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. 45 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 47 [X]
ADVISORS SERIES TRUST
(Exact name of registrant as specified in charter)
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (including area code): (602) 952-1100
ROBERT H. WADSWORTH
Advisors Series Trust
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
(Name and address of agent for service of process)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the registration statement.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 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>
SEGALL BRYANT & HAMILL
MID CAP FUND
PROSPECTUS
SEPTEMBER 1, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense
<PAGE>
SEGALL BRYANT & HAMILL MID CAP FUND
10 SOUTH WACKER DRIVE, SUITE 2150
CHICAGO, ILLINOIS 60606
INVESTMENT ADVISOR: (312) 474-4122
SHAREHOLDER SERVICES: (TOLL-FREE) (877) 829-8413
TABLE OF CONTENTS
Overview 1
INVESTMENT OBJECTIVES 1
PRINCIPAL INVESTMENT STRATEGIES 1
TYPES OF SECURITIES 1
PRINCIPAL RISKS OF INVESTING 1
WHO MAY WANT TO INVEST 2
PAST PERFORMANCE 2
ADVISOR PERFORMANCE PREDECESSOR ACCOUNTS 2
Understanding Expenses 4
FEES AND EXPENSES OF THE FUND 4
EXAMPLE 4
Management of the Fund 5
THE INVESTMENT ADVISOR 5
THE PORTFOLIO MANAGER 5
SHAREHOLDER SERVICING AGENT 5
CUSTODIAN 5
DISTRIBUTOR 5
INDEPENDENT ACCOUNTANTS 5
LEGAL COUNSEL 5
Account Information 6
HOW THE FUND'S SHARES ARE PRICED 6
WHEN THE FUND'S SHARES ARE PRICED 6
DISTRIBUTION PLAN 6
How to Invest 7
OPENING A NEW ACCOUNT 7
MINIMUM INVESTMENTS 8
SUBSEQUENT INVESTMENTS 8
MINIMUM ACCOUNT BALANCE 8
SELLING YOUR SHARES 8
Other Services Available to Shareholders 9
AUTOMATIC INVESTMENT PLAN 9
AUTOMATIC WITHDRAWAL PLAN 9
Earnings and Taxes 10
DIVIDENDS AND DISTRIBUTIONS 10
TAXES 10
Financial Highlights 11
For More Information back cover
More detailed information on all subjects covered in this prospectus is
contained in the Fund's STATEMENT OF ADDITIONAL INFORMATION ("SAI"). Investors
seeking more in-depth explanations of the contents of this prospectus should
request the SAI and review it before purchasing shares.
<PAGE>
OVERVIEW
INVESTMENT OBJECTIVES
The Fund seeks as its primary investment objective the growth of capital by
investing in medium-cap ("mid-cap") companies. Its secondary objective is
to provide current income. The objectives of the Fund may be changed only
with shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests at least 65% of its assets in the stocks and other
securities of companies whose shares have a stock market value ("market
capitalization") of between $1 billion and $10 billion. The Fund may invest
up to 35% in bonds of these companies.
The Advisor uses "bottom up" fundamental research to identify
attractively-priced companies with strong or improving return on investment
whose profitability is reasonably expected to lead to an increase in the
company's security price. In addition, the Advisor purchases securities of
companies that it considers to be under-valued and that are attractive
long-term prospects. The Advisor looks for companies that are dominant in
their industry, have a high return on capital, a growth record that is 50%
greater than projected earnings of the Standard & Poor's Index of 500
Common Stocks and a sustainable operating advantage over their competition.
TYPES OF SECURITIES
The Fund invests primarily in the following securities:
* Common Stock;
* Preferred Stock;
* American and Global Depositary Receipts;
* Bonds; and
* Convertible Warrants and Securities.
Please review the SAI for further descriptions of these securities.
PRINCIPAL RISKS OF INVESTING
You may lose money by investing in the Fund. Other principal risks you
should consider include:
MARKET DECLINE - A company's stock price or the overall stock market may
experience a sudden decline.
VALUE FLUCTUATION - Because mid-cap stocks trade less frequently and in
more limited volume, mid-cap stock prices may fluctuate more than large-cap
stocks.
THE EFFECT OF INTEREST RATES - The Fund may invest in bonds and other debt
instruments which may be affected by interest rate changes and changes in
the creditworthiness of the bond or debt instrument issuer.
DEFENSIVE INVESTMENTS - At the discretion of the Advisor, the Fund may
invest up to 100% of its assets in cash, cash equivalents, and high
quality, short-term debt securities and money market instruments for
temporary defensive purposes. During such a period, the Fund may not reach
its investment objectives. For example, should the market advance during
this period, the Fund may not participate as much as it would have if it
had been more fully invested.
FOREIGN AND EMERGING MARKETS - The Fund may invest up to 20% of its total
net assets in securities of foreign companies. Foreign stock markets tend
to be more volatile than the U.S. market due to economic and political
instability and regulatory conditions in some countries. In addition, most
1
<PAGE>
of the securities in which the Fund invests are denominated in foreign
currencies, the values of which may decline against the U.S. dollar.
The Fund may also invest in the securities of issuers in less-developed
foreign countries. Emerging stock markets tend to be much more volatile
than the U.S. market due to the relative immaturity, and occasional
instability, of their political and economic systems. In the past many
emerging markets restricted the flow of money into or out of their stock
markets, and some continue to impose restrictions on foreign investors.
These markets also tend to be less liquid and offer less regulatory
protection for investors. The economies of emerging countries may be
predominantly based on only a few industries or on revenue from particular
commodities, international aid or other assistance.
YEAR 2000 - Many computer systems, as originally encoded, cannot
distinguish the year 2000 from the year 1900. If not corrected, computer
systems may misinterpret and read incorrectly dates occurring after
December 31, 1999. This is commonly known as the "Year 2000 Problem." The
Year 2000 Problem could have a negative impact on handling securities
trades and pricing and accounting services. The Fund's Board of Trustees
have adopted a Year 2000 Project Plan that the Board of Trustees believes
is reasonably designed to address the Year 2000 Problem with respect to the
Advisor's and the Fund's service providers' computer systems. For example,
should the Board of Trustees determine that a service provider is not
converting to a Year 2000 compliant system, the Board of Trustees will
replace that service provider. The Advisor and the Fund's service providers
have assured the Fund that they are moving towards Year 2000 compliant
computer systems, this is not a guarantee that the Fund will not experience
an adverse impact from the Year 2000 Problem. It is important to keep in
mind that the Year 2000 Problem may adversely impact the issuers in which
the Fund invests and, by extension, the value of the shares held by the
Fund.
WHO MAY WANT TO INVEST
The Fund is intended for investors who:
* Are willing to hold their shares for a long period of time (e.g. in
preparation for retirement);
* Are diversifying their investment portfolio by investing in a mutual
fund that concentrates in mid-cap companies; and/or
* Are willing to accept higher short-term risk in exchange for a higher
potential for a long-term total return.
PAST PERFORMANCE
The Fund recently commenced operations. Therefore, no past performance
information is available.
ADVISOR PERFORMANCE - PREDECESSOR ACCOUNTS
Set forth in the table below is certain performance data provided by the
Advisor relating to a performance record for the Advisor for investment
advisory accounts (the "Accounts"), during the periods indicated in the
table. The Accounts utilize the specific investment approach specified for
the Fund under the sections "Investment Objectives" and "Principal
Investment Strategies." The Accounts represent all of the accounts managed
by the Advisor that have substantially similar investment objectives to the
Fund. The Accounts were 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 of 1940.
2
<PAGE>
The composite performance data shown in the table were calculated in
accordance with Performance Presentation Standards of the Association for
Investment Management and Research (AIMR-PPSTM). AIMR has not been involved
with the preparation or review of this performance table.(#1)
All returns presented were calculated on a total return basis and include
all dividends and interest, accrued income and realized and unrealized
gains and losses. All returns reflect the deduction of investment advisory
fees, brokerage commissions and executions costs paid by the Accounts
without provision for federal or state income taxes. Custodial fees, if
any, were not included in the calculation. Securities transactions are
accounted for on trade date and accrual accounting is used. Cash and
equivalents are included in the performance results.
The investment result of the table below is unaudited and is not intended
to predict or suggest the return to be experienced by the Fund or the
return an investor might achieve by investing in the Fund. Investors should
not rely on the following performance data as an indication of future
performance of the Advisor or of the Fund.
<TABLE>
<CAPTION>
Number Mkt % of
YTD YTD Composite of Value % of Total
Period 1st Q 2nd Q 3rd Q 4th Q Gross Net Dispersion Accounts ($mil) Product Assets
- ------ ----- ----- ----- ----- ----- --- ---------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996* -- -- 4.23% 5.21% -- -- -- 1 $ 2.2 81.48% 0.13%
1997 1.63% 14.10% 15.26% (2.05%) 30.92% 29.86% -- 1 $ 3.3 52.38% 0.16%
1998 10.64% (0.02%) (10.53%) 16.94% 15.74% 15.15% 1.85% 2 $16.9 50.60% 0.72%
</TABLE>
* For the period commencing July 1, 1996.
- ----------
#1 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. The AIMR-PPS
are intended to (i) promote full and fair representations by investment
advisors of their performance results, and (ii) ensure uniformity in
reporting so that performance results of investment advisors are directly
comparable.
3
<PAGE>
UNDERSTANDING EXPENSES
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Investment Advisory Fees 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses --
-----------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES --
Advisory Fee Waiver and/or Fund Expense Absorption # --
NET EXPENSES 1.40%
# The Advisor has contractually agreed to waive its fees and/or
absorb expenses of the Fund to ensure that Total Annual
Operating Expenses do not exceed 1.40%. This contract's term
is indefinite and may be terminated only by the Board of
Trustees of the Fund. If the Advisor waives any of its fees or
pays Fund expenses, the Fund may reimburse the Advisor in
future years.
EXAMPLE
This Example is intended to help you compare the costs of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$142 $442 $764 $1,674
4
<PAGE>
MANAGEMENT OF THE FUND
THE INVESTMENT ADVISOR
The registered investment advisor of the Fund is Segall Bryant &
Hamill, 10 South Wacker Drive, Suite 2150, Chicago, Illinois 60606. The
Advisor has provided asset management services to individual and
institutional investors since 1994. The Advisor is a Minnesota
partnership which is 50% owned by an affiliated company, Voyageur
Advisory Services LLC ("Voyageur"), and 50% owned by SBGP Holdings,
Inc. ("Holdings"). Voyageur is owned by Dougherty Financial Group LLC.
Holdings is owned 50% by Ralph M. Segall and 50% by C. Alfred Bryant.
As of March 31, 1999, the Advisor managed approximately $2.3 billion in
assets.
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. The Advisor receives 0.75% of
average annual total assets of the Fund for its investment management
services.
THE PORTFOLIO MANAGER
Mr. Segall is principally responsible for the portfolio management of
the Fund. Mr. Segall founded the Advisor in 1994, after 18 years with
Stein Rose & Farnham, Inc. where he last served as a senior portfolio
manager. Mr. Segall also managed the Segall Bryant & Hamill Growth &
Income Fund, the Mid Cap Fund's predecessor, since its initial
inception in 1995, formerly known as the Voyageur Growth and Income
Fund.
SHAREHOLDING SERVICING AGENT
American Data Services, Inc., P.O. Box 5536, Hauppauge, NY 11788 serves
as the Fund's Shareholder Servicing Agent and Transfer Agent.
CUSTODIAN
Firstar Bank, N.A, 525 Walnut Street, Cincinnati, Ohio 45202, serves as
the Fund's Custodian.
DISTRIBUTOR
First Fund Distributors, Inc., 4455 East Camelback Road, Suite 261E,
Phoenix, Arizona, serves as the Fund's Distributor.
INDEPENDENT ACCOUNTANTS
[ ], 555 Fifth Avenue, New York, New York, 10017, serves as
the Fund's Independent Accountants.
