THE AVATAR
ADVANTAGE EQUITY
ALLOCATION FUND
Annual Report
For the year ended
December 31, 1998
<PAGE>
January 1999
Dear Shareholder,
We are pleased to report on the progress of the Avatar Advantage Equity
Allocation Fund for the year ended December 31, 1998. During the year, the
Avatar asset allocation philosophy of participating in rising markets while
attempting to limit losses during market downturns, was put to the test. We are
pleased to report that the Fund passed with flying colors, realizing a return of
25.8% for the year. The primary market indices for the same period were as
follows:
S & P 500 +28.6%
Dow Jones Industrials +18.1%
NASDAQ +40.5%
Russell 2000 -2.5%
For most of the year, the Fund maintained a significant equity position. Our
exposure generally ranged from between 75% and 90% invested in stocks, the
remainder in cash. However, during the volatile period of late summer and early
fall, the exposure in stocks fell to the 50% range while our cash exposure was
increased.
1998--THE SECOND SIX MONTHS IN REVIEW
Wall Street was hit hard by several big crises: the Asian dilemma, the Long-Term
Capital bailout, and the not unexpected lower corporate profits. The ensuing
market turbulence resulted in a flight away from equities and into safer
investments, most notably U.S. Government securities. The 30-year Treasury bond
rates fell to the lowest level in its history while its price went skyward. Our
models indicated a pullback from equities was warranted and, as a result, we
lowered our equity allocation while increasing our cash position. The third
quarter achieved distinction as the first down quarter for the domestic stock
market since 1990. The fourth quarter witnessed another variation of the stock
market's wild roller coaster ride: it ended with the market's biggest gains
since the first quarter of 1987. The Federal Reserve reduced interest rates
three times between September and October and the market took off.
Large-capitalization stocks, in which we were 90% invested, won handily against
mid- and small-cap stocks. They were the market leaders for the fourth
consecutive year. This out-performance by large-cap stocks is now reaching
historic proportions. We increased our stock allocation and benefited from the
leadership of the large-caps. We ended the year 80% invested in stocks, in line
with our indicators.
<PAGE>
1999 MARKET OUTLOOK
What might we expect for 1999? The U.S. economy remains strong although most
economists expect some sort of slow-down in the later quarters of the year. Our
models are moderately positive at this time so the upward trend of the market
would appear to continue, although we are hoping for less volatility along the
way. We question whether large-caps can continue their historic upward journey
into a fifth year. On the negative side, Japan still has not figured a way out
of its economic downturn. Latin America, Brazil in particular, remains an area
of concern. Both situations could have unforeseen consequences on many
industries. Consideration also centers around what, if any, effect President
Clinton's impeachment trial will have on the various markets. Finally, the
escalating ethnic conflicts around the world also give us pause and temper our
enthusiasm.
Our goal at Avatar is to evaluate current investment risk and alter the
portfolio mix to reflect the current environment. We believe this goal was
achieved in the Fund's first year of existence. Our plan for the new year is to
continue this strategy and to continue to meet the various investment
challenges.
/s/ Elizabeth S. Sonders /s/ Charles M. White
Elizabeth S. Sonders Charles M. White
Co-Portfolio Manager Co-Portfolio Manager
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
Comparison of the change in value of a $10,000 investment in The Avatar
Advantage Equity Allocation Fund versus the S&P 500 Composite Stock Price Index
Average Annual Total Return
Period ended December 31, 1998
1 Year................25.81%
Since inception (12/3/97):26.09%
The Avatar Advantage
Equity Allocation Fund S&P 500 Composite Stock Price Index
---------------------- -----------------------------------
3-Dec-97 $10,000 $10,000
31-Dec-97 $10,022 $ 9,947
31-Mar-98 $11,252 $11,333
30-Jun-98 $11,472 $11,707
30-Sep-98 $10,765 $10,542
31-Dec-98 $12,609 $12,791
Past performance is not predictive of future performance.
The S&P 500 Stock Index is a broad market capitalization-weighted index of 500
stocks designed to represent the broad domestic economy.
4
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 80.05% Market Value
- --------------------------------------------------------------------------------
AEROSPACE / DEFENSE EQUIPMENT: 0.89%
1,200 United Technologies Corporation................. $ 130,500
----------
AUTOMOBILES: 1.40%
3,500 Ford Motor Company.............................. 205,406
----------
BANKS: 7.41%
9,800 The Bank of New York Company, Inc............... 394,450
4,100 The Chase Manhattan Corporation................. 279,056
1,200 Mellon Bank Corporation......................... 82,500
2,700 SouthTrust Corporation.......................... 99,647
2,500 Firstar Corporation............................. 233,125
----------
1,088,778
----------
BEVERAGES - NON-ALCOHOLIC: 1.59%
5,700 PepsiCo, Inc.................................... 233,344
----------
CHEMICALS - SPECIALTY: 0.97%
1,700 Air Products and Chemicals, Inc................. 68,000
3,600 Crompton & Knowles Corporation.................. 74,475
----------
142,475
----------
COMPUTER SOFTWARE: 5.78%
2,500 Compuware Corporation*.......................... 195,234
2,200 Microsoft Corporation*.......................... 304,769
2,400 Networks Associates, Inc.*...................... 159,225
4,400 Oracle Corporation*............................. 189,888
----------
849,116
----------
COMPUTERS - MICRO: 3.59%
6,400 Compaq Computer Corporation..................... 268,400
1,400 International Business Machines
Corporation................................... 258,650
----------
527,050
----------
COSMETICS AND TOILETRIES: 1.77%
2,800 Colgate-Palmolive Company....................... 260,050
----------
See accompanying Notes to Financial Statements.
