The Avatar
Advantage Equity
Allocation Fund
PROSPECTUS
December 3, 1997
900 Third Avenue
New York, NY 10022
(888) 263-6452
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The Avatar Advantage Equity Allocation Fund (the "Fund") is a mutual fund
with the investment objective of seeking long-term capital appreciation. The
Fund attempts to achieve its objective by investing in equity securities during
rising stock markets and limiting loss during market declines. See "Investment
Objective and Policies." Shares are available on a no-load basis to investors.
There can be no assurance that the Fund will achieve its investment objective.
This Prospectus sets forth basic information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. The Fund is a separate series of Advisors Series
Trust (the "Trust"), an open-end registered management investment company. A
Statement of Additional Information (the "SAI") dated December 3, 1997 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 below. The SEC maintains an internet site (http://www.sec.gov)
that contains the SAI, other material incorporated by reference and other
information about companies that file electronically with the SEC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Table of Contents
Expense Table 2
Investment Objective and Policies 3
Management of the Fund 6
Investor Guide 9
Services Available to Shareholders 11
How to Redeem Your Shares 12
Distributions and Taxes 14
General Information 15
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Expense Table
Expenses are one of several factors to consider when investing in the Fund.
There are two types of expenses involved: shareholder transaction expenses, such
as sales loads, and annual operating expenses, such as investment advisory fees.
THE FUND IS A NO-LOAD MUTUAL FUND AND HAS NO SHAREHOLDER TRANSACTION EXPENSES.
The Fund has adopted a plan of distribution under which it will pay the Advisor,
as Distribution Coordinator, a fee at the annual rate of up to 0.25% of the
Fund's net assets. A long-term shareholder may pay more, directly and
indirectly, in such fees than the maximum sales charge permitted under the rules
of the National Association of Securities Dealers. Shares will be redeemed at
net asset value per share.
Annual Operating Expenses
(As a percentage of average net
assets)
Investment Advisory Fee 0.85%
12b-1 Fee 0.25%
Other Expenses (1) 0.40%
Total Fund Operating
Expenses (2) 1.50%
(1) Other Expenses are estimated for the first fiscal year of the Fund.
(2) The Advisor has agreed to reduce its fees and/or pay expenses of the Fund to
insure that the Fund's expenses will not exceed 1.50%. If the Advisor did not
limit the Fund's expenses, it is expected that "Other Expenses" in the above
table would be 1.45% and "Total Operating Expenses" would be 2.55%. If the
Advisor does waive any of its fees or pay Fund expenses, the Fund may reimburse
the Advisor in future years. See "Management of the Fund."
Example
This table illustrates the net operating expenses that would be incurred by an
investment in the Fund over different time periods assuming a $1,000 investment,
a 5% annual return, and redemption at the end of each time period.
1 Year 3 Years
$15 $47
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."
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The minimum initial investment in the Fund is $2,500, with subsequent
minimum investments of $250 or more ($1,000 and $50, respectively, for
retirement plans). Shares will be redeemed at their net asset value.
Investment Objective And Policies
What is the Fund's investment objective?
The investment objective of the Fund is to seek long-term capital appreciation
by participating in rising stock markets and then preserving the bulk of those
profits during high-risk periods. There can be no assurance that the Fund will
achieve its objective.
How does the Fund seek to achieve its objective?
Avatar Investors Associates Corp. (the "Advisor" or "Avatar Associates")
believes that the most important step in its investment process is determining
the Fund's allocation between equity securities and cash reserves. The asset
allocation decision is based on a proprietary asset allocation model, which
measures the risk and potential reward of investing in equity securities
relative to the safety of cash reserves. When the Advisor believes market risk
is low, it maintains a large commitment (as fully invested as practicable) to
equity securities. When the Advisor believes market risk is high, it shifts an
appropriate amount of the Fund's assets into cash reserves to protect capital.
These shifts from and to equity securities are generally made in increments of
five to ten percent of the Fund's net assets, as conditions warrant based on the
Advisor's asset allocation model.
The Advisor's asset allocation model measures liquidity in the market place.
