THE ROCKHAVEN FUND
THE ROCKHAVEN PREMIER DIVIDEND FUND
100 FIRST AVENUE, SUITE 1050
PITTSBURGH, PA 15222
SHAREHOLDER SERVICES (888) 229-2105
FUND LITERATURE (800) 522-3508
PROSPECTUS
This Prospectus describes two mutual funds. The Rockhaven Fund is a
mutual fund with the investment objective of obtaining above average current
income together with capital appreciation. The Rockhaven Premier Dividend Fund
(referred to in this Prospectus as the "Premier Dividend Fund") is a mutual fund
with a primary investment objective of obtaining high current income and a
secondary objective of seeking capital appreciation. (The two funds collectively
are referred to as the "Funds.") Both Funds attempt to achieve their objective
by investing in a diversified portfolio of equity securities. See "Investment
Objective and Policies." There can be no assurance that either Fund will achieve
its investment objective.
This Prospectus sets forth basic information about the Funds that
prospective investors should know before investing. It should be read and
retained for future reference. Each 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 November 30, 1998, has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated herein by reference. This SAI is available without charge upon
request to the Funds 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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
November 30, 1998
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TABLE OF CONTENTS
Expense Table.................................................. 2
Investment Objective and Policies.............................. 4
Management of the Funds........................................ 5
Investor Guide................................................. 9
Services Available to Shareholders............................. 11
How to Redeem Your Shares...................................... 12
Distributions and Taxes........................................ 14
General Information............................................ 14
EXPENSE TABLE
Expenses are one of several factors to consider when investing in the Funds.
There are two types of expenses involved: shareholder transaction expenses, such
as sales loads, and annual operating expenses, such as investment advisory fees.
THE FUNDS ARE NO-LOAD MUTUAL FUNDS AND HAVE NO SHAREHOLDER TRANSACTION EXPENSES.
The Funds have adopted a plan of distribution under which they will pay the
Advisor, as Distribution Coordinator, a fee at the annual rate of up to 0.25% of
each 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. Shares will be redeemed at
net asset value per share.
ANNUAL OPERATING EXPENSES OF EACH FUND
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment Advisory Fee, net of fee waivers --
12b-1 Fee 0.25%
Other Expenses (after expense reimbursement) (1) 1.25%
----
Total Fund Operating Expenses (after expense reimbursement) (1) 1.50%
====
(1) The Advisor has voluntarily agreed to reduce its fees and/or pay expenses to
the Funds to insure that each Funds' expenses will not exceed 1.50%. If the
Advisor had not limited the Funds' expenses, "Investment Advisory Fees" for The
Rockhaven Fund and The Rockhaven Premier Dividend Fund would have been 0.75% and
0.75%, respectively, "Other Expenses" would have been 7.76% and 10.53%,
respectively, and "Total Operating Expenses" would have been 8.51% and 11.28%,
respectively, for the Funds' fiscal year ended September 30, 1998. The Advisor
is permitted to be reimbursed by the Funds for fees waived or expenses
reimbursed provided the resulting Fund expenses do not exceed 1.50%. See
"Management of the Funds."
EXAMPLE.
This table illustrates the net operating expenses that would be incurred by an
investment in the Funds 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 5 YEARS 10 YEARS
$15 $48 $82 $182
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 FUNDS' ACTUAL RETURN MAY BE HIGHER OR LOWER. SEE "MANAGEMENT OF THE
FUNDS."
The minimum initial investment in a Fund is $1,000, with subsequent minimum
investments of $100 or more.
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FINANCIAL HIGHLIGHTS.
The table that follows is included in the Fund's Annual Report and has been
audited by McGladrey & Pullen LLP. Their report on the financial statements and
financial highlights is included in the Annual Report. The financial statements
and financial highlights are incorporated by reference into (are legally a part
of) the Fund's Statement of Additional Information. The reporting period of the
financial statements is from November 3, 1997 (commencement of operations of the
Funds) through September 30, 1998.
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The The Rockhaven
Rockhaven Premier Dividend
Fund Fund
- --------------------------------------------------------------------------------
Net asset value, beginning of period........... $10.00 $10.00
Income from investment operations:
Net investment income..................... 0.14 0.21
Net realized and unrealized loss
on investments.......................... (0.29) (0.21)
------ ------
Total from investment operations............... (0.15) 0.00
Less distributions:
Dividends from net investment income...... (0.14) (0.20)
------ ------
Net asset value, end of period................. $9.71 $9.80
===== =====
Total return................................... (1.61%)++ (0.10%)++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands).......... $1,991 $1,679
Ratio of expenses to average net assets:
Before expense reimbursement.............. 8.51%+ 11.28%+
After expense reimbursement............... 1.49%+ 1.49%+
Ratio of net investment income to
average net assets:
After expense reimbursement............... (1.82%)+ 2.62%+
Portfolio turnover rate........................ 98.13%++ 147.56%++
+ Annualized.
++ Not annualized.
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INVESTMENT OBJECTIVE AND POLICIES
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
o The investment objective of The Rockhaven Fund is to obtain above average
current income together with capital appreciation. Capital appreciation and
current yield are given equal emphasis.
o The primary investment objective of The Premier Dividend Fund is to obtain
high current income, and the Fund has a secondary objective of seeking
capital appreciation. We would expect the Fund to have at least 65% of its
assets in convertible securities.
There can be no assurance that either Fund will achieve its objective.
HOW DO THE FUNDS SEEK TO ACHIEVE THEIR OBJECTIVES?
Under normal market conditions, each Fund will invest at least 65% of its total
assets in income-producing equity securities, consisting of common and preferred
stocks and securities convertible into common stocks, such as convertible bonds
and convertible preferred stocks. Rockhaven Asset Management (the "Advisor")
selects common stocks for each Fund's portfolio that it believes have good
value, attractive yield and potential for dividend growth. Based on the
Advisor's assessment of market and economic conditions and outlook, it also
invests a varying portion of each Fund's portfolio in preferred stocks and
convertible securities. The Advisor expects that the Premier Dividend Fund will
maintain a higher percentage of its portfolio in convertible securities than
will the Rockhaven Fund. The Advisor anticipates that both Funds may have an
annual turnover rate which will generally not exceed 100%.