5
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING: 3.87%
4,100 General Electric Company........................ $ 418,456
5,200 Masco Corporation............................... 149,500
----------
567,956
----------
DIVERSIFIED OPERATIONS: 0.47%
900 Textron Inc..................................... 68,344
----------
ELECTRONIC COMPONENTS - SEMICONDUCTOR: 2.97%
4,800 Advanced Micro Devices, Inc.*................... 138,900
2,500 Intel Corporation............................... 296,328
----------
435,228
----------
FINANCE - MORTGAGE LOAN / BANKER: 2.83%
1,200 Ambac Financial Group, Inc...................... 72,225
3,800 Federal National Mortgage Association........... 281,200
1,400 H&R Block, Inc.................................. 63,000
----------
416,425
----------
FINANCIAL - MISCELLANEOUS: 0.95%
3,600 Paine Webber Group Inc.......................... 139,050
----------
FOOD - MISCELLANEOUS / DIVERSIFIED: 2.29%
7,000 Sara Lee Corporation............................ 197,313
6,400 Wendy's International, Inc...................... 139,600
----------
336,913
----------
FOOD - RETAIL: 1.95%
4,700 Safeway Inc.*................................... 286,406
----------
INSURANCE: 2.28%
3,632 TheAllstate Corporation......................... 140,286
2,400 SunAmerica, Inc................................. 194,700
----------
334,986
----------
MANUFACTURING - MISCELLANEOUS: 4.72%
3,200 Danaher Corporation............................. 173,800
4,100 Maytag Corporation.............................. 255,225
3,500 Tyco International Ltd.......................... 264,031
----------
693,056
----------
See accompanying Notes to Financial Statements.
6
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- ------------------------------------------------------------------
MEDICAL - BIOMEDICAL / GENETICS: 0.52%
1,700 Centocor, Inc.*................................. $ 76,606
----------
MEDICAL - DRUGS: 6.49%
1,700 Bristol-Meyers Squibb Company................... 227,481
2,700 Eli Lilly and Company........................... 239,963
1,600 Pfizer Inc...................................... 200,700
3,800 Warner-Lambert Company.......................... 285,713
----------
953,857
----------
METALS - ALUMINUM: 1.12%
2,200 Aluminum Company of America..................... 164,038
----------
NETWORKING PRODUCTS: 2.74%
2,000 Ascend Communications, Inc.*.................... 131,562
2,925 Cisco Systems, Inc.*............................ 271,568
----------
403,130
----------
PETROLEUM PRODUCTS: 4.94%
3,400 BJ Services Company*............................ 53,125
1,600 Burlington Resources Inc........................ 57,300
5,500 Conoco Inc.*.................................... 114,813
2,400 Enron Corp...................................... 136,950
3,100 Exxon Corporation............................... 226,687
2,600 Texaco, Inc..................................... 137,475
----------
726,350
----------
RADIO BROADCASTING: 0.95%
5,100 Infinity Broadcasting Corporation*.............. 139,613
----------
RETAIL - BUILDING PRODUCTS: 1.75%
4,200 The Home Depot, Inc............................. 256,987
----------
RETAIL - DEPARTMENT STORES: 2.93%
2,500 Dayton Hudson Corporation....................... 135,625
4,050 The Gap, Inc.................................... 227,813
3,100 Jones Apparel Group, Inc.*...................... 68,394
----------
431,832
----------
See accompanying Notes to Financial Statements.
7
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
STEEL PRODUCERS: 0.41%
2,600 USX Corporation................................. $ 59,800
-----------
TELECOMMUNICATION EQUIPMENT: 1.57%
2,100 Lucent Technologies Inc......................... 231,000
-----------
TELECOMMUNICATION SERVICES: 3.53%
1,200 Airtouch Communications, Inc.*.................. 88,550
3,100 GTE Corporation................................. 209,056
3,600 Time Warner Inc................................. 223,425
-----------
519,031
-----------
TELEPHONE SERVICES: 4.79%
7,200 BellSouth Corporation........................... 359,100
4,800 MCI WorldCom, Inc.*............................. 344,549
-----------
703,649
-----------
TOBACCO PRODUCTS: 1.53%
4,200 Philip Morris Companies, Inc.................... 224,700
-----------
TRANSPORTATION - RAIL: 0.61%
1,000 FDX Corporation*................................ 89,000
-----------
UTILITIES: 0.44%
1,000 Duke Energy Corportion.......................... 64,062
-----------
TOTAL COMMON STOCKS (COST $8,928,923)........... 11,758,738
-----------
Principal Amount SHORT-TERM INVESTMENTS: 18.80%
- --------------------------------------------------------------------------------
$2,762,404 Star Treasury Fund, 4.80%
(cost $2,762,404)............................. 2,762,404
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $11,691,327+): 98.85% ................. $14,521,142
OTHER ASSETS LESS LIABILITIES: 1.15%............ 168,669
-----------
TOTAL NET ASSETS: 100.00% $14,689,811
===========
See accompanying Notes to Financial Statements.
8
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
* Non-income producing security.
+ At December 31, 1998, the cost of securities for Federal tax purposes is
$11,696,368. Gross unrealized appreciation and depreciation of securities for
tax purposes are as follows:
Gross unrealized appreciation................... $ 2,909,494
Gross unrealized depreciation................... (84,720)
-----------
Net unrealized appreciation................. $ 2,824,774
===========
See accompanying Notes to Financial Statements.
9
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998
ASSETS
Investments in securities, at value
(identified cost $11,691,327) ........................... $ 14,521,142
Receivables:
Dividends and interest .................................. 19,244
Fund shares sold ........................................ 345
Due from broker ......................................... 144,869
Deferred organization costs ................................ 27,462
Prepaid expenses ........................................... 5,220
------------
Total assets ......................................... 14,718,282
------------
LIABILITIES
Payables:
Due to advisor .......................................... 3,534
Administration fee ...................................... 2,630
Distribution fees ....................................... 5,817
Fund shares repurchased ................................. 297
Accrued expenses ........................................... 16,193
------------
Total liabilities .................................... 28,471
------------
NET ASSETS .................................................... $ 14,689,811
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($14,689,811/1,240,801 shares outstanding; unlimited
number of shares authorized without par value) .......... $ 11.84
============
COMPONENTS OF NET ASSETS
Paid-in capital ............................................ $ 11,870,871
Accumulated net realized loss on investments ............... (10,875)
Net unrealized appreciation on investments ................. 2,829,815
------------
Net assets .............................................. $ 14,689,811
============
See accompanying Notes to Financial Statements.