Based on its experience and research, the Advisor believes that changes in
financial liquidity - for example, money, credit and reserves - are the best
measure of investment market risk. When this liquidity expands beyond what is
needed by the "real" or production side of the economy, much of the excess moves
into the stock markets. This movement causes stock prices to rise. On the other
hand, when liquidity is contracting, economic demands siphon money away from the
stock markets. Investment risks increase, and stock prices are subject to
declines. Thus, the Advisor makes orderly asset mix decisions by measuring and
reacting to current market risk levels as quantified by the Advisor's model. The
Liquidity Model includes economic factors such as interest rate trends, Federal
Reserve policy, and yield spreads. It also includes inflation variables
(commodity price trends, industrial production growth, etc.), market momentum
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factors (such as short-term trends) and investor sentiment (institutional cash
levels, retail optimism/pessimism, etc.). These factors, blended into the model,
all help determine the asset mix. Any shifts in this mix are dictated by the
data produced by the model. The model is updated daily to enable the Advisor to
respond to rapidly changing environments. 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.
How does the Advisor select equity securities for the Fund's portfolio?
The Advisor selects equity securities, consisting of common stocks and
securities having the characteristics of common stocks, such as convertible
securities, rights and warrants, on the basis of both quantitative and
qualitative analysis. It screens a universe of more than 3,400 stocks for
liquidity, in order to identify stocks with sufficient trading volume to
establish or eliminate a position quickly and cost-effectively. This screen
reduces the list of potential candidates to 600 to 700 actively traded issues.
The Advisor then ranks each security on both growth and value factors, to
identify stocks that possess good growth potential at reasonable prices. The
Advisor's qualitative analysis involves identifying the investment themes and
stocks that are the best performers in the current market environment. The
Standard and Poor's 500 ("S&P 500") benchmarks are employed to determine
industry and sector weight. Industry groups, sectors, and market capitalization
quintiles all have ranges in which the Advisor can be over- or underweight
vis-a-vis the benchmark. When the Advisor desires maximum exposure to equities,
the Fund's diversified portfolio is expected to have between 50 and 70 separate
securities. The Advisor may sell a stock when its model calls for a reduction in
the exposure to equities, when the stock becomes less attractive due to
deteriorating fundamentals or when the stock's price falls to a pre-set limit.
The Advisor does not expect the Fund's annual turnover rate to exceed 150%. High
portfolio turnover will increase transaction costs and may result in higher
taxes for investors.
What does the Fund use for cash reserves?
The Advisor uses high quality, short-term debt securities and money market
instruments as cash reserves for the Fund. 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 buy mortgage-backed securities.
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Other investments and investment techniques.
The Fund may also make the following investments or use the techniques described
below. More information about them is contained in the SAI. In addition to
these, the Fund may invest in foreign securities, buy or write options on
equities and sell securities short, although it does not expect to invest more
than 5% of its net assets in foreign securities or options or have short
positions exceeding 5% of its net assets.
Futures and Options on Futures.
The Fund may enter into futures contracts, or options on those contracts,
involving interest rates, securities and securities indices, for hedging
purposes or as a substitute for positions in the underlying securities. As a
general rule, the Fund will not purchase or sell futures if, immediately
thereafter, more than 25% of its net assets would be hedged. There are risks
involved in the use of futures and options on futures, including the risk that
the prices of the hedging vehicles may not correlate perfectly with the prices
of the securities in the Fund's portfolio. This may cause the futures contracts
or options to react differently from the Fund's portfolio securities to market
changes. In addition, the Advisor could be incorrect in its expectations about
the direction or extent of market movements. In these events, the Fund could
lose money on the futures contracts or options. It is also not certain that a
secondary market for positions in futures contracts or options will exist at all
times, although the Advisor will consider liquidity before entering into these
transactions.
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 loaned. The Fund's loans of portfolio securities will
be collateralized at all times by high quality liquid securities. 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
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any serious matter and must meet certain tests under the Internal Revenue Code
of 1986 (the "Code").
Investment restrictions.
