File No.333-17391
811-07959
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. 28 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ ]
Amendment No. 30 [X]
ADVISORS SERIES TRUST
(Exact name of registrant as specified in charter)
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (including area code): (602) 952-1100
ROBERT H. WADSWORTH
Advisors Series Trust
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
(Name and address of agent for service of process)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the registration statement.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date)pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
|X| 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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HOWARD EQUITY FUND
45 Rockefeller Plaza
New York, NY 10111
(212) 586-4800
PROSPECTUS
Howard Equity Fund (the "Fund") is a mutual fund with the investment
objective of seeking growth of capital. The Fund attempts to achieve its
objective by investing in equity securities of mid to large capitalization
companies. See "Investment Objective and Policies." Shares are available on a
no-load basis to investors. There can be no assurance that the Fund will achieve
its investment objective.
This Prospectus sets forth basic information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. The Fund is a separate series of Advisors Series
Trust (the "Trust"), an open-end registered management investment company. A
Statement of Additional Information (the "SAI") dated _______________, 1998, as
may be revised, has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. This SAI is available without
charge upon request to the Fund at the address given above. The SEC maintains an
internet site (http://www.sec.gov) that contains the SAI, other material
incorporated by reference and other information about companies that file
electronically with the SEC.
_________________________, 1998
Table of Contents
Expense Table . . . . . . . . . . . . . . . . .
Investment Techniques and
Their Risks . . . . . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . . .
Investor Guide . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . .
Services Available to Shareholders .
How to Redeem Your Shares . . . . . .
Dividends and Distributions . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . .
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Securities and Exchange Commission passed
upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
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Expense Table.
Expenses are one of several factors to consider when investing in the Fund.
There are two types of expenses involved: shareholder transaction expenses, such
as sales loads, redemption fees, and annual operating expenses, such as
investment advisory fees. The Fund is a no-load mutual fund. The Fund has
adopted a plan of distribution under which it will pay the Advisor, as
Distribution Coordinator, a fee at the annual rate of up to 0.50% of the Fund's
net assets. A long-term shareholder may pay more, directly and indirectly, in
such fees than the maximum sales charge permitted under the rules of the
National Association of Securities Dealers, Inc. Shares will be redeemed at net
asset value per share.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee None
Annual Operating Expenses
(As a percentage of average net
assets)
Investment Advisory Fee 1.00%
12b-1 Fee 0.50%
Other Expenses
(after reimbursement) (a) 0.45%
Total Fund Operating
Expenses (a) 1.95%
(a) Other Expenses are estimated for the first fiscal year of the Fund. The
Advisor has agreed to reduce its fees and/or pay expenses of the Fund to insure
that the Fund's expenses will not exceed 1.95%. If the Advisor did not limit the
Fund's expenses, it is estimated that "Other Expenses" in the above table would
be 1.45% and "Total Fund Operating Expenses" would be 2.95%. If the Advisor does
waive any of its fees or pay Fund expenses, the Fund may reimburse the Advisor
in future years. See "Management of the Fund."
Example
This table illustrates the net operating expenses that would be incurred by an
investment in the Fund over different time periods assuming a $1,000 investment,
a 5% annual return, and redemption at the end of each time period.
1 Year 3 Years
$20 $61
The Example shown above should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown. In
addition, federal regulations require the Example to assume a 5% annual return,
but the Fund's actual return may be higher or lower. See "Management of the
Fund."
Investment Objective And Policies.
The investment objective of the Fund is to seek growth of capital. The Fund will
pursue its investment objective by investing substantially in securities of mid
to large capitalization companies. A company's market capitalization is the
total market value of its outstanding common stock. Mid to large capitalization
companies are those whose market
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capitalization is at least $1 billion at the time of the Fund's investment.
Companies whose capitalizations decrease below this amount after purchase
continue to be considered large capitalization for this purpose. Under normal
market conditions, at least 65% of the Fund's total assets will be invested in
equity securities, including common stock, preferred stock, warrants and
securities convertible into or exchangeable for common stock. The payment of
dividend income will not be a factor in selecting securities for the Fund's
portfolio. When the Advisor believes market conditions warrant, or when the
Advisor believes it is necessary to achieve the Fund's objective, the Fund may
invest up to 25% of its total assets in corporate debt securities which may be
rated lower than investment grade. The Fund may borrow money for temporary or
emergency purposes and make loans of portfolio securities. The Fund may invest
up to 10% of its total assets in foreign securities, including Depository
Receipts.
Howard Capital Management, the Fund's investment advisor (the "Advisor") employs
an investment strategy that is neither pure growth nor pure value. The Advisor
searches for either growth at a reasonable price or exceptional value with a
catalyst present to create a recognition of that value in a reasonable period of
time. Growth is gauged by a combination of growth in earnings, operating income
and cash flow. The Advisor will not invest in a company solely because of its
high growth, but, rather, must have the reasonable expectation that its long
term growth is sustainable and the Company is underpriced by the market. Value
is assessed by estimating the intrinsic value of the company in question.
Intrinsic value is reached by an in-depth analysis of the assets and liabilities
of the company and the franchise value of its operations. Overall, the Advisor
looks for companies with a sustainable operating advantage over their
competition. The Advisor is very selective in making investments. During the
initial six months of the Fund's operations and when the Fund experiences heavy
cash flows, the Fund may not be fully invested.
For temporary defensive purposes, the Advisor may invest up to 100% of the
Fund's total assets in high quality, short-term debt securities and money market
instruments. These short-term debt securities and money market instruments
include commercial paper, certificates of deposit, bankers' acceptances, U.S.
Government securities and repurchase agreements.
The Fund's investment objective is a fundamental policy and may not be amended
without first obtaining the approval of a majority of the outstanding shares of
the Fund. There is, of course, no assurance that the Fund's objective will be
achieved. Because prices of common stocks and other securities fluctuate, the
value of an investment in the Fund will vary as the market value of its
investment portfolio changes.
Investment Techniques and Their Risks.
In addition to the risks associated with particular types of securities, which
are discussed below and in the SAI, the Fund is subject to general market risks.
The Fund invests primarily in common stocks and bonds. The market risks
associated with stocks include the possibility that the entire market for common
stocks could suffer a decline in price over a short or even an extended period.
This could affect the next asset value of your Fund shares. The U.S. stock
market tends to be cyclical, with periods when stock prices generally rise and
periods when stock prices generally decline. The market risks associated with
bonds include the possibility that the value of corporate, government and other
bonds held by the Fund will fluctuate with movements in interest rates and
changes in the perceived creditworthiness of the issuers of those securities.
Accordingly, the Fund generally will be an appropriate investment for investors
looking for a long-term investment.
Borrowing Money.
The Fund may borrow money from banks for leverage, up to one-third of its total
assets. The use of borrowing by the Fund involves special risk considerations
that may not be associated with other funds having similar objectives and
policies. Since substantially all of the Fund's assets fluctuate in value, while
the interest obligation resulting from borrowing will be fixed by the terms of
the Fund's agreement with its lender, the net asset value per share of the Fund
will tend to increase more when its portfolio securities increase in value and
to decrease more when its portfolio assets decrease in value than would
otherwise be the case if the Fund did not borrow money. In addition, interest
costs on borrowings may fluctuate with changing interest rates and may partially
offset or exceed the return earned on borrowed
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funds. Under adverse market conditions, the Fund might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales. The Fund is required to
designate spedific liquid assets with its custodian equal to the amount it has
borrowed.
Convertible Securities.
Convertible securities in which the Fund may invest, including both convertible
debt and convertible preferred stock, may be converted at either a stated price
or stated rate into underlying shares of common stock. Because of this feature,
convertible securities enable an investor to benefit from increases in the
market price of the underlying common stock. Convertible securities provide
higher yields than the underlying equity securities, but generally offer lower
yields than non-convertible securities of similar quality. Like bonds, the value
of convertible securities fluctuates in relation to changes in interest rates
and, in addition, fluctuates in relation to the underlying common stock.
Debt Securities.
The Fund may invest up to 25% of its assets in corporate debt securities which
may be rated below investment grade. Such securities, sometimes referred to as
junk bonds, typically carry higher coupon rates than investment grade securities
but also are described as speculative by both Moody's Investors Service, Inc.
("Moody's) and Standard & Poor's Ratings Service ("S&P"). These securities may
be subject to greater market price fluctuations, less liquidity, and greater
risk of income or principal, including a greater possibility of default or
bankruptcy of the issuer of such securities, than are more highly rated debt
securities. Lower rated fixed income securities also are likely to be more
sensitive to adverse economic or company developments. During periods of
economic downturn or rising interest rates, highly leveraged issuers of lower
rated securities may experience financial stress which could adversely affect
their ability to make payments of interest and principal and increase the
possibility of default. In addition, the market for lower rated debt securities
has expanded rapidly in recent years, and its growth has paralleled a long
economic expansion. At times in recent years, the prices of many lower rated
debt securities declined substantially, reflecting an expectation that many
issuers of such securities might experience financial difficulties. There can be
no assurance that such declines will not recur. These circumstances may limit
the Fund's ability to sell such securities at fair value in response to changes
in the economy or financial markets.
Because the market value of debt obligations can be expected to vary inversely
to changes in prevailing interest rates, investing in debt obligations may
provide an opportunity for capital growth when interest rates are expected to
decline. The success of such a strategy is dependent upon the Advisor's ability
to accurately forecast changes in interest rates. The market value of debt
obligations may be expected to vary depending upon, among other factors,
interest rates, the ability of the issuer to repay principal and interest, any
change in investment rating and general economic conditions. The Fund's debt
securities holdings may be rated below investment grade and as low as C by
Moody's or D by S&P and the Fund may also invest in unrated issues that are
believed by the Advisor to be of comparable quality. Securities in these rating
categories are in payment default or have extremely poor prospects of attaining
any investment standing.
Foreign Securities.
The Fund may invest up to 10% of its total assets in securities issued by
foreign companies. Investing in foreign securities involves more risk than
investing in securities of U.S. companies. These risks include those resulting
from fluctuations in currency exchange rates, changes in exchange control
regulations and fluctuations in the relative rates of exchange between the
currencies of different nations, as well as by economic and political
developments . Other risks involved in foreign securities include the following:
there may be less publicly available information about foreign companies
comparable to the reports and ratings that are published about companies in the
U.S.; foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and requirements comparable to those
applicable to U.S. companies; some foreign stock markets have substantially less
volume than U.S. markets, and securities of some foreign companies are less
liquid and more volatile than securities of comparable U.S. companies; there may
be less government supervision and regulation of foreign stock exchanges,
brokers and listed companies than exist in the U.S.; and there may be the
possibility of expropriation or confiscatory taxation, political or social
instability
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or diplomatic developments which could affect assets of the Fund held in foreign
countries.
Depositary Receipts. The Fund may invest in Depositary Receipts ("DRs"),
including American Depositary Receipts, European Depositary Receipts, Global
Depositary Receipts or other forms of depositary receipts. DRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities of foreign issuers, and other forms of depository receipts
for securities of foreign issuers.
Foreign Currency Transactions. The Fund may enter into foreign currency
transactions either on a spot or cash basis at prevailing rates or through
forward foreign currency exchange contracts in order to have the necessary
currencies to settle transactions. The Fund may also enter into foreign currency
transactions to protect Fund assets against adverse changes in foreign currency
exchange rates. Such efforts could limit potential gains that might result from
a relative increase in the value of such currencies, and might, in certain
cases, result in losses to the Fund.
Illiquid and Restricted Securities.
The Fund may not invest more than 15% of its net assets in illiquid securities,
including (a) securities for which there is no readily available market; (ii)
securities the disposition of which would be subject to legal restriction
(so-called "restricted securities") and (iii) repurchase agreements having more
than seven days to maturity. A considerable period of time may elapse between
the Fund's decision to dispose of such securities and the time when the Fund is
able to dispose of them, during which time the value of the securities could
decline. Securities which meet the requirements of Rule 144 under the Securities
Act of 1933 are restricted, but may be determined to be liquid by the Trustees,
based on an evaluation of the applicable trading markets.
Options and Futures Strategies.