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP, 345 California Street, San
Francisco, California 94104, serves as the Fund's legal counsel.
ACCOUNT INFORMATION
HOW THE FUND'S SHARES ARE PRICED
Shares are priced at net asset value ("NAV"). The NAV is calculated by
adding the values of all securities and other assets of the Fund,
subtracting the liabilities and dividing the net amount by the number
of outstanding shares. In calculating the NAV, the Fund's securities
are valued using current market values, if available. Securities for
which market quotations are nor readily available are valued at their
5
<PAGE>
fair market value determined in good faith by or under the supervision
of the Board of Trustees of the Advisors Series Trust.
WHEN THE FUND'S SHARES ARE PRICED
The NAV is calculated after the close of trading on the NYSE, every day
that the NYSE is open. The NAV is not calculated on days that the NYSE
is closed for trading. If the Fund receives your order by the close of
trading on the NYSE, you can purchase shares at the price calculated
for that day. The NYSE usually closes at 4 p.m., Eastern time, on
weekdays, except for holidays. If your order and payment are received
after the NYSE has closed, your shares will be priced at the next NAV
calculated after receipt of your order. For further information, please
see the section, "HOW TO INVEST" and the SAI.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The Distribution Plan permits the
Fund to pay for the sale and distribution of its shares at an annual
rate of 0.25% of the Fund's average annual net assets.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment
in the Fund and may cost you more than paying other types of sales
charges.
6
<PAGE>
HOW TO INVEST
OPENING A NEW ACCOUNT
You may purchase shares of the Fund by mail, by wire or through your
investment broker. An Application Form accompanies this Prospectus.
Please use the Application Form when purchasing by mail or wire. If you
have any questions or need further information about how to purchase
shares, you may call an account representative of the Fund at
(toll-free) (877) 829-8413.
PURCHASING SHARES BY MAIL
Please complete the attached Application Form and mail it with a
personal check, payable to the SEGALL BRYANT & HAMILL MID CAP FUND to
the Fund's Shareholder Servicing Agent, American Data Services, Inc. at
the following address:
Segall Bryant & Hamill Mid Cap Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
You may not send Application Forms via overnight delivery to a United
States Postal Services post office box. If you wish to use an overnight
delivery service, send your Application Form and check to the Fund's
custodian at the following address:
Segall Bryant & Hamill Mid Cap Fund
c/o Firstar Bank, N.A.
Mutual Fund Custody Department
425 Walnut Street, M.L. 6118, Sixth Floor
Cincinnati, Ohio 45202
PURCHASING SHARES BY WIRE
To order by wire, you must have a wire account number. Please call the
Fund at (toll-free) (877) 829-8413 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 this account number. If you send
your purchase by wire without the account number, your order will be
delayed. You will be asked to fax your Application Form.
Once you have the account number, your bank or other financial
institution may send the wire to the Fund's Custodian with the
following instructions:
Firstar Bank, N.A. Cinti/Trust
ABA # 0420-0001-3
For credit to: Segall Bryant & Hamill Mid Cap Fund
DDA # 488921321
For further credit to [your name and account number]
Your bank or financial institution may charge a fee for sending the
wire to the Fund.
PURCHASING THROUGH AN INVESTMENT BROKER
Your may buy and sell shares through the Fund's approved brokers and
their agents (together "Brokers"). An order placed with a Broker is
treated as if it were placed directly with the Fund, and will be
executed at the next share price calculated by the Fund. Your Broker
will hold your shares in a pooled account in the Broker's name. The
Fund may pay the Broker to maintain your individual ownership
information, for maintaining other required records, and for providing
other shareholder services. The Broker may charge you a fee to handle
your order. The Broker is responsible for processing your order
correctly and promptly, keeping you advised of the status of your
account, confirming your transactions and ensuring that you receive
copies of the Fund's prospectus.
7
<PAGE>
Please contact your broker to see if they are and approved broker of
the Fund and for additional information.
MINIMUM INVESTMENTS
Your initial purchase must be at least $1,000. However, if you are
purchasing shares through an Individual Retirement Account ("IRA"), or
you are starting an Automatic Investing Plan, as described below, your
initial purchase must be at least $250. Exceptions may be made at the
Fund's discretion.
ADDITIONAL INVESTMENTS
Additional purchases may be made for $100 or more. Exceptions may be
made at the Fund's discretion. You may purchase additional shares of
the Fund by sending a check, with the stub from your account statement,
to the Fund at the addresses listed above. Please ensure that you
include your account number on the check. If you do not have the stub
from your account statement, include your name, address and account
number on a separate statement.
You may also make additional purchases by wire or through a Broker.
Please follow the procedures described above under the headings,
"PURCHASING SHARES BY WIRE" or "PURCHASING SHARES THROUGH AN INVESTMENT
BROKER."
MINIMUM ACCOUNT BALANCE
Due to the relatively high cost of managing small accounts, if the
value of your account falls below $500, the Fund may redeem your
shares. However, the Fund will give you 30 days' written notice to give
you time to add to your account and avoid involuntary redemption of
your shares. The Board of Trustees of the Fund believes this policy to
be in the best interest of all shareholders.
SELLING YOUR SHARES
You may sell some or all of your Fund shares on days that the NYSE is
open for trading. Your redemption may result in realized gain or loss
for tax purposes. Your shares will be sold at the next net asset value
calculated for the Fund after receiving your order. You may sell your
shares by mail, wire or through a Broker.
SELLING YOUR SHARES BY MAIL
You may redeem your shares by sending a written request to the Fund.
You must give your account number and state the number of shares you
wish to sell. You must sign the written request. If the account is in
the name of more than one person, each shareholder must sign the
written request. Send your written request to the Fund at:
Segall Bryant & Hamill Mid Cap Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
If the dollar amount of your redemption exceeds $100,000, you must
obtain a signature guarantee (NOT A NOTARIZATION), available from may
commercial banks, savings associations, stock brokers and other NASD
member firms. In unusual circumstances, the Fund may temporarily
suspend the processing of sell requests, or postpone payments of
proceeds for up to seven days as permitted by federal securities laws.
8
<PAGE>
SELLING YOUR SHARES BY TELEPHONE
If you completed the "Redemption by Telephone" section of the Fund's
Application Form, you may sell your shares by calling the Shareholder
Servicing Agent (toll-free) at (877) 829-8413. Your redemption will be
mailed or wired according to your instructions, on the next business
day to the bank account you designated on your Application Form. The
minimum wire amount is $1,000. Your bank or financial institution may
charge a fee for receiving the wire from the Fund. Telephone
redemptions may not be made for IRA accounts.
The Fund will take steps to confirm that a telephone redemption is
authentic. This may include tape recording the telephone instructions,
or requiring a form of personal identification before acting on those
instructions. The Fund reserves the right to refuse telephone
instructions if it cannot reasonably confirm the telephone
instructions. The Fund may be liable for losses from unauthorized or
fraudulent telephone transactions only if these reasonable procedures
are not followed.
You may request telephone redemption privileges after your account is
opened. However, the authorization form requires a separate signature
guarantee (NOT A notarization). The Fund may modify or terminate your
telephone privileges after giving you 60 days notice. Please be aware
that you may experience delays in redeeming your shares by telephone
during periods of abnormal market activity. In addition, the Fund may
postpone payment of proceeds for up to seven days, as permitted by
federal securities laws.
AUTOMATIC INVESTMENT PLAN
You may make regular monthly investments in the Fund using the
Automatic Investment Plan. You may arrange for your bank or financial
institution to transfer a predetermined amount (but not less than
$100). When the Fund receives the transfer, the Fund will invest the
amount in additional shares of the Fund at the next calculated net
asset value. You may request an Application for the Automatic
Investment Plan by calling the Fund (toll-free) at (877) 829-8413. The
Fund may modify or terminate this Plan at any time. You may terminate
your participation in this Plan by calling the Fund.
AUTOMATIC WITHDRAWAL PLAN
You may request that a predetermined amount be sent to you each month
or quarter. Your account must have a value of at least $10,000 for you
to be eligible to participate in the Automatic Withdrawal Plan. The
minimum withdrawal amount is $50. You may request an Application for
the Automatic Withdrawal Plan by calling the Fund (toll-free) at (877)
829-8413. The Fund may modify or terminate this Plan at any time. You
may terminate your participation in this Plan by calling the Fund.
OTHER POLICIES
The Fund may waive the minimum investment requirements for purchases by
certain groups or retirement plans. All investments must be made in
U.S. funds, and checks must be drawn on U.S. banks. Third party checks
are not accepted. The Fund may charge you if your check is returned for
insufficient funds. The Fund reserves the right to reject any
investment, in whole or in part. The IRS requires that you provide the
Fund or your Broker with a taxpayer identification number and other
information upon opening an account. You must specify whether you are
subject to backup withholding. Otherwise, you may be subject to backup
withholding at a rate of 31%.
EARNINGS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gain distributions are normally declared
and paid by the Fund to its shareholders in December of each year. The
Fund may also make periodic dividend payments and distributions at
other times in its discretion.
9
<PAGE>
Unless you invest through a tax-advantaged account, you will owe taxes
on the dividends and distributions. Dividends and distributions are
automatically reinvested in additional shares of the Fund unless you
make a written request to the Fund that you would like to receive
dividends and distributions made in cash.
TAXES
The Fund is required by Internal Revenue Service rules to distribute
substantially all of its net investment income, and capital gains, if
any, to shareholders. Capital gains may be taxable at different rates
depending upon the length of time a Fund holds its assets. You will be
notified at least annually about the tax consequences of distributions
made each year. The Fund's dividends and distributions, whether
received in cash or reinvested, may be taxable. Any redemption of a
Fund's shares will be treated as a sale and any gain on the transaction
may be taxable. Additional information about tax issues relating to the
Fund may be found in the SAI. PLEASE CONSULT YOUR TAX ADVISOR ABOUT THE
POTENTIAL TAX CONSEQUENCES OF INVESTING IN THE FUND.
10
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance during the past fiscal period. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by [ ]. Their report and the
Fund's financial statements are included in the Fund's annual report which is
available upon request.
April 1, 1999*
through
Selected Per-Share Data: April 30, 1999
- --------------------------------------------------------------------------------
NET ASSET VALUE - BEGINNING OF PERIOD 13.76
INCOME FROM INVESTMENT OPERATIONS --
Net investment income --
Net realized and unrealized gain/(loss) on investments --
Total From Investment Operations --
LESS DISTRIBUTIONS --
Dividends from net investment income --
Distributions from capital gains --
Distributions from capital --
Total Distributions --
Net Asset Value - End of Period 13.76
- --------------------------------------------------------------------------------
TOTAL RETURN**
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period
Ratio of expenses to average net assets
Ratio of net investment income to average net assets
Portfolio turnover rate
* The Fund commenced operations on April 1, 1999.
** Total Return is not annualized.
11
<PAGE>
SEGALL BRYANT & HAMILL
MID CAP FUND
A SERIES OF ADVISORS SERIES TRUST
FOR MORE INFORMATION
You can find more information about the Fund in the Statement of Additional
Information ("SAI"), incorporated by reference in this prospectus, that is
available free of charge.
To request your free copy of the SAI, or to request other information, please
call (toll-free) 877-827-8413 or write to the Fund:
Segall Bryant & Hamill Mid Cap Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788
You may review and copy further information about the Fund, including the SAI,
at the Securities and Exchange Commission's ("SEC's") Public Reference Room in
Washington, D.C. Call (800) SEC-0330 for information about the operation of the
Public Reference Room.