10
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME
Income
Dividends .............................................. $ 137,570
Interest ............................................... 137,674
-----------
Total income ........................................ 275,244
-----------
Expenses
Advisory fees (Note 3) ................................. 125,574
Distribution fees (Note 4) ............................. 36,934
Administration fees (Note 3) ........................... 31,719
Custodian and accounting fees .......................... 29,145
Insurance .............................................. 10,396
Audit fees ............................................. 20,522
Transfer agent fees .................................... 13,001
Reports to shareholders ................................ 5,001
Amortization of deferred organization costs ............ 7,001
Legal fees ............................................. 5,696
Trustees' fees ......................................... 4,206
Registration fees ...................................... 6,040
Miscellaneous .......................................... 4,696
-----------
Total expenses ...................................... 299,931
Less: Advisory fee waiver and
absorption(Note 3) ............................... (78,331)
-----------
Net expenses ........................................ 221,600
-----------
NET INVESTMENT INCOME ............................ 53,644
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from security transactions ........... 830,832
Net realized loss from futures transactions ............ (60,910)
Net change in unrealized appreciation
on investments ....................................... 2,757,250
-----------
Net realized and unrealized gain
on investments .................................... 3,527,172
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................ $ 3,580,816
===========
See accompanying Notes to Financial Statements.
11
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year December 3, 1997*
Ended through
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------
NET INCREASE IN ASSETS FROM
OPERATIONS
Net investment income ........................ $ 53,644 $ 7,367
Net realized gain (loss) from security
transactions .............................. 830,832 (38,313)
Net realized loss from futures transactions .. (60,810) -0-
Net change in unrealized appreciation
of securities ............................. 2,757,250 72,565
----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ....................... 3,580,816 41,619
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ........................ (59,113) (3,839)
Net realized gain on security transactions ... (740,543) -0-
Total Return of Capital ...................... (28,412) -0-
----------- -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS .......................... (828,068) (3,839)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net (decrease) increase in net assets
derived from net change in outstanding
shares (a) ................................ (8,308,922) 20,208,205
----------- -----------
TOTAL (DECREASE) INCREASE IN NET ASSETS . (5,556,174) 20,245,985
NET ASSETS
Beginning of period .......................... 20,245,985 -0-
----------- -----------
END OF PERIOD (including undistributed
net investment income of $0 and
$3,528, respectively) ..................... $14,689,811 $20,245,985
=========== ===========
(a) A summary of capital share transactions is as follows:
Year December 3, 1997*
Ended through
December 31, 1998 December 31, 1997
----------------------- ----------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold................ 194,971 $2,180,409 2,020,575 $20,204,366
Shares issued in
reinvestment
of distributions........ 74,946 828,068 384 3,839
Shares redeemed............ (1,050,075) (11,317,399) (0) (0)
---------- ----------- --------- -----------
Net (decrease) increase.... (780,158) $(8,308,922) 2,020,959 $20,208,205
========== =========== ========= ===========
* Commencement of operations.
See accompanying Notes to Financial Statements.
12
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
Year December 3, 1997*
Ended through
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------
Net asset value, beginning of period........ $10.02 $10.00
------ ------
Income from investment operations:
Net investment income.................... 0.05 0.01
Net realized and unrealized gain on
investments............................ 2.48 0.02
------ ------
Total from investment operations............ 2.53 0.03
------ ------
Less distributions:
From net investment income............... (0.05) (0.01)
From capital gains....................... (0.64) (0.00)
Tax return of capital.................... (0.02) (0.00)
------ ------
Total distributions......................... (0.71) (0.01)
------ ------
Net asset value, end of period.............. $11.84 $10.02
====== ======
Total return................................ 25.81% 0.22%#
Ratios/supplemental data:
Net assets, end of period (millions)........ $ 14.7 $ 20.2
Ratio of expenses to average net assets:
Before expense reimbursement............. 2.03% 1.52%+
After expense reimbursement.............. 1.50% 1.39%+
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement............. (0.17%) 0.33%+
After expense reimbursement.............. 0.36% 0.47%+
Portfolio turnover rate..................... 79.95% 2.48%#
* Commencement of operations.
# Not annualized.
+ Annualized.
See accompanying Notes to Financial Statements.
13
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1998
NOTE 1 - ORGANIZATION
The Avatar Advantage Equity Allocation Fund (the "Fund") is a series of shares
of beneficial interest 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 December 3, 1997.
The Fund's objective is to seek long-term capital appreciation.
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 fair value.
Securities listed on an exchange or quoted on a National Market System
are valued at the last sale price. Other securities are valued at the
mean between the last bid and asked prices. 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.
D. DEFERRED ORGANIZATION COSTS: The Fund has incurred expenses of $35,000
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. FUTURES CONTRACTS: The Fund invests in financial futures contracts for
the purpose of hedging its existing portfolio securities, or
securities that the Fund intends to purchase, against fluctuations in
fair value caused by changes in prevailing market prices. Upon
14
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
entering into a financial futures contract, the Fund is required to
pledge to the broker an amount of cash and/or assets equal to a
certain percentage of the contract amount ("initial margin deposit").
Subsequent payments, known as "variation margin," are made or received
by the Fund each day, depending on the daily fluctuations in the fair
value of the underlying security. The Fund recognizes a gain or loss
equal to the daily variation margin. Should market conditions move
unexpectedly, the Fund may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements
in the price of futures contracts, security prices and the underlying
hedged assets.
F. 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 year ended December 31, 1998, 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 0.85% 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
1.50% 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
15
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 may require the Advisor to
waive, reduce or absorb current Fund expenses. For the year ended December 31,
1998, the Advisor reduced its fees and absorbed Fund expenses in the amount of
$78,331; no amounts were reimbursed.
