SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. __2__ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ ]
Amendment No. __2__ [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)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date)pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) 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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CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
NA Item No. Location
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Part A -- Prospectus of Van Deventer & Hoch American Value Fund
<S> <C>
Item 1. Cover Page.......................................Cover Page
Item 2. Synopsis.........................................Expense Table
Item 3. Condensed Financial Information..................Financial Highlights
Item 4. General Description of Registrant................Investment Objective and
Policies
Item 5. Management of Fund ..............................Management; Other Information
Concerning the Fund
Item 5A. Management's Discussion of Fund Performance..... Not applicable
Item 6. Capital Stock and Other Securities...............How Distributions are Made; Tax
Information; How the Fund Values
Its Shares
Item 7. Purchase of Securities Being Offered.............How to Buy, Sell & Exchange Shares
Making the Most of Your Shareholder
Privileges
Item 8. Redemption or Repurchase.........................How to Buy, Sell & Exchange Shares
Making the Most of Your Shareholder
Privileges
Item 9. Pending Legal Proceedings........................Not Applicable
Part B - Statement of Additional Information of Van Deventer & Hoch American Value Fund
Item 10. Cover Page.......................................Cover Page
Item 11. Table of Contents...............................Table of Contents
Item 12. General Information and History..................Not Applicable
Item 13. Investment Objectives and Policies...............Investment Policies and
Restrictions; Additional Policies
Regarding Derivative and Related
Transactions
Item 14. Management of the Fund...........................Management of the Trust and Fund
Item 15. Control Persons and Principal
Holders of Securities..........................General Information
Item 16. Investment Advisory and Other Services...........Management of the Trust and Fund; General
Information
Item 17. Brokerage Allocation and Other Practices.........General Information
and Brokerage
Item 18. Capital Stock and Other Practices................General Information
</TABLE>
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<TABLE>
<S> <C>
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered....................Purchases, Redemptions & Exchanges
Determination of Net Asset Value
Item 20. Tax Status.......................................Tax Matters
Item 21. Underwriters.....................................Not Applicable
Item 22. Calculation of Performance Data.................Performance Information
Item 23. Financial Statements.............................Not Applicable
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to the Registration Statement.
<PAGE>
VAN DEVENTER & HOCH AMERICAN VALUE FUND
800 North Brand Boulevard
Suite 300
Glendale, California 91203
(800) 548-7787
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 Series Trust (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 May 1, 1998 Statement of Additional
Information, as amended periodically. For a free copy of the Statement of
Additional Information, call (800) 548-7787. 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.
TABLE OF CONTENTS
Expense Table ........................................ 2
Financial Highlights ................................. 3
Investment Objective and Policies .................... 4
Management ........................................... 7
How to Buy, Sell and Exchange Shares ................. 8
How the Fund Values Its Shares ....................... 10
How Distributions Are Made; Tax Information .......... 10
Other Information Concerning the Fund ................ 11
Performance Information .............................. 13
Make the Most of Your Shareholder Privileges ......... 14
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.
May 1, 1998
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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)* ......................... 1.05%
----
Total Fund Operating Expenses (after waivers of fees)* ........... 1.05%
====
Example
Your investment of $1,000 would incur the following expenses, assuming 5%
annual return:
1 Year 3 Years
$ 11 $ 33
* 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 1.05%, respectively, and Total Fund Operating
Expenses would be 2.25%. The Advisor has agreed to waive fees payable to it
and/or reimburse expenses until at least the year 2000 to the extent necessary
to prevent annualized Total Fund Operating Expenses from exceeding 1.32% of
average net assets during such period, and intends to engage in additional fee
waivers for the balance of 1998 to maintain annualized Total Fund Operating
Expenses at 1.05% of average net assets.
** 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."
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FINANCIAL HIGHLIGHTS
Effective April 30, 1998, the Vista American Value Fund was merged into the
Fund. The following financial highlights were derived from the audited financial
statements of the Vista American Value Fund and its predecessor, the Hanover
American Value Fund. This information should be read in conjunction with the
financial statements and notes thereto which are incorporated by reference in
the Statement of Additional Information. The annual report for the Vista
American Value Fund for the year ended October 31, 1997, is available from First
Fund Distributors, Inc., the Fund's distributor (the "Distributor").
