THE AVATAR ADVANTAGE
BALANCED FUND
Semi-Annual Report
June 30, 1999
<PAGE>
August 1999
Dear Shareholder,
We are pleased to report on the progress of The Avatar Advantage Balanced
Fund for the six months ended June 30, 1999. For the period, Avatar's asset
allocation philosophy- participating in market gains during market upswings
while protecting those gains against loss during market downturns- helped the
Fund realize a total return of 2.85% (not including the sales charge). Other
market indices for the same period were as follows:
S&P 500 Index 12.40%
Dow Jones Industrials 20.50%
NASDAQ Composite 22.90%
Russell 2000 Index 9.30%
Lehman Brothers Govt./Corp. Bond Index (2.30)%
For the first half of the year, Avatar maintained significant equity and bond
positions. Our exposure generally ranged between 55% and 65% invested in
equities, 30% to 40% in bonds and the remainder in cash.
1999 -- THE FIRST SIX MONTHS IN REVIEW
The year began with all eyes on Dow 10,000, a mark not reached until April 4 of
this year. Four weeks later, the Dow hit 11,000. The road to these record
heights was not a smooth, straightforward trajectory; it was characterized by
fits and starts that never seemed to mesh, particularly during the first
quarter. During the journey, market leadership shifted from the technology
sector to the old standby, cyclical stocks on the domestic front. This period
saw the second impeachment trial of a sitting President-which ended with a
wimper. Internationally, the war in Kosovo began and concluded successfully for
the U.S. and its allies. The U. S. economy continued to churn along with low
inflation, high productivity, rising wages and low unemployment. GDP came in at
4.2%, exceeding expectations for the first quarter. U.S. government bonds
interest rates rose as prices declined. The Asian markets appeared to be coming
out of their collective stupor, led by Japan's moderate recovery, easing a
concern we expressed in our last report. Europe, however, remained on the
sidelines. Our equity portfolio, heavily invested in cyclical, technology,
energy and financial issues benefited from the change in market leadership. Our
investment in bonds and cash helped to lessen the effect of the market's
volatility on the portfolio. However, the market's 1 step forward, 2 steps
backward performance made it hard to correctly predict short term trends or
sector leaders, making this a roller coaster market for the faint-hearted.
MARKET OUTLOOK
Corporate earnings currently appear to be poised to surpass analysts'
expectations and will come in at the low double digit range (up from the single
digit predictions of last year). Corporations' ability to sustain their profits
is pushing the markets upward. Defense firms will be the recipients of federal
largess to replenish supplies depleted during the Kosovo action. Possible tax
cuts, if agreed to by Congress and the President, will fuel continued spending
2
<PAGE>
by the consumer and may carry the economy into the next millenium on a surging
note. After some uncharacteristically scary economic reports in May, the June
reports were more in line with how most analysts see the economy--moderate to
strong growth with low to non-existent inflationary pressures. The Federal
Reserve's latest move to raise interest rates in late June will remind markets
that it is keeping a steady and cautious hand on the economy's throttle--poised
to act if and when needed. Expectations for growth for the remainder of the year
have been revised upward. Foreign currencies continue to fall against the
dollar, translating into falling prices for U.S. companies as they compete with
cheaper imports. Hopefully, foreign markets that evaporated for U.S. companies
during the Asian crisis will again welcome these companies. World markets are
following the U.S. business model of consolidation and cost cutting, which may
spur stock performance worldwide.
Our models show that the U.S. economy should continue to percolate at a good,
sustainable level that will not set off inflationary or recessionary fears.
While no clear sector leadership has emerged, we hope the trendless phase has
passed, replaced by a general broadening of the markets, which would in our
view, assist the market's ability to absorb any unexpected bad news. We still
believe that hidden surprises, most notably Y2K problems, can unduly affect the
economy. For that reason, we remain optimistically cautious.
Sincerely,
/s/ Charles M. White
Charles M. White
Portfolio Manager
President - Avatar Investors Associates Corporation
Past performance is not predictive of future performance.
The Fund's average annual total return for the period from inception on January
13, 1998 through June 30, 1999 was 17.54%. The Fund's total return for the
one-year ended June 30, 1999 was 12.04%. If the maximum sales charge was
reflected, the Fund's returns for the same periods would have been 13.89% and
7.00%, respectively.
The S&P 500 Stock Index is a broad market capitalization-weighted index of 500
stocks designed to represent the broad domestic economy.
