INVESTMENT COMPANY ADMINISTRATION CORPORATION
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
June 26, 1998
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Advisors Series Trust
File Nos. 811-07959 and 333-17391
Ladies and Gentlemen:
On behalf of Advisors Series Trust (the "Registrant"), we are hereby
filing electronically pursuant to Rule 485(b) under the Securities Act of 1933
Post-Effective Amendment No. 26 to the Registration Statement on Form N-1A.
The purpose of the Amendment is to update the Registrant's financial
statements.
Please direct any questions or further comments to the undersigned at
(602) 952-1100.
Very truly yours,
/s/ Robert H. Wadsworth
Robert H. Wadsworth
<PAGE>
File No. 333-17391
811-07959
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 26 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [ ]
Amendment No. 28 [X]
ADVISORS SERIES TRUST
(Exact name of registrant as specified in charter)
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (including area code): (602) 952-1100
ROBERT H. WADSWORTH
Advisors Series Trust
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
(Name and address of agent for service of process)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the registration statement.
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
InformationTech 100(R) Fund
160 Sansome Street
San Francisco, CA 94104
(415) 705-7777
The InformationTech 100(R) Fund (the "Fund") is a mutual fund that seeks
capital appreciation by investing primarily in the 100 stocks that make up the
InformationWeek 100(R) Index (the "Index"). Bay Isle Financial Corporation (the
"Advisor"), the investment advisor to the Fund, has created and maintains the
Index and intends for the composition of the Fund's portfolio to be similar to
that of the Index. However, the Fund is not an index fund, and its performance
will differ from that of the Index. See "Investment Objectives and Policies."
There can be no assurance that the Fund will achieve its investment objective.
The Fund concentrates its investments in companies engaged in information
technologies and its net asset value could be subject to greater fluctuation.
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 or telephone number given above. The SEC maintains an internet site
(http://www.sec.gov) that contains the SAI, other material incorporated by
reference and information about other companies that file electronically with
the SEC.
TABLE OF CONTENTS
Expense Table.................................................. 2
Financial Highlights........................................... 3
Investment Objective and Policies.............................. 4
Management of the Fund......................................... 5
Investor Guide................................................. 6
Services Available to Shareholders............................. 8
How to Redeem Your Shares...................................... 9
Distributions and Taxes........................................ 10
General Information............................................ 11
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.
Prospectus dated 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>
Maximum Sales Load Imposed on Purchases..................................................... None
Maximum Sales Load Imposed on Reinvested Dividends.......................................... None
Deferred Sales Load......................................................................... None
Redemption Fees (as a percentage of amount redeemed in six months).......................... 1%
Annual Operating Expenses (As a percentage of average net assets)
Investment Advisory Fees, net of fee waivers................................................ - %
Other Expenses (net of expense reimbursement) (1)........................................... 1.50%
-- ----
Total Fund Operating Expenses (1)........................................................... 1.50%
====
</TABLE>
(1) The advisor has voluntarily agreed to reduce its fees and/or pay expenses of
the Fund to insure that the Fund's expenses will not exceed 1.50%. If the
Advisor had not limited the Fund's expenses, "Investment Advisory Fees" would
have been 0.95%, "Other Expenses" would have been 13.12%, and "Total Operating
Expenses" would have been 14.07% for the Fund's fiscal year ended February 28,
1998. The Advisory Agreement permits reimbursement by the Fund to the Advisor of
fees waived or expenses reimbursed within a three year period following such fee
waivers or expenses reimbursements provided they are approved by the Board of
Trustees, and the resulting Fund expenses do not exceed 1.50%. The Advisor may
seek reimbursement before current expenses of the Fund are paid.
See "Management of the Fund."
Example
This table illustrates the net operating expenses that would be incurred by an
investment in the Fund over different time periods assuming a $1,000 investment,
a 5% annual return, and redemption at the end of each time period.
1 Year 3 Years 5 Years 10 Years
$ 15 $ 47 $82 $179
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 $5,000, with subsequent minimum
investments of $1,000 or more ($2,000 and $500, respectively, for retirement
plans). Shares will be redeemed at their next calculated net asset value.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows is included in the Fund's Annual Report and has been
audited by McGladrey & Pullen, LLP, Independent Certified Public Accountants.
Their report on the financial statements and financial highlights is included in
the Annual Report. The financial statements and financial highlights are
incorporated by reference into (are legally a part of) the Fund's Statement of
Additional Information.
For a capital share outstanding throughout the period
- --------------------------------------------------------------------------------
April 8, 1997+
through
February 28, 1998
- --------------------------------------------------------------------------------
Net asset value, beginning of period........................ $20.00
Income from investment operations:
Net investment income................................. (0.10)
Net realized and unrealized gain on investments....... 10.25
------
Total from investment operations............................ 10.15
------
Net asset value, end of period.............................. $30.15
======
Total return................................................ 50.75%*
Ratios/supplemental data:
Net assets, end of period (thousands)....................... $2,674
Ratio of expenses to average net assets:
Before expense reimbursement.......................... 12.17%**
After expense reimbursement........................... 1.50%**
Ratio of net investment loss to average net assets.......... (1.01%)**
Portfolio turnover rate..................................... 32.78%
+Commencement of operations.
*Not annualized.
**Annualized.
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
What is the Fund's investment objective?
The investment objective of the Fund is capital appreciation which it attempts
to achieve by investing primarily in the 100 stocks that make up the
InformationWeek(R) 100 Index (the "Index"). The Advisor intends for the
composition of the Fund's portfolio to be similar to that of the Index. However,
the Fund is not an index fund, and its performance will differ from that of the
Index. InformationTech 100 is a registered trademark of Bay Isle Financial
corporation. InformationWeek is a registered trademark of CMP Media and is in no
way affiliated with the InformationTech 100 Fund.
What is the InformationWeek(R) 100 Index?
The Index is designed to provide technology investors with an effective way to
measure the growth and performance of information technology's impact on North
American businesses. It consists of the common stocks of 100 companies in a
group of industries representing a mix of information technology (e.g.,
software, hardware, Internet-related, networking, services, communications)
which supports and fuels North American business. Products from the information
technology industry group are used by businesses to cut costs, boost
productivity, serve as an agent of competition, and themselves create new
products and services. The Index excludes biotechnology, medical, consumer
electronics and software, and similar companies often included in broader
technology indices. Specific industries include, but are not limited to,
communications, networking, software, hardware and semi-conductor companies. The
Index is an equal-weighted index whose value, by convention, has been set to
100.00 as of the close of trading on March 1, 1995. The Index is rebalanced to
an equal weighting per company after the close of trading on the third Friday of
each December. (Because the Index is equal-weighted, after rebalancing each
stock in the Index represents approximately one percent of the Index.) On the
date the Index is rebalanced, the Advisor will review the 100 companies to
determine if each is still appropriate for the portfolio of the Fund. The
Advisor requires each security in the Index and the Fund to be listed on a
national securities exchange or the NASDAQ national market system, and be issued
by a company with total equity market capitalization in excess of $250 million
which, in the Advisor's opinion, is in sound financial and operational
condition. If, during the year, a company goes out of business, merges with
another company, falls below $150 million in total equity market capitalization,
or its securities are otherwise judged by the Advisor no longer to be suitable
for inclusion in the Index, the Advisor may delete the security from both the
Index and the Fund's portfolio and add another to both in its place.
The Fund's holdings may vary from the Index
Because the Advisor determines the composition of the Index, it also determines
composition of the Fund's portfolio. Normally, the Fund buys and sells stocks in
order to match the composition of the Index. (This means that the Advisor does
not select securities for the Fund's portfolio primarily based on traditional
economic, financial and market analyses.) However, to reduce transaction costs,
the Fund will not normally buy odd lots of securities and it may, if desirable,
purchase or sell securities in blocks. It may also not invest new cash received
every day. These policies may cause a particular stock to be over- or
under-weighted in the Fund relative to its Index weighting. They may also cause
the performance of the Fund's portfolio as a whole to differ from the
performance of the Index. The Advisor does not expect the Fund's annual turnover
rate to exceed 50%.
There is, of course, no assurance that the Fund's objective will be achieved.
Because prices of common stocks and other securities fluctuate, the value of an
investment in the Fund will vary as the market value of its investment portfolio
changes. Like other mutual funds concentrating investments in a specific
industry, the Fund's holdings, and its net asset value, will be more affected by
developments in the information technology industries and could be subject to
greater fluctuation.
4
<PAGE>
Other securities the Fund might purchase
The Advisor intends for the Fund to be as fully invested as possible, and the
Fund expects to invest at least 95% of its total assets in the common stocks
that comprise the Index. The Advisor's current intention to invest at least 95 %
of the Fund's total assets in Index stocks may be changed in the future, but
will never go below 75% of total assets. The Fund may maintain up to 5% of its
total assets in high quality, short-term debt securities and money market
instruments to meet redemption requests and other needs for liquid assets. These
short-term debt securities and money market instruments include commercial
paper, certificates of deposit, bankers' acceptances, U.S. Government securities
and repurchase agreements. The Fund may also purchase securities convertible
into the common stocks comprising the Index, as well as warrants and rights to
purchase these stocks. In addition, the Fund may invest in options on stocks and
stock indices.
Lending securities
To increase its income, the Fund may lend securities from its portfolio to
brokers, dealers and other financial institutions. No more than one-third of the
Fund's total assets may be represented by loaned securities. The Fund's loans of
portfolio securities will be collateralized at all times by high quality liquid
securities equal in value to the securities loaned.
Foreign securities
The Fund may invest in securities of foreign issuers, including Depositary
Receipts with respect to securities of foreign issuers, if they are included in
the Index. There is no limit on investment in foreign securities which are
listed on a national securities exchange, but investments in other foreign
securities are not expected to exceed 5% of the Fund's total assets.
Investment restrictions
The Fund has adopted certain investment restrictions, which are described fully
in the Statement of Additional Information. 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 diversified, which means at least 75 percent of the value of its
total assets is represented by cash and cash items (including receivables),
Government securities, securities of other investment companies, and other
securities for the purposes of this calculation limited in respect of any one
issuer to an amount not greater in value than 5 percent of the value of the
total assets of such issuer and the Fund's position in any single issuer may not
represent more than 10% of such issuer's voting securities. The Fund intends to
concentrate its investments in the information technology group of industries,
but it does not intend to concentrate in any single industry. The Fund may
borrow money, but only for temporary purposes or to meet redemption requests,
and up to 10% of its total assets.
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund.
The Advisor
The Fund's Advisor, Bay Isle Financial Corporation, 160 Sansome Street, 17th
Floor, San Francisco, CA 94104, has been in the investment advisory business
since 1987. The Advisor had not previously managed a mutual fund, but it
provides investment advisory services to individual and institutional accounts
with an aggregate value in excess of $250 million. William F. K. Schaff, CFA, a
co-founder and controlling person of the Advisor, is principally responsible for
the management of the Fund's portfolio. Mr. Schaff has been Chief Investment
Officer and has been managing accounts of other clients of the Advisor since
1987.
5
<PAGE>
The Advisor provides the Fund with advice on buying and selling securities,
manages the investments of the Fund, furnishes the Fund with office space and
certain administrative services, and provides most of the personnel needed by
the Fund. As compensation, the Fund pays the Advisor a monthly management fee
based upon the average daily net assets of the Fund at the annual rate of 0.95%.
This fee is higher than that paid by most mutual funds. The Advisor will donate
10% of its fees it collects from the Fund to charities qualifying under section
501(c)(3) of the Internal Revenue Code of 1986 (the ("Code")). However, the
Advisor will not make any donations while it is waiving any part of its fees or
reimbursing the Fund for expenses in excess of the 1.50% limit.
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 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 Advisor considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these are more fully
discussed in the Statement of Additional Information, the factors include, but
are not limited to, the reasonableness of commissions, quality of services and
execution, and the availability of research which the Advisor may lawfully and
appropriately use in its investment advisory capacities. Provided the Fund
receives prompt execution at competitive prices, the Advisor may also consider
the sale of Fund shares as a factor in selecting broker-dealers for the Fund's
portfolio transactions.
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 wire. If you have questions about how to invest, or about how to
complete the Application Form, please call an account representative at (800)
385-7003. Investors may be charged a fee if they effect transactions through a
broker or agent.
6
<PAGE>
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 the InformationTech 100(R) Fund) to the Fund's
Shareholder Servicing Agent:
InformationTech 100 Fund
P.O. Box 640947
Cincinnati, OH 45264-0947
You may wire money to the Fund
Before sending a wire, you should call the Fund at (800) 385-7003 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
Attn: InformationTech 100 Fund
DDA #486444847
for further credit to: [your name and account #]
Your bank may charge you a fee for sending a wire to the Fund.
You may purchase shares through an investment dealer
You may be able to invest in shares of the Fund through an investment broker or
dealer, if the broker/dealer has made arrangements with the Distributor. The
broker/dealer may place an order for you with the Fund; the price you will pay
will be the net asset value which is next calculated after receipt of the order
from the broker/dealer. It is the responsibility of the broker/dealer to place
your order promptly. A broker, dealer, or other agent may charge you a fee for
placing your order, but you may be able to avoid paying such a fee by sending an
Application Form and payment directly to the Fund. The broker/dealer may also
hold the shares you purchase in its omnibus account rather than in your name in
the records of the Fund's transfer agent. The Fund may reimburse the broker,
dealer, or other agent for maintaining records of your account as well as for
other services provided to you. Your broker/dealer is responsible for sending
your money to the Fund promptly after placing the order to purchase shares, and
the Fund may cancel the order if payment is not received from the broker/dealer
promptly.
Minimum investments
The minimum initial investment in the Fund is $5,000. The minimum subsequent
investment is $1,000. However, if you are starting an Automatic Investment Plan
(see below), the minimum initial investment is $2,000. If you are investing in
an Individual Retirement Account ("IRA"), the minimum initial and subsequent
investments are $2,000 and $500, 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 (800)
385-7003.
7
<PAGE>
When is money invested in the Fund?
Any money received for investment in the Fund, 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). The net asset value is calculated at the close of regular trading
on the NYSE, normally 4:00 p.m., Eastern time. A check or wire received after
the NYSE closes is invested as of the next calculation of the Fund's net asset
value.
What is the net asset value of the Fund?
The Fund's net asset value per share is calculated by dividing the value of the
Fund's total assets, less its liabilities, by the number of its shares
outstanding. In calculating the net asset value, portfolio securities are valued
using current market values, if available. Securities for which market
quotations are not readily available are valued at fair values determined in
good faith by or under the supervision of the Board of Trustees of the Trust.
The fair value of short-term obligations with remaining maturities of 60 days or
less is considered to be their amortized cost.
Other information
First Fund Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix, AZ
85018, an affiliate of the Administrator, is the principal underwriter
("Distributor") of the Fund's shares. 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 any
check used for investment does not clear. The Fund and the Distributor reserve
the right to reject any investment, in whole or in part. Federal tax law
requires that investors provide a certified taxpayer identification number and
other certifications on opening an account in order to avoid backup withholding
of taxes. See the Application Form for more information about backup
withholding. The Fund is not required to issue share certificates; all shares
are normally held in non-certificated form on the books of the Fund, for the
account of the shareholder.
SERVICES AVAILABLE TO SHAREHOLDERS
Retirement Plans
You may obtain prototype IRA plans from the Fund. Shares of the Fund are also
eligible investments for other types of retirement plan.
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 savings or
checking account each month for a predetermined amount (but not less than $100),
as if you had written a check directly. Upon receipt of the withdrawn funds, the
Fund automatically invests the money in additional shares of the Fund at the
next calculated net asset value. Applications for this service are available
from the Fund. There is no charge by the Fund for this service. The Fund may
terminate or modify this privilege at any time, and you may terminate your
participation by notifying the Shareholder Servicing Agent in writing,
sufficiently in advance of the next withdrawal.
Automatic withdrawals
The Fund offers a Automatic Withdrawal Plan whereby you may request that a check
drawn in a predetermined amount be sent to you each month or calendar quarter.
To start this Program, your account must have Fund shares with a value of at
least $10,000, and the minimum amount that may be withdrawn each month or
quarter is $50. The Program may be terminated or modified by you or the Fund at
any time without charge or penalty. A withdrawal under the Automatic Withdrawal
Plan involves a redemption of shares of the Fund, and may result in a gain or
loss for federal income tax purposes. In addition, if the amount withdrawn
exceeds the dividends credited to your account, the account ultimately may be
depleted.
8
<PAGE>
HOW TO REDEEM YOUR SHARES
You have the right to redeem all or any portion of your shares of the Fund at
their next calculated net asset value on each day the NYSE is open for trading.
Redemption in writing
You may redeem your shares by simply sending a written request to the Fund. You
should give your account number and state whether you want all or 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:
InformationTech 100 Fund
150 Motor Parkway
Suite 109
Hauppauge, NY 11788
Signature guarantee
If the value of the shares you wish to redeem exceeds $5,000, the signatures on
the redemption request must be guaranteed by an "eligible guarantor
institution." These institutions include banks, broker-dealers, credit unions
and savings institutions. A broker-dealer guaranteeing a signature must be a
member of a clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program. A notary public is not an
acceptable guarantor.
Redemption by telephone
If you complete the Redemption by Telephone portion of 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 (800) 385-7003 before the close of
trading. Redemption proceeds will be mailed or wired, at your direction, on the
next business day to the bank account you designated on the Application Form.
