ROCKHAVEN ASSET MANAGEMENT
THE RISK MANAGERS
THE ROCKHAVEN FUND
THE ROCKHAVEN PREMIER
DIVIDEND FUND
Annual Report
For the year ended September 30, 1999
Dear Investor:
Thank you for your support of Rockhaven. We realize that you have literally
thousands of mutual funds from which to choose to invest your hard-earned
savings. We appreciate the confidence you have shown in us by becoming fellow
shareholders (all of the Rockhaven employees have a significant portion of their
net worth invested in the Funds), and we will continue to work hard to justify
your confidence.
During a recent speech given by Federal Reserve Chairman Alan Greenspan, he
stated that: "Information technology has begun to alter, fundamentally, the
manner in which we do business and create economic value, thereby accelerating
productivity growth and raising living standards. This has contributed to the
greatest prosperity the world has ever witnessed."
This is bullish talk for a man better known for chiding Wall Street for its
"irrational exuberance." Maybe something different is going on. As investors,
one of the biggest risks we face is clinging to the nostalgic "good old days"
that never were. As in life, successful investors are those with open, creative
minds who look forward to the challenges that a new day brings. This does not
mean ignoring risks, but instead figuring out ways to manage risk and prosper
from it.
THE BEGINNING
The start of the greatest bull market in U.S. history coincided with me
beginning my MBA in August 1982. I was originally enrolled in law school, but
hated it, so I switched to the MBA program instead. My fiance's family was proud
of the fact that their daughter was marrying a lawyer, and to this day, I think
they still regret my decision.
In 1982, the economy was in a recession; the inflation rate and interest rates
were in double digits. The Dow Jones Industrial Average was at 776.92, and had
spent the last 16 years below 1,000. When I told my family and my future wife's
family that I was going to be a security analyst, they thought I was going to be
guarding some office building with a gun and a donut.
<PAGE>
Remember that in 1982, "buy the dips" was not even a glimmer of a thought, and
most people had never heard of an index fund. The only sound investment was
double-digit money funds and certificates of deposit.
FAST FORWARD
Wow! How 17 years of 18% annualized returns change things. The economy is in its
longest expansion ever. Inflation and interest rates are at their lowest levels
in decades. More people own stocks than ever before. Even my in-laws are warming
up to me, though I think it has more to do with the grandchildren than the
market.
But 17 years of 18% returns, or 28% a year for the last four years, just isn't
enough. Not when stocks are doubling or tripling in a matter of days or weeks.
When seasoned executives making $1 or $2 million a year are quitting their jobs
because 30-year old Internet employees are worth $200 million. No, everyone just
wants a piece of the pie, their fair share of the great American dream.
REALITY CHECK
Generally, stocks go up for two reasons: 1) falling interest rates, which leads
to P/E expansion, and 2) earnings growth. In the last 17 years, we have seen
interest rates drop from 14% to 5 - 6%. But, while the S&P 500 is up 1,216%, S&P
500 earnings are up only 229%. So, unless interest rates decline to 2%, or after
the longest economic expansion in history earnings growth begins to accelerate,
the easy money has been made.
Alan Greenspan is right about the information technology revolution that is
changing the world and ushering in the greatest prosperity in history. But,
unless interest rates fall dramatically or earnings accelerate dramatically, we
have seen the best that this bull market has to offer. Not that it is over by a
long shot, just that the easy money has been made and investors will have to
come to grips with the reality of single-digit returns. Ah . . . I can't wait to
see what the next 17 years bring!
CURRENT ENVIRONMENT
"Don't fight the Fed, and don't fight the tape."
Clearly in the last quarter, this old Wall Street adage held true. With the Fed
raising rates and adopting a tightening bias and with continuing narrow
leadership, it's easy to see why the quarter was so sloppy.
EARNINGS - The economic expansion has continued to benefit large swaths of
the economy. Overall, corporate earnings were up 10.5% in the first
quarter, 14.7% in the second quarter, and the third quarter appears on
track for equally strong gains. Surprisingly though, hardly a day goes by
without a major earnings disappointment. It has clearly been a minefield
out there. Another disturbing tidbit is that junk bond defaults are at
5.3%, which is the fastest pace since 1992. A contradiction in an economic
boom.