The Fund has adopted certain investment restrictions, which are described fully
in the SAI. Like the Fund's investment objective, certain of these restrictions
are fundamental and may be changed only by a majority vote of the Fund's
outstanding shares. As a fundamental policy, the Fund is a diversified fund.
Management of the Fund
The Board of Trustees of the Trust establishes the Fund's policies and
supervises and reviews the management of the Fund.
The Advisor.
The Fund's Advisor, Avatar Associates, 900 Third Avenue, New York, NY 10022 has
provided asset management services to individuals and institutional investors
since 1970. The Advisor was established and is controlled by its President,
Edward S. Babbitt, Jr. Two members of the firm, Charles M. White and Elizabeth
Sonders, are principally responsible for the management of the Fund's portfolio.
Mr. White has been a Managing Director and Vice President of the Advisor since
1992, having joined the firm in 1988 as a Portfolio Manager. Ms. Sonders has
been a Vice President and Portfolio Manager of the Advisor since 1989, having
joined the firm in 1986.
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 0.85%.
Prior Performance of the Advisor.
The following table sets forth composite performance data relating to the
historical performance of institutional private accounts managed by the Advisor
for the periods indicated, that have investment objectives, policies, strategies
and risks substantially similar to those of the Fund. The data is provided to
illustrate the past performance of the Advisor in managing substantially similar
accounts and does not represent the performance of the Fund. You should not
consider this performance data as an indication of future performance of the
Fund or of the Advisor.
The composite performance data shown below were calculated in accordance with
recommended standards of the Association for Investment Management and Research
(AIMR*). All returns presented were calculated on a total return basis and
include all
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dividends and interest, accrued income and realized and unrealized gains and
losses. All returns reflect the deduction of investment advisory fees (at actual
rates paid from 1983 to the present; returns prior to 1983 reflect the deduction
of a fee of 1% per annum, the Advisor's highest advisory fee), brokerage
commissions and execution costs paid by institutional private accounts of the
Advisor without provision for federal or state income taxes. Custodial fees, if
any, were not included in the calculation. The Advisor's Composite includes all
actual, fee-paying, discretionary institutional private accounts managed by the
Advisor that have investment objectives, policies, strategies and risks
substantially similar to those of the Fund. Securities transactions
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* AIMR is a non-profit membership and education organization with more
than 60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisors. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisors of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisors are directly comparable.
- ----------
are accounted for on the trade date and accrual accounting is used. Cash and
equivalents are included in performance returns. Beginning in January 1993, the
quarterly returns of the Advisor's Composite combine the individual accounts'
returns (calculated on a time-weighted rate of return that is revalued whenever
cash flows exceed 3% of the value of the account) by asset-weighting each
individual account's asset value as of the beginning of the quarter. Quarterly
returns prior to that time are equally weighted. The yearly returns are computed
by geometrically linking the returns of each quarter within the calendar year.
The institutional private accounts that are included in the Advisor's Composite
are not subject to the same types of expenses to which the Fund is subject nor
to the diversification requirements, specific tax restrictions and investment
limitations imposed on the Fund by the Investment Company Act or the Internal
Revenue Code. Consequently, the performance results for the Advisor's Composite
could have been adversely affected if the institutional private accounts
included in the Composite had been regulated as investment companies.
The investment results of the Advisor's Composite presented below are unaudited
and are not intended to predict or suggest the
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returns that might be experienced by the Fund or an individual investing in the
Fund. Investors should also be aware that the use of a methodology different
from that used below to calculate performance could result in different
performance data.
Annualized Total Return For Years ended September 30, 1997.
NUMBER ADVISOR'S
OF YEARS COMPOSITE
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One Year 22.4%
Three Years 18.6%
Five Years 15.2%
Ten Years 11.7%
Inception
(1/1/74 - 9/30/97) 14.0%
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 daily net assets, subject to a
$30,000 annual minimum.
Other operating expenses.
The Fund is responsible for its own operating expenses, including but not
limited to, the advisory and administration fees, custody and shareholder
servicing agent fees, legal and auditing expenses, federal and state
registration fees, and fees to the Trust's disinterested trustees. The Advisor
may reduce its fees or reimburse the Fund for expenses at any time in order to
reduce the Fund's expenses. Reductions made by the Advisor in its fees or
payments or reimbursements of expenses which are the Fund's obligation are
subject to reimbursement by the Fund within three subsequent years provided the
Fund is able to do so and remain in compliance with any applicable expense
limitations.