Options. The Fund may deal in options on securities indices to manage stock
prices. The Fund may not purchase or sell options if more than 25% of it net
assets would be hedged. The Fund may also write covered call options and secured
put options to seek to lock in gains on up to 25% of its net assets.
Futures and Options on Futures. The Fund may enter into interest rate and stock
index futures contracts and options on index futures contracts. A futures
contract obligates the seller of the contract to deliver and the purchaser of
the contract to take delivery of the type of financial instrument or security
called for in the contract at a specified future time for a specified price. A
stock index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
the last trading day of the contract and the price at which the futures contract
is originally struck. No physical delivery of the underlying stocks in the index
is made. As a general rule, the Fund will not purchase or sell futures if,
immediately thereafter, more than 25% of its net assets would be hedged.
When the Fund uses options, futures and options on futures as hedging devices,
there is a risk that the prices of the hedging vehicles may not correlate
perfectly with the price of the portfolio securities being hedged. This may
cause the futures contract and any related options to react differently than the
Fund's portfolio securities to market changes. In addition, the Advisor could be
incorrect in its expectations about the direction or the extent of market
movements. In these events, the Fund could lose money on the futures contract or
option. Although the Advisor will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market will exist
for positions in futures contracts and options at all times.
The Fund's options and futures transactions will generally be entered into for
hedging purposes-to protect against possible changes in the market values of
securities held in or to be purchased for the Fund's portfolio resulting from
securities markets or interest rate fluctuations, to protect the Fund's
unrealized gains in the values of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchase or sale of particular
securities. However, in addition to the hedging transactions referred to above,
the Fund may enter into
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options and futures transactions to enhance potential gain in circumstances
where hedging is not involved. The Fund's net loss exposure resulting from
transactions entered into for such purposes will not exceed 5% of its net assets
at any one time and, to the extent necessary, the Fund will close out
transactions in order to comply with this limitation. Such transactions are
subject to the limitations described above under "Options" and "Futures and
Options on Futures."
Securities Lending.
The Fund may lend securities to financial institutions such as banks,
broker-dealers and other recognized institutional investors in amounts up to 30%
of the Fund's total assets. These loans earn income for the Fund and are
collateralized by cash, securities or letters of credit. The Fund might
experience a loss if the financial institution defaults on the loan.
Selling Short.
The Fund may sell securities short by borrowing securities it does not own and
selling them. The Fund is then obligated to replace the securities borrowed by
purchasing them at the market price at the time of replacement. If the
securities sold short increase in value between the time of sale and the time
the Fund purchases them, the Fund will incur a loss. On the other hand, if the
securities decline in value, the Fund may repurchase them at a lower price and
realize a profit. There are limits on the extent to which the Fund may engage in
short sales, as described in the SAI.
Warrants.
The Fund may invest up to 10% of its total assets in warrants. Warrants are
securities that give the holder the right, but not the obligation to purchase
newly created equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.
Investment Restrictions.
The Fund has adopted certain investment restrictions, which are described fully
in the SAI. Like the Fund's investment objective, certain of these restrictions
are fundamental and may be changed only by a majority vote of the Fund's
outstanding shares. As a fundamental policy, the Fund is a diversified fund.
Management of The Fund.
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund.
The Advisor.
The Fund's Advisor, Howard Capital Management, 45 Rockefeller Plaza, New York,
NY 10111, has provided asset management services to individuals and
institutional investors since 1974. The Advisor was established and is
controlled by its Chairman, Harold N. Howard. Mr. Jonathan Foster and Mr.
Anthony Orphanos are principally responsible for the management of the Fund's
portfolio. Mr. Foster has been President of the Advisor since joining the firm
in 1994. Prior to that, Mr. Foster was President of Jonathan Foster & Co., LP,
from 1987 to 1994. Mr. Orphanos has been Senior Managing Director of the Advisor
since joining the firm in 1998. Prior to that, Mr. Orphanos was Managing
Director, Asset Management at Warburg Pincus Asset Management from 1977 to 1998.
The Advisor provides the Fund with advice on buying and selling securities,
manages the investments of the Fund, furnishes the Fund with office space and
certain administrative services, and provides most of the personnel needed by
the Fund. As compensation, the Fund pays the Advisor a monthly management fee
based upon the average daily net assets of the Fund at the annual rate of 1.00%.
The Administrator.
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Investment Company Administration Corporation (the "Administrator") prepares
various federal and state regulatory filings, reports and returns for the Fund,
prepares reports and materials to be supplied to the trustees, monitors the
activities of the Fund's custodian, shareholder servicing agent and accountants,
and coordinates the preparation and payment of Fund expenses and reviews the
Fund's expense accruals. For its services, the Administrator receives a monthly
fee at the annual rate of 0.20% of average daily net assets, subject to a
$30,000 annual minimum.
Other Operating Expenses.
The Fund is responsible for its own operating expenses, including but not
limited to, the advisory and administration fees, custody and shareholder
servicing agent fees, legal and auditing expenses, federal and state
registration fees, and fees to the Trust's disinterested trustees. The Advisor
may reduce its fees or reimburse the Fund for expenses at any time in order to
reduce the Fund's expenses. Reductions made by the Advisor in its fees or
payments or reimbursements of expenses which are the Fund's obligation are
subject to reimbursement by the Fund within three subsequent years provided the
Fund is able to do so and remain in compliance with any applicable expense
limitations.
Distribution Plan.
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1. The Plan
permits the Fund to pay for distribution and related expenses at an annual rate
of up to 0.50% of the Fund's average net assets. The expenses which the Fund may
pay include the cost of preparing and distributing prospectuses and other sales
material, advertising and public relations expenses, payments to financial
intermediaries and compensation of personnel involved in selling shares of the
Fund.
Brokerage Transactions.
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these are more fully
discussed in the SAI, the factors include, but are not limited to, the
reasonableness of commissions, quality of services and execution, and the
availability of research which the Advisor may lawfully and appropriately use in
its investment advisory capacities. Provided the Fund receives prompt execution
at competitive prices, the Advisor may also consider the sale of Fund shares as
a factor in selecting broker-dealers for the Fund's portfolio transactions.
Portfolio Turnover.
The Advisor anticipates that the Fund's portfolio turnover rate will not exceed
100%. A high rate of portfolio turnover (100% or more) generally leads to
increased transaction costs and may result in a greater number of taxable
transaction. The Advisor will not necessarily limit portfolio turnover to this
limit. See "Taxes" and the SAI for more information on portfolio turnover.
Investor Guide.
How to purchase shares of the Fund.
There are several ways to purchase shares of the Fund. An Application Form,
which accompanies this Prospectus, is used if you send money directly to the
Fund by mail or by wire. If you have questions about how to invest, or about how
to complete the Application Form, please call an account representative at
(888)_________. First Fund Distributors, Inc., 4455 E. Camelback Road, Suite
261E, Phoenix, Arizona 85018, an affiliate of the Administrator, is the
principal underwriter ("Distributor") of the Fund's shares.
You may send money to the Fund by mail.
If you wish to invest by mail, simply complete the Application Form and mail it
with a check (made payable to Howard
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Equity Fund) to the Fund's Shareholder Servicing Agent, American Data Services,
Inc. at the following address:
Howard Equity Fund
P.O. Box 641265
Cincinnati, OH 45264-1265
If you wish to send your Application Form and check via an overnight delivery
service (such as FedEx), delivery cannot be made to a post office box. In that
case, you should use the following address:
Howard Equity Fund
c/o Star Bank, N.A.
Mutual Fund Custody Department
425 Walnut Street, M.L. 6118, Sixth Floor
Cincinnati, Ohio 45202
You may wire money to the Fund.
Before sending a wire, you should call the Fund at (888)________ between 9:00
a.m. and 5:00 p.m., Eastern time, on a day when the New York Stock Exchange
("NYSE") is open for trading, in order to receive an account number. It is
important to call and receive this account number, because if your wire is sent
without it or without the name of the Fund, there may be a delay in investing
the money you wire. You should then ask your bank to wire money to:
Star Bank, N.A. Cinti/Trust
ABA # 0420-0001-3
for credit to Howard Equity Fund
DDA # _________________
for further credit to [your name and account number]
Your bank may charge you a fee for sending a wire to the Fund.
You may purchase shares through an investment dealer.
You may be able to invest in shares of the Fund through an investment broker or
dealer, if the broker/dealer has made arrangements with the Distributor. The
broker/dealer may place an order for you with the Fund; the price you will pay
will be the net asset value which is next calculated after receipt of the order
from the broker/dealer. It is the responsibility of the broker/dealer to place
your order promptly. A broker, dealer, or other agent may charge you a fee for
placing your order, but you could avoid paying such a fee by sending an
Application Form and payment directly to the Fund. The broker/dealer may also
hold the shares you purchase in an omnibus account in its name rather than in
your name in the records of the Fund's transfer agent. The Fund may reimburse
the broker, dealer, or other agent for maintaining records of your account as
well as for other services provided to you. Your broker/dealer is responsible
for sending your money to the Fund promptly after placing the order to purchase
shares, and the Fund may cancel the order if payment is not received from the
broker/dealer promptly.
Minimum Investments.
The minimum initial investment in the Fund is $2,000. The minimum subsequent
investment is $100. However, if you are investing in an Individual Retirement
Account ("IRA"), or you are starting an Automatic Investment Plan (see below),
the minimum initial and subsequent investments are $1,000 and $100,
respectively.
Subsequent Investments.
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You may purchase additional shares of the Fund by sending a check, with the stub
from an account statement, to the Fund at the address above. Please also write
your account number on the check. (If you do not have a stub from an account
statement, you can write your name, address and account number on a separate
piece of paper and enclose it with your check.) If you want to send additional
money for investment by wire, it is important for you to call the Fund at (888)
_________. You may also make additional purchases through an investment dealer,
as described above.
When is Money Invested in the Fund?
Any money received for investment in the Fund from an investor, whether sent by
check or by wire, is invested at the net asset value of the Fund which is next
calculated after the money is received (assuming the check or wire correctly
identifies the Fund and account). Orders received from dealers are invested at
the net asset value next calculated after the order is received. The net asset
value is calculated at the close of regular trading of the NYSE, generally 4:00
p.m., Eastern time. A check or wire received after the NYSE closes is invested
as of the next calculation of the Fund's net asset value.
What is the Net Asset Value of the Fund?
The Fund's net asset value per share is calculated by dividing the value of the
Fund's total assets, less its liabilities, by the number of its shares
outstanding. In calculating the net asset value, portfolio securities are valued
using current market values, if available. Securities for which market
quotations are not readily available are valued at fair values determined in
good faith by or under the supervision of the Board of Trustees of the Trust.
The fair value of short-term obligations with remaining maturities of 60 days or
less is considered to be their amortized cost.
Other Information.
The Distributor may waive the minimum investment requirements for purchases by
certain group or retirement plans. All investments must be made in U.S. dollars,
and checks must be drawn on U.S. banks. Third party checks will not be accepted.
A charge may be imposed if a check used to make an investment does not clear.
The Fund and the Distributor reserve the right to reject any investment, in
whole or in part. Federal tax law requires that investors provide a certified
taxpayer identification number and other certifications on opening an account in
order to avoid backup withholding of taxes. See the Application Form for more
information about backup withholding. The Fund is not required to issue share
certificates; all shares are normally held in non-certificated form on the books
of the Fund, for the account of the shareholder.
Services Available to Shareholders.
Retirement Plans.
You may obtain a prototype IRA plan from the Fund. Shares of the Fund are also
eligible investments for other types of retirement plans.
Automatic Investment Plan.
.
You may make regular monthly investments in the Fund using the Automatic
Investment Plan. A check is automatically drawn on your personal checking
account each month for a predetermined amount (but not less than $100), as if
you had written it directly. Upon receipt of the withdrawn funds, the Fund
automatically invests the money in additional shares of the Fund at the next
calculated net asset value. Applications for this service are available from the
Fund. There is no charge by the Fund for this service. The Fund may terminate or
modify this privilege at any time, and shareholders may terminate their
participation by notifying the Shareholder Servicing Agent in writing,
sufficiently in advance of the next scheduled withdrawal.
