to the
repurchase price (including accrued interest). The Fund would be required to
pay interest on amounts obtained through reverse repurchase agreements, which
are considered borrowings under federal securities laws.
Convertible securities
The Fund may invest in convertible securities, which are securities generally
offering fixed interest or dividend yields which may be converted either at a
stated price or stated rate for common or preferred stock. Although to a
lesser extent than with fixed-income securities generally, the market value of
convertible securities tends to decline as interest rates increase, and
increase as interest rates decline. Because of the conversion feature, the
market value of convertible securities also tends to vary with fluctuations in
the market value of the underlying common or preferred stock.
Corporate reorganizations
The Fund may invest in securities for which a tender or exchange offer has
been made or announced and in securities of companies for which a merger,
consolidation, liquidation or similar reorganization proposal has been
announced if, in the judgment of its Advisor, there is a reasonable prospect
of capital appreciation significantly greater than the added portfolio
turnover expenses inherent in the short-term nature of such transactions. The
principal risk is that such offers or proposals may not be consummated within
the time and under the terms contemplated at the time of investment, in which
case, unless such offers or proposals are replaced by equivalent or increased
offers or proposals which are consummated, the Fund may sustain a loss.
Warrants
The Fund may invest up to 5% of the total value of its assets (at the time of
investment) in warrants or rights (other than those acquired in units or
attached to other securities) which entitle the holder to buy equity
securities at a specific price during or at the end of a specific period of
time. The Fund will not invest more than 2% of the value of its total assets
in warrants or rights which are not listed on the New York or American Stock
Exchanges.
Other investment companies
Apart from being able to invest all of its investable assets in another
investment company having substantially the same investment objectives and
policies, the Fund may invest up to 10% of its total assets in shares of other
investment companies when consistent with its investment objective and
policies, subject to applicable regulatory limitations. Additional fees may
be charged by other investment companies.
Derivatives and related instruments
The Fund has no current intention to invest in derivative and related
instruments, but the Fund is authorized to utilize these instruments to hedge
various market risks or to increase the Fund's income or gain. Some of these
instruments will be subject to asset segregation requirements to cover the
Fund's obligations. The Fund may (a) purchase, write and exercise call and
put options on securities and securities indexes (including using options in
combination with securities, other options or derivative instruments); (b)
enter into swaps, futures contracts and options on futures contracts; and (c)
employ forward contracts.
There are a number of risks associated with the use of derivatives and related
instruments and no assurance can be given that any strategy will succeed. The
value of certain derivatives or related instruments in which the Fund invests
may be particularly sensitive to changes in prevailing economic conditions and
market value. The ability of the Fund to successfully utilize these
instruments may depend in part upon the ability of its Advisor to forecast
these factors correctly. Inaccurate forecasts could expose the Fund to a risk
of loss. There can be no guarantee that there will be a correlation between
price movements in a hedging instrument and in the portfolio assets being
hedged. The Fund is not required to use any hedging strategies. Hedging
strategies, while reducing risk of loss, can also reduce the opportunity for
gain. Derivatives transactions not involving hedging may have speculative
characteristics, involve leverage and result in losses that may exceed the
original investment of the Fund. There can be no assurance that a liquid
market will exist at a time when the Fund seeks to close out a derivatives
position. Activities of large traders in the futures and securities markets
involving arbitrage, "program trading," and other investment strategies may
cause price distortions in derivatives markets. In certain instances,
particularly those involving over-the-counter transactions or forward
contracts, there is a greater potential that a counterparty or broker may
default. In the event of a default, the Fund may experience a loss. For
additional information concerning derivatives, related instruments and the
associated risks, see the Statement of Additional Information.
Portfolio turnover
The frequency of the Fund's buy and sell transactions will vary from year to
year. The Fund's investment policies may lead to frequent changes in
investments, particularly in periods of rapidly changing market conditions.
High portfolio turnover rates would generally result in higher transaction
costs, including brokerage commissions or dealer mark-ups, and would make it
more difficult for the Fund to qualify as a registered investment company
under federal tax law. See "How Distributions are Made; Tax Information."
Limiting investment risks
Specific investment restrictions help the Fund limit investment risks for its
shareholders. These restrictions prohibit the Fund from: (a) with respect to
75% of its total assets, holding more than 10% of the voting securities of any
issuer or investing more than 5% of its total assets in the securities of any
one issuer (other than U.S. Government obligations); (b) investing more than
15% of its net assets in illiquid securities (which include securities
restricted as to resale unless they are determined to be readily marketable in
accordance with procedures established by the Board of Trustees); or (c)
investing more than 25% of its total assets in any one industry. A complete
description of these and other investment policies is included in the
Statement of Additional Information. Except for the Fund's investment
objective, restriction (c) above and investment policies designated as
fundamental in the Statement of Additional Information, the Fund's investment
policies are not fundamental. The Trustees may change any non-fundamental
investment policy without shareholder approval.
Risk factors
The Fund does not constitute a balanced or complete investment program, and
the net asset value of its shares will fluctuate based on the value of the
securities in the Fund's portfolio. The Fund is subject to the general risks
and considerations associated with equity investing, as well as the risks
discussed herein.
Some of the securities in which the Fund may invest may be of smaller
companies. The securities of smaller companies often trade less frequently
and in more limited volume, and may be subject to more abrupt or erratic price
movements, than securities of larger, more established companies. Such
companies may have limited product lines, markets or financial resources, or
may depend on a limited management group. For a discussion of certain other
risks associated with the Fund's additional investment activities, see "Other
Investment Practices" above.
MANAGEMENT
The Fund's Advisor
Van Deventer & Hoch (the "Advisor") is the Fund's investment Advisor under an
Investment Advisory Agreement and has overall responsibility for investment
decisions of the Fund, subject to the oversight of the Board of Trustees.
The Advisor is a SEC-registered investment adviser. The Advisor is 50% owned
by Putnam, Lovell & Thornton and 50% by members of the Advisor's management
team. For its investment advisory services to the Fund, the Advisor is
entitled to receive an annual fee computed daily and paid monthly based at an
annual rate equal to 0.70% of the Fund's average daily net assets. The
Advisor is located at 800 North Brand Boulevard, Suite 300, Glendale,
California 91203.
Portfolio Manager
Richard Trautwein, Executive Vice President of the Advisor, has been
responsible for the day-to-day management of the Fund's portfolio since the
Fund's inception in its predecessor form. Mr. Trautwein joined the Advisor in
1972, heads the firm's portfolio group and is a member of the firm's
investment policy committee.
HOW TO BUY, SELL AND EXCHANGE SHARES
How to buy shares
You can open a Fund account with as little as $2,500 for regular accounts or
$1,000 for IRAs, SEP-IRAs and the Systematic Investment Plan. Additional
investments can be made at any time with as little as $100. You can buy Fund
shares three ways -- through the Fund's distributor, through securities
brokers, dealers and financial intermediaries, or through the Fund's Automatic
Investment Plan.
Buying shares through the Fund's Distributor
All purchases made by check should be in U.S. dollars and made payable to the
Van Deventer & Hoch American Value Fund. Complete and return the enclosed
application and your check in the amount you wish to invest to: Van Deventer &
Hoch American Value Fund, P.O. Box 640947, Cincinnati, OH 45264-0947. Third
party checks, credit cards and cash will not be accepted. The Fund reserves
the right to reject any purchase order or cease offering shares for purchase
at any time. When purchases are made by check, redemptions will not be
allowed until the check clears, which may take 15 calendar days or longer. In
addition, the redemption of shares purchased through Automated Clearing House
(ACH) will not be allowed until your payment clears, which may take 7 business
days or longer.
Buying shares through Securities Brokers, Dealers and Financial Intermediaries
You may purchase shares of the Fund from selected securities brokers, dealers
or financial intermediaries. Investors should contact these agents directly
for appropriate instructions, as well as information pertaining to accounts
and any service or transaction fees that may be charged by those agents.
Purchase orders through securities brokers, dealers and other financial
intermediaries are effected at the next-determined net asset value after
receipt of the order by such agent before the Fund's daily cutoff time. Orders
received after that time will be purchased at the next-determined net asset
value. To the extent that these agents perform shareholder servicing
activities for the Fund, they may receive fees from the Fund for such
services.
Buying shares through the Automatic Investment Plan
You can make regular investments of $100 or more per transaction through
automatic periodic deductions from your bank checking or savings account.
Shareholders electing to start this Systematic Investment Plan when opening an
account should complete the Automatic Investment Plan section of the account
application. Current shareholders may begin such a plan at any time by
sending a signed letter and a deposit slip or voided check to the Transfer
Agent. Call the Transfer Agent at 1-800-385-7003 for complete instructions.
Shares are purchased at the public offering price, which is based on the net
asset value next determined after the Transfer Agent receives your order in
proper form. In most cases, in order to receive that day's public offering
price, the Transfer Agent must receive your order in proper form before the
close of regular trading on the New York Stock Exchange. If you buy shares
through your investment representative, the representative must receive your
order before the close of regular trading on the New York Stock Exchange to
receive that day's public offering price. Orders are in proper form only
after funds are converted to U.S. funds. Orders paid by check and received by
2:00 p.m., Eastern Time, will generally be available for the purchase of
shares the following business day.
If you are considering redeeming or exchanging shares or transferring shares
to another person shortly after purchase, you should pay for those shares with
a certified check to avoid any delay in redemption, exchange or transfer.
Otherwise the Fund may delay payment until the purchase price of those shares
has been collected or, if you redeem by telephone, until 15 calendar days
after the purchase date. To eliminate the need for safekeeping, the Fund will
not issue certificates for your shares unless you request them.
Offering price
The public offering price of Fund shares is the net asset value. The Fund
receives the net asset value.
How to sell shares
You can sell your Fund shares any day the New York Stock Exchange is open,
either directly to the Fund or through your investment representative. The
Fund will forward redemption payments on redeem shares for which it has
collected payment of the purchase price.
Selling shares directly to the Fund
Send a signed letter of instruction to the Transfer Agent, along with any
certificates that represent shares you want to sell. The price you will
receive is the next net asset value calculated after the Fund receives your
request in proper form. In order to receive that day's net asset value, the
Transfer Agent must receive your request before the close of regular trading
on the New York Stock Exchange.
If you sell shares having a net asset value of $100,000 or more, the
signatures of registered owners or their legal representatives must be
guaranteed by a bank, broker-dealer or certain other financial institutions.
See the Statement of Additional Information for more information about where
to obtain a signature guarantee.
If you want your redemption proceeds sent to an address other than your
address as it appears on the Transfer Agent's records, a signature guarantee
is required. The Fund may require additional documentation for the sale of
shares by a corporation, partnership, agent or fiduciary, or a surviving joint
owner. Contact the Transfer Agent for details.
Delivery of proceeds
The Fund generally sends you payment for your shares the business day after
your request is received in proper form, assuming the Fund has collected
payment of the purchase price of your shares. Under unusual circumstances,
the Fund may suspend redemptions, or postpone payment for more than seven
days, as permitted by federal securities law.
Telephone redemptions
You may use the Transfer Agent's Telephone Redemption Privilege to redeem
shares from your account unless you have notified the Transfer Agent of an
address change within the preceding 30 days. Telephone redemption requests in
excess of $25,000 will only be made by wire to a bank account on record with
the Fund. Unless an investor indicates otherwise on the account application,
the Fund will be authorized to act upon redemption and transfer instructions
received by telephone from a shareholder, or any person claiming to act as his
or her representative, who can provide the Fund with his or her account
registration and address as it appears on the Fund's records.
The Transfer Agent will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine; if it fails
to employ reasonable procedures, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. An investor agrees, however, that to
the extent permitted by applicable law, neither the Fund nor its agents will
be liable for any loss, liability, cost or expense arising out of any
redemption request, including any fraudulent or unauthorized request. For
information, consult the Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this
event, you may wish to submit a written redemption request, as described
above, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
Automatic withdrawal
You can make regular withdrawals of $50 or more monthly, quarterly or
semiannually. A minimum account balance of $5,000 is required to establish an
automatic withdrawal plan. Call the Transfer Agent at 1-800-385-7003 for
complete instructions.
Selling shares through your investment representative
Your investment representative must receive your request before the close of
regular trading on the New York Stock Exchange to receive that day's net asset
value. Your investment representative will be responsible for furnishing all
necessary documentation to the Transfer Agent, and may charge you for its
services.
Involuntary redemption of accounts
The Fund may involuntarily redeem your shares if at such time the aggregate
net asset value of the shares in your account is less than $500 due to
redemptions or if you purchase through the Automatic Investment Plan and fail
to meet the Fund's investment minimum within a twelve month period. In the
event of any such redemption, you will receive at least 60 days notice prior
to the redemption.
How to exchange your shares
Currently, shares of the Fund cannot be exchanged into other series of the
Trust.
HOW THE FUND VALUES ITS SHARES
The net asset value of the Fund's shares is determined once daily based upon
prices determined as of the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m., Eastern time; however, options are priced at
4:15 p.m., Eastern time), on each business day of the Fund, by dividing the
net assets of the Fund by the total number of outstanding shares. Values of
asset held by the Fund are determined on the basis of their market or other
fair value, as described in the Statement of Additional Information.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
The Fund distributes any net investment income at least annually and any net
realized capital gains at least annually. Capital gains are distributed after
deducting any available capital loss carry-overs.
Distribution payment option
You can choose from three distribution options: (1) reinvest all distributions
in additional Fund shares without a sales charge; (2) receive distributions
from net investment income in cash or by ACH to a pre-established bank account
while reinvesting capital gains distributions in additional shares without a
sales charge; or (3) receive all distributions in cash or by ACH. You can
change your distribution option by notifying the Transfer Agent in writing.
If you do not select an option when you open your account, all distributions
will be reinvested. All distributions not paid in cash or by ACH will be
reinvested in shares of the Fund. You will receive a statement confirming
reinvestment of distributions in additional Fund shares promptly following the
quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within a specified
period, the Transfer Agent will notify you that you have the option of
requesting another check or reinvesting the distribution in the Fund or in
another fund of the Trust. If the Transfer Agent does not receive your
election, the distribution will be reinvested in the Fund. Similarly, if the
Fund or the Transfer Agent sends you correspondence returned as
"undeliverable," distributions will automatically be reinvested in the Fund.
The Fund has elected and intends to continue to qualify as a "regulated
investment company" for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal taxes on
income and gains it distributes to shareholders. The Fund intends to
distribute substantially all of its ordinary income and capital gain net
income on a current basis. If the Fund does not qualify as a regulated
investment company for any taxable year or does not make such distributions,
the Fund will be subject to tax on all of its income and gains.
Taxation of distributions
Fund distributions other than net long-term capital gains will be taxable to
you as ordinary income. Distributions of net long-term capital gains will be
taxable as such, regardless of how long you have held the shares. The
taxation of your distribution is the same whether received in cash or in
shares through the reinvestment of distributions.
You should carefully consider the tax implications of purchasing shares just
prior to a distribution. This is because you will be taxed on the entire
amount of the distribution received, even though the net asset value per share
will be higher on the date of such purchase as it will include the
distribution amount.
Early in each calendar year the Fund will notify you of the amount and tax
status of distributions paid to you by the Fund for the preceding year.
The above is only a summary of certain federal income tax consequences of
investing in the Fund. You should consult your tax adviser to determine the
precise effect of an investment in the Fund on your particular tax situation
(including possible liability for state and local taxes and, for foreign
shareholders, U.S. withholding taxes).
OTHER INFORMATION CONCERNING THE FUND
Distribution Plan
The Fund's distributor is First Fund Distributors, Inc., 4455 East Camelback
Road, Suite 261E, Phoenix, AZ 85018, an affiliate of the Administrator (the
"Distributor"). The Fund has adopted a distribution plan pursuant to Rule
12b-1. The Plan provides that the Fund may pay for distribution and related
expenses at an annual rate of up to 0.25% of the Fund's average net assets to
the Advisor as Distribution Coordinator. Expenses permitted to be paid by the
Fund under its Plan include: preparation, printing and mailing of
prospectuses; shareholder reports such as semi- annual and annual reports,
performance reports and newsletters; sales literature and other promotional
material to prospective investors; direct mail solicitation; advertising;
public relations; compensation of sales personnel; advisors or other third
parties for the assistance with respect to the distribution of the Fund's
shares; payments to financial intermediaries for shareholder support;
administrative and accounting services with respect to the shareholders of the
Fund; and such other expenses as may be approved from time to time by the
Board of Trustees.
