ADVISORS SERIES TRUST, 497, 1998-07-08

ADVISORS SERIES TRUST
497, 1998-07-08

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Liberty Freedom Fund - Class I Shares
4101 Pauger Street
New Orleans, Louisiana 70122
Fund Literature: (800) 645-1704
Shareholder Services: (888) 229-2105

PROSPECTUS

The Liberty Freedom Fund (the "Fund") is a mutual fund with the investment
objective of growth of capital and a secondary objective of providing income.
The Fund attempts to achieve its objectives by investing in equity securities.
See "Investment Objectives and Policies." There can be no assurance that the
Fund will achieve its investment objectives.

This Prospectus sets forth basic information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. The Fund is a separate series of Advisors Series
Trust (the "Trust"), an open-end registered management investment company. A
Statement of Additional Information (the "SAI") dated June 29, 1998 has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference. This SAI is available without charge upon request to the Fund at the
address given above. The SEC maintains an internet site (http://www.sec.gov)
that contains the SAI, other material incorporated by reference and other
information about companies that file electronically with the SEC.

<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Expense Table 2
Investment Objective and Policies 2
Management of the Fund 3
Investor Guide 6
Services Available to Shareholders 8
How to Redeem Your Shares 8
Distributions and Taxes 9
General Information 10
</TABLE>

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

June 29, 1998
<PAGE>

Expense Table

Annual Operating Expenses
(As a percentage of average net assets)

Investment Advisory Fees 0.85%
Other Expenses (net of fee waivers
and expense reimbursements) (1) 0.45%
Total Fund Operating Expenses (2) 1.30%

(1) Other Expenses are estimated for the first fiscal year of the Fund.

(2) Total Operating Expenses are not expected to exceed 1.30% of average net
assets annually, but in the event that they do, the Manager and Sub-Advisor have
agreed to reduce their fees and/or pay expenses of the Fund to insure that the
Fund's expenses will not exceed 1.30%. If the Manager and Sub-Advisor did not
limit the Fund's expenses, it is expected that "Other Expenses" in the above
table would be 1.00% and "Total Operating Expenses" would be 1.85%. If the
Manager and Sub-Advisor waive fees or pay Fund expenses, the Fund may reimburse
them within the following three years. See "Management of the Fund."

The purpose of the above fee table is to provide an understanding of the various
annual operating expenses which may be borne directly or indirectly by an
investment in the Fund. Actual expenses may be more or less than those shown.

Example

This table illustrates the net operating expenses that would be incurred by an
investment in the Fund over different time periods assuming a $1,000 investment,
a 5% annual return, and redemption at the end of each time period.

1 Year 3 Years
$13 $41

The Example shown above should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown. In
addition, federal regulations require the Example to assume a 5% annual return,
but the Fund's actual return may be higher or lower. See "Management of the
Fund."

The minimum initial investment in the Fund is $250,000 with subsequent minimum
investments of $25,000 or more. Shares will be redeemed at their net asset
value.

Investment Objectives and Policies

What are the Fund's investment objectives?

The investment objective of the Fund is to seek growth of capital, with a
secondary objective of providing income. There can be no assurance that the Fund
will achieve its objectives.

How does the Fund seek to achieve its objectives?

approach to select equity securities for the Fund's portfolio that it believes
are undervalued, reasonably priced and have prospects for continued consistent
growth. The Sub-Advisor uses fundamental analysis of financial statements to
select stocks of issuers which have low price/earnings and price/book ratios as
well as strong balance sheet ratios and high and/or stable dividend yields.

The Fund will invest primarily in large, well-recognized companies. Currently,
the Manager and Sub-Advisor expect the Fund's portfolio to hold at least 20% of
the stocks comprising the Standard & Poor's 500 Index, a capitalization-weighted
index of 500 stocks from a broad range of industries. It is not expected that
the Fund's annual turnover rate will exceed 50%.

There is, of course, no assurance that the Fund's 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 Fund might purchase.

Under normal market conditions, the Fund will invest at least 85% of its total
assets in equity securities, consisting of common stocks and securities having
the characteristics of common stocks, such as convertible securities, rights and
warrants. If market conditions warrant a temporary defensive posture, the Fund
may invest without limit in high quality, short-term debt securities and money
market instruments. These short-term debt securities and money market
instruments include commercial paper, certificates of deposit, bankers'
acceptances, U.S. Government securities and repurchase agreements.

Investment restrictions.

The Fund has adopted certain investment restrictions, which are described fully
in the SAI. Like the Fund's investment objective, certain of these restrictions
are fundamental and may be changed only by a majority vote of the Fund's
outstanding shares. As a fundamental policy, the Fund is a diversified fund.

Management of The Fund

The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund.

The Manager

The Manager, Liberty Bank and Trust Company ("Liberty"), 4101 Pauger Street, New
Orleans, Louisiana 70122, (a subsidiary of Liberty Financial Services, Inc.) has
provided banking services to the greater New Orleans community since 1972.
Liberty's assets have grown to over $150 million and has risen to become one of
the top ten African American owned banks in the United States. Liberty has
overall responsibility for the assets under management and will be responsible
for monitoring the day-to-day activity of the Sub-Advisor. Liberty together with
the Sub-Advisor is responsible for formulating and implementing the Fund's
investments. Liberty furnishes the Fund with office space and certain
administrative services, and provides most of the personnel needed by the Fund.
Each portfolio pays the Manager a monthly fee pursuant to an investment advisory
agreement. As compensation for the services it receives, the Fund pays Liberty a
monthly management fee based upon the average daily net assets of the Fund at
the annual rate of 0.25%.

The Sub-Advisor

principally responsible for the management of the Fund's portfolio. Mr. Eley
(who controls the Sub-Advisor) is the President and Chief Investment Officer of
the Sub-Advisor and has been active in the investment field professionally since
the firm was founded.

The Sub-Advisor provides the Fund with advice on buying and selling securities,
manages the investments of the Fund. As compensation, the Fund pays the
Sub-Advisor a monthly management fee based upon the average daily net assets of
the Fund at the annual rate of 0.60%.

Prior Performance of the Sub-Advisor

The following table sets forth composite performance data relating to the
historical performance of private accounts, each of which exceeds $1 million in
market value, managed by the Sub-Advisor for the periods indicated, that have
investment objectives, policies, strategies and risks substantially similar to
those of the Fund. The data is provided to illustrate the past performance of
the Sub-Advisor in managing substantially similar accounts as measured against a
market index and does not represent the performance of the Fund. You should not
consider this performance data as an indication of future performance of the
Fund or of the Sub-Advisor.

The composite performance data shown below were calculated in accordance with
recommended standards of the Association for Investment Management and Research
(AIMR*), retroactively applied to all time periods. All returns presented were
calculated on a total return basis and include all dividends and interest,
accrued income and realized and unrealized gains and losses. All returns reflect
the deduction of investment advisory fees, brokerage commissions and execution
costs paid by private accounts of the Sub-Advisor without provision for federal
or state income taxes. Custodial fees, if any, were generally not included in
the calculation. The Sub-Advisor's composite includes all actual, fee-paying,
discretionary private accounts with assets in excess of $1 million managed by
the Sub-Advisor that have investment objectives, policies, strategies and risks
substantially similar to those of the Fund. Securities transactions are
accounted for on the trade date and accrual accounting is used. Cash and
equivalents are included in performance returns. The monthly returns of the
Sub-Advisor's composite combine the individual accounts' returns (calculated on
a time-weighted rate of return that is revalued whenever cash flows exceed 10%
of an account's current value) by asset-weighting each individual account's
asset value as of the beginning of the month. Quarterly and yearly returns are
calculated by geometrically linking the monthly and quarterly returns,
respectively.

The private accounts that are included in the Sub-Advisor's composite are not
subject to the same types of expenses to which the Fund is subject nor to the
diversification requirements, specific tax restrictions and investment
limitations imposed on the Fund by the Investment Company Act or the Internal
Revenue Code. Consequently, the performance results for the Sub-Advisor's
composite could have been adversely affected if the private accounts included in
the composite had been regulated as investment companies. In addition, the
operating expenses incurred by the private accounts were lower than the
anticipated operating expenses of the Fund, and, accordingly, the performance
results of the composite are greater than what Fund performance would have been.

The investment results of the Sub-Advisor's composite presented below have been
reviewed and verified (for an AIMR Level II examination) by the independent
auditing firm, Deloitte & Touche LLP, to be computed in accordance with
Performance Presentation Standards of AIMR, but these results are not intended
to predict or suggest the returns that might be experienced by the Fund or an
individual investing in the Fund. The methodology used to calculate performance
conforming to AIMR standards is different from that used by mutual funds.
Investors should also be aware that the use of a methodology different from that
used below to calculate performance could result in different performance data.

*AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisors. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisors of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisors are directly comparable.
<PAGE>

Annualized Total Return:
<TABLE>
<CAPTION>

For Year ended Sub-Advisor's Composite S&P 500*
<S> <C> <C>
December 31, 1993 25.02% 10.06%
December 31, 1994 3.38% 1.30%
December 31, 1995 45.75% 37.53%
December 31, 1996 22.04% 22.99%
December 31, 1997 24.18% 33.34%
</TABLE>

For the period

January 1, 1993 - December 31, 1997
<S> <C> <C>
Annualized Return 23.34% 20.25%
Cumulative 185.46% 151.48%
</TABLE>

* The Standard & Poor's 500 Composite Stock Price Index, known as the S&P 500,
is an unmanaged market value-weighted index consisting of representative samples
of stocks within important industry groups within the U.S. economy. It includes
dividends and distributions, but does not reflect fees, brokerage commissions or
other expenses of investing.

The Administrator

Investment Company Administration Corporation (the "Administrator") prepares
various federal and state regulatory filings, reports and returns for the Fund,
prepares reports and materials to be supplied to the Trustees, monitors the
activities of the Fund's custodian, shareholder servicing agent and accountants,
and coordinates the preparation and payment of Fund expenses and reviews the
Fund's expense accruals. For its services, the Administrator receives a monthly
fee at the annual rate of 0.20% of average total net assets, subject to a
$30,000 annual minimum.

Other operating expenses

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 the first, second or third fiscal year next
succeeding the fiscal year of the reduction or absorption 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. With respect to the reimbursement of a particular
fee reduction or expense payment, a reimbursement to the Advisor is permitted
only within the three year period following the year in which the Advisor
reduced the subject fee or paid the subject expense. Any such reimbursement is
also contingent upon Board of Trustees review and approval at the time the
reimbursement is made. Such reimbursement may be paid prior to the Fund's
payment of current expenses if so requested by the Advisor even if that practice
may require the Advisor to waive, reduce or absorb current Fund expenses.

Brokerage Transactions

the reasonableness of commissions, quality of services and execution, and the
availability of research which the Sub-Advisor may lawfully and appropriately
use in its investment advisory capacities. Provided the Fund receives prompt
execution at competitive prices, the sale of Fund shares also may be considered
as a factor in selecting broker-dealers for the Fund's portfolio transactions.

Investor Guide

How to purchase shares of the Fund

There are several ways to purchase shares of the Fund. An Application Form,
which accompanies this Prospectus, is used if you send money directly to the
Fund by mail or by wire. If you have questions about how to invest, or about how
to complete the Application Form, please call an account representative at (888)
229-2105.

Class I shares are offered at net asset value without a sales charge. First Fund
Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix, AZ 85018, (the
"Distributor"), acts as Distributor and may, at its discretion, waive the
minimum investment requirements. The Fund also offers Class A shares. The other
Class has a sales charge and other expenses which may result in performance for
that Class which is different from that of Class I shares.

Purchase Order Placed with Investment Dealers

Dealers who have a sales agreement with the Distributor may place orders for
shares of the Fund on behalf of clients at the offering price next determined
after receipt of the client's order by calling the Distributor. If the order is
placed by the client with the dealer by 4:00 p.m. Eastern time and forwarded to
the Transfer Agent any day that the New York Stock Exchange is open for trading,
it will be confirmed at the applicable offering price on that day. The dealer is
responsible for placing orders promptly with the Transfer Agent and for
forwarding payment promptly.

You may send money to the Fund by mail

If you wish to invest by mail, simply complete the Application Form and mail it
with a check (made payable to Liberty Freedom Fund) to the Fund's Shareholder
Servicing Agent, American Data Services, Inc. at the following address:

Liberty Freedom Fund
P.O. Box 641265
Cincinnati, OH 45264-1265

If you wish to send your Application Form and check via an overnight delivery
services (such as Fed Ex), delivery cannot be made to a post office box. In
that case, you should use the following address:

Liberty Freedom Fund
c/o Star Bank, N.A.
Mutual Fund Custody Department
425 Walnut Street, M/L 6118,
Sixth Floor
Cincinnati, OH 45202

You may wire money to the Fund

Before sending a wire, you should call the Fund 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.
<PAGE>
It is important to call and receive this account number, because if your wire is
sent without it or without the name of the Fund, there may be a delay in
investing the money you wire. You should then ask your bank to wire money to:

Star Bank, N.A. Cinti/Trust
ABA # 0420-0001-3
for credit to Liberty Freedom Fund
DDA # 488920679
for further credit to [your name and account number]

Your bank may charge you a fee for sending a wire to the Fund.

Minimum investments

The minimum initial investment in the Fund is $250,000. The minimum subsequent
investment is $25,000.

Subsequent investments

You may purchase additional shares of the Fund by sending a check, with the stub
from an account statement, to the Fund at the address above. Please also write
your account number on the check. If you do not have a stub from an account
statement, you can write your name, address and account number on a separate
piece of paper and enclose it with your check. If you want to send additional
money for investment by wire, it is important for you to call the Fund at
(888)229-2105. You may also make additional purchases through an investment
dealer, as described above.

When is money invested in the Fund?

Any money received for investment in the Fund from an investor, whether sent by
check or by wire, is invested at the net asset value of the Fund which is next
calculated after the money is received (assuming the check or wire correctly
identifies the Fund and account). Orders received from dealers are invested at
the net asset value next calculated after the order is received. The net asset
value is calculated at the close of regular trading of the NYSE, currently 4:00
p.m., Eastern time. A check or wire received after the NYSE closes is invested
as of the next calculation of the Fund's net asset value.

What is the net asset value of the Fund?

The Fund's net asset value per share for the Class I shares is calculated by
dividing the value of the Fund's total assets, less its liabilities, by the
number of its shares outstanding. In calculating the net asset value, portfolio
securities are valued using current market values, if available. Securities for
which market quotations are not readily available are valued at fair values
determined in good faith by or under the supervision of the Board of Trustees of
the Trust. The fair value of short-term obligations with remaining maturities of
60 days or less is considered to be their amortized cost.

Other information

The Distributor may waive the minimum investment requirements for purchases by
certain group or retirement plans. All investments must be made in U.S. dollars,
and checks must be drawn on U.S. banks. Third party checks will not be accepted.
A charge may be imposed if a check used to make an investment does not clear.
The Fund and the Distributor reserve the right to reject any investment, in
whole or in part. Federal tax law requires that investors provide a certified
taxpayer identification number and other certifications on opening an account in
order to avoid backup withholding of taxes. See the Application Form for more
information about backup withholding. The Fund is not required to issue share
certificates; all shares are normally held in non-certificated form on the books
of the Fund,
<PAGE>

for the account of the shareholder. The Fund, under certain circumstances, may
accept investments of securities appropriate for the Fund's portfolio, in lieu
of cash. Prior to making such a purchase, you should call the Sub-Advisor to
determine if such an investment may be made.

Services Available to Shareholders

Retirement Plans

You may invest in the Fund various retirement plans, including IRAs, Simplified
Employee Plan (SEP) IRAs, and all qualified retirement plans. For further
information about any of the plans, agreements, applications and annual fees
contact the Distributor, your financial representative or plan sponsor. To
determine which retirement plan is appropriate for you, consult your tax
adviser.

How to Redeem Your Shares

You have the right to redeem all or any portion of your shares of the 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. 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:

Liberty Freedom Fund
150 Motor Parkway, Suite 109
Hauppauge, NY 11788-0132

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 the Fund's Application
Form, you may redeem shares on any business day the NYSE is open by calling the
Fund's Shareholder Servicing Agent at (888) 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.

telephone instructions and requiring a form of personal identification before
acting on these instructions. If these normal identification procedures are
followed, neither the Fund nor the Shareholder Servicing Agent will be liable
for any loss, liability, or cost which results from acting upon instructions of
a person believed to be a shareholder with respect to the telephone redemption
privilege. The Fund may change, modify, or terminate these privileges at any
time upon at least 60 days notice to shareholders.

You may request telephone redemption privileges after your account is opened;
however, the authorization form will require a separate signature guarantee.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity.

What price is used for a redemption?

The redemption price is the net asset value of the Fund's shares, 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, the Fund
may suspend the right of redemption under certain extraordinary circumstances in
accordance with rules of the Securities and Exchange Commission.

If shares were purchased by wire, 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, the Fund may delay sending the
redemption proceeds until it has been notified that the check used to purchase
the shares has been collected, a process which may take up to 15 days. This
delay may be avoided by investing by wire or by using a certified or official
bank check to make the purchase.