The minimum amount that may be wired is $1,000 (wire charges, if any, will be
deducted from redemption proceeds). Telephone redemptions cannot be made for IRA
accounts.
By establishing telephone redemption privileges, you authorize the Fund and its
Shareholder Servicing Agent to act upon the instruction of any person who makes
the telephone call to redeem shares from your account and transfer the proceeds
to the bank account designated in the Application Form. The Fund and the
Shareholder Servicing Agent will use procedures to confirm that redemption
instructions received by telephone are genuine, including recording of telephone
instructions and requiring a form of personal identification before acting on
these instructions. If these normal identification procedures are followed,
neither the Fund nor the Shareholder Servicing Agent will be liable for any
loss, liability, or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
The Fund may change, modify, or terminate these privileges at any time upon at
least 60-days' notice to shareholders.
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.
9
<PAGE>
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 valid request. 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 can be avoided by investing by wire or by using a certified or official
bank check to make the purchase.
Redemption Fee
The Fund is intended as a long-term investment, not as a short-term trading
vehicle. In order to prevent excessive brokerage costs, a one percent redemption
fee, paid to the Fund, will be deducted from the proceeds of any redemption of
shares held less than six months. This fee will not be charged to retirement
plan accounts or in the case of redemptions resulting from the death of the
shareholder.
Other information about redemptions
A redemption may result in recognition of a gain or loss for federal income tax
purposes. Due to the relatively high cost of maintaining smaller accounts, the
shares in your account (unless it is a retirement plan or Uniform Gifts or
Transfers to Minors Act account) may be redeemed by the Fund if, due to
redemptions you have made, the total value of your account is reduced to less
than $500. If the Fund determines to make such an involuntary redemption, you
will first be notified that the value of your account is less than $500, and you
will be allowed 30 days to make an additional investment to bring the value of
your account to at least $500 before the Fund takes any action.
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.
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 long-term capital gains
regardless of the length of
10
<PAGE>
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 Statement of Additional Information. You should consult your own
advisers 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 a whole (e.g., election or removal
of Trustees). Voting rights are not cumulative, so that the holders of more than
50% of the shares voting in any election of Trustees can, if they so choose,
elect all of the Trustees. While the Trust is not required and does not intend
to hold annual meetings of shareholders, such meetings may be called by the
Trustees in their discretion, or upon demand by the holders of 10% or more of
the outstanding shares of the Trust for the purpose of electing or removing
Trustees.
Year 2000 Risk
Like other business organizations around the world, the Fund could be adversely
affected if the computer systems used by its investment advisor, Bay Isle
Financial Corporation, 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 advisor has taken steps that
it believes are reasonably designed to address the Year 2000 Issue with respect
to its own computer systems and the Fund has obtained assurances from the Fund's
other service providers that they are taking comparable steps. However, there
can be no assurance that these actions will be sufficient to avoid any adverse
impact on the Fund.
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.
Shareholder Inquiries
Shareholder inquiries should be directed to the Shareholder Servicing Agent at
(800) 385-7003.
11
<PAGE>
Advisor
Bay Isle Financial Corporation
160 Sansome Street, 17th Floor
San Francisco, CA 94104
(415) 705-7777
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Transfer Agent
American Data Services, Inc.
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
(800) 385-7003
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, NY 10017
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, CA 94104
<PAGE>
INFORMATIONTECH 100(R) 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 of the
InformationTech 100(R) Fund (the "Fund"), a series of Advisors Series Trust (the
"Trust"). Bay Isle Financial Corporation (the "Advisor") is the Advisor to the
Fund. A copy of the prospectus may be obtained from the Fund at 160 Sansome
Street, San Francisco, CA 94104; telephone (415) 705-7777.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference to sections
Page in the prospectus
---- ---------------------------
<S> <C> <C>
Investment Objective and Policies.................... B-2 The Fund at a Glance; The Fund in
Detail
Management........................................... B-12 Management of the Fund
Portfolio Transactions and Brokerage................. B-16 Management of the Fund
Net Asset Value...................................... B-16 Investor Guide
Taxation ........................................... B-17 Distributions and Taxes
Dividends and Distributions.......................... B-20 Distributions and Taxes
Performance Information.............................. B-21 General Information
General Information.................................. B-22 General Information
Appendix I........................................... B-22 Not applicable
Appendix II.......................................... B-23 Not applicable
</TABLE>
B-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is capital appreciation which it
attempts to achieve by investing primarily in the 100 stocks that make up the
InformationWeek 100 Index (the "Index"). There is no assurance that the Fund
will achieve its objective. The discussion below supplements information
contained in the prospectus as to investment policies of the Fund.
Convertible Securities and Warrants
The Fund may invest in convertible securities and warrants. A
convertible security is a fixed income security (a debt instrument or a
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment therein).
Other Corporate Debt Securities
The Fund may invest in non-convertible debt securities of foreign and
domestic companies over a cross-section of industries. The debt securities in
which the Fund may invest will be of varying maturities and may include
corporate bonds, debentures, notes and other similar corporate debt instruments.
The value of a longer-term debt security fluctuates more widely in response to
changes in interest rates than do shorter-term debt securities.
Risks of Investing in Debt Securities
There are a number of risks generally associated with an investment in
debt securities (including convertible securities). Yields on short-,
intermediate-, and long-term securities depend on a variety of factors,
including the general condition of the money and bond markets, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue.
Debt securities with longer maturities tend to produce higher yields
and are generally subject to potentially greater capital appreciation and
depreciation than obligations with short maturities and lower yields. The market
prices of debt securities usually vary, depending upon available yields. An
increase in interest rates will generally reduce the value of such portfolio
investments, and a decline in interest rates will generally increase the value
of such portfolio investments. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of the debt
securities in which the Fund invests to meet their obligations for the payment
of interest and principal when due.
Risks of Investing in Lower-Rated Debt Securities
The Fund may invest a portion of its net assets in convertible debt
securities, which may be rated below "Baa" by Moody's Investors Services, Inc.
("Moody's") or "BBB" by Standard & Poor's Corporation ("S&P") or below
investment grade by other recognized rating agencies, or in unrated securities
of comparable quality under certain circumstances. Securities with ratings below
"Baa" and/or "BBB" are commonly referred to as "junk bonds." Such bonds are
subject to greater market fluctuations and risk of loss of income and principal
than higher rated bonds for a variety of reasons, including the following:
B-2
<PAGE>
Sensitivity to Interest Rate and Economic Changes. The economy and
interest rates affect high yield securities differently from other securities.
For example, the prices of high yield bonds have been found to be less sensitive
to interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and interest obligations, to meet
projected business goals, and to obtain additional financing. If the issuer of a
bond defaults, the Fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high yield bonds and the Fund's
asset values.
Payment Expectations. High yield bonds present certain risks based on
payment expectations. For example, high yield bonds may contain redemption and
call provisions. If an issuer exercises these provisions in a declining interest
rate market, the Fund would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a high
yield bond's value will decrease in a rising interest rate market, as will the
value of the Fund's assets. If the Fund experiences unexpected net redemptions,
it may be forced to sell its high yield bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return.
Liquidity and Valuation. To the extent that there is no established
retail secondary market, there may be thin trading of high yield bonds, and this
may impact the Advisor's ability to accurately value high yield bonds and the
Fund's assets and hinder the Fund's ability to dispose of the bonds. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly traded market.
Credit Ratings. Credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. Also, since
credit rating agencies may fail to timely change the credit ratings to reflect
subsequent events, the Advisor must monitor the issuers of high yield bonds in
the Fund's portfolio to determine if the issuers will have sufficient cash flow
and profits to meet required principal and interest payments, and to assure the
bonds' liquidity so the Fund can meet redemption requests. The Fund will not
necessarily dispose of a portfolio security when its rating has been changed.
Short-Term Investments
The Fund may invest in any of the following securities and instruments:
Bank Certificates or 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
B-3
<PAGE>
operations under prevailing money market conditions. General economic conditions
as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of the
banking industry.
As a result of federal and state laws and regulations, domestic banks
are, among other things, required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and subject to
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations that the
Fund may acquire.
In addition to purchasing certificates of deposit and bankers'
acceptances, to the extent permitted under its investment objectives and
policies stated above and in its prospectus, the Fund may make interest-bearing
time or 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.
Money Market Funds
The Fund may under certain circumstances invest a portion of its assets
in money market funds. The Investment Company Act of 1940 (the "1940 Act")
prohibits the Fund from investing more than 5% of the value of its total assets
in any one investment company. or more than 10% of the value of its total assets
in investment companies as a group, and also restricts its investment in any
investment company to 3% of the voting securities of such investment company.
The Advisor will not impose advisory fees on assets of the Fund invested in a
money market mutual fund. However, an investment in a money market mutual fund
will involve payment by the Fund of its pro rata share of advisory and
administrative fees charged by such fund.
Government Obligations
The Fund may make short-term investments in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association.
Some of these obligations, such as those of the GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
B-4
<PAGE>
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
The Fund may invest in sovereign debt obligations of foreign countries.
A sovereign debtor's willingness or ability to repay principal and interest in a
timely manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to meet
such conditions could result in the cancellation of such third parties'
commitments to lend funds to the sovereign debtor, which may further impair such
debtor's ability or willingness to service its debt in a timely manner.
Foreign Investments and Currencies
The Fund may invest in securities of foreign issuers that are not
publicly traded in the United States. The Fund may also invest in depositary
receipts and in foreign currency futures contracts and may purchase and sell
foreign currency on a spot basis.
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.
Market Characteristics. The Advisor expects that many foreign
securities in which the Fund invest will be purchased in over-the-counter
markets or on exchanges located in the countries in which the principal offices
of the issuers of the various securities are located, if that is the best
available market. Foreign exchanges and markets may be more volatile than those
in the United States. While growing in volume, they usually have substantially
less volume than U.S. markets, and the Fund's foreign securities may be less
liquid and more volatile than U.S. securities. Moreover, settlement practices
for transactions in foreign markets may differ from those in United States
markets, and may include delays beyond periods customary in the United States.
Foreign security trading practices, including
B-5
<PAGE>
those involving securities settlement where Fund assets may be released prior to
receipt of payment or securities, may expose the Fund to increased risk in the
event of a failed trade or the insolvency of a foreign broker-dealer.
Transactions in options on securities and currency contracts may not be
regulated as effectively on foreign exchanges as similar transactions in the
United States, and may not involve clearing mechanisms and related guarantees.
The values of such positions also could be adversely affected by the imposition
of different exercise terms and procedures and margin requirements than in the
United States. The values of the Fund's positions may also be adversely impacted
by delays in its ability to act upon economic events occurring in foreign
markets during non-business hours in the United States.
Legal and Regulatory Matters. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
Taxes. The interest and dividends payable on certain of the Fund's
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Fund's
shareholders.
Costs. To the extent that the Fund invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
Emerging markets. Some of the securities in which the Fund may invest
may be located in developing or emerging markets, which entail additional risks,
including less social, political and economic stability; smaller securities
markets and lower trading volume, which may result in a less liquidity and
greater price volatility; national policies that may restrict the Fund's
investment opportunities, including restrictions on investment in issuers or
industries, or expropriation or confiscation of assets or property; and less
developed legal structures governing private or foreign investment.
In considering whether to invest in the securities of a foreign
company, the Advisor considers such factors as the characteristics of the
particular company, differences between economic trends and the performance of
securities markets within the U.S. and those within other countries, and also
factors relating to the general economic, governmental and social conditions of
the country or countries where the company is located. The extent to which the
Fund will be invested in foreign companies and countries and depository receipts
will fluctuate from time to time within the limitations described in the
prospectus, depending on the Advisor's assessment of prevailing market, economic
and other conditions.
Options on Securities
Purchasing Put and Call Options. The Fund may purchase covered "put"
and "call" options with respect to securities which are otherwise eligible for
purchase by the Fund subject to certain restrictions. The Fund will engage in
trading of such derivative securities exclusively for hedging purposes.
If the Fund purchases a put option, the Fund acquires the right to sell
the underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when the Advisor perceives significant short-term risk but
substantial long-term appreciation for the underlying security. The put option
acts as an insurance policy, as it protects against significant downward price
movement while it allows full participation in any upward movement. If the Fund
is holding a security which it feels has strong fundamentals, but for some
reason may be weak in the near term, the Fund may purchase a put option on such
security, thereby giving itself the right to sell such security at a certain
strike price throughout the term of the option. Consequently, the Fund will
exercise the put only if the price of such security falls below the strike price
of the put. The difference between the put's strike price and the market price
of the underlying security on the date the Fund exercises the put, less
transaction costs, will be the amount by which the Fund will be able to hedge
against a decline in the underlying security. If during the period of the option
the market price for the underlying security remains at or above the put's
strike price, the put will expire worthless, representing a loss of the price
the Fund paid for the put, plus transaction
B-6
<PAGE>
costs. If the price of the underlying security increases, the profit the Fund
realizes on the sale of the security will be reduced by the premium paid for the
put option less any amount for which the put may be sold.
If the Fund purchases a call option, it acquires the right to purchase
the underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the Fund has a short position in the
underlying security and the security thereafter increases in price. The Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If the call option has been
purchased to hedge a short position of the Fund in the underlying security and
the price of the underlying security thereafter falls, the profit the Fund
realizes on the cover of the short position in the security will be reduced by
the premium paid for the call option less any amount for which such option may
be sold.
Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. The Fund generally will purchase only those options for which the
Advisor believes there is an active secondary market to facilitate closing
transactions.
Writing Call Options. The Fund may write covered call options. A call
option is "covered" if the Fund owns the security underlying the call or has an
absolute right to acquire the security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount as are held in a segregated account by the Custodian). The writer of
a call option receives a premium and gives the purchaser the right to buy the
security underlying the option at the exercise price. The writer has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. If the writer of
an exchange-traded option wishes to terminate his obligation, he may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. A writer may not effect a closing
purchase transaction after it has been notified of the exercise of an option.
Effecting a closing transaction in the case of a written call option
will permit the Fund to write another call option on the underlying security
with either a different exercise price, expiration date or both. Also, effecting
a closing transaction will permit the cash or proceeds from the concurrent sale
of any securities subject to the option to be used for other investments of the
Fund. If the Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.
The Fund will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option or if the proceeds from the closing transaction are more than the premium
paid to purchase the option. The Fund will realize a loss from a closing
transaction if the cost of the closing transaction is more than the premium
received from writing the option or if the proceeds from the closing transaction
are less than the premium paid to purchase the option. However, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss to the Fund resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the Fund.
Risks Of Investing in Options. There are several risks associated with
transactions in options on securities. Options may be more volatile than the
underlying securities and, therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying securities themselves. There are also significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its objective.
In addition, a liquid secondary market for particular options may be absent for
reasons which include the following: there may be insufficient trading interest
in certain options; restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options of underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or
clearing corporation may not at all times be adequate to handle current
B-7
<PAGE>
trading volume; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events. The
extent to which the Fund may enter into options transactions may be limited by
the Internal Revenue Code of 1986 (the "Code") requirements for qualification of
the Fund as a regulated investment company. See "Dividends and Distributions"
and "Taxation."
In addition, when trading options on foreign exchanges, many of the
protections afforded to participants in United States option exchanges will not
be available. For example, there may be no daily price fluctuation limits in
such exchanges or markets, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the Fund as an option writer
could lose amounts substantially in excess of its initial investment, due to the
margin and collateral requirements typically associated with such option
writing. See "Dealer Options" below.
Dealer Options. The Fund will engage in transactions involving dealer
options as well as exchange-traded options. Certain additional risks are
specific to dealer options. While the Fund might look to a clearing corporation
to exercise exchange-traded options, if the Fund were to purchase a dealer
option it would need to rely on the dealer from which it purchased the option to
perform if the option were exercised. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as loss of the
expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options may not. Consequently, the Fund may generally be able to realize
the value of a dealer option it has purchased only by exercising or reselling
the option to the dealer who issued it. Similarly, when the Fund writes a dealer
option, the Fund may generally be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to whom the Fund originally wrote the option. While the Fund will seek to enter
into dealer options only with dealers who will agree to and which are expected
to be capable of entering into closing transactions with the Fund, there can be
no assurance that the Fund will at any time be able to liquidate a dealer option
at a favorable price at any time prior to expiration. Unless the Fund, as a
covered dealer call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
as cover until the option expires or is exercised. In the event of insolvency of
the other party, the Fund may be unable to liquidate a dealer option. With
respect to options written by the Fund, the inability to enter into a closing
transaction may result in material losses to the Fund. For example, because the
Fund must maintain a secured position with respect to any call option on a
security it writes, the Fund may not sell the assets which it has segregated to
secure the position while it is obligated under the option. This requirement may
impair the Fund's ability to sell portfolio securities at a time when such sale
might be advantageous.
The Staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased dealer options are illiquid securities.
The Fund may treat the cover used for written dealer options as liquid if the
dealer agrees that the Fund may repurchase the dealer option it has written for
a maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
Accordingly, the Fund will treat dealer options as subject to the Fund's
limitation on illiquid securities. If the Commission changes its position on the
liquidity of dealer options, the Fund will change its treatment of such
instruments accordingly.
Foreign Currency Options. The Fund may buy or sell put and call options
on foreign currencies. A put or call option on a foreign currency gives the
purchaser of the option the right to sell or purchase a foreign currency at the
exercise price until the option expires. The Fund will use foreign currency
options separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
a call option on the same currency
B-8
<PAGE>
with the same expiration date but with different exercise (or "strike") prices.