The Rule 12b-1 Distribution Plan allows excess distribution expenses to be
carried forward by the Advisor, as Distribution Coordinator, and resubmitted
in a subsequent fiscal year provided that (i) distribution expenses cannot be
carried forward for more than three years following initial submission; (ii)
the Board of Trustees has made a determination at the time of initial
submission that the distribution expenses are appropriate to be carried
forward; and (iii) the Board of Trustees makes a further determination, at the
time any distribution expenses which have been carried forward are resubmitted
for payment, to the effect that payment at the time is appropriate, consistent
with the objectives of the Plan and the current best interest of shareholders.
Shareholder servicing agents
The Trust has entered into shareholder servicing agreements with certain
shareholder servicing agents (including the Advisor) under which the
shareholder servicing agents have agreed to provide certain support services
to their customers who beneficially own shares of the Fund. These services
include assisting with purchase and redemption transactions, maintaining
shareholder accounts and records, furnishing customer statements, transmitting
shareholder reports and communications to customers and other similar
shareholder liaison services. For performing these services, each shareholder
servicing agent receives an annual fee of up to 0.25% of the average daily net
assets of shares of the Fund held by investors for whom the shareholder
servicing agent maintains a servicing relationship. Shareholder servicing
agents may subcontract with other parties for the provision of shareholder
support services.
Shareholder servicing agents may offer additional services to their customers,
such as pre-authorized or systematic purchase and redemption plans. Each
shareholder servicing agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect
to such services. Certain shareholder servicing agents may(although they are
not required by the Trust to do so) credit to the accounts of their customers
from whom they are already receiving other fees an amount not exceeding such
other fees or the fees for their services as shareholder servicing agents.
The Advisor and certain broker-dealers and other shareholder servicing agents
may, at their own expense, provide gifts, such as computer software packages,
guides and books related to investment or additional Fund shares valued up to
$250 to their customers that invest in the funds of the Trust.
The Advisor may, from time to time, at its own expense out of compensation
retained by it from the Fund or other sources available to it, make additional
payments to certain selected dealers or other shareholder servicing agents for
performing administrative services for their customers. These services include
maintaining account records, processing orders to purchase, redeem and
exchange Fund shares and responding to certain customer inquiries. The amount
of such compensation may be up to an additional 0.10% annually of the average
net assets of the Fund attributable to shares of the Fund held by customers of
such shareholder servicing agents. Such compensation does not represent an
additional expense to the Fund or its shareholders, since it will be paid by
the Advisor.
Administrator
Investment Company Administration Corporation (the "Administrator") prepares
various federal and state regulatory filings, reports and returns for the
Fund, prepares reports and materials to be supplied to the trustees, monitors
the activities of the Fund's custodian, shareholder servicing agent and
accountants, and coordinates the preparation and payment of Fund expenses and
reviews the Fund's expense accruals. For its services, the Administrator
receives a monthly fee at the annual rate of 0.10% of the Fund's average net
assets.
Custodian
Star Bank, N.A. Cinti/Trust acts as the Fund's custodian and fund accountant
and receives compensation under an agreement with the Trust.
Expenses
The Fund pays the expenses incurred in its operations, including its pro rata
share of expenses of the Trust. These expenses include investment advisory
and administrative fees; the compensation of the Trustees; registration fees;
interest charges; taxes; expenses connected with the execution, recording and
settlement of security transactions; fees and expenses of the Fund's custodian
for all services to the Fund, including safekeeping of funds and securities
and maintaining required books and accounts; expenses of preparing and mailing
reports to investors and to government offices and commissions; expenses of
meetings of investors; fees and expenses of independent accountants, of legal
counsel and of any transfer agent, registrar or dividend disbursing agent of
the Trust; insurance premiums; and expenses of calculating the net asset value
of, and the net income on, shares of the Fund. Service providers to the Fund
may, from time to time, voluntarily waive all or a portion of any fees to
which they are entitled.
Organization and description of shares
The Fund is a series of Advisors Series Trust, an open-end management
investment company organized as a Delaware business trust on October 3, 1996
(the "Trust"). The Trust has reserved the right to create and issue
additional series and classes. Each share of a series or class represents an
equal proportionate interest in that series or class with each other share of
that series or class. The shares of each series or class participate equally
in the earnings, dividends and assets of the particular series or class.
Shares have no preemptive or conversion rights. Shares when issued are fully
paid and non-assessable, except as set forth below. Shareholders are entitled
to one vote for each whole share held, and each fractional share shall be
entitled to a proportionate fractional vote, except that Trust shares held in
the treasury of the Trust shall not be voted.
The business and affairs of the Trust are managed under the general direction
and supervision of its Board of Trustees. The Trust is not required to hold
annual meetings of shareholders but will hold special meetings of shareholders
of all series or classes when in the judgment of the Trustees it is necessary
or desirable to submit matters for a shareholder vote. The Trustees will
promptly call a meeting of shareholders to remove a trustee(s) when requested
to do so in writing by record holders of not less than 10% of all outstanding
shares of the Trust.
PERFORMANCE INFORMATION
The Fund's investment performance may from time to time be included in
advertisements about the Fund. "Yield" for the shares is calculated by
dividing the annualized net investment income per share during a recent 30-day
period by the maximum public offering price per share of such class on the
last day of the period.
"Total return" for the one-, five- and ten-year periods (or since inception,
if shorter) through the most recent calendar quarter represents the average
annual compounded rate of return on an investment of $1,000 in the Fund
invested at the maximum public offering price. Total return may also be
presented for other periods. Any quotation of investment performance not
reflecting a maximum initial sales charge or contingent deferred sales charge
would be reduced if such sales charges were used.
All performance data is based on the Fund's past investment results and does
not predict future performance. Investment performance, which will vary, is
based on many factors, including market conditions, the composition of the
Fund's portfolio and the Fund's operating expenses. Investment performance
also often reflects the risks associated with the Fund's investment objectives
and policies. These factors should be considered when comparing the Fund's
investment results to those of other mutual funds and other investment
vehicles. Quotation of investment performance for any period when a fee
waiver or expense limitation was in effect will be greater than if the waiver
or limitation had not been in effect. The Fund's performance may be compared
to other mutual funds, relevant indices and rankings prepared by independent
services. See the Statement of Additional Information.
MAKE THE MOST OF YOUR FUND PRIVILEGES
The following services are available to you as a Fund shareholder:
AUTOMATIC INVESTMENT PLAN -- Invest as much as you wish ($100 or more) in
the first or third week of any month. The amount will be automatically
transferred from your checking or savings account.
SYSTEMATIC WITHDRAWAL PLAN -- Make regular withdrawals of $50 or more
monthly, quarterly or semiannually. A minimum account balance of $5,000 is
required to establish a systematic withdrawal plan.
SYSTEMATIC EXCHANGE -- Transfer assets automatically from one fund of the
Trust to another on a regular, prearranged basis. There is no additional
charge for this service.
REINSTATEMENT PRIVILEGE -- Shareholders have a one time privilege of
reinstating their investment in the Fund at net asset value next determined
subject to written request within 90 calendar days of the redemption,
accompanied by payment for the shares (not in excess of the redemption).
For more information about any of these services and privileges, call your
shareholder servicing agent investment representative or the Transfer Agent at
1-800-385-7003. These privileges are subject to change or termination.
San Francisco/16601
Advisor
Van Deventer & Hoch 800 North Bend
Boulevard, Suite 300 Glendale, CA 91203 818-247-5330
Distributor
First Fund Distributors, Inc. 4455 East
Camelback Road, Suite 261E Phoenix, AZ 85018
Custodian
Star Bank, N.A. 425 Walnut Street
Cincinnati, OH 45202
Transfer Agent
American Data Services, Inc. 24 West
Carver Street, 2nd Floor Huntington, NY 11743 800-385-7003
Independent Accountants
________________________
________________________ ________________________
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street San Francisco, CA 94104
<PAGE>
SUBJECT TO COMPLETION -- Dated October 1, 1997
STATEMENT OF
ADDITIONAL INFORMATION
VAN DEVENTER & HOCH AMERICAN VALUE FUND
800 North Broad Boulevard
Suite 300
Glendale, California 91203
December ___, 1997
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Prospectus offering shares of the Fund. This Statement of Additional
Information should be read in conjunction with the Prospectus offering shares
of Van Deventer & Hoch American Value Fund (the "Fund"). Any references to a
"Prospectus" in this Statement of Additional Information is a reference to the
foregoing Prospectus, as the context requires. Copies of the Prospectus may be
obtained by an investor without charge by contacting First Fund Distributors,
Inc., the Fund's distributor (the "Distributor"), at the above-listed address.
This Statement of Additional Information is NOT a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus.
For more information about your account, simply call or write
______________________________.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
any offers to buy be accepted prior to the time the registration statement
becomes effective. This Statement of Additional Information does not
constitute a prospectus.
TABLE OF CONTENTS
The Fund . . . . . . . . . . . . . . . . . . . . . . . . . .3
Investment Policies and Restrictions . . . . . . . . . . . .3
Additional Policies Regarding Derivative And Related
Transactions ........................................13
Performance Information. . . . . . . . . . . . . . . . . . 29
Determination of Net Asset Value . . . . . . . . . . . . . 32
Purchases, Redemptions and Exchanges . . . . . . . . . . . 33
Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . 34
Management of the Trust and the Fund . . . . . . . . . . . 43
General Information. . . . . . . . . . . . . . . . . . . . 51
Appendix A -- Description of Certain Obligations Issued or Guaranteed by
U.S. Government Agencies or Instrumentalities. . . . . . .A-1
Appendix B -- Description of Ratings . . . . . . . . . . .B-1
THE FUND
Van Deventer & Hoch American Value Fund (the "Fund") is a series of the
Advisors Series Trust (the "Trust"). The Trust is organized as a business
trust under the laws of the Commonwealth of Delaware on October 3, 1996. The
Trust presently consists of ___ separate series. The Fund is a diversified
fund, as such term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). The shares of the Fund are collectively referred to
in this Statement of Additional Information as the "Shares."
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Trust including the Fund. A majority of the Trustees of the
Trust are not affiliated with the investment adviser, the administrator, the
distributor or any other entity providing services to the Trust or any of its
series.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Investment Policies
The Prospectus sets forth the various investment policies of the Fund.
The following information supplements and should be read in conjunction with
the related sections of the Fund's Prospectus. For descriptions of the
securities ratings of Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("S&P") and Fitch Investors Service, Inc. ("Fitch"), see
Appendix B.
U.S. Government Securities. U.S. Government Securities include (1) U.S.
Treasury obligations, which generally differ only in their interest rates,
maturities and times of issuance, including: U.S. Treasury bills (maturities
of one year or less), U.S. Treasury notes (maturities of one to ten years) and
U.S. Treasury bonds (generally maturities of greater than ten years); and (2)
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow
any amount listed to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the U.S. Government agency or instrumentality or (d) the credit of the
agency or instrumentality. Agencies and instrumentalities of the U.S.
Government include but are not limited to: Federal Land Banks, Federal
Financing Banks, Banks for Cooperatives, Federal Intermediate Credit Banks,
Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal National Mortgage Association, Student Loan Marketing
Association, United States Postal Service, Chrysler Corporate Loan Guarantee
Board, Small Business Administration, Tennessee Valley Authority and any other
enterprise established or sponsored by the U.S. Government. Certain U.S.
Government Securities, including U.S. Treasury bills, notes and bonds,
Government National Mortgage Association certificates and Federal Housing
Administration debentures, are supported by the full faith and credit of the
United States. Other U.S. Government Securities are issued or guaranteed by
federal agencies or government sponsored enterprises and are not supported by
the full faith and credit of the United States. These securities include
obligations that are supported by the right of the issuer to borrow from the
U.S. Treasury, such as obligations of the Federal Home Loan Banks, and
obligations that are supported by the creditworthiness of the particular
instrumentality, such as obligations of the Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation. For a description of
certain obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, see Appendix A.
In addition, certain U.S. Government agencies and instrumentalities issue
specialized types of securities, such as guaranteed notes of the Small
Business Administration, Federal Aviation Administration, Department of
Defense, Bureau of Indian Affairs and Private Export Funding Corporation,
which often provide higher yields than are available from the more common
types of government-backed instruments. However, such specialized instruments
may only be available from a few sources, in limited amounts, or only in very
large denominations; they may also require specialized capability in portfolio
servicing and in legal matters related to government guarantees. While they
may frequently offer attractive yields, the limited-activity markets of many
of these securities means that, if a Fund or Portfolio were required to
liquidate any of them, it might not be able to do so advantageously;
accordingly, each Fund and Portfolio investing in such securities normally to
hold such securities to maturity or pursuant to repurchase agreements, and
would treat such securities (including repurchase agreements maturing in more
than seven days) as illiquid for purposes of its limitation on investment in
illiquid securities.
Bank Obligations. Investments in bank obligations are limited to those
of U.S. banks (including their foreign branches) which have total assets at
the time of purchase in excess of $1 billion and the deposits of which are
insured by either the Bank Insurance Fund or the Savings Association Insurance
Fund of the Federal Deposit Insurance Corporation, and foreign banks
(including their U.S. branches) having total assets in excess of $10 billion
(or the equivalent in other currencies), and such other U.S. and foreign
commercial banks which are judged by the Adviser to meet comparable credit
standing criteria. Bank obligations include negotiable certificates of
deposit, bankers' acceptances, fixed time deposits and deposit notes. A
certificate of deposit is a short-term negotiable certificate issued by a
commercial bank against funds deposited in the bank and is either
interest-bearing or purchased on a discount basis. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction. The borrower is
liable for payment as is the bank, which unconditionally guarantees to pay the
draft at its face amount on the maturity date. Fixed time deposits are
obligations of branches of United States banks or foreign banks which are
payable at a stated maturity date and bear a fixed rate of interest. Although
fixed time deposits do not have a market, there are no contractual
restrictions on the right to transfer a beneficial interest in the deposit to
a third party. Fixed time deposits subject to withdrawal penalties and with
respect to which a Fund or Portfolio cannot realize the proceeds thereon
within seven days are deemed "illiquid" for the purposes of its restriction on
investments in illiquid securities. Deposit notes are notes issued by
commercial banks which generally bear fixed rates of interest and typically
have original maturities ranging from eighteen months to five years.
Banks are subject to extensive governmental regulations that may limit
both the amounts and types of loans and other financial commitments that may
be made and the interest rates and fees that may be charged. The
profitability of this industry is largely dependent upon the availability and
cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit
losses arising from possible financial difficulties of borrowers might affect
a bank's ability to meet its obligations. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation. Investors
should also be aware that securities of foreign banks and foreign branches of
United States banks may involve foreign investment risks in addition to those
relating to domestic bank obligations.
Depositary Receipts. The Fund will limit its investment in Depositary
Receipts not sponsored by the issuer of the underlying security to no more
than 5% of the value of its net assets (at the time of investment). A
purchaser of an unsponsored Depositary Receipt may not have unlimited voting
rights and may not receive as much information about the issuer of the
underlying securities as with a sponsored Depositary Receipt.
ECU Obligations. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community to
reflect changes in relative values of the underlying currencies. The Trustees
do not believe that such adjustments will adversely affect holders of
ECU-denominated securities or the marketability of such securities.
Supranational Obligations. Supranational organizations, include
organizations such as The World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union
of various European nations steel and coal industries; and the Asian
Development Bank, which is an international development bank established to
lend funds, promote investment and provide technical assistance to member
nations of the Asian and Pacific regions.
Corporate Reorganizations. In general, securities that are the subject
of a tender or exchange offer or proposal sell at a premium to their historic
market price immediately prior to the announcement of the offer or proposal.
The increased market price of these securities may also discount what the
stated or appraised value of the security would be if the contemplated action
were approved or consummated. These investments may be advantageous when the
discount significantly overstates the risk of the contingencies involved;
significantly undervalues the securities, assets or cash to be received by
shareholders of the prospective portfolio company as a result of the
contemplated transaction; or fails adequately to recognize the possibility
that the offer or proposal may be replaced or superseded by an offer or
proposal of greater value. The evaluation of these contingencies requires
unusually broad knowledge and experience on the part of the Adviser that must
appraise not only the value of the issuer and its component businesses as well
as the assets or securities to be received as a result of the contemplated
transaction, but also the financial resources and business motivation of the
offer or as well as the dynamics of the business climate when the offer or
proposal is in progress. Investments in reorganization securities may tend to
increase the turnover ratio of a Fund and increase its brokerage and other
transaction expenses.
Warrants and Rights. Warrants basically are options to purchase equity
securities at a specified price for a specific period of time. Their prices
do not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants but normally have a shorter duration and are
distributed directly by the issuer to shareholders. Rights and warrants have
no voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
Commercial Paper. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing arrangement
involving periodically fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional lender pursuant to
which the lender may determine to invest varying amounts.