Automatic Withdrawals.
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The Fund offers a Systematic Withdrawal Program whereby shareholders may request
that a check drawn in a predetermined amount be sent to them each month or
calendar quarter. To start this Program, your account must have Fund shares with
a value of at least $10,000, and the minimum amount that may be withdrawn each
month or quarter is $50. This Program may be terminated or modified by a
shareholder or the Fund at any time without charge or penalty. A withdrawal
under the Systematic Withdrawal Program involves a redemption of shares of the
Fund, and may result in a gain or loss for federal income tax purposes. In
addition, if the amount withdrawn exceeds the dividends credited to your
account, the account ultimately may be depleted.
How to Redeem Your Shares.
You have the right to redeem all or any portion of your shares of the Fund at
their next calculated net asset value on each day the NYSE is open for trading.
Redemption in Writing.
You may redeem your shares by simply sending a written request to the Fund. You
should give your account number and state whether you want all or some of your
shares redeemed. The letter should be signed by all of the shareholders whose
names appear in the account registration information. You should send your
redemption request to:
Howard Equity Fund
P.O. Box 641265
Cincinnati, OH 45264-1265
Signature Guarantees.
If the value of the shares you wish to redeem exceeds $5,000, the signatures on
the redemption request must be guaranteed by an "eligible guarantor
institution." These institutions include banks, broker-dealers, credit unions
and savings institutions. A broker-dealer guaranteeing a signature must be a
member of a clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program. A notary public is not an
acceptable guarantor.
Redemption by Telephone.
If you complete the Redemption by Telephone portion of the Fund's Application
Form, you may redeem shares on any business day the NYSE is open by calling the
Fund's Shareholder Servicing Agent at (888) ________ before the close of trading
on the NYSE, generally 4:00 p.m. Eastern time. Redemption proceeds will be
mailed or wired, at your direction, on the next business day to the bank account
you designated on the Application Form. The minimum amount that may be wired is
$1,000 (wire charges, if any, will be deducted from redemption proceeds).
Telephone redemptions cannot be made for IRA accounts.
By establishing telephone redemption privileges, you authorize the Fund and its
Shareholder Servicing Agent to act upon the instruction of any person who makes
the telephone call to redeem shares from your account and transfer the proceeds
to the bank account designated in the Application Form. The Fund and the
Shareholder Servicing Agent will use procedures to confirm that redemption
instructions received by telephone are genuine, including recording of telephone
instructions and requiring a form of personal identification before acting on
these instructions. If these normal identification procedures are followed,
neither the Fund nor the Shareholder Servicing Agent will be liable for any
loss, liability, or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
The Fund may change, modify, or terminate these privileges at any time upon at
least 60 days' notice to shareholders.
10
<PAGE>
You may request telephone redemption privileges after your account is opened;
however, the authorization form will require a separate signature guarantee.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity.
What Price is Used for a Redemption?
The redemption price is the net asset value of the Fund's shares less the
redemption fee (if applicable), next calculated after shares are validly
tendered for redemption. All signatures of account holders must be included in
the request, and a signature guarantee, if required, must also be included for
the request to be valid.
When are Redemption Payments Made?
As noted above, redemption payments for telephone redemptions are sent on the
day after the telephone call is received. Payments for redemptions sent in
writing are normally made promptly, but no later than seven days after the
receipt of a request that meets requirements described above. However, the Fund
may suspend the right of redemption under certain extraordinary circumstances in
accordance with rules of the Securities and Exchange Commission.
If shares were purchased by wire, payment of redemption proceeds cannot be made
until the day after the Application Form is received. If shares were purchased
by check and then redeemed shortly after the check is received, the Fund may
delay sending the redemption proceeds until it has been notified that the check
used to purchase the shares has been collected, a process which may take up to
15 days. This delay may be avoided by investing by wire or by using a certified
or official bank check to make the purchase.
Repurchases From Dealers.
The Fund may accept orders to repurchase shares from an investment dealer on
behalf of a dealer's customers. The net asset value for a repurchase is that
next calculated after receipt of the order from the dealer. The dealer is
responsible for forwarding any documents required in connection with a
redemption, including a signature guarantee, and the Fund may cancel the order
if these documents are not received promptly.
Other Information About Redemptions.
A redemption may result in recognition of a gain or loss for federal income tax
purposes. Due to the relatively high cost of maintaining smaller accounts, the
shares in your account (unless it is a retirement plan or Uniform Gifts or
Transfers to Minors Act account) may be redeemed by the Fund if, due to
redemptions you have made, the total value of your account is reduced to less
than $500. If the Fund determines to make such an involuntary redemption, you
will first be notified that the value of your account is less than $500, and you
will be allowed 30 days to make an additional investment to bring the value of
your account to at least $500 before the Fund takes any action.
If the Board of Trustees should determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in kind of securities from the portfolio of the Fund, in compliance
with the Trust's election to be governed by Rule 18f-1 under the 1940 Act.
Pursuant to Rule 18f-1, the Fund is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder will likely incur brokerage costs in converting the assets
into cash.
Dividends and Distributions.
Dividends from net investment income, if any, are normally declared and paid by
the Fund in December. Capital gains distributions, if any, are also normally
made in December, but the Fund may make an additional payment of dividends or
distributions if it deems it desirable at another time during any year.
11
<PAGE>
Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares of the Fund at the net asset
value per share calculated on the reinvestment date unless you have previously
requested in writing to the Shareholder Servicing Agent that payment be made in
cash.
Any dividend or distribution paid by the Fund has the effect of reducing the net
asset value per share on the record date by the amount of the dividend or
distribution. You should note that a dividend or distribution paid on shares
purchased shortly before that dividend or distribution was declared will be
subject to income taxes even though the dividend or distribution represents, in
substance, a partial return of capital to you.
Taxes.
The Fund intends to qualify and elect to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code. As long as the Fund
continues to qualify, and as long as the Fund distributes all of its income each
year to the shareholders, the Fund will not be subject to any federal income or
excise taxes. Distributions made by the Fund will be taxable to shareholders
whether received in shares (through dividend reinvestment) or in cash.
Distributions derived from net investment income, including net short-term
capital gains, are taxable to shareholders as ordinary income. A portion of
these distributions may qualify for the intercorporate dividends-received
deduction. Distributions designated as capital gains dividends are taxable as
capital gains regardless of the length of time shares of the Fund have been
held. Although distributions are generally taxable when received, certain
distributions made in January are taxable as if received the prior December. You
will be informed annually of the amount and nature of the Fund's distributions.
Additional information about taxes is set forth in the SAI. You should consult
your own advisors concerning federal, state and local taxation of distributions
from the Fund.
General Information.
The Trust.
The Trust was organized as a Delaware business trust on October 3, 1996. The
Agreement and Declaration of Trust permits the Board of Trustees (the "Board")
to issue an unlimited number of full and fractional shares of beneficial
interest, par value $0.01 per share, which may be issued in any number of
series. The Board may, from time to time, authorize other series, the assets and
liabilities of which will be separate and distinct from all other series. The
Board may also authorize the issuance of additional classes of shares for an
existing series.
Shareholder Rights.
Shares issued by the Fund have no preemptive, conversion, or subscription
rights. Shareholders have equal and exclusive rights as to dividends and
distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. The Fund, as a separate series of the Trust, votes
separately on matters affecting only the Fund (e.g., approval of the Investment
Advisory Agreement); all series of the Trust vote as a single class on matters
affecting all series jointly or the Trust as a whole (e.g., election or removal
of Trustees). Voting rights are not cumulative, so that the holders of more than
50% of the shares voting in any election of Trustees can, if they so choose,
elect all of the Trustees. While the Trust is not required and does not intend
to hold annual meetings of shareholders, such meetings may be called by the
Trustees in their discretion, or upon demand by the holders of 10% or more of
the outstanding shares of the Trust for the purpose of electing or removing
Trustees.
Performance Information.
From time to time, the Fund may publish its total return in advertisements and
communications to investors. Total return information will include the Fund's
average annual compounded rate of return over the most recent four calendar
quarters and over 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 total return will be based upon the value of the
shares acquired through a hypothetical $1,000 investment at the beginning of the
specified period and the net asset value of
12
<PAGE>
those shares at the end of the period, assuming reinvestment of all
distributions. Total return figures will reflect all recurring charges against
Fund income. You should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
prior period should not be considered as a representation of what an investor's
total return may be in any future period.
Shareholder Inquiries.
Shareholder inquiries should be directed to the Shareholder Servicing Agent at
(888) __________.
Year 2000 Risk.
Like other business organizations around the world, the Fund could be adversely
affected if the computer systems used by the Advisor and other service providers
do not properly process and calculate information related to dates beginning
January 1, 2000. This is commonly known as the "Year 2000 Issue." The Advisor is
taking steps that it believes are reasonably designed to address the Year 2000
Issue with respect to its own computer systems, and it has obtained assurances
from the Fund's other service providers that they are taking comparable steps.
However, there can be no assurance that these actions will be sufficient to
avoid any adverse impact on the Fund.
13
<PAGE>
Advisor
Howard Capital Management
45 Rockefeller Plaza
New York, NY 10111
(212) 586-4800
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
524 Walnut Street
Cincinnati, OH 45202
Transfer Agent
American Data Services
P.O. Box 5536
Hauppauge, NY 11788-0132
Independent Accountants
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, CA 94014
14
<PAGE>
HOWARD EQUITY FUND
Prospectus
__________________, 1998
15
<PAGE>
HOWARD EQUITYFUND
Statement of Additional Information
Dated [Effective date]
This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the prospectus dated ________, 1998, as may
be revised, of the Howard Equity Fund (the "Fund"), a series of Advisors Series
Trust (the "Trust"). Howard Capital Management. (the "Advisor") is the advisor
to the Fund. A copy of the prospectus may be obtained from the Fund at 45
Rockefeller Plaza, New York, NY 10111; telephone (212) 586-4588.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Cross-reference to sections
Page in the prospectus
<S> <C> <C>
Investment Objective and Policies......................... B- Investment Objectives and
Policies
Management................................................ B- Management of the Fund
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . Management of the Fund
Portfolio Transactions and Brokerage...................... B- Management of the Fund
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . B- Management of the Fund
Net Asset Value........................................... B- Investor Guide
Taxation ........................................... B- Taxes
Dividends and Distributions............................... B- Dividends and Distributions
Performance Information................................... B- General Information
General Information....................................... B- General Information
Appendix - Description of Ratings......................... B- Not applicable
</TABLE>
B-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is seeking growth of capital which
it attempts to achieve by investing primarily in equity securities of mid to
large capitalization companies. There is no assurance that the Fund will achieve
its objective. The discussion below supplements information contained in the
prospectus as to investment policies of the Fund.
Convertible Securities and Warrants
The Fund may invest in convertible securities and warrants. A
convertible security is a fixed-income security (a debt instrument or a
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment therein).
Risks of Investing in Debt Securities
There are a number of risks generally associated with an investment in
debt securities (including convertible securities). Yields on short-,
intermediate-, and long-term securities depend on a variety of factors,
including the general condition of the money and bond markets, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue.
Debt securities with longer maturities tend to produce higher yields
and are generally subject to potentially greater capital appreciation and
depreciation than obligations with short maturities and lower yields. The market
prices of debt securities usually vary, depending upon available yields. An
increase in interest rates will generally reduce the value of such portfolio
investments, and a decline in interest rates will generally increase the value
of such portfolio investments.
Risks of Investing in Lower-Rated Debt Securities
The Fund may invest a portion of its net assets in convertible debt
securities, which may be rated below "Baa" by Moody's Investors Service, Inc.
("Moody's") or "BBB" by Standard & Poor's Ratings Group ("S&P") or below
investment grade by other recognized rating agencies, or in unrated securities
of comparable quality under certain circumstances. Securities with ratings below
"Baa" and/or "BBB" are commonly referred to as "junk bonds." Such bonds are
subject to greater market fluctuations and risk of loss of income and principal
than higher-rated bonds for a variety of reasons, including the following:
Sensitivity to Interest Rate and Economic Changes. The economy and
interest rates affect high yield securities differently from other securities.