Generally, the put option will have an out-of-the-money strike price, while the
call option will have either an at-the-money strike price or an in-the-money
strike price. Foreign currency options are derivative securities. Currency
options traded on U.S. or other exchanges may be subject to position limits
which may limit the ability of the Fund to reduce foreign currency risk using
such options.
As with other kinds of option transactions, the writing of an option on
foreign currency will constitute only a partial hedge, up to the amount of the
premium received. The Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations: however, in the event of exchange rate
movements adverse to the Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs.
Spread Transactions. The Fund may purchase covered spread options from
securities dealers. These covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives the
Fund the right to put securities that it owns at a fixed dollar spread or fixed
yield spread in relationship to another security that the Fund does not own, but
which is used as a benchmark. The risk to the Fund, in addition to the risks of
dealer options described above, is the cost of the premium paid as well as any
transaction costs. The purchase of spread options will be used to protect the
Fund against adverse changes in prevailing credit quality spreads, i.e., the
yield spread between high quality and lower quality securities. This protection
is provided only during the life of the spread options.
Forward Currency Contracts
The Fund may enter into forward currency contracts in anticipation of
changes in currency exchange rates. A forward currency contract is an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. For example, the Fund might purchase a
particular currency or enter into a forward currency contract to preserve the
U.S. dollar price of securities it intends to or has contracted to purchase.
Alternatively, it might sell a particular currency on either a spot or forward
basis to hedge against an anticipated decline in the dollar value of securities
it intends to or has contracted to sell. Although this strategy could minimize
the risk of loss due to a decline in the value of the hedged currency, it could
also limit any potential gain from an increase in the value of the currency.
Repurchase Agreements
The Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, the Fund acquires securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Advisor, subject to the seller's agreement to repurchase and
the Fund's agreement to resell such securities at a mutually agreed upon date
and price. The repurchase price generally equals the price paid by the Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the underlying portfolio security). Securities subject
to repurchase agreements will be held by the Custodian or in the Federal
Reserve/Treasury Book-Entry System or an equivalent foreign system. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities at not less than 102% of the repurchase price under the
agreement. If the seller defaults on its repurchase obligation, the Fund will
suffer a loss to the extent that the proceeds from a sale of the underlying
securities are less than the repurchase price under the agreement. Bankruptcy or
insolvency of such a defaulting seller may cause the Fund's rights with respect
to such securities to be delayed or limited. Repurchase agreements are
considered to be loans under the 1940 Act.
When-Issued Securities, Forward Commitments and Delayed Settlements
The Fund may purchase securities on a "when-issued," forward commitment
or delayed settlement basis. In this event, the Custodian will set aside cash or
liquid portfolio securities 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
place additional assets in the separate account 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
B-9
<PAGE>
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 set aside cash or liquid portfolio securities to satisfy
its purchase commitments in the manner described, the Fund's liquidity and the
ability of the Advisor to manage it may be affected in the event the Fund's
forward commitments, commitments to purchase when-issued securities and delayed
settlements ever exceeded 15% of the value of its net assets.
The Fund will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed 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.
Borrowing
The Fund is authorized to borrow money from time to time for temporary,
extraordinary or emergency purposes or for clearance of transactions in amounts
up to 10% of the value of its total assets at the time of such borrowings. The
use of borrowing by the Fund involves special risk considerations that may not
be associated with other funds having similar objectives and policies. Since
substantially all of the Fund's assets fluctuate in value, whereas the interest
obligation resulting from a borrowing will be fixed by the terms of the Fund's
agreement with its lender, the asset value per share of the Fund will tend to
increase more when its portfolio securities increase in value and to decrease
more when its portfolio assets decrease in value than would otherwise be the
case if the Fund did not borrow funds. In addition, interest costs on borrowings
may fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, the
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales.
Lending Portfolio Securities
The Fund may lend its portfolio securities in an amount not exceeding
one third of its total assets to financial institutions such as banks and
brokers if the loan is collateralized in accordance with applicable regulations.
Under the present regulatory requirements which govern loans of portfolio
securities, the loan collateral must, on each business day, at least equal the
value of the loaned securities and must consist of cash, letters of credit of
domestic banks or domestic branches of foreign banks, or securities of the U.S.
Government or its agencies. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank would have to be
satisfactory to the Fund. Any loan might be secured by any one or more of the
three types of collateral. The terms of the Fund's loans must permit the Fund to
reacquire loaned securities on five days' notice or in time to vote on any
serious matter and must meet certain tests under the Code.
Short Sales
The Fund is authorized to make short sales of securities. In a short
sale, the Fund sells a security which it does not own, in anticipation of a
decline in the market value of the security. To complete the sale, the Fund must
borrow the security (generally from the broker through which the short sale is
made) in order to make delivery to the buyer. The Fund is then obligated to
replace the security borrowed by purchasing it at the market price at the time
B-10
<PAGE>
of replacement. The Fund is said to have a "short position" in the securities
sold until it delivers them to the broker. The period during which the Fund has
a short position can range from one day to more than a year. Until the security
is replaced, the proceeds of the short sale are retained by the broker, and the
Fund is required to pay to the broker a negotiated portion of any dividends or
interest which accrue during the period of the loan. To meet current margin
requirements, the Fund is also required to deposit with the broker additional
cash or securities so that the total deposit with the broker is maintained daily
at 150% of the current market value of the securities sold short (100% of the
current market value if a security is held in the account that is convertible or
exchangeable into the security sold short within 90 days without restriction
other than the payment of money).
Short sales by the Fund create opportunities to increase the Fund's
return but, at the same time, involve specific risk considerations and may be
considered a speculative technique. Since the Fund in effect profits from a
decline in the price of the securities sold short without the need to invest the
full purchase price of the securities on the date of the short sale, the Fund's
net asset value per share will tend to increase more when the securities it has
sold short decrease in value, and to decrease more when the securities it has
sold short increase in value, than would otherwise be the case if it had not
engaged in such short sales. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of any premium, dividends or
interest the Fund may be required to pay in connection with the short sale.
Furthermore, under adverse market conditions the Fund might have difficulty
purchasing securities to meet its short sale delivery obligations, and might
have to sell portfolio securities to raise the capital necessary to meet its
short sale obligations at a time when fundamental investment considerations
would not favor such sales.
The extent to which the Fund may enter into short sales transactions
may be limited by the Code requirements for qualification of the Fund as a
regulated investment company. See "Taxation."
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.
B-11
<PAGE>
Risks of Investing in Small Companies
As stated in the prospectus, the Fund may purchase securities of
companies with market capitalization as low as $250 million. Additional risks of
such investments include the markets on which such securities are frequently
traded. In many instances the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
greater and more abrupt price fluctuations. When making large sales, the Fund
may have to sell portfolio holdings at discounts from quoted prices or may have
to make a series of small sales over an extended period of time due to the
trading volume of smaller company securities. Investors should be aware that,
based on the foregoing factors, an investment in the Fund may be subject to
greater price fluctuations than an investment in a fund that invests exclusively
in larger, more established companies. The Advisor's research efforts may also
play a greater role in selecting securities for the Fund than in a fund that
invests in larger, more established companies.
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.
As a matter of fundamental policy, the Fund is diversified; i.e., as to
75% of the value of a its total assets: (i) no more than 5% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities); and (ii) the Fund's position in any single issuer
may not represent more than 10% of such issuer's voting securities. The Fund's
investment objective is also fundamental. Also as a matter of fundamental
policy, the Fund concentrates in those industries which comprise, in the
Advisor's opinion, the "information technology" sector of industries.
In addition, the Fund may not:
1. Issue senior securities, borrow money or pledge its assets, except
that (i) the Fund may borrow on an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions in amounts not exceeding
10% of its total assets (not including the amount borrowed), provided that it
will not make investments while borrowings in excess of 5% of the value of its
total assets are outstanding; and (ii) this restriction shall not prohibit the
Fund from engaging in options and foreign currency transactions or short sales;
2. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;
3. Act as underwriter (except to the extent the Fund may be deemed to
be an underwriter in connection with the sale of securities in its investment
portfolio);
4. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);
5. Purchase or sell real estate or interests in real estate or real
estate limited partnerships (although the Fund may purchase and sell securities
which are secured by real estate and securities of companies which invest or
deal in real estate);
6. Purchase or sell commodities or commodity futures contracts, except
that the Fund may purchase and sell foreign currency contracts in accordance
with any rules of the Commodity Futures Trading Commission;
7. Make loans of money (except for purchases of debt securities
consistent with the investment policies of the Fund and except for repurchase
agreements); or
8. Make investments for the purpose of exercising control or
management.
B-12
<PAGE>
For the purpose of restriction number 4 above, the Advisor determines
the industry classification of each security purchased by the Fund; these
classifications are indicated in Appendix II.
The Fund observes the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal regulatory
authorities:
The Fund may not:
1. Invest in the securities of other investment companies or purchase
any other investment company's voting securities or make any other investment in
other investment companies except to the extent permitted by federal law; or
2. Invest more than 15% of its assets in securities which are
restricted as to disposition or otherwise are illiquid or have no readily
available market (except for securities which are determined by the Board of
Trustees to be liquid).
MANAGEMENT
The overall management of the business and affairs of the Trust is
vested with its Board of Trustees. The Board approves all significant agreements
between the Trust and persons or companies furnishing services to it, including
the agreements with the Advisor, Administrator, Custodian and Transfer Agent.
The day to day operations of the Trust are delegated to its officers, subject to
the Fund's investment 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.,
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 Home Loan Bank of
305 Glendora Circle San Francisco (since March, 1993); formerly Director of Management
Danville, CA 94526 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.
</TABLE>
B-13
<PAGE>
<TABLE>
<S> <C> <C>
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. (from
Suite 261-E August, 1995 until July, 1996); O'Connor, Cavanagh, Anderson,
Phoenix, AZ 85018 Killingsworth and Beshears (law firm) (until August, 1995) .
</TABLE>
* denotes Trustee who is an "interested person" of the Trust under the 1940 Act.
Name and Position Aggregate Compensation from The Trust*
- ----------------- --------------------------------------
Walter E. Auch, Sr., Trustee $12,000
Donald E. O'Connor, Trustee $12,000
George T. Wofford III, Trustee $12,000
*Estimated for the current fiscal year. The Trust has no pension or retirement
plan. No other entity affiliated with the Trust pays any compensation to the
Trustees.
The Advisor
Subject to the supervision of the Board of Trustees, investment
management and related services are provided by the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement").
Under the Advisory Agreement, the Advisor agrees to invest the assets
of the Fund in accordance with the investment objectives, policies and
restrictions of the Fund as set forth in the Fund's and Trust's governing
documents, including, without limitation, the Trust's Agreement and Declaration
of Trust and By-Laws; the Fund's prospectus, statement of additional
information, and undertakings; and such other limitations, policies and
procedures as the Trustees of the Trust may impose from time to time in writing
to the Advisor. In providing such services, the Advisor shall at all times
adhere to the provisions and restrictions contained in the federal securities
laws, applicable state securities laws, the Code, and other applicable law.
Without limiting the generality of the foregoing, the Advisor has
agreed to (i) furnish the Fund with advice and recommendations with respect to
the investment of the Fund's assets, (ii) effect the purchase and sale of
portfolio securities; (iii) manage and oversee the investments of the Fund,
subject to the ultimate supervision and direction of the Trust's Board of
Trustees; (iv) vote proxies and take other actions with respect to the Fund's
securities; (v) maintain the books and records required to be maintained with
respect to the securities in the Fund's portfolio; (vi) furnish reports,
statements and other data on securities, economic conditions and other matters
related to the investment of the Fund's assets which the Trustees or the
officers of the Trust may reasonably request; and (vi) render to the Trust's
Board of Trustees such periodic and special reports as the Board may reasonably
request. The Advisor has also agreed, at its own expense, to maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary to the performance of its
obligations under the Advisory Agreement. Personnel of the Advisor may serve as
officers of the Trust provided they do so without compensation from the Trust.
Without limiting the generality of the foregoing, the staff and personnel of the
Advisor shall be deemed to include persons employed or retained by the Advisor
to furnish statistical information, research, and other factual information,
advice regarding economic factors and trends, information with respect to
technical and scientific developments, and such other information, advice and
assistance as the Advisor or the Trust's Board of Trustees may desire and
reasonably request. With respect to the operation of the Fund, the Advisor has
agreed to be responsible for the expenses of printing and distributing extra
copies of the Fund's prospectus, statement of additional information, and sales
and advertising materials (but not the legal, auditing or accounting fees
attendant
B-14
<PAGE>
thereto) to prospective investors (but not to existing shareholders); and the
costs of any special Board of Trustees meetings or shareholder meetings convened
for the primary benefit of the Advisor.
As compensation for the Advisor's services, the Fund pays it an
advisory fee at the rate specified in the prospectus. In addition to the fees
payable to the Advisor and the Administrator, the 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
Advisor or Administrator; insurance premiums on property or personnel of the
Fund which inure to its benefit, including liability and fidelity bond
insurance; the cost of preparing and printing reports, proxy statements,
prospectuses and statements of additional information of the Fund or other
communications for distribution to existing shareholders; legal, auditing and
accounting fees; trade association dues; fees and expenses (including legal
fees) of registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining and servicing shareholder accounts, including all charges for
transfer, shareholder recordkeeping, dividend disbursing, redemption, and other
agents for the benefit of the Fund, if any; and all other charges and costs of
its operation plus any extraordinary and non-recurring expenses, except as
otherwise prescribed in the Advisory Agreement.
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.
During the period beginning April 8, 1997 and ending February 28, 1998,
the Advisor earned $8,353 in advisory fees. The Advisor voluntarily agreed to
limit total fund operating expenses to 1.50% of average net assets annually. As
a result of that limitation, the Advisor waived the full amount of its fee and
paid Fund operating expenses in the amount of $86,064.
The Advisor is controlled by William F. K. Schaff.
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.
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
B-15
<PAGE>
at a meeting called for the purpose of voting on such approval, and (ii) by the
Board of Trustees or by vote of a majority of the outstanding voting securities
of the Fund.
The Advisory Agreement is terminable by vote of the Board of Trustees
or by the holders of a majority of the outstanding voting securities of the Fund
at any time without penalty, on 60 days written notice to the Advisor. The
Advisory Agreement also may be terminated by the Advisor on 60 days written
notice to the Trust. The Advisory Agreement terminates automatically upon its
assignment (as defined in the 1940 Act).
The Administrator. The Administrator has agreed to be responsible for
providing such services as the Trustees may reasonably request, including but
not limited to (i) maintaining the Trust's books and records (other than
financial or accounting books and records maintained by any custodian, transfer
agent or accounting services agent); (ii) overseeing the Trust's insurance
relationships; (iii) preparing for the Trust (or assisting counsel and/or
auditors in the preparation of) all required tax returns, proxy statements and
reports to the Trust's shareholders and Trustees and reports to and other
filings with the 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 favorable
than that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Subject to such policies as the Advisor and the Board of Trustees of
the Trust may determine, the Advisor shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer that
provides (directly or indirectly) brokerage or research services to the Advisor
an amount of commission for effecting a portfolio transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities with respect to
the Fund. The Advisor is further authorized to allocate the orders placed by it
on behalf of the Fund to such brokers or dealers who also provide research or
statistical material, or other services, to the Trust, the Advisor, or any
affiliate of either. Such allocation shall be in such amounts and proportions as
the Advisor shall determine, and the Advisor shall report on such allocations
regularly to the Advisor and the Trust, indicating the broker-dealers to whom
such allocations have been made and the basis therefor. The Advisor is also
authorized to consider sales of shares of the Fund as a factor in the selection
of brokers or dealers
B-16
<PAGE>
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.
Brokerage commissions paid during the period beginning April 8, 1997
and ending February 28, 1998 aggregated $18,369.
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, trading in and valuation of foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. In addition, trading in and valuation of foreign securities may not take
place on every day in which the NYSE is open for trading. In that case, the
price used to determine the Fund's net asset value on the last day on which such
exchange was open will be used, unless the Trust's Board of Trustees determines
that a different price should be used. Furthermore, trading takes place in
various foreign markets on days in which the NYSE is not open for trading and on
which the Fund's net asset value is not calculated. Occasionally, events
affecting the values of such securities in U.S. dollars on a day on which the
Fund calculates its net asset value may occur between the times when such
securities are valued and the close of the NYSE that will not be reflected in
the computation of the Fund's net asset value unless the Board or its delegates
deem that such events would materially affect the net asset value, in which case
an adjustment would be made.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value, at fair value as determined in good faith by the
Advisor and the Trust's Pricing 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.
B-17
<PAGE>
Corporate debt securities are valued on the basis of valuations
provided by dealers in those instruments, by an independent pricing service,
approved by the Board, or at fair value as determined in good faith by
procedures approved by the Board. Any such pricing service, in determining
value, will use information with respect to transactions in the securities being
valued, quotations from dealers, market transactions in comparable securities,
analyses and evaluations of various relationships between securities and yield
to maturity information.
An option that is written by the Fund is generally valued at the last
sale price or, in the absence of the last sale price, the last offer price. An
option that is purchased by the Fund is generally valued at the last sale price
or, in the absence of the last sale price, the last bid price. If an options
exchange closes after the time at which the Fund's net asset value is
calculated, the last sale or last bid and asked prices as of that time will be
used to calculate the net asset value.