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1. The Plan
permits the Fund to pay for distribution and related expenses at an annual rate
of up to 0.25% of the Fund's average net assets. The expenses which the Fund may
pay include: preparing and distributing prospectuses and other sales material;
advertising and public relations expenses; payments to financial intermediaries
and compensation of personnel involved in selling shares of the Fund.
Brokerage transactions.
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these are more fully
discussed in the SAI, the factors include, but are not limited to, the
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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 by wire. If you have questions about how to invest, or about how
to complete the Application Form, please call an account representative at (888)
263-6452. First Fund Distributors, Inc., 4455 E. Camelback Road, Suite 261E,
Phoenix, Arizona 85018, an affiliate of the Administrator, is the principal
underwriter ("Distributor") of the Fund's shares.
You may send money to the Fund by mail.
If you wish to invest by mail, simply complete the Application Form and mail it
with a check (made payable to the Avatar Advantage Equity Allocation Fund) to
the Fund's Shareholder Servicing Agent, American Data Services, Inc. at the
following address: Avatar Advantage Equity Allocation Fund P.O. Box 640947
Cincinnati, OH 45264-0947
If you wish to send your Application Form and check via an overnight delivery
services (such as FedEx), delivery cannot be made to a post office box. In
that case, you should use the following address:
Avatar Advantage Equity Allocation Fund
c/o Star Bank, N.A.
Mutual Fund Custody Department
425 Walnut Street, M/L 6118,
Sixth Floor
Cincinnati, OH 45202
You may wire money to the Fund.
Before sending a wire, you should call the Fund at (888) 263-6452 between 9:00
a.m. and 5:00 p.m., Eastern time, on a day when the New York Stock Exchange
("NYSE") is open for trading, in order to receive an account number. It is
important to call and receive this account number, because if your wire is sent
without it or without the name of the Fund, there may be a delay in investing
the money you wire. You should then ask your bank to wire money to: Star Bank,
N.A. Cinti/Trust ABA # 0420-0001-3 for credit to Avatar Advantage Equity
Allocation Fund DDA # 488840232 for further credit to [your name and account
number].
Your bank may charge you a fee for sending a wire to the Fund.
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You may purchase shares through an investment dealer.
You may be able to invest in shares of the Fund through an investment dealer, if
the dealer has made arrangements with the Distributor. The 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 dealer. It is the
responsibility of the dealer to place your order promptly. A dealer may charge
you a fee for placing your order, but you could avoid paying such a fee by
sending an Application Form and payment directly to the Fund. The 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
dealer for maintaining records of your account as well as for other services
provided to you.
Your 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 dealer promptly.
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 starting an Automatic Investment Plan (see below),
the minimum initial and subsequent investments are $1,000 and $50, respectively.
Subsequent investments.
You may purchase additional shares of the Fund by sending a check, with the stub
from an account statement, to the Fund at the address above. Please also write
your account number on the check. (If you do not have a stub from an account
statement, you can write your name, address and account number on a separate
piece of paper and enclose it with your check.) If you want to send additional
money for investment by wire, it is important for you to call the Fund at (888)
263-6452. You may also make additional purchases through an investment dealer,
as described above.
When is money invested in the Fund?
Any money received for investment in the Fund from an investor, whether sent by
check or by wire, is invested at the net asset value of the Fund which is next
calculated after the money is received (assuming the check or wire correctly
identifies the Fund and account). Orders received from dealers are invested at
the net asset value next calculated after the order is received. The net asset
value is calculated at the close of regular trading of the NYSE, currently 4:00
p.m., Eastern time. A check or wire received after the NYSE closes is invested
as of the next calculation of the Fund's net asset value.
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What is the net asset value of the Fund?