Investment Company Administration, LLC (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 following annual rate:
FUND ASSET LEVEL FEE RATE
---------------- --------
Less than $15 million $30,000
$15 million to less than $50 million 0.20% of average daily net assets
$50 million to less than $100 million 0.15% of average daily net assets
$100 million to less than $150 million 0.10% of average daily net assets
more than $150 million 0.05% of average daily net assets
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
Distributor, at an annual rate of up to 0.25% of the average daily net assets of
the Fund. The fee is paid to the Distributor as reimbursement for, or in
anticipation of, expenses incurred for distribution-related activity. During the
period ended December 31, 1998, the Fund paid the Distributor in the amount of
$36,934.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1998, the cost of purchases and the proceeds
from sales of securities, excluding short-term securities, were $9,415,853 and
$19,634,940, respectively.
16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
THE BOARD OF TRUSTEES AND SHAREHOLDERS
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments of The Avatar Advantage Equity Allocation Fund,
series of Advisors Series Trust, as of December 31, 1998, and the related
statement of operations, changes in net assets for each of the two years in the
period then ended and the financial highlights for the periods indicated in the
accompanying financial statements. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Avatar Advantage Equity Allocation Fund, series of Advisors Series Trust, as of
December 31, 1998, the results of its operations, the changes in its net assets
and the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
New York, New York
January 29, 1999
17
<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
AUDITOR
McGladrey & Pullen, LLP
555 Fifth Avenue, 8th Floor
New York, NY 10017-2416
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.
<PAGE>
THE AVATAR
ADVANTAGE
BALANCED FUND
Annual Report
For the period ended
December 31, 1998
<PAGE>
January 1999
Dear Shareholder,
We are pleased to report on the progress of the AVATAR ADVANTAGE BALANCED FUND
for the year ended December 31, 1998. Since commencing operations on January 13,
1998, our asset allocation philosophy of participating in rising markets while
attempting to limit losses during market downturns, helped the Fund realize a
total return of 23.11%. Other market indices (for the full year) were as
follows:
S & P 500 +28.60%
DOW JONES INDUSTRIALS +18.10%
NASDAQ +40.50%
LEHMAN BROTHERS GOV'T BOND + 9.90%
60 STOCK/40 BOND BENCHMARK +21.10%
For most of the year, the Fund maintained significant equity and bond positions.
Our exposure generally ranged from between 55% and 65% invested in stocks, 30%
to 40% in bonds and the remainder in cash. However, during the volatile period
of late summer and early fall, we increased the allocation in bonds and cash
while reducing the equity exposure.
1998--THE SECOND SIX MONTHS IN REVIEW
Wall Street was hit hard by several big crises: the Asian dilemma, the Long-Term
Capital Management bailout, and the not unexpected lower corporate profits. The
ensuing market turbulence resulted in a flight away from equities and into safer
investments, most notably U.S. Government securities. The 30-year Treasury bond
rates fell to the lowest level in its history while its price went skyward. Our
models indicated that a pullback from equities was warranted and, as a result,
we lowered our equity allocation while increasing our bond and cash positions.
The third quarter achieved distinction as the first down quarter for the
domestic stock market since 1990. Our investment in bonds and cash helped to
soften the blow, but we still finished the third quarter in negative territory.
The fourth quarter witnessed another variation of the stock market's wild roller
coaster ride: it ended with the market's biggest gains since the first quarter
of 1987. The Federal Reserve reduced interest rates three times between
September and October and the market took off. Our investment in
large-capitalization stocks won handily against mid- and small-cap stocks, as
they were the market leaders for the fourth consecutive year.
<PAGE>
This out-performance by large-cap stocks is now reaching historic proportions.
We increased our stock allocation through the last quarter and ended the year
with our allocations in the 55% equity and 40% fixed income range.
The technology, pharmaceutical and financial sectors produced the biggest gains
in the equity portion of the Fund. This group had stable earnings and limited
Asian exposure. In the fixed income portion of the Fund, we maintained duration
longer than the benchmark.
1999 MARKET OUTLOOK
What might we expect in 1999? The U.S. economy remains strong, although most
economists expect some sort of slow-down in the later quarters of the year. Our
models are moderately positive at this time. This indicates that the upward
trend of the market would appear to continue, although we are hoping for less
volatility along the way. We question whether large-caps can maintain their
historic upward journey into a fifth year. On the negative side, Japan still has
not figured a way out of its economic downturn. Latin America, Brazil in
particular, remains an area of concern. Both situations could have unforeseen
consequences on many industries. Consideration also centers around what, if any,
effect President Clinton's impeachment trial will have on the various markets.
Finally, the escalating ethnic conflicts around the world also give us pause and
temper our enthusiasm. We strongly believe our defensive position in bonds will
help to weather any unforeseen storms over the course of the upcoming year.
Our goal at Avatar is to evaluate current investment risk and alter the
portfolio mix to reflect the current environment. We believe this goal was
achieved in the Fund's first year of existence. Our plan for the new year is to
carry through this strategy and to continue to meet the various investment
challenges.
/s/ Elizabeth S. Sonders /s/ Charles M. White
Elizabeth S. Sonders Charles M. White
Co-Portfolio Manager Co-Portfolio Manager
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
Comparison of the change in value of a $10,000 investment in the Avatar
Advantage Balanced Fund versus the Blended 60% S&P 500 Stock Index/40% Lehman
Corporate Bond Index
Average Annual Total Return
Period ended December 31, 1998
Since inception (1/13/98):23.11%
The Avatar Advantage Blended 60% S&P 500 Stock Index/
Balanced Fund 40% Lehman Corporate Bond Index
------------- -------------------------------
13-Jan-98 $10,000 $10,000
31-Mar-98 $11,080 $10,871
30-Jun-98 $11,300 $11,176
30-Sep-98 $11,050 $10,642
31-Dec-98 $12,311 $12,010
Past performance is not predictive of future performance.
The Blended Index consists of the S&P 500 Stock Index (60%) and the Lehman
Corporate Bond Index (40%). The S&P 500 Stock Index is a broad market
capitalization-weighted index of 500 stocks designed to represent the broad
domestic economy. The Lehman Corporate Bond Index includes all publicly issued,
fixed-rate, non-convertible investment grade domestic corporate debt issues and
also includes Yankee Bonds.