Reports and other Fund information are also available on the SEC's Internet site
at . Copies of this information may be obtained, upon payment of a duplicating
fee, by writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
<PAGE>
SEGALL BRYANT & HAMILL MID CAP FUND
STATEMENT OF ADDITIONAL INFORMATION
Dated September 1, 1999
This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the prospectus dated September 1, 1999, as
may be revised from time to time, of the SEGALL BRYANT & HAMILL MID CAP FUND
(the "Fund"), a series of Advisors Series Trust (the "Trust"). Segall Bryant &
Hamill (the "Advisor") is the Advisor to the Fund. A copy of the prospectus may
be obtained from the Fund c/o American Data Services, Inc., P.O. Box 5536,
Hauppauge, NY 11788-0132 or by calling toll free at 877-829-8413.
TABLE OF CONTENTS
Cross-reference to sections
Page in the prospectus
---- -----------------
Investment Objectives and Policies....... B-2 Investment Objectives and
Policies
Management............................... B-13 Management of the Fund
Distribution Plan........................ B-16 Management of the Fund
Portfolio Transactions and Brokerage..... B-16 Management of the Fund
Portfolio Turnover....................... B-17 Management of the Fund
Net Asset Value.......................... B-17 Investor Guide
Taxation................................. B-18 Taxes
Dividends and Distributions.............. B-21 Dividends and Distributions
Performance Information.................. B-21 General Information
General Information...................... B-23 General Information
Appendix - Description of Ratings........ B-24 Not applicable
B-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to seek growth of capital with
income as a secondary objective. The Fund attempts to achieve its objectives by
investing primarily in securities of medium capitalization companies. There is
no assurance that the Fund will achieve its objectives. The discussion below
supplements information contained in the prospectus as to investment policies of
the Fund.
CONVERTIBLE SECURITIES AND WARRANTS
The Fund may invest in convertible securities and warrants. A
convertible security is a fixed-income security (a debt instrument or a
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment therein).
RISKS OF INVESTING IN DEBT SECURITIES
There are a number of risks generally associated with an investment in
debt securities (including convertible securities). Yields on short-,
intermediate-, and long-term securities depend on a variety of factors,
including the general condition of the money and bond markets, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue.
Debt securities with longer maturities tend to produce higher yields
and are generally subject to potentially greater capital appreciation and
depreciation than obligations with short maturities and lower yields. The market
prices of debt securities usually vary, depending upon available yields. An
increase in interest rates will generally reduce the value of such portfolio
investments, and a decline in interest rates will generally increase the value
of such portfolio investments.
SHORT-TERM INVESTMENTS
The Fund may invest in any of the following securities and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The
Fund may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic or foreign banks, savings and loan
associations or financial institutions which, at the time of purchase, have
capital, surplus and undivided profits in excess of $100 million (including
assets of both domestic and foreign branches), based on latest published
reports, or less than $100 million if the principal amount of such bank
obligations are fully insured by the U.S. Government. If the Fund holds
instruments of foreign banks or financial institutions, it may be subject to
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Foreign Investments" below. Such risks include future political
and economic developments, the possible imposition of withholding taxes by the
particular country in which the issuer is located on interest income payable on
the securities, the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities.
B-2
<PAGE>
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.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Fund may invest a portion of
its assets in commercial paper and short-term notes. Commercial paper consists
of unsecured promissory notes issued by corporations. Issues of commercial paper
and short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
Commercial paper and short-term notes will consist of issues rated at
the time of purchase "A-2" or higher by Standard & Poor's Ratings Group,
"Prime-1" or "Prime-2" by Moody's Investors Service, Inc., or similarly rated by
another nationally recognized statistical rating organization or, if unrated,
will be determined by the Advisor to be of comparable quality. These rating
symbols are described in the Appendix.
INVESTMENT COMPANIES. The Fund may invest in shares of other investment
companies. The Fund may invest in money market mutual funds in connection with
its management of daily cash positions. In addition to the advisory and
operational fees a Fund bears directly in connection with its own operation, the
Fund would also bear its pro rata portions of each other investment company's
advisory and operational expenses.
GOVERNMENT OBLIGATIONS. The Fund may make short-term investments in
U.S. Government obligations. Such obligations include Treasury bills,
certificates of indebtedness, notes and bonds, and issues of such entities as
the Government National Mortgage Association ("GNMA"), Export-Import Bank of the
United States, Tennessee Valley Authority, Resolution Funding Corporation,
Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate
Credit Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Federal National Mortgage Association ("FNMA"), Federal Home
Loan Mortgage Corporation, and the Student Loan Marketing Association.
Some of these obligations, such as those of the GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
The Fund may invest in sovereign debt obligations of foreign countries.
A sovereign debtor's willingness or ability to repay principal and interest in a
timely manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to meet
such conditions could result in the cancellation of such third parties'
commitments to lend funds to the sovereign debtor, which may further impair such
debtor's ability or willingness to service its debt in a timely manner.
B-3
<PAGE>
FOREIGN INVESTMENTS AND CURRENCIES
The Fund may invest in securities of foreign issuers that are not
publicly traded in the United States. The Fund may also invest in depositary
receipts, purchase and sell foreign currency on a spot or cash basis and enter
into forward currency contracts (see "Forward Currency Contracts," below).
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign
securities involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the US economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
CURRENCY FLUCTUATIONS. The Fund may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Fund's assets denominated in that currency. Such changes will also
affect the Fund's income. The value of the Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
MARKET CHARACTERISTICS. The Advisor expects that many foreign
securities in which the Fund invest will be purchased in over-the-counter
markets or on exchanges located in the countries in which the principal offices
of the issuers of the various securities are located, if that is the best
available market. Foreign exchanges and markets may be more volatile than those
in the United States. While growing in volume, they usually have substantially
less volume than U.S. markets, and the Fund's foreign securities may be less
liquid and more volatile than U.S. securities. Moreover, settlement practices
for transactions in foreign markets may differ from those in United States
markets, and may include delays beyond periods customary in the United States.
Foreign security trading practices, including those involving securities
settlement where Fund assets may be released prior to receipt of payment or
securities, may expose the Fund to increased risk in the event of a failed trade
or the insolvency of a foreign broker-dealer.
LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
TAXES. The interest and dividends payable on certain of the Fund's
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Fund's
shareholders.
COSTS. To the extent that the Fund invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.
B-4
<PAGE>
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 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 AND FUTURES STRATEGIES
The Fund may purchase put and call options and engage in the writing of
covered call options and secured put options, and employ a variety of other
investment techniques. Specifically, the Fund may engage in the purchase and
sale of stock index future contracts, interest rate futures contracts, and
options on such futures, all as described more fully below. Such investment
policies and techniques may involve a greater degree of risk than those inherent
in more conservative investment approaches.
OPTIONS ON SECURITIES. To hedge against adverse market shifts, the Fund
may purchase put and call options on securities held in its portfolio. In
addition, the Fund may seek to increase its income in an amount designed to meet
operating expenses or may hedge a portion of its portfolio investments through
writing (that is, selling) "covered" put and call options. A put option provides
its purchaser with the right to compel the writer of the option to purchase from
the option holder an underlying security at a specified price at any time during
or at the end of the option period. In contrast, a call option gives the
purchaser the right to buy the underlying security covered by the option from
the writer of the option at the stated exercise price. A covered call option
contemplates that, for so long as the Fund is obligated as the writer of the
option, it will own (1) the underlying securities subject to the option or (2)
securities convertible into, or exchangeable without the payment of any
consideration for, the securities subject to the option. The value of the
underlying securities on which covered call options will be written at any one
time by the Fund will not exceed 25% of the Fund's net assets. The Fund will be
considered "covered" with respect to a put option it writes if, so long as it is
obligated as the writer of a put option, it segregates cash or liquid high-grade
debt obligations that are acceptable to the appropriate regulatory authority.
The Fund may purchase options on securities that are listed on
securities exchanges or that are traded over-the-counter ("OTC"). As the holder
of a put option, the Fund has the right to sell the securities underlying the
option and as the holder of a call option, the Fund has the right to purchase
the securities underlying the option, in each case at the option's exercise
price at any time prior to, or on, the option's expiration date. The Fund may
choose to exercise the options it holds, permit them to expire or terminate them
prior to their expiration by entering into closing sale transactions. In
entering into a closing sale transaction, the Fund would sell an option of the
same series as the one it has purchased.
The Fund receives a premium when it writes call options, which
increases the Fund's return on the underlying security in the event the option
expires unexercised or is closed out at a profit. By writing a call, the Fund
limits its opportunity to profit from an increase in the market value of the
underlying security above the exercise price of the option for as long as the
Fund's obligation as writer of the option continues. The Fund receives a premium
when it writes put options, which increases the Fund's return on the underlying
security in the event the option expires unexercised or is closed out at a
profit. By writing a put, the Fund limits its opportunity to profit from an
increase in the market value of the underlying security above the exercise price
of the option for as long as the Fund's obligation as writer of the option
continues. Thus, in some periods, the Fund will receive less total return and in
other periods greater total return from its hedged positions than it would have
received from its underlying securities if unhedged.
B-5
<PAGE>
In purchasing a put option, the Fund seeks to benefit from a decline in
the market price of the underlying security, whereas in purchasing a call
option, the Fund seeks to benefit from an increase in the market price of the
underlying security. If an option purchased is not sold or exercised when it has
remaining value, or if the market price of the underlying security remains equal
to or greater than the exercise price, in the case of a put, or remains equal to
or below the exercise price, in the case of a call, during the life of the
option, the Fund will lose its investment in the option. For the purchase of an
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price, in the case of a put, and must
increase sufficiently above the exercise price, in the case of a call, to cover
the premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by
trading in options could cause the Fund's net asset value to be subject to more
frequent and wider fluctuations than would be the case if the Fund did not
invest in options.
OTC OPTIONS. OTC options differ from exchange-traded options in several
respects. They are transacted directly with dealers and not with a clearing
corporation, and there is a risk of non-performance by the dealer. However, the
premium is paid in advance by the dealer. OTC options are available for a
greater variety of securities and foreign currencies, and in a wider range of
expiration dates and exercise prices than exchange-traded options. Since there
is no exchange, pricing is normally done by reference to information from a
market maker, which information is carefully monitored or caused to be monitored
by the Adviser and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it
voluntarily only by entering into a closing transaction. In the case of OTC
options, there can be no assurance that a continuous liquid secondary market
will exist for any particular option at any specific time. Consequently, the
Fund may be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. Similarly, when the Fund writes an OTC option, it generally can close
out that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which it originally wrote the option. If a
covered call option writer cannot effect a closing transaction, it cannot sell
the underlying security or foreign currency until the option expires or the
option is exercised. Therefore, the writer of a covered OTC call option may not
be able to sell an underlying security even though it might otherwise be
advantageous to do so. Likewise, the writer of a covered OTC put option may be
unable to sell the securities pledged to secure the put for other investment
purposes while it is obligated as a put writer. Similarly, a purchaser of an OTC
put or call option might also find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
The Fund may purchase and write OTC put and call options in negotiated
transactions. The staff of the Securities and Exchange Commission has previously
taken the position that the value of purchased OTC options and the assets used
as "cover" for written OTC options are illiquid securities and, as such, are to
be included in the calculation of the Fund's 15% limitation on illiquid
securities. However, the staff has eased its position somewhat in certain
limited circumstances. The Fund will attempt to enter into contracts with
certain dealers with which it writes OTC options. Each such contract will
provide that the Fund has the absolute right to repurchase the options it writes
at any time at a repurchase price which represents the fair market value, as
determined in good faith through negotiation between the parties, but which in
no event will exceed a price determined pursuant to a formula contained in the
contract. Although the specific details of such formula may vary among
contracts, the formula will generally be based upon a multiple of the premium
received by the Fund for writing the option, plus the amount, if any, of the
option's intrinsic value. The formula will also include a factor to account for
the difference between the price of the security and the strike price of the
option. If such a contract is entered into, the Fund will count as illiquid only
the initial formula price minus the option's intrinsic value.
The Fund will enter into such contracts only with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York. Moreover, such primary dealers will be subject to the same standards as
are imposed upon dealers with which the Fund enters into repurchase agreements.