Repurchases from dealers

The Fund may accept orders to repurchase shares from an investment dealer on
behalf of a dealer's customers. The net asset value for a repurchase is that
next calculated after receipt of the order from the dealer.

Distributions and Taxes

Dividends and other distributions

Dividends from net investment income, if any, are normally declared and paid by
the Fund in December. Capital gains distributions, if any, are also normally
made in December, but the Fund may make an additional payment of dividends or
distributions if it deems it desirable at another time during any year.

Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares of the Fund at the net asset
value per share on the reinvestment date unless you have previously requested in
writing to the Shareholder Servicing Agent that payment be made in cash.

Any dividend or distribution paid by the Fund has the effect of reducing the net
asset value per share on the record date by the amount of the dividend or
distribution. You should note that a dividend or distribution paid on shares
purchased shortly before that dividend or distribution was declared will be
subject to income taxes even though the dividend or distribution represents, in
substance, a partial return of capital to you.
<PAGE>

Taxes

The Fund intends to qualify and elect to be treated as a regulated investment
company under Subchapter M of the Code. As long as the Fund continues to
qualify, and as long as the Fund distributes all of its income each year to the
shareholders, the Fund will not be subject to any federal income or excise
taxes. Distributions made by the Fund will be taxable to shareholders whether
received in shares (through dividend reinvestment) or in cash. Distributions
derived from net investment income, including net short-term capital gains, are
taxable to shareholders as ordinary income. A portion of these distributions may
qualify for the intercorporate dividends-received deduction. Distributions
designated as capital gains dividends are taxable as capital gains regardless of
the length of time shares of the Fund have been held. Although distributions are
generally taxable when received, certain distributions made in January are
taxable as if received the prior December. You will be informed annually of the
amount and nature of the Fund's distributions. Additional information about
taxes is set forth in the SAI. You should consult your own advisors concerning
federal, state and local taxation of distributions from the Fund.

General Information

The Trust

The Trust was organized as a Delaware business trust on October 3, 1996. The
Agreement and Declaration of Trust permits the Board of Trustees 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.

Shareholder Rights

Shares issued by the Fund have no preemptive, conversion or subscription rights.
Shareholders have equal and exclusive rights as to dividends and distributions
as declared by the Fund and to the net assets of the Fund upon liquidation or
dissolution. The Fund, as a separate series of the Trust, votes separately on
matters affecting only the Fund (e.g., approval of the Investment Advisory
Agreement); all series of the trust vote as a single class on matters affecting
all series jointly or the Trust as whole (e.g., election or removal of
Trustees). Voting rights are not cumulative, so that the holders of more than
50% of the shares voting in any election of Trustees can, if they so choose,
elect all of the Trustees. While the Trust is not required and does not intend
to hold annual meetings of shareholders, such meetings may be called by the
Trustees in their discretion, or upon demand by the holders of 10% or more of
the outstanding shares of the Trust for the purpose of electing or removing
Trustees.

Performance Information

From time to time, the Fund may publish its total return in advertisements and
communications to investors. Total return information will include the Fund's
average annual compounded rate of return over the most recent four calendar
quarters and over the period from the Fund's inception of operations. The Fund
may also advertise aggregate and average total return information over different
periods of time. The Fund's total return will be based upon the value of the
shares acquired through a hypothetical $1,000 investment at the beginning of the
specified period and the net asset value of those shares at the end of the
period, assuming reinvestment of all distributions. Total return figures will
reflect all recurring charges against Fund income. You should note that the
investment results of the Fund will fluctuate over time, and any presentation of
the Fund's total return for any prior period should not be considered as a
representation of what an investor's total return may be in any future period.
<PAGE>

Shareholder Inquiries

Shareholder inquiries should be directed to the Shareholder Servicing Agent at
(888) 229-2105.

Multiple Classes

Under the Trust's charter documents, the Board of Trustees has the power to
classify or reclassify any unissued shares of a Fund into one or more additional
classes by setting or changing in any one or more respects their relative
rights, voting powers, restrictions, limitations as to dividends, qualifications
of redemption. The Board of Trustees of a Fund may similarly classify or
reclassify any class of its shares into one or more series and, without
shareholder approval, may increase the number of authorized shares of the Fund.

Year 2000 Risk

Like other business organizations around the world, the Fund could be adversely
affected if the computer systems used by its Manager, Sub-Advisor and other
service providers do not properly process and calculate information related to
dates beginning January 1, 2000. This is commonly known as the "Year 2000
Issue." The Fund's Manager is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to its own computer
systems, and assurances are being obtained from the Fund's other service
providers that they are taking comparable steps. However, there can be no
assurance that these actions will be sufficient to avoid any adverse impact on
the Funds.
<PAGE>

Advisor
Liberty Bank & Trust Company
4101 Pauger Street
New Orleans, LA 70122

Sub-Advisor
The Edgar Lomax Company
6564 Loisdale Court, Suite 310
Springfield, VA 22150

Distributor
First Fund Distributors, Inc.
4455 E. Camelback Rd., Ste. 261E
Phoenix, AZ 85018

Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202

Transfer Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
(800) 385-7003

Auditors
McGladrey & Pullen LLP
555 Fifth Avenue, 8th Floor
New York, NY 10017-2416

Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104

Liberty Freedom Fund
Class I Shares

Prospectus

June 29, 1998
<PAGE>

Liberty Freedom Fund - Class A Shares
4101 Pauger Street
New Orleans, Louisiana 70122
Fund Literature: (800) 645-1704
Shareholder Services: (888) 229-2105

PROSPECTUS

<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Expense Table 2
Investment Objective and Policies 3
Management of the Fund 3
Investor Guide 6
Services Available to Shareholders 9
How to Redeem Your Shares 10
Distributions and Taxes 12
General Information 13
</TABLE>

June 29, 1998

<PAGE>

Expense Table

Expenses are one of several factors to consider when investing in the Fund.
There are two types of expenses involved: shareholder transaction expenses, such
as sales loads, and annual operating expenses, such as investment advisory fees.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C> <C>
Maximum Sales Load Imposed on Purchases 3.50%
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
</TABLE>

Annual Operating Expenses
(As a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C>
Investment Advisory Fees 0.85%
12b-1 Fees(1) 0.50%
Other Expenses (net of fee waivers and
expense reimbursements) (2) 0.75%
Shareholder Service Fees 0.25%
Other Operating Expenses 0.50%
Total Fund Operating Expenses (3) 2.10%
</TABLE>

(1) A long-term shareholder may pay more, directly and indirectly, in sales
charges and fees than the maximum sales charge permitted under the Rules of the
National Association of Securities Dealers (NASD). This is recognized and
permitted by the NASD.

(2) Other Expenses are estimated for the first fiscal year of the Fund.

(3) Total Operating Expenses are not expected to exceed 2.10% of average net
assets annually, but in the event that they do, the Manager and Sub-Advisor have
agreed to reduce their fees and/or pay expenses of the Fund to insure that the
Fund's expenses will not exceed 2.10%. If the Manager and Sub-Advisor did not
limit the Fund's expenses, it is expected that "Other Expenses" in the above
table would be 1.00% and "Total Operating Expenses" would be 2.35%. If the
Manager and Sub-Advisor waive fees or pay Fund expenses, the Fund may reimburse
them within the following three years. See "Management of the Fund."

Example

1 Year 3 Years
$56 $133

assume a 5% annual return, but the Fund's actual return may be higher or lower.
See "Management of the Fund."

The minimum initial investment in the Fund is $1,000, with subsequent minimum
investments of $50 or more ($250 and $50, respectively, for retirement plans).
Shares will be redeemed at their net asset value.

Investment Objectives and Policies

What are the Fund's investment objectives?

The investment objective of the Fund is to seek growth of capital, with a
secondary objective of providing income. There can be no assurance that the Fund
will achieve its objectives.

How does the Fund seek to achieve its objectives?

The Fund's Manager, Liberty Bank and Trust Company, has contracted with The
Edgar Lomax Company to provide day to day investment decisions for the Fund. The
Edgar Lomax Company (the "Sub-Advisor") uses a disciplined approach to select
equity securities for the Fund's portfolio that it believes are undervalued,
reasonably priced and have prospects for continued consistent growth. The
Sub-Advisor uses fundamental analysis of financial statements to select stocks
of issuers which have low price/earnings and price/book ratios as well as strong
balance sheet ratios and high and/or stable dividend yields.

Other securities the Fund might purchase.

Investment restrictions.