Van Deventer & Hoch American Value Fund
<TABLE>
<CAPTION>
Year Ended 12/1/95 Through 2/3/95 Through
Per Share Operating Performance 10/31/97 10/31/96(B)(C) 11/30/95(A)
- ------------------------------- -------- -------------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period ....................... $ 13.49 $ 12.11 $ 10.00
Income from investment operations:
Net investment income ..................................... 0.218 0.152 0.180
Net gains in securities (both realized and unrealized) .... 2.602 1.694 2.000
Total from investment operations ........................ 2.820 1.846 2.180
Less distributions
Dividends from net investment income ...................... 0.100 0.196 0.070
Distributions from capital gains .......................... 0.520 0.270 --
Total distributions ..................................... 0.620 0.466 0.070
Net asset value, end of period ............................. $ 15.69 $ 13.49 $ 12.11
Total returns .............................................. 21.67% 15.76% 21.80%
Ratios/Supplemental Data
- ------------------------
Net amounts, end of period (000 omitted) ................... $11,577 $ 9,609 $ 8,399
Ratios to average net assets+
Ratio of expenses ....................................... 1.32% 1.37% 1.23%
Ratio of net investment income .......................... 1.50% 1.38% 1.97%
Ratio of expenses without waivers and assumption
of expenses ............................................ 2.45% 2.52% 2.03%
Ratio of net investment income without waivers and
assumption of expenses ................................. 0.37% 0.23% 1.17%
Portfolio turnover rate .................................... 37% 25% 11%
Average commission rate paid per share ..................... $0.0664 $0.0794 $ --
- ------------
</TABLE>
(A) The Hanover American Value Fund commenced operations on February 3, 1995,
and merged into the Vista American Value Fund on May 3, 1996.
(B) The Vista American Value Fund merged into the Fund on April 30, 1998.
(C) In 1996, the Fund changed from a November 30 fiscal year-end to an October
31 fiscal year-end.
+ Short periods have been annualized.
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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.
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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. Debt securities rated in the lowest
category of investment-grade debt may have speculative characteristics; changes
in economic conditions or other circumstances are more likely to lead to
weakended capicity to make principal and interest payments than is the case with
higher-grade bonds.
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.
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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. As a shareholder in an investment
company, the Fund bears its ratable share of that investment company's expenses,
including advisory and administration fees. These fees are in addition to the
advisory and other fees charged to shareholders of the Fund. 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
6
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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. VDH Holdings, Inc. and
Crestline Partners, L.P. are control persons of the Advisor. For its investment
advisory services to the Fund, the Advisor is entitled to
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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 $1,000 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, through securities brokers, dealers and
financial intermediaries, or through the Fund's Automatic Investment Plan.
Buying shares through the Fund
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, PO Box 419372, Kansas City, Missouri 64141-6372. 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 (800) 548-7787 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
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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
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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 (800) 548-7787 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), 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.
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<PAGE>
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
11
<PAGE>
prospectuses; shareholder reports such as semiannual 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
12
<PAGE>
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
United Missouri Bank, n.a., 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.
13
<PAGE>
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.
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
(800) 548-7787. These privileges are subject to change or termination.
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<TABLE>
=================================================== =============================================
<S> <C>
Advisor
Van Deventer & Hoch
800 North Brand Boulevard
Suite 300
Glendale, CA 91203
(800) 247-5331
- VAN DEVENTER & HOCH
-------------------
Distributor
First Fund Distributors, Inc. AMERICAN VALUE FUND
4455 East Camelback Road
Suite 261E
Phoenix, AZ 85018
Prospectus
-
Custodian May 1, 1998
United Missouri Bank, n.a.
928 Grand Boulevard
Kansas City, Missouri 64106
-
Transfer Agent -
National Financial Data Services
1004 Baltimore Avenue
Kansas City, Missouri 64105
(800) 548-7787 -
-
Independent Accountants -
McGladrey & Pullen, LLP
555 Fifth Avenue VH
8th Floor
New York, NY 10017-2416
-
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, CA 94104
=================================================== =============================================
</TABLE>
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
VAN DEVENTER & HOCH AMERICAN VALUE FUND
800 North Brand Boulevard
Suite 300
Glendale, California 91203
May 1, 1998
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 dated May 1, 1998, as may be revised,
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 (800) 548-7787 or write to
the above-listed address.
<PAGE>
TABLE OF CONTENTS
The Fund.......................................................................3
Investment Policies and Restrictions...........................................3
Additional Policies Regarding Derivative And Related Transactions ............10
Performance Information.......................................................23
Determination of Net Asset Value..............................................25
Purchases, Redemptions and Exchanges..........................................26
Tax Matters...................................................................27
Management of the Trust and the Fund..........................................34
General Information...........................................................40
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
<PAGE>
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 thirteen 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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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,
<PAGE>
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.