INTEREST RATES - The yield on the long-bond continued to rise in the third
quarter to 6.05%, which is up 0.96% from 5.10% at year-end. Clearly the
biggest impediment has been the Fed's hawkish stance towards inflation. But
we have also seen a strong rebound in commodity prices from very depressed
levels. The Commodity Research Bureau Index is up 12% from it's low and
gold has rallied 20%. It is still too soon to determine whether these
rallies are purely technical or whether they have real fundamental
underpinnings. We continue to believe that we will have cyclical bouts of
<PAGE>
inflation, but the long-term secular trend is still down. Global
over-capacity and the deflationary force of the Internet will continue to
keep a lid on interest rates.
LIQUIDITY - The Fed's tightening bias, along with the strength of the yen
vs. the dollar, have both contributed to lowering investors' appetite for
U.S. stocks. Also, the fear of Y2K disruptions has caused many investors to
postpone putting new money to work.
SUMMARY - Overall, we are not overly concerned about a bear market. The
U.S. economy is still very healthy, and interest rates will probably stay
in a 5.50 - 6.50% trading range. Similarly though, we do not see any real
impetus for a strong rally. We believe that single-digit equity returns
will be the norm for some time, which is the perfect environment for higher
yielding stocks and convertibles.
TRACKING PROGRESS
During the first quarter of 1999, growth stocks outperformed value, but in the
second quarter, value mounted a huge rally to overtake growth. The third quarter
saw performance flip-flop again with growth coming out on top.
S&P/BARRA Value -9.24% 10.76% 2.85% 3.48%
S&P/BARRA Growth -3.49% 3.83% 6.86% 7.08%
S&P 500 -6.25% 7.05% 4.98% 5.36%
Merrill Lynch All-Cvt. -1.25% 7.35% 5.46% 11.80%
Source: Bloomberg
As fears of an overheating economy have subsided somewhat in response to the
Fed's tightening bias, investors have moved towards a focus on earnings growth
in a slowing economy. The companies with the best growth prospects continue to
be the large-cap technology and communication concerns.
The S&P 500 peaked on July 16 at 1420, and was down -9.34% by September 30.
Year-to-date, just eleven stocks accounted for 100% of the index's return, and
eight of the eleven were technology companies.
Technology has clearly led the charge, and now accounts for 26% of the S&P 500's
weight. Microsoft alone, with a weight of 4.4%, is larger than the chemical,
paper, steel, airline, railroad, and precious metals industries combined. The
following table shows how tech has grown from only 7% of the index in 1990 to
its present weight of 26%. It also shows how energy has fallen from 27% in 1980
to its present weight of only 6%.
<PAGE>
SECTOR WEIGHTS 1980 1986 1990 1994 1997 1998 9/99
-------------- -----------------------------------------------------
Basic Industries 8% 7% 7% 7% 5% 3% 3%
Capital Goods 11 11 10 10 9 8 9
Communication Svcs. 6 8 9 9 6 8 8
Consum. Cyclicals 10 14 11 12 9 9 8
Consumer Staples 8 12 17 16 16 15 11
Energy 27 12 13 10 8 6 6
Finance 5 10 8 11 17 14 15
Health Care 6 7 10 9 11 12 11
Technology 10 9 7 10 13 19 26
Transportation 2 2 1 1 1 1 1
Utilities 6 8 7 5 3 3 3
Source: Donaldson, Lufkin and Jenrette
The convertible market has undergone the same transformation, with technology
rising from 16% in 1994, to its current weight of 35%. The large weight in
technology goes a long way to explaining why convertible indexes have done so
well this year.