There is, of course, no assurance that the Funds' objectives 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.
OTHER SECURITIES THE FUNDS MIGHT PURCHASE.
Under normal market conditions, either Fund may invest up to 35% of the value of
its total assets in corporate bonds, notes, rights and warrants, as well as
short-term obligations. Short-term obligations include commercial paper,
certificates of deposit, bankers' acceptances, U.S. Government securities and
repurchase agreements.
If the Advisor believes that market conditions warrant a temporary defensive
posture, a Fund may invest without limit in high quality, short-term
obligations.
OPTIONS. Each Fund may also write covered call options without limit on equity
securities. By writing an option on a security held in its portfolio, a Fund, in
return for the premium it receives, gives up the opportunity for profit from a
price increase in the underlying security above the exercise price, but it
retains the risk of loss should the price of the underlying security decline. In
order to close out an options position, the Fund may enter into a closing
purchase transaction, which is the purchase of a call option on the same
security with the same exercise price and expiration date as the call option
that the Fund has previously written. If the Fund is unable to effect a closing
purchase transaction, it will not be able to sell the underlying security until
the option expires or is exercised. The Fund may also write options on stock
indices, up to 5% of the value of its total assets.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in
securities that are considered illiquid. An illiquid investment is generally a
security which is not registered under the U.S. securities laws or cannot be
disposed of within seven days in the normal course of business at approximately
the amount at which the Fund values it. The Fund may not be able to dispose of
an illiquid security at the desired time and price, and it may incur additional
expenses if it has to bear the cost of registering a security.
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FOREIGN SECURITIES. The Funds may invest in securities of foreign issuers,
including Depositary Receipts with respect to securities of foreign issuers. Up
to 50% of a Fund's total assets may be invested in foreign securities which are
listed on a national securities exchange, but investments in other foreign
securities are not expected to exceed 5% of either Fund's total assets. There
are additional risks associated with investments in foreign securities,
including fluctuations in exchange rates, political or economic instability, and
the possible imposition of exchange controls or other laws or restrictions.
Foreign companies are also not generally subject to the same accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. companies. The Funds may also invest in securities issued by companies
within emerging or developing countries, which involve greater risks than other
foreign investments. Additional information about foreign investments, including
investment in emerging markets, is contained in the SAI.
LOWER RATED SECURITIES. Each Fund may invest in debt securities which are rated
lower than investment grade by a rating agency, but in no event will a Fund
purchase a security rated lower than "C" or the equivalent. (A description of
the ratings of Moody's Investors Service, Inc. and Standard and Poor's
Corporation is included in the SAI.) The Funds may also invest up to 50% of
their total assets ina security held by a Fund is downgraded below C, the Fund
will dispose of it in an orderly manner. Lower-rated debt securities, commonly
referred to as "junk bonds," usually offer higher yields than higher-rated
securities because of the increased risk of default. These securities are also
more likely to react to developments affecting market and credit risks than are
more highly rated securities. In the past, economic downturns or increases in
interest rates have caused a higher incidence of default by the issuers of junk
bonds than by issuers of investment grade securities. More information about
debt securities is contained in the SAI.
INVESTMENT RESTRICTIONS.
Each Fund has adopted certain investment restrictions, which are described fully
in the SAI. Like the Funds' investment objectives, certain of these restrictions
are fundamental and may be changed only by a majority vote of each Fund's
outstanding shares. As a fundamental policy, each Fund is a diversified mutual
fund.
MANAGEMENT OF THE FUNDS
The Board of Trustees of the Trust establishes the Funds' policies and
supervises and reviews the management of the Funds.
THE ADVISOR.
The Funds' Advisor, Rockhaven Asset Management, LLC, 100 First Avenue, Suite
1050, Pittsburgh, Pennsylvania 15222, was organized in February, 1997, to
provide asset management services to individuals and institutional investors.
Christopher H. Wiles is principally responsible for the management of the Funds'
portfolios. Mr. Wiles (who along with AmSouth Bank of Alabama and its parent,
AmSouth Bancorporation, controls the Advisor) is the President of the Advisor
and has been active in the investment field professionally since 1984.
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THE FUNDS' PERFORMANCE.
The following tables highlight the Funds' performance since inception:
The Rockhaven Fund S&P Barra Value Index S&P 500
-----------------------------------------------------
One Year Since Inception 6.70% 10.01% 20.14%
11/3/97-11/3/98
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* The S&P Barra Value Index is an unmanaged capitalization-weighted index that
contains approximately 50% of the stocks in the S&P 500 with lower price-to-book
ratios.
* The S&P 500 Composite Stock Price Index is an unmanaged capitalization-
weighted index of 500 stocks designed to represent the broad domestic economy.
The Rockhaven Premier Merrill Lynch
Dividend Fund All-Convertible Index
-------------------------------------------------
One Year Since Inception 6.22% -0.78%
11/3/97-11/3/98
- --------------------------------------------------------------------------------
* The Merrill Lynch All-Convertible Index includes U.S. dollar-denominated
convertibles of $50 million or more in size, and incorporates both traditional
and mandatory conversion structure.
** Past performance is not predictive of future performance.
PRIOR PERFORMANCE OF THE PORTFOLIO MANAGER. Prior to founding the Advisor, Mr.
Wiles was Senior Vice President of Federated Investors, where he was the
portfolio manager of Federated Utility Fund. He was also portfolio manager of
Federated Equity-Income Fund from August 1, 1991 to January 31, 1997, and had
full discretionary authority over the selection of investments for that fund.
The cumulative total return for the Federated Equity-Income Fund Class A Shares
from August 1, 1991 through January 31, 1997 was 139.82%, absent the imposition
of a sales charge. The cumulative total return for the same period for the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index") was 135.09%.
