The Avatar
Advantage Equity
Allocation Fund
Annual Report
For the period ended
December 31, 1997
<PAGE>
Dear Shareholder,
In December Avatar launched The Equity Allocation Fund, its first mutual fund
designed for the retirement market. Two additional portfolios, The Avatar
Balanced Fund and The Avatar International Equity Allocation Fund, followed in
January of this year. We are particularly pleased with the initial performance
of the Equity Allocation Fund and believe it is positioned to take full
advantage of market opportunities.
The Equity Allocation Fund follows the Avatar philosophy of participating in
market gains during market upswings while protecting those gains against loss
during market downturns. This has been the consistent course Avatar has followed
for the past 28 years and is based on three core beliefs. One, over the long
run, stocks and bonds will continue to rise, delivering solid rates of return.
Two, in the short-run stocks and bonds can fall, delivering negative returns.
Three, risk-averse investors want to participate in rising markets and preserve
capital in periods when markets decline.
We have built on this foundation and have developed a flexible asset allocation
strategy that strikes a balance between investment risk and reward. Long-term
investors, such as individuals saving for their retirement, can benefit most
from Avatar's approach. This is especially true when they are willing to
exchange maximum return in bull markets for loss limitation in bear market
phases.
So far in 1998 the market is trending upwards. The stock market shook off its
early year worries and sprinted to new highs. Trading in the dollar seems to be
having a strong influence on our capital markets. In the past few months we have
seen a lot of volatility in the dollar, but it continues to be the currency of
choice in a stressed global financial system.
Using our proprietary models to discern the market's direction, we will continue
to use the investment strategies and techniques developed at Avatar to position
the Fund to capture solid returns in up markets and to protect those returns
during periods of market stress.
We invite you along for the ride.
/s/ Elizabeth S. Sonders
/s/ Charles M. White
<PAGE>
SCHEDULE OF INVESTMENTS at December 31, 1997
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 90.83% Market Value
- --------------------------------------------------------------------------------
Aerospace: 1.81%
4,200 Boeing Co..................................... $ 205,538
2,200 United Technologies Corp...................... 160,187
---------
365,725
---------
Airlines: 1.00%
1,700 Delta Air Lines, Inc.......................... 202,300
---------
Auto/Truck Parts and Equipment: 2.03%
3,700 Federal Mogul Corp............................ 149,850
5,500 Lear Corp.*................................... 261,250
---------
411,100
---------
Beverages: 1.46%
8,100 PepsiCo, Inc.................................. 295,144
---------
Chemicals: 1.75%
4,400 Great Lakes Chemical Corp..................... 197,450
3,500 Praxair, Inc.................................. 157,500
---------
354,950
---------
Computer - Software: 2.93%
5,600 Compuware Corp.*.............................. 179,375
3,200 Microsoft Corp.*.............................. 413,500
---------
592,875
---------
Computer Services: 5.24%
11,054 Cendant Corp.*................................ 379,990
5,500 Ceridian Corp.*............................... 251,969
4,600 Compaq Computer Corp.......................... 259,612
2,400 Intel Corp.................................... 168,525
---------
1,060,096
---------
Cosmetics and Toiletries: 3.63%
4,800 Colgate Palmolive Co.......................... 352,800
3,800 Gillette Co................................... 381,662
---------
734,462
---------
Cruise Lines: 1.42%
5,200 Carnival Corp., Class A....................... 287,950
---------
See Notes to Financial Statements.
3
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SCHEDULE OF INVESTMENTS at December 31, 1997, Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
Diversified Operations: 1.11%
3,600 Textron....................................... $ 225,000
---------
Electric-Integrated: 0.71%
4,800 Entergy Corp.................................. 143,700
---------
Electronic Components/Semiconductor: 0.62%
2,200 Motorola, Inc................................. 125,538
---------
Entertainment Software: 1.16%
6,200 Electronic Arts*.............................. 234,631
---------
Finance: 5.95%
8,000 Federal National Mortgage Assn................ 456,500
6,300 Mellon Bank Corp.............................. 381,937
6,200 Morgan Stanley Dean Witter.................... 366,575
---------
1,205,012
---------
Food - Baking: 0.54%
2,900 Interstate Bakeries........................... 108,387
---------
Food - Retail: 4.02%
7,000 Safeway, Inc.*................................ 442,750
6,600 Sara Lee Corp................................. 371,662
---------
814,412
---------
Insurance: 6.82%
5,666 Allstate Corp................................. 514,898
8,300 SunAmerica, Inc............................... 354,825
9,500 Travelers Group, Inc.......................... 511,785
---------
1,381,508
---------
Machinery - Construction: 0.72%
2,400 Case Corp..................................... 145,050
---------
Manufacturing: 3.90%
8,000 General Electric Co........................... 587,000
4,300 Olin Corp..................................... 201,563
---------
788,563
---------
See Notes to Financial Statements.