For example, the prices of high yield bonds have been found to be less sensitive
to interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which could adversely affect
their ability to service their principal and interest obligations, to meet
projected business goals, and to obtain additional financing. If the issuer of a
bond defaults, the Fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high yield bonds and the Fund's
asset values.
B-2
<PAGE>
Payment Expectations. High yield bonds present certain risks based on
payment expectations. For example, high yield bonds may contain redemption and
call provisions. If an issuer exercises these provisions in a declining interest
rate market, the Fund would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a high
yield bond's value will decrease in a rising interest rate market, as will the
value of the Fund's assets. If the Fund experiences unexpected net redemptions,
it may be forced to sell its high yield bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return.
Liquidity and Valuation. To the extent that there is no established
retail secondary market, there may be thin trading of high yield bonds, and this
may impact the Advisor's ability to accurately value high yield bonds and the
Fund's assets and hinder the Fund's ability to dispose of the bonds. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly traded market.
Credit Ratings. Credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. Also, since
credit rating agencies may fail to timely change the credit ratings to reflect
subsequent events, the Advisor must monitor the issuers of high yield bonds in
the Fund's portfolio to determine if the issuers will have sufficient cash flow
and profits to meet required principal and interest payments, and to assure the
bonds' liquidity so the Fund can meet redemption requests. The Fund will not
necessarily dispose of a portfolio security when its rating has been changed.
Short-Term Investments
The Fund may invest in any of the following securities and instruments:
Certificates of Deposit, Bankers' Acceptances and Time Deposits. The
Fund may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic or foreign banks, savings and loan
associations or financial institutions which, at the time of purchase, have
capital, surplus and undivided profits in excess of $100 million (including
assets of both domestic and foreign branches), based on latest published
reports, or less than $100 million if the principal amount of such bank
obligations are fully insured by the U.S. Government. If the Fund holds
instruments of foreign banks or financial institutions, it may be subject to
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Foreign Investments" below. Such risks include future political
and economic developments, the possible imposition of withholding taxes by the
particular country in which the issuer is located on interest income payable on
the securities, the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic banks
are, among other things, required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and subject to
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations that the
Fund may acquire.
In addition to purchasing certificates of deposit and bankers'
acceptances, to the extent permitted under its investment objectives and
policies stated above and in its prospectus, the Fund may make interest-bearing
time or
B-3
<PAGE>
other interest-bearing deposits in commercial or savings banks. Time deposits
are non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
Commercial Paper and Short-Term Notes. The Fund may invest a portion of
its assets in commercial paper and short-term notes. Commercial paper consists
of unsecured promissory notes issued by corporations. Issues of commercial paper
and short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
Commercial paper and short-term notes will consist of issues rated at
the time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's,
or similarly rated by another nationally recognized statistical rating
organization or, if unrated, will be determined by the Advisor to be of
comparable quality. These rating symbols are described in the Appendix.
Investment Companies
The Fund may under certain circumstances invest a portion of its assets
in other investment companies, including money market funds. An investment in a
mutual fund will involve payment by the Fund of its pro rata share of advisory
and administrative fees charged by such fund.
Government Obligations
The Fund may make short-term investments in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association.
Some of these obligations, such as those of the GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
The Fund may invest in sovereign debt obligations of foreign countries.
A sovereign debtor's willingness or ability to repay principal and interest in a
timely manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to meet
such conditions could result in the cancellation of such third parties'
commitments to lend funds to the sovereign debtor, which may further impair such
debtor's ability or willingness to service its debt in a timely manner.
Foreign Investments and Currencies
The Fund may invest in securities of foreign issuers that are not
publicly traded in the United States. The Fund may also invest in depositary
receipts, purchase and sell foreign currency on a spot basis and enter into
forward currency contracts (see "Forward Currency Contracts," below).
Risks of Investing in Foreign Securities. Investments in foreign
securities involve certain inherent risks, including the following:
B-4
<PAGE>
Political and Economic Factors. Individual foreign economies of certain
countries may differ favorably or unfavorably from the US economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
Currency Fluctuations. The Fund may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Fund's assets denominated in that currency. Such changes will also
affect the Fund's income. The value of the Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
Market Characteristics. The Advisor expects that many foreign
securities in which the Fund invest will be purchased in over-the-counter
markets or on exchanges located in the countries in which the principal offices
of the issuers of the various securities are located, if that is the best
available market. Foreign exchanges and markets may be more volatile than those
in the United States. While growing in volume, they usually have substantially
less volume than U.S. markets, and the Fund's foreign securities may be less
liquid and more volatile than U.S. securities. Moreover, settlement practices
for transactions in foreign markets may differ from those in United States
markets, and may include delays beyond periods customary in the United States.
Foreign security trading practices, including those involving securities
settlement where Fund assets may be released prior to receipt of payment or
securities, may expose the Fund to increased risk in the event of a failed trade
or the insolvency of a foreign broker-dealer.
Legal and Regulatory Matters. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
Taxes. The interest and dividends payable on certain of the Fund's
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Fund's
shareholders.
Costs. To the extent that the Fund invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
In considering whether to invest in the securities of a foreign
company, the Advisor considers such factors as the characteristics of the
particular company, differences between economic trends and the performance of
securities markets within the U.S. and those within other countries, and also
factors relating to the general economic, governmental and social conditions of
the country or countries where the company is located. The extent to which the
Fund will be invested in foreign companies and countries and depository receipts
will fluctuate from time to time within the limitations described in the
prospectus, depending on the Advisor's assessment of prevailing market, economic
and other conditions.
Securities Index Options
The Fund may purchase and write exchange-listed and over-the-counter
("OTC") put and call options on securities indices. A securities index measures
the movement of a certain group of securities by assigning relative values to
the securities included in the index, fluctuating with changes in the market
values of the securities included in the index. Securities index options may be
based on a broad or narrow market index or on a particular industry or market
segment.
B-5
<PAGE>
The expiration cycles of securities index options are monthly. An
option on a securities index gives the holder the right to receive a cash
"exercise settlement amount" equal to (a) the amount, if any, by which the fixed
exercise price of the option exceeds (in the case of a put) or is less than (in
the case of a call) the closing value of the underlying index on the date of
exercise, multiplied by (b) a fixed "index multiplier." Receipt of this cash
amount will depend upon the closing level of the securities index upon which the
option is based being greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the index and the exercise price of the
option times a specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
Prior to their expirations, put and call options on stock indices may
be sold in closing sale or purchase transactions (sales or purchases by the Fund
prior to the exercise of options that it has purchased or written, respectively,
or options of the same series) in which the Fund may realize a profit or loss
from the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the OTC market. When the Fund has purchased an option and engaged
in a closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original option plus
the related transaction costs. Similarly, in cases where the Fund has written an
option, it will realize a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. The obligation of the Fund under an
option it has written would be terminated by a closing purchase transaction, but
the Fund would not be deemed to own an option as a result of the transaction.
There are several risks associated with transactions in options on
securities indices. Options may be more volatile than the underlying instruments
and, therefore, on a percentage basis, an investment in options may be subject
to greater fluctuations than an investment in the underlying instruments
themselves. A liquid secondary market for particular options may be absent for
reasons which include the following: there may be insufficient trading interest
in certain options; restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options; unusual or unforeseen circumstances may interrupt normal operations
on an exchange; the facilities of an exchange or clearing corporation may not at
all times be adequate to handle current trading volume; or one or more exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that class
or series of options) would cease to exist, although outstanding options that
had been issued by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
Futures and Options on Futures
The Fund may enter into interest rate and stock index futures contracts
and purchase and write (sell) options on stock index futures traded on exchanges
designated by the Commodity Futures Trading Commission (the "CFTC") or
consistent with CFTC regulations. These transactions may be entered into for
"bona fide hedging" purposes as defined in CFTC regulations and other
permissible purposes including hedging against changes in the value of portfolio
securities due to anticipated changes in interest rates and/or market conditions
and increasing return.
The Fund will not enter into futures contracts and related options for
which the aggregate initial margin and premiums (discussed below) required to
establish positions other than those considered to be "bona fide hedging" by the
CFTC exceed 5% of the Fund's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Fund reserves the right to engage in transactions involving futures
contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. Although the Fund is limited in the amount of assets it may invest in
futures transactions, there is no overall limit on the percentage of Fund assets
that may be at risk with respect to futures activities.
Futures Contracts. An interest rate futures contract provides for the
future sale by one party and the purchase by the other party of a certain amount
of a specific interest rate sensitive financial instrument (debt security) at a
specified price, date, time and place. Securities indices are capitalization
weighted indices which reflect the
B-6
<PAGE>
market value of the securities listed on the indices. A securities index futures
contract is an agreement to be settled by delivery of an amount of cash equal to
a specified multiplier times the difference between the value of the index at
the close of the last trading day on the contract and the price at which the
agreement is made.
No consideration is paid or received by the Fund upon entering
into a futures contract. Instead, the Fund is required to deposit in a
segregated account with its custodian an amount of cash or liquid securities
acceptable to the broker, equal to approximately 1% to 10% of the contract
amount (this amount is subject to change by the exchange on which the contract
is traded, and brokers may charge a higher amount). This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied. The
broker will have access to amounts in the margin account if the Fund fails to
meet its contractual obligations. Subsequent payments, known as "variation
margin," to and from the broker, will be made daily as the financial instrument
or stock index underlying the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as "marking-to-market." The Fund will also incur brokerage costs in connection
with entering into futures transactions.
At any time prior to the expiration of a futures contract, the Fund
may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although the
Fund intends to enter into futures contracts only if there is an active market
for such contracts, there is no assurance that an active market will exist at
any particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting the Fund to substantial losses. In such event, and in the
event of adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such situations, if the Fund had insufficient
cash, it might have to sell securities to meet daily variation margin
requirements at a time when it would be disadvantageous to do so. In addition,
if the transaction is entered into for hedging purposes, in such circumstances
the Fund may realize a loss on a futures contract or option that is not offset
by an increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect the Fund's
performance.
Options on Futures Contracts. The Fund may purchase and write put
and call options on index futures contracts and may enter into closing
transactions with respect to such options to terminate existing positions. There
is no guarantee that such closing transactions can be effected; the ability to
establish and close out positions on such options will be subject to the
existence of a liquid market.
An option on an index futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract at a specified exercise
price at any time prior to the expiration date of the option. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of an option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. The potential loss related to the
purchase of an option on futures contracts is limited to the premium paid for
the option (plus transaction costs). Because the value of the option is fixed at
the point of sale, there are no daily cash payments by the purchaser to reflect
changes in the value of the underlying contract; however, the value of the
option does change daily and that change would be reflected in the net asset
value of the Fund.
Asset Coverage for Options, Futures and Options on Futures. The Fund
will comply with guidelines established by the Securities and Exchange
Commission (the "SEC") with respect to coverage of options written by the Fund
on indices; and interest rate and index futures contracts and options on these
futures contracts. These
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<PAGE>
guidelines may, in certain instances, require segregation by the Fund of cash or
liquid high-grade debt securities or other securities that are acceptable as
collateral to the appropriate regulatory authority. A call option written by the
Fund on an index may require the Fund to own portfolio securities that correlate
with the index or to segregate assets (as described above) equal to the excess
of the index value over the exercise price on a current basis. A put option
written by the Fund may require the Fund to segregate assets (as described
above) equal to the exercise price. The Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by the Fund. If the Fund holds a futures contract, the Fund could
purchase a put option on the same futures contract with a strike price as high
or higher than the price of the contract held. A Fund may enter into fully or
partially offsetting transactions so that its net position, coupled with any
segregated assets (equal to any remaining obligation), equals its net
obligation. Asset coverage may be achieved by other means when consistent with
applicable regulatory policies.
Forward Currency Contracts
The Fund may enter into forward currency contracts in anticipation of
changes in currency exchange rates. A forward currency contract is an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. For example, the Fund might purchase a
particular currency or enter into a forward currency contract to preserve the
U.S. dollar price of securities it intends to or has contracted to purchase.