At January 31, 1997, the Federated Equity-Income Fund had approximately $970
million in total net assets. Average annual returns for the one-year, three-year
and five-year periods ended January 31, 1997 and for the entire period during
which Mr. Wiles managed that fund compared with the performance of the Standard
& Poor's 500 Index were:
Federated Equity- S&P 500 Lipper Equity
Income Fund (a) Index (b) Income Fund Index (c)
--------------- --------- ---------------------
One Year 23.26% 26.34% 19.48%
Three Years 17.03% 20.72% 15.09%
Five Years 16.51% 17.02% 14.73%
August 1, 1991 through
January 31, 1997 17.25% 16.78% 14.99%
(a) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses. The
returns shown are those of the Class A Shares and do not include the effect of
sales charges applicable to the Class A Shares. If an investor had paid the
maximum sales charge on Class A Shares, the average annual returns of the
Federated Equity Income Fund would have been 16.48%. 14.85%, 15.20% and 16.05%,
respectively. The Rockhaven Fund is a no-load fund, without any sales charge on
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its shares. During the period from August 1, 1991 through January 31, 1997, the
operating expense ratio of the Federated Equity-Income Fund ranged from .95% to
1.05% of that fund's average daily net assets. The expense ratio for The
Rockhaven Fund is expected to be higher, and the effect of those expenses may
result in less favorable performance.
(b) The Standard & Poor's 500 Index is an unmanaged index of common stocks that
is considered to be generally representative of the United States stock market.
The Index is adjusted to reflect reinvestment of dividends.
(c) The Lipper Equity Income Fund Index is equally weighted and composed of the
largest mutual funds within its investment objective. These funds seek high
current income and growth of income through investing 60% of more of their
respective portfolios in equity securities.
Historical performance is not indicative of future performance. The Federated
Equity-Income Fund is a separate fund and its historical performance is not
indicative of the potential performance of The Rockhaven Fund. Share prices and
investment returns will fluctuate reflecting market conditions, as well as
changes in company-specific fundamentals of portfolio securities.
The Advisor provides the Funds with advice on buying and selling securities,
manages the investments of the Funds, furnishes the Funds with office space and
certain administrative services, and provides most of the personnel needed by
the Funds. As compensation, each Fund pays the Advisor a monthly management fee
based upon the average daily net assets of the Fund at the annual rate of 0.75%.
THE ADMINISTRATOR.
Investment Company Administration, LLC (the "Administrator") prepares various
federal and state regulatory filings, reports and returns for the Funds,
prepares reports and materials to be supplied to the trustees, monitors the
activities of the Funds' custodian, shareholder servicing agent and accountants,
and coordinates the preparation and payment of Fund expenses and reviews the
Funds' expense accruals. For its services, the Administrator receives a monthly
fee at the annual rate of 0.20%, subject to a $30,000 annual minimum.
OTHER OPERATING EXPENSES.
The Funds' are responsible for their own operating expenses. The Advisor has
agreed to reduce fees payable to it by the each Fund and to pay each Fund's
operating expenses to the extent necessary to limit each 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 a 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 a Fund toward the operating expenses for
such fiscal year (taking into account the reimbursement) does not exceed the
applicable limitation on the Fund's expenses. The Advisor is permitted to be
reimbursed only for fee reductions and expense payments made in the previous
three fiscal years, but is permitted to look back five years and four years,
respectively, during the initial six years and seventh year of the Fund's
operations. Any such reimbursement is also contingent upon Board of Trustees
subsequent review and ratification of the reimbursed amounts. Such reimbursement
may not be paid prior to a Fund's payment of current ordinary operating
expenses.
Pursuant to a plan of distribution adopted by the Trust, on behalf of each Fund,
pursuant to Rule 12b-1 under the 1940 Act (the "Plan"), each Fund may reimburse
the Advisor for distribution and related expenses incurred by the Advisor up to
0.25% of the average daily net assets of each Fund. 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
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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 each Fund's shares, payments to
financial intermediaries for shareholder support, administrative and accounting
services with respect to shareholders of each 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 theot interested persons. Continuation of the Plan is
considered by such Trustees no less frequently than annually.
BROKERAGE TRANSACTIONS.
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Funds' portfolio transactions. While these are more fully
discussed in the Statement of Additional Information, 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 that a Fund
receives prompt execution at competitive prices, the Advisor may also consider
the sale of Fund shares or the referral of business to it as a factor in
selecting broker-dealers for the Fund's portfolio transactions. Subject to
overall requirements of obtaining the best combination of price and execution on
a particular transaction, a Fund may place portfolio transactions through an
affiliate of the Advisor, in accordance with procedures adopted by the Board of
Trustees.
INVESTOR GUIDE
HOW TO PURCHASE SHARES OF A FUND.
There are several ways to purchase shares of either Fund. An Application Form,
which accompanies this Prospectus, is used if you send money directly to a 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)
229-2105. 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 Funds' shares.
YOU MAY SEND MONEY TO THE FUNDS BY MAIL.
If you wish to invest by mail, simply complete the Application Form and mail it
with a check (made payable to either the Rockhaven Fund or the Rockhaven Premier
Dividend Fund) to the Funds' Shareholder Servicing Agent, American Data
Services, Inc. at the following address:
Rockhaven Funds
P.O. Box 640947
Cincinnati, OH 45264-0947
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YOU MAY WIRE MONEY TO THE FUNDS.
Before sending a wire, you should call the Funds at (888) 229-2105 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 applicable 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 [Rockhaven Fund or Rockhaven Premier Dividend
Fund] DDA # 486444862 for further credit to [your name and
account number]
Your bank may charge you a fee for sending a wire to the Funds.
YOU MAY PURCHASE SHARES THROUGH AN INVESTMENT DEALER.
You may be able to invest in and redeem shares in either Fund through an
investment broker or dealer, if the broker/dealer has made arrangements with the
Distributor. The broker/dealer is authorized to designate intermediaries to
accept orders on the Funds' behalf. The broker/dealer or the authorized designee
may place an order for you with a Fund; the Fund will be deemed to have received
the order when the authorized broker/dealer or authorized designee accepts the
order. The price you will pay will be the net asset value which is next
calculated after the acceptance of the order by the authorized broker/dealer or
the authorized designee. 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 its omnibus account rather than in your name in
the records of the Funds' transfer agent. A 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 dealer is responsible for sending your money to a Fund promptly after
placing the order to purchase shares, and the Fund may cancel the order if
payment is not received from the dealer promptly.
MINIMUM INVESTMENTS.
The minimum initial investment in each Fund is $1,000. The minimum subsequent
investment is $100.
SUBSEQUENT INVESTMENTS.