(8) 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).
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 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.
(2) The Fund may not purchase or sell interests in oil, gas or mineral leases.
(3) The Fund may not invest more than 15% of its net assets in illiquid
securities.
(4) 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
<PAGE>
with respect to futures.
(5) 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 Adviser'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. Therefore, the
Fund has adopted the SEC position following SEC staff recommendations in this
area.
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
n
P(1 + T) =ERV
<PAGE>
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 1-,
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
<PAGE>
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
<PAGE>
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) 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.
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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>
<CAPTION>
Name, address and age Position Principal Occupation During Past Five Years
<S> <C> <C>
Walter E. Auch, Sr. (75) Trustee Director, Geotech Communications, Inc.,
6001 N. 62d Place Nicholas-Applegate Investment Trust, Brinson
Paradise Valley, AZ 85253 Funds (since 1994), Smith Barney Trak Fund,
Pimco Advisors L.P., Banyan Realty Trust,
Banyan Land Fund II and Legend Properties.
Eric M. Banhazl (39)* Trustee Senior Vice President, Investment Company
2025 E. Financial Way Administration President and Corporation; Vice
Glendora, CA 91740 President, First Fund Distributors; President,
Treasurer RNC Mutual Fund Group; Treasurer,
Guiness Flight Investment Funds, Inc. and
Professionally Managed Portfolios.
Donald E. O'Connor (60) Trustee Retired; formerly Executive Vice President and
Officer 1700 Taylor Avenue Chief Operating of ICI Mutual Insurance
Washington MD, 20744 Company (until January, 1997), Vice Fort
President, Operations, Investment Company
Institute (until June, 1993).
George T. Wofford III (57) Trustee Vice President, Information Services, Federal
305 Glendora Circle Home Loan Bank of San Francisco (since March,
Danville, CA 94526 1993); formerly Director of Management
Information Services, Morrison & Foerster (law
firm).
Steven J. Paggioli (46) Vice Executive Vice President, Robert H. Wadsworth
479 W. 22d Street President & Associates, Inc. and Investment Company
New York, NY 10011 Administration Corporation; Vice President First
Fund Distributors, Inc.; President and Trustee,
Professionally Managed Portfolios; Director,
Managers Funds, Inc.
Robert H. Wadsworth (57) Vice President, Robert H. Wadsworth & Associates,
4455 E. Camelback Road President Inc., Investment Company Administration
Suite 261E Corporation and First Fund Distributors, Inc.;
Guinness Phoenix, AZ 85018 Vice President, Professionally Managed
Portfolios; President, Flight Investment Funds,
Inc.; Director, Germany Fund, Inc., New
Germany Fund, Inc. and Central European
Equity Fund, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name, address and age Position Principal Occupation During Past Five Years
<S> <C> <C>
Chris O. Kissack (48) Secretary Employed by Investment Company
4455 E. Camelback Road, 261E Administration Corporation (since July, 1996);
1995 Phoenix, AZ 85018 formerly employed by Bank One, N.A. (from
August, until July, 1996); O'Connor, Cavanagh,
Anderson, Killingsworth and Beshears (law firm)
(until August, 1995).
</TABLE>
* denotes Trustee who is an "interested person" of the Trust under the 1940 Act.
Name and Position Aggregate Compensation from The Trust*
- --------------------------------------------------------------------------------
Walter E Auch, Sr., Trustee $12,000
- --------------------------------------------------------------------------------
Donald E. O'Connor, Trustee $12,000
- --------------------------------------------------------------------------------
George T. Wofford III, Trustee $12,000
- --------------------------------------------------------------------------------
* 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.
<PAGE>
Adviser
Van Deventer & Hoch acts as investment adviser to the Fund pursuant to an
Investment Advisory Agreement (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
<PAGE>
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.
<PAGE>
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 12b-1 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 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.
<PAGE>
Distribution Agreement
The Trust has entered into a Distribution Agreement (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
<PAGE>
the Fund.
Shareholder Servicing Agents
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.
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 thirteen series of
shares of beneficial interest, par value $0.01 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
<PAGE>
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.
<PAGE>
Financial Statements
The Fund is the accounting successor to the Vista American Value Fund. Audited
financial statements for the period ending October 31, 1997 for the predecessor
fund, as contained in the Annual Report to Shareholders of the Vista American
Value Fund for the fiscal period ended October 31, 1997 are incorporated herein
by reference.
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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".
<PAGE>
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.