Management of the Fund

The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund.
<PAGE>

The Manager

The Sub-Advisor

The Fund's Sub-Advisor, The Edgar Lomax Company, 6564 Loisdale Court, Suite 310,
Springfield, Virginia 22150, has provided asset management services to
individuals and institutional investors since 1986. Randall R. Eley is
principally responsible for the management of the Fund's portfolio. Mr. Eley
(who controls the Sub-Advisor) is the President and Chief Investment Officer of
the Sub-Advisor and has been active in the investment field professionally since
the firm was founded.

Prior Performance of the Sub-Advisor.

Annualized Total Return:
<TABLE>
<CAPTION>

For the period
<TABLE>
<CAPTION>
January 1, 1993 - December 31, 1997
<S> <C> <C>
Annualized Return 23.34% 20.25%
Cumulative 185.46% 151.48%
</TABLE>

The Administrator

activities of the Fund's custodian, shareholder servicing agent and accountants,
and coordinates the preparation and payment of Fund expenses and reviews the
Fund's expense accruals. For its services, the Administrator receives a monthly
fee at the annual rate of 0.20% of average total net assets, subject to a
$30,000 annual minimum.

Other operating expenses

The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 with respect to
its Class A shares. The Plan provides that the Fund will pay for distribution
and related expenses (such as payments for advertising and sales material and to
personnel involved in selling the Class A shares) at an annual rate of 0.50% of
the Fund's average net assets.

Brokerage Transactions

The Manager and Sub-Advisor consider a number of factors in determining which
brokers or dealers to use for the Fund's portfolio transactions. While these are
more fully discussed in the SAI, the factors include, but are not limited to,
the reasonableness of commissions, quality of services and execution, and the
availability of research which the Sub-Advisor may lawfully and appropriately
use in its investment advisory capacities. Provided the Fund receives prompt
execution at competitive prices, the sale of Fund shares also may be considered
as a factor in selecting broker-dealers for the Fund's portfolio transactions.

Investor Guide

How to purchase shares of the Fund.

Class A shares are offered at the public offering price. First Fund
Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix, AZ 85018, (the
"Distributor"), acts as Distributor and may, at its discretion, waive the
minimum investment requirements. The Fund also offers Class I shares. The other
Class has a different sales charge and other expenses which may result in
performance for that Class which is different from that of Class A shares.
Shares of the Fund are offered continuously for the purchase at the public
offering price next determined after a purchase order is received. The public
offering price is effective for orders received by the Fund or investment
dealers prior to the time of the next determination of the Fund's net asset
value and, in the case of orders placed with dealers, transmitted promptly to
the Transfer Agent. Orders received after the time of the next determination of
the applicable fund's net asset value will be entered at the next calculated
public offering price.
<PAGE>

The public offering price per share is equal to the net asset value per share,
plus a sales charge, which is reduced on purchases involving amounts of $50,000
or more, as set forth in the table below. The reduced sales charges apply to
quantity purchases made at one time by a "person", which means (i) an
individual, (ii) members of a family (i.e., an individual, spouse, children
under age 21), or (iii) a trustee or fiduciary of a single trust estate or a
single fiduciary account. In addition, purchases of shares made during a
thirteen month period pursuant to a written Letter of Intent are eligible for a
reduced sales charge. Reduced sales charges are also applicable to subsequent
purchases by a "person", based on the aggregate of the amount being purchased
and the value, at net asset value, of shares owned at the time of investment.

<TABLE>
<CAPTION>
Sales Charge as percent of: Portion of sales
Offering net asset charge retained
Amount of Purchase price value by dealers
<S> <C> <C> <C>
Less than $50,000 3.50% 3.63% 3.00%
$50,000 but less than $100,000 3.00% 3.09% 2.60%
$100,000 but less than $250,000 2.50% 2.56% 2.20%
$250,000 but less than $500,000 2.00% 2.04% 1.80%
$500,000 but less than $750,000 1.50% 1.52% 1.30%
$750,000 but less than $1,000,000 1.00% 1.01% 0.80%
$1,000,000 or more None None None
</TABLE>

Letter of Intent

In investor may qualify for an immediate reduced sales charge on purchases by
completing the Letter on Intent section on the Application Form. The investor
will state an intention to purchase, during the next 13 months, a specified
amount of shares which, if made at one time, would qualify for a reduced sales
charge.

Rights of Accumulation

The reduced sales charges applicable to purchases apply on a cumulative basis
over any period of time. Thus the value of all shares of the Fund owned by an
investor (including the investor's own account, IRA account, or other account),
taken at current net asset value, can be combined with a current purchase of
shares to determine the rate of sales charge applicable to the current purchase
in order to receive the cumulative quantity reduction. When opening a new
account, the fact that the investor currently holds shares of the Fund must be
indicated on the Application Form in order to receive the cumulative quantity
discount. For subsequent purchases, the Fund's Shareholder Servicing Agent
((800) 229-2105) should be notified of current fund holdings prior to the
purchase of additional shares.

Purchase Order Placed with Investment Dealers

You may send money to the Fund by mail

If you wish to invest by mail, simply complete the Application Form and mail
it with a check (made payable to Liberty Freedom Fund) to the Fund's
Shareholder Servicing Agent, American Data Services, Inc. at the following
address:
<PAGE>

Liberty Freedom Fund
P.O. Box 641265
Cincinnati, OH 45264-1265

Liberty Freedom Fund
c/o Star Bank, N.A.
Mutual Fund Custody Department
425 Walnut Street, M/L 6118,
Sixth Floor
Cincinnati, OH 45202

You may wire money to the Fund

Before sending a wire, you should call the Fund 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 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 Liberty Freedom Fund
DDA # 488920679
for further credit to [your name and account number]

Your bank may charge you a fee for sending a wire to the Fund.

Minimum investments

The minimum initial investment in the Fund is $1,000. The minimum subsequent
investment is $50. However, if you are investing in an Individual Retirement
Account ("IRA"), or you are starting an Automatic Investment Plan (see below),
the minimum initial and subsequent investments are $250 and $50, respectively.

Subsequent investments

You may purchase additional shares of the Fund by sending a check, with the stub
from an account statement, to the Fund at the address above. Please also write
your account number on the check. If you do not have a stub from an account
statement, you can write your name, address and account number on a separate
piece of paper and enclose it with your check. If you want to send additional
money for investment by wire, it is important for you to call the Fund at (888)
229-2105. You may also make additional purchases through an investment dealer,
as described above.

When is money invested in the Fund?

currently 4:00 p.m., Eastern time. A check or wire received after the NYSE
closes is invested as of the next calculation of the Fund's net asset value.

What is the net asset value of the Fund?

The Fund's net asset value per share for the Class A shares 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

Services Available to Shareholders

Retirement Plans

Automatic investing by check

You may make regular monthly investments in the Fund using the "Automatic
Investment Plan." A check is automatically drawn on your personal checking
account each month for a predetermined amount (but not less than $100), as if
you had written it directly. Upon receipt of the withdrawn funds, the Fund
automatically invests the money in additional shares of the Fund at the current
net asset value. Applications for this service are available from the Fund.
There is no charge by the Fund for this service. The Fund may terminate or
modify this privilege at any time, and shareholders may terminate their
participation by notifying the Shareholder Servicing Agent in writing,
sufficiently in advance of the next withdrawal.

Automatic withdrawals

The Fund offers a Systematic Withdrawal Program whereby shareholders may request
that a check drawn in a predetermined amount be sent to them each month or
calendar quarter. To start this Program, your account must have Fund shares with
a value of at least $10,000, and the minimum amount that may be withdrawn each
month or quarter
<PAGE>

is $50. This Program may be terminated or modified by a shareholder or the Fund
at any time without charge or penalty. A withdrawal under the Systematic
Withdrawal Program involves a redemption of shares of the Fund, and may result
in a gain or loss for federal income tax purposes. In addition, if the amount
withdrawn exceeds the dividends credited to your account, the account ultimately
may be depleted.

How to Redeem Your Shares

You have the right to redeem all or any portion of your shares of the Fund at
their net asset value on each day the NYSE is open for trading.

Redemption in writing

Liberty Freedom Fund
150 Motor Parkway, Suite 109
Hauppauge, NY 11788-0132

Signature guarantee

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

By establishing telephone redemption privileges, you authorize the Fund and its
Shareholder Servicing Agent to act upon the instruction of any person who makes
the telephone call to redeem shares from your account and transfer the proceeds
to the bank account designated in the Application Form. The Fund and the
Shareholder Servicing Agent will use procedures to confirm that redemption
instructions received by telephone are genuine, including recording of telephone
instructions and requiring a form of personal identification before acting on
these instructions. If these normal identification procedures are followed,
neither the Fund nor the Shareholder Servicing Agent will be liable for any
loss, liability, or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
The Fund may change, modify, or terminate these privileges at any time upon at
least 60 days' notice to shareholders.
<PAGE>

What price is used for a redemption?