Alternatively, it might sell a particular currency on either a spot or forward
basis to hedge against an anticipated decline in the dollar value of securities
it intends to or has contracted to sell. Although this strategy could minimize
the risk of loss due to a decline in the value of the hedged currency, it could
also limit any potential gain from an increase in the value of the currency.
Repurchase Agreements
The Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, the Fund acquires securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Advisor, subject to the seller's agreement to repurchase and
the Fund's agreement to resell such securities at a mutually agreed upon date
and price. The repurchase price generally equals the price paid by the Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the underlying portfolio security). Securities subject
to repurchase agreements will be held by the Custodian or in the Federal
Reserve/Treasury Book-Entry System or an equivalent foreign system. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities at not less than 102% of the repurchase price under the
agreement. If the seller defaults on its repurchase obligation, the Fund will
suffer a loss to the extent that the proceeds from a sale of the underlying
securities are less than the repurchase price under the agreement. Bankruptcy or
insolvency of such a defaulting seller may cause the Fund's rights with respect
to such securities to be delayed or limited. Repurchase agreements are
considered to be loans under the 1940 Act.
When-Issued Securities, Forward Commitments and Delayed Settlements
The Fund may purchase securities on a "when-issued," forward commitment
or delayed settlement basis. In this event, the Custodian will segregate liquid
assets equal to the amount of the commitment. In such a case, the Fund may be
required subsequently to segregate additional assets in order to assure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash.
The Fund does not intend to engage in these transactions for
speculative purposes but only in furtherance of its investment objectives.
Because the Fund will segregate assets to satisfy its purchase commitments in
the manner described, the Fund's liquidity and the ability of the Advisor to
manage it may be affected in the event the Fund's forward commitments,
commitments to purchase when-issued securities and delayed settlements ever
exceeded 15% of the value of its net assets.
The Fund will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed
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<PAGE>
to purchase before those securities are delivered to the Fund on the settlement
date. In these cases the Fund may realize a taxable capital gain or loss. When
the Fund engages in when-issued, forward commitment and delayed settlement
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain an advantageous price.
The market value of the securities underlying a when-issued purchase, a
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of the Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.
Borrowing
The Fund is authorized to borrow money from time to time for temporary,
extraordinary or emergency purposes or for clearance of transactions in amounts
up to one-third of the value of its total assets at the time of such borrowings.
The use of borrowing by the Fund involves special risk considerations that may
not be associated with other funds having similar objectives and policies. Since
substantially all of the Fund's assets fluctuate in value, while the interest
obligation resulting from a borrowing will be fixed by the terms of the Fund's
agreement with its lender, the net asset value per share of the Fund will tend
to increase more when its portfolio securities increase in value and to decrease
more when its portfolio assets decrease in value than would otherwise be the
case if the Fund did not borrow funds. In addition, interest costs on borrowings
may fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, the
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales.
Lending Portfolio Securities
The Fund may lend its portfolio securities in an amount not exceeding
30% of its total assets to financial institutions such as banks and brokers if
the loan is collateralized in accordance with applicable regulations. Under the
present regulatory requirements which govern loans of portfolio securities, the
loan collateral must, on each business day, at least equal the value of the
loaned securities and must consist of cash, letters of credit of domestic banks
or domestic branches of foreign banks, or securities of the U.S. Government or
its agencies. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank would have to be satisfactory to the
Fund. Any loan might be secured by any one or more of the three types of
collateral. The terms of the Fund's loans must permit the Fund to reacquire
loaned securities on five days' notice or in time to vote on any serious matter
and must meet certain tests under the Internal Revenue Code (the "Code").
Short Sales
The Fund is authorized to make short sales of securities. In a short
sale, the Fund sells a security which it does not own, in anticipation of a
decline in the market value of the security. To complete the sale, the Fund must
borrow the security (generally from the broker through which the short sale is
made) in order to make delivery to the buyer. The Fund is then obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The Fund is said to have a "short position" in the securities
sold until it delivers them to the broker. The period during which the Fund has
a short position can range from as little as one day to more than a year. Until
the security is replaced, the proceeds of the short sale are retained by the
broker, and the Fund is required to pay to the broker a negotiated portion of
any dividends or interest which accrue during the period of the loan. To meet
current margin requirements, the Fund is also required to deposit with the
broker additional cash or securities so that the total deposit with the broker
is maintained daily at 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).
Short sales by the Fund create opportunities to increase the Fund's
return but, at the same time, involve specific risk considerations and may be
considered a speculative technique. Since the Fund in effect profits from a
decline in the price of the securities sold short without the need to invest the
full purchase price of the securities on
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<PAGE>
the date of the short sale, the Fund's net asset value per share will tend to
increase more when the securities it has sold short decrease in value, and to
decrease more when the securities it has sold short increase in value, than
would otherwise be the case if it had not engaged in such short sales. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with the short sale. Furthermore, under adverse market conditions
the Fund might have difficulty purchasing securities to meet its short sale
delivery obligations, and might have to sell portfolio securities to raise the
capital necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales.
Illiquid Securities
The Fund may not invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The Advisor will monitor the amount of
illiquid securities in the Fund's portfolio, under the supervision of the
Trust's Board of Trustees, to ensure compliance with the Fund's investment
restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the SEC under the Securities Act,
the Trust's Board of Trustees may determine that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid.
Investment Restrictions
The Trust (on behalf of the Fund) has adopted the following
restrictions as fundamental policies, which may not be changed without the
favorable vote of the holders of a "majority," as defined in the 1940 Act, of
the outstanding voting securities of the Fund. Under the 1940 Act, the "vote of
the holders of a majority of the outstanding voting securities" means the vote
of the holders of the lesser of (i) 67% of the shares of the Fund represented at
a meeting at which the holders of more than 50% of its outstanding shares are
represented or (ii) more than 50% of the outstanding shares of the Fund. Except
with respect to borrowing, changes in values of the Fund's assets will not cause
a violation of the following investment restrictions so long as percentage
requirements are observed by the Fund at the time it purchases any security.
As a matter of fundamental policy, the Fund is diversified; i.e., as to
75% of the value of a its total assets: (i) no more than 5% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities); and (ii) the Fund's position in any single issuer
may not represent more than 10% of such issuer's voting securities. The Fund's
investment objective is also fundamental.
In addition, the Fund may not:
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<PAGE>
1. Issue senior securities, borrow money or pledge its assets, except
that (i) the Fund may borrow on an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions in amounts not exceeding
one-third of its total assets (not including the amount borrowed), provided that
it will not make investments while borrowings in excess of 5% of the value of
its total assets are outstanding; and (ii) this restriction shall not prohibit
the Fund from engaging in options, futures and foreign currency transactions or
short sales;
2. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;
3. Act as underwriter (except to the extent the Fund may be deemed to
be an underwriter in connection with the sale of securities in its investment
portfolio);
4. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);
5. Purchase or sell real estate or interests in real estate or real
estate limited partnerships (although the Fund may purchase and sell securities
which are secured by real estate and securities of companies which invest or
deal in real estate);
6. Purchase or sell commodities or commodity futures contracts, except
that the Fund may purchase and sell futures contracts and related options and
foreign currency contracts in accordance with any rules of the Commodity Futures
Trading Commission;
7. Make loans of money (except for purchases of debt securities
consistent with the investment policies of the Fund and except for repurchase
agreements); or
8. Make investments for the purpose of exercising control or
management.
The Fund observes the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal regulatory
authorities:
The Fund may not:
1. Invest in the securities of other investment companies or purchase
any other investment company's voting securities or make any other investment in
other investment companies except to the extent permitted by federal law; or
2. Invest more than 15% of its net assets in securities which are
restricted as to disposition or otherwise are illiquid or have no readily
available market (except for securities which are determined by the Board of
Trustees to be liquid).
MANAGEMENT
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 Advisor, Administrator, Custodian and Transfer Agent.
The day to day operations of the Trust are delegated to its officers, subject to
the Fund's investment objective 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. (born 1921) Trustee Director, Nicholas-Applegate Mutual Funds, Brinson
6001 N. 62nd Place Funds (since 1994), Smith Barney Trak Fund, Pimco
Paradise Valley, AZ 85253 Advisors L.P., Semele Group, Semele Land Fund II
and Legend Properties.
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<PAGE>
Eric M. Banhazl (born 1957)* Trustee, Senior Vice President, Investment Company Administration
2025 E. Financial Way President and Corporation; Vice President, First Fund Distributors;
Glendora, CA 91740 Treasurer RNC Mutual Fund Group; Treasurer, Guiness Flight
Investment Funds, Inc. and Professionally Managed
Portfolios.
Donald E. O'Connor (born 1936) Trustee Financial Consultant; Director, The Parnasus Fund and
1700 Taylor Avenue The Parnasus Income Fund; formerly Executive Vice
Fort Washington, MD 10744 President and Chief Operating Officer of ICI Mutual
Insurance Company (until
January 1997), Vice
President, Operations,
Investment Company
Institute (until June
1993).
George T. Wofford III (born 1939) Trustee Vice President, Information Services, Federal Home Loan
305 Glendora Circle Bank of San Francisco (since March 1993); formerly
Danville, CA 94526 Director of Management Information Services, Morrison %
Foerster (law firm).
Steven J. Paggiolli (born 1950) Vice Executive Vice President, Robert H. Wadsworth &
479 West 22nd Street President Associates, Inc., Investment Company Administration
New York, NY 10011 Corporation; Vice President, First Fund Distributors, Inc.,;
President and Trustee, Professionally Managed Portfolios;
Trustee, Managers Funds
Robert H. Wadsworth (born 1940) Vice President, Robert H. Wadsworth & Associates, Inc.,
4455 E. Camelback Road President Investment Company Administration Corporation and First
Suite 261-E Fund Distributors, Inc.; Vice President, Professionally
Phoenix, AZ 85018 Managed Portfolios; President, Guinness Flight Investment
Funds, Inc.; Director, Germany Fund, Inc., New Germany
Fund, Inc., Central European Equity Fund, Inc. and
Deutsche Funds, Inc.
Chris O. Kissack (born 1949) Secretary Employed by Investment Company Administ6ration
4455 E. Camelback Road Corporation (since July 1996); formerly employed by Bank
Suite 261-E One, N.A. (From August 1995 until July 1996); O'Connor,
Phoenix, AZ 85015 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
The Trust has no pension or retirement plan. No other entity affiliated with the
Trust pays any compensation to the Trustees.
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<PAGE>
The Advisor
Subject to the supervision of the Board of Trustees, investment
management and related services are provided by the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement").
Under the Advisory Agreement, the Advisor agrees to invest the assets
of the Fund in accordance with the investment objectives, policies and
restrictions of the Fund as set forth in the Fund's and Trust's governing
documents, including, without limitation, the Trust's Agreement and Declaration
of Trust and By-Laws; the Fund's prospectus, Statement of Additional
Information, and undertakings; and such other limitations, policies and
procedures as the Trustees of the Trust may impose from time to time in writing
to the Advisor. In providing such services, the Advisor shall at all times
adhere to the provisions and restrictions contained in the federal securities
laws, applicable state securities laws, the Code, and other applicable law.
Without limiting the generality of the foregoing, the Advisor has
agreed to (i) furnish the Fund with advice and recommendations with respect to
the investment of the Fund's assets, (ii) effect the purchase and sale of
portfolio securities; (iii) manage and oversee the investments of the Fund,
subject to the ultimate supervision and direction of the Trust's Board of
Trustees; (iv) vote proxies and take other actions with respect to the Fund's
securities; (v) maintain the books and records required to be maintained with
respect to the securities in the Fund's portfolio; (vi) furnish reports,
statements and other data on securities, economic conditions and other matters
related to the investment of the Fund's assets which the Trustees or the
officers of the Trust may reasonably request; and (vi) render to the Trust's
Board of Trustees such periodic and special reports as the Board may reasonably
request. The Advisor has also agreed, at its own expense, to maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary to the performance of its
obligations under the Advisory Agreement. Personnel of the Advisor may serve as
officers of the Trust provided they do so without compensation from the Trust.