Repurchase Agreements. The Fund will enter into repurchase agreements
only with member banks of the Federal Reserve System and securities dealers
believed creditworthy, and only if fully collateralized by securities in which
the Fund is permitted to invest. Under the terms of a typical repurchase
agreement, the Fund would acquire an underlying instrument for a relatively
short period (usually not more than one week) subject to an obligation of the
seller to repurchase the instrument and the Fund to resell the instrument at a
fixed price and time, thereby determining the yield during the Fund's holding
period. This procedure results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to
the risk that the seller may fail to repurchase the security. Repurchase
agreements are considered under the 1940 Act to be loans collateralized by the
underlying securities. All repurchase agreements entered into by the Fund
will be fully collateralized at all times during the period of the agreement
in that the value of the underlying security will be at least equal to 102% of
the amount of the loan, including the accrued interest thereon, and the Fund
or its custodian or sub-custodian will have possession of the collateral,
which the Board of Trustees believes will give it a valid, perfected security
interest in the collateral. Whether a repurchase agreement is the purchase
and sale of a security or a collateralized loan has not been conclusively
established. This might become an issue in the event of the bankruptcy of the
other party to the transaction. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities would not be owned by the Fund, but would only constitute
collateral for the seller's obligation to pay the repurchase price.
Therefore, the Fund may suffer time delays and incur costs in connection with
the disposition of the collateral. The Board of Trustees believes that the
collateral underlying repurchase agreements may be more susceptible to claims
of the seller's creditors than would be the case with securities owned by the
Fund. Repurchase agreements maturing in more than seven days are treated as
illiquid for purposes of the Funds' and Portfolios' restrictions on purchases
of illiquid securities. Repurchase agreements are also subject to the risks
described below with respect to stand-by commitments.
Forward Commitments. In order to invest the Fund's assets immediately,
while awaiting delivery of securities purchased on a forward commitment basis,
short-term obligations that offer same-day settlement and earnings will
normally be purchased. When a commitment to purchase a security on a forward
commitment basis is made, procedures are established consistent with the
General Statement of Policy of the Securities and Exchange Commission
concerning such purchases. Since that policy currently recommends that an
amount of the Fund's assets equal to the amount of the purchase be held aside
or segregated to be used to pay for the commitment, a separate account of the
Fund consisting of cash or liquid securities equal to the amount of the Fund's
commitments securities will be established at the Fund's custodian bank. For
the purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market value. If the market value of
such securities declines, additional cash, cash equivalents or highly liquid
securities will be placed in the account daily so that the value of the
account will equal the amount of such commitments by the Fund.
Although it is not intended that such purchases would be made for
speculative purposes, purchases of securities on a forward commitment basis
may involve more risk than other types of purchases. Securities purchased on
a forward commitment basis and the securities held in the Fund's portfolio are
subject to changes in value based upon the public's perception of the issuer
and changes, real or anticipated, in the level of interest rates. Purchasing
securities on a forward commitment basis can involve the risk that the yields
available in the market when the delivery takes place may actually be higher
or lower than those obtained in the transaction itself. On the settlement
date of the forward commitment transaction, the Fund will meet its obligations
from then available cash flow, sale of securities held in the separate
account, sale of other securities or, although it would not normally expect to
do so, from sale of the forward commitment securities themselves (which may
have a value greater or lesser than the Fund's payment obligations). The sale
of securities to meet such obligations may result in the realization of
capital gains or losses.
To the extent the Fund engages in forward commitment transactions, it
will do so for the purpose of acquiring securities consistent with its
investment objective and policies and not for the purpose of investment
leverage, and settlement of such transactions will be within 90 days from the
trade date.
Floating and Variable Rate Securities; Participation Certificates. The
securities in which the Fund may be invested include participation
certificates issued by a bank, insurance company or other financial
institution in securities owned by such institutions or affiliated
organizations ("Participation Certificates"). A Participation Certificate
gives the Fund an undivided interest in the security in the proportion that
the Fund's participation interest bears to the total principal amount of the
security and generally provides the demand feature described below. Each
Participation Certificate is backed by an irrevocable letter of credit or
guaranty of a bank (which may be the bank issuing the Participation
Certificate, a bank issuing a confirming letter of credit to that of the
issuing bank, or a bank serving as agent of the issuing bank with respect to
the possible repurchase of the Participation Certificate) or insurance policy
of an insurance company that the Board of Trustees of the Trust has determined
meets the prescribed quality standards for the Fund.
The Fund may have the right to sell the Participation Certificate back to
the institution and draw on the letter of credit or insurance on demand after
the prescribed notice period, for all or any part of the full principal amount
of the Fund's participation interest in the security, plus accrued interest.
The institutions issuing the Participation Certificates would retain a service
and letter of credit fee and a fee for providing the demand feature, in an
amount equal to the excess of the interest paid on the instruments over the
negotiated yield at which the Participation Certificates were purchased by the
Fund. The total fees would generally range from 5% to 15% of the applicable
prime rate or other short-term rate index. With respect to insurance, the
Fund will attempt to have the issuer of the participation certificate bear the
cost of any such insurance, although the Fund retains the option to purchase
insurance if deemed appropriate. Obligations that have a demand feature
permitting the Fund to tender the obligation to a foreign bank may involve
certain risks associated with foreign investment. The Fund's ability to
receive payment in such circumstances under the demand feature from such
foreign banks may involve certain risks such as future political and economic
developments, the possible establishments of laws or restrictions that might
adversely affect the payment of the bank's obligations under the demand
feature and the difficulty of obtaining or enforcing a judgment against the
bank.
The Adviser has been instructed by the Board of Trustees to monitor on an
ongoing basis the pricing, quality and liquidity of the floating and variable
rate securities held by the Fund, including Participation Certificates, on the
basis of published financial information and reports of the rating agencies
and other bank analytical services to which the Fund may subscribe. Although
these instruments may be sold by the Fund, it is intended that they be held
until maturity.
Past periods of high inflation, together with the fiscal measures adopted
to attempt to deal with it, have seen wide fluctuations in interest rates,
particularly "prime rates" charged by banks. While the value of the
underlying floating or variable rate securities may change with changes in
interest rates generally, the floating or variable rate nature of the
underlying floating or variable rate securities should minimize changes in
value of the instruments. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation and the risk of potential
capital depreciation is less than would be the case with a portfolio of fixed
rate securities. The Fund's portfolio may contain floating or variable rate
securities on which stated minimum or maximum rates, or maximum rates set by
state law, limit the degree to which interest on such floating or variable
rate securities may fluctuate; to the extent it does, increases or decreases
in value may be somewhat greater than would be the case without such limits.
Because the adjustment of interest rates on the floating or variable rate
securities is made in relation to movements of the applicable banks' "prime
rates" or other short-term rate adjustment indices, the floating or variable
rate securities are not comparable to long-term fixed rate securities.
Accordingly, interest rates on the floating or variable rate securities may be
higher or lower than current market rates for fixed rate obligations of
comparable quality with similar maturities.
The maturity of variable rate securities is deemed to be the longer of
(a) the notice period required before the Fund is entitled to receive payment
of the principal amount of the security upon demand, or (b) the period
remaining until the security's next interest rate adjustment.
Reverse Repurchase Agreements. Reverse repurchase agreements involve the
sale of securities held by the Fund with an agreement to repurchase the
securities at an agreed upon price and date. The repurchase price is
generally equal to the original sales price plus interest. Reverse repurchase
agreements are usually for seven days or less and cannot be repaid prior to
their expiration dates. Reverse repurchase agreements involve the risk that
the market value of the portfolio securities transferred may decline below the
price at which the Fund is obliged to purchase the securities.
Zero Coupon, Payment-in-Kind and Stripped Obligations. The principal and
interest components of United States Treasury bonds with remaining maturities
of longer than ten years are eligible to be traded independently under the
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program. Under the STRIPS program, the principal and interest components are
separately issued by the United States Treasury at the request of depository
financial institutions, which then trade the component parts separately. The
interest component of STRIPS may be more volatile than that of United States
Treasury bills with comparable maturities. Zero coupon obligations are sold
at a substantial discount from their value at maturity and, when held to
maturity, their entire return, which consists of the amortization of discount,
comes from the difference between their purchase price and maturity value.
Because interest on a zero coupon obligation is not distributed on a current
basis, the obligation tends to be subject to greater price fluctuations in
response to changes in interest rates than are ordinary interest-paying
securities with similar maturities. The value of zero coupon obligations
appreciates more than such ordinary interest-paying securities during periods
of declining interest rates and depreciates more than such ordinary
interest-paying securities during periods of rising interest rates. Under the
stripped bond rules of the Internal Revenue Code of 1986, as amended,
investments by the Fund in zero coupon obligations will result in the accrual
of interest income on such investments in advance of the receipt of the cash
corresponding to such income.
Zero coupon securities may be created when a dealer deposits a U.S.
Treasury or federal agency security with a custodian and then sells the coupon
payments and principal payment that will be generated by this security
separately. Proprietary receipts, such as Certificates of Accrual on Treasury
Securities, Treasury Investment Growth Receipts and generic Treasury Receipts,
are examples of stripped U.S. Treasury securities separated into their
component parts through such custodial arrangements.
Payment-in-kind ("PIK") bonds are debt obligations which provide that the
issuer thereof may, at its option, pay interest on such bonds in cash or in
the form of additional debt obligations. Such investments benefit the issuer
by mitigating its need for cash to meet debt service, but also require a
higher rate of return to attract investors who are willing to defer receipt of
such cash. Such investments experience greater volatility in market value due
to changes in interest rates than debt obligations which provide for regular
payments of interest. The Fund will accrue income on such investments for tax
and accounting purposes, as required, which is distributable to shareholders
and which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Fund's distribution
obligations.
Illiquid Securities. For purposes of its limitation on investments in
illiquid securities, the Fund may elect to treat as liquid, in accordance with
procedures established by the Board of Trustees, certain investments in
restricted securities for which there may be a secondary market of qualified
institutional buyers as contemplated by Rule 144A under the Securities Act of
1933, as amended (the "Securities Act") and commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act ("Section 4(2) paper"). Rule
144A provides an exemption from the registration requirements of the
Securities Act for the resale of certain restricted securities to qualified
institutional buyers. Section 4(2) paper is restricted as to disposition
under the federal securities laws, and generally is sold to institutional
investors such as the Fund who agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale of Section
4(2) paper by the purchaser must be in an exempt transaction.
One effect of Rule 144A and Section 4(2) is that certain restricted
securities may now be liquid, though there is no assurance that a liquid
market for Rule 144A securities or Section 4(2) paper will develop or be
maintained. The Trustees have adopted policies and procedures for the purpose
of determining whether securities that are eligible for resale under Rule 144A
and Section 4(2) paper are liquid or illiquid for purposes of the limitation
on investment in illiquid securities.
Stand-By Commitments. In a put transaction, the Fund acquires the right
to sell a security at an agreed upon price within a specified period prior to
its maturity date, and a stand-by commitment entitles the Fund to same-day
settlement and to receive an exercise price equal to the amortized cost of the
underlying security plus accrued interest, if any, at the time of exercise.
Stand-by commitments are subject to certain risks, which include the inability
of the issuer of the commitment to pay for the securities at the time the
commitment is exercised, the fact that the commitment is not marketable by the
Fund, and that the maturity of the underlying security will generally be
different from that of the commitment.
Securities Loans. To the extent specified in its Prospectus, the Fund is
permitted to lend its securities to broker-dealers and other institutional
investors in order to generate additional income. Such loans of portfolio
securities may not exceed 30% of the value of the Fund's total assets. In
connection with such loans, the Fund will receive collateral consisting of
cash, cash equivalents, U.S. Government securities or irrevocable letters of
credit issued by financial institutions. Such collateral will be maintained
at all times in an amount equal to at least 102% of the current market value
plus accrued interest of the securities loaned. The Fund can increase its
income through the investment of such collateral. The Fund continues to be
entitled to the interest payable or any dividend-equivalent payments received
on a loaned security and, in addition, to receive interest on the amount of
the loan. However, the receipt of any dividend-equivalent payments by the
Fund on a loaned security from the borrower will not qualify for the
dividends-received deduction. Such loans will be terminable at any time upon
specified notice. The Fund might experience risk of loss if the institutions
with which it has engaged in portfolio loan transactions breach their
agreements with the Fund. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible delays in receiving
additional collateral or in the recovery of the securities or possible loss of
rights in the collateral should the borrower experience financial difficulty.
Loans will be made only to firms deemed by the Adviser to be of good standing
and will not be made unless, in the judgment of the Adviser, the consideration
to be earned from such loans justifies the risk.
Real Estate Investment Trusts. Certain Funds may invest in shares of
real estate investment trusts ("REITs"), which are pooled investment vehicles
which invest primarily in income-producing real estate or real estate related
loans or interests. REITs are generally classified as equity REITs or
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. The value of equity trusts will depend upon the value of the
underlying properties, and the value of mortgage trusts will be sensitive to
the value of the underlying loans or interests.
ADDITIONAL POLICIES REGARDING DERIVATIVE AND RELATED TRANSACTIONS
Introduction
As explained more fully below, the Fund may employ derivative and related
instruments as tools in the management of portfolio assets. Put briefly, a
"derivative" instrument may be considered a security or other instrument which
derives its value from the value or performance of other instruments or
assets, interest or currency exchange rates, or indexes. For instance,
derivatives include futures, options, forward contracts, structured notes and
various over-the-counter instruments.
Like other investment tools or techniques, the impact of using
derivatives strategies or similar instruments depends to a great extent on how
they are used. Derivatives are generally used by portfolio managers in three
ways: first, to reduce risk by hedging (offsetting) an investment position;
second, to substitute for another security particularly where it is quicker,
easier and less expensive to invest in derivatives; and lastly, to speculate
or enhance portfolio performance. When used prudently, derivatives can offer
several benefits, including easier and more effective hedging, lower
transaction costs, quicker investment and more profitable use of portfolio
assets. However, derivatives also have the potential to significantly magnify
risks, thereby leading to potentially greater losses for the Fund.
The Fund may invest its assets in derivative and related instruments
subject only to the Fund's investment objective and policies and the
requirement that the Fund maintain segregated accounts consisting of cash or
other liquid assets (or, as permitted by applicable regulation, enter into
certain offsetting positions) to cover its obligations under such instruments
with respect to positions where there is no underlying portfolio asset so as
to avoid leveraging the Fund.
The value of some derivative or similar instruments in which the Fund may
invest may be particularly sensitive to changes in prevailing interest rates
or other economic factors, and -- like other investments of the Fund -- the
ability of the Fund to successfully utilize these instruments may depend in
part upon the ability of the Adviser to forecast interest rates and other
economic factors correctly. If the Adviser inaccurately forecasts such
factors and has taken positions in derivative or similar instruments contrary
to prevailing market trends, the Fund could be exposed to the risk of a loss.
The Fund might not employ any or all of the strategies described herein, and
no assurance can be given that any strategy used will succeed.
Set forth below is an explanation of the various derivatives strategies
and related instruments the Fund may employ along with risks or special
attributes associated with them. This discussion is intended to supplement
the Fund's current prospectus as well as provide useful information to
prospective investors.
Risk Factors. As explained more fully below and in the discussions of
particular strategies or instruments, there are a number of risks associated
with the use of derivatives and related instruments. There can be no
guarantee that there will be a correlation between price movements in a
hedging vehicle and in the portfolio assets being hedged. An incorrect
correlation could result in a loss on both the hedged assets in the Fund and
the hedging vehicle so that the portfolio return might have been greater had
hedging not been attempted. This risk is particularly acute in the case of
"cross-hedges" between currencies. The Adviser may inaccurately forecast
interest rates, market values or other economic factors in utilizing a
derivatives strategy. In such a case, the Fund may have been in a better
position had it not entered into such strategy. Hedging strategies, while
reducing risk of loss, can also reduce the opportunity for gain. In other
words, hedging usually limits both potential losses as well as potential
gains. Strategies not involving hedging may increase the risk to the Fund.
