THE AVATAR
ADVANTAGE INTERNATIONAL
EQUITY ALLOCATION FUND
Semi-Annual Report
June 30, 1999
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August 1999
Dear Shareholder,
We are pleased to report on the progress of The Avatar Advantage International
Equity Allocation Fund for the six months ended June 30, 1999. Avatar's asset
allocation philosophy of participating in rising markets worldwide while
attempting to limit losses during such market downturns, helped the Fund realize
a return of 3.42% for the period. We expect the Fund to benefit from being in
existence for the full 1999 calendar year, contrary to 1998 when the Fund
commenced operations in February.
The Morgan Stanley Capital International (MSCI) EAFE + Canada Index was up 4.40%
for the same period.
1999-THE SECOND SIX MONTHS IN REVIEW
World financial markets began this period reeling from Brazil's financial
turmoil and its decision to devalue its currency. President's Clinton's
impeachment trial followed but quickly ended without the constitutional crisis
that could roil the world's markets. Then NATO closed ranks to begin a 3 month
military campaign in Kosovo resulting in a victory for the Allies. Economic
forecasts for Europe were revised to reflect slower growth in the region, led by
Germany and Italy. While these actions were ongoing, the Pacific Rim quietly
worked its way out of its own financial crisis which last year seemed so bleak,
led by resurgent economies in Thailand, Indonesia and Japan. The Euro,
introduced in January, has fallen as the dollar gains strength against it and
all other world currencies. Our models, which have helped us to anticipate and
weather these storms, were responsible for our gradual increased presence in
Japan and Hong Kong, while reducing our exposure in Europe, particularly in
England, Germany and Italy.
1999 MARKET OUTLOOK
The likelihood of worldwide recession or deflation has abated. Falling
currencies abroad should help U.S. companies regain a toehold, particularly in
those Asian markets that evaporated over the past 2 years. The U.S. economy
remains strong led by the American consumer's insatiable appetite for goods and
services backed by the financial wherewithall to purchase them. The falling Euro
has the Continent wary but no currency appears to have the strength to take on
the dollar. Europe continues to stagnate somewhat as evidenced by declining
growth rates throughout those countries in the EMU. We are encouraged by the
adoption by European companies of the U.S. industry model of consolidation and
cost cutting, which may help pull it out of its stagnation. Our models currently
have turned positive on Japan and somewhat less so on Europe. On the negative
side, unease and uncertainty for the time being remain throughout Asia, with all
sides hoping the recovery will not only continue but strengthen the underlying
fundamentals in the affected countries. Latin America, with Brazil in
particular, continues to remain an area of concern for the long term. Other
concerns center on the Y2K problem in those foreign countries that appear to be
lagging in preparation and
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continuing ethnic conflicts around the world, which appear to be increasing and
which can explode at any time as witnessed in Kosovo. In short, the world and
its markets still face major challenges to stability.
Our goal at Avatar is to evaluate current investment risk and alter the
portfolio mix to reflect the current environment. We believe we have done this.
Our plan for the remainder of the year is to continue this strategy and to
hopefully produce results that meet with your approval.
Sincerely,
/s/ Theodore M. Theodore
Theodore M. Theodore
Portfolio Manager
Past performance is not predictive of future performance.
The Morgan Stanley Capital International (MSCI) EAFE plus Canada Index is a
capitalization-weighted index comprised of stocks representing a sampling of
companies in a manner that replicates the industry composition of certain
foreign markets. Countries included in the Index are Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland and the United Kingdom. Indexes do not incur expenses and are not
available for direct investment.
The Fund's average annual total return for the period from inception on February
2, 1998 through June 30, 1999 was 6.40%. The Fund's total return for the
one-year ended June 30, 1999 was 0.93%.