4
<PAGE>
SCHEDULE OF INVESTMENTS at December 31, 1997, Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
Medical: 6.23%
7,600 Biochem Pharma, Inc.*......................... $ 158,650
4,500 Bristol Meyers Squibb Co...................... 425,813
4,100 Pfizer, Inc................................... 305,706
3,000 Warner Lambert Co............................. 372,000
---------
1,262,169
---------
Money Center Banks: 5.45%
6,300 Bank of New York, Inc......................... 364,219
3,300 Citicorp...................................... 417,244
5,300 NationsBank Corp.............................. 322,306
---------
1,103,769
---------
Networking Products: 2.03%
7,350 Cisco Systems, Inc.*.......................... 410,222
---------
Oil Company: 9.27%
5,500 Baker Hughes, Inc............................. 239,938
2,000 Cooper Cameron Corp.*......................... 122,000
3,900 Exxon Corp.................................... 238,631
6,100 Falcon Drilling Co., Inc.*.................... 213,881
7,400 Orxy Energy Co.*.............................. 188,700
3,000 Schlumberger, Ltd............................. 241,500
7,100 Texaco, Inc................................... 386,063
7,300 USX Marathon Group............................ 246,375
---------
1,877,088
---------
Paper: 0.70%
3,700 Fort James Corp............................... 141,525
---------
Physical Therapy: 1.08%
7,900 HealthSouth Corp.*............................ 219,225
---------
Radio: 0.88%
2,400 Chancellor Media Corp.*....................... 179,175
---------
Retail: 5.01%
3,800 Dayton Hudson Corp............................ 256,500
5,400 Home Depot, Inc............................... 317,925
See Notes to Financial Statements.
5
<PAGE>
SCHEDULE OF INVESTMENTS at December 31, 1997, Continued
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
Retail, continued
6,600 TJX Companies, Inc............................ $ 226,875
5,400 Wal Mart Stores, Inc.......................... 212,963
---------
1,014,263
---------
Retail - Restaurants: 0.49%
3,410 Tricon Global Restaurants, Inc.*.............. 99,103
---------
Storage: 0.71%
4,900 Public Storage, Inc........................... 143,938
---------
Telephone - Long Distance: 8.55%
7,900 Airtouch Communications, Inc.*................ 328,344
6,900 AT&T Corp..................................... 422,625
6,400 BellSouth Corp................................ 360,400
5,900 GTE Corp...................................... 308,275
3,900 Lucent Technologies, Inc...................... 311,512
---------
1,731,156
---------
Tobacco: 2.28%
10,200 Philip Morris Companies, Inc.................. 462,187
---------
Transportation: 1.33%
2,900 Burlington Northern Santa Fe.................. 269,519
---------
Total Common Stocks (cost $18,317,177)........ 18,389,742
----------
Principal Amount SHORT-TERM INVESTMENTS: 9.15%
- --------------------------------------------------------------------------------
$1,500,000 Federal Home Loan Mortgage Corp.,
5.70%, due 1/23/1998......................... 1,494,775
357,304 Star Treasury Fund, 5.72% .................... 357,304
---------
Total Short-term Investments
(cost $1,852,079).......................... 1,852,079
---------
See Notes to Financial Statements.
6
<PAGE>
SCHEDULE OF INVESTMENTS at December 31, 1997, Continued
- --------------------------------------------------------------------------------
Market Value
- --------------------------------------------------------------------------------
Total Investments in Securities
(cost $20,169,256+): 99.98% ............... $20,241,821
Other Assets less Liabilities: 0.02%.......... 4,164
-----------
Total Net Assets: 100.0% ..................... $20,245,985
===========
*Denotes a non-income producing security.