Certain strategies, such as yield enhancement, can have speculative
characteristics and may result in more risk to the Fund than hedging
strategies using the same instruments. There can be no assurance that a
liquid market will exist at a time when the Fund seeks to close out an option,
futures contract or other derivative or related position. Many exchanges and
boards of trade limit the amount of fluctuation permitted in option or futures
contract prices during a single day; once the daily limit has been reached on
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain instruments are relatively new and without a
significant trading history. As a result, there is no assurance that an
active secondary market will develop or continue to exist. Finally,
over-the-counter instruments typically do not have a liquid market. Lack of a
liquid market for any reason may prevent the Fund from liquidating an
unfavorable position. Activities of large traders in the futures and
securities markets involving arbitrage, "program trading," and other
investment strategies may cause price distortions in these markets. In
certain instances, particularly those involving over-the-counter transactions,
forward contracts there is a greater potential that a counter-party or broker
may default or be unable to perform on its commitments. In the event of such
a default, the Fund may experience a loss. In transactions involving
currencies, the value of the currency underlying an instrument may fluctuate
due to many factors, including economic conditions, interest rates,
governmental policies and market forces.
Specific Uses and Strategies. Set forth below are explanations of
various strategies involving derivatives and related instruments which may be
used by the Fund.
Options on Securities, Securities Indexes and Debt Instruments. The Fund
may purchase, sell or exercise call and put options on (a) securities, (b)
securities indexes, and (c) debt instruments.
Although in most cases these options will be exchange-traded, the Fund
may also purchase, sell or exercise over-the-counter options.
Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller. As such, over-the-counter options generally have much less market
liquidity and carry the risk of default or nonperformance by the other party.
One purpose of purchasing put options is to protect holdings in an
underlying or related security against a substantial decline in market value.
One purpose of purchasing call options is to protect against substantial
increases in prices of securities the Fund intends to purchase pending its
ability to invest in such securities in an orderly manner. The Fund may also
use combinations of options to minimize costs, gain exposure to markets or
take advantage of price disparities or market movements. For example, the
Fund may sell put or call options it has previously purchased or purchase put
or call options it has previously sold. These transactions may result in a
net gain or loss depending on whether the amount realized on the sale is more
or less than the premium and other transaction costs paid on the put or call
option which is sold. The Fund may write a call or put option in order to
earn the related premium from such transactions. Prior to exercise or
expiration, an option may be closed out by an offsetting purchase or sale of a
similar option. The Fund will not write uncovered options.
In addition to the general risk factors noted above, the purchase and
writing of options involve certain special risks. During the option period,
the Fund writing a covered call (i.e., where the underlying securities are
held by the Fund) has, in return for the premium on the option, given up the
opportunity to profit from a price increase in the underlying securities above
the exercise price, but has retained the risk of loss should the price of the
underlying securities decline. The writer of an option has no control over
the time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver the underlying securities at the exercise
price.
If a put or call option purchased by the Fund is not sold when it has
remaining value, and if the market price of the underlying security, in the
case of a put, remains equal to or greater than the exercise price or, in the
case of a call, remains less than or equal to the exercise price, the Fund
will lose its entire investment in the option. Also, where a put or call
option on a particular security is purchased to hedge against price movements
in a related security, the price of the put or call option may move more or
less than the price of the related security. There can be no assurance that a
liquid market will exist when the Fund seeks to close out an option position.
Furthermore, if trading restrictions or suspensions are imposed on the options
markets, the Fund may be unable to close out a position.
Futures Contracts and Options on Futures Contracts. The Fund may purchase
or sell (i) interest-rate futures contracts, (ii) futures contracts on
specified instruments or indices, and (iii) options on these futures contracts
("futures options"). The futures contracts and futures options may be based
on various instruments or indices in which the Fund may invest such as foreign
currencies, certificates of deposit, Eurodollar time deposits, securities
indices, economic indices (such as the Consumer Price Indices compiled by the
U.S. Department of Labor).
Futures contracts and futures options may be used to hedge portfolio
positions and transactions as well as to gain exposure to markets. For
example, the Fund may sell a futures contract -- or buy a futures option -- to
protect against a decline in value, or reduce the duration, of portfolio
holdings. Likewise, these instruments may be used where the Fund intends to
acquire an instrument or enter into a position. For example, the Fund may
purchase a futures contract -- or buy a futures option -- to gain immediate
exposure in a market or otherwise offset increases in the purchase price of
securities or currencies to be acquired in the future. Futures options may
also be written to earn the related premiums.
When writing or purchasing options, the Fund may simultaneously enter
into other transactions involving futures contracts or futures options in
order to minimize costs, gain exposure to markets, or take advantage of price
disparities or market movements. Such strategies may entail additional risks
in certain instances. The Fund may engage in cross-hedging by purchasing or
selling futures or options on a security or currency different from the
security or currency position being hedged to take advantage of relationships
between the two securities or currencies.
Investments in futures contracts and options thereon involve risks
similar to those associated with options transactions discussed above. The
Fund will only enter into futures contracts or options on futures contracts
which are traded on a U.S. or foreign exchange or board of trade, or similar
entity, or quoted on an automated quotation system.
Forward Contracts. The Fund may use foreign currency and interest-rate
forward contracts for various purposes as described below.
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or perceived changes in interest rates and
other complex factors, as seen from an international perspective. The Fund
that may invest in securities denominated in foreign currencies may, in
addition to buying and selling foreign currency futures contracts and options
on foreign currencies and foreign currency futures, enter into forward foreign
currency exchange contracts to reduce the risks or otherwise take a position
in anticipation of changes in foreign exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be a fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the
time of the contract. By entering into a forward foreign currency contract,
the Fund "locks in" the exchange rate between the currency it will deliver and
the currency it will receive for the duration of the contract. As a result,
the Fund reduces its exposure to changes in the value of the currency it will
deliver and increases its exposure to changes in the value of the currency it
will exchange into. The effect on the value of the Fund is similar to selling
securities denominated in one currency and purchasing securities denominated
in another. Transactions that use two foreign currencies are sometimes
referred to as "cross-hedges."
The Fund may enter into these contracts for the purpose of hedging
against foreign exchange risk arising from the Fund's investments or
anticipated investments in securities denominated in foreign currencies. The
Fund may also enter into these contracts for purposes of increasing exposure
to a foreign currency or to shift exposure to foreign currency fluctuations
from one country to another.
The Fund may also use forward contracts to hedge against changes in
interest rates, increase exposure to a market or otherwise take advantage of
such changes. An interest-rate forward contract involves the obligation to
purchase or sell a specific debt instrument at a fixed price at a future date.
Interest Rate and Currency Transactions. The Fund may employ currency
and interest rate management techniques, including transactions in options
(including yield curve options), futures, options on futures, forward foreign
currency exchange contracts, currency options and futures and currency and
interest rate swaps. The aggregate amount of the Fund's net currency exposure
will not exceed the total net asset value of its portfolio. However, to the
extent that the Fund is fully invested while also maintaining currency
positions, it may be exposed to greater combined risk.
The Fund will only enter into interest rate and currency swaps on a net
basis, i.e., the two payment streams are netted out, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments.
Interest rate and currency swaps do not involve the delivery of securities,
the underlying currency, other underlying assets or principal. Accordingly,
the risk of loss with respect to interest rate and currency swaps is limited
to the net amount of interest or currency payments that the Fund is
contractually obligated to make. If the other party to an interest rate or
currency swap defaults, the Fund's risk of loss consists of the net amount of
interest or currency payments that the Fund is contractually entitled to
receive. Since interest rate and currency swaps are individually negotiated,
the Fund expects to achieve an acceptable degree of correlation between their
portfolio investments and their interest rate or currency swap positions.
The Fund may hold foreign currency received in connection with
investments in foreign securities when it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rate.
The Fund may purchase or sell without limitation as to a percentage of
its assets forward foreign currency exchange contracts when the Adviser
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated in that currency do not present attractive
investment opportunities and are not held by the Fund. In addition, the Fund
may enter into forward foreign currency exchange contracts in order to protect
against adverse changes in future foreign currency exchange rates. The Fund
may engage in cross-hedging by using forward contracts in one currency to
hedge against fluctuations in the value of securities denominated in a
different currency if its advisers believe that there is a pattern of
correlation between the two currencies. Forward contracts may reduce the
potential gain from a positive change in the relationship between the U.S.
Dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if it had not entered
into such contracts. The use of foreign currency forward contracts will not
eliminate fluctuations in the underlying U.S. dollar equivalent value of the
prices of or rates of return on the Fund's foreign currency denominated
portfolio securities and the use of such techniques will subject the Fund to
certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency
denominated asset that is the subject of the hedge generally will not be
precise. In addition, the Fund may not always be able to enter into foreign
currency forward contracts at attractive prices, and this will limit the
Fund's ability to use such contract to hedge or cross-hedge its assets. Also,
with regard to the Fund's use of cross-hedges, there can be no assurance that
historical correlations between the movement of certain foreign currencies
relative to the U.S. dollar will continue. Thus, at any time poor correlation
may exist between movements in the exchange rates of the foreign currencies
underlying a the Fund's cross-hedges and the movements in the exchange rates
of the foreign currencies in which the Fund's assets that are the subject of
such cross-hedges are denominated.
The Fund may enter into interest rate and currency swaps to the maximum
allowed limits under applicable law. The Fund will typically use interest
rate swaps to shorten the effective duration of its portfolio. Interest rate
swaps involve the exchange by the Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Currency swaps involve the exchange of
their respective rights to make or receive payments in specified currencies.
Mortgage-Related Securities. The Fund may purchase mortgage-backed
securities -- i.e., securities representing an ownership interest in a pool of
mortgage loans issued by lenders such as mortgage bankers, commercial banks
and savings and loan associations. Mortgage loans included in the pool -- but
not the security itself -- may be insured by the Government National Mortgage
Association or the Federal Housing Administration or guaranteed by the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation or
the Veterans Administration. Mortgage-backed securities provide investors
with payments consisting of both interest and principal as the mortgages in
the underlying mortgage pools are paid off. Although providing the potential
for enhanced returns, mortgage-backed securities can also be volatile and
result in unanticipated losses.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of the
principal invested far in advance of the maturity of the mortgages in the
pool. The actual rate of return of a mortgage-backed security may be
adversely affected by the prepayment of mortgages included in the mortgage
pool underlying the security.
The Fund may also invest in securities representing interests in
collateralized mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and in pools of certain other asset- backed bonds and
mortgage pass-through securities. Like a bond, interest and prepaid principal
are paid, in most cases, monthly. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by the U.S. Government, or U.S.
Government-related entities, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, are
allocated to different classes in accordance with the terms of the
instruments, and changes in prepayment rates or assumptions may significantly
affect the expected average life and value of a particular class.
REMICs include governmental and/or private entities that issue a fixed
pool of mortgages secured by an interest in real property. REMICs are similar
to CMOs in that they issue multiple classes of securities. REMICs issued by
private entities are not U.S. Government securities and are not directly
guaranteed by any government agency. They are secured by the underlying
collateral of the private issuer.
The Adviser expects that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. The mortgages underlying these securities
may include alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed-rate mortgages. The Fund may also invest
in debentures and other securities of real estate investment trusts. As new
types of mortgage-related securities are developed and offered to investors,
the Fund may consider making investments in such new types of mortgage-related
securities.
Dollar Rolls. Under a mortgage "dollar roll," the Fund sells
mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Fund forgoes principal and interest paid on the mortgage-backed
securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. The Fund may only enter into covered rolls. A
"covered roll" is a specific type of dollar roll for which there is an
offsetting cash position which matures on or before the forward settlement
date of the dollar roll transaction. At the time the Fund enters into a
mortgage "dollar roll", it will establish a segregated account with its
custodian bank in which it will maintain cash or liquid securities equal in
value to its obligations in respect of dollar rolls, and accordingly, such
dollar rolls will not be considered borrowings. Mortgage dollar rolls involve
the risk that the market value of the securities the Fund is obligated to
repurchase under the agreement may decline below the repurchase price. In the
event the buyer of securities under a mortgage dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of proceeds of the dollar roll
may be restricted pending a determination by the other party, or its trustee
or receiver, whether to enforce the Fund's obligation to repurchase the
securities.
Asset-Backed Securities. The Fund may invest in asset-backed securities,
including conditional sales contracts, equipment lease certificates and
equipment trust certificates. The Adviser expects that other asset-backed
securities (unrelated to mortgage loans) will be offered to investors in the
future. Several types of asset-backed securities already exist, including,
for example, "Certificates for Automobile Receivables SM" or "CARSSM"
("CARS"). CARS represent undivided fractional interests in a trust whose
assets consist of a pool of motor vehicle retail installment sales contracts
and security interests in the vehicles securing the contracts. Payments of
principal and interest on CARS are passed-through monthly to certificate
holders, and are guaranteed up to certain amounts and for a certain time
period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the CARS trust. An investor's return on
CARS may be affected by early prepayment of principal on the underlying
vehicle sales contracts. If the letter of credit is exhausted, the CARS trust
may be prevented from realizing the full amount due on a sales contract
because of state law requirements and restrictions relating to foreclosure
sales of vehicles and the obtaining of deficiency judgments following such
sales or because of depreciation, damage or loss of a vehicle, the application
of federal and state bankruptcy and insolvency laws, the failure of servicers
to take appropriate steps to perfect the CARS trust's rights in the underlying
loans and the servicers' sale of such loans to bona fide purchasers, giving
rise to interests in such loans superior to those of the CARS trust, or other
factors. As a result, certificate holders may experience delays in payments
or losses if the letter of credit is exhausted. The Fund also may invest in
other types of asset-backed securities. In the selection of other
asset-backed securities, the Adviser will attempt to assess the liquidity of
the security giving consideration to the nature of the security, the frequency
of trading in the security, the number of dealers making a market in the
security and the overall nature of the marketplace for the security.
Structured Products. The Fund may invest in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of certain other investments. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, or specified instruments (such as commercial bank loans) and the
issuance by that entity of one or more classes of securities ("structured
products") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured products to create securities with different
investment characteristics such as varying maturities, payment priorities and
interest rate provisions, and the extent of the payments made with respect to
structured products is dependent on the extent of the cash flow on the
underlying instruments. The Fund may invest in structured products which
represent derived investment positions based on relationships among different
markets or asset classes.
The Fund may also invest in other types of structured products,
including, among others, inverse floaters, spread trades and notes linked by a
formula to the price of an underlying instrument. Inverse floaters have
coupon rates that vary inversely at a multiple of a designated floating rate
(which typically is determined by reference to an index rate, but may also be
determined through a dutch auction or a remarketing agent or by reference to
another security) (the "reference rate"). As an example, inverse floaters may
constitute a class of CMOs with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the Cost of
Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase
in the coupon rate. A spread trade is an investment position relating to a
difference in the prices or interest rates of two securities where the value
of the investment position is determined by movements in the difference
between the prices or interest rates, as the case may be, of the respective
securities. When the Fund invests in notes linked to the price of an
underlying instrument, the price of the underlying security is determined by a
multiple (based on a formula) of the price of such underlying security. A
structured product may be considered to be leveraged to the extent its
interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate 15 of interest. Because they are linked to their underlying
markets or securities, investments in structured products generally are
subject to greater volatility than an investment directly in the underlying
market or security. Total return on the structured product is derived by
linking return to one or more characteristics of the underlying instrument.
Because certain structured products of the type in which the Fund may invest
may involve no credit enhancement, the credit risk of those structured
products generally would be equivalent to that of the underlying instruments.
The Fund may invest in a class of structured products that is either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured products typically have higher yields and present
greater risks than unsubordinated structured products. Although the Fund's
purchase of subordinated structured products would have similar economic
effect to that of borrowing against the underlying securities, the purchase
will not be deemed to be leverage for purposes of the Fund's fundamental
investment limitation related to borrowing and leverage.
Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Fund's investments in
these structured products may be limited by the restrictions contained in the
1940 Act. Structured products are typically sold in private placement
transactions, and there currently is no active trading market for structured
products. As a result, certain structured products in which the Fund invests
may be deemed illiquid and subject to its limitation on illiquid investments.
Investments in structured products generally are subject to greater
volatility than an investment directly in the underlying market or security.
In addition, because structured products are typically sold in private
placement transactions, there currently is no active trading market for
structured products.
Additional Restrictions on the Use of Futures and Option Contracts. The
Fund is not a "commodity pool" (i.e., a pooled investment vehicle which trades
in commodity futures contracts and options thereon and the operator of which
is registered with the CFTC, and futures contracts and futures options will be
purchased, sold or entered into only for bona fide hedging purposes, provided
that the Fund may enter into such transactions for purposes other than bona
fide hedging if, immediately thereafter, the sum of the amount of its initial
margin and premiums on open contracts and options would not exceed 5% of the
liquidation value of the Fund's portfolio, provided, further, that, in the
case of an option that is in-the-money, the in-the-money amount may be
excluded in calculating the 5% limitation.
When the Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be deposited in a segregated
account with the Fund's custodian or sub-custodian so that the amount so
segregated, plus the initial deposit and variation margin held in the account
of its broker, will at all times equal the value of the futures contract,
thereby insuring that the use of such futures is unleveraged.