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THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares OPEN-END FUNDS: 99.93% Market Value
- --------------------------------------------------------------------------------
1,400 WEBS - Australia Index Series................. $ 15,663
1,100 WEBS - Canada Index Series.................... 15,468
2,500 WEBS - France Index Series.................... 56,250
2,600 WEBS - Germany Index Series................... 56,713
700 WEBS - Hong Kong Index Series................. 9,013
4,600 WEBS - United Kingdom Index Series............ 99,187
600 WEBS - Italy Index Series..................... 14,738
1,100 WEBS - Switzerland Index Series............... 17,393
400 WEBS - Spain Index Series..................... 11,125
1,200 WEBS - Netherlands Index Series............... 29,775
8,700 WEBS - Japan Index Series..................... 108,750
--------
434,075
--------
Total Open-End Funds
(cost $408,959)............................. 434,075
--------
Principal
Amount SHORT-TERM INVESTMENTS: 5.14%
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22,326 Firstar Stellar Treasury Fund................. 22,326
--------
Total Investments in Securities
(cost $431,285+): 105.07% ................. 456,401
Liabilities in excess of other assets: (5.07%) (22,028)
--------
TOTAL NET ASSETS: 100.0% ..................... $434,373
========
+Gross unrealized appreciation and depreciation of securities is as follows:
Gross unrealized appreciation................. $ 26,960
Gross unrealized depreciation................. (1,844)
--------
Net unrealized depreciation............... $ 25,116
========
WEBS (World Equity Benchmark Shares) are each a series of WEBS INDEX FUND, INC.,
an open-end management investment company. Each Index Series represents a
portfolio of ordinary foreign shares and seeks to provide investment results
that track the performance of that country's publicly traded equity securities
in the aggregate.
See Notes to Financial Statements.
4
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THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1999 (UNAUDITED)
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ASSETS
Investments in securities, at value
(identified cost $431,285) ................................ $ 456,401
Receivables:
Due from Advisor .......................................... 9,152
Dividends and interest .................................... 164
Deferred Organization Cost ................................... 9,034
Prepaid expenses ............................................. 3,348
---------
Total assets ........................................... 478,099
---------
LIABILITIES
Payables:
Administration fee ........................................ 2,311
Distribution fee .......................................... 88
Portfolio securities purchased ............................ 17,584
Fund shares repurchased ................................... 50
Accrued expenses ............................................. 23,693
---------
Total liabilities ...................................... 43,726
---------
NET ASSETS ..................................................... $ 434,373
=========
Net asset value, offering and redemption price per share
($434,373 / 42,270 shares outstanding; unlimited
number of shares (par value $0.01) authorized) ............... $ 10.28
=========
COMPONENTS OF NET ASSETS
Paid-in capital .............................................. $ 420,880
Accumulated net investment loss .............................. (4,218)
Accumulated net realized loss on investments ................. (7,405)
Net unrealized appreciation on investments ................... 25,116
---------
Net assets ................................................ $ 434,373
=========
See Notes to Financial Statements.
5
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THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
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INVESTMENT INCOME
Income
Dividends ................................................... $ (1,203)
Interest .................................................... 412
--------
Total income .......................................... (791)
--------
Expenses
Fund Accounting fees ........................................ 15,868
Administration fees (Note 3) ................................ 14,876
Professional fees ........................................... 8,927
Transfer agent fees ......................................... 8,431
Reports to shareholders ..................................... 3,472
Custody fees ................................................ 3,203
Advisory fees ............................................... 2,077
Trustees' fees .............................................. 1,676
Other ....................................................... 1,554
Amortization of deferred organization costs ................. 1,240
Distribution fees (Note 4) .................................. 519
Insurance expense ........................................... 414
Registration fees ........................................... 363
--------
Total expenses ........................................... 62,620
Less: advisory fee waiver and
absorption (Note 3) ................................... (59,193)
--------
Net expenses ............................................. 3,427
--------
Net investment loss ................................... (4,218)
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions ................... (4,235)
Net change in unrealized appreciation
on investments ............................................... 22,285
--------
Net realized and unrealized gain on investments ............. 18,050
--------
Net Increase in net assets resulting
from operations ........................................ $ 13,832
========
See Notes to Financial Statements.