B-6
<PAGE>
SECURITIES INDEX OPTIONS. In seeking to hedge all or a portion of its
investment, the Fund may purchase and write put and call options on securities
indices listed on securities exchanges, which indices include securities held in
the Fund's portfolio.
A securities index measures the movement of a certain group of stocks
or debt securities by assigning relative values to the securities included in
the index. Options on securities indexes are generally similar to options on
specific securities. Unlike options on specific securities, however, options on
securities indexes do not involve the delivery of an underlying security; the
option in the case of an option on a stock index represents the holder's right
to obtain from the writer in cash a fixed multiple of the amount by which the
exercise price exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying stock index on the exercise date.
When the Fund writes an option on a securities index, it will segregate
assets in an amount equal to the market value of the option, and will maintain
while the option is open.
Securities index options are subject to position and exercise limits
and other regulations imposed by the exchange on which they are traded. If the
Fund writes a securities index option, it may terminate its obligation by
effecting a closing purchase transaction, which is accomplished by purchasing an
option of the same series as the option previously written. The ability of the
Fund to engage in closing purchase transactions with respect to securities index
options depends on the existence of a liquid secondary market. Although the Fund
generally purchases or writes securities index options only if a liquid
secondary market for the options purchased or sold appears to exist, no such
secondary market may exist, or the market may cease to exist at some future
date, for some options. No assurance can be given that a closing purchase
transaction can be effected when the Fund desires to engage in such a
transaction.
RISKS RELATING TO PURCHASE AND SALE OF OPTIONS ON STOCK INDICES.
Purchase and sale of options on stock indices by the Fund are subject to certain
risks that are not present with options on securities. Because the effectiveness
of purchasing or writing stock index options as a hedging technique depends upon
the extent to which price movements in the Fund's portfolio correlate with price
movements in the level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss on the purchase or writing of an
option on an index depends upon movements in the level of stock prices in the
stock market generally or, in the case of certain indices, in an industry or
market segment, rather than movements in the price of a particular stock.
Accordingly, successful use by the Fund of options on indexes will be subject to
the ability of the Adviser to correctly predict movements in the direction of
the stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
In the event the Advisor is unsuccessful in predicting the movements of an
index, the Fund could be in a worse position than had no hedge been attempted.
Index prices may be distorted if trading of certain stocks included in
the index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, might be unable to exercise an option it holds, which
could result in substantial losses to the Fund. However, it will be the Fund's
policy to purchase or write options only on indices which include a sufficient
number of stocks so that the likelihood of a trading halt in the index is
minimized.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may
purchase and sell stock index futures contracts. The purpose of the acquisition
or sale of a futures contract by the Fund is to hedge against fluctuations in
the value of its portfolio without actually buying or selling securities. The
futures contracts in which the Fund may invest have been developed by and are
traded on national commodity exchanges. Stock index futures contracts may be
based upon broad-based stock indices such as the S&P 500 or upon narrow-based
stock indices. A buyer entering into a stock index futures contract will, on a
specified future date, pay or receive a final cash payment equal to the
difference between the actual value of the stock index on the last day of the
contract and the value of the stock index established by the contract. The Fund
may assume both "long" and "short" positions with respect to futures contracts.
A long position involves entering into a futures contract to buy a commodity,
whereas a short position involves entering into a futures contract to sell a
commodity.
B-7
<PAGE>
The purpose of trading futures contracts is to protect the Fund from
fluctuations in value of its investment securities without necessarily buying or
selling the securities. Because the value of the Fund's investment securities
will exceed the value of the futures contracts sold by the Fund, an increase in
the value of the futures contracts could only mitigate, but not totally offset,
the decline in the value of the Fund's assets. No consideration is paid or
received by the Fund upon trading a futures contract. Upon trading a futures
contract, the Fund will be required to segregate an amount of cash, short-term
Government Securities or other U.S. dollar-denominated, high-grade, short-term
money market instruments equal to approximately 1% to 10% of the contract amount
(this amount is subject to change by the exchange on which the contract is
traded and brokers may charge a higher amount). This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on the
contract that is returned to the Fund upon termination of the futures contract,
assuming that all contractual obligations have been satisfied; the broker will
have access to amounts in the margin account if the Fund fails to meet its
contractual obligations. Subsequent payments, known as "variation margin," to
and from the broker, will be made daily as the price of the currency or
securities underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." At any time prior to the expiration of a futures contract,
the Fund may elect to close a position by taking an opposite position, which
will operate to terminate the Fund's existing position in the contract.
Each short position in a futures or options contract entered into by
the Fund is secured by the Fund's ownership of underlying securities. The Fund
does not use leverage when it enters into long futures or options contracts; the
Fund segregates, with respect to each of its long positions, cash or money
market instruments having a value equal to the underlying commodity value of the
contract.
The Fund may trade stock index futures contracts to the extent
permitted under rules and interpretations adopted by the Commodity Futures
Trading Commission (the "CFTC"). U.S. futures contracts have been designed by
exchanges that have been designated as "contract markets" by the CFTC, and must
be executed through a futures commission merchant, or brokerage firm, that is a
member of the relevant contract market. Futures contracts trade on a number of
contract markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange.
The Fund intends to comply with CFTC regulations and avoid "commodity
pool operator" status. These regulations require that the Fund use futures and
options positions (a) for "bona fide hedging purposes" (as defined in the
regulations) or (b) for other purposes so long as aggregate initial margins and
premiums required in connection with non-hedging positions do not exceed 5% of
the liquidation value of the Fund's portfolio.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS. There are several risks in using stock index futures contracts as
hedging devices. First, all participants in the futures market are subject to
initial margin and variation margin requirements. Rather than making additional
variation margin payments, investors may close the contracts through offsetting
transactions which could distort the normal relationship between the index or
security and the futures market. Second, the margin requirements in the futures
market are lower than margin requirements in the securities market, and as a
result the futures market may attract more speculators than does the securities
market. Increased participation by speculators in the futures market may also
cause temporary price distortions. Because of possible price distortion in the
futures market and because of imperfect correlation between movements in stock
indices or securities and movements in the prices of futures contracts, even a
correct forecast of general market trends may not result in a successful hedging
transaction over a very short period.
Another risk arises because of imperfect correlation between movements
in the value of the futures contracts and movements in the value of securities
subject to the hedge. With respect to stock index futures contracts, the risk of
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the securities included in the applicable stock index. It is
possible that the Fund might sell stock index futures contracts to hedge its
portfolio against a decline in the market, only to have the market advance and
the value of securities held in the Fund's portfolio decline. If this occurred,
the Fund would lose money on the contracts and also experience a decline in the
value of its portfolio securities. While this could occur, the Advisor believes
that over time the value of the Fund's portfolio will tend to move in the same
direction as the market indices and will attempt to reduce this risk, to the
extent possible, by entering into futures contracts on indices whose movements
they believe will have a significant correlation with movements in the value of
the Fund's portfolio securities sought to be hedged.
B-8
<PAGE>
Successful use of futures contracts by the Fund is subject to the
ability of the Advisor to predict correctly movements in the direction of
interest rates or the market. If the Fund has hedged against the possibility of
a decline in the value of the stocks held in its portfolio or an increase in
interest rates adversely affecting the value of fixed-income securities held in
its portfolio and stock prices increase or interest rates decrease instead, the
Fund would lose part or all of the benefit of the increased value of its
security which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market or decline in interest rates.
The Fund may have to sell securities at a time when it may be disadvantageous to
do so.
LIQUIDITY OF FUTURES CONTRACTS. The Fund may elect to close some or all
of its contracts prior to expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position held by the Fund. The Fund may close
its positions by taking opposite positions. Final determinations of variation
margin are then made, additional cash as required is paid by or to the Fund, and
the Fund realizes a loss or a gain. Positions in futures contracts may be closed
only on an exchange or board of trade providing a secondary market for such
futures contracts. Although the Fund intends to enter into futures contracts
only on exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a liquid secondary market will
exist for any particular contract at any particular time.
In addition, most domestic futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses. In such event, it
will not be possible to close a futures position and, in the event of adverse
price movements, the Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee that
the price of the securities being hedged will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on a
futures contract.
RISKS AND SPECIAL CONSIDERATIONS OF OPTIONS ON FUTURES CONTRACTS. The
use of options on interest rate and stock index futures contracts also involves
additional risk. Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves less potential
risk to the Fund because the maximum amount at risk is the premium paid for the
options (plus transactions costs). The writing of a call option on a futures
contract generates a premium which may partially offset a decline in the value
of the Fund's portfolio assets. By writing a call option, the Fund becomes
obligated to sell a futures contract, which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures contract
generates a premium, but the Fund becomes obligated to purchase a futures
contract, which may have a value lower than the exercise price. Thus, the loss
incurred by the Fund in writing options on futures contracts may exceed the
amount of the premium received.
The effective use of options strategies is dependent, among other
things, on the Fund's ability to terminate options positions at a time when the
Advisor deems it desirable to do so. Although the Fund will enter into an option
position only if the Advisor believes that a liquid secondary market exists for
such option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Fund's
transactions involving options on futures contracts will be conducted only on
recognized exchanges.
The Fund's purchase or sale of put or call options on futures contracts
will be based upon predictions as to anticipated interest rates or market trends
by the Advisor, which could prove to be inaccurate. Even if the expectations of
the Advisor are correct, there may be an imperfect correlation between the
change in the value of the options and of the Fund's portfolio securities.
B-9
<PAGE>
Investments in futures contracts and related options by their nature
tend to be more short-term than other equity investments made by the Fund. The
Fund's ability to make such investments, therefore, may result in an increase in
the Fund's portfolio activity and thereby may result in the payment of
additional transaction costs.
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 Investment Company Act (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 designate liquid
assets equal to the amount of the commitment. In such a case, the Fund may be
required subsequently to designate additional assets in order to assure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash.
The Fund does not intend to engage in these transactions for
speculative purposes but only in furtherance of its investment objectives.
Because the Fund will designate assets to satisfy its purchase commitments in
the manner described, the Fund's liquidity and the ability of the Advisor to
manage it may be affected in the event the Fund's forward commitments,
commitments to purchase when-issued securities and delayed settlements ever
exceeded 15% of the value of its net assets.
The Fund will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a taxable capital gain or loss. When the Fund engages in when-issued,
forward commitment and delayed settlement transactions, it relies on the other
party to consummate the trade. Failure of such party to do so may result in the
Fund incurring a loss or missing an opportunity to obtain an advantageous price.
B-10
<PAGE>
The market value of the securities underlying a when-issued purchase, a
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of the Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.
BORROWING
The Fund is authorized to borrow money from time to time for temporary,
extraordinary or emergency purposes or for clearance of transactions in amounts
not to exceed 33-1/3% of the value of its total assets at the time of such
borrowings. The use of borrowing by the Fund involves special risk
considerations that may not be associated with other funds having similar
objectives and policies. Since substantially all of the Fund's assets fluctuate
in value, while the interest obligation resulting from a borrowing will be fixed
by the terms of the Fund's agreement with its lender, the net asset value per
share of the Fund will tend to increase more when its portfolio securities
increase in value and to decrease more when its portfolio assets decrease in
value than would otherwise be the case if the Fund did not borrow funds. In
addition, interest costs on borrowings may fluctuate with changing market rates
of interest and may partially offset or exceed the return earned on borrowed
funds. Under adverse market conditions, the Fund might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales. The Fund is required to
designate specific liquid assets with its custodian equal to the amount it has
borrowed.
LENDING PORTFOLIO SECURITIES
The Fund may lend its portfolio securities in an amount not exceeding
33% of its total assets to financial institutions such as banks and brokers if
the loan is collateralized in accordance with applicable regulations. Under the
present regulatory requirements which govern loans of portfolio securities, the
loan collateral must, on each business day, at least equal the value of the
loaned securities and must consist of cash, letters of credit of domestic banks
or domestic branches of foreign banks, or securities of the U.S. Government or
its agencies. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank would have to be satisfactory to the
Fund. Any loan might be secured by any one or more of the three types of
collateral. The terms of the Fund's loans must permit the Fund to reacquire
loaned securities on five days' notice or in time to vote on any serious matter
and must meet certain tests under the Internal Revenue Code (the "Code").