The Russell 2000 Index is a widely regarded small cap index of the 2,000
smallest securities of the Russell 3000 Index which is comprised of the 3,000
largest U.S. securities as determined by total market capitalization.
The Lehman Corporate Bond Index includes all publicly issued, fixed-rate,
non-convertible investment grade domestic corporate debt issues and also
includes Yankee Bonds.
Indexes do not incur expenses and are not available for direct investment.
3
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THE AVATAR ADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 58.07% Market Value
- --------------------------------------------------------------------------------
AEROSPACE/DEFENSE EQUIPMENT: 1.80%
400 United Technologies Corporation............... $ 28,675
----------
AUTOMOBILES: 0.71%
200 Ford Motor Company............................ 11,288
----------
BANKS: 5.29%
600 Citigroup Inc................................. 28,500
300 Firstar Corporation........................... 8,400
300 SouthTrust Corporation........................ 11,513
500 The Bank of New York Company, Inc............. 18,344
200 The Chase Manhattan Corporation............... 17,325
----------
84,081
----------
BEVERAGES - NON-ALCOHOLIC: 1.46%
600 PepsiCo, Inc.................................. 23,213
----------
BUILDING MATERIALS CHAINS: 0.81%
200 The Home Depot, Inc........................... 12,888
----------
CHEMICALS: 0.86%
200 E. I. du Pont de Nemours and Company.......... 13,663
----------
COMPUTER - SOFTWARE: 3.33%
100 BMC Software, Inc............................. 5,400
400 Microsoft Corporation*........................ 36,075
200 Xilinx, Inc.*................................ 11,450
----------
52,925
----------
COMPUTER SERVICES: 1.39%
100 America Online, Inc........................... 11,050
200 EMC Corporation*.............................. 11,000
----------
22,050
----------
COSMETICS AND TOLIETRIES: 1.24%
200 Colgate-Palmolive Company..................... 19,750
----------
DIVERSIFIED MANUFACTURING: 3.04%
300 General Electric Company...................... 33,900
500 Masco Corporation............................. 14,438
----------
48,338
----------
See Notes to Financial Statements.
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THE AVATAR ADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
ELECTRONIC COMPONENTS - SEMICONDUCTORS: 1.59%
100 Applied Materials, Inc.*...................... $ 7,388
300 Intel Corporation............................. 17,850
----------
25,238
----------
ENTERTAINMENT: 0.78%
400 The Walt Disney Company....................... 12,325
----------
FINANCE COMPANIES: 1.98%
300 Federal National Mortgage Association......... 20,513
100 The Charles Schwab Corporation................ 10,988
----------
31,500
----------
FOOD - MISCELLANEOUS: 0.95%
300 H. J. Heinz Company........................... 15,038
----------
FOOD - RETAIL: 1.25%
400 Safeway Inc.*................................. 19,800
----------
FORESTRY: 0.43%
100 Weyerhaeuser Company.......................... 6,875
----------
INSURANCE: 1.68%
171 American International Group, Inc............. 20,018
100 The Equitable Companies Incorporated.......... 6,700
----------
26,718
----------
LASER SYSTEMS/COMPONENTS: 1.04%
100 Uniphase Corporation*......................... 16,600
----------
MANUFACTURING: 0.52%
100 Illinois Tool Works Inc....................... 8,200
----------
MANUFACTURING - MISCELLANEOUS: 3.83%
200 Danaher Corporation........................... 11,625
300 Maytag Corporation............................ 20,906
300 Tyco International Ltd........................ 28,425
----------
60,956
----------
See Notes to Financial Statements.
5
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THE AVATAR ADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
MEDICAL - DRUGS: 3.96%
300 Bristol-Myers Squibb Company.................. $ 21,131
100 Pfizer, Inc................................... 10,975
300 Pharmacia & Upjohn, Inc....................... 17,044
200 Warner-Lambert Company........................ 13,875
----------
63,025
----------
METALS - ALUMINUM: 0.78%
200 Alcoa Inc..................................... 12,375
----------
NATURAL GAS: 0.80%
300 The Williams Companies, Inc................... 12,769
----------
NETWORKING PRODUCTS: 1.22%
300 Cisco Systems, Inc............................ 19,350
----------
OIL - INTEGRATED: 0.80%
200 Schlumberger Limited.......................... 12,738
----------
PETROLEUM PRODUCTS: 3.72%
200 Burlington Resources Inc...................... 8,650
200 Enron Corp.................................... 16,350
200 Exxon Corporation............................. 15,425
300 Texaco Inc.................................... 18,750
----------
59,175
----------
POLLUTION CONTROL: 1.01%
300 Waste Management, Inc.*....................... 16,125
----------
RETAIL - DEPARTMENT STORES: 2.03%
100 Dayton Hudson Corporation..................... 6,500
300 The Gap, Inc.................................. 15,113
200 Federated Department Stores, Inc.*............ 10,588
----------
32,200
----------
RETAIL - RESTAURANTS: 0.89%
500 Wendy's International, Inc.................... 14,156
----------
RETAIL - SPECIALTY: 0.57%
200 AnnTaylor, Inc.*............................. 9,000
----------
See Notes to Financial Statements.