+At December 31, 1997, the cost of securities for Federal tax purposes was the
same as the basis for financial reporting. Unrealized appreciation and
depreciation of securities were as follows:
Gross unrealized appreciation................. $ 450,117
Gross unrealized depreciation................. (377,552)
-----------
Net unrealized appreciation............... $ 72,565
===========
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES at December 31, 1997
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value
(identified cost $20,169,256) .......................... $20,241,821
Dividends and interest receivable.......................... 24,672
Deferred organization costs................................ 34,463
Prepaid expenses........................................... 2,638
-----------
Total assets ........................................ 20,303,594
-----------
LIABILITIES
Payables:
Advisory fee............................................ 10,019
Administration fee...................................... 2,356
Distribution fees....................................... 3,820
Organization costs payable.............................. 35,000
Accrued expenses........................................... 6,414
-----------
Total liabilities.................................... 57,609
-----------
NET ASSETS ................................................... $20,245,985
===========
Net asset value, offering and redemption price per share
($20,245,985/2,020,959 shares outstanding; unlimited
number of shares authorized without par value).......... $10.02
======
COMPONENTS OF NET ASSETS
Paid-in capital ........................................... $20,208,205
Undistributed net investment income........................ 3,528
Accumulated net realized loss on investments............... (38,313)
Net unrealized appreciation of investments................. 72,565
-----------
Net assets ............................................. $20,245,985
===========
See Notes to Financial Statements.
8
<PAGE>
STATEMENT OF OPERATIONS
For the Period from December 3, 1997* through December 31, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends............................................... $ 21,714
Interest................................................ 7,683
--------
Total income......................................... 29,397
--------
Expenses
Advisory fee (Note 3)................................... 12,099
Distribution fees (Note 3).............................. 3,820
Administration fee (Note 3)............................. 2,356
Custodian and accounting fees........................... 1,627
Transfer agent fees..................................... 997
Professional fees....................................... 1,151
Amortization of deferred organization costs............. 537
Reports to shareholders................................. 537
Trustees' fees.......................................... 460
Miscellaneous........................................... 424
Registration fees....................................... 102
--------
Total expenses....................................... 24,110
Less: expenses reimbursed............................ (2,080)
--------
Net expenses......................................... 22,030
--------
Net investment income ............................ 7,367
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions............ (38,313)
Net change in unrealized appreciation
of investments........................................ 72,565
--------
Net gain on investments.............................. 34,252
--------
Net Increase in Net Assets Resulting
from Operations ................................ $ 41,619
========
*Commencement of operations.
See Notes to Financial Statements.
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
December 3, 1997*
through
December 31, 1997
- --------------------------------------------------------------------------------
NET INCREASE IN ASSETS FROM
OPERATIONS
Net investment income......................................... $ 7,367
Net realized loss from security transactions.................. (38,313)
Net change in unrealized appreciation of securities........... 72,565
----------
Net increase in net assets resulting
from operations ......................................... 41,619
----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................................... (3,839)
----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change
in outstanding shares (a)................................... 20,208,205
----------
Total increase in net assets .............................. 20,245,985
NET ASSETS
Beginning of period........................................... -0-
----------
End of period (including undistributed net
investment income of $3,528)................................ $20,245,985
===========
(a) A summary of capital share transactions is as follows:
December 3, 1997*
through
December 31, 1997
--------------------
Shares Value
------ -----
Shares sold................................ 2,020,575 $20,204,366
Shares issued in reinvestment
of distributions......................... 384 3,839
Shares redeemed............................ (0) (0)
--------- -----------
Net increase............................... 2,020,959 $20,208,205
========= ===========
*Commencement of operations.
See Notes to Financial Statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period
- --------------------------------------------------------------------------------
December 3, 1997*
through
December 31, 1997
- --------------------------------------------------------------------------------
Net asset value, beginning of period........................ $ 10.00
Income from investment operations:
Net investment income.................................... 0.01
Net realized and unrealized gain on investments.......... 0.02
-------
Total from investment operations............................ 0.03
-------
Less distributions:
Dividends from net investment income..................... (0.01)
-------
Net asset value, end of period.............................. $ 10.02
=======
Total return................................................ 0.22%#
Ratios/supplemental data:
Net assets, end of period (thousands)....................... $20,246
Ratio of expenses to average net assets:
Before expense reimbursement............................. 1.52%+
After expense reimbursement.............................. 1.39%+
Ratio of net investment income to average net assets:
Before expense reimbursement............................. 0.33%+
After expense reimbursement.............................. 0.47%+
Portfolio turnover rate..................................... 2.48%#
Average commission rate paid per share...................... $0.0598
*Commencement of operations.