SHORT SALES
The Fund is authorized to make short sales of securities. In a short
sale, the Fund sells a security which it does not own, in anticipation of a
decline in the market value of the security. To complete the sale, the Fund must
borrow the security (generally from the broker through which the short sale is
made) in order to make delivery to the buyer. The Fund is then obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The Fund is said to have a "short position" in the securities
sold until it delivers them to the broker. The period during which the Fund has
a short position can range from as little as one day to more than a year. Until
the security is replaced, the proceeds of the short sale are retained by the
broker, and the Fund is required to pay to the broker a negotiated portion of
any dividends or interest which accrue during the period of the loan. To meet
current margin requirements, the Fund is also required to deposit with the
broker additional cash or securities so that the total deposit with the broker
is maintained daily at 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).
Short sales by the Fund create opportunities to increase the Fund's
return but, at the same time, involve specific risk considerations and may be
considered a speculative technique. Since the Fund in effect profits from a
decline in the price of the securities sold short without the need to invest the
full purchase price of the securities on 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.
B-11
<PAGE>
ILLIQUID SECURITIES
The Fund may not invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The Advisor will monitor the amount of
illiquid securities in the Fund's portfolio, under the supervision of the
Trust's Board of Trustees, to ensure compliance with the Fund's investment
restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the SEC under the Securities Act,
the Trust's Board of Trustees may determine that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid.
INVESTMENT RESTRICTIONS
The Trust (on behalf of the Fund) has adopted the following
restrictions as fundamental policies, which may not be changed without the
favorable vote of the holders of a "majority," as defined in the 1940 Act, of
the outstanding voting securities of the Fund. Under the 1940 Act, the "vote of
the holders of a majority of the outstanding voting securities" means the vote
of the holders of the lesser of (i) 67% of the shares of the Fund represented at
a meeting at which the holders of more than 50% of its outstanding shares are
represented or (ii) more than 50% of the outstanding shares of the Fund. Except
with respect to borrowing, and illiquid securities, changes in values of the
Fund's assets will not cause a violation of the following investment
restrictions so long as percentage requirements are observed by the Fund at the
time it purchases any security.
As a matter of fundamental policy, the Fund's investment objectives are
fundamental.
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
33-1/3% of its total assets (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 or futures transactions or short sales;
2. 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);
B-12
<PAGE>
3. Make loans of money (except for purchases of debt securities
consistent with the investment policies of the Fund and except for repurchase
agreements);
4. The Fund will invest no more than 20% of the value of its total
assets in securities issued by foreign companies.
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. The Fund will not purchase or sell commodities or commodity
contracts, except futures contracts and related options and other similar
contracts.
7. 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);
The Fund has adopted the following operating (i.e. non-fundamental)
investment policies and restrictions which may be changed by the Board of
Directors without shareholder approval:
1. The Fund will not 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. The Fund will not participate on a joint or joint-and-several basis
in any securities trading account.
3. The Fund will not invest in warrants if, as a result, the
investments (valued at the lower of cost or market) would exceed 5% of the value
of the Fund's total assets.
4. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;
5. The Fund will not invest more than 15% of its net assets in
securities which are restricted as to disposition or otherwise are illiquid or
have no readily available market (except for securities which are determined by
the Board of Trustees to be liquid).
Except for the Fund's policies regarding borrowing and illiquid
securities, any investment restriction described in the prospectus and this SAI
which involves a maximum percentage of securities or assets shall not be
considered to be violated unless an excess over the applicable percentage occurs
immediately after an acquisition of securities or utilization of assets and such
excess results therefrom.
DIVERSIFICATION
The Fund intends to operate as a "diversified" management investment
company, as defined in the 1940 Act, which means that at least 75% of its total
assets must be represented by cash and cash items (including receivables), U.S.
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% of the value of total assets of
the Fund and to not more than 10% of the outstanding voting securities of such
issuer
MANAGEMENT
The overall management of the business and affairs of the Trust is
vested with its Board of Trustees. The Board approves all significant agreements
between the Trust and persons or companies furnishing services to it, including
the agreements with the Advisor, Administrator, Custodian and Transfer Agent.
The day to day operations of the Trust are delegated to its officers, subject to
the Fund's investment objective and policies and to general supervision by the
Board of Trustees.
The Trustees and officers of the Trust, their birth dates and positions
with the Trust, their business addresses and principal occupations during the
past five years are:
B-13
<PAGE>
WALTER E. AUCH, SR. (born 1921) Trustee
6001 N. 62nd Place, Paradise Valley, AZ 85153. Business Consultant and Director,
Nicholas-Applegate Institutional Mutual Funds, Salomon Smith Barney Trak Funds
and Concert Series, Pimco Advisors L.P., Banyan Strategic Realty Trust, Legend
Properties and Senele Group.
ERIC M. BANHAZL* (born 1957) Trustee, President and Treasurer
2020 E. Financial Way, Glendora, CA 91741. Executive Vice President, Investment
Company Administration, LLC; Vice President, First Fund Distributors, Inc.;
Treasurer, Guinness Flight Investment Funds, Inc.
DONALD E. O'CONNOR (born 1936) Trustee
1700 Taylor Avenue, Fort Washington, MD 20744. Retired; formerly Executive Vice
President and Chief Operating Officer of ICI Mutual Insurance Company (until
January, 1997); Vice President, Operations, Investment Company Institute (until
June, 1993); Independent Director, The Parnassus Fund, The Parnassus Income
Fund, and Allegiance Investment Trust.
GEORGE T. WOFFORD III (born 1939) Trustee
305 Glendora Circle, Danville, CA 94526. Senior Vice President, Information
Services, Federal Home Loan Bank of San Francisco.
STEVEN J. PAGGIOLI (born 1950) Vice President
915 Broadway, Suite 1605, New York, NY 10010. Executive Vice President,
Investment Company Administration, LLC; Vice President, First Fund Distributors,
Inc.; President and Trustee, Professionally Managed Portfolios; Trustee,
Managers Funds Trust.
ROBERT H. WADSWORTH (born 1940) Vice President
4455 E. Camelback Rd. Suite 261-E, Phoenix, AZ 85018. President, Robert H.
Wadsworth & Associates, Inc., Investment Company Administration, LLC and First
Fund Distributors, Inc.; Vice President, Professionally Managed Portfolios;
President, Guiness Flight Investment Funds, Inc.; Director, Germany Fund, Inc.,
New Germany Fund, Inc., Central European Equity Fund, Inc. and Deutsche Funds,
Inc.
CHRIS O. MOSER (born 1949) Secretary
4455 E. Camelback Rd. Suite 261-E, Phoenix, AZ 85018. Employed by Investment
Company Administration, LLC (since July 1996); Formerly employed by Bank One,
N.A. (From August 1995 until July 1996; O'Connor, Cavanagh, Anderson,
Killingsworth and Beshears (law firm) (until August 1995).
- ----------
* Denotes Trustee who is an "interested person" of the Trust under the 1940 Act.
NAME AND POSITION AGGREGATE COMPENSATION FROM THE TRUST
- ----------------- -------------------------------------
Walter E. Auch, Sr., Trustee $12,000
Donald E. O'Connor, Trustee $12,000
George T. Wofford III, Trustee $12,000
The Trust has no pension or retirement plan. No other entity affiliated with the
Trust pays any compensation to the Trustees.
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, SAI, 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.
B-14
<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, SAI, 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. For the fiscal year April
1, 1999 through April 30, 1999, the Advisor earned $4,765 in advisory fees. The
advisor waived its entire fee and paid Fund expenses in the amount of $33,617.
In addition to the fees payable to the Advisor and the Administrator,
the Fund is responsible for its operating expenses, including: fees and expenses
incurred in connection with the issuance, registration and transfer of its
shares; brokerage and commission expenses; all expenses of transfer, receipt,
safekeeping, servicing and accounting for the cash, securities and other
property of the Trust for the benefit of the Fund including all fees and
expenses of its custodian, shareholder services agent and accounting services
agent; interest charges on any borrowings; costs and expenses of pricing and
calculating its daily net asset value and of maintaining its books of account
required under the 1940 Act; taxes, if any; a pro rata portion of expenditures
in connection with meetings of the Fund's shareholders and the Trust's Board of
Trustees that are properly payable by the Fund; salaries and expenses of
officers and fees and expenses of members of the Trust's Board of Trustees or
members of any advisory board or committee who are not members of, affiliated
with or interested persons of the Advisor or Administrator; insurance premiums
on property or personnel of the Fund which inure to its benefit, including
liability and fidelity bond insurance; the cost of preparing and printing
reports, proxy statements, prospectuses and SAIs 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, however, the
Advisor has contractually 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 (excluding interest and tax expenses) to the
limit set forth in the Expense Table (the "expense cap"). Any such reductions
made by the Advisor in its fees or payment of expenses which are the Fund's
obligation are subject to reimbursement by the Fund to the Advisor, if so
requested by the Advisor, in subsequent fiscal years if the aggregate amount
actually paid by the Fund toward the operating expenses for such fiscal year
(taking into account the reimbursement) does not exceed the applicable
limitation on Fund expenses. The Advisor is permitted to be reimbursed only for
fee reductions and expense payments made in the previous three fiscal years, but
is permitted to look back five years and four years, respectively, during the
initial six years and seventh year of the Fund's operations. Any such
reimbursement is also contingent upon Board of Trustees' subsequent review and
ratification of the reimbursed amounts. Such reimbursement may not be paid prior
to the Fund's payment of current ordinary operating expenses.
B-15
<PAGE>
Under the Advisory Agreement, the Advisor will not be liable to the
Trust or the Fund or any shareholder for any act or omission in the course of,
or connected with, rendering services or for any loss sustained by the Trust
except in the case of a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages will be limited as
provided in the 1940 Act) or of willful misfeasance, bad faith or gross
negligence, or reckless disregard of its obligations and duties under the
Advisory Agreement.
The Advisory Agreement will remain in effect for a period not to exceed
two years. Thereafter, if not terminated, the Advisory Agreement will continue
automatically for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a majority vote of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund.
The Advisory Agreement is terminable by vote of the Board of Trustees
or by the holders of a majority of the outstanding voting securities of the Fund
at any time without penalty, on 60 days written notice to the Advisor. The
Advisory Agreement also may be terminated by the Advisor on 60 days written
notice to the Trust. The Advisory Agreement terminates automatically upon its
assignment (as defined in the 1940 Act).
THE ADMINISTRATOR. The Administrator has agreed to be responsible for
providing such services as the Trustees may reasonably request, including but
not limited to (i) maintaining the Trust's books and records (other than
financial or accounting books and records maintained by any custodian, transfer
agent or accounting services agent); (ii) overseeing the Trust's insurance
relationships; (iii) preparing for the Trust (or assisting counsel and/or
auditors in the preparation of) all required tax returns, proxy statements and
reports to the Trust's shareholders and Trustees and reports to and other
filings with the SEC and any other governmental agency (the Trust agreeing to
supply or cause to be supplied to the Administrator all necessary financial and
other information in connection with the foregoing); (iv) preparing such
applications and reports as may be necessary to permit the offer and sale of the
shares of the Trust under the securities or "blue sky" laws of the various
states selected by the Trust (the Trust agreeing to pay all filing fees or other
similar fees in connection therewith); (v) responding to all inquiries or other
communications of shareholders, if any, which are directed to the Administrator,
or if any such inquiry or communication is more properly to be responded to by
the Trust's custodian, transfer agent or accounting services agent, overseeing
their response thereto; (vi) overseeing all relationships between the Trust and
any custodian(s), transfer agent(s) and accounting services agent(s), including
the negotiation of agreements and the supervision of the performance of such
agreements; and (vii) authorizing and directing any of the Administrator's
directors, officers and employees who may be elected as Trustees or officers of
the Trust to serve in the capacities in which they are elected. All services to
be furnished by the Administrator under this Agreement may be furnished through
the medium of any such directors, officers or employees of the Administrator.