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THE AVATAR ADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
STEEL PRODUCERS: 0.51%
300 USX Corporation............................... $ 8,100
----------
TELECOMMUNICATION SERVICES: 0.95%
200 GTE Corporation............................... 15,150
----------
TELECOMMUNICATIONS EQUIPMENT: 1.55%
365 Lucent Technologies Inc....................... 24,615
----------
TELEPHONE - LONG DISTANCE: 0.45%
200 Scientific-Atlanta, Inc....................... 7,200
----------
TELEPHONE SERVICES: 3.38%
150 AT&T Corp..................................... 8,372
600 BellSouth Corporation......................... 28,125
200 MCI WorldCom Incorporated*.................... 17,250
----------
53,747
----------
TRANSPORTATION - RAIL: 1.10%
300 Union Pacific Corporation..................... 17,494
----------
UTILITIES: 0.37%
100 The AES Corporation........................... 5,813
----------
Total Common Stocks (cost $729,998) .......... 923,147
Principal Amount FEDERAL AGENCY OBLIGATIONS: 14.87%
- --------------------------------------------------------------------------------
110,000 Federal Home Loan Mortgage Corporation
5.75%, due 7/15/03............................ 109,224
60,000 Federal National Mortgage Association
6.09%, due 8/13/03............................ 58,965
75,000 Federal Home Loan Mortgage Corporation
5.125%, due 10/15/08.......................... 68,172
----------
Total Federal Agency Obligations
(cost $245,640)............................... 236,361
----------
See Notes to Financial Statements.
7
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THE AVATAR ADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares U.S. GOVERNMENT OBLIGATIONS: 24.71% Market Value
- --------------------------------------------------------------------------------
170,000 U.S. Treasury Bond 12.00%, due 8/15/13........ $ 238,638
45,000 U.S. Treasury Bond 8.125%, due 8/15/19........ 54,239
100,000 U.S Treasury Bill, due 7/15/99................ 99,857
----------
Total U.S. Government Obligations
(cost $411,489)............................... 392,734
----------
SHORT-TERM INVESTMENTS: 0.74%
- --------------------------------------------------------------------------------
$ 11,749 Firstar Stellar Treasury Fund
(cost $11,749)................................ 11,749
----------
Total Investments in Securities
(cost $1,398,876+): 98.39% ................. $1,563,991
Other Assets less Liabilities: 1.61%.......... 25,596
----------
Total Net Assets: 100.00% .................... $1,589,587
==========
* Non-income producing security.
+ Gross unrealized appreciation and depreciation of securities is as follows:
Gross unrealized appreciation................. $ 201,894
Gross unrealized depreciation................. (36,779)
----------
Net unrealized appreciation............... $ 165,115
==========
See Notes to Financial Statements.
8
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THE AVATAR ADVANTAGE BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $1,398,876)........ $1,563,991
Receivables:
Due from Advisor (Note 3)................................. 7,289
Dividends and interest.................................... 14,813
Securities sold........................................... 15,904
Deferred organization costs.................................. 8,842
Prepaid expenses............................................. 1,484
----------
Total assets........................................... 1,612,323
----------
LIABILITIES
Payables:
Administration fee........................................ 2,466
Distribution fees......................................... 350
Accrued expenses............................................. 19,920
----------
Total liabilities...................................... 22,736
----------
NET ASSETS...................................................... $1,589,587
==========
Net asset value and redemption price per share
($1,589,587 / 129,302 shares outstanding; unlimited
number of shares (par value $.01) authorized)................ $ 12.29
==========
Offering Price per Share ($12.29 / 0.955)....................... $ 12.87
==========
COMPONENTS OF NET ASSETS
Paid-in capital.............................................. $1,332,421
Undistributed net investment income.......................... 12,704
Undistributed net realized gain on investments............... 79,347
Net unrealized appreciation on investments................... 165,115
----------
Net assets................................................ $1,589,587
==========
See Notes to Financial Statements.