You may purchase additional shares of a 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 and at (888) 229-2105. You may also make
additional purchases through an investment dealer, as described above.
WHEN IS MONEY INVESTED IN A FUND?
Any money received for investment in a Fund from an investor, whether sent by
check or by wire, is invested at the net asset value of that 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.
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WHAT IS THE NET ASSET VALUE OF A FUND?
Each 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; for employees and family members of
affiliated persons of the Funds; for IRA accounts of existing shareholders; and
for clients of financial intermediaries eligible to sell shares of the Funds.
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
Funds 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 Funds are 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. The Funds, under certain
circumstances, may accept investments of securities appropriate for a Fund's
portfolio, in lieu of cash. Prior to making such a purchase, you should call the
Advisor to determine if such an investment may be made. Investments must be made
either in U.S. dollars or in securities acceptable to the Advisor.
SERVICES AVAILABLE TO SHAREHOLDERS
RETIREMENT PLANS.
You may obtain prototype IRA plans from the Funds. Shares of the Funds are also
eligible investments for other types of retirement plans.
AUTOMATIC INVESTING BY CHECK.
You may make regular monthly investments in the Funds 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, a Fund
automatically invests the money in additional shares of the Fund at the current
net asset value. Applications for this service are available from the Funds.
There is no charge by a Fund for this service. Either 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 withdrawal.
AUTOMATIC WITHDRAWALS.
Each Fund offers an Automatic Withdrawal Plan 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 a Fund at any time without charge or penalty. A withdrawal under
the Automatic Withdrawal Plan 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.
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EXCHANGE PRIVILEGE.
You may exchange your shares of either of the Funds (in amounts of $1,000 or
more) for shares of the other Fund. For more information, call the Shareholder
Servicing Agent at (888) 229-2105.
HOW TO REDEEM YOUR SHARES
You have the right to redeem all or any portion of your shares of a Fund at
their 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 which
you own. You should give your account number and state whether you want all or
part of your shares redeemed. The letter should be signed by all of the
shareholders whose names appear in the account registration. You should send
your redemption request to:
[Rockhaven Fund or Rockhaven Premier Dividend Fund]
c/o American Data Services
50 Motor Parkway, Suite 109
Hauppauge, NY 11788
SIGNATURE GUARANTEE.
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 a Fund's Application
Form, you may redeem shares on any business day the NYSE is open by calling the
Funds' Shareholder Servicing Agent at (888) 229-2105 before 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 Funds 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.
Either Fund may change, modify, or terminate these privileges at any time upon
at least 60-days' notice to shareholders.
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.
11
<PAGE>
WHAT PRICE IS USED FOR A REDEMPTION?
The redemption price is the net asset value of a Fund's shares, next determined
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, either
Fund may suspend the right of redemption under certain extraordinary
circumstances in accordance with rules of the SEC.
If shares were purchased by wire, they cannot be redeemed until the day after
the Application Form is received. If shares were purchased by check and then
redeemed shortly after the check is received, a 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.
A 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, promptly, and the Fund may cancel
the order if romptly.
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 a Fund if, due to
redemptions you have made, the total value of your account is reduced to less
than $500. If a 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 each Fund to make payment wholly
or partly in cash, a Fund may pay redemption proceeds in whole or in part by a
distribution in kind of securities from the portfolio of a Fund, in compliance
with the Trust's election to be governed by Rule 18f-1, a Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset
value of a 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.
DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS.
Dividends from net investment income, if any, are normally declared and paid by
each Fund each quarter. Capital gains distributions, if any, are also normally
made in December, but a Fund may make an additional payment of dividends or
distributions if it deems it desirable at another time during any year.
12
<PAGE>
Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares of a Fund at the net asset
value per share 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 a 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.
Each Fund intends to qualify and elect to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986 (the "Code"). As
long as a Fund continues to qualify, and as long as the Fund distributes all of
its income each year to the shareholders, that Fund will not be subject to any
federal income or excise taxes. Distributions made by a 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
long-term capital gains regardless of the length of time shares of a 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 a Fund's distributions.
Additional information about taxes is set forth in the Statement of Additional
Information. You should consult your own advisers concerning federal, state and
local taxation of distributions from the Funds.
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 to issue an
unlimited number of full and fractional shares of beneficial interest, par value
$.01 per share, which may be issued in any number of series. The Board of
Trustees may from time to time issue other series, the assets and liabilities of
which will be separate and distinct from any other series. The fiscal year of
each Fund ends on September 30.
SHAREHOLDER RIGHTS.
Shares issued by the Funds have no preemptive, conversion, or subscription
rights. Shareholders have equal and exclusive rights as to dividends and
distributions as declared by the Funds and to the net assets of the Funds upon
liquidation or dissolution. Each Fund, as a separate series of the Trust, votes
separately on matters affecting only that 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.
13
<PAGE>
YEAR 2000 RISK.
Like other business organizations around the world, each Fund could be adversely
affected if the computer systems used by its investment advisor, Rockhaven Asset
Management, LLC, 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 Funds' advisor has taken steps that
it believes are reth respect to its own computer systems, and the Funds' has
obtained assurances from the Funds' 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 Funds.
PERFORMANCE INFORMATION.
From time to time, each 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 year and over the
period from the Fund's inception of operations. The Funds may also advertise
aggregate and average total return information over different periods of time. A
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 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 Funds will fluctuate over time, and any presentation of a 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) 229-2105.
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<PAGE>
THE ROCKHAVEN FUND
THE ROCKHAVEN PREMIER DIVIDEND FUND
Statement of Additional Information
Dated November 30, 1998
This Statement of Additional Information is not a prospectus, and it should be
read in conjunction with the prospectus dated November 30, 1998, as may be
amended from time to time, of The Rockhaven Fund and The Rockhaven Premier
Dividend Fund (the "Premier Dividend Fund"), each a series of Advisors Series
Trust (the "Trust"). (Collectively, both The Rockhaven Fund and The Rockhaven
Premier Dividend Fund may be referred to as the "Funds." ) Rockhaven Asset
Management, LLC (the "Advisor") is the Advisor to each of the Funds. A copy of
the prospectus may be obtained from the Fund at 100 First Avenue, Suite 1050,
Pittsburgh, PA 15222, telephone (800) 522-3508.