Without limiting the generality of the foregoing, the staff and personnel of the
Advisor shall be deemed to include persons employed or retained by the Advisor
to furnish statistical information, research, and other factual information,
advice regarding economic factors and trends, information with respect to
technical and scientific developments, and such other information, advice and
assistance as the Advisor or the Trust's Board of Trustees may desire and
reasonably request. With respect to the operation of the Fund, the Advisor has
agreed to be responsible for the expenses of printing and distributing extra
copies of the Fund's prospectus, Statement of Additional Information, and sales
and advertising materials (but not the legal, auditing or accounting fees
attendant thereto) to prospective investors (but not to existing shareholders);
and the costs of any special Board of Trustees meetings or shareholder meetings
convened for the primary benefit of the Advisor.
As compensation for the Advisor's services, the Fund pays it an
advisory fee at the rate specified in the prospectus. In addition to the fees
payable to the Advisor and the Administrator, the Fund is responsible for its
operating expenses, including: fees and expenses incurred in connection with the
issuance, registration and transfer of its shares; brokerage and commission
expenses; all expenses of transfer, receipt, safekeeping, servicing and
accounting for the cash, securities and other property of the Trust for the
benefit of the Fund including all fees and expenses of its custodian,
shareholder services agent and accounting services agent; interest charges on
any borrowings; costs and expenses of pricing and calculating its daily net
asset value and of maintaining its books of account required under the 1940 Act;
taxes, if any; a pro rata portion of expenditures in connection with meetings of
the Fund's shareholders and the Trust's Board of Trustees that are properly
payable by the Fund; salaries and expenses of officers and fees and expenses of
members of the Trust's Board of Trustees or members of any advisory board or
committee who are not members of, affiliated with or interested persons of the
Advisor or Administrator; insurance premiums on property or personnel of the
Fund which inure to its benefit, including liability and fidelity bond
insurance; the cost of preparing and printing reports, proxy statements,
prospectuses and Statements of Additional Information of the Fund or other
communications for distribution to existing shareholders; legal, auditing and
accounting fees; trade association dues; fees and expenses (including legal
fees) of registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining and servicing shareholder accounts, including all charges for
transfer, shareholder recordkeeping, dividend disbursing, redemption, and other
agents for the benefit of the Fund, if any; and all other charges and costs of
its operation plus any extraordinary and non-recurring expenses, except as
otherwise prescribed in the Advisory Agreement.
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<PAGE>
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund and to pay Fund operating
expenses to the extent necessary to limit the Fund's aggregate annual operating
expenses to the limit set forth in the Expense Table (the "expense cap"). Any
such reductions made by the Advisor in its fees or payment of expenses which are
the Fund's obligation are subject to reimbursement by the Fund to the Advisor,
if so requested by the Advisor, in subsequent fiscal years if the aggregate
amount actually paid by the Fund toward the operating expenses for such fiscal
year (taking into account the reimbursement) does not exceed the applicable
limitation on Fund expenses. The Advisor is permitted to be reimbursed only for
fee reductions and expense payments made in the previous three fiscal years,
except that it is permitted to look back five years and four years,
respectively, during the initial five years and sixth year of the Fund's
operations. Any such reimbursement is also contingent upon Board of Trustees'
review and approval at the time the reimbursement is made. Such reimbursement
may not be paid prior to the Fund's payment of current ordinary operating
expenses.
Under the Advisory Agreement, the Advisor will not be liable to the
Trust or the Fund or any shareholder for any act or omission in the course of,
or connected with, rendering services or for any loss sustained by the Trust
except in the case of a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages will be limited as
provided in the 1940 Act) or of willful misfeasance, bad faith or gross
negligence, or reckless disregard of its obligations and duties under the
Advisory Agreement.
The Advisory Agreement will remain in effect for a period not to exceed
two years. Thereafter, if not terminated, the Advisory Agreement will continue
automatically for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a majority vote of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund.
The Advisory Agreement is terminable by vote of the Board of Trustees
or by the holders of a majority of the outstanding voting securities of the Fund
at any time without penalty, on 60 days written notice to the Advisor. The
Advisory Agreement also may be terminated by the Advisor on 60 days written
notice to the Trust. The Advisory Agreement terminates automatically upon its
assignment (as defined in the 1940 Act).
The Administrator. The Administrator has agreed to be responsible for
providing such services as the Trustees may reasonably request, including but
not limited to (i) maintaining the Trust's books and records (other than
financial or accounting books and records maintained by any custodian, transfer
agent or accounting services agent); (ii) overseeing the Trust's insurance
relationships; (iii) preparing for the Trust (or assisting counsel and/or
auditors in the preparation of) all required tax returns, proxy statements and
reports to the Trust's shareholders and Trustees and reports to and other
filings with the SEC and any other governmental agency (the Trust agreeing to
supply or cause to be supplied to the Administrator all necessary financial and
other information in connection with the foregoing); (iv) preparing such
applications and reports as may be necessary to permit the offer and sale of the
shares of the Trust under the securities or "blue sky" laws of the various
states selected by the Trust (the Trust agreeing to pay all filing fees or other
similar fees in connection therewith); (v) responding to all inquiries or other
communications of shareholders, if any, which are directed to the Administrator,
or if any such inquiry or communication is more properly to be responded to by
the Trust's custodian, transfer agent or accounting services agent, overseeing
their response thereto; (vi) overseeing all relationships between the Trust and
any custodian(s), transfer agent(s) and accounting services agent(s), including
the negotiation of agreements and the supervision of the performance of such
agreements; and (vii) authorizing and directing any of the Administrator's
directors, officers and employees who may be elected as Trustees or officers of
the Trust to serve in the capacities in which they are elected. All services to
be furnished by the Administrator under this Agreement may be furnished through
the medium of any such directors, officers or employees of the Administrator.
For its services, the Administrator receives a fee monthly at the following
annual rates:
Fund Asset Level Fee Rate
Less than $15 million $30,000
$15 million to less than $50 million 0.20% of average daily net assets
$50 million to less than $100 million 0.15% of average daily net assets
$100 million to less than $150 million 0.10% of average daily net assets
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more than $150 million 0.05% of average daily net assets
DISTRIBUTION PLAN
Pursuant to a plan of distribution adopted by the Trust, on behalf of
the Fund, pursuant to Rule 12b-1 under the 1940 Act (the "Plan"), the Fund may
pay distribution and related expenses up to 0.50% of its average net assets to
the Advisor as distribution coordinator. Expenses permitted to be paid include
preparation, printing and mailing of prospectuses, shareholder reports such as
semi-annual and annual reports, performance reports and newsletters, sales
literature and other promotional material to prospective investors, direct mail
solicitations, advertising, public relations, compensation of sales personnel,
advisors or other third parties for their 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
shareholders of the Fund and such other expenses as may be approved from time to
time by the Board of Trustees of the Trust.
The 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 Trustees have made a
determination at the time of initial submission that the distribution expenses
are appropriate to be carried forward and (iii) the Trustees make a further
determination, at the time any distribution expenses which have been carried
forward are submitted for payment, that payment at the time is appropriate,
consistent with the objectives of the Plan and in the current best interests of
shareholders.
Under the Plan, the Trustees will be furnished quarterly with
information detailing the amount of expenses paid under the Plan and the
purposes for which payments were made. The Plan may be terminated at any time by
vote of a majority of the Trustees of the Trust who are not interested persons.
Continuation of the Plan is considered by such Trustees no less frequently than
annually.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisory Agreement states that the Advisor shall be responsible for
broker-dealer selection and for negotiation of brokerage commission rates,
provided that the Advisor shall not direct orders to an affiliated person of the
Advisor without general prior authorization to use such affiliated broker or
dealer by the Trust's Board of Trustees. The Advisor's primary consideration in
effecting a securities transaction will be execution at the most favorable
price. In selecting a broker-dealer to execute each particular transaction, the
Advisor may take the following into consideration: the best net price available;
the reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on a
continuing basis. The price to the Fund in any transaction may be less favorable
than that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Subject to such policies as the Advisor and the Board of Trustees of
the Trust may determine, the Advisor shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer that
provides (directly or indirectly) brokerage or research services to the Advisor
an amount of commission for effecting a portfolio transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities with respect to
the Fund. The Advisor is further authorized to allocate the orders placed by it
on behalf of the Fund to such brokers or dealers who also provide research or
statistical material, or other services, to the Trust, the Advisor, or any
affiliate of either. Such allocation shall be in such amounts and proportions as
the Advisor shall determine, and the Advisor shall report on such allocations
regularly to the Advisor and the Trust, indicating the broker-dealers to whom
such allocations have been made and the basis therefor. The Advisor is also
authorized to consider sales of shares of the Fund as a factor in the selection
of brokers or dealers
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to execute portfolio transactions, subject to the requirements of best
execution, i.e., that such brokers or dealers are able to execute the order
promptly and at the best obtainable securities price.
On occasions when the Advisor deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients of the Advisor,
the Advisor, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and the most efficient execution.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Advisor in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Advisor, investing
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% portfolio turnover rate would occur if all
the securities in the Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to transaction costs and may result in a
greater number of taxable transactions. The Advisor will not necessarily limit
portfolio turnover to this level. See "Portfolio Transactions and Brokerage."
NET ASSET VALUE
The net asset value of the Fund's shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange (the
"NYSE") (generally 4:00 p.m. Eastern time) each business day. The NYSE annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that it will not be open for the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However,
the NYSE may close on days not included in that announcement.
The net asset value per share is computed by dividing the value of the
securities held by the Fund plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of shares in the Fund outstanding at such
time.
Generally, trading in and valuation of foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. In addition, trading in and valuation of foreign securities may not take
place on every day in which the NYSE is open for trading. In that case, the
price used to determine the Fund's net asset value on the last day on which such
exchange was open will be used, unless the Trust's Board of Trustees determines
that a different price should be used. Furthermore, trading takes place in
various foreign markets on days in which the NYSE is not open for trading and on
which the Fund's net asset value is not calculated. Occasionally, events
affecting the values of such securities in U.S. dollars on a day on which the
Fund calculates its net asset value may occur between the times when such
securities are valued and the close of the NYSE that will not be reflected in
the computation of the Fund's net asset value unless the Board or its delegates
deem that such events would materially affect the net asset value, in which case
an adjustment would be made.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value, at fair value as determined in good faith by the
Advisor and the Trust's Valuation Committee pursuant to procedures approved by
or under the direction of the Board.
The Fund's securities, which are traded on securities exchanges are
valued at the last sale price on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any reported sales, at the mean between the last available bid and
asked price. Securities that are traded on more than one exchange are valued on
the exchange determined by the Advisor to be the primary market. Securities
traded in the OTC market are valued at the mean between the last available bid
and asked price prior to the time of valuation. Securities and assets for which
market quotations are not readily available (including restricted
B-16
<PAGE>
securities which are subject to limitations as to their sale) are valued at fair
value as determined in good faith by or under the direction of the Board.
Short-term debt obligations with remaining maturities in excess of 60
days are valued at current market prices, as discussed above. Short-term
securities with 60 days or less remaining to maturity are, unless conditions
indicate otherwise, amortized to maturity based on their cost to the Fund if
acquired within 60 days of maturity or, if already held by the Fund on the 60th
day, based on the value determined on the 61st day.
Corporate debt securities are valued on the basis of valuations
provided by dealers in those instruments, by an independent pricing service,
approved by the Board, or at fair value as determined in good faith by
procedures approved by the Board. Any such pricing service, in determining
value, will use information with respect to transactions in the securities being
valued, quotations from dealers, market transactions in comparable securities,
analyses and evaluations of various relationships between securities and yield
to maturity information.
An option that is written by the Fund is generally valued at the last
sale price or, in the absence of the last sale price, the last offer price. An
option that is purchased by the Fund is generally valued at the last sale price
or, in the absence of the last sale price, the last bid price. If an options
exchange closes after the time at which the Fund's net asset value is
calculated, the last sale or last bid and asked prices as of that time will be
used to calculate the net asset value.