When are redemption payments made?

Repurchases from dealers

Distribution Agreement

The Distributor is the principal underwriter of shares of the Fund. The
Distributor makes a continuous offering of the Fund's shares and bears the costs
and expenses of printing and distributing to selected dealers and prospective
investors any copies of any prospectuses, statements of additional information
and annual and interim reports of the Fund other than to existing shareholders
(after such items have been prepared and set in type by the Fund) which are used
in connection with the offering of shares, and the costs and expenses of
preparing, printing and distributing any other literature used by the
Distributor and furnished by it for use by selected dealers in connection with
the offering of the shares for sale to the public. All or a part of the expenses
borne by the Distributor may be reimbursed pursuant to the Distribution and
Shareholder Servicing Plan discussed below.

Distribution and Shareholder Service Plans

Distribution Plan. The Fund has adopted a Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Plan") under which with
respect to the Class A shares, the Fund pays the Distribution Coordinator an
amount which is accrued daily and paid monthly, at an annual rate up to 0.50% of
the average daily net assets of the Class A shares of the Fund. Amounts paid
under the Plan by the Fund are paid to the Distribution Coordinator for services
provided to the Fund including printing and distribution of prospectuses and
shareholder reports, performance reports and newsletters, sales literature and
other promotional material to prospective investors, direct mail solicitation,
advertising, public relations, compensation of sales personnel, advisors or
other third parties for their assistance with
<PAGE>

respect to the distribution of the Fund's shares, payments to financial
intermediaries for shareholder support, administrative and accounting services
with respect to Fund shareholders and other expenses related to the distribution
of the Fund's shares.

Plan payments will be reviewed by the Trustees. However, it is possible at times
that the amount of the Distribution Coordinator's compensation could exceed its
distribution expenses, resulting in a profit to the Distribution Coordinator. If
the Plan is terminated, the Fund will not be required to make payments for
expenses incurred after the termination.

Shareholder Service Plan. The Fund has entered into a Shareholder Service Plan
pursuant to which the Adviser will provide, or arrange for others to provide,
certain specified shareholder services to Class A shareholders. As compensation,
the Fund will pay the Adviser up to 0.25% of the average daily net assets of
Class A shares of the Fund on an annual basis, payable monthly. The Adviser will
pay certain banks, trust companies, broker-dealers, and other financial
intermediaries (each, a "Participating Organization") out of the fees the
Adviser receives from the Fund under the Shareholder Service Plan to the extent
that the Participating Organization performs shareholder servicing functions for
Class A shares owned from time to time by customers of the Participating
Organization. In certain cases, the Adviser may also pay a fee, out of its own
resources and not out of the service fee payable under the Shareholder Services
Plan, to a Participating Organization for providing other administrative
services to its customers who invest in Class A shares.

Pursuant to the Shareholder Services Plan, the Adviser may also enter into
special contractual arrangements with Participating Organizations that process
substantial volumes of purchases and redemptions of Class A shares for their
customers. Under these arrangements, the Participating Organization will
ordinarily establish an omnibus account with the Fund's Transfer Agent and will
maintain sub-accounts for its customers for whom it processes purchases and
redemptions of Class A shares. A Participating Organization may charge its
customers a fee, as agreed by the Participating Organization and the customer,
for the services it provides. Before purchasing shares, customers of
Participating Organizations should read this Prospectus in conjunction with the
service agreement and other literature describing the services and related fees
provided by the Participating Organization.

Compensation of other parties. The Adviser may in its discretion and out of its
own funds compensate third parties for the sale and marketing of shares of the
Fund. The Adviser also may use its own funds to sponsor seminars and educational
programs on the Fund for financial intermediaries and shareholders.

Conversion feature. On the first business day of the month next following the
fourth anniversary of their purchase, Class A shares will automatically convert
to Class I shares and will no longer be subject to the fees associated with the
Distribution and Shareholder Service Plans. This conversion will be on the basis
of the relative net asset values of the two Classes, without the imposition of
any sales charge, fee or other expense. The purpose of the conversion feature is
to eliminate the distribution and shareholder service fees paid by the holders
of Class A shares that have been outstanding for an extended period of time.

Distributions and Taxes

Dividends and other distributions

Taxes

General Information

The Trust

Shareholder Rights

Performance Information

<PAGE>

period, assuming reinvestment of all distributions. Total return figures will
reflect all recurring charges against Fund income. You should note that the
investment results of the Fund will fluctuate over time, and any presentation of
the Fund's total return for any prior period should not be considered as a
representation of what an investor's total return may be in any future period.

Shareholder Inquiries

Shareholder inquiries should be directed to the Shareholder Servicing Agent at
(888) 229-2105.

Multiple Classes

Year 2000 Risk

Advisor
Liberty Bank & Trust Company
4101 Pauger Street
New Orleans, LA 70122

Sub-Advisor
The Edgar Lomax Company
6564 Loisdale Court, Suite 310
Springfield, VA 22150

Distributor
First Fund Distributors, Inc.
4455 E. Camelback Rd., Ste. 261E
Phoenix, AZ 85018

Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202

Transfer Agent
American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
(800) 385-7003

Auditors
McGladrey & Pullen LLP
555 Fifth Avenue, 8th Floor
New York, NY 10017-2416

Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104

Liberty Freedom Fund
Class A Shares

Prospectus

June 29, 1998
<PAGE>

The Liberty Freedom Fund

Statement of Additional Information

Dated June 29, 1998

This Statement of Additional Information is not a prospectus, and it should be
read in conjunction with the prospectus dated June 29, 1998, as may be amended
from time to time, of The Liberty Freedom Fund (the "Fund"), a series of
Advisors Series Trust (the "Trust"). Liberty Bank and Trust Company, 3801 Canal
Street, New Orleans, Louisiana 70019, is the Manager of the Fund. The Edgar
Lomax Company (the "Advisor") is the Sub-Advisor to the Fund. A copy of the
prospectus may be obtained from the Fund at 4101 Pauger Street, New Orleans, LA
70122; or by calling the Fund's shareholder servicing agent at (888) 229-2105.

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference to sections
Page in the prospectus

<S> <C> <C>
Investment Objective and Policies ... B-2 Investment Objective and Policies

Management .......................... B-6 Management of the Fund

Portfolio Transactions and Brokerage B-10 Management of the Fund

Net Asset Value ..................... B-11 Investor Guide

Taxation ............................ B-12 Distributions and Taxes

Dividends and Distributions ......... B-14 Distributions and Taxes

Performance Information ............. B-15 General Information

General Information ................. B-16 General Information

Appendix ............................ B-17 Not applicable
</TABLE>

B-1

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is growth of capital, with a
secondary objective of providing income. There is no assurance that the Fund
will achieve its objective. The discussion below supplements information
contained in the prospectus as to investment policies of the Fund.

Convertible Securities and Warrants

The Fund may invest in convertible securities and warrants. A
convertible security is a fixed income security (a debt instrument or a
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
gives an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the issuing company depending upon a
market price advance in the convertible security's underlying common stock.

A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment therein).

Short-Term Investments

The Fund may invest in any of the following securities and
instruments:

Bank Certificates of Deposit, Bankers' Acceptances and Time Deposits.
The Fund may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
principal amount of such bank obligations are fully insured by the U.S.
Government. If the Fund holds instruments of foreign banks or financial
institutions, it may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. See "Foreign Investments" below. Such
risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.

Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.

As a result of federal and state laws and regulations, domestic banks
are, among other things, required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and subject to
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations that the
Fund may acquire.
B-2

<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, the 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. The 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. The
Fund may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term notes will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.

Commercial paper and short-term notes will consist of issues rated at
the time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's,
or similarly rated by another nationally recognized statistical rating
organization or, if unrated, will be determined by the Advisor to be of
comparable quality. These rating symbols are described in the Appendix.

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.

Government Obligations

The Fund may make short-term investments in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association.

Some of these obligations, such as those of the GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.

The Fund may invest in sovereign debt obligations of foreign countries.
A sovereign debtor's willingness or ability to repay principal and interest in a
timely manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to meet
such conditions could result in the cancellation of such third parties'
commitments to lend funds to the sovereign debtor, which may further impair such
debtor's ability or willingness to service its debt in a timely manner.

Foreign Investments and Currencies

B-3

<PAGE>
The Fund may invest in securities of foreign issuers, provided that
they are publicly traded in the United States.

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.

Currency Fluctuations. The Fund may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Fund's assets denominated in that currency. Such changes will also
affect the Fund's income. The value of the Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.