Any assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the official exchange rate or,
alternatively, at the mean of the current bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing service
that takes into account the quotes provided by a number of such major banks. If
neither of these alternatives is available or both are deemed not to provide a
suitable methodology for converting a foreign currency into U.S. dollars, the
Board in good faith will establish a conversion rate for such currency.
All other assets of the Fund are valued in such manner as the Board in
good faith deems appropriate to reflect their fair value.
TAXATION
The Fund intends to continue to qualify and elect to be treated as a
regulated investment company under Subchapter M of the 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 and securities, gains from the
sale or other disposition of stock or securities or foreign currency gains
related to investments in stock or securities, or other income (generally
including gains from options, futures or forward contracts) derived with respect
to the business of investing in stock, securities or currency, and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of its assets is represented by cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other
securities limited, for purposes of this calculation, in the case of other
securities of any one issuer to an amount not greater than 5% of the Fund's
assets or 10% or the voting securities of the issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies). As such, and by complying with the applicable provisions
of the Code, the Fund will not be subject to federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders in
accordance with the timing requirements of the Code. If the Fund is unable to
meet certain requirements of the Code, it may be subject to taxation as a
corporation.
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.
B-18
<PAGE>
The Fund or the securities dealer effecting a redemption of the Fund's
shares by a shareholder will be required to file information reports with the
Internal Revenue Service ("IRS") with respect to distributions and payments made
to the shareholder. In addition, the Fund will be required to withhold federal
income tax at the rate of 31% on taxable dividends, redemptions and other
payments made to accounts of individual or other non-exempt shareholders who
have not furnished their correct taxpayer identification numbers and certain
required certifications on the New Account application or with respect to which
the Fund or the securities dealer has been notified by the IRS that the number
furnished is incorrect or that the account is otherwise subject to withholding.
The Fund intends to declare and pay dividends and other distributions,
as stated in the prospectus. In order to avoid the payment of any federal excise
tax based on net income, the Fund must declare on or before December 31 of each
year, and pay on or before January 31 of the following year, distributions at
least equal to 98% of its ordinary income for that calendar year and at least
98% of the excess of any capital gains over any capital losses realized in the
one-year period ending October 31 of that year, together with any undistributed
amounts of ordinary income and capital gains (in excess of capital losses) from
the previous calendar year.
The Fund may receive dividend distributions from U.S. corporations. To
the extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.
If more than 50% in value of the total assets of the Fund at the end of
its fiscal year is invested in stock of securities of foreign corporations, the
Fund may elect to pass through to its shareholders the pro rata share of all
foreign income taxes paid by the Fund. If this election is made, shareholders
will be (i) required to include in their gross income their pro rata share of
the Fund's foreign source income (including any foreign income taxes paid by the
Fund), and (ii) entitled either to deduct their share of such foreign taxes in
computing their taxable income or to claim a credit for such taxes against their
U.S. income tax, subject to certain limitations under the Code, including
certain holding period requirements. In this case, shareholders will be informed
in writing by the Fund at the end of each calendar year regarding the
availability of any credits on and the amount of foreign source income
(including or excluding foreign income taxes paid by the Fund) to be included in
their income tax returns. If not more than 50% in value of the Fund's total
assets at the end of its fiscal year is invested in stock or securities of
foreign corporations, the Fund will not be entitled under the Code to pass
through to its shareholders their pro rata share of the foreign taxes paid by
the Fund. In this case, these taxes will be taken as a deduction by the Fund.
The Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.
The use of hedging strategies, such as entering into futures contracts
and forward contracts and purchasing options, involves complex rules that will
determine the character and timing of recognition of the income received in
connection therewith by the Fund. Income from foreign currencies (except certain
gains therefrom that may be excluded by future regulations) and income from
transactions in options, futures contracts and forward contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.
For accounting purposes, when the Fund purchases an option, the premium
paid by the Fund is recorded as an asset and is subsequently adjusted to the
current market value of the option. Any gain or loss realized by the Fund upon
the expiration or sale of such options held by the Fund generally will be
capital gain or loss.
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
B-19
<PAGE>
respect to certain straddle positions, which would otherwise constitute
short-term capital losses, be treated as long-term capital losses. Different
elections are available to the Fund that may mitigate the effects of the
straddle rules.
Certain options, futures contracts and forward contracts that are
subject to Section 1256 of the Code ("Section 1256 Contracts") and that are held
by the Fund at the end of its taxable year generally will be required to be
"marked to market" for federal income tax purposes, that is, deemed to have been
sold at market value. Sixty percent of any net gain or loss recognized on these
deemed sales and 60% of any net gain or loss realized from any actual sales of
Section 1256 Contracts will be treated as long-term capital gain or loss, and
the balance will be treated as short-term capital gain or loss.
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions that may affect the amount, timing and
character of income, gain or loss recognized by the Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign
currency-denominated debt instruments, foreign currency forward contracts and
foreign currency-denominated payables and receivables and foreign currency
options and futures contracts (other than options and futures contracts that are
governed by the mark-to-market and 60/40 rules of Section 1256 of the Code and
for which no election is made) is treated as ordinary income or loss. Some part
of the Fund's gain or loss on the sale or other disposition of shares of a
foreign corporation may, because of changes in foreign currency exchange rates,
be treated as ordinary income or loss under Section 988 of the Code, rather than
as capital gain or loss.
A shareholder who purchases shares of the Fund by tendering payment for
the shares in the form of other securities may be required to recognize gain or
loss for income tax purposes on the difference, if any, between the adjusted
basis of the securities tendered to the Fund and the purchase price of the
Fund's shares acquired by the shareholder.
Section 475 of the Code requires that a "dealer" in securities must
generally "mark to market" at the end of its taxable year all securities which
it owns. The resulting gain or loss is treated as ordinary (and not capital)
gain or loss, except to the extent allocable to periods during which the dealer
held the security for investment. The "mark to market" rules do not apply,
however, to a security held for investment which is clearly identified in the
dealer's records as being held for investment before the end of the day in which
the security was acquired. The IRS has issued guidance under Section 475 that
provides that, for example, a bank that regularly originates and sells loans is
a dealer in securities, and subject to the "mark to market" rules. Shares of the
Fund held by a dealer in securities will be subject to the "mark to market"
rules unless they are held by the dealer for investment and the dealer property
identifies the shares as held for investment.
Redemptions and exchanges of shares of the Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends with respect to such shares during such
six-month period. All or a portion of a loss realized upon the redemption of
shares of the Fund may be disallowed to the extent shares of the Fund are
purchased (including shares acquired by means of reinvested dividends) within 30
days before or after such redemption.
Distributions and redemptions may be subject to state and local income
taxes, and the treatment thereof may differ from the federal income tax
treatment. Foreign taxes may apply to non-U.S. investors.
The above discussion and the related discussion in the Prospectus are
not intended to be complete discussions of all applicable federal tax
consequences of an investment in the Fund. The law firm of Paul, Hastings,
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.
B-20
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Fund will receive income in the form of dividends and interest
earned on its investments in securities. This income, less the expenses incurred
in its operations, is the Fund's net investment income, substantially all of
which will be declared as dividends to the Fund's shareholders.
The amount of income dividend payments by the Fund is dependent upon
the amount of net investment income received by the Fund from its portfolio
holdings, is not guaranteed and is subject to the discretion of the Board. The
Fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.
The Fund also may derive capital gains or losses in connection with
sales or other dispositions of its portfolio securities. Any net gain the Fund
may realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held more than the period
required for long-term gain or loss recognition or otherwise producing long-term
capital gains and losses, the Fund will have a net long-term capital gain. After
deduction of the amount of any net short-term capital loss, the balance (to the
extent not offset by any capital losses carried over from the eight previous
taxable years) will be distributed and treated as long-term capital gains in the
hands of the shareholders regardless of the length of time the Fund's shares may
have been held by the shareholders. 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 of
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 tot he
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
B-21
<PAGE>
return over the period that would equate the initial amount invested to the
ending redeemable value. Average annual total return assumes the reinvestment of
all dividends and distributions.
For the period from April 8, 1997 (commencement of operations) through
February 28, 1998, the InformationTech 100(R) Fund had a Total Return of 50.75%.
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.
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") 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 is a newly organized entity and has no prior business
history. 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 two series of
B-22
<PAGE>
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.
The Fund's custodian, Star Bank, 425 Walnut Street, Cincinnati, Ohio
45202, is responsible for holding the Funds' assets. American Data Services, 150
Motor Parkway, Suite 109, Hauppauge, NY 11788 acts as the Fund's accounting
services agent. The Fund's independent accountants, 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 24, 1998.
On June 24, 1998, the following additional persons owned of record
and/or beneficially more than 5% of the Fund's outstanding voting securities:
Charles Schwab, 101 Montgomery Street, San Francisco, CA 94104; 73.65%
record.
Du Bain 1991 Trust, Myron Du Bain TTEE, 160 Sansome Street, 17th Floor,
San Francisco, Ca 94104; 14.90% record.
APPENDIX I
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
B-23
<PAGE>
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.
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.
APPENDIX II
As of the date of this SAI, each security held by the Fund is
categorized into one of the following industry classifications:
Prepackaged Software:
BMC Software, Inc; CBT Group PLC; Check Point Software Tech Ltd; Citrix
Systems, Inc; Computer Associates Int'l; Compuware Corp; Dataworks Corp;
Documentum, Inc; HNC Software, Inc; Hyperion Software Corp; Intuit, Inc;
Manugistics Group, Inc; Microsoft Corp; Network Associates, Inc; Platinum
Technology, Inc; Policy Management Systems; Sapient Corp; Security Dynamics
Technologies; Sterling Software, Inc; Symantec Corp;
Computer Programming Services:
Adobe Systems, Inc; American Management Systems; Baan company N.V.;
Cambridge Technology Partners; Comdisco, Inc; Computer Horizons Corp; Computer
Sciences Corp; Electronic Data Systems; HBO & Co; Keane, Inc; Oracle Corp;
PeopleSoft, Inc; SAP (Sponsored) ADR; Siebel Systems, Inc; Systems & Computer
Tech.; Wind River Systems, Inc;
Computer Internet Services:
America Online, Inc; At Home Corp; MindSpring Enterprises; Yahoo!, Inc;
B-24
<PAGE>
Computer Peripheral Equipment:
3Com Corp; Ascend Communications, Inc; Bay Networks, Inc; Cisco
Systems, Inc; Hewlett-Packard Co; International Business Machines, Corp; NCR
Corp; Sun Microsystems, Inc; Unisys Corp;
Telephone Apparatus:
ADC Telecommunications; Advanced Fibre Communications; LM Ericsson
Telephone Co; Lucent Technologies, Inc; Nokia Corp; Northern Telecom, Ltd;
PairGain Technologies; Tellabs, Inc;
Telephone Communications:
Airtouch Communications; AT&T Corp; Nextel Communications; Qwest
Communications International, Inc; WorldCom, Inc;
Cable TV:
Cox Communications, Inc; Tele-Communications, Inc; Viacom, Inc;
Computer Processing Services:
Affiliated Computer Services; Arbor Software Corp; Automatic Data
Processing; Ceridian Corp; First Data Corp; I2 Technologies, Inc; Legato
Systems, Inc; Transaction Systems Architects; Vanstar Corp; Vantive Corp;
Electronic Computers:
Compaq Computer Corp; Dell Computer Corp; Digital Equipment Corp;
Power Conversion/Supply:
American Power Conversion;
Investment Companies:
TCI Ventures Group;
Commercial Services:
Cendant Corp;
Computer Software:
Advent Software, Inc; Mercury Interactive Corp;
Computer Storage Devices:
EMC Corp; Seagate Technology; Storage Technology Corp; Veritas Software
Corp;
Semiconductors and Devices:
Intel Corp; Texas Instruments;
Computer-Integrated Systems:
Wang Laboratories, Inc;
Internet Software:
Sterling Commerce, Inc;
Office Machines:
Xerox Corp;
Communication Services:
Saville Systems, PLC;
Consultants:
Gartner Group, Inc;
General Industrial Machinery:
Hitachi, Ltd;
Communications Broadcasting Equipment:
Motorola, Inc.
B-25
<PAGE>
The American Trust
Allegiance Fund
One Court Street
Lebanon, New Hampshire 03766
PROSPECTUS
The American Trust Allegiance Fund (the "Fund") is a mutual fund with the
investment objective of capital appreciation. The Fund attempts to achieve its
objective by investing in equity securities. See "Investment Objective and
Policies." There can be no assurance that the Fund will achieve its investment
objective.
This Prospectus sets forth basic information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. The Fund is a separate series of Advisors Series
Trust (the "Trust"), an open-end registered management investment company. A
Statement of Additional Information (the "SAI") dated 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 information
about other companies that file electronically with the SEC.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
JUNE 29, 1998
<PAGE>
Table of Contents
Expense Table............................. 2
Financial Highlights...................... 4
Schedule of Investments................... 5
Investment Objective and Policies......... 9
Management of the Fund.................... 11
Investor Guide............................ 13
Services Available to Shareholders........ 15
How to Redeem Your Shares................. 16
Distributions and Taxes................... 18
General Information....................... 20
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. The Fund is a no-load mutual fund and has no shareholder
transaction expenses.
Annual Operating Expenses
(As a percentage of average net assets)
Investment Advisory Fees,
net of fee waivers - %
Other Expenses (net of expense
reimbursement) (1) 1.45%
--------
Total Fund Operating Expenses (1) 1.45%
(1) The Advisor has voluntarily agreed to reduce its fees and/or pay
expenses of the Fund to insure that the Fund's expenses will not exceed
1.45%. If the Advisor had not limited the Fund's expenses, "Investment
Advisory Fees" would have been 0.95%, "Other Expenses" would have been
3.09%, and "Total Operating Expenses" would have been 4.04% for the Fund's
fiscal year ended February 28, 1998. The Advisory Agreement permits
reimbursement by the Fund to the Advisor of fees waived or expenses
reimbursed within a three year period following such fee waivers or
expenses reimbursements provided they are approved by the Board of
Trustees, and the resulting Fund expenses do not exceed 1.45%. The Advisor
may seek reimbursement before current expenses of the Fund are paid. See
"Management of the Fund."
2
<PAGE>
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 5 Year 10 Year
$15 $46 $79$ $173
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 $2,500, with subsequent
minimum investments of $250 or more ($1,000 and $100, respectively, for
retirement plans and Automatic Investment Plans). Shares will be redeemed
at their next calculated net asset value.
3
<PAGE>
Financial Highlights
The table that follows is included in the Fund's Annual Report and has been
audited by McGladrey & Pullen, LLP, Independent Certified Public
Accountants. Their report on the financial statements and financial
highlights is included in the Annual Report. The financial statements and
financial highlights are incorporated by reference into (are legally a part
of) the Fund's Statement of Additional Information.
For a capital share outstanding throughout the period
- ------------------------------------------------------------
March 11, 1997+
through
February 28, 1998
- ------------------------------------------------------------
Net asset value, beginning of period $10.00
------
Income from investment operations:
Net investment loss (0.03)
Net realized and unrealized gain
on investments 3.51
------
Total from investment operations 3.48
------
Net asset value, end of period $13.48
======
Total return 34.80%*
Ratios/supplemental data:
Net assets, end of period (thousands) $6,360
Ratio of expenses to average net assets:
Before expense reimbursement 4.04%**
After expense reimbursement 1.45%**
Ratio of net investment loss
to average net assets: (0.42%)**
Portfolio turnover rate 27.65%
+Commencement of operations.
*Not annualized.