9
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THE AVATAR ADVANTAGE BALANCED FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends............................................... $ 4,701
Interest................................................ 18,355
----------
Total income......................................... 23,056
----------
Expenses
Administration fees (Note 3)............................ 14,876
Fund Accounting fees.................................... 7,935
Audit fees.............................................. 6,943
Transfer agent fees..................................... 6,447
Advisory fees (Note 3).................................. 5,789
Reports to shareholders................................. 3,472
Custody fees............................................ 3,010
Legal fees.............................................. 1,984
Distribution fees (Note 4).............................. 1,930
Miscellaneous........................................... 1,602
Trustees' fees.......................................... 1,574
Amortization of deferred organization costs............. 1,240
Insurance............................................... 581
Registration fees....................................... 434
----------
Total expenses....................................... 57,817
Less: Advisory fee waiver and
absorption (Note 3)................................ (47,011)
----------
Net expenses....................................... 10,806
----------
Net investment income............................. 12,250
----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain from security transactions............... 75,302
Net change in unrealized appreciation
on investments........................................... (42,873)
----------
Net realized and unrealized gain on investments......... 32,429
----------
Net Increase in Net Assets Resulting
from Operations................................. $ 44,679
==========
See Notes to Financial Statements.
10
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THE AVATAR ADVANTAGE BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
- --------------------------------------------------------------------------------
Six Months January 13, 1998*
Ended through
June 30, 1999# December 31, 1998
- --------------------------------------------------------------------------------
NET INCREASE IN ASSETS FROM
OPERATIONS
Net investment income ................... $ 12,250 $ 23,957
Net realized gain from security
transactions............................ 75,302 23,650
Net change in unrealized appreciation
on investments.......................... (42,873) 207,988
---------- ----------
Net increase in net assets resulting
from operations....................... 44,679 255,595
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................... -- (23,503)
Net realized gain on security
transactions............................ -- (19,605)
---------- ----------
Total distributions to shareholders... -- (43,108)
---------- ----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
net change in outstanding shares (a).... 2,000 1,330,421
---------- ----------
Total increase in net assets.......... 46,679 1,542,908
NET ASSETS
Beginning of period......................... 1,542,908 --
---------- ----------
End of period (including undistributed
net investment income of $12,704 and
$454, respectively)........................ $1,589,587 $1,542,908
========== ==========
(a) A summary of capital shares transactions is as follows:
Six Months January 13, 1998*
Ended through
June 30, 1999# December 31, 1998
------------------------ ------------------------
Shares Value Shares Value
---------- ---------- ---------- ----------
Shares sold ............ 167 $ 2,000 125,350 $1,287,313
Shares issued in
reinvestment of
distributions.......... -- -- 3,785 43,108
Shares redeemed......... -- -- -- --
---------- ---------- ---------- ----------
Net increase............ 167 $ 2,000 129,135 $1,330,421
========== ========== ========== ==========
# Unaudited.
* Commencement of operations.
See Notes to Financial Statements.
11
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THE AVATAR ADVANTAGE BALANCED FUND
FINANCIAL HIGHLIGHTS - FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
(UNAUDITED)
- --------------------------------------------------------------------------------
Six Months January 13, 1998*
Ended through
June 30, 1999# December 31, 1998
- --------------------------------------------------------------------------------
Net asset value, beginning of period......... $ 11.95 $ 10.00
---------- ----------
Income from investment operations:
Net investment income..................... 0.09 0.19
Net realized and unrealized
gain on investments.................... 0.25 2.11
---------- ----------
Total from investment operations............. 0.34 2.30
---------- ----------
Less distributions:
From net investment income................ -- (0.19)
From net capital gains.................... -- (0.16)
---------- ----------
Total distributions.......................... -- (0.35)
---------- ----------
Net asset value, end of period............... $ 12.29 $11.95
========== ==========
Total return................................. 2.85%** 23.11%**
Ratios/supplemental data:
Net assets, end of period (thousands)........ $ 1,600 $1,500
Ratio of expenses to average net assets:
Before expense reimbursement.............. 7.49%+ 8.59%+
After expense reimbursement............... 1.40%+ 1.40%+
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement.............. (4.50%)+ (5.30%)+
After expense reimbursement............... 1.59%+ 1.89%+
Portfolio turnover rate...................... 59.86% 95.00%
# Unaudited.
* Commencement of operations.
** Does not include sales load and is not annualized.
+ Annualized.
See Notes to Financial Statements.