#Not annualized.
+Annualized.
See Notes to Financial Statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS at December 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Avatar Advantage Equity Allocation Fund (the "Fund") is a diversified
series of shares of beneficial interest of Advisors Series Trust (the "Trust"),
which is registered under the Investment Company Act of 1940 (the "1940 Act") as
an open-end management investment company. The Fund's primary investment
objective is seeking long-term capital appreciation. The Fund seeks to achieve
its objective by investing in equity securities during rising stock markets and
limiting losses during declining markets. The Fund began operations on December
3, 1997.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation. Investments in securities traded on a national
securities exchange or included in the NASDAQ National Market System
are valued at the last reported sale price at the close of regular
trading on the last business day of the period; securities traded on
an exchange or NASDAQ for which there have been no sales and other
over-the-counter securities are valued at the last reported bid
price. Securities for which quotations are not readily available are
valued at their respective fair values as determined in good faith
by the Board of Trustees. Short-term investments are stated at cost,
which when combined with accrued interest, approximates market
value.
B. Federal Income Taxes. The Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no federal income tax provision is
required.
C. Security Transactions, Dividends and Distributions. As is common in
the industry, security transactions are accounted for on the trade
date. Dividend income and distributions to shareholders are recorded
on the ex-dividend date. Interest income is recognized on an accrual
basis. Income and capital gains distributions to shareholders are
determined in accordance with income tax regulations, which may
differ from generally accepted accounting principles.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
D. Deferred Organization Costs. The Fund has incurred expenses of
$35,000 in connection with the organization of the Fund. These costs
have been deferred and are being amortized on a straight-line basis
through the period ending December 2, 2002.
E. Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues
and expenses during the period. Actual results could differ from
those estimates.
NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY
TRANSACTIONS
For the period ended December 31, 1997, Avatar Investors Associates Corp.
(the "Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnishes all investment advice,
office space and certain administrative services, and provides most of the
personnel needed by the Fund. As compensation for its services, the Advisor
receives a monthly fee at the annual rate of 0.85% based upon the average daily
net assets of the Fund.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund or reimburse the Fund to the
extent necessary to limit the Fund's aggregate annual operating expenses to
1.50% of average net assets, annually. Any such reductions made by the Advisor
in its fees or payments may be reimbursed by the Fund, subject to approval by
the Board of Trustees, if the Fund is able to effect such reimbursement and
remain in compliance with any expense limitations in effect. For the period
ended December 31, 1997, the Advisor has reimbursed the Fund in the amount of
$2,080.
Investment Company Administration Corporation (the "Administrator") acts
as the Fund's Administrator under an Administration Agreement. 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, transfer agent and accountants;
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 0.20% of net assets, subject to a $30,000 minimum.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
Certain officers and trustees of the Trust are also officers and/or
directors of the Administrator and the Distributor.
NOTE 4 - DISTRIBUTION COSTS
The Fund has adopted a Distribution Plan (the "Plan") in accordance with
Rule 12b-1 under the 1940 Act. The Plan provides that the Fund may pay a fee to
the Distributor at an annual rate of up to 0.25% of the average daily net assets
of the Fund. The fee is paid to the Distributor as reimbursement for, or in
anticipation of, expenses incurred for distribution-related activity.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, excluding
short-term securities, for the period ended December 31, 1997 were $18,812,221
and $456,730, respectively.
14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees
The Avatar Advantage Equity
Allocation Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of The Avatar Advantage Equity Allocation Fund as
of December 31, 1997, and the related statements of operations, changes in net
assets and the financial highlights for the period from December 3, 1997
(commencement of operations) to December 31, 1997. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Avatar Advantage Equity Allocation Fund as of December 31, 1997, the results of
its operations, the changes in its net assets, and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles.
McGLADREY & PULLEN. LLP
New York, New York
February 18, 1998
15
<PAGE>
Advisor
Avatar Investors Associates Corp.
900 Third Avenue
New York, New York 10022
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.
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
888-263-6452
Auditor
McGladrey & Pullen LLP
555 Fifth Avenue, 8th Floor
New York, NY 10017-2416
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