**Annualized.
4
<PAGE>
Schedule Of Investments
at February 28, 1998
- ------------------------------------------------------------
Shares COMMON STOCKS: 94.17% Market Value
- ------------------------------------------------------------
Airlines: 0.54%
1,200 Southwest Airlines $ 34,425
--------
Banks -
Major Regional: 8.33%
1,550 Fifth Third Bancorp 122,450
2,150 Mellon Bank 133,972
1,650 Northern Trust Corp. 125,245
2,400 State Street Corp. 148,350
--------
530,017
--------
Communication -
Equipment: 4.92%
1,550 Lucent Technologies 167,981
2,400 Tellabs, Inc.* 144,975
--------
312,956
--------
Computer Hardware: 2.14%
4,250 Compaq Computer Corp.* 136,266
--------
Computers -
Networking: 1.96%
1,887 Cisco Systems, Inc.* 124,365
--------
Computer Software /
Services: 9.48%
2,125 Computer Assoc. Int'l, Inc. 100,141
1,550 Computer Sciences Corp.* 162,266
1,950 Microsoft Corp.* 165,323
2,750 Oracle Corp.* 67,805
2,400 Peoplesoft, Inc.* 107,175
--------
602,710
--------
Distributor -
Food and Health: 2.00%
2,700 Sysco Corp. 127,069
--------
Electrical Equipment: 6.58%
2,200 Emerson Electric Co. 140,387
4,500 Molex, Inc. 136,688
2,925 Solectron Corp.* 141,497
--------
418,572
--------
5
<PAGE>
Schedule Of Investments
at February 28, 1998 Continued
- ------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------
Electronics -
Semiconductor: 4.13%
3,600 Applied Materials, Inc. 132,637
1,450 Intel Corp. 130,002
--------
262,639
--------
Entertainment: 2.38%
1,350 Walt Disney Company $ 151,116
--------
Financial (Diverse): 3.67%
1,850 Federal National Mortgage Assoc. 118,053
2,550 Sunamerica, Inc. 115,547
--------
233,600
--------
Foods: 3.99%
2,350 Campbell Soup Co. 136,447
3,900 Conagra, Inc. 117,000
--------
253,447
--------
Household Productss: 4.34%
1,550 Clorox Company 136,013
1,725 Colgate - Palmolive Co. 140,048
--------
276,061
--------
Insurance - Brokers: 1.91%
1,400 Marsh & McLennan, Inc. 121,362
--------
Insurance: 2.46%
1,300 American International Group 156,244
--------
Investment Bank /
Brokerage: 2.98%
1,900 Franklin Resources 96,900
1,400 T. Rowe Price Associates 92,925
--------
189,825
--------
Manufacture - Diverse: 4.68%
3,750 Allied Signal, Inc. 159,609
2,300 Illinois Tool Works 137,856
--------
297,465
--------
6
<PAGE>
Schedule Of Investments
at February 28, 1998 Continued
- ------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------
Manufacturer - Special: 3.86%
2,550 Diebold 131,006
1,700 Sealed Air Corp.* 114,431
--------
245,437
--------
Oil & Gas - Drilling and
Equipment: 3.47%
1,650 Halliburton Co. 76,725
1,850 Nabors Industries, Inc.* 42,319
1,350 Schlumberger Ltd. 101,756
--------
220,800
--------
Oil - International: 1.45%
1,700 Royal Dutch Petroleum $ 92,331
--------
Personal Care: 2.04%
1,200 Gillette Co. 129,450
--------
Retail - Specialty: 6.10%
3,400 Barnes & Noble, Inc.* 119,425
3,050 Bed Bath & Beyond, Inc* 132,008
4,100 Borders Group, Inc.* 136,581
--------
388,014
--------
Services - Commercial &
Consumer: 2.48%
3,700 Cintas Corp. 157,944
--------
Services - Computer
Systems: 1.69%
3,150 Sungard Data Systems, Inc.* 107,691
--------
Services -
Data Processing: 3.15%
1,550 Automatic Data Proc. 94,647
2,050 Paychex, Inc. 105,959
--------
200,606
--------
Telephone: 1.84%
1,550 SBC Communications 117,219
--------
7
<PAGE>
Schedule Of Investments
at February 28, 1998 Continued
- ------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------
Textiles - Apparel: 1.60%
1,850 Jones Apparel Group, Inc.* 101,750
---------
Total Common Stocks
(cost $4,870,242) 5,989,381
---------
SHORT-TERM INVESTMENTS
---------
$349,662 Star Treasury Fund: 4.62% $ 349,662
---------
(cost $349,662)
Total Investments in
Securities
(cost $5,219,904+): 99.67% 6,339,043
Other Assets
Less Liabilities: 0.33% 21,079
---------
Total Net Assets: 100.0% $ 6,360,122
=========
* Non-income producing security
+ At February 28, 1998, the cost of securities for Federal tax purposes was
$5,230,019. Unrealized appreciation and depreciation of securities were as
follows:
Gross unrealized appreciation $ 1,170,045
Gross unrealized depreciation (61,021)
---------
Net unrealized appreciation $ 1,109,024
=========
8
<PAGE>
Investment Objective And Policies
What is the Fund's investment objective?
The investment objective of the Fund is to seek capital appreciation. There
can be no assurance that the Fund will achieve its objective.
How does the Fund seek to achieve its objective?
American Trust Company (the "Advisor") selects equity securities for the
Fund's portfolio that it expects will appreciate in value over the long
term. The Advisor uses a "bottom up" approach to stock investing and does
not attempt to forecast the U.S. economy, interest rates, inflation or the
U.S. stock market. It focuses on finding companies which meet its financial
criteria, which include a history of consistent earnings and revenue
growth, or strong prospects of earnings and revenue growth, and a strong
balance sheet. The Advisor purchases the securities of a company with the
intention of holding them for a minimum of three years, subject to changes
in fundamentals, such as marked deceleration in earnings growth, decline in
revenues or deterioration of the balance sheet, or a change in a company's
valuation or competitive position. Companies should demonstrate leadership,
operating momentum and strong prospects for annual growth rates of 15% or
better. Normally, the companies in which the Fund invests represent the
eight major economic or market sectors.
The Fund will not invest in companies that have significant involvement in
the tobacco, pharmaceuticals, biotechnology, medical diagnostic services
and products, gambling and liquor industries. While a company may conduct
operations in one of these areas, the Fund will not invest in such a
company unless current revenues from these industries represent less than
5% of the total revenues of the company. The majority of companies in which
the Fund invests will have no operations in these industries.
The Advisor expects that the Fund's portfolio will generally consist
predominantly of large and mid-capitalization stocks, but in some market
9
<PAGE>
environments small capitalization stocks may constitute a large portion of
the Fund's portfolio. A small capitalization stock is considered to be one
which has a market capitalization of less than $500 million at the time of
investment. To the extent that the Fund does invest in small capitalization
stocks, there is the risk that its portfolio will be less marketable and
may be subject to greater fluctuations in price than a portfolio holding
stocks of larger issuers. Small capitalization stocks often pay no
dividends, but income is not a primary goal of the Fund. The Advisor does
not expect the Fund's annual turnover rate to exceed 50%.
There is, of course, no assurance that the Fund's objective will be
achieved. Because prices of common stocks and other securities fluctuate,
the value of an investment in the Fund will vary as the market value of its
investment portfolio changes.
Other securities the Fund might purchase.
Under normal market conditions, the Fund will invest at least 85% of its
total assets in common stocks. If the Advisor believes that 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 Statement of Additional Information. 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 diversified, which means that as to 75% of
its total assets, no more than 5% may be invested in the securities of a
single issuer and the Fund's position in any single issuer may not
represent more than 10% of such issuer's voting securities.
10
<PAGE>
Management of The Fund
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund.
The Advisor.
The Fund's Advisor, American Trust Company, One Court Street, Lebanon, New
Hampshire 03766 is dedicated primarily to providing investment management
services to individuals, charitable organizations, foundations and
corporations. The Advisor had not previously managed a mutual fund, but it
provides investment management services to individual and institutional
accounts with an aggregate value in excess of $175 million. Paul H. Collins
and Jeffrey M. Harris, CFA, are principally responsible for the management
of the Fund's portfolio. Mr. Collins (who controls the Advisor) has been
active in the investment field professionally for 23 years. Mr. Collins has
been President of the Advisor and has been managing portfolios of clients
of the Advisor for more than five years. Mr. Harris, Senior Vice President
of the Advisor, has been active in the investment field professionally for
21 years, managing portfolios for more than the last five years, and
managing portfolios of clients of the Advisor since he became associated
with the Advisor in 1995. Prior to that, he was a Vice President of Fleet
Investment Advisors, since 1990, where he also managed client portfolios.
The Advisor provides the Fund with advice on buying and selling securities,
manages the investments of the Fund, furnishes the Fund with office space
and certain administrative services, and provides most of the personnel
needed by the Fund. As compensation, the Fund pays the Advisor a monthly
management fee based upon the average daily net assets of the Fund at the
annual rate of 0.95%.
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
11
<PAGE>
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%, 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 Advisor considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these are more
fully discussed in the Statement of Additional Information, the factors
include, but are not limited to, the reasonableness of commissions, quality
of services and execution, and the availability of research which the
Advisor
12
<PAGE>
may lawfully and appropriately use in its investment advisory capacities.
Investor Guide
How to purchase shares of the Fund.
There are two ways to purchase shares of the Fund. Both of them require you
to complete an Application Form, which accompanies this Prospectus. If you
have questions about how to invest, or about how to complete the
Application Form, please call an account representative at (800) 385-7003.
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 American Trust Allegiance Fund) to
the Fund's Shareholder Servicing Agent:
American Trust Allegiance Fund
P.O. Box 640947
Cincinnati, OH 45264-0947
You may wire money to the Fund.
Before sending a wire, you should call the Fund at (800) 385-7003 between
9:00 a.m. and 5:00 p.m., Eastern time, on a day when the New York Stock
Exchange (the "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 American Trust Allegiance Fund
DDA #486444854
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 $2,500. The minimum
subsequent investment is $250. However, if you are investing in an
Individual Retirement Account ("IRA"), or you are
13
<PAGE>
starting an Automatic Investment Plan (see below), the minimum initial and
subsequent investments are $1,000 and $100, 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 (800) 385-7003.
When is money invested in the Fund?
Any money received for investment in the Fund, 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). The net asset value is
calculated at the close of regular trading on the NYSE, normally 4:00 p.m.,
Eastern time. A check or wire received after the NYSE closes is invested as
of the next calculation of the Fund's net asset value.
What is the net asset value of the Fund?
The Fund's net asset value per share is calculated by dividing the value of
the Fund's total assets, less its liabilities, by the number of its shares
outstanding. In calculating the net asset value, portfolio securities are
valued using current market values, if available. Securities for which
market quotations are not readily available are valued at fair values
determined in good faith by or under the supervision of the Board of
Trustees of the Trust. The fair value of short-term obligations with
remaining maturities of 60 days or less is considered to be their amortized
cost.
Other information.
First Fund Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix,
AZ 85018, an affiliate of the Administrator, is the principal underwriter
("Distributor") of the Fund's shares. The Distributor may waive the minimum
investment requirements for purchases by certain group or retirement plans.
All investments must be made
14
<PAGE>
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 any check used for
investment does not clear. The Fund and the Distributor reserve the right
to reject any investment, in whole or in part. Federal tax law requires
that investors provide a certified taxpayer identification number and other
certifications on opening an account in order to avoid backup withholding
of taxes. See the Application Form for more information about backup
withholding. The Fund is not required to issue share certificates; all
shares are normally held in non-certificated form on the books of the Fund,
for the account of the shareholder.
Services Available to Shareholders
Retirement Plans.
You may obtain prototype IRA plans from the Fund. Shares of the Fund are
also eligible investments for other types of retirement plans.
Automatic Investment Plan.
You may make regular monthly investments in the Fund using the Automatic
Investment Plan. An Automatic Clearing House (ACH) debit is drawn
electronically against your account at a Financial Institution of your
choice. Upon receipt of the withdrawn funds, the Fund automatically invests
the money in additional shares of the Fund at the next calculated net asset
value. There is no charge by the Fund for this service. The Fund may
terminate or modify this privilege at any time, and you may terminate your
participation by notifying American Data Services in writing, sufficiently
in advance of the next withdrawal. The minimum monthly investment amount is
$100.
Automatic withdrawals.
The Fund offers an Automatic Withdrawal Plan whereby you may request that a
check drawn in a predetermined amount be sent to you each month or calendar
quarter. To start this Plan, your account must have Fund shares with a
value of at least $10,000, and the minimum amount that may be withdrawn
each month or quarter is $50. The Plan may be terminated or modified by
15
<PAGE>
you or the Fund at any time without charge or penalty. A withdrawal under
the Automatic Withdrawal Plan involves a redemption of shares of the Fund,
and may result in a gain or loss for federal income tax purposes. In
addition, if the amount withdrawn exceeds the dividends credited to your
account, the account ultimately may be depleted.
How to Redeem Your Shares
You have the right to redeem all or any portion of your shares of the Fund
at their next calculated net asset value on each day the NYSE is open for
trading.
Redemption in writing.
You may redeem your shares by simply sending a written request to the Fund.
You should give your account number and state whether you want all or 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:
American Trust Allegiance Fund
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
Signature guarantee.
If the value of the shares you wish to redeem exceeds $5,000, the
signatures on the redemption request must be guaranteed by an "eligible
guarantor institution." These institutions include banks, broker-dealers,
credit unions and savings institutions. A broker-dealer guaranteeing a
signature must be a member of a clearing corporation or maintain net
capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any
eligible guarantor institution which participates in a signature guarantee
program. A notary public is not an acceptable guarantor.
Redemption by telephone.
If you complete the Redemption by Telephone portion of the Fund's
Application Form, you may redeem shares on any business day the NYSE is
open by calling the Fund's Shareholder Servicing
16
<PAGE>
Agent at (800) 385-7003 the close of trading. Redemption proceeds will be
mailed or wired, at your direction, on the next business day to the
Financial Institution 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 IRAs.
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.
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
17
<PAGE>
redemptions sent in writing are normally made promptly, but no later than
seven days after the receipt of a valid request. 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 can be avoided by investing by wire or by using a
certified or official bank check to make the purchase.
Other information about redemptions.
A redemption may result in recognition of a gain or loss for federal income
tax purposes. Due to the relatively high cost of maintaining smaller
accounts, the shares in your account (unless it is a retirement plan or
Uniform Gifts or Transfers to Minors Act account) may be redeemed by the
Fund if, due to redemptions you have made, the total value of your account
is reduced to less than $500. If the Fund determines to make such an
involuntary redemption, you will first be notified that the value of your
account is less than $500, and you will be allowed 30 days to make an
additional investment to bring the value of your account to at least $500
before the Fund takes any action.
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
18
<PAGE>
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.
Taxes
The Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986
(the "Code"). As long as 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 long-term 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 Statement of Additional Information. You should consult your own
advisers concerning federal, state and local taxation of distributions from
the Fund.
19
<PAGE>
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 $0.01 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 a
whole (e.g., election or removal of Trustees). Voting rights are not
cumulative, so that the holders of more than 50% of the shares voting in
any election of Trustees can, if they so choose, elect all of the Trustees.
While the Trust is not required and does not intend to hold annual meetings
of shareholders, such meetings may be called by the Trustees in their
discretion, or upon demand by the holders of 10% or more of the outstanding
shares of the Trust for the purpose of electing or removing Trustees. As of
June 15, 1998, the Fund was controlled by The Corestates Bank, N.A. William
N. Lane Trust.
Year 2000 risk.
Like other business organizations around the world, the Fund could be
adversely affected if the computer systems used by its investment advisor,
American Trust Company, 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
20
<PAGE>
Issue." The Fund's advisor has taken steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to its own computer
systems and the Fund has obtained assurances from the Fund's other service
providers that they are taking comparable steps. However, there can be no
assurance that these actions will be sufficient to avoid any adverse impact
on the Fund.
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.
Shareholder Inquiries.
Shareholder inquiries should be directed to the Shareholder Servicing Agent
at (800) 385-7003.
21
<PAGE>
Advisor
American Trust Company
One Court Street
Lebanon, NH 03766
1-800-788-8806
Distributor
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
Custodian
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Transfer Agent
American Data Services, Inc.
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
1-800-385-7003
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, NY 10017
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, CA 94104
<PAGE>
AMERICAN TRUST ALLEGIANCE 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 of the American
Trust Allegiance Fund (the "Fund"), a series of Advisors Series Trust (the
"Trust"). American Trust Company (the "Advisor") is the Advisor to the Fund. A
copy of the prospectus may be obtained from the Fund at One Court Street,
Lebanon, NH 03766.
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-5 Management of the Fund; General
Information
Portfolio Transactions and Brokerage................. B-8 Management of the Fund
Net Asset Value...................................... B-9 Investor Guide
Taxation ........................................... B-9 Distributions and Taxes
Dividends and Distributions.......................... B-12 Distributions and Taxes
Performance Information.............................. B-12 General Information
General Information.................................. B-13 General Information
Appendix............................................. B-14 Not applicable
</TABLE>
B-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to seek capital appreciation.
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.
Short-Term Investments
The Fund may invest in any of the following securities and instruments:
Bank Certificates or 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.
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-1" or higher by Standard & Poor's ("S&P"), "Prime-1" by
Moody's Investors Service, Inc. ("Moody's"), or similarly rated by another
nationally recognized statistical rating organization or, if unrated, will be
determined by the Advisor to be of comparable quality. These rating symbols are
described in Appendix A.
B-2
<PAGE>
Money Market Funds
The Fund may under certain circumstances invest a portion of its assets
in money market funds. The Investment Company Act of 1940 (the "1940 Act")
prohibits the Fund from investing more than 5% of the value of its total assets
in any one investment company. or more than 10% of the value of its total assets
in investment companies as a group, and also restricts its investment in any
investment company to 3% of the voting securities of such investment company.
The Advisor will not impose advisory fees on assets of the Fund invested in a
money market mutual fund. However, an investment in a money market mutual fund
will involve payment by the Fund of its pro rata share of advisory and
administrative fees charged by such fund.
Government Obligations
The Fund may make short-term investments in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association.
Some of these obligations, such as those of the GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
Foreign Investments and Currencies
The Fund may invest in securities of foreign issuers that are publicly
traded in the United States. The Fund may also invest up to 5% of its total
assets in depositary receipts.
Depositary Receipts. Depositary Receipts ("DRs") include American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other forms of depositary receipts. DRs are
receipts typically issued in connection with a U.S. or foreign bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation.
Risks of Investing in Foreign Securities. Investments in foreign
securities involve certain inherent risks, including the following:
Political and Economic Factors. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
Legal and Regulatory Matters. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
Taxes. The interest 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.
In considering whether to invest in the securities of a foreign
company, the Advisor considers such factors as the characteristics of the
particular company, differences between economic trends and the performance of
B-3
<PAGE>
securities markets within the U.S. and those within other countries, and also
factors relating to the general economic, governmental and social conditions of
the country or countries where the company is located. The extent to which the
Fund will be invested in foreign companies and countries and depository receipts
will fluctuate from time to time within the limitations described in the
prospectus, depending on the Advisor's assessment of prevailing market, economic
and other conditions.
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.