The Fund's net asset value per share is calculated by dividing the value of the
Fund's total assets, less its liabilities, by the number of its shares
outstanding. In calculating the net asset value, portfolio securities are valued
using current market values, if available. Securities for which market
quotations are not readily available are valued at fair values determined in
good faith by or under the supervision of the Board of Trustees of the Trust.
The fair value of short-term obligations with remaining maturities of 60 days or
less is considered to be their amortized cost.
Other information.
The Distributor may waive the minimum investment requirements for purchases by
certain group or retirement plans. All investments must be made in U.S. dollars,
and checks must be drawn on U.S. banks. Third party checks will not be accepted.
A charge may be imposed if a check used to make an investment does not clear.
The Fund and the Distributor reserve the right to reject any investment, in
whole or in part. Federal tax law requires that investors provide a certified
taxpayer identification number and other certifications on opening an account in
order to avoid backup withholding of taxes. See the Application Form for more
information about backup withholding. The Fund is not required to issue share
certificates; all shares are normally held in non-certificated form on the books
of the Fund, for the account of the shareholder. The Fund, under certain
circumstances, may accept investments of securities appropriate for the Fund's
portfolio, in lieu of cash. Prior to making such a purchase, you should call the
Advisor to determine if such an investment may be made. The Advisor may, at its
own expense, pay third parties for assistance in gathering assets for the Fund.
Services Available to Shareholders
Retirement Plans.
You may obtain a prototype IRA plan from the Fund. Shares of the Fund are also
eligible investments for other types of retirement plans.
Automatic investing by check.
You may make regular monthly investments in the Fund using the "Automatic
Investment Plan." A check is automatically drawn on your personal checking
account each month for a predetermined amount (but not less than $50), as if you
had written it directly. Upon receipt of the withdrawn funds, the Fund
automatically invests the money in additional shares of the Fund at the current
net asset value. Applications for this service are available from the Fund.
There is no charge by the
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Fund for this service. The Fund may terminate or modify this privilege at any
time, and shareholders may terminate their participation by notifying the
Shareholder Servicing Agent in writing, sufficiently in advance of the next
withdrawal.
Automatic withdrawals.
The Fund offers a Systematic Withdrawal Program whereby shareholders may request
that a check drawn in a predetermined amount be sent to them each month or
calendar quarter. To start this Program, your account must have Fund shares with
a value of at least $10,000, and the minimum amount that may be withdrawn each
month or quarter is $50. This Program may be terminated or modified by a
shareholder or the Fund at any time without charge or penalty. A withdrawal
under the Systematic Withdrawal Program involves a redemption of shares of the
Fund, and may result in a gain or loss for federal income tax purposes. In
addition, if the amount withdrawn exceeds the dividends credited to your
account, the account ultimately may be depleted.
How to Redeem Your Shares
You have the right to redeem all or any portion of your shares of the Fund at
their net asset value on each day the NYSE is open for trading.
Redemption in writing.
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:
Avatar Advantage Equity Allocation Fund
150 Motor Parkway, Suite 109
Hauppauge, NY 11788-0132
Signature guarantee.
If the value of the shares you wish to redeem exceeds $25,000, or is being sent
to any address other than that to what we send your statements, 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.
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Redemption by telephone.
If you complete the Redemption by Telephone portion of the Fund's Application
Form, you may redeem shares on any business day the NYSE is open by calling the
Fund's Shareholder Servicing Agent at (888) 263-6452 before 4:00 p.m. Eastern
time. Redemption proceeds will be mailed or wired, at your direction, on the
next business day to the bank account you designated on the Application Form.
The minimum amount that may be wired is $1,000 (wire charges, if any, will be
deducted from redemption proceeds). Telephone redemptions cannot be made for IRA
accounts.
By establishing telephone redemption privileges, you authorize the Fund and its
Shareholder Servicing Agent to act upon the instruction of any person who makes
the telephone call to redeem shares from your account and transfer the proceeds
to the bank account designated in the Application Form. The 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 redemptions sent in
writing are normally made promptly, but no later than seven days after the
receipt of a request that meets requirements described above. However, the Fund
may
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suspend the right of redemption under certain extraordinary circumstances in
accordance with rules of the Securities and Exchange Commission. If shares were
purchased by wire, they cannot be redeemed until the day after the Application
Form is received. If shares were purchased by check and then redeemed shortly
after the check is received, the Fund may delay sending the redemption proceeds
until it has been notified that the check used to purchase the shares has been
collected, a process which may take up to 15 days. This delay may be avoided by
investing by wire or by using a certified or official bank check to make the
purchase.