TABLE OF CONTENTS
Cross-reference to sections
Page in the prospectus
---- -----------------
Investment Objective and Policies..... B-2 Investment Objective and Policies
Management............................ B-10 Management of the Fund; General
Information
Distribution Arrangements............. B-14 Expense Table
Portfolio Transactions and
Brokerage............................. B-14 Management of the Funds
Net Asset Value....................... B-15 Investor Guide
Taxation ............................ B-16 Distributions and Taxes
Dividends and Distributions........... B-19 Distributions and Taxes
Performance Information............... B-19 General Information
General Information................... B-21 General Information
Appendix ............................ B-21 Not applicable
B-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of The Rockhaven Fund is to obtain above
average current income together with capital appreciation. The primary
investment objective of The Premier Dividend Fund is to obtain high current
income, and the Fund has a secondary objective of seeking capital appreciation.
There is no assurance that either Fund will achieve its objective. The
discussion below supplements information contained in the prospectus as to
investment policies of the Funds.
CONVERTIBLE SECURITIES AND WARRANTS
The Funds 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 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. The ability of the Funds to achieve its
investment objective also depends on the continuing ability of the issuers of
the debt securities in which a Fund invests to meet their obligations for the
payment of interest and principal when due.
RISKS OF INVESTING IN LOWER-RATED DEBT SECURITIES
As set forth in the prospectus, each Fund may invest a portion of its
net assets in debt securities, which may be rated below "Baa" by Moody's or
"BBB" by 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 would 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
B-2
<PAGE>
bond defaults, a 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.
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, a 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 a 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 that 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 a
Fund's assets and hinder a 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 a
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 that Fund can meet redemption requests. A Fund will dispose
of a portfolio security in an orderly manner when its rating has been downgraded
below C.
SHORT-TERM INVESTMENTS
Each Fund may invest in any of the following securities and
instruments:
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. A
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 a Fund will be
dollar-denominated obligations of domestic or foreign banks 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 a 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 a Fund
may acquire.
B-3
<PAGE>
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, a Fund may make interest-bearing
time or 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.
SAVINGS ASSOCIATION OBLIGATIONS. Each Fund may invest in certificates
of deposit (interest-bearing time deposits) issued by savings banks or savings
and loan associations that have capital, surplus and undivided profits in excess
of $100 million, based on latest published reports, or less than $100 million if
the principal amount of such obligations is fully insured by the U.S.
Government.
COMMERCIAL PAPER, SHORT-TERM NOTES AND OTHER CORPORATE OBLIGATIONS.
Each 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 Appendix A.
Corporate obligations include bonds and notes issued by corporations to
finance longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, the Fund may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated "AA" or higher by S&P or "Aa"
or higher by Moody's.
INVESTMENT COMPANY SECURITIES
Each Fund may invest in shares of other investment companies. Each Fund
may invest in money market mutual funds in connection with its management of
daily cash positions. In addition to the advisory and operational fees a Fund
bears directly in connection with its own operation, the Fund would also bear
its pro rata portions of each other investment company's advisory and
operational expenses.
GOVERNMENT OBLIGATIONS
Each 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.
ZERO COUPON SECURITIES
Each Fund may invest up to 35% of its net assets in zero coupon
securities. Zero coupon securities are debt securities which have been stripped
of their unmatured interest coupons and receipts, or certificates representing
interests in such stripped debt obligations or coupons. Because a zero coupon
security pays no interest to its holder during its life or for a substantial
period of time, it usually trades at a deep discount from its face or par value
and will be subject to greater fluctuations of market value in response to
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest.
B-4
<PAGE>
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Fund may acquire variable and floating rate instruments. Such
instruments are frequently not rated by credit rating agencies; however, unrated
variable and floating rate instruments purchased by a Fund will be determined by
the Advisor under guidelines established by the Trust's Board of Trustees to be
of comparable quality at the time of the purchase to rated instruments eligible
for purchase by a Fund. In making such determinations, the Advisor will consider
the earning power, cash flow and other liquidity ratios of the issuers of such
instruments (such issuers include financial, merchandising, bank holding and
other companies) and will monitor their financial condition. An active secondary
market may not exist with respect to particular variable or floating rate
instruments purchased by a Fund. The absence of such an active secondary market
could make it difficult for the Funds to dispose of the variable or floating
rate instrument involved in the event of the issuer of the instrument defaulting
on its payment obligation or during periods in which a Fund is not entitled to
exercise its demand rights, and a Fund could, for these or other reasons, suffer
a loss to the extent of the default. Variable and floating rate instruments may
be secured by bank letters of credit.
OPTIONS ON SECURITIES AND SECURITIES INDICES
WRITING CALL OPTIONS. Each Fund may write covered call options. A call
option is "covered" if a Fund owns the security underlying the call or has an
absolute right to acquire the security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount as are held in a segregated account by the Custodian). The writer of
a call option receives a premium and gives the purchaser the right to buy the
security underlying the option at the exercise price. The writer has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. If the writer of
an exchange-traded option wishes to terminate his obligation, he may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. A writer may not effect a closing
purchase transaction after it has been notified of the exercise of an option.
Effecting a closing transaction in the case of a written call option
will permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. Also, effecting a
closing transaction will permit the cash or proceeds from the concurrent sale of
any securities subject to the option to be used for other investments of a Fund.
If a Fund desires to sell a particular security from its portfolio on which it
has written a call option, it will effect a closing transaction prior to or
concurrent with the sale of the security.
A Fund will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option or if the proceeds from the closing transaction are more than the premium
paid to purchase the option. A Fund will realize a loss from a closing
transaction if the cost of the closing transaction is more than the premium
received from writing the option or if the proceeds from the closing transaction
are less than the premium paid to purchase the option. However, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss to a Fund resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by that Fund.
STOCK INDEX OPTIONS. Each Fund may also purchase put and call options
with respect to the S&P 500 and other stock indices. Such options may be
purchased as a hedge against changes resulting from market conditions in the
values of securities which are held in a Fund's portfolio or which it intends to
purchase or sell, or when they are economically appropriate for the reduction of
risks inherent in the ongoing management of a Fund.