Investment Restrictions
The Fund has adopted the following investment restrictions that may not
be changed without approval by a "majority of the outstanding shares" of the
Fund which, as used in this Statement of Additional Information, means the
vote of the lesser of (a) 67% or more of the shares of the Fund represented at
a meeting, if the holders of more than 50% of the outstanding shares of the
Fund are present or represented by proxy, or (b) more than 50% of the
outstanding shares of the Fund.
Whenever the Trust is requested to vote on a fundamental policy of the
Fund, the Trust will hold a meeting of shareholders of the Fund and will cast
its votes as instructed by the shareholders of the Fund.
The Fund may not:
(1) borrow money, except that the Fund may borrow money for temporary or
emergency purposes, or by engaging in reverse repurchase transactions, in an
amount not exceeding 33-1/3% of the value of its total assets at the time when
the loan is made and may pledge, mortgage or hypothecate no more than 1/3 of
its net assets to secure such borrowings. Any borrowings representing more
than 5% of the Fund's total assets must be repaid before the Fund may make
additional investments;
(2) make loans, except that the Fund may: (a) purchase and hold debt
instruments (including without limitation, bonds, notes, debentures or other
obligations and certificates of deposit, bankers' acceptances and fixed time
deposits) in accordance with its investment objectives and policies; (b) enter
into repurchase agreements with respect to portfolio securities; and (c) lend
portfolio securities with a value not in excess of one-third of the value of
its total assets;
(3) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or repurchase agreements secured thereby) if, as a result,
more than 25% of the Fund's total assets would be invested in the securities
of companies whose principal business activities are in the same industry.
Notwithstanding the foregoing, with respect to the Fund's permissible futures
and options transactions in U.S. Government securities, positions in such
options and futures shall not be subject to this restriction;
(4) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments but this shall not prevent the
Fund from (a) purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities or
(b) engaging in forward purchases or sales of foreign currencies or
securities;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
investing insecurities or other instruments backed by real estate or
securities of companies engaged in the real estate business). Investments by
the Fund in securities backed by mortgages on real estate or in marketable
securities of companies engaged in such activities are not hereby precluded;
(6) issue any senior security (as defined in the 1940 Act), except that
(a) the Fund may engage in transactions that may result in the issuance of
senior securities to the extent permitted under applicable regulations and
interpretations of the 1940 Act or an exemptive order; (b) the Fund may
acquire other securities, the acquisition of which may result in the issuance
of a senior security, to the extent permitted under applicable regulations or
interpretations of the 1940 Act; and (c) subject to the restrictions set forth
above, the Fund may borrow money as authorized by the 1940 Act. For purposes
of this restriction, collateral arrangements with respect to permissible
options and futures transactions, including deposits of initial and variation
margin, are not considered to be the issuance of a senior security; or
(7) underwrite securities issued by other persons except insofar as the
Fund may technically be deemed to be an underwriter under the Securities Act
of 1933 in selling a portfolio security.
In addition, as a matter of fundamental policy, notwithstanding any other
investment policy or restriction, the Fund may seek to achieve its investment
objective by investing all of its investable assets in another investment
company having substantially the same investment objective and policies as the
Fund. For purposes of investment restriction (5) above, real estate includes
Real Estate Limited Partnerships.
For purposes of investment restriction (3) above, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as
an "industry." Investment restriction (3) above, however, is not applicable to
investments by the Fund in municipal obligations where the issuer is regarded
as a state, city, municipality or other public authority since such entities
are not members of an "industry." Supranational organizations are
collectively considered to be members of a single "industry" for purposes of
restriction (3) above.
In addition, the Fund is subject to the following non-fundamental
restrictions which may be changed without shareholder approval:
(1) The Fund may not, with respect to 75% of its assets, hold more than
10% of the outstanding voting securities of any issuer or invest more than 5%
of its assets in the securities of any one issuer (other than obligations of
the U.S. Government, its agencies and instrumentalities).
(2) The Fund may not make short sales of securities, other than short
sales "against the box," or purchase securities on margin except for
short-term credits necessary for clearance of portfolio transactions, provided
that this restriction will not be applied to limit the use of options, futures
contracts and related options, in the manner otherwise permitted by the
investment restrictions, policies and investment program of the Fund.
(3) The Fund may not purchase or sell interests in oil, gas or mineral
leases.
(4) The Fund may not invest more than 15% of its net assets in illiquid
securities. (5) The Fund may not write, purchase or sell any put or call
option or any combination thereof, provided that this shall not prevent
(a) the writing, purchasing or selling of puts, calls or combinations
thereof with respect to portfolio securities; or (b) with respect to the
Fund's permissible futures and options transactions, the writing,
purchasing, ownership, holding or selling of futures and options
positions or of puts, calls or combinations thereof with respect to
futures.
(6) Except as specified above, the Fund may invest up to 5% of its total
assets in the securities of any one investment company, but may not own more
than 3% of the securities of any one investment company or invest more than
10% of its total assets in the securities of other investment companies.
It is the Fund's position that proprietary strips, such as CATS and
TIGRS, are United States Government securities. However, the Fund has been
advised that the staff of the Securities and Exchange Commission's Division of
Investment Management does not consider these to be United States Government
securities, as defined under the Investment Company Act of 1940, as amended.
For purposes of the Fund's investment restrictions, the issuer of a
tax-exempt security is deemed to be the entity (public or private) ultimately
responsible for the payment of the principal of and interest on the security.
If a percentage or rating restriction on investment or use of assets set forth
herein or in the Prospectus is adhered to at the time a transaction is
effected, later changes in percentage resulting from any cause other than
actions by the Fund will not be considered a violation. If the value of the
Fund's holdings of illiquid securities at any time exceeds the percentage
limitation applicable at the time of acquisition due to subsequent
fluctuations in value or other reasons, the Board of Trustees will consider
what actions, if any, are appropriate to maintain adequate liquidity.
Portfolio Transactions and Brokerage Allocation
Specific decisions to purchase or sell securities for the Fund are made
by a portfolio manager who is an employee of the Adviser to the Fund and who
is appointed and supervised by senior officers of the Adviser. Changes in the
Fund's investments are reviewed by the Board of Trustees of the Trust. The
portfolio managers may serve other clients of the Adviser in a similar
capacity.
The frequency of the Fund's portfolio transactions -- the portfolio
turnover rate -- will vary from year to year depending upon market conditions.
Because a high turnover rate may increase transaction costs and the
possibility of taxable short-term gains, the Adviser will weigh the added
costs of short-term investment against anticipated gains. The Fund will engage
in portfolio trading if its advisers believe a transaction, net of costs
(including custodian charges), will help it achieve its investment objective.
Since the Fund invests in both equity and debt securities, the Fund applies
this policy with respect to both the equity and debt portions of its
portfolios.
Under the advisory agreement and the sub-advisory agreements, the Adviser
shall use its best efforts to seek to execute portfolio transactions at prices
which, under the circumstances, result in total costs or proceeds being the
most favorable to the Fund. In assessing the best overall terms available for
any transaction, the Adviser considers all factors it deems relevant,
including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, research services provided to the Adviser, and the reasonableness of
the commissions, if any, both for the specific transaction and on a continuing
basis. The Adviser is not required to obtain the lowest commission or the
best net price for the Fund on any particular transaction, and is not required
to execute any order in a fashion preferential to other accounts it manages.
Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case
of securities traded in the over-the-counter market (where no stated
commissions are paid but the prices include a dealer's markup or markdown),
the Adviser to the Fund normally seeks to deal directly with the primary
market makers unless, in its opinion, best execution is available elsewhere.
In the case of securities purchased from underwriters, the cost of such
securities generally includes a fixed underwriting commission or concession.
From time to time, soliciting dealer fees are available to the Adviser on the
tender of the Fund's portfolio securities in so-called tender or exchange
offers. Such soliciting dealer fees are in effect recaptured for the Fund by
the Adviser. At present, no other recapture arrangements are in effect.
Under the advisory agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Adviser may cause the Fund to pay a
broker-dealer which provides brokerage and research services to the Adviser,
the Fund and/or other accounts for which the Adviser exercises investment
discretion an amount of commission for effecting a securities transaction for
the Fund in excess of the amount other broker-dealers would have charged for
the transaction if the Adviser determines in good faith that the greater
commission is reasonable in relation to the value of the brokerage and
research services provided by the executing broker-dealer viewed in terms of
either a particular transaction or its overall responsibilities to accounts
over which the Adviser exercises investment discretion. Not all of such
services are useful or of value in advising the Fund. The Adviser reports to
the Board of Trustees regarding overall commissions paid by the Fund and their
reasonableness in relation to the benefits to the Fund. The term "brokerage
and research services" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or of purchasers or sellers of securities,
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts, and effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
The management fees that the Fund pays to the Adviser will not be reduced
as a consequence of the Adviser's receipt of brokerage and research services.
To the extent the Fund's portfolio transactions are used to obtain such
services, the brokerage commissions paid by the Fund will exceed those that
might otherwise be paid by an amount which cannot be presently determined.
Such services generally would be useful and of value to the Adviser serving
one or more of their other clients and, conversely, such services obtained by
the placement of brokerage business of other clients generally would be useful
to the Adviser in carrying out its obligations to the Fund. While such
services are not expected to reduce the expenses of the Adviser, the Adviser
would, through use of the services, avoid the additional expenses which would
be incurred if the Adviser should attempt to develop comparable information
through its own staffs.
In certain instances, there may be securities that are suitable for the
Fund as well as one or more of the Adviser's other clients. Investment
decisions for the Fund and for other clients are made with a view to achieving
their respective investment objectives. It may develop that the same
investment decision is made for more than one client or that a particular
security is bought or sold for only one client even though it might be held
by, or bought or sold for, other clients. Likewise, a particular security may
be bought for one or more clients when one or more clients are selling that
same security. Some simultaneous transactions are inevitable when several
clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives
of more than one client. When the Fund or other clients are simultaneously
engaged in the purchase or sale of the same security, the securities are
allocated among clients in a manner believed to be equitable to each. It is
recognized that in some cases this system could have a detrimental effect on
the price or volume of the security as far as the Fund is concerned. However,
it is believed that the ability of the Fund to participate in volume
transactions will generally produce better executions for the Fund.
It is not anticipated that any portfolio transactions will be executed
with the Adviser or the Shareholder Servicing Agent, or with any affiliate of
the Adviser or a Shareholder Servicing Agent, acting either as principal or as
broker.
PERFORMANCE INFORMATION
From time to time, the Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Because such performance information is based
on past investment results, it should not be considered as an indication or
representation of the performance of any classes of the Fund in the future.
From time to time, the performance and yield of the Fund may be quoted and
compared to those of other mutual funds with similar investment objectives,
unmanaged investment accounts, including savings accounts, or other similar
products and to stock or other relevant indices or to rankings prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds. For example, the performance of the Fund may
be compared to data prepared by Lipper Analytical Services, Inc. or
Morningstar Mutual Funds on Disc, widely recognized independent services which
monitor the performance of mutual funds. Performance and yield data as
reported in national financial publications including, but not limited to,
Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in local or regional publications, may also be used in comparing the
performance and yield of the Fund. The Fund's performance may be compared
with indices such as the Lehman Brothers Government/Corporate Bond Index, the
Lehman Brothers Government Bond Index, the Lehman Government Bond 1-3 Year
Index and the Lehman Aggregate Bond Index; the S&P 500 Index, the Dow Jones
Industrial Average or any other commonly quoted index of common stock prices;
and the Russell 2000 Index and the NASDAQ Composite Index. Additionally, the
Fund may, with proper authorization, reprint articles written about the Fund
and provide them to prospective shareholders.
The Fund may provide period and average annual "total rates of return."
The "total rate of return" refers to the change in the value of an investment
in the Fund over a period (which period shall be stated in any advertisement
or communication with a shareholder) based on any change in net asset value
per share including the value of any shares purchased through the reinvestment
of any dividends or capital gains distributions declared during such period.
Unlike some bank deposits or other investments which pay a fixed yield
for a stated period of time, the yields and the net asset values of shares of
the Fund will vary based on market conditions, the current market value of the
securities held by the Fund and changes in the Fund's expenses. The Adviser,
Shareholder Servicing Agents, the Administrator, the Distributor and other
service providers may voluntarily waive a portion of their fees on a
month-to-month basis. In addition, the Distributor may assume a portion of
the Fund's operating expenses on a month-to-month basis. These actions would
have the effect of increasing the net income (and therefore the yield and
total rate of return) of the classes of shares of the Fund during the period
such waivers are in effect. These factors and possible differences in the
methods used to calculate the yields and total rates of return should be
considered when comparing the yields or total rates of return of the shares of
a Fund to yields and total rates of return published for other investment
companies and other investment vehicles. The Trust is advised that certain
Shareholder Servicing Agents may credit to the accounts of their customers
from whom they are already receiving other fees amounts not exceeding the
Shareholder Servicing Agent fees received, which will have the effect of
increasing the net return on the investment of customers of those Shareholder
Servicing Agents. Such customers may be able to obtain through their
Shareholder Servicing Agents quotations reflecting such increased return.
Advertising or communications to shareholders may contain the views of
the Adviser as to current market, economic, trade and interest rate trends, as
well as legislative, regulatory and monetary developments, and may include
investment strategies and related matters believed to be of relevance to the
Fund.
Advertisements for the Fund may include references to the asset size of
other funds in the Trust.
Average Annual Total Return.
Total return may be stated for any relevant period as specified in the
advertisement or communication. Any statements of total return for the Fund
will be accompanied by information on the Fund's average annual compounded
rate of return over the most recent four calendar quarters and the period from
the Fund's inception of operations. The Fund may also advertise aggregate and
average total return information over different periods of time. The Fund's
"average annual total return" figures are computed according to a formula
prescribed by the SEC, expressed as follows:
P(1 + T)n=ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of
a hypothetical $1,000
investment made at the beginning of a 1-, 5- or
10-year period at the end of each respective period
(or fractional portion thereof), assuming
reinvestment of all dividends and distributions and
complete redemption of the hypothetical investment
at the end of the measuring period.
Aggregate Total Return.
The Fund's "aggregate total return" figures represent the cumulative
change in the value of an investment in the Fund for the specified period and
are computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment made at the beginning of a l-, 5-
or 10-year period at the end of a l-, 5- or 10-year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions and
complete redemption of the hypothetical investment
at the end of the measuring period.
The Fund may also from time to time include in advertisements or other
communications a total return figure that is not calculated according to the
formula set forth above in order to compare more accurately the performance of
the Fund with other measures of investment return.
DETERMINATION OF NET ASSET VALUE
As of the date of this Statement of Additional Information, the New York
Stock Exchange is open for trading every weekday except for the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Equity securities in the Fund's portfolio are valued at the last sale
price on the exchange on which they are primarily traded or on the NASDAQ
National Market System, or at the last quoted bid price for securities in
which there were no sales during the day or for other unlisted
(over-the-counter) securities not reported on the NASDAQ National Market
System. Bonds and other fixed income securities (other than short-term
obligations, but including listed issues) in the Fund's portfolio are valued
on the basis of valuations furnished by a pricing service, the use of which
has been approved by the Board of Trustees. In making such valuations, the
pricing service utilizes both dealer-supplied valuations and electronic data
processing techniques that take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Short-term obligations which
mature in 60 days or less are valued at amortized cost, which constitutes fair
value as determined by the Board of Trustees. Futures and option contracts
that are traded on commodities or securities exchanges are normally valued at
the settlement price on the exchange on which they are traded. Portfolio
securities (other than short-term obligations) for which there are no such
quotations or valuations are valued at fair value as determined in good faith
by or at the direction of the Board of Trustees.
Interest income on long-term obligations in the Fund's portfolio is
determined on the basis of coupon interest accrued plus amortization of
discount (the difference between acquisition price and stated redemption price
at maturity) and premiums (the excess of purchase price over stated redemption
price at maturity). Interest income on short-term obligations is determined
on the basis of interest and discount accrued less amortization of premium.
PURCHASES, REDEMPTIONS AND EXCHANGES
The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Fund's Transfer Agent may defer
acting on a shareholder's instructions until it has received them in proper
form. In addition, the privileges described in the Prospectus are not
available until a completed and signed account application has been received
by the Transfer Agent. Telephone transaction privileges are made available to
shareholders automatically upon opening an account unless the privilege is
declined in the Account Application.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service
options chosen by the shareholder or joint shareholders in his or their latest
account application or other written request for services, including
purchasing, exchanging, or redeeming shares of the Fund and depositing and
withdrawing monies from the bank account specified in the Bank Account
Registration section of the shareholder's latest account application or as
otherwise properly specified to the Fund in writing.