Repurchases from dealers.
The Fund may accept orders to repurchase shares from an investment dealer on
behalf of a dealer's customers. The net asset value for a repurchase is that
next calculated after receipt of the order from the dealer. The dealer is
responsible for forwarding any documents required in connection with a
redemption, including a signature guarantee, and the Fund may cancel the order
if these documents are not received promptly.
Other information about redemptions.
A redemption may result in recognition of a gain or loss for federal income tax
purposes. Due to the relatively high cost of maintaining smaller accounts, the
shares in your account (unless it is a retirement plan or Uniform Gifts or
Transfers to Minors Act account) may be redeemed by the Fund if, due to
redemptions you have made, the total value of your account is reduced to less
than $500. If the Fund determines to make such an involuntary redemption, you
will first be notified that the value of your account is less than $500, and you
will be allowed 30 days to make an additional investment to bring the value of
your account to at least $500 before the Fund takes any action.
Distributions and Taxes
Dividends and Distributions.
Dividends from net investment income, if any, are normally declared and paid by
the Fund in December. Capital gains distributions, if any, are also normally
made in December, but the Fund may make an additional payment of dividends or
distributions if it deems it desirable at another time during any year.
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.
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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 capital gains regardless of
the length of time shares of the Fund have been held. The maximum capital gains
tax rate for individuals is 28% with respect to assets held for more that 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. Although distributions are
generally taxable when received, certain distributions made in January are
taxable as if received the prior December. You will be informed annually of the
amount and nature of the Fund's distributions. Additional information about
taxes is set forth in the SAI. You should consult your own advisors concerning
federal, state and local taxation of distributions from the Fund.
General Information
The Trust.
The Trust was organized as a Delaware business trust on October 3, 1996. The
Agreement and Declaration of Trust permits the Board of Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, without
par value, which may be issued in any number of series. The Board of Trustees
may, from time to time, issue other series, the assets and liabilities of which
will be separate and distinct from any other series. The Board may also
authorize the issuance of additional classes of shares for an existing series.
The fiscal year of the Fund ends on December 31.
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Shareholder Rights.
Shares issued by the Fund have no preemptive, conversion, or subscription
rights. Shareholders have equal and exclusive rights as to dividends and
distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. The Fund, as a separate series of the Trust, votes
separately on matters affecting only the Fund (e.g., approval of the Investment
Advisory Agreement); all series of the Trust vote as a single class on matters
affecting all series jointly or the Trust as a whole (e.g., election or removal
of Trustees). Voting rights are not cumulative, so that the holders of more than
50% of the shares voting in any election of Trustees can, if they so choose,
elect all of the Trustees. While the Trust is not required and does not intend
to hold annual meetings of shareholders, such meetings may be called by the
Trustees in their discretion, or upon demand by the holders of 10% or more of
the outstanding shares of the Trust for the purpose of electing or removing
Trustees.
Performance Information.
From time to time, the Fund may publish its total return in advertisements and
communications to investors. Total return information will include the Fund's
average annual compounded rate of return over the most recent four calendar
quarters and over the period from the Fund's inception of operations. The Fund
may also advertise aggregate and average total return information over different
periods of time. The Fund's total return will be based upon the value of the
shares acquired through a hypothetical $1,000 investment at the beginning of the
specified period and the net asset value of those shares at the end of the
period, assuming reinvestment of all distributions. Total return figures will
reflect all recurring charges against Fund income. You should note that the
investment results of the Fund will fluctuate over time, and any presentation of
the Fund's total return for any prior period should not be considered as a
representation of what an investor's total return may be in any future period.
Shareholder Inquiries.
Shareholder inquiries should be directed to the Shareholder Servicing Agent at
(888) 263-6452.
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