The Blended Index initial value is as of December 31, 1997.
The percentage weights which have been applied to the indices are intended to
replicate the long-term asset allocation of the Fund.
4
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 57.69% Market Value
- --------------------------------------------------------------------------------
AEROSPACE / DEFENSE EQUIPMENT: 0.70%
100 United Technologies Corporation............... $ 10,875
--------
AUTOMOBILES: 1.14%
300 Ford Motor Company............................ 17,606
--------
BANKS: 5.28%
700 The Bank of New York Company, Inc............. 28,175
300 The Chase Manhattan Corporation............... 20,419
100 Mellon Bank Corporation....................... 6,875
200 SouthTrust Corporation........................ 7,387
200 Firstar Corporation........................... 18,650
--------
81,506
--------
BEVERAGES - NON-ALCOHOLIC: 1.06%
400 PepsiCo, Inc.................................. 16,375
--------
CHEMICALS - SPECIALTY: 0.66%
100 Air Products and Chemicals, Inc............... 4,000
300 Crompton & Knowles Corporation................ 6,206
--------
10,206
--------
COMPUTER SOFTWARE: 4.51%
200 Compuware Corporation*........................ 15,625
200 Microsoft Corporation*........................ 27,738
200 Networks Associates, Inc.*.................... 13,250
300 Oracle Corporation*........................... 12,937
--------
69,550
--------
COMPUTERS - MICRO: 2.55%
500 Compaq Computer Corporation................... 20,969
100 International Business Machines
Corporation.................................. 18,475
--------
39,444
--------
COSMETICS AND TOILETRIES: 1.20%
200 Colgate-Palmolive Company..................... 18,575
--------
See accompanying Notes to Financial Statements.
5
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING: 2.73%
300 General Electric Company...................... $ 30,619
400 Masco Corporation............................. 11,500
--------
42,119
--------
DIVERSIFIED OPERATIONS: 0.49%
100 Textron....................................... 7,594
--------
ELECTRONIC COMPONENTS/SEMICONDUCTORS: 2.29%
400 Advanced Micro Devices, Inc.*................. 11,575
200 Intel Corporation............................. 23,713
--------
35,288
--------
FINANCE - MORTGAGE LOAN / BANKER: 2.12%
100 Ambac Financial Group, Inc.................... 6,019
300 Federal National Mortgage Association......... 22,200
100 H&R Block, Inc................................ 4,500
--------
32,719
--------
FINANCIAL - MISCELLANEOUS: 0.75%
300 Paine Webber Group, Inc....................... 11,588
--------
FOOD - MISCELLANEOUS / DIVERSIFIED: 1.80%
600 Sara Lee Corporation.......................... 16,913
500 Wendy's International, Inc.................... 10,906
--------
27,819
--------
FOOD - RETAIL: 1.58%
400 Safeway Inc.*................................. 24,375
--------
INSURANCE: 1.80%
300 The Allstate Corporation...................... 11,587
200 SunAmerica, Inc............................... 16,225
--------
27,812
--------
MANUFACTURING - MISCELLANEOUS: 3.38%
200 Danaher Corporation........................... 10,863
300 Maytag Corporation............................ 18,675
300 Tyco International Ltd........................ 22,631
--------
52,169
--------
See accompanying Notes to Financial Statements.
6
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
MEDICAL - BIOMEDICAL / GENETICS: 0.29%
100 Centocor, Inc.*............................... $ 4,513
--------
MEDICAL - DRUGS: 3.81%
100 Bristol-Meyers Squibb Company................. 13,381
200 Eli Lilly and Company......................... 17,775
100 Pfizer Inc.................................... 12,544
200 Warner-Lambert Company........................ 15,037
--------
58,737
--------
METALS - ALUMINUM: 0.97%
200 Aluminum Company of America................... 14,912
--------
NETWORKING PRODUCTS: 2.36%
200 Ascend Communications, Inc.*.................. 13,150
250 Cisco Systems, Inc.*.......................... 23,203
--------
36,353
--------
PETROLEUM PRODUCTS: 3.45%
300 BJ Services Company*.......................... 4,687
100 Burlington Resources Inc...................... 3,581
400 Conoco Inc.*.................................. 8,350
200 Enron Corp.................................... 11,413
200 Exxon Corporation............................. 14,625
200 Texaco Inc.................................... 10,575
--------
53,231
--------
RADIO BROADCASTING: 0.71%
400 Infinity Broadcasting Corporation*............ 10,950
--------
RETAIL - BUILDING PRODUCTS: 1.19%
300 Home Depot, Inc............................... 18,356
--------
RETAIL - DEPARTMENT STORES: 2.09%
200 Dayton Hudson Corporation..................... 10,850
300 The Gap, Inc.................................. 16,875
200 Jones Apparel Group, Inc.*.................... 4,413
--------
32,138
--------
STEEL PRODUCERS: 0.30%
200 USX Corporation............................... 4,600
--------
See accompanying Notes to Financial Statements.
7
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT: 1.43%
200 Lucent Technologies Inc....................... $22,000
--------
TELECOMMUNICATION SERVICES: 2.15%
100 Airtouch Communications, Inc.*................ 7,212
200 GTE Corporation............................... 13,488
200 Time Warner Inc............................... 12,412
--------
33,112
--------
TELEPHONE SERVICES: 2.87%
600 BellSouth Corporation......................... 29,925
200 MCI WorldCom, Inc.*........................... 14,350
--------
44,275
--------
TOBACCO PRODUCTS: 1.04%
300 Philip Morris Companies Inc................... 16,050
--------
TRANSPORTATION - RAIL: 0.58%
100 FDX Corporation*.............................. 8,900
--------
UTILITIES: 0.41%
100 Duke Energy Corporation....................... 6,406
--------
TOTAL COMMON STOCKS (COST $691,029)........... 890,153
--------
Principal Amount FEDERAL AGENCY OBLIGATIONS: 16.15%
- --------------------------------------------------------------------------------
$145,000 Federal Home Loan Mortgage Corporation
5.75%, due 7/15/03........................... 149,179
100,000 Federal National Mortgage Association
6.11%, due 1/22/03........................... 99,935
--------
TOTAL FEDERAL AGENCY OBLIGATIONS
(COST $247,579).............................. 249,114
--------
See accompanying Notes to Financial Statements.