Borrowing
The Fund is authorized to borrow money from time to time for temporary,
extraordinary or emergency purposes or for clearance of transactions in amounts
up to 5% of the value of its total assets at the time of such borrowings.
Risks of Investing in Small Companies
As stated in the prospectus, the Fund may invest in securities of small
companies. Additional risks of such investments include the markets on which
such securities are frequently traded. In many instances the securities of
smaller companies are traded only over-the-counter or on a regional securities
exchange, and the frequency and volume of their trading is substantially less
than is typical of larger companies. Therefore, the securities of smaller
companies may be subject to greater and more abrupt price fluctuations. When
making large sales, the Fund may have to sell portfolio holdings at discounts
from quoted prices or may have to make a series of small sales over an extended
period of time due to the trading volume of smaller company securities.
Investors should be aware that, based on the foregoing factors, an investment in
the Fund may be subject to greater price fluctuations than an investment in a
fund that invests exclusively in larger, more established companies. The
Advisor's research efforts may also play a greater role in selecting securities
for the Fund than in a fund that invests in larger, more established companies.
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.
As a matter of fundamental policy, the Fund is diversified; i.e., as to
75% of the value of a its total assets: (i) no more than 5% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities); and (ii) the Fund's position in any single issuer
may not represent more than 10% of such issuer's voting securities. The Fund's
investment objective is also fundamental.
In addition, the Fund may not:
B-4
<PAGE>
1. Issue senior securities, borrow money or pledge its assets, except
that (i) the Fund may borrow on an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions in amounts not exceeding
5% of its total assets (not including the amount borrowed), provided that it
will not make investments while borrowings in excess of 5% of the value of its
total assets are outstanding;
2. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;
3. Act as underwriter (except to the extent the Fund may be deemed to
be an underwriter in connection with the sale of securities in its investment
portfolio);
4. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);
5. Purchase or sell real estate or interests in real estate or real
estate limited partnerships (although the Fund may purchase and sell securities
which are secured by real estate and securities of companies which invest or
deal in real estate);
6. Purchase or sell commodities or commodity futures contracts;
7. Make loans of money (except for purchases of debt securities
consistent with the investment policies of the Fund and except for repurchase
agreements); or
8. Make investments for the purpose of exercising control or
management.
The Fund observes the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal regulatory
authorities:
The Fund may not:
1. Invest in the securities of other investment companies or purchase
any other investment company's voting securities or make any other investment in
other investment companies except to the extent permitted by federal law; or
2. Invest in securities which are restricted as to disposition or
otherwise are illiquid or have no readily available market (except for
securities which are determined by the Board of Trustees to be liquid).
MANAGEMENT
The overall management of the business and affairs of the Trust is
vested with its Board of Trustees. The Board approves all significant agreements
between the Trust and persons or companies furnishing services to it, including
the agreements with the Advisor, Administrator, Custodian and Transfer Agent.
The day to day operations of the Trust are delegated to its officers, subject to
the Fund's investment 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.,
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.
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C> <C>
Donald E. O'Connor (62) Trustee Financial Consultant; Director, The Parnassus Fund and The
1700 Taylor Avenue Parnassus 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 Home Loan Bank of
305 Glendora Circle San Francisco (since March, 1993); formerly Director of
Danville, CA 94526 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
New York, NY 10011 President 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
Suite 261-E Distributors, Inc.; Vice President, Professionally Managed Portfolios;
Phoenix, AZ 85018 President, 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. (from
Suite 261-E August, 1995 until July, 1996); O'Connor, Cavanagh, Anderson,
Phoenix, AZ 85018 Killingsworth and Beshears (law firm) (until August, 1995) .
</TABLE>
* denotes Trustee who is an "interested person" of the Trust under the 1940 Act.
Name and Position Aggregate Compensation from The Trust*
- ----------------- --------------------------------------
Walter E. Auch, Sr., Trustee $12,000
Donald E. O'Connor, Trustee $12,000
George T. Wofford III, Trustee $12,000
*Estimated for the current fiscal year. The Trust has no pension or retirement
plan. No other entity affiliated with the Trust pays any compensation to the
Trustees.
The Advisor
Subject to the supervision of the Board of Trustees, investment
management and related services are provided by the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement").
Under the Advisory Agreement, the Advisor agrees to invest the assets
of the Fund in accordance with the investment objectives, policies and
restrictions of the Fund as set forth in the Fund's and Trust's governing
documents, including, without limitation, the Trust's Agreement and Declaration
of Trust and By-Laws; the Fund's prospectus, statement of additional
information, and undertakings; and such other limitations, policies and
procedures as the Trustees of the Trust may impose from time to time in writing
to the Advisor. In providing such services, the Advisor shall at all times
adhere to the provisions and restrictions contained in the federal securities
laws, applicable state securities laws, the Internal Revenue Code of 1986 (the
"Code"), and other applicable law.
B-6
<PAGE>
Without limiting the generality of the foregoing, the Advisor has
agreed to (I) furnish the Fund with advice and recommendations with respect to
the investment of the Fund's assets, (ii) effect the purchase and sale of
portfolio securities; (iii) manage and oversee the investments of the Fund,
subject to the ultimate supervision and direction of the Trust's Board of
Trustees; (iv) vote proxies and take other actions with respect to the Fund's
securities; (v) maintain the books and records required to be maintained with
respect to the securities in the Fund's portfolio; (vi) furnish reports,
statements and other data on securities, economic conditions and other matters
related to the investment of the Fund's assets which the Trustees or the
officers of the Trust may reasonably request; and (vi) render to the Trust's
Board of Trustees such periodic and special reports as the Board may reasonably
request. The Advisor has also agreed, at its own expense, to maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary to the performance of its
obligations under the Advisory Agreement. Personnel of the Advisor may serve as
officers of the Trust provided they do so without compensation from the Trust.
Without limiting the generality of the foregoing, the staff and personnel of the
Advisor shall be deemed to include persons employed or retained by the Advisor
to furnish statistical information, research, and other factual information,
advice regarding economic factors and trends, information with respect to
technical and scientific developments, and such other information, advice and
assistance as the Advisor or the Trust's Board of Trustees may desire and
reasonably request. With respect to the operation of the Fund, the Advisor has
agreed to be responsible for the expenses of printing and distributing extra
copies of the Fund's prospectus, statement of additional information, and sales
and advertising materials (but not the legal, auditing or accounting fees
attendant thereto) to prospective investors (but not to existing shareholders);
and the costs of any special Board of Trustees meetings or shareholder meetings
convened for the primary benefit of the Advisor.
As compensation for the Advisor's services, the Fund pays it an
advisory fee at the rate specified in the prospectus. In addition to the fees
payable to the Advisor and the Administrator, the 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
Advisor or Administrator; insurance premiums on property or personnel of the
Fund which inure to its benefit, including liability and fidelity bond
insurance; the cost of preparing and printing reports, proxy statements,
prospectuses and statements of additional information of the Fund or other
communications for distribution to existing shareholders; legal, auditing and
accounting fees; trade association dues; fees and expenses (including legal
fees) of registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining and servicing shareholder accounts, including all charges for
transfer, shareholder recordkeeping, dividend disbursing, redemption, and other
agents for the benefit of the Fund, if any; and all other charges and costs of
its operation plus any extraordinary and non-recurring expenses, except as
otherwise prescribed in the Advisory Agreement.
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.
B-7
<PAGE>
During the period beginning March 11, 1997 and ending February 28,
1998, the Advisor earned $34,946 in advisory fees. The Advisor voluntarily
agreed to limit total Fund operating expenses to 1.45% of average net assets
annually. As a result of that limitation, the Advisor waived the full amount to
its fee and paid Fund operating expenses in the amount of $60,728.
The Advisor is controlled by Paul H. Collins, its President.
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.
The Advisory Agreement will remain in effect for a period not to exceed
two years. Thereafter, if not terminated, the Advisory Agreement will continue
automatically for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a majority vote of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund.
The Advisory Agreement is terminable by vote of the Board of Trustees
or by the holders of a majority of the outstanding voting securities of the Fund
at any time without penalty, on 60 days written notice to the Advisor. The
Advisory Agreement also may be terminated by the Advisor on 60 days written
notice to the Trust. The Advisory Agreement terminates automatically upon its
assignment (as defined in the 1940 Act).
The Administrator. The Administrator has agreed to be responsible for
providing such services as the Trustees may reasonably request, including but
not limited to (i) maintaining the Trust's books and records (other than
financial or accounting books and records maintained by any custodian, transfer
agent or accounting services agent); (ii) overseeing the Trust's insurance
relationships; (iii) preparing for the Trust (or assisting counsel and/or
auditors in the preparation of) all required tax returns, proxy statements and
reports to the Trust's shareholders and Trustees and reports to and other
filings with the Securities and Exchange 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 sale of shares of the Trust in 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 favorable
than that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
B-8
<PAGE>
Subject to such policies as the Advisor and the Board of Trustees of
the Trust may determine, the Advisor shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer that
provides (directly or indirectly) brokerage or research services to the Advisor
an amount of commission for effecting a portfolio transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities with respect to
the Fund. The Advisor is further authorized to allocate the orders placed by it
on behalf of the Fund to such brokers or dealers who also provide research or
statistical material, or other services, to the Trust, the Advisor, or any
affiliate of either. Such allocation shall be in such amounts and proportions as
the Advisor shall determine, and the Advisor shall report on such allocations
regularly to the Advisor and the Trust, indicating the broker-dealers to whom
such allocations have been made and the basis therefor. The Advisor is also
authorized to consider sales of shares of the Fund as a factor in the selection
of brokers or dealers 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.
Brokerage commissions paid during the period beginning March 11, 1997
and ending February 28, 1998 aggregated $43,559.
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 ("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 Pricing 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 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.
B-9
<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, as amended (the "Code"), for each taxable year by complying with all
applicable requirements regarding the source of its income, the diversification
of its assets, and the timing of its distributions. The Fund's policy is to
distribute to its shareholders all of its investment company taxable income and
any net realized capital gains for each fiscal year in a manner that complies
with the distribution requirements of the Code, so that the Fund will not be
subject to any federal income or excise taxes based on net income. However, the
Board may elect to pay such excise taxes if it determines that payment is, under
the circumstances, in the best interests of the Fund.
In order to qualify as a regulated investment company, the Fund must,
among other things, (a) derive at least 90% of its gross income each year from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock and securities, gains from the
sale or other disposition of stock or securities or foreign currency gains
related to investments in stock or securities, or other income (generally
including gains from options, futures or forward contracts) derived with respect
to the business of investing in stock, securities or currency, and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of its assets is represented by cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other
securities limited, for purposes of this calculation, in the case of other
securities of any one issuer to an amount not greater than 5% of the Fund's
assets or 10% or the voting securities of the issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies). As such, and by complying with the applicable provisions
of the Code, the Fund will not be subject to federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders in
accordance with the timing requirements of the Code. If the Fund is unable to
meet certain requirements of the Code, it may be subject to taxation as a
corporation.
Distributions of net investment income and net realized capital gains
by the Fund will be taxable to shareholders whether made in cash or reinvested
by the Fund in shares. In determining amounts of net realized capital gains to
be distributed, any capital loss carry-overs from the eight prior taxable years
will be applied against capital gains. Shareholders receiving a distribution
from the Fund in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date. Fund distributions also
will be included in individual and corporate shareholders' income on which the
alternative minimum tax may be imposed.
The Fund or the securities dealer effecting a redemption of the Fund's
shares by a shareholder will be required to file information reports with the
Internal Revenue Service ("IRS") with respect to distributions and payments made
to the shareholder. In addition, the Fund will be required to withhold federal
income tax at the rate of 31% on taxable dividends, redemptions and other
payments made to accounts of individual or other non-exempt shareholders who
have not furnished their correct taxpayer identification numbers and certain
required certifications on the New Account application or with respect to which
the Fund or the securities dealer has been notified by the IRS that the number
furnished is incorrect or that the account is otherwise subject to withholding.
The Fund intends to declare and pay dividends and other distributions,
as stated in the prospectus. In order to avoid the payment of any federal excise
tax based on net income, the Fund must declare on or before December 31 of each
year, and pay on or before January 31 of the following year, distributions at
least equal to 98% of its ordinary income for that calendar year and at least
98% of the excess of any capital gains over any capital losses realized in the
one-year period ending October 31 of that year, together with any undistributed
amounts of ordinary income and capital gains (in excess of capital losses) from
the previous calendar year.
The Fund may receive dividend distributions from U.S. corporations. To
the extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.
B-10
<PAGE>
If more than 50% in value of the total assets of the Fund at the end of
its fiscal year is invested in stock of securities of foreign corporations, the
Fund may elect to pass through to its shareholders the pro rata share of all
foreign income taxes paid by the Fund. If this election is made, shareholders
will be (i) required to include in their gross income their pro rata share of
the Fund's foreign source income (including any foreign income taxes paid by the
Fund), and (ii) entitled either to deduct their share of such foreign taxes in
computing their taxable income or to claim a credit for such taxes against their
U.S. income tax, subject to certain limitations under the Code, including
certain holding period requirements. In this case, shareholders will be informed
in writing by the Fund at the end of each calendar year regarding the
availability of any credits on and the amount of foreign source income
(including or excluding foreign income taxes paid by the Fund) to be included in
their income tax returns. If not more than 50% in value of the Fund's total
assets at the end of its fiscal year is invested in stock or securities of
foreign corporations, the Fund will not be entitled under the Code to pass
through to its shareholders their pro rata share of the foreign taxes paid by
the Fund. In this case, these taxes will be taken as a deduction by the Fund.
The Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.
The use of hedging strategies, such as entering into futures contracts
and forward contracts and purchasing options, involves complex rules that will
determine the character and timing of recognition of the income received in
connection therewith by the Fund. Income from foreign currencies (except certain
gains therefrom that may be excluded by future regulations) and income from
transactions in options, futures contracts and forward contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.
For accounting purposes, when the Fund purchases an option, the premium
paid by the Fund is recorded as an asset and is subsequently adjusted to the
current market value of the option. Any gain or loss realized by the Fund upon
the expiration or sale of such options held by the Fund generally will be
capital gain or loss.
Any security, option, or other position entered into or held by the
Fund that substantially diminishes the Fund's risk of loss from any other
position held by the Fund may constitute a "straddle" for federal income tax
purposes. In general, straddles are subject to certain rules that may affect the
amount, character and timing of the Fund's gains and losses with respect to
straddle positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that the Fund's holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Fund that may mitigate the effects of the straddle rules.
Certain options, futures contracts and forward contracts that are
subject to Section 1256 of the Code ("Section 1256 Contracts") and that are held
by the Fund at the end of its taxable year generally will be required to be
"marked to market" for federal income tax purposes, that is, deemed to have been
sold at market value. Sixty percent of any net gain or loss recognized on these
deemed sales and 60% of any net gain or loss realized from any actual sales of
Section 1256 Contracts will be treated as long-term capital gain or loss, and
the balance will be treated as short-term capital gain or loss.
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions that may affect the amount, timing and
character of income, gain or loss recognized by the Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign
currency-denominated debt instruments, foreign currency forward contracts and
foreign currency-denominated payables and receivables and foreign currency
options and futures contracts (other than options and futures contracts that are
governed by the mark-to-market and 60/40 rules of Section 1256 of the Code and
for which no election is made) is treated as ordinary income or loss. Some part
of the Fund's gain or loss on the sale or other disposition of shares of a
foreign corporation may, because of changes in foreign currency exchange rates,
be treated as ordinary income or loss under Section 988 of the Code, rather than
as capital gain or loss.
B-11
<PAGE>
A shareholder who purchases shares of the Fund by tendering payment for
the shares in the form of other securities may be required to recognize gain or
loss for income tax purposes on the difference, if any, between the adjusted
basis of the securities tendered to the Fund and the purchase price of the
Fund's shares acquired by the shareholder.
Section 475 of the Code requires that a "dealer" in securities must
generally "mark to market" at the end of its taxable year all securities which
it owns. The resulting gain or loss is treated as ordinary (and not capital)
gain or loss, except to the extent allocable to periods during which the dealer
held the security for investment. The "mark to market" rules do not apply,
however, to a security held for investment which is clearly identified in the
dealer's records as being held for investment before the end of the day in which
the security was acquired. The IRS has issued guidance under Section 475 that
provides that, for example, a bank that regularly originates and sells loans is
a dealer in securities, and subject to the "mark to market" rules. Shares of the
Fund held by a dealer in securities will be subject to the "mark to market"
rules unless they are held by the dealer for investment and the dealer property
identifies the shares as held for investment.
Redemptions and exchanges of shares of the Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends with respect to such shares during such
six-month period. All or a portion of a loss realized upon the redemption of
shares of the Fund may be disallowed to the extent shares of the Fund are
purchased (including shares acquired by means of reinvested dividends) within 30
days before or after such redemption.
Distributions and redemptions may be subject to state and local income
taxes, and the treatment thereof may differ from the federal income tax
treatment. Foreign taxes may apply to non-U.S. investors.
The above discussion and the related discussion in the Prospectus are
not intended to be complete discussions of all applicable federal tax
consequences of an investment in the Fund. The law firm of Paul, Hastings,
Janofsky & Walker LLP has expressed no opinion in respect thereof. Nonresident
aliens and foreign persons are subject to different tax rules, and may be
subject to withholding of up to 30% on certain payments received from the Fund.