Any assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the official exchange rate or,
alternatively, at the mean of the current bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing service
that takes into account the quotes provided by a number of such major banks. If
neither of these alternatives is available or both are deemed not to provide a
suitable methodology for converting a foreign currency into U.S. dollars, the
Board in good faith will establish a conversion rate for such currency.
All other assets of the Fund are valued in such manner as the Board in
good faith deems appropriate to reflect their fair value.
TAXATION
The Fund intends to continue to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Code for each taxable
year by complying with all applicable requirements regarding the source of its
income, the diversification of its assets, and the timing of its distributions.
The Fund's policy is to distribute to its shareholders all of its investment
company taxable income and any net realized capital gains for each fiscal year
in a manner that complies with the distribution requirements of the Code, so
that the Fund will not be subject to any federal income or excise taxes based on
net income. However, the Board may elect to pay such excise taxes if it
determines that payment is, under the circumstances, in the best interests of
the Fund.
In order to qualify as a regulated investment company, the Fund must,
among other things, (a) derive at least 90% of its gross income each year from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock and securities, gains from the
sale or other disposition of stock or securities or foreign currency gains
related to investments in stock or securities, or other income (generally
including gains from options, futures or forward contracts) derived with respect
to the business of investing in stock, securities or currency, and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of its assets is represented by cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other
securities limited, for purposes of this calculation, in the case of other
securities of any one issuer to an amount not greater than 5% of the Fund's
assets or 10% or the voting securities of the issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies). As such, and by complying with the applicable provisions
of the Code, the Fund will not be subject to federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders in
accordance with the timing requirements of the Code. If the Fund is unable to
meet certain requirements of the Code, it may be subject to taxation as a
corporation.
B-17
<PAGE>
Distributions of net investment income and net realized capital gains
by the Fund will be taxable to shareholders whether made in cash or reinvested
by the Fund in shares. In determining amounts of net realized capital gains to
be distributed, any capital loss carry-overs from the eight prior taxable years
will be applied against capital gains. Shareholders receiving a distribution
from the Fund in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date. Fund distributions also
will be included in individual and corporate shareholders' income on which the
alternative minimum tax may be imposed.
The Fund or the securities dealer effecting a redemption of the Fund's
shares by a shareholder will be required to file information reports with the
Internal Revenue Service ("IRS") with respect to distributions and payments made
to the shareholder. In addition, the Fund will be required to withhold federal
income tax at the rate of 31% on taxable dividends, redemptions and other
payments made to accounts of individual or other non-exempt shareholders who
have not furnished their correct taxpayer identification numbers and certain
required certifications on the New Account application or with respect to which
the Fund or the securities dealer has been notified by the IRS that the number
furnished is incorrect or that the account is otherwise subject to withholding.
The Fund intends to declare and pay dividends and other distributions,
as stated in the prospectus. In order to avoid the payment of any federal excise
tax based on net income, the Fund must declare on or before December 31 of each
year, and pay on or before January 31 of the following year, distributions at
least equal to 98% of its ordinary income for that calendar year and at least
98% of the excess of any capital gains over any capital losses realized in the
one-year period ending October 31 of that year, together with any undistributed
amounts of ordinary income and capital gains (in excess of capital losses) from
the previous calendar year.
The Fund may receive dividend distributions from U.S. corporations. To
the extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.
If more than 50% in value of the total assets of the Fund at the end of
its fiscal year is invested in stock of securities of foreign corporations, the
Fund may elect to pass through to its shareholders the pro rata share of all
foreign income taxes paid by the Fund. If this election is made, shareholders
will be (i) required to include in their gross income their pro rata share of
the Fund's foreign source income (including any foreign income taxes paid by the
Fund), and (ii) entitled either to deduct their share of such foreign taxes in
computing their taxable income or to claim a credit for such taxes against their
U.S. income tax, subject to certain limitations under the Code, including
certain holding period requirements. In this case, shareholders will be informed
in writing by the Fund at the end of each calendar year regarding the
availability of any credits on and the amount of foreign source income
(including or excluding foreign income taxes paid by the Fund) to be included in
their income tax returns. If not more than 50% in value of the Fund's total
assets at the end of its fiscal year is invested in stock or securities of
foreign corporations, the Fund will not be entitled under the Code to pass
through to its shareholders their pro rata share of the foreign taxes paid by
the Fund. In this case, these taxes will be taken as a deduction by the Fund.
The Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.
The use of hedging strategies, such as entering into futures contracts
and forward contracts and purchasing options, involves complex rules that will
determine the character and timing of recognition of the income received in
connection therewith by the Fund. Income from foreign currencies (except certain
gains therefrom that may be excluded by future regulations) and income from
transactions in options, futures contracts and forward contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.
For accounting purposes, when the Fund purchases an option, the premium
paid by the Fund is recorded as an asset and is subsequently adjusted to the
current market value of the option. Any gain or loss realized by the Fund upon
the expiration or sale of such options held by the Fund generally will be
capital gain or loss.
B-18
<PAGE>
Any security, option, or other position entered into or held by the
Fund that substantially diminishes the Fund's risk of loss from any other
position held by the Fund may constitute a "straddle" for federal income tax
purposes. In general, straddles are subject to certain rules that may affect the
amount, character and timing of the Fund's gains and losses with respect to
straddle positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that the Fund's holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Fund that may mitigate the effects of the straddle rules.
Certain options, futures contracts and forward contracts that are
subject to Section 1256 of the Code ("Section 1256 Contracts") and that are held
by the Fund at the end of its taxable year generally will be required to be
"marked to market" for federal income tax purposes, that is, deemed to have been
sold at market value. Sixty percent of any net gain or loss recognized on these
deemed sales and 60% of any net gain or loss realized from any actual sales of
Section 1256 Contracts will be treated as long-term capital gain or loss, and
the balance will be treated as short-term capital gain or loss.
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions that may affect the amount, timing and
character of income, gain or loss recognized by the Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign
currency-denominated debt instruments, foreign currency forward contracts and
foreign currency-denominated payables and receivables and foreign currency
options and futures contracts (other than options and futures contracts that are
governed by the mark-to-market and 60/40 rules of Section 1256 of the Code and
for which no election is made) is treated as ordinary income or loss. Some part
of the Fund's gain or loss on the sale or other disposition of shares of a
foreign corporation may, because of changes in foreign currency exchange rates,
be treated as ordinary income or loss under Section 988 of the Code, rather than
as capital gain or loss.
A shareholder who purchases shares of the Fund by tendering payment for
the shares in the form of other securities may be required to recognize gain or
loss for income tax purposes on the difference, if any, between the adjusted
basis of the securities tendered to the Fund and the purchase price of the
Fund's shares acquired by the shareholder.
Section 475 of the Code requires that a "dealer" in securities must
generally "mark to market" at the end of its taxable year all securities which
it owns. The resulting gain or loss is treated as ordinary (and not capital)
gain or loss, except to the extent allocable to periods during which the dealer
held the security for investment. The "mark to market" rules do not apply,
however, to a security held for investment which is clearly identified in the
dealer's records as being held for investment before the end of the day in which
the security was acquired. The IRS has issued guidance under Section 475 that
provides that, for example, a bank that regularly originates and sells loans is
a dealer in securities, and subject to the "mark to market" rules. Shares of the
Fund held by a dealer in securities will be subject to the "mark to market"
rules unless they are held by the dealer for investment and the dealer property
identifies the shares as held for investment.
Redemptions and exchanges of shares of the Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends with respect to such shares during such
six-month period. All or a portion of a loss realized upon the redemption of
shares of the Fund may be disallowed to the extent shares of the Fund are
purchased (including shares acquired by means of reinvested dividends) within 30
days before or after such redemption.
Distributions and redemptions may be subject to state and local income
taxes, and the treatment thereof may differ from the federal income tax
treatment. Foreign taxes may apply to non-U.S. investors.
The above discussion and the related discussion in the Prospectus are
not intended to be complete discussions of all applicable federal tax
consequences of an investment in the Fund. The law firm of Paul, Hastings,
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<PAGE>
Janofsky & Walker LLP has expressed no opinion in respect thereof. Nonresident
aliens and foreign persons are subject to different tax rules, and may be
subject to withholding of up to 30% on certain payments received from the Fund.
Shareholders are advised to consult with their own tax advisers concerning the
application of foreign, federal, state and local taxes to an investment in the
Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund will receive income in the form of dividends and interest
earned on its investments in securities. This income, less the expenses incurred
in its operations, is the Fund's net investment income, substantially all of
which will be declared as dividends to the Fund's shareholders.
The amount of income dividend payments by the Fund is dependent upon
the amount of net investment income received by the Fund from its portfolio
holdings, is not guaranteed and is subject to the discretion of the Board. The
Fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.
The Fund also may derive capital gains or losses in connection with
sales or other dispositions of its portfolio securities. Any net gain the Fund
may realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held more than the period
required for long-term gain or loss recognition or otherwise producing long-term
capital gains and losses, the Fund will have a net long-term capital gain. After
deduction of the amount of any net short-term capital loss, the balance (to the
extent not offset by any capital losses carried over from the eight previous
taxable years) will be distributed and treated as long-term capital gains in the
hands of the shareholders regardless of the length of time the Fund's shares may
have been held by the shareholders. For more information concerning applicable
capital gains tax rates, see your tax advisor.
Any dividend or distribution paid by the Fund reduces the Fund's net
asset value per share on the date paid by the amount of the dividend or
distribution per share. Accordingly, a dividend or distribution paid shortly
after a purchase of shares by a shareholder would represent, in substance, a
partial return of capital (to the extent it is paid on the shares so purchased),
even though it would be subject to income taxes.
Dividends and other distributions will be made in the form of
additional shares of the Fund unless the shareholder has otherwise indicated.
Investors have the right to change their elections with respect to the
reinvestment of dividends and distributions by notifying the Transfer Agent in
writing, but any such change will be effective only as to dividends and other
distributions for which the record date is seven or more business days after the
Transfer Agent has received the written request.
PERFORMANCE INFORMATION
Total Return
Average annual total return quotations used in the Fund's advertising
and promotional materials are calculated according to the following formula:
P(1 + T)n = ERV
where "P" equals a hypothetical initial payment of $1,000; "T" equals average
annual total return; "n" equals the number of years; and "ERV" equals the ending
redeemable value at the end of the period of a hypothetical $1,000 payment made
at the beginning of the period.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication. Average
annual total return, or "T" in the above formula, is computed by finding the
average annual compounded rates of
B-20
<PAGE>
return over the period that would equate the initial amount invested to the
ending redeemable value. Average annual total return assumes the reinvestment of
all dividends and distributions.
Yield
Annualized yield quotations used in the Fund's advertising and
promotional materials are calculated by dividing the Fund's investment income
for a specified thirty-day period, net of expenses, by the average number of
shares outstanding during the period, and expressing the result as an annualized
percentage (assuming semi-annual compounding) of the net asset value per share
at the end of the period. Yield quotations are calculated according to the
following formula:
YIELD = 2 [(a-b + 1)6 - 1]
cd
where "a" equals dividends and interest earned during the period; "b" equals
expenses accrued for the period, net of reimbursements; "c" equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends and "d" equals the maximum offering price per share on the
last day of the period.
Except as noted below, in determining net investment income earned
during the period ("a" in the above formula), the Fund calculates interest
earned on each debt obligation held by it during the period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the period or,
if the obligation was purchased during the period, the purchase price plus
accrued interest; (2) dividing the yield to maturity by 360 and multiplying the
resulting quotient by the market value of the obligation (including actual
accrued interest). Once interest earned is calculated in this fashion for each
debt obligation held by the Fund, net investment income is then determined by
totaling all such interest earned.
For purposes of these calculations, the maturity of an obligation with
one or more call provisions is assumed to be the next date on which the
obligation reasonably can be expected to be called or, if none, the maturity
date.
Other information
Performance data of the Fund quoted in advertising and other
promotional materials represents past performance and is not intended to predict
or guarantee future results. The return and principal value of an investment in
the Fund will fluctuate, and an investor's redemption proceeds may be more or
less than the original investment amount. In advertising and promotional
materials the Fund may compare its performance with data published by Lipper
Analytical Services, Inc. ("Lipper") or CDA Investment Technologies, Inc.