8
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED
- --------------------------------------------------------------------------------
Principle Amount U.S. GOVERNMENT OBLIGATIONS: 23.95% Market Value
- --------------------------------------------------------------------------------
$ 140,000 U.S. Treasury Bond, 12.00%,
due 8/15/13.................................. $214,069
125,000 U.S. Treasury Bond, 7.50%,
due 11/15/16................................. 155,469
--------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $362,209).............................. 369,538
--------
SHORT-TERM INVESTMENTS: 1.81%
- --------------------------------------------------------------------------------
27,946 Star Treasury Fund, 4.80% (cost $27,946)...... 27,946
--------
TOTAL INVESTMENTS IN SECURITIES
(COST $1,328,763+): 99.60% ................ 1,536,751
OTHER ASSETS LESS LIABILITIES: 0.40%.......... 6,157
----------
TOTAL NET ASSETS: 100.0% ..................... $1,542,908
==========
* Non-income producing security.
+ At December 31, 1998, the cost of securities for Federal tax purposes is
$1,330,293. Gross unrealized appreciation and depreciation of securities were as
follows:
Gross unrealized appreciation................. $214,171
Gross unrealized depreciation................. (7,713)
--------
Net unrealized appreciation............... $206,458
========
See accompanying Notes to Financial Statements.
9
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value
(identified cost $1,328,763) ........................... $1,536,751
Receivables:
Due from Advisor (Note 3)............................... 7,446
Dividends and interest.................................. 15,368
Deferred organization costs................................ 10,082
Prepaid expenses........................................... 961
----------
Total assets ........................................ 1,570,608
----------
LIABILITIES
Payables:
Administration fee...................................... 2,548
Distribution fees....................................... 317
Accrued expenses........................................... 24,835
----------
Total liabilities.................................... 27,700
----------
NET ASSETS.................................................... $1,542,908
==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($1,542,908/129,135 shares outstanding; unlimited
number of shares (par value $.01) authorized)........... $ 11.95
==========
COMPONENTS OF NET ASSETS
Paid-in capital ........................................... $1,330,421
Undistributed net investment income........................ 454
Undistributed net realized gain on investments............. 4,045
Net unrealized appreciation of investments................. 207,988
----------
Net assets ............................................. $1,542,908
==========
See accompanying Notes to Financial Statements.
10
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 13, 1998* THROUGH DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends............................................... $ 7,540
Interest................................................ 34,182
--------
Total income......................................... 41,722
--------
Expenses
Administration fees (Note 3)............................ 29,013
Fund accounting fees.................................... 13,652
Professional fees....................................... 15,618
Advisory fees (Note 3).................................. 9,496
Transfer agent fees..................................... 11,574
Custody fees............................................ 5,965
Reports to shareholders................................. 6,771
Trustees' fees.......................................... 5,009
Distribution fees (Note 4).............................. 3,165
Miscellaneous........................................... 3,369
Amortization of deferred organization costs............. 2,418
Insurance............................................... 2,168
Registration fees....................................... 847
--------
Total expenses....................................... 109,065
--------
Less: advisory fee waiver and
absorption (Note 3)............................... (91,300)
--------
Net expenses......................................... 17,765
--------
NET INVESTMENT INCOME ............................ 23,957
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions............ 23,650
Net change in unrealized appreciation
on investments........................................ 207,988
--------
Net realized and unrealized gain
on investments..................................... 231,638
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................ $255,595
--------
* Commencement of operations.
See accompanying Notes to Financial Statements.
11
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
January 13, 1998*
through
December 31, 1998
-----------------
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income......................................... $ 23,957
Net realized gain from security transactions.................. 23,650
Net change in unrealized appreciation on investments.......... 207,988
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ......................................... 255,595
----------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................................... (23,503)
Net realized gains 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)................................... 1,330,421
----------
TOTAL INCREASE IN NET ASSETS .............................. 1,542,908
NET ASSETS
Beginning of period........................................... -0-
----------
END OF PERIOD ................................................ $1,542,908
----------
(a) A summary of capital share transactions is as follows:
January 13, 1998*
through
December 31, 1998
Shares Value
------ -----
Shares sold .............................. 125,350 $1,287,313
Shares issued in reinvestment
of distributions............................... 3,785 43,108
Shares redeemed.................................. (0) (0)
------- ----------
Net increase..................................... 129,135 $1,330,421
======= ==========
* Commencement of operations.
See accompanying Notes to Financial Statements.
12
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
January 13, 1998*
through
December 31, 1998
-----------------
Net asset value, beginning of period........................ $ 10.00
Income from investment operations:
Net investment income.................................... 0.19
Net realized and unrealized gain on investments.......... 2.11
-------
Total from investment operations............................ 2.30
-------
Less distributions:
From net investment income............................... (0.19)
From net realized gains on security tranactions.......... (0.16)
-------
Total distributions......................................... (0.35)
-------
Net asset value, end of period.............................. $ 11.95
=======
Total return................................................ 23.11%#
Ratios/supplemental data:
Net assets, end of period (millions)........................ $ 1.5
Ratio of expenses to average net assets:
Before expense reimbursement............................. 8.59%+
After expense reimbursement.............................. 1.40%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement............................. 5.30%+
After expense reimbursement.............................. 1.89%+
Portfolio turnover rate..................................... 95.00%
* Commencement of operations.
# Not annualized.
+ Annualized.
See accompanying Notes to Financial Statements.
13
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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.
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 fair
value. Securities listed on an exchange or quoted on a National
Market System are valued at the last sale price. Other securities
are valued at the mean between the last bid and asked prices.
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.