For its services, the Administrator receives a fee monthly at the
following annual rate, subject to a $30,000 minimum:
Fund asset level Fee rate
- ---------------- --------
First $50 million 0.20% of average daily net assets
Next $50 million 0.15% of average daily net assets
Next $50 million 0.10% of average daily net assets
Next $50 million, and thereafter 0.05% of average daily net assets
DISTRIBUTION PLAN
Pursuant to a plan of distribution adopted by the Trust, on behalf of
the Fund, pursuant to Rule 12b-1 under the 1940 Act (the "Plan"), the Fund may
pay distribution and related expenses up to 0.25% of its average net assets to
the Advisor as distribution coordinator. Expenses permitted to be paid include
preparation, printing and mailing of prospectuses, shareholder reports such as
semi-annual and annual reports, performance reports and newsletters, sales
literature and other promotional material to prospective investors, direct mail
solicitations, advertising, public relations, compensation of sales personnel,
advisors or other third parties for their assistance with respect to the
distribution of the Fund's shares, payments to financial intermediaries for
shareholder support, administrative and accounting services with respect to
shareholders of the Fund and such other expenses as may be approved from time to
time by the Board of Trustees of the Trust.
B-16
<PAGE>
The Plan allows excess distribution expenses to be carried forward by
the Advisor, as distribution coordinator, and resubmitted in a subsequent fiscal
year, provided that (i) distribution expenses cannot be carried forward for more
than three years following initial submission; (ii) the Trustees have made a
determination at the time of initial submission that the distribution expenses
are appropriate to be carried forward and (iii) the Trustees make a further
determination, at the time any distribution expenses which have been carried
forward are submitted for payment, that payment at the time is appropriate,
consistent with the objectives of the Plan and in the current best interests of
shareholders.
Under the Plan, the Trustees will be furnished quarterly with
information detailing the amount of expenses paid under the Plan and the
purposes for which payments were made. The Plan may be terminated at any time by
vote of a majority of the Trustees of the Trust who are not interested persons.
Continuation of the Plan is considered by such Trustees no less frequently than
annually. During the period ending April 30, 1999, the Fund paid the
Distribution Coordinator distribution fees totaling $1,210. These fees were used
to pay for Fund trail commissions and dealer fees paid to brokers who sold
shares of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisory Agreement states that the Advisor shall be responsible for
broker-dealer selection and for negotiation of brokerage commission rates,
provided that the Advisor shall not direct orders to an affiliated person of the
Advisor without general prior authorization to use such affiliated broker or
dealer by the Trust's Board of Trustees. The Advisor's primary consideration in
effecting a securities transaction will be execution at the most favorable
price. In selecting a broker-dealer to execute each particular transaction, the
Advisor may take the following into consideration: the best net price available;
the reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of 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 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.
B-17
<PAGE>
Brokerage Commissions paid during the fiscal year from April 1, 1999
through April 30, 1999, totaled $3,951.
PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Advisor, investing
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% portfolio turnover rate would occur if all
the securities in the Fund's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to transaction costs and may result in a
greater number of taxable transactions. See "Portfolio Transactions and
Brokerage."
Turnover during the fiscal year from April 1, 1999 through April 30, 1999, was
18.02%.
NET ASSET VALUE
The net asset value of the Fund's shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange (the
"NYSE") (generally 4:00 p.m. Eastern time) each business day. The NYSE annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that it will not be open for the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However,
the NYSE may close on days not included in that announcement.
The net asset value per share is computed by dividing the value of the
securities held by the Fund plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of shares in the Fund outstanding at such
time.
Generally, trading in and valuation of foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. In addition, trading in and valuation of foreign securities may not take
place on every day in which the NYSE is open for trading. In that case, the
price used to determine the Fund's net asset value on the last day on which such
exchange was open will be used, unless the Trust's Board of Trustees determines
that a different price should be used. Furthermore, trading takes place in
various foreign markets on days in which the NYSE is not open for trading and on
which the Fund's net asset value is not calculated. Occasionally, events
affecting the values of such securities in U.S. dollars on a day on which the
Fund calculates its net asset value may occur between the times when such
securities are valued and the close of the NYSE that will not be reflected in
the computation of the Fund's net asset value unless the Board or its delegates
deem that such events would materially affect the net asset value, in which case
an adjustment would be made.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value, at fair value as determined in good faith by the
Advisor and the Trust's Valuation Committee pursuant to procedures approved by
or under the direction of the Board.
The Fund's securities, which are traded on securities exchanges are
valued at the last sale price on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any reported sales, at the mean between the last available bid and
asked price. Securities that are traded on more than one exchange are valued on
the exchange determined by the Advisor to be the primary market. Securities
traded in the OTC market are valued at the mean between the last available bid
and asked price prior to the time of valuation. Securities and assets for which
market quotations are not readily available (including restricted 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-18
<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 or securities or foreign
currency gains related to investments in stock or securities, or other income
(generally including gains from options, futures or forward contracts) derived
with respect to the business of investing in stock, securities or currency, and
(b) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of its assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies
and other securities limited, for purposes of this calculation, in the case of
other securities of any one issuer to an amount not greater than 5% of the
Fund's assets or 10% of the voting securities of the issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities or securities of other regulated
investment companies). As such, and by complying with the applicable provisions
of the Code, the Fund will not be subject to federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders in
accordance with the timing requirements of the Code. If the Fund is unable to
meet certain requirements of the Code, it may be subject to taxation as a
corporation.
Distributions of net investment income and net realized capital gains
by the Fund will be taxable to shareholders whether made in cash or reinvested
by the Fund in shares. In determining amounts of net realized capital gains to
be distributed, any capital loss carry-overs from the eight prior taxable years
will be applied against capital gains. Shareholders receiving a distribution
from the Fund in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date. Fund distributions also
will be included in individual and corporate shareholders' income on which the
alternative minimum tax may be imposed.
B-19
<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 prospectuses. In order to avoid the payment of any federal
excise tax based on net income, the Fund must declare on or before December 31
of each year, and pay on or before January 31 of the following year,
distributions at least equal to 98% of its ordinary income for that calendar
year and at least 98% of the excess of any capital gains over any capital losses
realized in the one-year period ending October 31 of that year, together with
any undistributed amounts of ordinary income and capital gains (in excess of
capital losses) from the previous calendar year.
The Fund may receive dividend distributions from U.S. corporations. To
the extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.
If more than 50% in value of the total assets of the Fund at the end of
its fiscal year is invested in stock or securities of foreign corporations, the
Fund may elect to pass through to its shareholders the pro rata share of all
foreign income taxes paid by the Fund. If this election is made, shareholders
will be (i) required to include in their gross income their pro rata share of
the Fund's foreign source income (including any foreign income taxes paid by the
Fund), and (ii) entitled either to deduct their share of such foreign taxes in
computing their taxable income or to claim a credit for such taxes against their
U.S. income tax, subject to certain limitations under the Code, including
certain holding period requirements. In this case, shareholders will be informed
in writing by the Fund at the end of each calendar year regarding the
availability of any credits on and the amount of foreign source income
(including or excluding foreign income taxes paid by the Fund) to be included in
their income tax returns. If not more than 50% in value of the Fund's total
assets at the end of its fiscal year is invested in stock or securities of
foreign corporations, the Fund will not be entitled under the Code to pass
through to its shareholders their pro rata share of the foreign taxes paid by
the Fund. In this case, these taxes will be taken as a deduction by the Fund.
The Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.
The use of hedging strategies, such as entering into futures contracts
and forward contracts and purchasing options, involves complex rules that will
determine the character and timing of recognition of the income received in
connection therewith by the Fund. Income from foreign currencies (except certain
gains therefrom that may be excluded by future regulations) and income from
transactions in options, futures contracts and forward contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.
For accounting purposes, when the Fund purchases an option, the premium
paid by the Fund is recorded as an asset and is subsequently adjusted to the
current market value of the option. Any gain or loss realized by the Fund upon
the expiration or sale of such options held by the Fund generally will be
capital gain or loss.
Any security, option, or other position entered into or held by the
Fund that substantially diminishes the Fund's risk of loss from any other
position held by the Fund may constitute a "straddle" for federal income tax
purposes. In general, straddles are subject to certain rules that may affect the
amount, character and timing of the Fund's gains and losses with respect to
straddle positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that the Fund's holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Fund that may mitigate the effects of the straddle rules.
B-20
<PAGE>
Certain options, futures contracts and forward contracts that are
subject to Section 1256 of the Code ("Section 1256 Contracts") and that are held
by the Fund at the end of its taxable year generally will be required to be
"marked to market" for federal income tax purposes, that is, deemed to have been
sold at market value. Sixty percent of any net gain or loss recognized on these
deemed sales and 60% of any net gain or loss realized from any actual sales of
Section 1256 Contracts will be treated as long-term capital gain or loss, and
the balance will be treated as short-term capital gain or loss.
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions that may affect the amount, timing and
character of income, gain or loss recognized by the Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign
currency-denominated debt instruments, foreign currency forward contracts,
foreign currency denominated payables and receivables and foreign currency
options and futures contracts (other than options and futures contracts that are
governed by the mark-to-market and 60/40 rules of Section 1256 of the Code and
for which no election is made) is treated as ordinary income or loss. Some part
of the Fund's gain or loss on the sale or other disposition of shares of a
foreign corporation may, because of changes in foreign currency exchange rates,
be treated as ordinary income or loss under Section 988 of the Code rather than
as capital gain or loss.
A shareholder who purchases shares of the Fund by tendering payment for
the shares in the form of other securities may be required to recognize gain or
loss for income tax purposes on the difference, if any, between the adjusted
basis of the securities tendered to the fund and the purchase price of the
Fund's shares acquired by the shareholder.
Section 475 of the Code requires that a "dealer" in securities must
generally "mark to market" at the end of its taxable year all securities which
it owns. The resulting gain or loss is treated as ordinary (and not capital)
gain or loss, except to the extent allocable to periods during which the dealer
held the security for investment. The "mark to market" rules do not apply,
however, to a security held for investment which is clearly identified in the
dealer's records as being held for investment before the end of the day in which
the security was acquired. The IRS has issued guidance under Section 475 that
provides that, for example, a bank that regularly originates and sells loans is
a dealer in securities, and subject to the "mark to market" rules. Shares of the
Fund held by a dealer in securities will be subject to the "mark to market"
rules unless they are held by the dealer for investment and the dealer property
identifies the shares as held for investment.
Redemptions and exchanges of shares of the Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends during such six-month period. All or a portion
of a loss realized upon the redemption of shares may be disallowed to the extent
shares are purchased (including shares acquired by means of reinvested
dividends) within 30 days before or after such redemption.
Distributions and redemptions may be subject to state and local income
taxes, and the treatment thereof may differ from the federal income tax
treatment. Foreign taxes may apply to non-U.S. investors.
The above discussion and the related discussion in the prospectuses are
not intended to be complete discussions of all applicable federal tax
consequences of an investment in the Fund. The law firm of Paul, Hastings,
Janofsky & Walker LLP has expressed no opinion in respect thereof. Nonresident
aliens and foreign persons are subject to different tax rules, and may be
subject to withholding of up to 30% on certain payments received from the Fund.
Shareholders are advised to consult with their own tax advisers concerning the
application of foreign, federal, state and local taxes to an investment in the
Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund will receive income in the form of dividends and interest
earned on its investments in securities. This income, less the expenses incurred
in its operations, is the Fund's net investment income, substantially all of
which will be declared as dividends to the Fund's shareholders.