The distinctive characteristics of options on stock indices create
certain risks that are not present with stock options generally. Because the
value of an index option depends upon movements in the level of the index rather
than the price of a particular stock, whether a Fund will realize a gain or loss
on the purchase or sale of an option on an index depends upon movements in the
level of stock prices in the stock market generally rather than movements in the
price of a particular stock. Accordingly, successful use by a Fund of options on
a stock index would be subject to the Advisor's ability to predict correctly
movements in the direction of the stock market generally. This requires
different skills and techniques than predicting changes in the price of
individual stocks.
B-5
<PAGE>
Index prices may be distorted if trading of certain stocks included in
the index is interrupted. Trading of index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this were to occur, a Fund would not be able to
close out options which it had purchased, and if restrictions on exercise were
imposed, that Fund might be unable to exercise an option it holds, which could
result in substantial losses to that Fund. It is the policy of the Funds to
purchase put or call options only with respect to an index which the Advisor
believes includes a sufficient number of stocks to minimize the likelihood of a
trading halt in the index.
RISKS OF INVESTING IN OPTIONS. There are several risks associated with
transactions in options on securities and 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 fluctuation than an investment
in the underlying instruments themselves. There are also significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objective. In addition, 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 option of underlying securities; 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.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events. The
extent to which a Fund may enter into options transactions may be limited by the
Internal Revenue Code requirements for qualification as a regulated investment
company. See "Dividends, Distributions and Taxes."
DEALER OPTIONS. Each Fund may engage in transactions involving dealer
options as well as exchange-traded options. Certain risks are specific to dealer
options. While the Funds might look to a clearing corporation to exercise
exchange-traded options, if a Fund were to purchase a dealer option it would
need to rely on the dealer from which it purchased the option to perform if the
option were exercised. Failure by the dealer to do so would result in the loss
of the premium paid by a Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options may not. Consequently, a Fund may generally be able to realize
the value of a dealer option it has purchased only by exercising or reselling
the option to the dealer who issued it. Similarly, when a Fund writes a dealer
option, that Fund may generally be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to whom that Fund originally wrote the option. While a Fund will seek to enter
into dealer options only with dealers who will agree to and which are expected
to be capable of entering into closing transactions with that Fund, there can be
no assurance that a Fund will at any time be able to liquidate a dealer option
at a favorable price at any time prior to expiration. Unless a Fund, as a
covered dealer call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
as cover until the option expires or is exercised. In the event of insolvency of
the other party, a Fund may be unable to liquidate a dealer option. With respect
to options written by a Fund, the inability to enter into a closing transaction
may result in material losses to that Fund. For example, because a Fund must
maintain a secured position with respect to any call option on a security it
writes, that Fund may not sell the assets which it has segregated to secure the
position while it is obligated under the option. This requirement may impair
that Fund's ability to sell portfolio securities at a time when such sale might
be advantageous.
The Staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased dealer options are illiquid securities. A
Fund may treat the cover used for written dealer options as liquid if the dealer
agrees that the Fund may repurchase the dealer option it has written for a
maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
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purchase price under the formula exceeds the intrinsic value of the option. With
that exception, however, a Fund will treat dealer options as subject to that
Fund's limitation on unmarketable securities. If the Commission changes its
position on the liquidity of dealer options, each Fund will change its treatment
of such instruments accordingly.
FOREIGN INVESTMENTS AND CURRENCIES
Each Fund may invest in securities of foreign issuers that are publicly
traded in the United States. Each Fund may also invest in depositary receipts.
DEPOSITARY RECEIPTS. Depositary Receipts ("DRs") include American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other forms of depositary receipts. DRs are
receipts typically issued in connection with a U.S. or foreign bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign
securities involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' 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.
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 payable on certain of a 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.
RISK FACTORS REGARDING EMERGING MARKETS INVESTMENTS. Investments in
securities issued by the governments of emerging or developing countries, and of
companies within those countries, involves greater risks than other foreign
investments. Investments in emerging or developing markets involve exposure to
economic and legal structures that are generally less diverse and mature (and in
some cases the absence of developed legal structures governing private and
foreign investments and private property), and to political systems which can be
expected to have less stability, than those of more developed countries. The
risks of investment in such countries may include matters such as relatively
unstable governments, higher degrees of government involvement in the economy,
the absence until recently of capital market structures or market-oriented
economies, economies based on only a few industries, securities markets which
trade only a small number of securities, restrictions on foreign investment in
stocks, and significant foreign currency devaluations and fluctuations. Emerging
markets can be substantially more volatile than both U.S. and more developed
foreign markets. Such volatility may be exacerbated by illiquidity. The average
daily trading volume in all of the emerging markets combined is a small fraction
of the average daily volume of the U.S. market. Small trading volumes may result
in a Fund being forced to purchase securities at substantially higher prices
than the current market, or to sell securities at much lower prices than the
current market.
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 a
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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.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, a 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 holding
the repurchase agreement 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
Each Fund may purchase securities on a "when-issued," forward
commitment or delayed settlement basis. In this event, the Custodian will set
aside liquid assets equal to the amount of the commitment in a separate account.
Normally, the Custodian will set aside portfolio securities to satisfy a
purchase commitment. In such a case, a Fund may be required subsequently to set
aside additional assets in order to assure that the value of the account remains
equal to the amount of that Fund's commitment. It may be expected that a 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 Funds do not intend to engage in these transactions for speculative
purposes but only in furtherance of their investment objectives. Because a Fund
will set aside liquid assets to satisfy its purchase commitments in the manner
described, that Fund's liquidity and the ability of the Advisor to manage it may
be affected in the event that Fund's forward commitments, commitments to
purchase when-issued securities and delayed settlements ever exceeded 15% of the
value of its net assets.
A 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, a Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
that Fund on the settlement date. In these cases a Fund may realize a taxable
capital gain or loss. When a 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 a Fund's incurring a loss or
missing an opportunity to obtain a price credited to be advantageous.
The market value of the securities underlying a when-issued purchase,
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 a Fund starting on the day that Fund agrees to
purchase the securities. A 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
Each 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 5% of the value of its total assets at the time of such
borrowings.
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ILLIQUID SECURITIES
Each 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 each 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 a Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption within
seven days. A 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 Commission 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 each 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 a 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 a 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 that Fund.