("CDA"). The Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper or CDA. Advertising and promotional materials also may refer
to discussions of the Fund and comparative mutual fund data and ratings reported
in independent periodicals including, but not limited to, The Wall Street
Journal, Money Magazine, Forbes, Business Week, Financial World and Barron's.
GENERAL INFORMATION
Advisors Series Trust is an open-end 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 14 series of shares of
beneficial interest, par value $0.01 per share. The Declaration of Trust permits
the Trustees to issue an unlimited number of full and fractional shares of
beneficial interest and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interest
in the Fund. Each share represents an interest in the Fund proportionately equal
to the interest of each other share. Upon the Fund's liquidation, all
shareholders would share pro rata in the net assets of the Fund available for
distribution to shareholders.
The Declaration of Trust does not require the issuance of stock
certificates. If stock certificates are issued, they must be returned by the
registered owners prior to the transfer or redemption of shares represented by
such certificates.
If they deem it advisable and in the best interest of shareholders, the
Board of Trustees may create additional series of shares which differ from each
other only as to dividends. The Board of Trustees has created 14 series of
shares, and may create additional series in the future, each of which have
separate assets and liabilities. Income and
B-21
<PAGE>
operating expenses not specifically attributable to a particular Fund are be
allocated fairly among the Funds by the Trustees, generally on the basis of the
relative net assets of each Fund.
Rule 18f-2 under the 1940 Act provides that as to any investment
company which has two or more series outstanding and as to any matter required
to be submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
The Fund's Custodian, Star Bank, 425 Walnut Street, Cincinnati, Ohio
45202, is responsible for holding the Fund's assets. American Data Services, 150
Motor Parkway, Suite 109, Hauppauge, NY 11788 acts as the Fund's accounting
services agent. The Fund's independent accountants, __________________, assist
in the preparation of certain reports to the SEC and the Fund's tax returns.
APPENDIX
Description of Ratings
Moody's Investors Service, Inc.: 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 attributes
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 period 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 the
desirable investment. Assurance of interest and principal payments or of
maintenance of 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 which respect to principal
or interest.
Ca-Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
B-22
<PAGE>
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" in each generic
rating classification from Aa through B in its corporate bond rating system. 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 pay principal and
interest.
AA-Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB-Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BB-" rating.
B-Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating is also used for
debt subordinated to senior debt that is assigned an actual or implied "BB" or
"BB-" rating.
CCC-Bonds rated CCC have currently identifiable vulnerability to
default, and are dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, they are not likely
to have the capacity to pay interest and repay principal. The "CCC" rating
category is also used for debt subordinated to senior debt that is assigned an
actual ir implied "B" or "B-" rating.
C-This rating is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI-This rating is reserved for income bonds on which no interest is
being paid.
D-Bonds rated D are 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. The "D" rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus(-)--The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
categories.
Commercial Paper Ratings
B-23
<PAGE>
Moody's commercial paper ratings are assessments of the issuer's
ability to repay punctually promissory obligations. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1--highest quality; Prime
2--higher quality; Prime 3--high quality.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation "A-3" have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
B-24
PART C
OTHER INFORMATION
Item 23. Exhibits.
(1) Agreement and Declaration of Trust (1)
(2) By-Laws (1)
(3) Not applicable
(4) Form of Investment Advisory Agreement (2)
(5) Distribution Agreement (2)
(6) Not applicable
(7) Custodian Agreement (3)
(8) (i) Administration Agreement with Investment Company
Administration Corporation (2)
(ii) Fund Accounting Service Agreement (2)
(iii) Transfer Agency and Service Agreement (2)
(9) Opinion of Counsel
(10) Not applicable
(11) Not applicable
(12) Investment letters (3)
(13) Distribution Plan (4)
(14) Not applicable
(15) Not applicable
(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. 26 to the
Registration Statement on Form N-1A (File No. 33-17391) on June 29, 1998 and
incorporated herein by reference.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
Item 25. 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
<PAGE>
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
reasonable cause to believe the conduct of that person was
unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of this
Trust or that the person had reasonable cause to believe that the person's
conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action by or in the right of this Trust to procure a
judgment in its favor by reason of the fact that that person is or was an agent
of this Trust, against expenses actually and reasonably incurred by that person
in connection with the defense or settlement of that action if that person acted
in good faith, in a manner that person believed to be in the best interests of
this Trust and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision
to the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue, or matter as to which that
person shall have been adjudged to be liable on the basis that
personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in the person's
official capacity; or
(b) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable in the
performance of that person's duty to this Trust, unless and
only to the extent that the court in which that action was
brought shall determine upon application that in view of all
the circumstances of the case, that
person was not liable by reason of the disabling conduct set
forth in the preceding paragraph and is fairly and reasonably
entitled to indemnity for the expenses which the court shall
determine; or
(c) of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval,
or of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court
approval, unless the required approval set forth in Section 6
of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Trustees, including a majority who are disinterested, non-party Trustees, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of Trustees who are not
parties to the proceeding and are not interested persons of
the Trust (as defined in the Investment Company Act of 1940);
or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding upon a written undertaking by or on behalf of the agent, to repay the
amount of the advance if it is ultimately determined that he or she is not
entitled to indemnification, together with at least one of the following as a
condition to the advance: (i)security for the undertaking; or (ii) the existence
of insurance protecting the Trust against losses arising by reason of any lawful
advances; or (iii) a determination by a majority of a quorum of Trustees who are
not parties to the proceeding and are not interested persons of the Trust, or by
an independent legal counsel in a written opinion, based on a review of readily
available facts that there is reason to believe that the agent ultimately will
be found entitled to indemnification. Determinations and authorizations of
payments under this Section must be made in the manner specified in Section 6 of
this Article for determining that the indemnification is permissible.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6 in any circumstances
where it appears:
(a) that it would be inconsistent with a provision of the
Agreement and Declaration of
Trust of the Trust, a resolution of the shareholders, or an
agreement in effect at the time of accrual of the alleged
cause of action asserted in the proceeding in which the
expenses were incurred or other amounts were paid which
prohibits or otherwise limits indemnification; or
(b) that it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article and the Agreement and Declaration of Trust of the
Trust.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
Item 26. 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.
360 State Road 90
Aurora, NY 13026
Great Northern Arts
Castle Music, Inc.
World Family Foundation
all with an address at
Gordon Road, Middletown, NY
Robert E. Moses, a Director of American Trust Company, is a director of:
Mascoma Mutual Hold Corp.
On The Green
Lebanon, NH 03766
The information required by this item with respect to H. N. Howard &
Son, Inc. is as follows:
Jonathan R. Foster, President of H. N. Howard & Son, Inc., is on the
Board of Directors of
<PAGE>
Troma Entertainment, Inc.
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
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
H. N. Howard & Sons, Inc. 801-10188
Item 27. 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 Funds Trust
O'Shaughnessy Funds, Inc. PIC Investment Trust Purisima Fund
Professionally Managed Portfolios Rainier Investment
Management Mutual Funds RNC Mutual Fund Group Brandes
Investment Funds Titan Financial Services Fund Trent Equity
Fund RNC Mutual Fund Group, Inc.
(b) The following information is furnished with respect to the officers
and directors of First Fund Distributors, Inc.:
<TABLE>
<CAPTION>
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
<S> <C> <C>
Robert H. Wadsworth President and Vice President
4455 E. Camelback Road Treasurer
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 and Vice President
479 West 22nd Street Secretary
New York, New York 10011
</TABLE>
(c) Not applicable.
Item 28. 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:
<TABLE>
<CAPTION>
<S> <C>
American Trust Company, One Court Street, Lebanon, NH 03766
Bay Isle Financial Corporation, 160 Sansome Street, San Francisco, CA 94104
Kaminski Asset Management, Inc., 210 Second Street, North, #050,
Minneapolis, MN 55401
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
Liberty Bank and Trust Company, 4101 Pauger St., Suite 105, New Orleans, LA 70122
H. N. Howard & Son, Inc., 45 Rockefeller Plaza, New York, New York 10111
</TABLE>
(c) with respect to The Heritage West Dividend Capture Income Fund
series of the Registrant, 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.
<PAGE>
Item 29. Management Services.
Not applicable.
Item 30. 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.
<PAGE>
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 21st day of September, 1998.
ADVISORS SERIES TRUST
By /s/ Eric M. Banhazl*
--------------------------
Eric M. Banhazl
President
This Amendment to the Registration Statement on Form N-1A of Advisors
Series Trust has been signed below by the following persons in the capacities
indicated on September 21, 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
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description
99.B9 Opinion of Counsel
Paul Hastings Janofsky & Walker LLP
345 California Street, Suite 2900
San Francisco, CA 94104
(415) 835-1600
facsimile (415) 217-5333
www.phjw.com
September 18, 1998
(415) 835B1600 27217.91123
www.phjw.com
Advisors Series Trust
2025 East Financial Way, Suite 101
Glendora, CA 91741
Re: H. N. Howard Fund
Ladies and Gentlemen:
We have acted as counsel to Advisors Series Trust, a Delaware business trust
(the "Trust"),in connection with post-effective amendments to the Trust's
Registration Statement filed on Form N-1A with the Securities and Exchange
Commission (the "Post-Effective Amendments") and including Post-Effective
Amendment #28, relating to the issuance by the Trust of an indefinite number of
$0.01 par value shares of beneficial interest (the "Shares") of H. N. Howard
Fund (the "Fund"), a series of the Trust.
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the originals of all records, documents and instruments submitted to us as
copies. We have based our opinion upon our review of the following records,
documents and instruments:
(a) the Trust's Certificate of Trust as filed with the Secretary of
State of Delaware on October 3, 1996, certified to us as in effect
on the date hereof;
(b) the Trust's Agreement and Declaration of Trust dated October 3,
1996 (the "Trust Instrument"), certified to us by an officer of the
Trust as being true and complete and in effect on the date hereof;
(c) the Bylaws of the Trust certified to us by an officer of the
Trust as being true and complete and in effect on the date hereof;
(d) resolutions of the Trustees of the Trust adopted at a meeting on
September 4, 1998, authorizing the establishment of the Fund and the
issuance of its Shares.
(e) the Post-Effective Amendments; and
(f) a certificate of an officer of the Trust concerning certain
factual matters relevant to this opinion.
In rendering our opinion below, we have not conducted an independent examination
of the books and records of the Trust for the purpose of determining whether all
of the Shares were fully paid prior to their issuance and do not believe it to
be our obligation to do so.
Our opinion below is limited to the federal law of the United States of America
and the business trust law of the State of Delaware. We are not licensed to
practice law in the State of Delaware, and we have based our opinion below
solely on our review of Chapter 38 of Title 12 of the Delaware Code (the
"Delaware Business Trust Act") and the case law interpreting such Chapter as
reported in Delaware Laws Annotated (CSC The United States Corporation Company,
April 1997) as updated on Lexis on September 18, 1998. We have not undertaken a
review of other Delaware law or of any administrative or court decisions in
connection with rendering this opinion. We disclaim any opinion as to any law
other than that of the United States of America and the business trust law of
the State of Delaware as described above, and we disclaim any opinion as to any
statute, rule, regulation, ordinance, order or other promulgation of any
regional or local governmental authority.
Based on the foregoing and our examination of such questions of law as we have
deemed necessary and appropriate for the purpose of this opinion, and assuming
that (i) all of the Shares will be issued and sold for cash at the per share
public offering price on the date of their issuance in accordance with
statements in the Fund's Prospectus included in the Post-Effective Amendments
and in accordance with the Trust Instrument, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all applicable
securities laws will be complied with, then it is our opinion that, when issued
and sold by the Trust, the Shares will be legally issued, fully paid and
nonassessable.
This opinion is rendered to you in connection with the Post-Effective Amendments
and is solely for your benefit. This opinion may not be relied upon by you for
any other purpose or relied upon by any other person, firm, corporation or other
entity for any purpose, without our prior written consent. We disclaim any
obligation to advise you of any developments in areas covered by this opinion
that occur after the date of this opinion.
Sincerely yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