12
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THE AVATAR ADVANTAGE BALANCED FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Avatar Advantage Balanced Fund (the "Fund") is a series of shares of
Advisors Series Trust (the "Trust"), which is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund began operations on January 13, 1998. The Fund's objective is to seek
long-term capital appreciation and to preserve profits during market downturns.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation: The Fund's investments are carried at market
value. Securities that are primarily traded on a national securities
exchange shall be valued at the last sale price on the exchange on
which they are primarily traded on the day of valuation or, if there
has been no sale on such day, at the mean between the bid and asked
prices. Securities primarily traded in the NASDAQ National Market
System for which market quotations are readily available shall be
valued at the last sale price on the day of valuation, or if there has
been no sale on such day, at the mean between the bid and asked
prices. Over-the-counter ("OTC") securities which are not traded in
the NASDAQ National Market System shall be valued at the most recent
trade price. Securities for which market quotations are not readily
available, if any, are valued following procedures approved by the
Board of Trustees. Short-term investments are valued at amortized
cost, which approximates market value.
B. Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no federal income tax
provision is required.
C. Security Transactions, Dividends and Distributions: Security
transactions are accounted for on the trade date. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Realized gains and losses on securities sold are determined on the
basis of identified cost. Discounts and premiums on securities
purchased are amortized over the life of the respective securities.
13
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THE AVATAR ADVANTAGE BALANCED FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
D. Deferred Organization Costs: The Fund has incurred expenses of $12,500
in connection with their organization. These costs have been deferred
and are being amortized on a straight-line basis over a period of
sixty months from the date the Fund commenced investment operations.
E. Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net
assets during the reporting period. Actual results could differ from
those estimates.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER
TRANSACTIONS WITH AFFILIATES
For the six months ended June 30, 1999, Avatar Investors Associates
Corporation (the "Advisor") provided the Fund with investment management
services under an Investment Advisory Agreement. The Advisor furnished all
investment advice, office space, facilities, and provides most of the personnel
needed by the Fund. As compensation for its services, the Advisor is entitled to
a monthly fee at the annual rate of 0.75% based upon the average daily net
assets of the Fund.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund and to pay Fund operating
expenses to the extent necessary to limit the Fund's aggregate annual operating
expenses to 1.40% of average net assets (the "expense cap"). Any such reductions
made by the Advisor in its fees or payment of expenses which are the Fund's
obligation are subject to reimbursement by the Fund to the Advisor, if so
requested by the Advisor, in the first, second or third fiscal year next
succeeding the fiscal year of the reduction or absorption if the aggregate
amount actually paid by the Fund toward the operating expenses for such fiscal
year (taking into account the reimbursement) does not exceed the applicable
limitation on Fund expenses. With respect to the reimbursement of a particular
fee reduction or expense payment, a reimbursement to the Advisor is permitted
only within the three-year period following the year in which the Advisor
reduced the subject fee or paid the subject expense. Any such reimbursement is
also contingent upon Board of Trustees review and approval at the time the
reimbursement is made. Such reimbursement may not be paid prior to the Fund's
payment of current expenses if so requested by the Advisor even if that practice
14
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THE AVATAR ADVANTAGE BALANCED FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
may require the Advisor to waive, reduce or absorb current Fund expenses. For
the six months June 30, 1999, the Advisor reduced its fees and absorbed Fund
expenses in the amount of $47,011; no amounts were reimbursed.
Investment Company Administration, L.L.C. (the "Administrator") acts as the
Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of the Fund's expenses and reviews the
Fund's expense accruals. For its services, the Administrator receives a monthly
fee at the annual rate of 0.20% of average net assets, subject to a $30,000
annual minimum.
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
Certain officers of the Fund are also officers and/or directors of the
Administrator and the Distributor.
NOTE 4 - DISTRIBUTION COSTS
The Fund has adopted a Distribution Plan (the "Plan") in accordance with
Rule 12b-1 under the 1940 Act. The Plan provides that the Fund may pay a fee to
the Advisor, as Distribution Coordinator, at an annual rate of up to 0.25% of
the average daily net assets of the Fund. The fee is paid to the Advisor as
reimbursement for, or in anticipation of, expenses incurred for
distribution-related activity. During the six months ended June 30, 1999, the
Fund paid the Advisor in the amount of $1,930.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 1999, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$963,372 and $893,561, respectively.
15
<PAGE>
ADVISOR
Avatar Investors Associates Corp.
900 Third Avenue
New York, New York 10022
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT
American Data Services, Inc.
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
888-263-6452
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
16