B-21
<PAGE>
The amount of income dividend payments by the Fund is dependent upon
the amount of net investment income received by the Fund from its portfolio
holdings, is not guaranteed and is subject to the discretion of the Board. The
Fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.
The Fund also may derive capital gains or losses in connection with
sales or other dispositions of its portfolio securities. Any net gain the Fund
may realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held more than the period
required for long-term capital gain or loss recognition or otherwise producing
long-term capital gains and losses, the Fund will have a net long-term capital
gain. After deduction of the amount of any net short-term capital loss, the
balance (to the extent not offset by any capital losses carried over from the
eight previous taxable years) will be distributed and treated as long-term
capital gains in the hands of the shareholders regardless of the length of time
the Fund's shares may have been held by the shareholders. For more information
concerning applicable capital gains tax rates, see your tax advisor.
Any dividend or distribution paid by the Fund reduces the Fund's net
asset value per share on the date paid by the amount of the dividend or
distribution per share. Accordingly, a dividend or distribution paid shortly
after a purchase of shares by a shareholder would represent, in substance, a
partial return of capital (to the extent it is paid on the shares so purchased),
even though it would be subject to income taxes.
Dividends and other distributions will be made in the form of
additional shares of the Fund unless the shareholder has otherwise indicated.
Investors have the right to change their elections with respect to the
reinvestment of dividends and distributions by notifying the Transfer Agent in
writing, but any such change will be effective only as to dividends and other
distributions for which the record date is seven or more business days after the
Transfer Agent has received the written request.
PERFORMANCE INFORMATION
TOTAL RETURN
Average annual total return quotations used in the Fund's advertising
and promotional materials are calculated according to the following formula:
n
P(1 + T) = ERV
where "P" equals a hypothetical initial payment of $1,000; "T" equals average
annual total return; "n" equals the number of years; and "ERV" equals the ending
redeemable value at the end of the period of a hypothetical $1,000 payment made
at the beginning of the period.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication. Average
annual total return, or "T" in the above formula, is computed by finding the
average annual compounded rates of 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 fiscal year from April 1, 1999 through April 30, 1999, the
Fund's total return was 5.98%.
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:
B-22
<PAGE>
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 guarantee future results. The return and principal value of an investment in
the Fund will fluctuate, and an investor's redemption proceeds may be more or
less than the original investment amount. In advertising and promotional
materials the Fund may compare its performance with data published by Lipper
Analytical Services, Inc. ("Lipper") or CDA Investment Technologies, Inc.
("CDA"). The Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper or CDA. Advertising and promotional materials also may refer
to discussions of the Fund and comparative mutual fund data and ratings reported
in independent periodicals including, but not limited to, THE WALL STREET
JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD and BARRON'S.
GENERAL INFORMATION
Advisors Series Trust is an open-end management investment company
organized as a Delaware Business Trust under the laws of the State of Delaware
on October 3, 1996. The Trust currently consists of 16 series of shares of
beneficial interest, par value $0.01 per share. The Declaration of Trust permits
the Trustees to issue an unlimited number of full and fractional shares of
beneficial interest and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interest
in the Fund. Each share represents an interest in the Fund proportionately equal
to the interest of each other share. Upon the Fund's liquidation, all
shareholders would share pro rata in the net assets of the Fund available for
distribution to shareholders. Income and operating expenses not specifically
attributable to a particular Fund are allocated fairly among the Funds by the
Trustees, generally on the basis of the relative net assets of each Fund in the
Trust.
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.
B-23
<PAGE>
If the Board of Trustees should determine that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay redemption proceeds in whole or in
part by a distribution in kind of securities from the portfolio of the Fund, in
compliance with the Trust's election to be governed by Rule 18f-1 under the 1940
Act. Pursuant to Rule 18f-1, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder. If shares are redeemed in
kind, the redeeming shareholder will likely incur brokerage costs in converting
the assets into cash.
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 principal underwriter is First Fund Distributors, Inc., 4455
E. Camelback Rd., Suite 261E, Phoenix, AZ 85018. The Fund's Custodian, Firstar
Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is responsible for
holding the Fund's assets. American Data Services, Inc., 150 Motor Parkway,
Suite 109, Hauppauge, NY 11788 acts as the Fund's transfer agent and accounting
services agent. The Fund's independent accountants, [ ], assist in
the preparation of certain reports to the SEC and the Fund's tax returns.
The validity of the Fund's shares has been passed on by Paul, Hastings,
Janofsky & Walker LLP, 345 California Street, San Francisco, CA 94104.
Shares of the Fund owned by the Trustees and officers as a group were
less than 1% at June 7, 1999.
On June 7, 1999, the following persons owned of record and/or
beneficially more than 5% of the Fund's outstanding voting securities:
Charles Schwab & Co. Inc., Special Custody Account for the Exclusive
Benefit of Customers, ATTN Mutual Funds, 101 Montgomery Street, San Francisco,
CA 94104; 40.77% record.
National Financial Services Corp. for Exclusive Benefit of Customers,
200 Liberty Street, 5th FL, New York, NY 10281; 32.19% record.
LaSalle Bank Cust, FBO Segall Bryant Omnibus, C-8159Q103, PO Box 1443,
Chicago, IL 60690-1443; 9.78% record.
APPENDIX
DESCRIPTION OF RATINGS
MOODY'S INVESTORS SERVICE, INC.: CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
B-24
<PAGE>
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.
Moody's applies numerical modifiers "1", "2" and "3" in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier "1" indicates that the security ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the issue ranks in the lower end of its generic
rating category.
STANDARD & POOR'S RATINGS GROUP: CORPORATE BOND RATINGS
AAA-This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA-Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Plus (+) or Minus (-)--The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major categories.
COMMERCIAL PAPER RATINGS
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-25
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Agreement and Declaration of Trust (1)
(b) By-Laws (1)
(c) Not applicable
(d) (i) Form of Investment Advisory Agreement (4)
(ii) Form of Amendment to Investment Advisory Agreement
(e) Distribution Agreement (2)
(f) Not applicable
(g) Custodian Agreement (3)
(h) (i) Administration Agreement with Investment Company
Administration Corporation (2)
(ii) Fund Accounting Service Agreement (2)
(iii) Transfer Agency and Service Agreement (2)
(i) Legal Opinions
(j) Not applicable
(k) Not applicable
(l) Investment letters (3)
(m) Form of Rule 12b-1 Plan (4)
(n) Not applicable
(o) Not applicable
(1) Previously filed with the Registration Statement on Form N-1A (File
No. 333-17391) 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. 333-17391) 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. 333-17391) on February 28, 1997
and incorporated herein by reference.
(4) Previously filed with Post-Effective Amendment No. 37 to the
Registration Statement on Form N-1A (File No. 333-17391) on January 15, 1999 and
incorporated herein by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
Article VI of Registrant's By-Laws states as follows:
<PAGE>
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 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:
<PAGE>
(a) In respect of any claim, issue, or matter as to which that
person shall have been adjudged to be liable on the basis that
personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in the person's
official capacity; or
(b) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable in the
performance of that person's duty to this Trust, unless and
only to the extent that the court in which that action was
brought shall determine upon application that in view of all
the circumstances of the case, that person was not liable by
reason of the disabling conduct set forth in the preceding
paragraph and is fairly and reasonably entitled to indemnity
for the expenses which the court shall determine; or
(c) of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval,
or of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court
approval, unless the required approval set forth in Section 6
of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Trustees, including a majority who are disinterested, non-party Trustees, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of Trustees who are not
parties to the proceeding and are not interested persons of
the Trust (as defined in the Investment Company Act of 1940);
or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding upon a written undertaking by or on behalf of the agent, to repay the
amount of the advance if it is ultimately determined that he or she is not
entitled to indemnification, together with at least one of the following as a
condition to the advance: (i)security for the undertaking; or (ii) the existence
of insurance protecting the Trust against losses arising by reason of any lawful
advances; or (iii) a determination by a majority of a quorum of Trustees who are
not parties to the proceeding and are not interested persons of the Trust, or by
an independent legal counsel in a written opinion, based on a review of readily
available facts that there is reason to believe that the agent ultimately will
be found entitled to indemnification. Determinations and authorizations of
payments under this Section must be made in the manner specified in Section 6 of
this Article for determining that the indemnification is permissible.
<PAGE>
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6 in any circumstances
where it appears:
(a) that it would be inconsistent with a provision of the
Agreement and Declaration of Trust of the Trust, a resolution
of the shareholders, or an agreement in effect at the time of
accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other
amounts were paid which prohibits or otherwise limits
indemnification; or
(b) that it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article and the Agreement and Declaration of Trust of the
Trust.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The information required by this item with respect to American Trust
Company is as follows:
<PAGE>
American Trust Company is a trust company chartered under the laws of
the State of New Hampshire. Its President and Director, Paul H. Collins, is a
director of:
MacKenzie-Childs, Ltd.
360 State Road 90
Aurora, NY 13026
Great Northern Arts
Castle Music, Inc.
World Family Foundation
all with an address at
Gordon Road, Middletown, NY
Robert E. Moses, a Director of American Trust Company, is a director of:
Mascoma Mutual Hold Corp.
On The Green
Lebanon, NH 03766
Information required by this item is contained in the Form ADV of the
following entities and is incorporated herein by reference:
NAME OF INVESTMENT ADVISER FILE NO.
-------------------------- --------
Bay Isle Financial Corporation 801-27563
Kaminski Asset Management, Inc. 801-53485
Rockhaven Asset Management, LLC 801-54084
Chase Investment Counsel Corp. 801-3396
Avatar Investors Associates Corp. 801-7061
The Edgar Lomax Company 801-19358
Al Frank Asset Management, Inc. 801-30528
Heritage West Advisors, LLC 801-55233
Howard Capital Management 801-10188
Segall Bryant & Hamill 801-47232
National Asset Management Corporation 801-14666
Charter Financial Group, Inc. 801-50956
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The Registrant's principal underwriter also acts as principal
underwriter for the following investment companies:
Guinness Flight Investment Funds
Fleming Capital Mutual Fund Group, Inc.
Fremont Mutual Funds, Inc.
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
The Purisima Funds
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group, Inc.
Brandes Investment Trust
Allegiance Investment Trust
The Dessauer Global Equity Fund
Puget Sound Alternative Investment Trust
UBS Private Investor Funds
(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 and Vice President
4455 E. Camelback Road Treasurer
Suite 261E
Phoenix, AZ 85018
Eric M. Banhazl Vice President President,
2020 E. Financial Way, Ste. 100 Treasurer
Glendora, CA 91741 and Trustee
Steven J. Paggioli Vice President and Vice President
915 Broadway, Ste. 1605 Secretary
New York, New York 10010
(c) Not applicable.
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession of the following persons:
(a) the documents required to be maintained by paragraph (4) of Rule
31a-1(b) will be maintained by the Registrant;
(b) the documents required to be maintained by paragraphs (5), (6),
(10) and (11) of Rule 31a-1(b) will be maintained by the respective investment
advisors:
American Trust Company, One Court Street, Lebanon, NH 03766
Bay Isle Financial Corporation, 160 Sansome Street, San Francisco, CA
94104
Kaminski Asset Management, Inc., 319 First Avenue, Suite 400,
Minneapolis, MN 55401
Rockhaven Asset Management, 100 First Avenue, Suite 1050, Pittsburgh,
PA 15222
Chase Investment Counsel Corp., 300 Preston Avenue, Charlottesville, VA
22902
Avatar Associates Investment Corp., 900 Third Avenue, New York, NY
10022
The Edgar Lomax Company, 6564 Loisdale Court, Springfield, VA 22150
Al Frank Asset Management, Inc. 465 Forest Avenue, Suite I, Laguna
Beach, CA 92651
Heritage West Advisors, LLC, 1850 North Central Ave., Suite 610,
Phoenix, AZ 85004
Liberty Bank and Trust Company, 4101 Pauger St., Suite 105, New
Orleans, LA 70122
Howard Capital Management, 45 Rockefeller Plaza, Suite 1440, New York,
New York 10111
Segall Bryant & Hamill, 10 South Wacker Drive, Suite 2150, Chicago, IL
60606
National Asset Management Corporation, 101 South Fifth Street,
Louisville, KY 40202
Charter Financial Group, Inc., 1401 I Street N.W., Suite 505,
Washington, DC 20005
(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,
Firstar Bank, 425 Walnut Street, Cincinnati, OH 45202.