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
14
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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 period ended December 31, 1998, 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 may require the Advisor to
waive, reduce or absorb current Fund expenses. For the period ended December 31,
1998, the Advisor reduced its fees and absorbed Fund expenses in the amount of
$91,300; no amounts were reimbursed.
Investment Company Administration LLC (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
15
<PAGE>
THE AVATAR ADVANTAGE BALANCED FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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 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 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
Distributor, at an annual rate of up to 0.25% of the average daily net assets of
the Fund. The fee is paid to the Distributor as reimbursement for, or in
anticipation of, expenses incurred for distribution-related activity. During the
period ended December 31, 1998, the Fund paid the Distributor in the amount of
$3,165.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
For the period ended December 31, 1998, the cost of purchases and the proceeds
from sales of securities, excluding short-term securities, were $2,298,927 and
$1,019,005, respectively.
16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
THE BOARD OF TRUSTEES AND SHAREHOLDERS
THE AVATAR ADVANTAGE BALANCED FUND
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments of The Avatar Advantage Balanced Fund, series of
Advisors Series Trust, as of December 31, 1998, and the related statement of
operations for the year then ended, changes in net assets and the financial
highlights for the period indicated in the accompanying financial statements.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Avatar Advantage Balanced Fund, series of Advisors Series Trust, as of December
31, 1998, the results of its operations, the changes in its net assets and the
financial highlights for the period indicated, in conformity with generally
accepted accounting principles.
/s/ Mcgladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
New York, New York
January 29, 1999
<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
AUDITOR
McGladrey & Pullen, LLP
555 Fifth Avenue, 8th Floor
New York, NY 10017-2416
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.
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY
ALLOCATION FUND
Annual Report
For the period ended
December 31, 1998
<PAGE>
January 1999
Dear Shareholder,
We are pleased to report on the progress of the AVATAR ADVANTAGE INTERNATIONAL
EQUITY ALLOCATION FUND for the period ended December 31, 1998. Since commencing
operations on February 2, 1998, Avatar's asset allocation strategy helped the
Fund realize a return of 5.50%. The objective of the strategy is to identify
international market inefficiencies in order to maximize portfolio returns
within the portfolio's prescribed risk limits.
The Morgan Stanley Capital International EAFE + Canada Index was up 18.80% for
the full year.
1998--THE SECOND SIX MONTHS IN REVIEW
World financial markets were very volatile during 1998. The financial crises in
Asia had a severe negative economic impact throughout the region. The cause was
the realization that rapid capital spending produced a severe economic imbalance
- - too much capacity with too little demand for product. The Japanese economy,
saddled with enormous corporate and government debt, searched for a solution.
Along the way its unemployment rate reached 4.4%, the highest in 46 years.
Conversely, European markets advanced to new highs based on solid economic data
such as low inflation, reduced unemployment, and steady corporate growth.
Interest rates were cut in advance of the introduction of the Euro. Our models
forecast the downturn in Asia and the upswing in Europe. As a result we were
underweight in Asia and overweight in Europe, producing solid fourth-quarter
results for the Fund.
1999 MARKET OUTLOOK
What can we expect for this coming year? The likelihood of worldwide recession
has abated. The U.S. economy remains strong although most economists expect some
sort of slow-down in the later quarters of 1999. The introduction of the Euro
appears to have gone smoothly and we are waiting to see the effects on the
European markets and industries. Europe continues to be very positive with
declining interests rates throughout those countries in the EMU. Our models
favor Europe at this time. On the negative side, Japan still has not figured a
way out of its economic downturn. Unease and uncertainty characterize Asian
nations' economies for the time being. Latin America, Brazil in particular,
remains an area of concern. Both situations could have unforeseen consequences
on certain of our domestic industries.
<PAGE>
Other concerns center around the effect of the impeachment trial in Washington
and the various ethnic conflicts around the world, which appear to be
increasing. These trends give us pause and temper our enthusiasm.
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
through the Fund's first months of existence. Our plan for the New Year is to
continue this strategy and to hopefully produce results that help you to meet
your financial goals.
/s/ Theodore M. Theodore
Theodore M. Theodore
Portfolio Manager
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
Comparison of the change in value of a $10,000 investment in The Avatar
International Equity Allocation Fund versus the MSCI EAFE plus Canada Index.
Average Annual Total Return
Period ended December 31, 1998
Since inception (2/2/98)5.50%
The Avatar Advantage
International Equity MSCI EAFE plus
Allocation Fund Canada Index
--------------- ------------
2-Feb-98 $10,000 $10,000
31-Mar-98 $10,710 $10,985
30-Jun-98 $10,810 $11,078
30-Sep-98 $ 9,430 $ 9,456
31-Dec-98 $10,550 $10,930
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.
The MSCI EAFE plus Canada Index initial value is as of January 31, 1998.
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Shares Open-END FUNDS: 96.40% Market Value
- --------------------------------------------------------------------------------
1,400 WEBS - Australia Index Series................. $ 13,300
1,800 WEBS - Canada Index Series.................... 20,813
2,300 WEBS - France Index Series.................... 49,737
2,500 WEBS - Germany Index Series................... 55,625
900 WEBS - Hong Kong Index Series................. 8,438
900 WEBS - Italy Index Series..................... 24,469
3,400 WEBS - Japan Index Series..................... 34,850
1,000 WEBS - Netherlands Index Series............... 25,750
500 WEBS - Spain Index Series..................... 14,937
2,200 WEBS - Switzerland Index Series .............. 37,400
5,500 WEBS - United Kingdom Index Series............ 112,406
--------
Total Open-End Funds
(cost $394,894)............................. 397,725
--------
Principal Amount SHORT-TERM INVESTMENTS: 9.11%
- --------------------------------------------------------------------------------
$37,611 Star Treasury Fund (cost $37,611)............. 37,611
--------
Total Investments in Securities
(cost $432,505+): 105.51% ................. 435,336
Liabilities in excess of other assets: (5.51%) 22,745
--------
TOTAL NET ASSETS: 100.0% ..................... $412,591
========
+At December 31, 1998, the cost of securities for Federal tax purposes is
$435,676. Gross unrealized appreciation and depreciation of securities were as
follows:
Gross unrealized appreciation................. $4,019
Gross unrealized depreciation................. (4,359)
------
Net unrealized depreciation............... $(340)
======
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 Accompanying Notes to Financial Statements.