Subject to compliance with applicable regulations, the Fund has reserved
the right to pay the redemption price of its Shares, either totally or
partially, by a distribution in kind of readily marketable portfolio
securities (instead of cash). The securities so distributed would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in kind,
the shareholder could incur brokerage or other charges in converting the
securities to cash. The Trust has filed an election under Rule 18f-1
committing to pay in cash all redemptions by a shareholder of record up to
amounts specified by the rule (approximately $250,000).
Each investor in the Fund may add to or reduce its investment in the Fund
on each day that the New York Stock Exchange is open for business. Once each
such day, based upon prices determined as of the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m., Eastern time; however,
options are priced at 4:15 p.m., Eastern time) the value of each investor's
interest in the Fund will be determined by multiplying the net asset value of
the Fund by the percentage representing that investor's share of the aggregate
beneficial interests in the Fund. Any additions or reductions which are to be
effected on that day will then be effected. The investor's percentage of the
aggregate beneficial interests in the Fund will then be recomputed as the
percentage equal to the fraction (a) the numerator of which is the value of
such investor's investment in the Fund as of such time on such day plus or
minus, as the case may be, the amount of net additions to or reductions in the
investor's investment in the Fund effected on such day, and (b) the
denominator of which is the aggregate net asset value of the Fund as of such
time on such day plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate investments in the Fund by all
investors in the Fund. The percentage so determined will then be applied to
determine the value of the investor's interest in the Fund as of such time on
the following day the New York Stock Exchange is open for trading.
The Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in bank accounts, for any written requests for
additional account services made after a shareholder has submitted an initial
account application to the Fund, and in certain other circumstances described
in the Prospectus. The Fund may also refuse to accept or carry out any
transaction that does not satisfy any restrictions then in effect. A
signature guarantee may be obtained from a bank, trust company, broker-dealer
or other member of a national securities exchange. Please note that a notary
public cannot provide a signature guarantee.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in
the Fund's Prospectus. No attempt is made to present a detailed explanation of
the tax treatment of the Fund or its shareholders, and the discussions here
and in the Fund's Prospectus are not intended as substitutes for careful tax
planning.
Qualification as a Regulated Investment Company
The Fund intends to elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is not subject to
federal income tax on the portion of its net investment income (i.e., its
investment company taxable income, as that term is defined in the Code,
without a deduction for dividends paid ) and net capital gain (i.e., the
excess of net long-term capital gains over net short-term capital losses) that
it distributes to shareholders, provided that it distributes at least 90% of
its net investment income for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by the Fund made during the taxable year or,
under specified circumstances, within twelve months after the close of the
taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement for each taxable
year, a regulated investment company must: derive at least 90% of its gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "Income Requirement").
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation and has
not already been included in income.
Further, the Code also treats as ordinary income, a portion of the
capital gain attributable to a transaction where substantially all of the
return realized is attributable to the time value of the Fund's net investment
in the transaction and: (1) the transaction consists of the acquisition of
property by the Fund and a contemporaneous contract to sell substantially
identical property in the future; (2) the transaction is a straddle within the
meaning of Section 1092 of the Code; (3) the transaction is one that was
marketed or sold to the Fund on the basis that it would have the economic
characteristics of a loan but the interest-like return would be taxed as
capital gain; or (4) the transaction is described as a conversion transaction
in the Treasury Regulations. The amount of the gain recharacterized generally
will not exceed the amount of the interest that would have accrued on the net
investment for the relevant period at a yield equal to 120% of the federal
long-term, mid-term, or short-term rate, depending upon the type of instrument
at issue, reduced by an amount equal to: (1) prior inclusions of ordinary
income items from the conversion transaction; and (2) the capitalized interest
on acquisition indebtedness under Code Section 263(g). Built-in losses will
be preserved where the Fund has a built-in loss with respect to property that
becomes a part of a conversion transaction. No authority exists that
indicates that the converted character of the income will not be passed to the
Fund's shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if: (1) the asset
is used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used; (2) the asset is otherwise held by the Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the
Fund grants a qualified covered call option (which, among other things, must
not be deep-in-the- money) with respect thereto); or (3) the asset is stock
and the Fund grants an in-the- money qualified covered call option with
respect thereto. In addition, the Fund may be required to defer the
recognition of a loss on the disposition of an asset held as part of a
straddle to the extent of any unrecognized gain on the offsetting position.
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss.
Transactions that may be engaged in by the Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are
sold for their fair market value on the last business day of the taxable year,
even though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of
the year-end deemed disposition of Section 1256 contracts is taken into
account for the taxable year together with any other gain or loss that was
previously recognized upon the termination of Section 1256 contracts during
that taxable year. Any capital gain or loss for the taxable year with respect
to Section 1256 contracts (including any capital gain or loss arising as a
consequence of the year-end deemed sale of such contracts) is generally
treated as 60% long- term capital gain or loss and 40% short-term capital gain
or loss. A Fund, however, may elect not to have this special tax treatment
apply to Section 1256 contracts that are part of a "mixed straddle" with other
investments of the Fund that are not Section 1256 contracts. The Internal
Revenue Service (the "IRS") has held in several private rulings that gains
arising from Section 1256 contracts will not be treated for purposes of the
Short-Short Gain Test as being derived from securities held for less than
three months if the gains arise as a result of a constructive sale under Code
Section 1256.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain for any
taxable year, to elect (unless it has made a taxable year election for excise
tax purposes as discussed below) to treat all or any part of any net capital
loss, any net long-term capital loss or any net foreign currency loss incurred
after October 31 as if it had been incurred in the succeeding year. Please
note that the recent Taxpayer Relief Act of 1997 has a profound effect on
mutual fund and other investments. You should consult with a tax specialist
to determine the new law's effect on your individual situation.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the
Fund's taxable year, at least 50% of the value of the Fund's assets must
consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
which the Fund has not invested more than 5% of the value of the Fund's total
assets in securities of such issuer and as to which the Fund does not hold
more than 10% of the outstanding voting securities of such issuer), and no
more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are engaged in the same or similar trades or
businesses. Generally, an option (call or put) with respect to a security is
treated as issued by the issuer of the security not the issuer of the option.
However, with regard to forward currency contracts, there does not appear to
be any formal or informal authority which identifies the issuer of such
instrument. For purposes of asset diversification testing, obligations issued
or guaranteed by agencies or instrumentality's of the U.S. Government such as
the Federal Agricultural Mortgage Corporation, the Farm Credit System
Financial Assistance Corporation, a Federal Home Loan Bank, the Federal Home
Loan Mortgage Association, the Government National Mortgage Corporation, and
the Student Loan Marketing Association are treated as U.S. Government
Securities.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be
eligible for the dividends-received deduction in the case of corporate
shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98%
of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or,
at the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election").
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as
having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year; and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that the Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid
excise tax liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will qualify for the 70%
dividends-received deduction for corporations only to the extent discussed
below.
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a "capital gain
dividend," it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or
whether such gain was recognized by the Fund prior to the date on which the
shareholder acquired his shares.
Conversely, if the Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If the Fund elects to retain its
net capital gain, it is expected that the Fund also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of his/her pro rata share of such gain, with the
result that each shareholder will be required to report his/her pro rata share
of such gain on his/her tax return as long-term capital gain, will receive a
refundable tax credit for his/her pro rata share of tax paid by the Fund on
the gain, and will increase the tax basis for his/her share by an amount equal
to the deemed distribution less the tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations to the extent of the amount of qualifying dividends received by
the Fund from domestic corporations for the taxable year. A dividend received
by the Fund will not be treated as a qualifying dividend (a) if it has been
received with respect to any share of stock that the Fund has held for less
than 46 days (91 days in the case of certain preferred stock), excluding for
this purpose under the rules of Code Section 246(c) (3) and (4): (1) any day
more than 45 days (or 90 days in the case of certain preferred stock) after
the date on which the stock becomes ex-dividend, and (2) any period during
which the Fund has an option to sell, is under a contractual obligation to
sell, has made and not closed a short sale of, is the grantor of a
deep-in-the-money or otherwise non-qualified option to buy, or has otherwise
diminished its risk of loss by holding other positions with respect to, such
(or substantially identical) stock; (b) to the extent that the Fund is under
an obligation (pursuant to a short sale or otherwise) to make related payments
with respect to positions in substantially similar or related property; or (c)
to the extent the stock on which the dividend is paid is treated as
debt-financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced (a) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of the Fund, or (b) by application of
Code Section 246(b) which in general limits the dividends-received deduction
to 70% of the shareholder's taxable income (determined without regard to the
dividends-received deduction and certain other items). In the case where the
Fund invests all of its assets in a portfolio and the Fund satisfies the
holding period rules pursuant to Code Section 246(c) as to its interest in the
portfolio, a corporate shareholder which satisfies the foregoing requirements
with respect to its shares of the Fund should receive the dividends-received
deduction.
For purposes of the Corporate AMT, the corporate dividends-received
deduction is not itself an item of tax preference that must be added back to
taxable income or is otherwise disallowed in determining a corporation's AMT.
However, corporate shareholders will generally be required to take the full
amount of any dividend received from the Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested in various
countries is not known.
Distributions by the Fund that do not constitute ordinary income
dividends, or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his or her
shares; any excess will be treated as gain from the sale of his shares, as
discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. In addition, if the net
asset value at the time a shareholder purchases shares of the Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions
of such amounts will be taxable to the shareholder in the manner described
above, although such distributions economically constitute a return of capital
to the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31
of such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the
year.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all,
(2) who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it is
a corporation or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after
the sale or redemption. In general, any gain or loss arising from (or treated
as arising from) the sale or redemption of shares of the Fund will be
considered capital gain or loss and will be long-term capital gain or loss if
the shares were held for longer than one year. However, any capital loss
arising from the sale or redemption of shares held for six months or less will
be disallowed to the extent of the amount of exempt-interest dividends
received on such shares and (to the extent not disallowed) will be treated as
a long-term capital loss to the extent of the amount of capital gain dividends
received on such shares. For this purpose, the special holding period rules
of Code Section 246(c)(3) and (4) (discussed above in connection with the
dividends-received deduction for corporations) generally will apply in
determining the holding period of shares. Long-term capital gains of
non-corporate taxpayers are currently taxed at a maximum rate 11.6% lower than
the maximum rate applicable to ordinary income. Capital losses in any year
are deductible only to the extent of capital gains plus, in the case of a
non-corporate taxpayer, $3,000 of ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of the Fund,
(2) disposes of such shares less than 91 days after they are acquired and (3)
subsequently acquires shares of the Fund or another fund at a reduced sales
load pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in
determining gain or loss on the shares disposed of but shall be treated as
incurred on the acquisition of the shares subsequently acquired.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the
Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income
dividends paid to a foreign shareholder will be subject to U.S. withholding
tax at the rate of 30% (or lower treaty rate) upon the gross amount of the
dividend. Such a foreign shareholder would generally be exempt from U.S.
federal income tax on gains realized on the sale of shares of the Fund,
capital gain dividends and exempt-interest dividends and amounts retained by
the Fund that are designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, the Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
its foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Fund, including the applicability of foreign taxes.
State and Local Tax Matters
Depending on the residence of the shareholder for tax purposes,
distributions may also be subject to state and local taxes or withholding
taxes. Most states provide that a regulated investment company may pass
through (without restriction) to its shareholders state and local income tax
exemptions available to direct owners of certain types of U.S. government
securities (such as U.S. Treasury obligations). Thus, for residents of these
states, distributions derived from the Fund's investment in certain types of
U.S. government securities should be free from state and local income taxes to
the extent that the interest income from such investments would have been
exempt from state and local income taxes if such securities had been held
directly by the respective shareholders themselves. Certain states, however,
do not allow a regulated investment company to pass through to its
shareholders the state and local income tax exemptions available to direct
owners of certain types of U.S. government securities unless the regulated
investment company holds at least a required amount of U.S. government
securities. Accordingly, for residents of these states, distributions derived
from the Fund's investment in certain types of U.S. government securities may
not be entitled to the exemptions from state and local income taxes that would
be available if the shareholders had purchased U.S. government securities
directly. Shareholders' dividends attributable to the Fund's income from
repurchase agreements generally are subject to state and local income taxes,
although states and regulations vary in their treatment of such income. The
exemption from state and local income taxes does not preclude states from
asserting other taxes on the ownership of U.S. government securities. To the
extent that the Fund invests to a substantial degree in U.S. government
securities which are subject to favorable state and local tax treatment,
shareholders of the Fund will be notified as to the extent to which
distributions from the Fund are attributable to interest on such securities.
Rules of state and local taxation of ordinary income dividends and capital
gain dividends from regulated investment companies may differ from the rules
for U.S. federal income taxation in other respects. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the Fund.
Effect of Future Legislation
The foregoing general discussion of U.S. federal income tax consequences
is based on the Code and the Treasury Regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes (as well as the implementation of recent
changes) or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect with
respect to the transactions contemplated herein.
MANAGEMENT OF THE TRUST AND THE FUND
The overall management of the business and affairs of the Trust is vested
with its Board of Trustees. The Board approves all significant agreements
between the Trust and persons or companies furnishing services to it,
including the agreements with the Adviser, Administrator, Custodian and
Transfer Agent. The day to day operations of the Trust are delegated to its
officers, subject to the Fund's investment objectives and policies and to
general supervision by the Board of Trustees.
The Trustees and officers of the Trust, their ages and positions with the
Trust, their business addresses and principal occupations during the past five
years are:
<TABLE>
<S> <C> <C>
Name, address and age Position Principal Occupation During Past Five Years
Walter E. Auch, Sr. (75) Trustee Director, Geotech Communications, Inc., Nicholas-Applegate
6001 N. 62d Place Investment Trust, Brinson Funds (since 1994), Smith Barney Trak
Paradise Valley, AZ 85253 Fund, Pimco Advisors L.P., Banyan Realty Trust, Banyan Land Fund
II and Legend Properties.
Eric M. Banhazl (40)* Trustee, Senior Vice President, Investment Company Administration
2025 E. Financial Way President and Corporation; Vice President, First Fund Distributors; President,
Glendora, CA 91740 Treasurer RNC Mutual Fund Group; Treasurer, Guinness Flight Investment
Funds, Inc. and Professionally Managed Portfolios.
Donald E. O'Connor (60) Trustee Retired; formerly Executive Vice President and
Chief Operating Officer 1700 Taylor Avenue of ICI Mutual Insurance Company
(until January, 1997), Vice President, Fort Washington MD, 20744 Operations,
Investment Company Institute (until June, 1993).
George T. Wofford III (57) Trustee Vice President, Information Services, Federal
Home Loan Bank of San 305 Glendora Circle Francisco (since March, 1993);
formerly Director of Management Danville, CA 94526 Information Services,
Morrison & Foerster (law firm).
Steven J. Paggioli (47) Vice Executive Vice President, Robert H. Wadsworth & Associates, Inc.
479 W. 22d Street President and Investment Company Administration Corporation; Vice President
New York, NY 10011 First Fund Distributors, Inc.; President and Trustee, Professionally
Managed Portfolios; Director, Managers Funds, Inc.
Robert H. Wadsworth (57) Vice President, Robert H. Wadsworth & Associates, Inc., Investment
4455 E. Camelback Road President Company Administration Corporation and First Fund Distributors, Inc.;
Suite 261E Vice President, Professionally Managed Portfolios; President, Guinness
Phoenix, AZ 85018 Flight Investment Funds, Inc.; Director, Germany Fund, Inc., New
Germany Fund, Inc. and Central European Equity Fund, Inc.
Chris O. Kissack (48) Secretary Employed by Investment Company Administration Corporation (since
4455 E. Camelback Road, 261E July, 1996); formerly employed by Bank One, N.A. (from August, 1995
Phoenix, AZ 85018 until July, 1996); O'Connor, Cavanagh, Anderson, Killingsworth and
Beshears (law firm) (until August, 1995) .
* denotes Trustee who is an "interested person" of the Trust under the 1940 Act.
</TABLE>
The aggregate compensation paid by the Trust to each of the Trustees
during the fiscal year ended _______, 1996 is set forth below:
Name and Position
Aggregate Compensation from The Trust*
Walter E Auch, Sr., Trustee
$5,000
Donald E. O'Connor, Trustee
$5,000
George T. Wofford III, Trustee
$5,000
* Estimated for the current fiscal year. The Trust has no pension or
retirement plan. No other entity affiliated with the Trust pays any
compensation to the Trustees.