As a matter of fundamental policy, each 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 may not purchase more than 10% of
the outstanding voting securities of an issuer. Each Fund's investment objective
is also fundamental.
In addition, each Fund may not:
1. Issue senior securities, borrow money or pledge its assets, except
that (i) the Fund may borrow from banks in amounts not exceeding one-third of
its total assets (not including the amount borrowed); and (ii) this restriction
shall not prohibit the Fund from engaging in options transactions or short
sales;
2. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions and except that the Fund may
borrow money from banks to purchase securities;
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);
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6. Purchase or sell commodities or commodity futures contracts, except
that a Fund may invest in stock index, currency and financial futures contracts
and related options in accordance with any rules of the Commodity Futures
Trading Commission; or
7. Make loans of money (except for purchases of debt securities
consistent with the investment policies of the Fund and except for repurchase
agreements).
Each Fund observes the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal regulatory
authorities:
Each Fund may not:
1. Borrow money or pledge its assets, except that 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 5% of its total assets (not
including the amount borrowed);
2. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;
3. 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;
4. Invest more than 15% of its 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);
5. Sell securities short;
6. Invest in stock index futures, currency or financial futures or
related options; or
7. Make investments for the purpose of exercising control or
management.
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 objectives and policies and to general supervision by the
Board of Trustees.
The Trustees and officers of the Trust, their ages and positions with
the Trust, their business addresses and principal occupations during the past
five years are:
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------- -------- -------------------------------------------
<S> <C> <C>
Walter Auch, Sr.(Born 1921) Trustee Director, Nicholas-Applegate Mutual Funds, Brinson
6001 N. 62d Place Funds (since 1994), Smith Barney Trak Fund, Pimco
Paradise Valley, AZ 85253 Advisors L.P., Banyan Realty Trust, Banyan Land
Fund II and Legend Properties.
Eric Banhazl (Born 1957)* Trustee, Senior Vice President, Investment Company
2025 E. Financial Way President and Administration Corporation; Vice President, First
Glendora, CA 91740 Treasurer Fund Distributors, Inc.; Assistant Treasurer, RNC
Mutual Fund Group; Treasurer, Guiness Flight
Investment Funds, Inc. and Professionally Managed
Portfolios.
Donald O'Connor (Born 1936) Trustee Retired; formerly Executive Vice President and
1700 Taylor Avenue Chief Operating Officer of ICI Mutual Insurance
Fort Washington MD, 20744 Company (until January, 1997), Vice President,
Operations, Investment Company Institute (until
June, 1993).
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
George Wofford III Trustee Vice President, Information Services, Federal Home
1939) Loan Bank of (Born San Francisco (since March,
305 Glendora Circle 1993); formerly Director of Management Information
Danville, CA 94526 Services, Morrison & Foerster (law firm).
Steven J. Paggioli Vice Executive Vice President, Robert H. Wadsworth &
(Born 1950) President Associates, Inc. and Investment Company
479 W. 22nd Street Administration Corporation; Vice President First
New York, NY 10011 Fund Distributors, Inc.; President and Trustee,
Professionally Managed Portfolios; Director,
Managers Funds, Inc.
Robert H. Wadsworth Vice President, Robert H. Wadsworth & Associates, Inc.,
(Born 1940) President Investment Company Administration Corporation and
Camelback Road First Fund Distributors, 4455 E. Inc.; Vice
Suite 261E President, Professionally Managed Portfolios;
Phoenix, AZ 85018 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 Administration
4455 E. Camelback Road Corporation (since July, 1996); formerly employed
Suite 261E by Bank One, N.A. (from August, 1995 until July,
Phoenix, AZ 85018 1996); O'Connor, Cavanagh, Anderson, Killingsworth
and Beshears (law firm) (until August, 1995).
</TABLE>
* denotes Trustee who is an "interested person" of the Trust under the 1940 Act.
NAME AND POSITION AGGREGATE COMPENSATION FROM THE TRUST
- ----------------- -------------------------------------
Walter E. Auch, Sr., Trustee $12,000
Donald E. O'Connor, Trustee $12,000
George T. Wofford III, Trustee $12,000
For the fiscal year ended September 30, 1998, trustees' fees and expenses in the
amount of $7,640 were allocated to the Funds. The Trust has no pension or
retirement plan. No other entity affiliated with the Trust pays any compensation
to the Trustees.
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 Funds in accordance with the investment objectives, policies and
restrictions of each Fund as set forth in each Fund's and the Trust's governing
documents, including, without limitation, the Trust's Agreement and Declaration
of Trust and By-Laws; the Funds' 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 Advisor. In providing such services, Advisor shall at all times adhere to the
provisions and restrictions contained in the federal securities laws, applicable
state securities laws, the Internal Revenue Code, and other applicable law.
Without limiting the generality of the foregoing, the Advisor has
agreed to (i) furnish each Fund with advice and recommendations with respect to
the investment of each Fund's assets, (ii) effect the purchase and sale of
portfolio securities; (iii) manage and oversee the investments of each 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
securities; (v) maintain the books and records required to be maintained with
respect to the securities in each Fund's portfolio; (vi) furnish reports,
statements and other data on securities, economic conditions and other matters
related to the investment of each Fund's assets which the Trustees or the
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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 this 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 each 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, each 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 Trust 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 each Fund including all fees and expenses of its custodian,
recordkeeping agent, 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 Investment Company 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 each 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 each 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 each 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.
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, but
is permitted to look back five years and four years, respectively, during the
initial six years and seventh year of the Fund's operations. Any such
reimbursement is also contingent upon Board of Trustees subsequent review and
ratification of the reimbursed amounts. Such reimbursement may not be paid prior
to the Fund's payment of current ordinary operating expenses.
During the period beginning November 3, 1997 through September 30,
1998, the Advisor earned $9,321 and $6,813 in advisory fees for The Rockhaven
Fund and The Rockhaven Premier Dividend Fund, respectively. The Advisor
voluntarily agreed to limit total fund operating expenses to 1.50% of average
net assets annually for both Funds. As a result of that limitation, the Advisor
waived the full amount of its fee and paid Fund operating expenses in the amount
of $78,322 and $82,550, for The Rockhaven Fund and The Rockhaven Premier
Dividend Fund, respectively.