SECTOR WEIGHTS 1994 1995 1996 1997 1998 9/99
-------------- ---- ---- ---- ---- ---- ----
Basic Industries 9.5% 9.1% 9.3% 5.4% 6.3% 6.8%
Capital Goods 5.2 5.4 5.1 3.7 2.6 1.7
Conglomerate 2.1 2.8 1.5 1.3 1.3 0.6
Consum. Cyclicals 16.0 9.4 12.1 11.6 10.9 9.6
Consumer Services 11.2 11.4 13.7 15.6 16.8 15.2
Consumer Staples 7.3 8.2 8.1 8.8 10.7 9.8
Credit Cyclicals 0.9 1.8 1.0 0.9 0.9 0.6
Energy 9.7 8.1 9.8 10.0 5.3 6.7
Finance 16.0 17.6 16.5 16.5 11.0 8.1
Technology 16.1 19.0 19.2 21.9 29.0 35.4
Transportation 4.1 5.0 1.3 1.6 1.8 1.4
Utilities 1.7 2.3 2.4 2.7 3.5 4.1
Source: Merrill Lynch
Of course, if we only knew how powerful tech was going to be, we would all have
been over-weight in technology . . .but we didn't. Just like it would be great
to know what sectors will have the greatest movement over the next ten
years...but we don't. This is the main reason we stay sector-neutral to our
benchmarks. We know the current makeup of any index, therefore, it is simple to
be exposed to the sectors that are working. If tech continues to grow, so will
our exposure, but if it declines, so will our exposure.
Where we try to add value is not by focusing on "educated" guesses as to the
market's or a sector's direction, but instead we focus all of our energy on
choosing the most attractive and avoiding the least attractive securities in
each sector.
In summary, both the Rockhaven Fund and the Premier Dividend Fund will STRIVE to
offer investors solid participation in their respective benchmarks with less
risk and more income. In the last six months I think we did a pretty good job of
that, and we look forward to the new millennium.
Thanks for your support,
Christopher Wiles
<PAGE>
Past performance of the indices mentioned and the convertible market are not
indicative of future performance.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip
stocks that are generally the leaders in their industry and are listed on the
New York Stock Exchange. The S&P 500 is an unmanaged capitalization-weighted
index of 500 stocks designed to represent the broad domestic economy. The
Standard & Poor's BARRA Value Index is a capitalization-weighted index of all
the stocks in the Standard & Poor's 500 that have low price-to-book ratios. It
is designed so that approximately 50% of the SPX market capitalization is in the
Value Index. The Standard & Poor's BARRA Growth Index is a
capitalization-weighted index of all the stocks in the Standard & Poor's 500
that have high price-to-book ratios. It is designed so that approximately 50% of
the SPX market capitalization is in the Growth Index. The Merrill Lynch
All-Convertible Index includes U.S. dollar-denominated convertibles of $50
million or more in size, and incorporates both traditional and mandatory
conversion structure. These indices are not available for investment and do not
incur charges or expenses.
Comparison of the change in value of a $10,000 investment in
The Rockhaven Fund versus the S&P 500 Composite Stock Price Index
and the S&P/Barra Value Fund Index.
Average Annual Total Return(1)
One Year......................... 14.87%
Since Inception (11/3/97) ....... 6.63%
The Rockhaven Premier Merrill Lynch All
Dividend Fund Convertible Index
------------- -----------------
3-Nov-97 $10,000 $10,000
30-Nov-97 $9,940 $10,004
31-Dec-97 $10,106 $10,102
31-Jan-98 $10,197 $10,128
28-Feb-98 $10,879 $10,582
31-Mar-98 $11,158 $10,971
30-Apr-98 $11,532 $11,041
29-May-98 $11,350 $10,797
30-Jun-98 $11,228 $10,887
31-Jul-98 $10,954 $10,714
31-Aug-98 $9,706 $9,483
30-Sep-98 $9,990 $9,673
31-Oct-98 $10,551 $9,923
30-Nov-98 $11,162 $10,397
31-Dec-98 $11,605 $11,005
31-Jan-99 $12,127 $11,548
28-Feb-99 $12,045 $11,144
31-Mar-99 $12,782 $11,605
30-Apr-99 $13,399 $12,077
31-May-99 $13,008 $12,015
30-Jun-99 $13,791 $12,458
31-Jul-99 $13,709 $12,379
31-Aug-99 $13,771 $12,223
30-Sep-99 $12,803 $12,303
Past performance is not predictive of future results.
* The S&P 500 Composite Stock Price Index is an unmanaged
capitalization-weighted index of 500 stocks designed to represent the broad
domestic economy.
* The S&P/Barra Value Index is an unmanaged capitalization-weighted index
that contains approximately 50% of the stocks in the S&P 500 lower
price-to-book ratios.
(1) Average Annual Total Return represents the average change in account value
over the periods indicated and includes the maximum sales charge.