Taxes. The interest and dividends payable on certain of the Fund's
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Fund's
shareholders.

Repurchase Agreements

The Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, the Fund acquires securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Advisor, subject to the seller's agreement to repurchase and
the Fund's agreement to resell such securities at a mutually agreed upon date
and price. The repurchase price generally equals the price paid by the Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the underlying portfolio security). Securities subject
to repurchase agreements will be held by the Custodian or in the Federal
Reserve/Treasury Book-Entry System or an equivalent foreign system. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities at not less than 102% of the repurchase price under the
agreement. If the seller defaults on its repurchase obligation, the Fund will
suffer a loss to the extent that the proceeds from a sale of the underlying
securities are less than the repurchase price under the agreement. Bankruptcy or
insolvency of such a defaulting seller may cause the Fund's rights with respect
to such securities to be delayed or limited. Repurchase agreements are
considered to be loans under the 1940 Act.

When-Issued Securities, Forward Commitments and Delayed Settlements

The Fund may purchase securities on a "when-issued," forward commitment
or delayed settlement basis. In this event, the Custodian will segregate liquid
assets equal to the amount of the commitment in a separate account. Normally,
the Custodian will set aside portfolio securities to satisfy a purchase
commitment. In such a case, the Fund may be required subsequently to segregate
additional assets in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.

The Fund does not intend to engage in these transactions for
speculative purposes but only in furtherance of its investment objectives.
Because the Fund will segregate liquid assets to satisfy its purchase
commitments in the
B-4

<PAGE>

manner described, the Fund's liquidity and the ability of the Advisor to manage
it may be affected in the event the Fund's forward commitments, commitments to
purchase when-issued securities and delayed settlements ever exceeded 15% of the
value of its net assets.

The Fund will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a taxable capital gain or loss. When the Fund engages in when-issued,
forward commitment and delayed settlement transactions, it relies on the other
party to consummate the trade. Failure of such party to do so may result in the
Fund'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 the Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.

Illiquid Securities

The Fund may not invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The Advisor will monitor the amount of
illiquid securities in the Fund's portfolio, under the supervision of the
Trust's Board of Trustees, to ensure compliance with the Fund's investment
restrictions.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.

In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the 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 the Fund) has adopted the following
restrictions as fundamental policies, which may not be changed without the
favorable vote of the holders of a "majority," as defined in the 1940 Act, of
the outstanding voting securities of the Fund. Under the 1940 Act, the "vote of
the holders of a majority of the outstanding voting securities" means the vote
of the holders of the lesser of (i) 67% of the shares of the Fund represented at
a meeting at which the holders of more than 50% of its outstanding shares are
represented or (ii) more than 50% of the outstanding shares of the Fund.

B-5

<PAGE>
As a matter of fundamental policy, the Fund is diversified. The Fund's
investment objective is also fundamental.

In addition, the 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);

6. Purchase or sell commodities or commodity futures contracts;

7. Make loans of money (except for purchases of debt securities
consistent with the investment policies of the Fund and except for repurchase
agreements); or

8. Make investments for the purpose of exercising control or
management.

The Fund observes the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal regulatory
authorities:

The Fund may not:

1. Invest in the securities of other investment companies or purchase
any other investment company's voting securities or make any other investment in
other investment companies except to the extent permitted by federal law;

2. Invest more than 15% of its net assets in securities which are
restricted as to disposition or otherwise are illiquid or have no readily
available market (except for securities which are determined by the Board of
Trustees to be liquid);

3. Make loans of securities; or

4. Notwithstanding fundamental restriction 1 above, borrow money,
except from banks for temporary or emergency purposes, and in amounts not to
exceed 5% of total net assets, and subject to the further restriction that no
additional investment in securities will be made while any such loan is
outstanding.

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 Manager, 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 E. Auch, Sr. (77) Trustee Director, Nicholas-Applegate Investment Trust, Brinson Funds
6001 N. 62d Place (since 1994), Smith Barney Trak Fund, Pimco Advisors L.P.,

B-6

<PAGE>
Paradise Valley, AZ 85253 Semele Group, Semele Land Fund II and Legend Properties.

Eric M. Banhazl (40)* Trustee, Senior Vice President, Investment Company Administration
2025 E. Financial Way President and Corporation; Vice President, First Fund Distributors; President,
Glendora, CA 91740 Treasurer RNC Mutual Fund Group; Treasurer, Guiness Flight Investment
Funds, Inc. and Professionally Managed Portfolios.

Donald E. O'Connor (62) Trustee Financial Consultant; Director, The Parnassus Fund and The
1700 Taylor Avenue Parnasus Income Fund; formerly Executive Vice President and
Fort Washington, MD 20744 Chief Operating Officer of ICI Mutual Insurance Company (until
January 1997), Vice President, Operations, Investment Company
Institute (until June, 1993).

George T. Wofford III (58) Trustee Vice President, Information Services, Federal
305 Glendora Circle Home Loan Bank of San Francisco (since March, 1993);
Danville, CA 94526 formerly Director of Management Information Services,
Morrison & Foerster (law firm).

Steven J. Paggioli (48) Vice Executive Vice President, Robert H. Wadsworth & Associates, Inc.
479 W. 22d Street President and Investment Company Administration Corporation; Vice President
New York, NY 10011 First Fund Distributors, Inc.; President and Trustee, Professionally
Managed Portfolios; Director, Managers Funds, Inc.

Robert H. Wadsworth (58) Vice President, Robert H. Wadsworth & Associates, Inc., Investment
4455 E. Camelback Road President Company Administration Corporation and First Fund Distributors,
Suite 261-E Inc.; Vice President, Professionally Managed Portfolios; President,
Phoenix, AZ 85018 Guinness Flight Investment Funds, Inc.; Director, Germany Fund,
Inc., New Germany Fund, Inc. and Central European Equity Fund,
Inc.

Chris O. Kissack (49) Secretary Employed by Investment Company Administration Corporation
4455 E. Camelback Road (since July, 1996); formerly employed by Bank One, N.A.
Suite 261-E (from August, 1995 until July, 1996); O'Connor, Cavanagh,
Phoenix, AZ 85018 Anderson, Killingsworth and Beshears (law firm) (until August, 1995).
</TABLE>

* denotes Trustee who is an "interested person" of the Trust under the 1940 Act.
<TABLE>
<CAPTION>

Name and Position Aggregate Compensation from The Trust*
<S> <C>
Walter E. Auch, Sr., Trustee $12,000
Donald E. O'Connor, Trustee $12,000
George T. Wofford III, Trustee $12,000
</TABLE>

*The Trust has no pension or retirement plan. No other entity affiliated with
the Trust pays any compensation to the Trustees.

The Manager

Subject to the supervision of the Board of Trustees, investment
management and related services are provided by the Manager, pursuant to a
Management Agreement (the "Management Agreement"). The Manager is a
majority-owned subsidiary of Liberty Financial Services, Inc.

Under the Management Agreement, the Manager has overall responsibility
for the assets of the Fund, including responsibility for investing the assets in
accordance with the investment objectives, policies and restrictions of the Fund
as set forth in the Fund's and Trust's governing documents, including, without
limitation, the Trust's Agreement and Declaration of Trust and By-Laws; the
Fund's prospectus, statement of additional information, and undertakings; and
such other limitations, policies and procedures as the Trustees of the Trust may
impose from time to time in writing to the Manager. In providing such services,
the Manager shall at all times adhere to the provisions

B-7
<PAGE>
and restrictions contained in the federal securities laws, applicable state
securities laws, the Code, and other applicable law.

Without limiting the generality of the foregoing, the Manager has
agreed to (i) furnish the Fund with advice and recommendations with respect to
the investment of the Fund's assets, (ii) manage and oversee the investments of
the Fund, subject to the ultimate supervision and direction of the Trust's Board
of Trustees; (iii) monitor the day-to-day activity of the Advisor; (iv) furnish
such reports, statements and other data on securities, economic conditions and
other matters related to the investment of the Fund's assets as the Trustees or
the officers of the Trust may reasonably request; and (v) render to the Trust's
Board of Trustees such periodic and special reports as the Board may reasonably
request. The Manager has also agreed, at its own expense, to maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary to the performance of its
obligations under the Management Agreement. Personnel of the Manager 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 Manager shall be deemed to include persons employed or retained by the
Manager 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 Manager or the Trust's Board of Trustees may desire
and reasonably request. With respect to the operation of the Fund, the Manager
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 Manager.