The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with
the Trust, unless, as to liability to the Trust or its shareholders, it is
finally adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices or
with respect to any matter unless it is finally adjudicated that they did not
act in good faith in the reasonable belief that their actions were in the best
interest of the Trust. In the case of settlement, such indemnification will
not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable
determination based upon a review of readily available facts, by vote of a
majority of disinterested Trustees or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of their
duties.
Adviser
Van Deventer & Hoch acts as investment adviser to the Fund pursuant to an
Investment Advisory Agreement, dated as of _______, 1997 (the "Advisory
Agreement"). Subject to such policies as the Board of Trustees may determine,
the Advisor is responsible for investment decisions for the Fund. Pursuant to
the terms of the Advisory Agreement, the Adviser provides the Funds with such
investment advice and supervision as it deems necessary for the proper
supervision of the Fund's investments. The Adviser continuously provide
investment programs and determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the Fund's assets shall be
held uninvested. The Adviser to the Fund furnishes, at its own expense, all
services, facilities and personnel necessary in connection with managing the
investments and effecting portfolio transactions for the Fund. The Advisory
Agreement for the Fund will continue in effect from year to year only if such
continuance is specifically approved at least annually by the Board of
Trustees or by vote of a majority of the Fund's outstanding voting securities
and by a majority of the Trustees who are not parties to the Advisory
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on such Advisory Agreement.
Pursuant to the terms of the Advisory Agreement, the Adviser is permitted
to render services to others. The Advisory Agreement is terminable without
penalty by the Trust on behalf of the Fund on not more than 60 days', nor less
than 30 days', written notice when authorized either by a majority vote of the
Fund's shareholders or by a vote of a majority of the Board of Trustees of the
Trust, or by the Adviser on not more than 60 days', nor less than 30 days',
written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The Advisory Agreement provides
that the Adviser under such agreement shall not be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or
for any act or omission in the execution of portfolio transactions for the
Fund, except for wilful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard of its
obligations and duties thereunder.
In the event the operating expenses of the Fund, including all investment
advisory and administration fees, but excluding brokerage commissions and
fees, taxes, interest and extraordinary expenses such as litigation, for any
fiscal year exceed the Fund's expense limitation, the Adviser shall reduce its
advisory fee (which fee is described below) to the extent of its share of such
excess expenses. The amount of any such reduction to be borne by the Adviser
shall be deducted from the monthly advisory fee otherwise payable with respect
to the Fund during such fiscal year; and if such amounts should exceed the
monthly fee, the Adviser shall pay to the Fund its share of such excess
expenses no later than the last day of the first month of the next succeeding
fiscal year.
In consideration of the services provided by the Adviser pursuant to the
Advisory Agreement, the Adviser is entitled to receive from the Fund an
investment advisory fee computed daily and paid monthly based on a rate equal
to a percentage of the Fund's average daily net assets specified in the
Prospectus. However, the Adviser may voluntarily agree to waive a portion of
the fees payable to it on a month-to-month basis.
Administrator
Pursuant to a separate Administration Agreement (the "Administration
Agreement"), Investment Company Administration Corporation is the
administrator of the Fund (the "Administrator"). The Administrator provides
certain administrative services to the Fund, including, among other
responsibilities, coordinating the negotiation of contracts and fees with, and
the monitoring of performance and billing of, the Fund's independent
contractors and agents; preparation for signature by an officer of the Trust
of all documents required to be filed for compliance by the Trust and the Fund
with applicable laws and regulations excluding those of the securities laws of
various states; arranging for the computation of performance data, including
net asset value and yield; responding to shareholder inquiries; and arranging
for the maintenance of books and records of the Fund, and providing, at its
own expense, office facilities, equipment and personnel necessary to carry out
its duties. In this capacity, the Administrator does not have any
responsibility or authority for the management of the Fund, the determination
of investment policy, or for any matter pertaining to the distribution of Fund
shares.
Under the Administration Agreement, the Administrator is permitted to
render administrative services to others. The Fund's Administration Agreement
will continue in effect from year to year only if such continuance is
specifically approved at least annually by the Board of Trustees of the Trust
or by vote of a majority of the Fund's outstanding voting securities and, in
either case, by a majority of the Trustees who are not parties to the
Administration Agreement or "interested persons" (as defined in the 1940 Act)
of any such party. The Administration Agreement is terminable without penalty
by the Trust on behalf of the Fund on 60 days' written notice when authorized
either by a majority vote of the Fund's shareholders or by vote of a majority
of the Board of Trustees, including a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust, or by the
Adviser on 60 days' written notice, and will automatically terminate in the
event of their "assignment" (as defined in the 1940 Act). The Administration
Agreement also provide that neither the Administrator or its personnel shall
be liable for any error of judgment or mistake of law or for any act or
omission in the administration of the Fund, except for willful misfeasance,
bad faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
Administration Agreement.
In consideration of the services provided by the Administrator pursuant
to the Administration Agreement, the Administrator receives from the Fund a
fee computed daily and paid monthly at an annual rate equal to 0.10% of the
Fund's average daily net assets, on an annualized basis for the Fund's
then-current fiscal year. The Administrator may voluntarily waive a portion
of the fees payable to it with respect to the Fund on a month-to-month basis.
Distribution Plans
The Trust has adopted a separate plan of distribution pursuant to Rule
12b-1 under the 1940 Act (a "Distribution Plan") on behalf of the Fund as
described in the Prospectus, which provides that the Fund shall pay for
distribution services a distribution fee (the "Distribution Fee"), including
payments to the Distributor, at annual rates not to exceed the amounts set
forth in the Prospectus. The Distributor may use all or any portion of such
Distribution Fee to pay for Fund expenses of printing prospectuses and reports
used for sales purposes, expenses of the preparation and printing of sales
literature and other such distribution-related expenses.
All distribution fees paid by the Fund under the 12-b1 Plan will be paid
in accordance with Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., as such Section may
change from time to time. Pursuant to the 12b-1 Plan, the Board of Trustees
will review at least quarterly a written report of the distribution expenses
incurred by the Manager on behalf of the Fund. In addition, as long as the
12b-1 Plan remains in effect, the selection and nomination of Trustees who are
not interested persons (as defined in the Investment Company Act) of the Trust
shall be made by the Trustees then in office who are not interested persons of
the Trust.
Shares of the Fund are entitled to exclusive voting rights with respect
to matters concerning the Distribution Plan covering the Fund.
The Distribution Plan provides that it will continue in effect
indefinitely if such continuance is specifically approved at least annually by
a vote of both a majority of the Trustees and a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust and who
have no direct or indirect financial interest in the operation of the
Distribution Plan or in any agreement related to such Plan ("Qualified
Trustees"). The continuance of the Distribution Plan was most recently
approved on _______________. The Distribution Plan requires that the Trust
shall provide to the Board of Trustees, and the Board of Trustees shall
review, at least quarterly, a written report of the amounts expended (and the
purposes therefor) under the Distribution Plan. The Distribution Plan further
provides that the selection and nomination of Qualified Trustees shall be
committed to the discretion of the disinterested Trustees (as defined in the
1940 Act) then in office. The Distribution Plan may be terminated at any time
by a vote of a majority of the Qualified Trustees or by vote of a majority of
the outstanding voting Shares of the Fund (as defined in the 1940 Act). The
Distribution Plan may not be amended to increase materially the amount of
permitted expenses thereunder without the approval of shareholders and may not
be materially amended in any case without a vote of the majority of both the
Trustees and the Qualified Trustees. The Fund will preserve copies of any
plan, agreement or report made pursuant to a Distribution Plan for a period of
not less than six years from the date of the Distribution Plan, and for the
first two years such copies will be preserved in an easily accessible place.
Distribution Agreement
The Trust has entered into a Distribution Agreement dated _____________
(the "Distribution Agreement") with the Distributor, pursuant to which the
Distributor acts as the Fund's exclusive underwriter, provides certain
administration services and promotes and arranges for the sale of Shares. The
Distributor is an affiliate of the Administrator. The Distribution Agreement
provides that the Distributor will bear the expenses of printing, distributing
and filing prospectuses and statements of additional information and reports
used for sales purposes, and of preparing and printing sales literature and
advertisements not paid for by the Distribution Plan. The Trust pays for all
of the expenses for qualification of the Fund's shares for sale in connection
with the public offering of such shares, and all legal expenses in connection
therewith. In addition, pursuant to the Distribution Agreement, the
Distributor provides certain sub- administration services to the Trust,
including providing officers, clerical staff and office space.
The Distribution Agreement is currently in effect and will continue in
effect with respect to the Fund only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority
of the Fund's outstanding voting securities and, in either case, by a majority
of the Trustees who are not parties to the Distribution Agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
Distribution Agreement is terminable without penalty by the Trust on behalf of
the Fund on 60 days' written notice when authorized either by a majority vote
of the Fund's shareholders or by vote of a majority of the Board of Trustees
of the Trust, including a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust, or by the Distributor on
60 days' written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The Distribution Agreement also
provides that neither the Distributor nor its personnel shall be liable for
any act or omission in the course of, or connected with, rendering services
under the Distribution Agreement, except for willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations or duties.
In the event the operating expenses of the Fund, including all investment
advisory and administration fees, but excluding brokerage commissions and
fees, taxes, interest and extraordinary expenses such as litigation, for any
fiscal year exceed the most restrictive expense limitation applicable to the
Fund imposed by the securities laws or regulations thereunder of any state in
which the shares of the Fund are qualified for sale, as such limitations may
be raised or lowered from time to time, the Distributor shall reduce its fee
with respect to the Fund (which fee is described below) to the extent of its
share of such excess expenses. The amount of any such reduction to be borne
by the Distributor shall be deducted from the monthly fee otherwise payable
with respect to the Fund during such fiscal year; and if such amounts should
exceed the monthly fee, the Distributor shall pay to the Fund its share of
such excess expenses no later than the last day of the first month of the next
succeeding fiscal year.
In consideration of the services provided by the Distributor pursuant to
the Distribution Agreement, the Distributor receives an annual fee, payable
monthly, of 0.05% of the net assets of the Fund.
Shareholder Servicing Agents, Transfer Agent and Custodian
The Trust has entered into a shareholder servicing agreement (a
"Servicing Agreement") to provide certain services including but not limited
to the following: answer customer inquiries regarding account status and
history, the manner in which purchases and redemptions of shares may be
effected for the Fund as to which the Shareholder Servicing Agent is so acting
and certain other matters pertaining to the Fund; assist shareholders in
designating and changing dividend options, account designations and addresses;
provide necessary personnel and facilities to establish and maintain
shareholder accounts and records; assist in processing purchase and redemption
transactions; arrange for the wiring of funds; transmit and receive funds in
connection with customer orders to purchase or redeem shares; verify and
guarantee shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; furnish (either
separately or on an integrated basis with other reports sent to a shareholder
by a Shareholder Servicing Agent) quarterly and year-end statements and
confirmations of purchases and redemptions; transmit, on behalf of the Fund,
proxy statements, annual reports, updated prospectuses and other
communications to shareholders of the Fund; receive, tabulate and transmit to
the Fund proxies executed by shareholders with respect to meetings of
shareholders of the Fund; and provide such other related services as the Fund
or a shareholder may request. Shareholder servicing agents may be required to
register pursuant to state securities law.
Each Shareholder Servicing Agent may voluntarily agree from time to time
to waive a portion of the fees payable to it under its Servicing Agreement
with respect to each Fund on a month-to-month basis.
The Trust has also entered into a Transfer Agent Agreement with American
Data Services, Inc., pursuant to which American Data Services, Inc. acts as
transfer agent for the Trust (the "Transfer Agent"). The Transfer Agent can
be reached as follows: American Data Services, Inc., 24 West Carver Street,
2nd Floor, Huntington, New York 11743.
Pursuant to a Custodian Agreement, Star Bank acts as the custodian of the
Fund's assets (the "Custodian") and receives such compensation as is from time
to time agreed upon by the Trust and the Custodian. The Custodian provides
oversight and record keeping for the assets held in the portfolios of the
Fund. The Custodian also provides fund accounting services for the income,
expenses and shares outstanding for the Fund. The Custodian can be reached as
follows: Star Bank, 425 Walnut Street, Cincinnati, Ohio 45202.
GENERAL INFORMATION
Description of Shares, Voting Rights and Liabilities
Advisors Series Trust is an open-end, non-diversified management
investment company organized as a Delaware business trust under the laws of
the State of Delaware on October 3, 1996. The Trust currently consists of ___
series of shares of beneficial interest, par value $.001 per share. With
respect to certain funds, the Trust may offer more than one class of shares.
The Trust has reserved the right to create and issue additional series or
classes. Each share of a series or class represents an equal proportionate
interest in that series or class with each other share of that series or
class. Currently, the Fund has only one class of shares.
The shares of each series or class participate equally in the earnings,
dividends and assets of the particular series or class. Expenses of the Trust
which are not attributable to a specific series or class are allocated amount
all the series in a manner believed by management of the Trust to be fair and
equitable. Shares have no pre-emptive or conversion rights. Shares when
issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each share held. Shares of each
series or class generally vote together, except when required under federal
securities laws to vote separately on matters that only affect a particular
class, such as the approval of distribution plans for a particular class.
With respect to shares purchased through a Shareholder Servicing Agent
and, in the event written proxy instructions are not received by the Fund or
its designated agent prior to a shareholder meeting at which a proxy is to be
voted and the shareholder does not attend the meeting in person, the
Shareholder Servicing Agent for such shareholder will be authorized pursuant
to an applicable agreement with the shareholder to vote the shareholder's
outstanding shares in the same proportion as the votes cast by other Fund
shareholders represented at the meeting in person or by proxy.
The Trust is not required to hold annual meetings of shareholders but
will hold special meetings of shareholders of a series or class when, in the
judgment of the Trustees, it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have, under certain circumstances, the right to
communicate with other shareholders in connection with requesting a meeting of
shareholders for the purpose of removing one or more Trustees. Shareholders
also have, in certain circumstances, the right to remove one or more Trustees
without a meeting. No material amendment may be made to the Trust's
Declaration of Trust without the affirmative vote of the holders of a majority
of the outstanding shares of each portfolio affected by the amendment. The
Trust's Declaration of Trust provides that, at any meeting of shareholders of
the Trust or of any series or class, a Shareholder Servicing Agent may vote
any shares as to which such Shareholder Servicing Agent is the agent of record
and which are not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares of
that portfolio otherwise represented at the meeting in person or by proxy as
to which such Shareholder Servicing Agent is the agent of record. Any shares
so voted by a Shareholder Servicing Agent will be deemed represented at the
meeting for purposes of quorum requirements. Shares have no preemptive or
conversion rights. Shares, when issued, are fully paid and non-assessable,
except as set forth below. Any series or class may be terminated (i) upon the
merger or consolidation with, or the sale or disposition of all or
substantially all of its assets to, another entity, if approved by the vote of
the holders of two-thirds of its outstanding shares, except that if the Board
of Trustees recommends such merger, consolidation or sale or disposition of
assets, the approval by vote of the holders of a majority of the series' or
class' outstanding shares will be sufficient, or (ii) by the vote of the
holders of a majority of its outstanding shares, or (iii) by the Board of
Trustees by written notice to the series' or class' shareholders. Unless each
series and class is so terminated, the Trust will continue indefinitely.
The Trust's Declaration of Trust also provides that the Trust shall
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its shareholders,
Trustees, officers, employees and agents covering possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
Financial Statements
The Fund has recently commenced operations and, therefore, has not yet
prepared financial statements for public distribution.
APPENDIX A
DESCRIPTION OF CERTAIN OBLIGATIONS ISSUED OR GUARANTEED BY U.S.
GOVERNMENT AGENCIES OR INSTRUMENTALITIES
Federal Farm Credit System Notes and Bonds -- are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.
Maritime Administration Bonds -- are bonds issued and provided by the
Department of Transportation of the U.S. Government are guaranteed by the U.S.
Government.
FNMA Bonds -- are bonds guaranteed by the Federal National Mortgage
Association. These bonds are not guaranteed by the U.S. Government.
FHA Debentures -- are debentures issued by the Federal Housing
Administration of the U.S. Government and are guaranteed by the U.S.
Government.
FHA Insured Notes -- are bonds issued by the Farmers Home Administration
of the U.S. Government and are guaranteed by the U.S. Government.