6
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THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
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Six Months February 2, 1998*
Ended through
June 30, 1999# December 31, 1998
-------------- -----------------
NET INCREASE IN ASSETS FROM
OPERATIONS
Net investment (loss) income ............ $ (4,218) $ 8,940
Net realized (loss) gain from security
transactions ........................... (4,235) 8,724
Net change in unrealized appreciation
on investments ......................... 22,285 2,831
--------- ---------
Net increase in net assets resulting
from operations ..................... 13,832 20,495
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................... -- (8,200)
Realized capital gains .................. -- (14,799)
--------- ---------
Total distributions .................. -- (22,999)
--------- ---------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
net change in outstanding shares (a) ... 7,950 415,095
--------- ---------
Total increase in net assets ......... 21,782 412,591
--------- ---------
NET ASSETS
Beginning of period ........................ 412,591 --
End of period (including accumulated net
investment loss of $4,218 and $0,
respectively) ............................. $ 434,373 $ 412,591
========= =========
(a) A summary of capital shares transactions is as follows:
Six Months Ended February 2, 1998* through
June 30, 1999# December 31, 1998
-------------------- -------------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold ........... 777 $8,000 39,104 $ 392,147
Shares issued in
reinvestment of
distributions ........ -- -- 2,398 22,998
Shares redeemed ....... 4 (50) (5) (50)
--- ------ ------ ---------
Net increase .......... 773 $7,950 41,497 $ 415,095
=== ====== ====== =========
# Unaudited.
* Commencement of operations.
See Notes to Financial Statements.
7
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THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD (UNAUDITED)
- --------------------------------------------------------------------------------
Six Months February 2, 1998*
Ended through
June 30, 1999# December 31, 1998
-------------- -----------------
Net asset value, beginning of period.......... $ 9.94 $10.00
------ ------
Income from investment operations:
Net investment (loss) income............... (0.10) 0.23
Net realized and unrealized gain on
investments.............................. 0.44 0.30
------ ------
Total from investment operations.............. 0.34 0.53
------ ------
Less distributions:
From net investment income................. - (0.21)
From realized capital gains................ - (0.38)
------ ------
Total distributions paid...................... - (0.59)
------ ------
Net asset value, end of period................ $10.28 $ 9.94
====== ======
Total return.................................. 3.42%++ 5.50%++
Ratios/supplemental data:
Net assets, end of period (thousands)......... $ 434 $ 413
Ratio of expenses to average net assets:
Before expense reimbursement............... 30.14%+ 31.32%+
After expense reimbursement................ 1.65%+ 1.65%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement............... (30.52%)+ (27.25%)+
After expense reimbursement................ (2.03%)+ 2.45%+
Portfolio turnover rate....................... 61.36% 177.43%
#Unaudited.
*Commencement of operations.
+Annualized.
++Not annualized.
See Notes to Financial Statements.
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THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (UNAUDITED)
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NOTE 1 - ORGANIZATION
The Avatar Advantage International Equity Allocation 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 February 2, 1998.
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.
9
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THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
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D. DEFERRED ORGANIZATION COSTS: The Fund has incurred expenses of $12,500
in connection with its 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 Corp.
(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 1.00% based upon the average daily net assets of the Fund.
For the six months ended June 30, 1999, the Fund incurred $2,077 in Advisory
Fees.
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 1.65% 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 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
the time the reimbursement is made. Such reimbursement may
10
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THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
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not be paid prior to the Fund's payment of current ordinary operating expenses.
For the six months ended June 30, 1999, the Advisor reduced its fees and
absorbed Fund expenses in the amount of $59,193; no amounts were reimbursed to
the Advisor.
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 daily net assets, subject to a
minimum fee of $30,000 annually.
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 Trust 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. For the six months ended June 30, 1999, the Fund
paid the Advisor in the amount of $519.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
For the six months ending June 30, 1999, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$265,387 and $247,088, respectively.
11
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ADVISOR
Avatar Investors Associates Corp.
900 Third Avenue
New York, New York 10022
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261-E
Phoenix, Arizona 85018
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street M/L 6118
Cincinnati, Ohio 45202
TRANSFER AGENT
Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
(800)841-0924
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, California 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.