<PAGE>
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Registrant hereby undertakes to:
(a) Furnish each person to whom a Prospectus is delivered a copy
of the applicable latest annual report to shareholders, upon
request and without charge.
(b) If requested to do so by the holders of at least 10% of the
Trust's outstanding shares, call a meeting of shareholders for
the purposes of voting upon the question of removal of a
director and assist in communications with other shareholders.
(c) On behalf of each of its series, to change any disclosure of
past performance of an Advisor to a series to conform to
changes in the position of the staff of the Commission with
respect to such presentation.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
EX-99.5.1 Legal opinion, Charter Equity Fund
EX-99.5.2 Legal opinion, National Asset Management Core Equity Fund
EX-99.5.3 Legal opinion, Segall Bryant & Hamill Mid Cap Fund
EX-99.10 Form of Amendment to Investment Advisory Agreement
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement on Form N- 1A of Advisors Series Trust to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Phoenix and State of Arizona on the 29th day of June, 1999.
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 29, 1999.
/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
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
June 11, 1999
(415) 835-1600
27217.94770
Advisors Series Trust
2025 East Financial Way, Suite 101
Glendora, CA 91741
Re: Charter Equity Fund
Ladies and Gentlemen:
We have acted as counsel to Advisors Series Trust, a Delaware business
trust (the "Trust"), in connection with Post-Effective Amendment No. 41 to the
Trust's Registration Statement filed on Form N-1A with the Securities and
Exchange Commission (the "Post-Effective Amendment"), relating to the issuance
by the Trust of an indefinite number of $0.01 par value shares of beneficial
interest (the "Shares") of Charter Equity 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 Delaware
Secretary of State on October 3, 1996, certified to us by an
officer of the Trust as being in effect on the date hereof;
(b) the Trust's Agreement and Declaration of Trust dated October
3, 1996 (the "Declaration of Trust"), certified to us by an
officer of the Trust as being true and complete and in effect
on the date hereof;
(c) the By-Laws of the Trust, certified to us by an officer of the
Trust as being true and complete and in effect on the date
hereof;
<PAGE>
Advisors Series Trust
June 11, 1999
Page 2
(d) resolutions of the Trustees of the Trust adopted at various
meetings of the Trusts, authorizing the establishment of the
Fund and the issuance of its Shares, certified to us by an
officer of the Trust as being true and complete and in effect
on the date hereof;
(e) the Post-Effective Amendment; and
(f) a certificate of an officer of the Trust concerning certain
factual matters relevant to this opinion.
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 Title 12, Chapter 38 of the Delaware Code and the case
law interpreting such Chapter as reported in The Delaware Law of Corporations
and Business Organizations Statutory Handbook (Aspen Law & Business, 1999
Edition) as updated on Westlaw on June 11, 1999. We have not undertaken a review
of other Delaware law or of any administrative or court decisions in connection
with rendering this opinion. We disclaim any opinion as to any law other than
that of the United States of America and the business trust law of the State of
Delaware as described above, and we disclaim any opinion as to any statute,
rule, regulation, ordinance, order or other promulgation of any regional or
local governmental authority.
Based on the foregoing and our examination of such questions of law as
we have deemed necessary and appropriate for the purpose of this opinion, and
assuming that: (i) all of the Shares will be issued and sold for cash at the
per-share public offering price on the date of their issuance in accordance with
statements in the Fund's Prospectus, included in the Post-Effective Amendment,
and in accordance with the Declaration of Trust, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all applicable
securities laws will be complied with; it is our opinion that the Shares will be
legally issued, fully paid and nonassessable when issued and sold by the Trust.
This opinion is rendered to you solely in connection with the
Post-Effective Amendment and is solely for your benefit. We hereby consent to
the Trust's filing of this opinion as an exhibit to the Trust's Registration
Statement. This opinion may not be relied upon by you for any other purpose. Nor
may any other person, firm, corporation or other entity rely on this opinion
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.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
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
June 11, 1999
(415) 835-1600
27217.94272
Advisors Series Trust
2025 East Financial Way, Suite 101
Glendora, CA 91741
Re: National Asset Management Core Equity 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 Nos. 40 and 44
to the Trust's Registration Statement filed on Form N-1A with the Securities and
Exchange Commission (the "Post-Effective Amendments"), relating to the issuance
by the Trust of an indefinite number of $0.01 par value shares of beneficial
interest (the "Shares") of National Asset Management Core Equity 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 Delaware
Secretary of State on October 3, 1996, certified to us by an
officer of the Trust as being in effect on the date hereof;
(b) the Trust's Agreement and Declaration of Trust dated October
3, 1996 (the "Declaration of Trust"), certified to us by an
officer of the Trust as being true and complete and in effect
on the date hereof;
(c) the By-Laws of the Trust, certified to us by an officer of the
Trust as being true and complete and in effect on the date
hereof;
<PAGE>
Advisors Series Trust
June 11, 1999
Page 2
(d) resolutions of the Trustees of the Trust adopted at various
meetings of the Trust, authorizing the establishment of the
Fund and the issuance of its Shares, certified to us by an
officer of the Trust as being true and complete and in effect
on the date hereof;
(e) the Post-Effective Amendments; and
(f) a certificate of an officer of the Trust concerning certain
factual matters relevant to this opinion.
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 Title 12, Chapter 38 of the Delaware Code and the case
law interpreting such Chapter as reported in The Delaware Law of Corporations
and Business Organizations Statutory Handbook (Aspen Law & Business, 1999
Edition) as updated on Westlaw on June 11, 1999. We have not undertaken a review
of other Delaware law or of any administrative or court decisions in connection
with rendering this opinion. We disclaim any opinion as to any law other than
that of the United States of America and the business trust law of the State of
Delaware as described above, and we disclaim any opinion as to any statute,
rule, regulation, ordinance, order or other promulgation of any regional or
local governmental authority.
Based on the foregoing and our examination of such questions of law as
we have deemed necessary and appropriate for the purpose of this opinion, and
assuming that: (i) all of the Shares will be issued and sold for cash at the
per-share public offering price on the date of their issuance in accordance with
statements in the Fund's Prospectus, included in the Post-Effective Amendments,
and in accordance with the Declaration of Trust, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all applicable
securities laws will be complied with; it is our opinion that the Shares will be
legally issued, fully paid and nonassessable when issued and sold by the Trust.
This opinion is rendered to you solely in connection with the
Post-Effective Amendments and is solely for your benefit. We hereby consent to
the Trust's filing of this opinion as an exhibit to the Trust's Registration
Statement. This opinion may not be relied upon by you for any other purpose. Nor
may any other person, firm, corporation or other entity rely on this opinion
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.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
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
June 11, 1999
(415) 835-1600
27217.90409
Advisors Series Trust
2025 East Financial Way, Suite 101
Glendora, CA 91741
Re: Segall Bryant & Hamill Mid Cap 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 Nos. 30, 33,
and 36 to the Trust's Registration Statement filed on Form N-1A with the
Securities and Exchange Commission (the "Post-Effective Amendments"), relating
to the issuance by the Trust of an indefinite number of $0.01 par value shares
of beneficial interest (the "Shares") of Segall Bryant & Hamill Mid Cap 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 Delaware
Secretary of State on October 3, 1996, certified to us by an
officer of the Trust as being in effect on the date hereof;
(b) the Trust's Agreement and Declaration of Trust dated October
3, 1996 (the "Declaration of Trust"), certified to us by an
officer of the Trust as being true and complete and in effect
on the date hereof;
(c) the By-Laws of the Trust, certified to us by an officer of the
Trust as being true and complete and in effect on the date
hereof;
<PAGE>
Advisors Series Trust
June 11, 1999
Page 2
(d) resolutions of the Trustees of the Trust adopted at various
meetings of the Trust, authorizing the establishment of the
Fund and the issuance of its Shares, certified to us by an
officer of the Trust as being true and complete and in effect
on the date hereof;
(e) the Post-Effective Amendments; and
(f) a certificate of an officer of the Trust concerning certain
factual matters relevant to this opinion.
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 Title 12, Chapter 38 of the Delaware Code and the case
law interpreting such Chapter as reported in The Delaware Law of Corporations
and Business Organizations Statutory Handbook (Aspen Law & Business, 1999
Edition) as updated on Westlaw on June 11, 1999. We have not undertaken a review
of other Delaware law or of any administrative or court decisions in connection
with rendering this opinion. We disclaim any opinion as to any law other than
that of the United States of America and the business trust law of the State of
Delaware as described above, and we disclaim any opinion as to any statute,
rule, regulation, ordinance, order or other promulgation of any regional or
local governmental authority.
Based on the foregoing and our examination of such questions of law as
we have deemed necessary and appropriate for the purpose of this opinion, and
assuming that: (i) all of the Shares will be issued and sold for cash at the
per-share public offering price on the date of their issuance in accordance with
statements in the Fund's Prospectus, included in the Post-Effective Amendments,
and in accordance with the Declaration of Trust, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all applicable
securities laws will be complied with; it is our opinion that the Shares will be
legally issued, fully paid and nonassessable when issued and sold by the Trust.
This opinion is rendered to you solely in connection with the
Post-Effective Amendments and is solely for your benefit. We hereby consent to
the Trust's filing of this opinion as an exhibit to the Trust's Registration
Statement. You may not rely upon this opinion for any other purpose. Nor may any
other person, firm, corporation or other entity rely on this opinion 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.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
AMENDMENT NO. 1 TO THE
INVESTMENT ADVISORY AGREEMENT
This Amendment No. 1 (this "Amendment") is made as of by and between
ADVISORS SERIES TRUST, a Delaware business trust (the "Trust"), on behalf of the
following series of the Trust, (the "Fund") and (the "Advisor").
RECITALS
WHEREAS, the Trust and the Advisor desire to amend the Investment
Management Agreement made between them on (the "Agreement") to conform with
current guidance from the Securities and Exchange Commission Staff regarding the
recapture of investment advisory fees waived and expenses reimbursed by the
advisor to a fund.
WHEREAS, disinterested Trustees of the Trust and the full Board of
Trustees have separately approved this Amendment in person at a regular
quarterly meeting of the Board of Trustees on .
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. Amendment of Section 7(f)
Section 7(f) of the Agreement is hereby amended and replaced
in its entirety with:
"(f) Any such reductions made by the Advisor in its fees or
payment of expenses which are the Fund's obligation are
subject to reimbursement by the Fund to the Advisor, if so
requested by the Advisor, in subsequent fiscal years if the
aggregate amount actually paid by the Fund toward the
operating expenses for such fiscal year (taking into account
the reimbursement) does not exceed the applicable limitation
on Fund expenses. The Advisor is permitted to be reimbursed
only for fee reductions and expense payments made in the
previous three fiscal years, but is permitted to look back
five years and four years, respectively, during the initial
six years and seventh year of the Fund's operations. Any such
reimbursement is also contingent upon Board of Trustees review
and approval at time the reimbursement is made. Such
reimbursement may not be paid prior to the Fund's payment of
current ordinary operating expenses."
1
<PAGE>
2. No Other Modifications
Except as set forth in this Amendment, the Agreement remains
unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their duly authorized officers, all on the day and year first
above written.
ADVISORS SERIES TRUST
on behalf of the
By: /s/ Robert H. Wadsworth By:
------------------------------ ------------------------------
Name: Robert H. Wadsworth Name:
Title: Vice President Title:
2