GNMA Certificates -- are mortgage-backed securities which represent a
partial ownership interest in a pool of mortgage loans issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration and therefore
guaranteed by the U.S. Government. As a consequence of the fees paid to GNMA
and the issuer of GNMA Certificates, the coupon rate of interest of GNMA
Certificates is lower than the interest paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates. The average life of a GNMA
Certificate is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures may result in the return of the greater
part of principal invested far in advance of the maturity of the mortgages in
the pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee. As the prepayment rate of individual mortgage pools will vary
widely, it is not possible to accurately predict the average life of a
particular issue of GNMA Certificates. The yield which will be earned on GNMA
Certificates may vary from their coupon rates for the following reasons: (a)
Certificates may be issued at a premium or discount, rather than at par; (b)
Certificates may trade in the secondary market at a premium or discount after
issuance; (c) interest is earned and compounded monthly which has the effect
of raising the effective yield earned on the Certificates; and (d) the actual
yield of each Certificate is affected by the prepayment of mortgages included
in the mortgage pool underlying the Certificates. Principal which is so
prepaid will be reinvested although possibly at a lower rate. In addition,
prepayment of mortgages included in the mortgage pool underlying a GNMA
Certificate purchased at a premium could result in a loss to a Fund. Due to
the large amount of GNMA Certificates outstanding and active participation in
the secondary market by securities dealers and investors, GNMA Certificates
are highly liquid instruments. Prices of GNMA Certificates are readily
available from securities dealers and depend on, among other things, the level
of market rates, the Certificate's coupon rate and the prepayment experience
of the pool of mortgages backing each Certificate. If agency securities are
purchased at a premium above principal, the premium is not guaranteed by the
issuing agency and a decline in the market value to par may result in a loss
of the premium, which may be particularly likely in the event of a prepayment.
When and if available, U.S. Government obligations may be purchased at a
discount from face value.
FHLMC Certificates and FNMA Certificates -- are mortgage-backed bonds
issued by the Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association, respectively, and are guaranteed by the U.S. Government.
GSA Participation Certificates -- are participation certificates issued
by the General Services Administration of the U.S. Government and are
guaranteed by the U.S. Government.
New Communities Debentures -- are debentures issued in accordance with
the provisions of Title IV of the Housing and Urban Development Act of 1968,
as supplemented and extended by Title VII of the Housing and Urban Development
Act of 1970, the payment of which is guaranteed by the U.S. Government.
Public Housing Bonds -- are bonds issued by public housing and urban
renewal agencies in connection with programs administered by the Department of
Housing and Urban Development of the U.S. Government, the payment of which is
secured by the U.S. Government.
Penn Central Transportation Certificates -- are certificates issued by
Penn Central Transportation and guaranteed by the U.S. Government.
SBA Debentures -- are debentures fully guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
Washington Metropolitan Area Transit Authority Bonds - -are bonds issued
by the Washington Metropolitan Area Transit Authority. Some of the bonds
issued prior to 1993 are guaranteed by the U.S. Government.
FHLMC Bonds -- are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation. These bonds are not guaranteed by the U.S. Government.
Federal Home Loan Bank Notes and Bonds -- are notes and bonds issued by
the Federal Home Loan Bank System and are not guaranteed by the U.S.
Government.
Student Loan Marketing Association ("Sallie Mae") Notes and bonds -- are
notes and bonds issued by the Student Loan Marketing Association and are not
guaranteed by the U.S. Government.
D.C. Armory Board Bonds -- are bonds issued by the District of Columbia
Armory Board and are guaranteed by the U.S. Government.
Export-Import Bank Certificates -- are certificates of beneficial
interest and participation certificates issued and guaranteed by the
Export-Import Bank of the U.S. and are guaranteed by the U.S. Government.
In the case of securities not backed by the "full faith and credit" of
the U.S. Government, the investor must look principally to the agency issuing
or guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the U.S. Government itself in the event the agency or
instrumentality does not meet its commitments.
Investments may also be made in obligations of U.S. Government agencies
or instrumentalities other than those listed above.
APPENDIX B
DESCRIPTION OF RATINGS
A description of the rating policies of Moody's, S&P and Fitch with
respect to bonds and commercial paper appears below.
Moody's Investors Service's Corporate Bond Ratings
Aaa -- Bonds which are rated "Aaa" are judged to be of the best quality
and carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin, and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated "A" possess many favorable investment
qualities and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated "B" generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance and other terms of the contract over any long period of time may
be small.
Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated "Ca" represent obligations which are
speculative in high degree.
Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated "C" are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers "1", "2", and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Standard & Poor's Ratings Group Corporate Bond Ratings
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and
pay interest.
AA -- Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and differs from "AAA"
issues only in small degree.
A -- Bonds rated "A" have a strong capacity to repay principal and pay
interest, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
repay principal and pay interest. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to repay principal and pay
interest for bonds in this category than for higher rated categories.
BB-B-CCC-CC-C -- Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded,
on balance, as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
CI -- Bonds rated "CI" are income bonds on which no interest is being
paid.
D -- Bonds rated "D" are in default. The "D" category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired unless S&P believes that such
payments will be made during such grace period. The "D" rating is also used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The ratings set forth above may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
Moody's Investors Service's Commercial Paper Ratings
Prime-1 -- Issuers (or related supporting institutions) rated "Prime-1"
have a superior ability for repayment of senior short-term debt obligations.
"Prime-1" repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and well- established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2 -- Issuers (or related supporting institutions) rated "Prime-2"
have a strong ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
Prime-3 -- Issuers (or related supporting institutions) rated "Prime-3"
have an acceptable ability for repayment of senior short-term obligations.
The effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Not Prime -- Issuers rated "Not Prime" do not fall within any of the
Prime rating categories.
Standard & Poor's Ratings Group Commercial Paper Ratings
A S&P commercial paper rating is current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded in several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. The four categories are as
follows:
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+) sign
designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3 -- Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B -- Issues rated "B" are regarded as having only speculative capacity
for timely payment.
C -- This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D -- Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period.
Fitch Bond Ratings
AAA -- Bonds rated AAA by Fitch are considered to be investment grade and
of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events.
AA -- Bonds rated AA by Fitch are considered to be investment grade and
of very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issues
is generally rated F-1+ by Fitch.
A -- Bonds rated A by Fitch are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher
ratings.
BBB -- Bonds rated BBB by Fitch are considered to be investment grade and
of satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
consequences on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
Plus and minus signs are used by Fitch to indicate the relative position
of a credit within a rating category. Plus and minus signs, however, are not
used in the AAA category.
Fitch Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch's short-term ratings are as follows:
F-1+ -- Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
F-1 -- Issues assigned this rating reflect an assurance of timely payment
only slightly less in degree than issues rated F-1+.
F-2 -- Issues assigned this rating have a satisfactory degree of
assurance for timely payment but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
F-3 -- Issues assigned this rating have characteristics suggesting that
the degree of assurance for timely payment is adequate, although near-term
adverse changes could cause these securities to be rated below investment
grade.
LOC -- The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
Like higher rated bonds, bonds rated in the Baa or BBB categories are
considered to have adequate capacity to pay principal and interest. However,
such bonds may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds.
After purchase by the Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event will require a sale of such security by a Fund. However, the
Fund's Adviser will consider such event in its determination of whether the
Fund should continue to hold the security. To the extent the ratings given by
Moody's, S&P or Fitch may change as a result of changes in such organizations
or their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in this Prospectus and in the Statement of Additional Information.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
The following financial statements are included in Part B of
Pre-Effective Amendment No. 2 to the Registration Statement and
incorporated herein by reference:
Statement of Assets and Liabilities, February 25, 1997
Notes to Statement of Assets and Liabilities
(b) Exhibits:
(1) Agreement and Declaration of Trust (1)
(2) By-Laws (1)
(3) Not applicable
(4) Specimen stock certificates (3)
(5) Form of Investment Advisory Agreement (2)
(6) Distribution Agreement (2)
(7) Not applicable
(8) Custodian Agreement (3)
(9) (1) Administration Agreement with Investment Company
Administration Corporation (2)
(2) Fund Accounting Service Agreement (2)
(3) Transfer Agency and Service Agreement (2)
(10) Opinion and consent of counsel (3)
(11) Consent of Independent Auditors (3)
(12) Not applicable
(13) Investment letters (3)
(14) Individual Retirement Account forms (5)
(15) Distribution Plan (4)
(16) Not applicable
(1) Previously filed with the Registration Statement on Form N-
1A(File No. 333-17391) on December 6, 1996 and incorporated herein by
reference.
(2) Previously filed with Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A(File No. 333-17391) on January 29,
1997 and incorporated herein by reference.
(3) Previously filed with Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A(File No. 333-17391) on February
28, 1997 and incorporated herein by reference.
(4) Previously filed with Post-Effective Amendment No. 2 to the
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<PAGE>
Registration Statement on Form N-1A(File No. 333-17391) on May 1,
1997 and incorporated herein by reference.
(5) To be filed by amendment.
Item 25. Persons Controlled by or under Common Control with
Registrant.
None.
Item 26. Number of Holders of Securities.
As of August 31, 1997, there were 117 holders of shares of beneficial
interest of the American Trust Allegiance Fund series of the Registrant, 9
holders of shares of the InformationTech 100 Fund series, 160 holders of shares
of the Kaminski Poland Fund series and 92 holders of shares of the
Ridgeway-Helms Millenium Fund series.
Item 27. Indemnification.
Article VI of Registrant's By-Laws states as follows:
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose
of this Article, "agent" means any person who is or was a Trustee, officer,
employee or other agent of this Trust or is or was serving at the request of
this Trust as a Trustee, director, officer, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise
or was a Trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of this Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding, if it is determined that person acted in
good faith and reasonably believed:
(a) in the case of conduct in his official capacity as a
Trustee of the Trust, that his conduct was in the Trust's
best interests, and
C-2
<PAGE>
(b) in all other cases, that his conduct was at least not
opposed to the Trust's best interests, and
(c) in the case of a criminal proceeding, that he had no
reasonable cause to believe the conduct of that person was
unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of this
Trust or that the person had reasonable cause to believe that the person's
conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action by or in the right of this Trust to procure a
judgment in its favor by reason of the fact that that person is or was an agent
of this Trust, against expenses actually and reasonably incurred by that person
in connection with the defense or settlement of that action if that person acted
in good faith, in a manner that person believed to be in the best interests of
this Trust and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision
to the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue, or matter as to which that
person shall have been adjudged to be liable on the basis that
personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in the person's
official capacity; or
(b) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable in the
performance of that person's duty to this Trust, unless and
only to the extent that the court in which that action was
brought shall determine upon application that in view of all
the circumstances of the case, that person was not
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liable by reason of the disabling conduct set forth in the
preceding paragraph and is fairly and reasonably entitled to
indemnity for the expenses which the court shall determine; or
(c) of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval,
or of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court
approval, unless the required approval set forth in Section 6
of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Trustees, including a majority who are disinterested, non-party Trustees, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of Trustees who are
not parties to the proceeding and are not interested
persons of the Trust (as defined in the Investment Company
Act of 1940); or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding upon a written undertaking by or on behalf of the agent, to repay the
amount of the advance if it is ultimately determined that he or she is not
entitled to indemnification, together with at least one of the following as a
condition to the advance: (i)security for the undertaking; or (ii) the existence
of insurance protecting the Trust against losses arising
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by reason of any lawful advances; or (iii) a determination by a majority of a
quorum of Trustees who are not parties to the proceeding and are not interested
persons of the Trust, or by an independent legal counsel in a written opinion,
based on a review of readily available facts that there is reason to believe
that the agent ultimately will be found entitled to indemnification.
Determinations and authorizations of payments under this Section must be made in
the manner specified in Section 6 of this Article for determining that the
indemnification is permissible.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall
be made under this Article, except as provided in Sections 5 or 6 in
any circumstances where it appears:
(a) that it would be inconsistent with a provision of the
Agreement and Declaration of Trust of the Trust, a resolution
of the shareholders, or an agreement in effect at the time of
accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other
amounts were paid which prohibits or otherwise limits
indemnification; or
(b) that it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article and the Agreement and Declaration of Trust of the
Trust.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other
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fiduciary may be entitled by contract or otherwise which shall be enforceable to
the extent permitted by applicable law other than this Article.
Item 28. Business and Other Connections of Investment Adviser.
The information required by this item with respect to American
Trust Company is as follows:
American Trust Company is a trust company chartered under
the laws of the State of New Hampshire. Its President and
Director, Paul H. Collins, is a director of:
MacKenzie-Childs, Ltd.
3260 State Road 90
Aurora, New York 13026
Great Northern Arts
Castle Music, Inc.
World Family Foundation
all with an address at
Gordon Road, Middletown, New York
Robert E. Moses, a Director of American Trust Company, is a director
of:
Mascoma Mutual Hold Corp.
One The Green
Lebanon, NH 03766
Information required by this item is contained in the Form ADV of the
following entities and is incorporated herein by reference:
Name of investment adviser File No.
Bay Isle Financial Corporation 801-27563
Kaminski Asset Management, Inc. 801-53485
Ridgeway Helms Investment Management 801-49884
Rockhaven Asset Management, LLC 801-54084
Chase Investment Counsel Corp. 801-3396
Avatar Investors Associates Corp. 801-7061
The Edgar Lomax Company 801-19358
Item 29. Principal Underwriters.
(a) The Registrant's principal underwriter also acts as principal
underwriter for the following investment companies:
Fremont Mutual Funds
Guinness Flight Investment Funds, Inc.
Jurika & Voyles Mutual Funds
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Kayne Anderson Mutual Funds
LMH Fund, Inc.
Masters' Select Investment Trust
PIC Investment Trust
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group
O'Shaughnessy Funds, Inc.
(b) The following information is furnished with respect to the officers
and directors of First Fund Distributors, Inc.:
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ------------------ -------------------- -----------
Robert H. Wadsworth President Vice
4455 E. Camelback Road and Treasurer President
Suite 261E
Phoenix, AZ 85018
Eric M. Banhazl Vice President President,
2025 E. Financial Way Treasurer
Glendora, CA 91741 and Trustee
Steven J. Paggioli Vice President & Vice
479 West 22nd Street Secretary President
New York, New York 10011
(c) Not applicable.
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession of the following persons:
(a) the documents required to be maintained by paragraph (4) of
Rule 31a-1(b) will be maintained by the Registrant;
(b) the documents required to be maintained by paragraphs (5), (6),
(10) and (11) of Rule 31a-1(b) will be maintained by the respective investment
advisors:
American Trust Company, One Court Street, Lebanon, NH 03766
Avatar Investors Associates Corp., 900 Third Ave., New York, NY 10022
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Bay Isle Financial Corporation, 160 Sansome Street, San Francisco, CA
94104
Chase Investment Counsel Corp., 300 Preston Avenue, Charlottesville,
VA 22902
Kaminski Asset Management, Inc., 210 snd Street, North, #050,
Minneapolis, MN 55401
The Edgar Lomax Company, 6564 Loisdale Court, Springfield, VA 22150
Ridgeway Helms Investment Management, 303 Twin Dolphin Drive, Redwood
Shores, CA 94065
Rockhaven Asset Management, 100 First Avenue, Suite 1050, Pittsburgh,
PA 15222
(c) all other documents will be maintained by Registrant's custodian,
Star Bank, 425 Walnut Street, Cincinnati, OH 45202.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Registrant hereby undertakes to:
(a) File a post-effective amendment for the Van Deventer & Hoch
American Value Fund series, using financial statements which
may not be certified, within four to six months of the
effective date of this Registration Statement as such
requirement is interpreted by the staff of the Commission; and
(b) Furnish each person to whom a Prospectus is delivered a copy
of Registrant's latest annual report to shareholders, upon
request and without charge.
(c) If requested to do so by the holders of at least 10% of the
Trust's outstanding shares, call a meeting of shareholders for
the purposes of voting upon the question of removal of a
director and assist in communications with other shareholders.
(d) On behalf of each of its series, to change any disclosure of
past performance of an Advisor to a series to conform to
changes in the position of the staff of the Commission with
respect to such presentation.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement on Form N-1A of Advisors Series Trust to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Phoenix
and State of Arizona on the 29th day of September, 1997.
ADVISORS SERIES TRUST
By /s/ Eric M. Banhazl*
Eric M. Banhazl
President
This Amendment to the Registration Statement on Form N-1A of Advisors
Series Trust has been signed below by the following persons in the capacities
indicated on September 29, 1997.
/s/ Eric M. Banhazl* President, Principal Financial
Eric M. Banhazl and Accounting Officer, and Trustee
/s/ Walter E. Auch Sr.* Trustee
Walter E. Auch, Sr.
/s/ Donald E. O'Connor* Trustee
Donald E. O'Connor
/s/ George T. Wofford III* Trustee
George T. Wofford III
* /s/ Robert H. Wadsworth
By: Robert H. Wadsworth
Attorney in Fact
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