<PAGE>
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:
Not Applicable
(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) (i) Opinion and consent of counsel relating to
the Al Frank Fund, American Trust Allegiance
Fund, Avatar Advantage Balanced Fund, Avatar
Advantage Equity Allocation Fund, Avatar
Advantage International Equity Fund, Chase
Growth Fund, Edgar Lomax Fund,
InformationTech 100 Fund, Kaminski Poland
Fund, Ridgeway Helms Millenium Fund,
Rockhaven Fund (5)
(ii) Opinion and consent of counsel relating to
the Van Deventer & Hoch American Value Fund
(5)
(11) Not applicable
(12) Not applicable
(13) Investment letters (3)
(14) Individual Retirement Account forms (6)
(15) (i) Form of Distribution Plan (4)
(16) Not applicable
<PAGE>
(1) Previously filed with the Registration Statement on Form N-1A (File
No. 33-17391) 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. 33-17391) 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. 33-17391) on February 28, 1997 and
incorporated herein by reference.
(4) Previously filed with Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A (File No. 33-17391) on February 19, 1998 and
incorporated herein by reference.
(5) Previously filed with Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A (File No. 33-17391) on March 19, 1998 and
incorporated herein by reference.
(6) To be filed by amendment.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
Shares of Beneficial Interest
Number of record holders as of March 17, 1998
American Trust Allegiance Fund: 296
InformationTech 100 Fund: 26
Kaminski Poland Fund: 342
Ridgeway-Helms Millennium Fund: 111
Rockhaven Fund: 45
Rockhaven Premier Dividend Fund: 23
Chase Growth Fund: 69
Van Deventer & Hoch American Value Fund 153
<PAGE>
The Avatar Advantage Equity Allocation Fund: 3
Edgar Lomax Value Fund: 40
Al Frank Asset Management Fund: 218
The Avatar Advantage Balanced Fund: 1
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
(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
<PAGE>
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
<PAGE>
brought shall determine upon application that in view of all
the circumstances of the case, that person was not 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
<PAGE>
(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 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
<PAGE>
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 fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
C-5
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:
<PAGE>
Mascoma Mutual Hold Corp.
On 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
Van Deventer & Hoch 801-6118
Al Frank Asset Management, Inc. 801-30528
Heritage West Advisors, LLC 801-55233
Item 29. Principal Underwriters.
(a) The Registrant's principal underwriter also acts as principal
underwriter for the following investment companies:
Guinness Flight Investment Funds, Inc.
Fleming Capital Mutual Fund Group
Fremont Mutual Funds
Jurika & Voyles Mutual Funds
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
Purisima Fund
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group
(b) The following information is furnished with respect to the officers
<PAGE>
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
<PAGE>
Bay Isle Financial Corporation, 160 Sansome Street, San Francisco, CA
94104
Kaminski Asset Management, Inc., 210 Second Street, North, #050,
Minneapolis, MN 55401
Ridgeway Helms Investment Management, 303 Twin Dolphin Drive, Redwood
Shores, CA 94065
Rockhaven Asset Management, 100 First Avenue, Suite 1050, Pittsburgh,
PA 15222
Chase Investment Counsel Corp., 300 Preston Avenue, Charlottesville, VA
22902
Avatar Associates Investment Corp., 900 Third Avenue, New York, NY
10022
The Edgar Lomax Company, 6564 Loisdale Court, Springfield, VA 22150
Van Deventer & Hoch, 800 North Bend Boulevard, Glendale, CA 91203
Al Frank Asset Management, Inc. 465 Forest Avenue, Laguna Beach, CA
92651
Heritage West Advisors, LLC, 1850 North Central Ave., Suite 610,
Phoenix, AZ 85004
(c) with respect to The Heritage West Dividend Capture Income Fund
series of the Registant, all other records will be maintained by the Registrant;
and
(d) all other documents will be maintained by Registrant's custodian,
Star Bank, 425 Walnut Street, Cincinnati, OH 45202.
Item 31. Management Services.
Not applicable.
<PAGE>
Item 32. Undertakings.
Registrant hereby undertakes to:
(a) Furnish each person to whom a Prospectus is delivered a copy
of the applicable latest annual report to shareholders, upon
request and without charge.
(b) 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.
(c) 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.
(d) File a post-effective amendment for the Liberty Freedom 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 interprested by
the staff of the Commission.
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 5th day of May, 1998.
ADVISORS SERIES TRUST
By /s/ Eric M. Banhazl*
Eric M. Banhazl
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 May 5, 1998.
/s/ Eric M. Banhazl* President, Principal Financial
- ---------------------------- and Accounting Officer, and Trustee
Eric M. Banhazl
/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