Comparison of the change in value of a $10,000 investment in
The Rockhaven Premier Dividend Fund versus the
Merrill Lynch All Convertible Index.
Average Annual Total Return(1)
One Year...................... 28.16%
Since Inception (11/3/97) .... 13.84%
(insert graph)
Past performance is not predictive of future results.
* The Valuation calculation for the Merrill Lynch All-Convertible Index is
for the period November 1, 1997 through September 30, 1999.
* The Merrill Lynch All-Convertible Index includes U.S. dollar-denominated
convertibles of $50 million or more in size, and incorporates both
traditional and mandatory conversion structure.
(1) Average Annual Total Return represents the average change in account value
over the periods indicated and includes the maximum sales charge.
<PAGE>
SCHEDULE OF INVESTMENTS at September 30, 1999
- --------------------------------------------------------------------------------
Shares/
Principal COMMON STOCKS &
Amount CONVERTIBLE SECURITIES: 101.75% Market Value
- --------------------------------------------------------------------------------
Basic Materials: 3.12%
700 E. I. du Pont de Nemours and Company................... $ 42,613
1,000 Sealed Air Corporation, CONV PFD $2 Series A .......... 50,750
------------
93,363
------------
Capital Goods/Diversified: 7.05%
800 General Electric Company 94,850
2,400 Ingersoll-Rand Co., CONV PFD 6.75% 63,000
900 United Technologies Corporation 53,381
------------
211,231
------------
Consumer Cyclical: 3.11%
650 Ford Motor Company .................................... 32,622
500 Mattel, Inc. .......................................... 9,500
1,200 Tribune Company/Mattel, Inc., CONV PFD 6.25% .......... 28,050
500 Union Pacific Corporation, CONV PFD 6.25% ............. 22,812
------------
92,984
------------
Energy: 6.32%
2,700 Enron Corp., CONV PFD 7% .............................. 59,569
700 Mobil Corporation ..................................... 70,525
1,300 Shell Transport and Trading ADR ....................... 59,150
------------
189,244
------------
Finance: 14.43%
500 American International Group, Inc...................... 43,469
700 Bankamerica/Jefferson-Pilot
Corporation, CONV PFD 7.25%........................... 64,050
1,950 Citigroup Inc.......................................... 85,800
700 Fannie Mae............................................. 43,881
500 J.P. Morgan & Co., Incorporated........................ 57,125
4,000 Lincoln National Corporation, CONV PFD 7.75%.......... 83,750
800 Merrill Lynch & Co., Inc............................... 53,750
------------
431,825
------------
<PAGE>
Health Care: 11.29%
50,000 Athena Neurosciences, Inc./Elan,
CONV BOND 4.75% 11/15/2004............................ $ 56,188
1,000 Bristol-Myers Squibb Company........................... 67,500
50,000 Centocor, Inc., CONV BOND 4.75%, 2/21/2001............. 66,062
325 Johnson & Johnson ..................................... 29,859
700 Merck & Co, Inc........................................ 45,369
1,200 Monsanto Company, CONV PFD 6.5%........................ 43,200
600 Pharmacia & Upjohn, Inc................................ 29,775
------------
337,953
------------
Retailing: 6.53%
115,000 Costco Companies, Inc., CONV BOND 0%, 8/19/2017........ 99,475
1,400 Dollar General Corporation ............................ 43,225
900 Dollar General Corporation, STRYPES 8.5%............... 38,925
200 The Home Depot, Inc. .................................. 13,725
------------
195,350
------------
Services: 5.36%
1,300 McDonald's Corporation ................................ 55,900
30,000 Omnicom Group Inc., CONV BOND 4.25% , 1/3/2007....... 76,163
1,100 The Walt Disney Company ............................... 28,462
------------
160,525
------------
Staples: 7.39%
700 Hershey Foods Corporation.............................. 34,081
1,400 McCormick & Company, Incorporated...................... 46,288
700 The Coca-Cola Company.................................. 33,644
500 The Estee Lauder Companies Inc., TRACES 6.25%.......... 39,000
1,100 The Quaker Oats Company................................ 68,062
------------
221,075
------------
<PAGE>
Technology: 21.12%
2,500 Amdocs Limited, CONV PFD 6.75%......................... $ 54,063
500 Computer Associates International, Inc................. 30,625
1,200 Corning Incorporated................................... 82,275
15,000 EMC Corporation, CONV BOND 3.25%, 3/15/2002 ........... 95,081
200 Intel Corporation ..................................... 14,862
25,000 Intel Corporation, CONV BOND 4%, 9/1/2004 ............. 62,219
500 International Business Machines Corporation ........... 60,687
850 Pitney Bowes Inc. ..................................... 51,797
160,000 Solectron Corporation, CONV BOND 0%, 1/27/2019......... 98,400
1,000 Texas Instruments, Incorporated ....................... 82,250
------------
632,259
------------
Telecommunications: 5.52%