As compensation for the Manager's services, the Fund pays it an
management fee at the rate specified in the prospectus. In addition to the fees
payable to the Manager, 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 the Fund including all fees and expenses of its
custodian, shareholder services agent and accounting services agent; interest
charges on any borrowings; costs and expenses of pricing and calculating its
daily net asset value and of maintaining its books of account required under the
1940 Act; taxes, if any; a pro rata portion of expenditures in connection with
meetings of the Fund's shareholders and the Trust's Board of Trustees that are
properly payable by the Fund; salaries and expenses of officers and fees and
expenses of members of the Trust's Board of Trustees or members of any advisory
board or committee who are not members of, affiliated with or interested persons
of the Manager, Advisor or Administrator; insurance premiums on property or
personnel of the Fund which inure to its benefit, including liability and
fidelity bond insurance; the cost of preparing and printing reports, proxy
statements, prospectuses and statements of additional information of the Fund or
other communications for distribution to existing shareholders; legal, auditing
and accounting fees; trade association dues; fees and expenses (including legal
fees) of registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining and servicing shareholder accounts, including all charges for
transfer, shareholder recordkeeping, dividend disbursing, redemption, and other
agents for the benefit of the Fund, if any; and all other charges and costs of
its operation plus any extraordinary and non-recurring expenses, except as
otherwise prescribed in the Management Agreement.

The Manager may agree to waive certain of its fees or reimburse the
Fund for certain expenses, in order to limit the expense ratio of the Fund or
its classes. In that event, subject to approval by the Trust's Board of
Trustees, the Fund may reimburse the Manager in subsequent years for fees waived
and expenses reimbursed, provided the expense ratio before reimbursement is less
than the expense limitation in effect at that time.

Under the Management Agreement, the Manager will not be liable to the
Trust or the Fund or any shareholder for any act or omission in the course of,
or connected with, rendering services or for any loss sustained by the Trust
except in the case of a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages will be limited as
provided in the 1940 Act) or of willful misfeasance, bad faith or gross
negligence, or reckless disregard of its obligations and duties under the
Agreement.
B-8

<PAGE>
The Management Agreement will remain in effect for a period not to
exceed two years. Thereafter, if not terminated, the Management Agreement will
continue automatically for successive annual periods, provided that such
continuance is specifically approved at least annually (i) by a majority vote of
the Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund.

The Management Agreement is terminable by vote of the Board of Trustees
or by the holders of a majority of the outstanding voting securities of the Fund
at any time without penalty, on 60 days written notice to the Manager. The
Management Agreement also may be terminated by the Manager on 60 days written
notice to the Trust. The Advisory Agreement terminates automatically upon its
assignment (as defined in the 1940 Act).

The Sub-Advisor

Subject to the supervision of the Board of Trustees, investment
management and related services are also provided by the Advisor, pursuant to a
Sub-Advisory Agreement (the "Advisory Agreement").

Under the Advisory Agreement, the Advisor agrees to invest the assets
of the Fund in accordance with the investment objectives, policies and
restrictions of the Fund as set forth in the Fund's and Trust's governing
documents, including, without limitation, the Trust's Agreement and Declaration
of Trust and By-Laws; the Fund's prospectus, statement of additional
information, and undertakings; and such other limitations, policies and
procedures as the Trustees of the Trust may impose from time to time in writing
to the Advisor. In providing such services, the Advisor shall at all times
adhere to the provisions and restrictions contained in the federal securities
laws, applicable state securities laws, the Code, and other applicable law.

Without limiting the generality of the foregoing, the Advisor has
agreed to (i) furnish the Fund with advice and recommendations with respect to
the investment of the Fund's assets, (ii) effect the purchase and sale of
portfolio securities; (iii) manage and oversee the investments of the Fund,
subject to the ultimate supervision and direction of the Manager and the Trust's
Board of Trustees; (iv) vote proxies and take other actions with respect to the
Fund's securities; (v) maintain the books and records required to be maintained
with respect to the securities in the Fund's portfolio; (vi) furnish such
reports, statements and other data on securities, economic conditions and other
matters related to the investment of the Fund's assets as the Trustees or the
officers of the Trust may reasonably request; and (vii) render to the Trust's
Board of Trustees such periodic and special reports as the Board may reasonably
request. The Advisor has also agreed, at its own expense, to maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary to the performance of its
obligations under the Advisory Agreement. Personnel of the Advisor may serve as
officers of the Trust provided they do so without compensation from the Trust.
Without limiting the generality of the foregoing, the staff and personnel of the
Advisor shall be deemed to include persons employed or retained by the Advisor
to furnish statistical information, research, and other factual information,
advice regarding economic factors and trends, information with respect to
technical and scientific developments, and such other information, advice and
assistance as the Advisor or the Trust's Board of Trustees may desire and
reasonably request. With respect to the operation of the Fund, the Advisor has
agreed to be responsible for the expenses of printing and distributing extra
copies of the Fund's prospectus, statement of additional information, and sales
and advertising materials (but not the legal, auditing or accounting fees
attendant thereto) to prospective investors (but not to existing shareholders);
and the costs of any special Board of Trustees meetings or shareholder meetings
convened for the primary benefit of the Advisor.

As compensation for the Advisor's services, the Fund pays it a fee at
the rate specified in the prospectus. The Advisor may agree to waive certain of
its fees or reimburse the Fund for certain expenses, in order to limit the
expense ratio of the Fund. In that event, subject to approval by the Trust's
Board of Trustees, the Fund may reimburse the Advisor in subsequent years for
fees waived and expenses reimbursed, provided the expense ratio before
reimbursement is less than the expense limitation in effect at that time.

Under the Advisory Agreement, the Advisor will not be liable to the
Trust or the Fund or any shareholder for any act or omission in the course of,
or connected with, rendering services or for any loss sustained by the Trust
except in the case of a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages will be limited as
provided in the 1940 Act) or of willful misfeasance, bad faith or gross
negligence, or reckless disregard of its obligations and duties under the
Agreement.

B-9
<PAGE>

The Advisory Agreement will remain in effect for a period not to exceed
two years. Thereafter, if not terminated, the Advisory Agreement will continue
automatically for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a majority vote of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund.

The Advisory Agreement is terminable by vote of the Board of Trustees
or by the holders of a majority of the outstanding voting securities of the Fund
at any time without penalty, on 60 days written notice to the Advisor. The
Advisory Agreement also may be terminated by the Advisor on 60 days written
notice to the Trust. The Advisory Agreement terminates automatically upon its
assignment (as defined in the 1940 Act).

Distribution Plan. The Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the 1940 Act with respect to its Class A shares. The Manager
acts as Distribution Coordinator under the Plan, and may make payments on behalf
of the Fund for distribution and related expenses of the Fund, including
preparation, printing and mailing of prospectuses; shareholder reports such as
semi-annual and annual reports, performance reports and newsletters; sales
literature and other promotional material to prospective investors; direct mail
solicitation; advertising; public relations; compensation of sales personnel,
advisors or other third parties for their assistance with respect to the
distribution of the Funds' shares; payments to financial intermediaries for
shareholder support; administrative and accounting services with respect to Fund
shareholders; and such other expenses related to the distribution of the Fund's
shares.

Plan payments will be reviewed by the Trustees. However, it is possible
that at times the amount of the Advisor's compensation could exceed the
Advisor's distribution expenses, resulting in a profit to the Advisor. If the
Plan is terminated, the Fund will not be required to make payments for expenses
incurred after the termination.

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 permit the offer
and sale of the shares of the Trust under the securities or "blue sky" laws of
the various states selected by the Trust (the Trust agreeing to pay all filing
fees or other similar fees in connection therewith); (v) responding to all
inquiries or other communications of shareholders, if any, which are directed to
the Administrator, or if any such inquiry or communication is more properly to
be responded to by the Trust's custodian, transfer agent or accounting services
agent, overseeing their response thereto; (vi) overseeing all relationships
between the Trust and any custodian(s), transfer agent(s) and accounting
services agent(s), including the negotiation of agreements and the supervision
of the performance of such agreements; and (vii) authorizing and directing any
of the Administrator's directors, officers and employees who may be elected as
Trustees or officers of the Trust to serve in the capacities in which they are
elected. All services to be furnished by the Administrator under this Agreement
may be furnished through the medium of any such directors, officers or employees
of the Administrator.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Advisory Agreement states that the Advisor shall be responsible for
broker-dealer selection and for negotiation of brokerage commission rates,
provided that the Advisor shall not direct orders to an affiliated person of the
Advisor without general prior authorization to use such affiliated broker or
dealer by the Trust's Board of Trustees. The Advisor's primary consideration in
effecting a securities transaction will be execution at the most favorable
price. In selecting a broker-dealer to execute each particular transaction, the
Advisor may take the following into consideration: the best net price available;
the reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on a
continuing basis. The price to the Fund in any transaction may be less

B-10
<PAGE>

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 Manager, Advisor and the Board of
Trustees of the Trust may determine, the Advisor shall not be deemed to have
acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused the Fund to pay a broker or
dealer that provides (directly or indirectly) brokerage or research services to
the Advisor an amount of commission for effecting a portfolio transaction in
excess of the amount of commission another broker or dealer would have charged
for effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Advisor's overall
responsibilities with respect to the Fund. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Fund to such brokers or
dealers who also provide research or statistical material, or other services, to
the Trust, the Advisor, or any affiliate of either. Such allocation shall be in
such amounts and proportions as the Advisor shall determine, and the Advisor
shall report on such allocations regularly to the Advisor and the Trust,
indicating the broker-dealers to whom such allocations have been made and the
basis therefor. The Advisor is also authorized to consider sales of shares of
the Fund as a factor in the selection of brokers or dealers to execute portfolio
transactions, subject to the requirements of best execution, i.e., that such
brokers or dealers are able to execute the order promptly and at the best
obtainable securities price.