Shareholders are advised to consult with their own tax advisers concerning the
application of foreign, federal, state and local taxes to an investment in the
Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund will receive income in the form of dividends and interest
earned on its investments in securities. This income, less the expenses incurred
in its operations, is the Fund's net investment income, substantially all of
which will be declared as dividends to the Fund's shareholders.
The amount of income dividend payments by the Fund is dependent upon
the amount of net investment income received by the Fund from its portfolio
holdings, is not guaranteed and is subject to the discretion of the Board. The
Fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.
The Fund also may derive capital gains or losses in connection with
sales or other dispositions of its portfolio securities. Any net gain the Fund
may realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held more than the period
required for long-term gain or loss recognition or otherwise producing long-term
capital gains and losses, the Fund will have a net long-term capital gain. After
deduction of the amount of any net short-term capital loss, the balance (to the
extent not offset by any capital losses carried over from the eight previous
taxable years) will be distributed and treated as long-term capital gains in the
hands of the shareholders regardless of the length of time the Fund's shares may
have been held by the shareholders. 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.
B-12
<PAGE>
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 of
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 tot he
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.
For the period from March 11, 1997 (commencement of operations) through
February 28, 1998, the American Trust Allegiance Fund had a Total Return of
34.80%.
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.
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.
B-13
<PAGE>
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") 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 is a newly organized entity and has no prior business
history. 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 Trust'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 one series of
shares, and may create additional series in the future, which have separate
assets and liabilities. In the event more than one series were created, income
and operating expenses not specifically attributable to a particular Fund would
be allocated fairly among the Funds by the Trustees, generally on the basis of
the relative net assets of each Fund.
Rule 18f-2 under the 1940 Act provides that as to any investment
company which has two or more series outstanding and as to any matter required
to be submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
The Trust's custodian, Star Bank, 425 Walnut Street, Cincinnati, Ohio
45202, is responsible for holding the Funds' assets. American Data Services, 24
W. Carver Street, Huntington, NY 11743 acts as the Fund's accounting services
agent. The Trust'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 15, 1998. As of June 15, 1998, the Fund was controlled by
The Corestates Bank, N.A. William N. Lane Trust, the address of which is 370
Scotch Road, West Trenton, NJ 08628, which owned 33.97% of the Fund's
outstanding shares. The controlling shareholder would be able to control
decisions made by shareholders with respect to matters affecting only the Fund,
such as the Investment Advisor Agreement.
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
B-14
<PAGE>
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.
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-15
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
Contained in Part A, the Prospectus:
Financial Highlights
Contained in Part B, the Statement of Additional Information
Incorporated by reference from the Annual Report to
Shareholders for the period ended February 28, 1998
(b) Exhibits:
(1) Agreement and Declaration of Trust (1)
(2) By-Laws (1)
(3) Not applicable
(4) Specimen stock certificates (3)
(5) Form of Investment Advisory Agreement (2)
(6) Distribution Agreement (2)
(7) Not applicable
(8) Custodian Agreement (3)
(9) (1) Administration Agreement with Investment
Company Administration Corporation (2)
(2) Fund Accounting Service Agreement (2)
(3) Transfer Agency and Service Agreement (2)
(10) (i) Opinion and consent of counsel relating to
the Rockhaven Premier Dividend Fund
(ii) Opinion and consent of counsel relating to
The Heritage West Dividend Capture Income
Fund
(iii) Opinion and consent of counsel relating to
Liberty Freedom Fund
(11) Consent of Independent Auditors
(12) Not applicable
(13) Investment letters (3)
C-1
<PAGE>
(14) Individual Retirement Account forms (4)
(15) (i) Form of Share Marketing Plan
(16) Not applicable
(1) Previously filed with the Registration Statement on Form N-1A(File
No. 33-17391) on December 6, 1996 and incorporated herein by reference.
(2) Previously filed with Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A(File No. 33-17391) on January 29, 1997 and
incorporated herein by reference.
(3) Previously filed with Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A(File No. 33-17391) on February 28, 1997
and incorporated herein by reference.
(4) To be filed by amendment.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
Shares of Beneficial Interest
Number of record holders as of June 23, 1998
American Trust Allegiance Fund: 382
InformationTech 100 Fund: 43
Kaminski Poland Fund: 401
Ridgeway-Helms Millennium Fund: 115
Rockhaven Fund: 62
Rockhaven Premier Dividend Fund: 37
Chase Growth Fund: 89
The Avatar Advantage Equity Allocation Fund: 6
Edgar Lomax Value Fund: 51
Al Frank Asset Management Fund: 323
The Avatar Advantage Balanced Fund: 2
C-2
<PAGE>
The Avatar Advantage International Equity
Allocation Fund 5
The Heritage West Dividend Capture Income Fund 18
Item 27. Indemnification.
Article VI of Registrant's By-Laws states as follows:
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a Trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
Trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
Trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of this Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding, if it is determined that person acted in
good faith and reasonably believed:
(a) in the case of conduct in his official capacity as a Trustee
of the Trust, that his conduct was in the Trust's best
interests, and
(b) in all other cases, that his conduct was at least not opposed
to the Trust's best interests, and
(c) in the case of a criminal proceeding, that he had no
reasonable cause to believe the conduct of that person was
unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of this
Trust or that the person had reasonable cause to believe that the person's
conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action by or in the right of this Trust to procure a
judgment in its favor by reason of the fact that that person is or was an agent
of this Trust, against expenses actually and reasonably incurred by that person
in connection with the defense or settlement of that action if that person acted
in good faith, in a manner that person believed to be in the best interests of
this Trust and with such care, including reasonable inquiry, as
C-3
<PAGE>
an ordinarily prudent person in a like position would use under similar
circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision
to the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue, or matter as to which that
person shall have been adjudged to be liable on the basis that
personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in the person's
official capacity; or
(b) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable in the
performance of that person's duty to this Trust, unless and
only to the extent that the court in which that action was
brought shall determine upon application that in view of all
the circumstances of the case, that person was not liable by
reason of the disabling conduct set forth in the preceding
paragraph and is fairly and reasonably entitled to indemnity
for the expenses which the court shall determine; or
(c) of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval,
or of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court
approval, unless the required approval set forth in Section 6
of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Trustees, including a majority who are disinterested, non-party Trustees, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of Trustees who are not
parties to the proceeding and are not interested persons of
the Trust (as defined in the Investment Company Act of 1940);
or
C-4
<PAGE>
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding upon a written undertaking by or on behalf of the agent, to repay the
amount of the advance if it is ultimately determined that he or she is not
entitled to indemnification, together with at least one of the following as a
condition to the advance: (i)security for the undertaking; or (ii) the existence
of insurance protecting the Trust against losses arising by reason of any lawful
advances; or (iii) a determination by a majority of a quorum of Trustees who are
not parties to the proceeding and are not interested persons of the Trust, or by
an independent legal counsel in a written opinion, based on a review of readily
available facts that there is reason to believe that the agent ultimately will
be found entitled to indemnification. Determinations and authorizations of
payments under this Section must be made in the manner specified in Section 6 of
this Article for determining that the indemnification is permissible.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6 in any circumstances
where it appears:
(a) that it would be inconsistent with a provision of the
Agreement and Declaration of Trust of the Trust, a resolution
of the shareholders, or an agreement in effect at the time of
accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other
amounts were paid which prohibits or otherwise limits
indemnification; or
(b) that it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article and the Agreement and Declaration of Trust of the
Trust.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other
C-5
<PAGE>
fiduciary may be entitled by contract or otherwise which shall be enforceable to
the extent permitted by applicable law other than this Article.
Item 28. Business and Other Connections of Investment Adviser.
The information required by this item with respect to American Trust
Company is as follows:
American Trust Company is a trust company chartered under the
laws of the State of New Hampshire. Its President and Director, Paul H.
Collins, is a director of:
MacKenzie-Childs, Ltd.
3260 State Road 90
Aurora, New York 13026
Great Northern Arts
Castle Music, Inc.
World Family Foundation
all with an address at
Gordon Road, Middletown, New York
Robert E. Moses, a Director of American Trust Company, is a director
of:
Mascoma Mutual Hold Corp.
On The Green
Lebanon, NH 03766
Information required by this item is contained in the Form ADV of the
following entities and is incorporated herein by reference:
Name of investment adviser File No.
-------------------------- --------
Bay Isle Financial Corporation 801-27563
Kaminski Asset Management, Inc. 801-53485
Ridgeway Helms Investment Management 801-49884
Rockhaven Asset Management, LLC 801-54084
Chase Investment Counsel Corp. 801-3396
Avatar Investors Associates Corp. 801-7061
The Edgar Lomax Company 801-19358
Van Deventer & Hoch 801-6118
Al Frank Asset Management, Inc. 801-30528
Heritage West Advisors, LLC 801-55233
Item 29. Principal Underwriters.
(a) The Registrant's principal underwriter also acts as principal
underwriter for the following investment companies:
Guinness Flight Investment Funds, Inc.
Fleming Capital Mutual Fund Group
Fremont Mutual Funds
Jurika & Voyles Mutual Funds
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
C-6
<PAGE>
PIC Investment Trust
Purisima Fund
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group
(b) The following information is furnished with respect to the officers
and directors of First Fund Distributors, Inc.:
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ---------------- -------------------- ----------
Robert H. Wadsworth President Vice
4455 E. Camelback Road and Treasurer President
Suite 261E
Phoenix, AZ 85018
Eric M. Banhazl Vice President President,
2025 E. Financial Way Treasurer
Glendora, CA 91741 and Trustee
Steven J. Paggioli Vice President & Vice
479 West 22nd Street Secretary President
New York, New York 10011
(c) Not applicable.
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession of the following persons:
(a) the documents required to be maintained by paragraph (4) of Rule
31a-1(b) will be maintained by the Registrant;
(b) the documents required to be maintained by paragraphs (5), (6),
(10) and (11) of Rule 31a-1(b) will be maintained by the respective investment
advisors:
American Trust Company, One Court Street, Lebanon, NH 03766
Bay Isle Financial Corporation, 160 Sansome Street, San Francisco, CA
94104
Kaminski Asset Management, Inc., 210 Second Street, North, #050,
Minneapolis, MN 55401
Ridgeway Helms Investment Management, 303 Twin Dolphin Drive, Redwood
Shores, CA 94065
C-7
<PAGE>
Rockhaven Asset Management, 100 First Avenue, Suite 1050, Pittsburgh,
PA 15222
Chase Investment Counsel Corp., 300 Preston Avenue, Charlottesville, VA
22902
Avatar Associates Investment Corp., 900 Third Avenue, New York, NY
10022
The Edgar Lomax Company, 6564 Loisdale Court, Springfield, VA 22150
Van Deventer & Hoch, 800 North Bend Boulevard, Glendale, CA 91203
Al Frank Asset Management, Inc. 465 Forest Avenue, Laguna Beach, CA
92651
Heritage West Advisors, LLC, 1850 North Central Ave., Suite 610,
Phoenix, AZ 85004
(c) with respect to The Heritage West Dividend Capture Income Fund
series of the Registrant, all other records will be maintained by the
Registrant; and
(d) all other documents will be maintained by Registrant's custodian,
Star Bank, 425 Walnut Street, Cincinnati, OH 45202.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Registrant hereby undertakes to:
(a) Furnish each person to whom a Prospectus is delivered a copy
of the applicable latest annual report to shareholders, upon
request and without charge.
(b) If requested to do so by the holders of at least 10% of the
Trust's outstanding shares, call a meeting of shareholders for
the purposes of voting upon the question of removal of a
director and assist in communications with other shareholders.
(c) On behalf of each of its series, to change any disclosure of
past performance of an Advisor to a series to conform to
changes in the position of the staff of the Commission with
respect to such presentation.
C-8
<PAGE>
LAW OFFICES OF
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104-2635
Telephone (415) 835-1600
Facsimile (415) 217-5333
Internet www.phjw.com
May 11, 1998
(415) 835B1600 27217.86549
Advisors Series Trust
2025 East Financial Way, Suite 101
Glendora, CA 91741
Re: Heritage West Dividend Capture Income Fund
------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Advisors Series Trust, a Delaware business trust
(the "Trust"), in connection with postBeffective amendments to the Trust's
Registration Statement filed on Form NB1A with the Securities and Exchange
Commission (the "Post-Effective Amendments") and relating to the issuance by the
Trust of an indefinite number of $0.01 par value shares of beneficial interest
(the "Shares") of Heritage West Dividend Capture Income Fund (the "Fund"), a
series of the Trust.
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the originals of all records, documents and instruments submitted to us as
copies. We have based our opinion upon our review of the following records,
documents and instruments:
(a) the Trust's Certificate of Trust as filed with the Secretary
of State of Delaware on October 3, 1996, certified to us as in
effect on the date hereof;
(b) the Trust's Agreement and Declaration of Trust dated October
3, 1996 (the "Trust Instrument"), certified to us by an
officer of the Trust as being true and complete and in effect
on the date hereof;
<PAGE>
(c) the Bylaws of the Trust certified to us by an officer of the
Trust as being true and complete and in effect on the date
hereof;
(d) resolutions of the Trustees of the Trust adopted at a meeting
on March 13, 1998, authorizing the establishment of the Fund
and the issuance of its Shares;
(e) the Post-Effective Amendments; and
(f) a certificate of an officer of the Trust concerning certain
factual matters relevant to this opinion.
In rendering our opinion below, we have not conducted an independent examination
of the books and records of the Trust for the purpose of determining whether all
of the Shares were fully paid prior to their issuance and do not believe it to
be our obligation to do so.
Our opinion below is limited to the federal law of the United States of America
and the business trust law of the State of Delaware. We are not licensed to
practice law in the State of Delaware, and we have based our opinion below
solely on our review of Chapter 38 of Title 12 of the Delaware Code (the
"Delaware Business Trust Act") and the case law interpreting such Chapter as
reported in Delaware Laws Annotated (CSC The United States Corporation Company,
April 1997) as updated on Lexis on May 11, 1998. We have not undertaken a review
of other Delaware law or of any administrative or court decisions in connection
with rendering this opinion. We disclaim any opinion as to any law other than
that of the United States of America and the business trust law of the State of
Delaware as described above, and we disclaim any opinion as to any statute,
rule, regulation, ordinance, order or other promulgation of any regional or
local governmental authority.
Based on the foregoing and our examination of such questions of law as we have
deemed necessary and appropriate for the purpose of this opinion, and assuming
that (i) all of the Shares will be issued and sold for cash at the perBshare
public offering price on the date of their issuance in accordance with
statements in the Fund's Prospectus included in the Post-Effective Amendments
and in accordance with the Trust Instrument, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all applicable
securities laws will be complied with, then it is our opinion that, when issued
and sold by the Trust, the Shares will be legally issued, fully paid and
nonassessable.
<PAGE>
This opinion is rendered to you in connection with the Post-Effective Amendments
and is solely for your benefit. This opinion may not be relied upon by you for
any other purpose or relied upon by any other person, firm, corporation or other
entity for any purpose, without our prior written consent. We disclaim any
obligation to advise you of any developments in areas covered by this opinion
that occur after the date of this opinion.
Sincerely yours,
Paul Hastings Janofsky &Walker
<PAGE>
LAW OFFICES OF
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104-2635
Telephone (415) 835-1600
Facsimile (415) 217-5333
Internet www.phjw.com
May 11, 1998
(415) 835B1600 27217.88563
Advisors Series Trust
2025 East Financial Way, Suite 101
Glendora, CA 91741
Re: Liberty Freedom Fund
--------------------
Ladies and Gentlemen:
We have acted as counsel to Advisors Series Trust, a Delaware business trust
(the "Trust"), in connection with postBeffective amendments to the Trust's
Registration Statement filed on Form NB1A with the Securities and Exchange
Commission (the "Post-Effective Amendments") and relating to the issuance by the
Trust of an indefinite number of $0.01 par value shares of beneficial interest
(the "Shares") of Liberty Freedom Fund (the "Fund"), a series of the Trust.
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the originals of all records, documents and instruments submitted to us as
copies. We have based our opinion upon our review of the following records,
documents and instruments:
(a) the Trust's Certificate of Trust as filed with the Secretary
of State of Delaware on October 3, 1996, certified to us as in
effect on the date hereof;
(b) the Trust's Agreement and Declaration of Trust dated October
3, 1996 (the "Trust Instrument"), certified to us by an
officer of the Trust as being true and complete and in effect
on the date hereof;
<PAGE>
(c) the Bylaws of the Trust certified to us by an officer of the
Trust as being true and complete and in effect on the date
hereof;
(d) resolutions of the Trustees of the Trust adopted at a
telephonic meeting April 20, 1998, authorizing the
establishment of the Fund and the issuance of its Shares.
(e) the Post-Effective Amendments; and
(f) a certificate of an officer of the Trust concerning certain
factual matters relevant to this opinion.
In rendering our opinion below, we have not conducted an independent examination
of the books and records of the Trust for the purpose of determining whether all
of the Shares were fully paid prior to their issuance and do not believe it to
be our obligation to do so.
Our opinion below is limited to the federal law of the United States of America
and the business trust law of the State of Delaware. We are not licensed to
practice law in the State of Delaware, and we have based our opinion below
solely on our review of Chapter 38 of Title 12 of the Delaware Code (the
"Delaware Business Trust Act") and the case law interpreting such Chapter as
reported in Delaware Laws Annotated (CSC The United States Corporation Company,
April 1997) as updated on Lexis on May 11, 1998. We have not undertaken a review
of other Delaware law or of any administrative or court decisions in connection
with rendering this opinion. We disclaim any opinion as to any law other than
that of the United States of America and the business trust law of the State of
Delaware as described above, and we disclaim any opinion as to any statute,
rule, regulation, ordinance, order or other promulgation of any regional or
local governmental authority.