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<PAGE>
The Advisor is controlled by Christopher H. Wiles and AmSouth
Bancorporation.
Under the Advisory Agreement, the Advisor will not be liable to the
Trust for any error of judgment by the Advisor 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 by reason of reckless disregard of its obligations and duties
under the applicable agreement.
The Advisory Agreement will remain in effect for a period not to exceed
two years from the date each Fund commenced operations. 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
that 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
Trust 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 Commission 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 register or
maintain the Trust's registration and/or the registration 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.
The Administrator is an affiliate of the Distributor.
For its services, the Administrator receives a fee monthly at the
following annual rate:
FUND ASSET LEVEL FEE RATE
- ---------------- --------
First $50 million 0.20% of average daily net assets
Next $50 million 0.15% of average daily net assets
Next $50 million 0.10% of average daily net assets
Next $50 million, and thereafter 0.05% of average daily net assets
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<PAGE>
DISTRIBUTION ARRANGEMENTS
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.
During the period beginning November 2, 1997 and ending September 30,
1998, the Fund paid the Distribution Coordinator distribution fees totaling
$3,107 for The Rockhaven Fund and $2,271 for The Rockhaven Premier Dividend
Fund.
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 each Fund on
a continuing basis. The price to a 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 a 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
that Fund. The Advisor is further authorized to allocate the orders placed by it
on behalf of a 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 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 a Fund as a factor in the selection of brokers or
dealers 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.
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On occasions when the Advisor deems the purchase or sale of a security
to be in the best interest of a Fund as well as other clients of the Advisor (or
proprietary accounts 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.
Brokerage commissions paid during the period beginning November 3, 1997
and ending September 30, 1998, aggregated $5,266 and $4,815, for The Rockhaven
Fund and The Rockhaven Premier Dividend Fund, respectively.
NET ASSET VALUE
The net asset value of each Fund's shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange (generally
4:00 p.m. Eastern time) each business day. The Exchange annually announces the
days on which it will not be open for trading. The most recent announcement
indicates that it will not be open on the following days: 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 Exchange 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 a 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 that 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 a 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 a 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 a 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 Funds' securities, including ADRs, EDRs and GDRs, 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 over-the-counter 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 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.
All other assets of the Funds are valued in such manner as the Board in
good faith deems appropriate to reflect their fair value.
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TAXATION
Each Fund intends to continue to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended, (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. Each 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 a 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 a 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 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% of 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.
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 prospectuses. 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.
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If more than 50% in value of the total assets of the Fund at the end of
its fiscal year is invested in stock or 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.
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,
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
B-17
<PAGE>
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 during such six-month period. All or a portion
of a loss realized upon the redemption of shares may be disallowed to the extent
shares 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 prospectuses 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,
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 capital gain or loss recognition or otherwise producing
long-term capital gains and losses, the Fund will have a net long-term capital
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<PAGE>
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 Funds' advertising
and promotional materials are calculated according to the following formula:
P(1 + T)n = ERV
where "P" equals a hypothetical initial payment of $1000; "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 $1000 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 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.
For the period from November 3, 1997 (commencement of operations)
through September 30, 1998, The Rockhaven Fund and the Premier Dividend Fund had
Total Returns of (1.61)% and (0.10)%, respectively.
YIELD
Annualized yield quotations used in the Funds' advertising and
promotional materials are calculated by dividing a 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.
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<PAGE>
Except as noted below, in determining net investment income earned
during the period ("a-b" in the above formula), each 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.
For the period from November 3, 1997 (commencement of operations)
through September 30, 1998, The Rockhaven Fund and the Premier Dividend Fund had
Yields of 3.47% and 4.27%, respectively.
OTHER INFORMATION
Performance data of the Funds 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
a Fund will fluctuate, and an investor's redemption proceeds may be more or less
than the original investment amount. In advertising and promotional materials a
Fund may compare its performance with data published by Lipper Analytical
Services, Inc. ("Lipper") or CDA Investment Technologies, Inc. ("CDA"). A 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 a
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 effective series of
shares of beneficial interest, par value of 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 Funds. Each share represents an interest in a Fund
proportionately equal to the interest of each other share. Upon a Fund's
liquidation, all shareholders of that Fund would share pro rata in the net
assets of that Fund available for distribution to shareholders. Income and
operating expenses not specifically attributable to a particular Fund will 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 Funds' custodian, Star Bank, 425 Walnut Street, Cincinnati, Ohio
45202 is responsible for holding the Funds' assets. American Data Services, P.O.
Box 5536, Hauppauge, NY 11788 acts as the Fund's accounting services agent. The
Fund's independent accountants, McGladrey & Pullen, LLP, 555 Fifth Avenue, New
York, NY 10017, assist in the preparation of certain reports to the Securities
and Exchange Commission and the Funds' tax returns.
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<PAGE>
Shares of the Funds owned by the Trustees and officers as a group were
less than 1% at November 18, 1998.
On November 18, 1998, the following additional persons owned of record
and/or beneficially more than 5% of The Rockhaven Fund's outstanding voting
securities:
Lawrence R. Garlock, Janice O. Garlock, JT TEN, 303 Churchill Road,
Greensburg, PA 15601; 16.50% record.
On November 18, 1998, the following additional persons owned of record
and/or beneficially more than 5% of The Rockhaven Premier Dividend Fund's
outstanding voting securities:
Linda L. Murray, R.D. Box 34, Valley Grove, WV 26060; 7.33% record.
Lawrence R. Garlock, Janice O. Garlock, JT TEN, 303 Churchill Road,
Greensburg, PA 15601; 23.67% record.
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 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 rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
CAA -- Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA -- Bonds rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
short-comings.
C -- Bonds rated C are the lowest-rated class of bonds, and such issues
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
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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
modified 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 CORPORATION: 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 -- Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces 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 BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently
has 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 category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB- rating.
CCC -- Debt rated CCC has a currently identifiable vulnerability to
default, and is 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, it is 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 or implied B or B- Rating.
CC -- Debt rated CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C -- The Rating C 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.
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 rating categories.
COMMERCIAL PAPER RATINGS
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.
B-22
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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-23