On occasions when the Advisor deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients of the Advisor,
the Advisor, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and the most efficient execution.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Advisor in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.

NET ASSET VALUE

The net asset value of the Fund's shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange (the
"NYSE") (currently 4:00 p.m. Eastern time) each business day. The NYSE annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that it will not be open 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 NYSE may close on days not included in that announcement.

The net asset value per share is computed by dividing the value of the
securities held by the Fund plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of shares in the Fund outstanding at such
time.

Generally, the Fund's investments are valued at market value or, in the
absence of a market value, at fair value as determined in good faith by the
Advisor and the Trust's Valuation Committee pursuant to procedures approved by
or under the direction of the Board.

The Fund's securities, 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.

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<PAGE>

All other assets of the Fund are valued in such manner as the Board in
good faith deems appropriate to reflect their fair value.

TAXATION

The Fund intends to continue to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, (the "Code"), for each taxable year by complying with all applicable
requirements regarding the source of its income, the diversification of its
assets, and the timing of its distributions. The Fund's policy is to distribute
to its shareholders all of its investment company taxable income and any net
realized capital gains for each fiscal year in a manner that complies with the
distribution requirements of the Code, so that the Fund will not be subject to
any federal income or excise taxes based on net income. However, the Board may
elect to pay such excise taxes if it determines that payment is, under the
circumstances, in the best interests of the Fund.

In order to qualify as a regulated investment company, the Fund must,
among other things, (a) derive at least 90% of its gross income each year from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock 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

B-12
<PAGE>

shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.

If more than 50% in value of the total assets of the Fund at the end of
its fiscal year is invested in stock 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

B-13

<PAGE>

of Section 1256 of the Code and for which no election is made) is treated as
ordinary income or loss. Some part of the Fund's gain or loss on the sale or
other disposition of shares of a foreign corporation may, because of changes in
foreign currency exchange rates, be treated as ordinary income or loss under
Section 988 of the Code rather than as capital gain or loss.

A shareholder who purchases shares of the Fund by tendering payment for
the shares in the form of other securities may be required to recognize gain or
loss for income tax purposes on the difference, if any, between the adjusted
basis of the securities tendered to the fund and the purchase price of the
Fund's shares acquired by the shareholder.

Section 475 of the Code requires that a "dealer" in securities must
generally "mark to market" at the end of its taxable year all securities which
it owns. The resulting gain or loss is treated as ordinary (and not capital)
gain or loss, except to the extent allocable to periods during which the dealer
held the security for investment. The "mark to market" rules do not apply,
however, to a security held for investment which is clearly identified in the
dealer's records as being held for investment before the end of the day in which
the security was acquired. The IRS has issued guidance under Section 475 that
provides that, for example, a bank that regularly originates and sells loans is
a dealer in securities, and subject to the "mark to market" rules. Shares of the
Fund held by a dealer in securities will be subject to the "mark to market"
rules unless they are held by the dealer for investment and the dealer property
identifies the shares as held for investment.

Redemptions and exchanges of shares of the Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends 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
B-14

<PAGE>

and losses, the Fund will have a net long-term capital gain. After deduction of
the amount of any net short-term capital loss, the balance (to the extent not
offset by any capital losses carried over from the eight previous taxable years)
will be distributed and treated as long-term capital gains in the hands of the
shareholders regardless of the length of time the Fund's shares may have been
held by the shareholders. The maximum capital gains rate for individuals is 28%
with respect to assets held for more than 12 months, but not more than 18
months, and 20% with respect to assets held more than 18 months. The maximum
capital gains rate for corporate shareholders is the same as the maximum tax
rate for ordinary income.

Any dividend or distribution paid by the Fund reduces the Fund's net
asset value per share on the date paid by the amount of the dividend or
distribution per share. Accordingly, a dividend or distribution paid shortly
after a purchase of shares by a shareholder would represent, in substance, a
partial return of capital (to the extent it is paid on the shares so purchased),
even though it would be subject to income taxes.

Dividends and other distributions will be made in the form of
additional shares of the Fund unless the shareholder has otherwise indicated.
Investors have the right to change their elections with respect to the
reinvestment of dividends and distributions by notifying the Transfer Agent in
writing, but any such change will be effective only as to dividends and other
distributions for which the record date is seven or more business days after the
Transfer Agent has received the written request.

PERFORMANCE INFORMATION

Total Return

Average annual total return quotations used in the Fund's advertising
and promotional materials are calculated according to the following formula:

P(1 + T)n = ERV

where "P" equals a hypothetical initial payment of $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.

Yield

Annualized yield quotations used in the Fund's advertising and
promotional materials are calculated by dividing the Fund's investment income
for a specified thirty-day period, net of expenses, by the average number of
shares outstanding during the period, and expressing the result as an annualized
percentage (assuming semi-annual compounding) of the net asset value per share
at the end of the period. Yield quotations are calculated according to the
following formula:
6
YIELD = 2 [(a-b + 1) - 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" in the above formula), the Fund calculates interest
earned on each debt obligation held by it during the period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the period or,
if the obligation was purchased during the period, the purchase price plus
accrued interest; (2) dividing the yield to maturity by 360 and multiplying the
resulting quotient by the market value of the obligation (including actual
accrued interest). Once interest earned is calculated in this fashion for each
debt obligation held by the Fund, net investment income is then determined by
totaling all such interest earned.

For purposes of these calculations, the maturity of an obligation with
one or more call provisions is assumed to be the next date on which the
obligation reasonably can be expected to be called or, if none, the maturity
date.

Other information

Performance data of the Fund quoted in advertising and other
promotional materials represents past performance and is not intended to predict
or indicate future results. The return and principal value of an investment in
the Fund will fluctuate, and an investor's redemption proceeds may be more or
less than the original investment amount. In advertising and promotional
materials the Fund may compare its performance with data published by Lipper
Analytical Services, Inc. ("Lipper"), Morningstar, Inc. or CDA Investment
Technologies, Inc. ("CDA"). The Fund also may refer in such materials to mutual
fund performance rankings and other data, such as comparative asset, expense and
fee levels, published by Lipper or CDA. Advertising and promotional materials
also may refer to discussions of the Fund and comparative mutual fund data and
ratings reported in independent periodicals including, but not limited to, The
Wall Street Journal, Money Magazine, Forbes, Business Week, Financial World and
Barron's.

GENERAL INFORMATION

The Trust has no business history prior to the offering of the first of
its series of shares. The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest and to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interest in the Fund. Each share
represents an interest in the Fund proportionately equal to the interest of each
other share. Upon the Fund's liquidation, all shareholders would share pro rata
in the net assets of the Fund available for distribution to shareholders.

The Declaration of Trust does not require the issuance of stock
certificates. If stock certificates are issued, they must be returned by the
registered owners prior to the transfer or redemption of shares represented by
such certificates.

If they deem it advisable and in the best interest of shareholders, the
Board of Trustees may create additional series of shares which differ from each
other only as to dividends. The Board of Trustees has created several series of
shares, and may create additional series in the future, which have separate
assets and liabilities. Income and operating expenses not specifically
attributable to a particular Fund are be allocated fairly among the Funds by the
Trustees, generally on the basis of the relative net assets of each Fund.

Rule 18f-2 under the 1940 Act provides that as to any investment
company which has two or more series outstanding and as to any matter required
to be submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.

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<PAGE>

The Fund's 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 Fund's tax returns.

Shares of the Fund owned by the Trustees and officers as a group were
less than 1% at June 29, 1998.

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.

Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa
and Aa rating classifications. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.

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.

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.

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<PAGE>

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.

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-18