Based on the foregoing and our examination of such questions of law as we have
deemed necessary and appropriate for the purpose of this opinion, and assuming
that (i) all of the Shares will be issued and sold for cash at the perBshare
public offering price on the date of their issuance in accordance with
statements in the Fund's Prospectus included in the Post-Effective Amendments
and in accordance with the Trust Instrument, (ii) all consideration for the
Shares will be actually received by the Trust, (iii) all applicable securities
laws will be complied with, and (iv) statements in the Post-Effective Amendments
indicating no par value for the Shares, rather than the Agreement and
Declaration of Trust's indicated par value of $0.01 per Share, do not affect the
validity of this opinion, then it is our opinion that, when issued and sold by
the Trust, the Shares will be legally issued, fully paid and nonassessable.
<PAGE>
This opinion is rendered to you in connection with the Post-Effective Amendments
and is solely for your benefit. This opinion may not be relied upon by you for
any other purpose or relied upon by any other person, firm, corporation or other
entity for any purpose, without our prior written consent. We disclaim any
obligation to advise you of any developments in areas covered by this opinion
that occur after the date of this opinion.
Sincerely yours,
Paul Hastings Janofsky &Walker
<PAGE>
LAW OFFICES OF
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104-2635
Telephone (415) 835-1600
Facsimile (415) 217-5333
Internet www.phjw.com
May 7, 1998
(415) 835B1600 27217.83040
Advisors Series Trust
2025 East Financial Way, Suite 101
Glendora, CA 91741
Re: Rockhaven Premier Dividend Fund
-------------------------------
Ladies and Gentlemen:
We have acted as counsel to Advisors Series Trust, a Delaware business trust
(the "Trust"), in connection with Post-Effective Amendments to the Trust's
Registration Statement filed on Form NB1A with the Securities and Exchange
Commission (the "Post-Effective Amendments") and relating to the issuance by the
Trust of an indefinite number of $0.01 par value shares of beneficial interest
(the "Shares") of Rockhaven Premier Dividend Fund (the "Fund"), a series of the
Trust.
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the originals of all records, documents and instruments submitted to us as
copies. We have based our opinion upon our review of the following records,
documents and instruments:
(a) the Trust's Certificate of Trust as filed with the Secretary
of State of Delaware on October 3, 1996, certified to us as in
effect on the date hereof;
(b) the Trust's Agreement and Declaration of Trust dated October
3, 1996 (the "Trust Instrument"), certified to us by an
officer of the Trust as being true and complete and in effect
on the date hereof;
<PAGE>
(c) the Bylaws of the Trust certified to us by an officer of the
Trust as being true and complete and in effect on the date
hereof;
(d) resolutions of the Trustees of the Trust adopted at a meeting
on September 5, 1997 authorizing the establishment of the Fund
and the issuance of its Shares.
(e) the Post-Effective Amendments; and
(f) a certificate of an officer of the Trust concerning certain
factual matters relevant to this opinion.
In rendering our opinion below, we have not conducted an independent examination
of the books and records of the Trust for the purpose of determining whether all
of the Shares were fully paid prior to their issuance and do not believe it to
be our obligation to do so.
Our opinion below is limited to the federal law of the United States of America
and the business trust law of the State of Delaware. We are not licensed to
practice law in the State of Delaware, and we have based our opinion below
solely on our review of Chapter 38 of Title 12 of the Delaware Code (the
"Delaware Business Trust Act") and the case law interpreting such Chapter as
reported in Delaware Laws Annotated (CSC The United States Corporation Company,
April 1997) as updated on Lexis on March 6, 1998. We have not undertaken a
review of other Delaware law or of any administrative or court decisions in
connection with rendering this opinion. We disclaim any opinion as to any law
other than that of the United States of America and the business trust law of
the State of Delaware as described above, and we disclaim any opinion as to any
statute, rule, regulation, ordinance, order or other promulgation of any
regional or local governmental authority.
Based on the foregoing and our examination of such questions of law as we have
deemed necessary and appropriate for the purpose of this opinion, and assuming
that (i) all of the Shares will be issued and sold for cash at the perBshare
public offering price on the date of their issuance in accordance with
statements in the Trust's Prospectus included in the Post-Effective Amendments
and in accordance with the Trust Instrument, (ii) all consideration for the
Shares will be actually received by the Trust, (iii) all applicable securities
laws will be complied with, and (iv) statements in the Post-Effective Amendments
indicating par values of $0.001 or no par for the Shares, rather than the
Agreement and Declaration of Trust's indicated par value of $0.01 per Share, do
not affect the validity of this opinion, then it is our opinion that, when
issued and sold by the Trust, the Shares will be legally issued, fully paid and
nonassessable.
<PAGE>
This opinion is rendered to you in connection with the Post-Effective Amendments
and is solely for your benefit. This opinion may not be relied upon by you for
any other purpose or relied upon by any other person, firm, corporation or other
entity for any purpose, without our prior written consent. We disclaim any
obligation to advise you of any developments in areas covered by this opinion
that occur after the date of this opinion.
Sincerely yours,
Paul Hastings Janofsky &Walker
<PAGE>
ADVISORS SERIES TRUST
SHARE MARKETING PLAN
(Rule 12b-1 Plan)
(Fixed Compensation Plan)
with respect to
This Share Marketing Plan (the "Plan") is adopted in
accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of 1940
(the "Act"), by Advisors Series Trust (the "Trust") with respect to the
following series of its shares: ___________________________ (the "Fund") . The
Plan has been approved by a majority of the Trust's Board of Trustees, including
a majority of the Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan (the
"independent Trustees"), cast in person at a meeting called for the purpose of
voting on the Plan.
In reviewing the Plan, the Board of Trustees considered the
proposed range and nature of payments and terms of the investment advisory
agreement between the Trust on behalf of the Fund and _______________________
(the "Advisor") and the nature and amount of other payments, fees and
commissions that may be paid to the Advisor, its affiliates and other agents of
the Trust. The Board of Trustees, including the independent Trustees, concluded
that the proposed overall compensation of the Advisor and its affiliates was
fair and not excessive.
In its considerations, the Board of Trustees also recognized
that uncertainty may exist from time to time with respect to whether payments to
be made by the Trust to the Advisor, as the initial "distribution coordinator,"
or other firms under agreements with respect to the Fund may be deemed to
constitute impermissible distribution expenses. As a general rule, an investment
company may not finance any activity primarily intended to result in the sale of
its shares, except pursuant to the Rule. Accordingly, the Board of Trustees
determined that the Plan also should provide that payments by the Trust and
expenditures made by others out of monies received from the Trust which are
later deemed to be for the financing of any activity primarily intended to
result in the sale of Fund shares shall be deemed to have been made pursuant to
the Plan.
The approval of the Board of Trustees included a determination
that in the exercise of the Trustees' reasonable business judgment and in light
of their fiduciary duties, there is a reasonable likelihood that the Plan will
benefit the Fund to which the Plan applies and its shareholders.
-1-
<PAGE>
The provisions of the Plan are:
1. Annual Fee. The Fund will pay to Advisor, as the Fund's
distribution coordinator, an annual fee for the Advisor's services in connection
with the promotion and distribution of the Fund's shares and related shareholder
servicing. The annual fee paid to Advisor under the Plan will be calculated
daily and paid monthly by the Fund based on the average daily net assets of the
Fund at an annual rate of up to ___%. This fee is not tied exclusively to actual
distribution and service expenses, and the fee may exceed the expenses actually
incurred.
2. Services Covered by the Plan. The fee paid under Section 1
of the Plan is intended to compensate the Advisor for performing the following
kinds of services (but this list should not be viewed as exclusive of other
similar services): services primarily intended to result in the sale of the
Fund's shares ("distribution services"), including, but not limited to: (a)
making payments, including incentive compensation, to agents for and consultants
to Advisor, any affiliate of the Advisor or the Trust, including pension
administration firms that provide distribution and shareholder related services
and broker-dealers that engage in the distribution of the Fund's shares; (b)
making payments to persons who provide support services in connection with the
distribution of the Fund's shares and servicing of the Fund's shareholders,
including, but not limited to, personnel of Advisor, office space and equipment,
telephone facilities, answering routine inquiries regarding the Fund, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Trust's transfer agency or other servicing
arrangements; (c) making payments pursuant to the form of Share Marketing
Agreement attached hereto as an exhibit; (d) formulating and implementing
marketing and promotional activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising; (e) printing and distributing prospectuses, statements of
additional information and reports of the Fund to prospective shareholders of
the Fund; (f) preparing, printing and distributing sales literature pertaining
to the Fund; and (g) obtaining whatever information, analysis and reports with
respect to marketing and promotional activities that the Trust may, from time to
time, deem advisable. Such services and activities shall be deemed to be covered
by this Plan whether performed directly by the Advisor or by a third party.
3. Written Reports. Advisor shall furnish to the Board of
Trustees of the Trust, for its review, on a quarterly basis, a written report of
the monies paid to it under the Plan with respect to the Fund, and shall furnish
the Board of Trustees of the Trust with such other information as the Board of
Trustees may reasonably request in connection with the payments made under the
Plan in order to enable the Board of Trustees to make an informed determination
of whether the Plan should be continued as to the Fund.
-2-
<PAGE>
4. Termination. The Plan may be terminated as to the Fund at
any time, without penalty, by vote of a majority of the outstanding voting
securities of the Fund, and any Share Marketing Agreement under the Plan may be
likewise terminated on not more than sixty (60) days' written notice. Once
terminated, no further payments shall be made under the Plan notwithstanding the
existence of any unreimbursed current or carried forward Distribution Expenses.
5. Amendments. The Plan and any Share Marketing Agreement may
be amended with the approval of the Board of Trustees of the Trust provided that
neither the Plan nor any Share Marketing Agreement may be amended to increase
materially the amount to be spent for distribution and servicing of Fund shares
pursuant to Section 1 hereof without approval by a majority of the outstanding
voting securities of the Fund. All material amendments to the Plan and any Share
Marketing Agreement entered into with third parties shall also be approved by
the independent Trustees cast in person at a meeting called for the purpose of
voting on any such amendment. The Advisor may assign its responsibilities and
liabilities under the Plan to another party who agrees to act as "distribution
coordinator" for the Trust with the consent of a majority of the independent
Trustees.
6. Selection of Independent Trustees. So long as the Plan is
in effect, the selection and nomination of the Trust's independent Trustees
shall be committed to the discretion of such independent Trustees.
7. Effective Date of Plan. The Plan shall take effect at such
time as it has received requisite Trustee and shareholder approval and, unless
sooner terminated, shall continue in effect for a period of more than one year
from the date of its execution only so long as such continuance is specifically
approved at least annually by the Board of Trustees of the Trust, including the
independent Trustees, cast in person at a meeting called for the purpose of
voting on such continuance.
8. Preservation of Materials. The Trust will preserve copies
of the Plan, any agreements relating to the Plan and any report made pursuant to
Section 5 above, for a period of not less than six years (the first two years in
an easily accessible place) from the date of the Plan, agreement or report.
9. Meanings of Certain Terms. As used in the Plan, the terms
"interested person" and "majority of the outstanding voting securities" will be
deemed to have the same meaning that those terms have under the Act and the
rules and regulations under the Act, subject to any exemption that may be
granted to the Trust under the Act by the Securities and Exchange Commission.
-3-
<PAGE>
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Trust and Advisor, as distribution coordinator, as
evidenced by their execution hereof, as of the ____ day of ____________, 199 .
ADVISORS SERIES TRUST
on behalf of
By:_________________________________
Title:______________________________
as Distribution Coordinator
By:_________________________________
Title:______________________________
-4-
<PAGE>
ADVISORS SERIES TRUST
Share Marketing Agreement
EXHIBIT ONLY
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
Ladies and Gentlemen:
This Share Marketing Agreement has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940, by Advisors Series Trust
(the "Trust"), on behalf of the following series of the Trust:
____________________ (the "Fund") , as governed by the terms of a Share
Marketing Plan (Rule 12b-1 Plan) (the "Plan").
The Plan has been approved by a majority of the Trustees who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan (the "independent Trustees"),
cast in person at a meeting called for the purpose of voting on such Plan. Such
approval included a determination that in the exercise of the reasonable
business judgment of the Board of Trustees and in light of the Trustees'
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
1. To the extent you provide eligible shareholder services to
the Fund, we shall pay you a monthly fee based on the average net asset value of
Fund shares during any month which are attributable to customers of your firm,
at the rate set forth on the attached Schedule.
2. In no event may the aggregate annual fee paid to you
pursuant to the Schedule exceed ___% of the value of the net assets of the Fund
held in your customers' accounts which are eligible for payment pursuant to this
Agreement (determined in the same manner as the Fund uses to compute its net
assets as set forth in its then effective Prospectus), without approval by a
majority of the outstanding shares of the Fund. -5-
<PAGE>
3. You shall furnish us and the Trust with such information as
shall reasonably be requested by the Trust's Board of Trustees with respect to
the services performed by you and the fees paid to you pursuant to the Schedule.
4. We shall furnish to the Board of Trustees of the Trust, for
its review, on a quarterly basis, a written report of the amounts expended under
the Plan by us with respect to the Fund and the purposes for which such
expenditures were made.
5. You agree to make shares of the Fund available only (a) to
your customers or entities that you service at the net asset value per share
next determined after receipt of the relevant purchase instruction or (b) to the
Trust itself at the redemption price for shares of the Fund, as described in the
Fund's then-effective Prospectus.
6. No person is authorized to make any representations
concerning the Fund except those contained in the Fund's then-effective
Prospectus or Statement of Additional Information and any such information as
may be released by the Fund as information supplemental to such Prospectus or
Statement of Additional Information.
7. Additional copies of each such Prospectus or Statement of
Additional Information and any printed information issued as supplemental to
each such Prospectus or Statement of Additional Information will be supplied by
the Fund to you in reasonable quantities upon request.
8. In no transaction shall you have any authority whatever to
act as agent of the Fund and nothing in this Agreement shall constitute you or
the Fund the agent of the other. You are not authorized to act as an underwriter
of shares of the Trust or as a dealer in shares of the Trust.
9. All communications to the Fund shall be sent to:
_______________________________________________
as Distribution Coordinator for the Fund
_______________________________________________
_______________________________________________
Any notice to you shall be duly given if mailed or telegraphed to you
at your address as indicated in this Agreement.
-6-
<PAGE>
10. This Agreement may be terminated by us or by you, by the
vote of a majority of the Trustees of the Trust who are independent Trustees, or
by a vote of a majority of the outstanding shares of the Fund, on sixty (60)
days' written notice, all without payment of any penalty. It shall also be
terminated automatically by any act that terminates the Plan.
11. The provisions of the Plan between the Trust and us,
insofar as they relate to you, are incorporated herein by reference.
This Agreement shall take effect on the date indicated below,
and the terms and provisions thereof are hereby accepted and agreed to by us as
evidenced by our execution hereof.
Distribution Coordinator
By:____________________________
Authorized Officer
Dated:_________________________
Agreed and Accepted:
_________________________________
(Name)
By:______________________________
Authorized Officer
-7-
<PAGE>
ADVISORS SERIES TRUST
________________
SCHEDULE TO SHARE MARKETING AGREEMENT
BETWEEN_______________________________
AND
_______________________________
as distribution coordinator
Pursuant to the provisions of the Share Marketing Agreement
between the above parties with respect to the ________________________ (the
"Fund"), __________________________ as Distribution Coordinator, shall pay a
monthly fee to the above-named party based on the average net asset value of
shares of the Fund during the previous calendar month the sales of which are
attributable to the above-named party, as follows:
Fund Fee
---- ---
-8-
<PAGE>
Consent of Independent Auditors
We hereby consent to the use of our reports dated April 3, 1998, on the
financial statements of American Trust Allegiance Fund and InformationTech
100(R) Fund series of Advisors Series Trust referred to therein, in
Post-Effective Amendment No. 26 to the Registration Statement on Form n-1A, File
No. 333-17391 of Advisors Series Trust as filed with the Securities and Exchange
Commission.
We also consent to the reference to our Firm in the Statement of
Additional Information under the caption "General Information."
McGladrey & Pullen, LLP
New York, New York
June 23, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
the Registration Statement on Form N-1A of Advisors Series Trust to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Phoenix
and State of Arizona on the 26th day of June, 1998.
ADVISORS SERIES TRUST
By /s/ Eric M. Banhazl*
--------------------------
Eric M. Banhazl
President
This Amendment to the Registration Statement on Form N-1A of Advisors
Series Trust has been signed below by the following persons in the capacities
indicated on June 26, 1998.
/s/ Eric M. Banhazl* President, Principal Financial
- ----------------------------- and Accounting Officer, and Trustee
Eric M. Banhazl
/s/ Walter E. Auch Sr.* Trustee
- -----------------------------
Walter E. Auch, Sr.
/s/ Donald E. O'Connor* Trustee
- -----------------------------
Donald E. O'Connor
/s/ George T. Wofford III* Trustee
- -----------------------------
George T. Wofford III
* /s/ Robert H. Wadsworth
---------------------------
By: Robert H. Wadsworth
Attorney in Fact