900 Motorola, Inc. ........................................ 79,200
1,500 Nextel STRYPES Trust, CONV PFD 7.25% .................. 86,063
------------
165,263
------------
Utility: 10.51%
900 Ameritech Corporation.................................. 60,469
1,900 BCE Inc. .............................................. 94,644
2,400 SkyTel Communications, Inc./MCI Worldcom
Incorporated, CONV PFD .............................. 92,100
1,800 The Williams Companies, Inc. .......................... 67,387
------------
314,600
------------
Total Common Stocks and Convertible
Securities (cost $2,812,135).......................... $ 3,045,672
------------
$7,513 Firstar Stellar Treasury Fund (cost $7,513)............ 7,513
------------
Total Investments in Securities
(cost $2,819,648+): 102.00%.......................... 3,053,185
Liabilities less other Assets (2.00%).................. (59,836)
------------
TOTAL NET ASSETS: 100% ................................ $ 2,993,349
============
+ At September 30, 1999, the cost of securities for Federal income tax
purposes is $2,828,715. Gross unrealized appreciation and depreciation of
securities on a tax basis were as follows:
Gross unrealized appreciation.......................... $ 354,285
Gross unrealized depreciation.......................... ($129,815)
------------
Net unrealized appreciation......................... $ 224,470
============
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES at September 30, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value
(identified cost $2,819,648) ............................. $3,053,185
Receivables:
Due from Advisor ......................................... 5,922
Dividends and interest ................................... 7,075
Prepaid expenses ............................................ 21,089
----------
Total assets .......................................... 3,087,271
LIABILITIES
Payables:
Due to administrator ..................................... 2,466
Fund shares repurchased .................................. 69,358
Accrued expenses ............................................ 22,098
----------
Total liabilities ..................................... 93,922
NET ASSETS ..................................................... $2,993,349
==========
Net asset value and redemption price per share
($2,993,349/255,375 shares outstanding; unlimited
number of shares (par value $0.01) authorized) .............. $ 11.72
==========
Offering price per share ($11.72/0.9425) ....................... $ 12.44
==========
COMPONENTS OF NET ASSETS
Paid-in capital ............................................. $2,691,191
Accumulated net realized gain on investments ................ 68,621
Net unrealized appreciation on investments .................. 233,537
----------
Net assets ............................................... $2,993,349
==========
<PAGE>
STATEMENT OF OPERATIONS - For the Year Ended September 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends .................................................. $ 72,257
---------
Expenses
Administration fees (Note 3) ............................... 29,999
Advisory fees (Note 3) ..................................... 23,276
Professional fees .......................................... 18,747
Fund accounting fee ........................................ 18,629
Transfer agent fees ........................................ 16,374
Registration fees .......................................... 10,398
Distribution expense (Note 4) .............................. 7,759
Custodian .................................................. 7,201
Reports to shareholders .................................... 4,255
Trustees' fees ............................................. 3,339
Other ...................................................... 2,762
---------
Total expenses .......................................... 142,739
Less: advisory fee waiver and absorption (Note 3) ....... (96,186)
---------
Net expenses ............................................ 46,553
Net investment income ................................ 25,704
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions .................. 188,976
Net change in unrealized appreciation on
investments ................................................ 342,499
---------
Net realized and unrealized gain on investments ............ 531,475
Net Increase in Net Assets Resulting
from Operations ................................... $ 557,179
=========
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Nov. 3, 1997*
Ended through
Sept. 30, 1999 Sept. 30, 1998
-------------- --------------
NET INCREASE IN ASSETS FROM OPERATIONS
Net investment income ................... $ 25,704 $ 22,715
Net realized gain (loss) from
security transactions ................ 188,976 (116,835)
Net change in unrealized appreciation
on investments ....................... 342,499 (108,962)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ........... 557,179 (203,082)