5
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998
ASSETS
Investments in securities, at value
(identified cost $432,505) ................................ $ 435,336
Receivables:
Due from Advisor .......................................... 10,065
Dividends and interest .................................... 2,037
Deferred organization costs .................................. 10,274
Prepaid expenses ............................................. 214
---------
Total assets ........................................... 457,926
---------
LIABILITIES
Portfolio securities purchased ............................... 16,479
Accrued expenses ............................................. 28,856
---------
Total liabilities ...................................... 45,335
---------
NET ASSETS ...................................................... $ 412,591
=========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($412,591/41,497 shares outstanding; unlimited number
of shares (par value $0.01), authorized) .................... $ 9.94
=========
COMPONENTS OF NET ASSETS
Paid-in capital .............................................. $ 412,930
Accumulated net realized loss on investments ................. (3,170)
Net unrealized appreciation on investments ................... 2,831
---------
Net assets ................................................ $ 412,591
=========
See Accompanying Notes to Financial Statements.
6
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 2, 1998* THROUGH DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends ................................................. $ 10,631
Interest .................................................. 4,210
---------
Total income ........................................... 14,841
---------
Expenses
Administration fees (Note 3) .............................. 26,712
Advisory fees (Note 3) .................................... 3,577
Amortization of deferred organization costs ............... 2,226
Custodian and accounting fees ............................. 35,536
Distribution fees (Note 4) ................................ 894
Insurance expense ......................................... 1,022
Other ..................................................... 2,381
Professional fees ......................................... 14,467
Registration fees ......................................... 780
Reports to shareholders ................................... 6,233
Transfer agent fees ....................................... 16,364
Trustees' fees ............................................ 4,076
---------
Total expenses ......................................... 114,268
Less: Advisory fee waiver and
absorption (Note 3) ............................... (108,367)
---------
Net expenses ........................................... 5,901
---------
NET INVESTMENT INCOME ............................... 8,940
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions .............. 8,724
Net change in unrealized appreciation on
investments ............................................. 2,831
---------
Net realized and unrealized gain on
investments .......................................... 11,555
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................... $ 20,495
=========
* Commencement of operations.
See Accompanying Notes to Financial Statements.
7
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
February 2, 1998*
through
December 31, 1998
-----------------
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income......................................... $8,940
Net realized gain from security transactions.................. 8,724
Net change in unrealized appreciation on investments.......... 2,831
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ....................................... 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)....................................... 415,095
---------
TOTAL INCREASE IN NET ASSETS .............................. $ 412,591
=========
NET ASSETS
Beginning of period........................................... --
END OF PERIOD ................................................ $ 412,591
=========
(a) A summary of capital shares transactions is as follows:
February 2, 1998*
through
December 31, 1998
--------------------
Shares Value
------ -----
Shares sold ...................................... 39,104 $392,147
Shares issued in reinvestment of distributions.... 2,398 22,998
Shares redeemed................................... (5) (50)
------ --------
Net increase...................................... 41,497 $415,095
====== ========
* Commencement of operations.
See Accompanying Notes to Financial Statements.
8
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
February 2, 1998*
through
December 31, 1998
-----------------
Net asset value, beginning of period........................ $ 10.00
--------
Income from investment operations:
Net investment income.................................... 0.23
Net realized and unrealized gain on
investments............................................ 0.30
--------
Total from investment operations............................ 0.53
--------
Less distributions:
From net investment income............................... (0.21)
From realized capital gains.............................. (0.38)
--------
Total from investment operations............................ (0.59)
--------
Net asset value, end of period.............................. $ 9.94
========
Total return................................................ 5.50%++
Ratios/supplemental data:
Net assets, end of period (thousands)....................... $413
Ratio of expenses to average net assets:
Before expense reimbursement............................. 31.32%+
After expense reimbursement.............................. 1.65%+
Ratio of net investment income to average net assets:
After expense reimbursement.............................. 2.45%+
Portfolio turnover rate..................................... 177.43%
* Commencement of operations.
+ Annualized.
++ Not annualized.
See Accompanying Notes to Financial Statements.
9
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1998
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 fair value.
Securities listed on an exchange or quoted on a National Market System
are valued at the last sale price. Other securities are valued at the
mean between the last bid and asked prices. 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.
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
10
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 period ended December 31, 1998, 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 period ended December 31, 1998, the Fund incurred $3,577 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 not be paid prior to the Fund's payment of current
ordinary operating expenses. For the period ended December 31, 1998, the Advisor
reduced its fees and absorbed Fund expenses in the amount of $108,367; 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
11
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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, acting 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 Distribution
Coordinator as reimbursement for, or in anticipation of, expenses incurred for
distribution-related activity. For the period ended December 31, 1998, the Fund
paid the Distribution Coordinator in the amount of $894.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
For the period ended December 31, 1998, the cost of purchases and the proceeds
from sales of securities, excluding short-term securities, were $867,164 and
$480,994, respectively.
12
<PAGE>
INDEPENDENT AUDITOR'S REPORT
THE BOARD OF TRUSTEES AND SHAREHOLDERS
THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments of The Avatar Advantage International Equity
Allocation Fund, series of Advisors Series Trust, as of December 31, 1998, and
the related statement of operations, changes in net assets and the financial
highlights for the period indicated in the accompanying financial statements.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Avatar Advantage International Equity Allocation Fund, series of Advisors Series
Trust, as of December 31, 1998, the results of its operations, the changes in
its net assets and the financial highlights for the period indicated, in
conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
January 29, 1999
<PAGE>
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
Star Bank, N.A.
425 Walnut Street M/L 6118
Cincinnati, Ohio 45202
TRANSFER AGENT
Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
AUDITOR
McGladrey & Pullen, LLP
555 Fifth Avenue, 8th Floor
New York, NY 10017-2416
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.