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................... (30,220) (21,719)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived
from net change in outstanding
shares (a) ........................... 475,083 2,216,108
----------- -----------
TOTAL INCREASE IN NET ASSETS ............ 1,002,042 1,991,307
NET ASSETS
Beginning of period ........................ 1,991,307 0
----------- -----------
END OF PERIOD .............................. $ 2,993,349 $ 1,991,307
=========== ===========
(a) A summary of capital share transactions is as follows:
Nov. 3, 1997*
Year Ended through
Sept. 30, 1999 Sept. 30, 1998
----------------------- ------------------------
Shares Paid in Capital Shares Paid In Capital
------ --------------- ------ ---------------
Shares sold ............. 90,975 $ 955,142 205,027 $ 2,215,772
Shares issued in
reinvestment of
distributions ........ 2,002 23,116 1,483 15,706
Shares redeemed ......... (42,733) (503,175) (1,379) (15,370)
------ --------- ------- -----------
Net increase ............ 50,244 $ 475,083 205,131 $ 2,216,108
====== ========= ======= ===========
*Commencement of operations.
<PAGE>
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
- --------------------------------------------------------------------------------
Year Nov. 3, 1997*
Ended through
Sept. 30, 1999 Sept. 30, 1998
-------------- --------------
Net asset value, beginning of period........ $ 9.71 $10.00
------ ------
Income from investment operations:
Net investment income.................... 0.09 0.14
Net realized and unrealized gain
(loss) on investments................. 2.03 (0.29)
------ ------
Total from investment operations............ 2.12 (0.15)
Less distributions:
From net investment income............... (0.11) (0.14)
------ ------
Net asset value, end of period.............. $11.72 $ 9.71
====== ======
Total return***............................. 21.88% (1.61)%+
Ratios/supplemental data:
Net assets, end of period (thousands)....... $2,993 $1,991
Ratio of expenses to average net assets:....
Before expense reimbursement............. 4.59% 8.51%**
After expense reimbursement.............. 1.50% 1.49%**
Ratio of net investment income to
average net assets
After expense reimbursement.............. 0.83% 1.82%**
Portfolio turnover rate..................... 113.36% 98.13%
* Commencement of operations.
** Annualized.
*** Does not reflect sales load.
+ Not Annualized.
See accompanying Notes to Financial Statements.
<PAGE>
SCHEDULE OF INVESTMENTS at September 30, 1999
- --------------------------------------------------------------------------------
Shares/
Principal COMMON STOCKS &
Amount CONVERTIBLE SECURITIES: 97.88% Market Value
- --------------------------------------------------------------------------------
Basic Materials: 6.45%
7,050 Monsanto Company, CONV PFD 6.5%........................ $ 253,800
6,100 Sealed Air Corporation, CONV PFD $2.00................. 309,575
------------
563,375
------------
Capital Goods/Diversified: 2.22%
7,400 Ingersoll-Rand Co., CONV PFD 6.75%..................... 194,250
------------
Consumer Cyclical: 10.08%
310,000 Costco Companies, Inc.,
CONV BOND 0% , 8/19/2017.............................. 268,150
2,275 Dollar General Corporation............................. 70,241
3,000 Dollar General Corporation,
STRYPES 8.50%......................................... 129,750
494,000 Four Seasons Hotel, Inc.,
CONV BOND 0%, 9/23/2029............................... 116,708
7,400 Tribune Company/Mattel Co.,
CONV PFD 6.25%........................................ 172,975
2,700 Union Pacific Corporation,
CONV PFD 6.25%........................................ 123,187
------------
881,011
------------
Energy: 6.22%
5,400 Apache Corporation, CONV PFD 6.5%...................... 216,000
2,000 Diamond Offshore Drilling, Inc......................... 66,750
80,000 Diamond Offshore Drilling, Inc., CONV BOND 3.75%,
2/15/2007............................................ 84,200
8,000 Enron Corp., CONV PFD 7% .............................. 176,500
------------
543,450
------------
Finance: 7.62%
1,650 Bankamerica/Jefferson-Pilot
Corporation, CONV PFD 7.25%........................... 150,975
3,650 Citigroup Inc.......................................... 160,600
5,700 CNB Capital Trust, CONV PFD 6%......................... 166,725
8,960 Lincoln National Corporation, CONV PFD 7.75%........... $ 187,600
------------
665,900
------------
Services: 15.48%
200,000 Clear Channel Communications, Inc.,
CONV BOND 2.625%, 4/1/2003............................ 281,000
2,500 Cox Communications, Inc.,
CONV PFD 7%........................................... 144,375
2,550 Houston Industries, Inc./Time Warner,
CONV PFD 7%........................................... 260,100
105,000 Omnicom Group Inc.,
CONV BOND 4.25%, 1/3/2007............................. 266,569
5,000 The Readers Digest Association, Inc.
TRACES, CONV PFD 8.25%................................ 141,250
2,900 The Seagram Company Ltd.,
CONV PFD ACES 7.5%.................................... 134,669
2,200 Wendy's International Inc.,
CONV PFD 5%........................................... 124,300
------------
1,352,263
------------
Staples: 10.04%
180,000 Athena Neurosciences, Inc./Elan,
CONV BOND 4.75%, 11/15/2004........................... 202,275
170,000 Centocor, Inc.
CONV BOND 4.75%, 2/21/2001............................ 224,613
100,000 Genzyme Corporation,
CONV BOND 5.25%, 6/1/2005 ............................ 134,875
200,000 Roche Holdings, Inc., CONV BOND 0%,
4/20/2010............................................. 120,125
2,500 The Estee Lauder Companies Inc.,
TRACES 6.25%.......................................... 195,000
------------
876,888
------------
Technology: 17.46%
11,200 Amdocs Limited, CONV PFD 6.75%......................... 242,200
Technology, continued
50,000 EMC Corporation, CONV BOND 3.25%,
3/15/2002 ............................................. $ 316,938
50,000 Exodus Communications, Inc.,
CONV BOND 5%, 3/15/2006............................... 160,375
550,000 Solectron Corporation,
CONV BOND 0%, 1/27/2019............................... 338,250
1,700 Tribune Company/America Online,
CONV SUB DEBS 2.00%................................... 203,362
250,000 VERITAS Software Corporation,
CONV BOND 1.86%, 8/13/2006............................ 264,375
------------
1,525,500
------------
Telecommunications: 18.63%
2,750 MediaOne Group, Inc./Vodafone,
CONV PFD 6.25%........................................ 288,578
500 Motorola, Inc.......................................... 44,000
220,000 Motorola, Inc., CONV BOND 0%,
9/27/2013............................................. 230,175
6,700 Nextel STRYPES Trust,
CONV PFD 7.25%........................................ 384,413
1,550 QUALCOMM Incorporated,
CONV PFD 5.75%........................................ 411,137
7,000 SkyTel Communications, Inc./MCI Worldcom, Incorporated,
CONV PFD 2.25%........................................ 268,625
------------
1,626,928
------------
Utility: 3.68%
8,600 The Williams Companies, Inc............................ 321,962
------------
Total Common Stocks and Convertible
Securities (cost $7,809,564)..................... 8,551,527
------------
<PAGE>
SCHEDULE OF INVESTMENTS at September 30, 1999, Continued
- --------------------------------------------------------------------------------
Principal
Amount Short-Term Investments: 0.99%
- --------------------------------------------------------------------------------
$86,718 Firstar Stellar Treasury Fund (cost $86,718)........... 86,718
------------
Total Investments in Securities
(cost $7,896,282+): 98.87%...................... 8,638,245
Other Assets less Liabilities: 1.13%................... 99,106
------------
TOTAL NET ASSETS: 100% ................................ $ 8,737,351
============
+ At September 30, 1999, the cost of securities for Federal income tax
purposes is $7,899,656. Gross unrealized appreciation and depreciation of
securities on a tax basis were as follows:
Gross unrealized appreciation.......................... $ 1,095,703
Gross unrealized depreciation.......................... ($357,114)
------------
Net unrealized appreciation................... $ 738,589
============
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES at September 30, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value
(identified cost $7,896,282) ............................ $8,638,245
Receivables:
Due From Advisor ........................................ 812
Dividends and interest .................................. 19,850
Fund shares sold ........................................ 77,116
Securities sold ......................................... 13,175
Prepaid expenses and other ................................. 19,508
----------
Total assets ......................................... 8,768,706
LIABILITIES
Payables:
Due to administrator .................................... 2,466
Dividends ............................................... 3,525
Securities purchased .................................... 4,000
Accrued expenses ........................................... 21,364
----------
Total liabilities .................................... 31,355
NET ASSETS .................................................... $8,737,351
==========
NETASSET VALUE AND REDEMPTION PRICE PER SHARE
($8,737,351/666,061 shares outstanding; unlimited
number of shares (par value $0.01) authorized) .............. $ 13.12
==========
OFFERING PRICE PER SHARE ($13.12/0.9425) ...................... $ 13.92
==========
COMPONENTS OF NET ASSETS
Paid-in capital ............................................ $7,760,581
Undistributed net realized gain on investments ............. 234,807
Net unrealized appreciation on investments ................. 741,963
----------
Net assets .............................................. $8,737,351
==========
<PAGE>
STATEMENT OF OPERATIONS - For the Year Ended September 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends ................................................ $ 155,008
Interest ................................................. 7,847
-----------
Total income ....................................... 162,855
Expenses
Administration fees (Note 3) ............................. 29,999
Advisory fees (Note 3) ................................... 40,522
Professional fees ........................................ 18,748
Fund accounting fee ...................................... 19,229
Transfer agent fees ...................................... 16,374
Registration fees ........................................ 10,294
Distribution expense (Note 4) ............................ 13,507
Custodian ................................................ 6,801
Reports to shareholders .................................. 4,255
Trustees' fees ........................................... 3,339
Other .................................................... 3,138
-----------
Total expenses ........................................ 166,206
Less: advisory fee waiver and absorption (Note 3) ..... (85,162)
-----------
Net expenses .......................................... 81,044
Net investment income .............................. 81,811
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions ................ 276,358
Net change in unrealized appreciation
on investments ........................................... 794,811
-----------
Net realized and unrealized gain on investments .......... 1,071,169
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 1,152,980
===========
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Nov. 3, 1997*
Ended through
Sept. 30, 1999 Sept. 30, 1998
-------------- --------------
NET INCREASE IN ASSETS FROM OPERATIONS
Net investment income ................... $ 81,811 $ 23,887
Net realized gain (loss) from
security transactions ................ 276,358 (38,109)
Net change in unrealized appreciation
(depreciation) on investments ........ 794,811 (52,848)
----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ........................ 1,152,980 (67,070)
----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS
Net investment income ................... (86,569) (22,571)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived
from net change in outstanding
shares (a) ........................... 5,992,141 1,768,440
----------- -----------
TOTAL INCREASE IN NET ASSETS ............ 7,058,552 1,678,799
NET ASSETS
Beginning of period ........................ 1,678,799 0
----------- -----------
END OF PERIOD .............................. $ 8,737,351 $ 1,678,799
=========== ===========
(a) A summary of capital share transactions is as follows:
Year Nov. 3, 1997*
Ended through
Sept. 30, 1999 Sept. 30, 1998
----------------------- ------------------------
Shares Paid In Capital Shares Paid in Capital
------ --------------- ------ ---------------
Shares sold.............. 520,970 $6,336,978 172,304 $1,777,767
Shares issued in
reinvestment of
distributions.......... 6,153 76,958 2,091 21,976
Shares redeemed.......... (32,319) (421,795) (3,138) (31,303)
------- ---------- ------- ----------
Net increase............. 494,804 $5,992,141 171,257 $1,768,440
======= ========== ======= ==========
* Commencement of operations.
See accompanying Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
- --------------------------------------------------------------------------------
Year Nov. 3, 1997*
Ended through
Sept. 30, 1999 Sept. 30, 1998
- --------------------------------------------------------------------------------
Net asset value, beginning of period........ $ 9.80 $10.00
------ ------
Income from investment operations:
Net investment income.................... 0.18 0.21
Net realized and unrealized gain
(loss) on investments................. 3.33 (0.21)
------ ------
Total from investment operations............ 3.51 0.00
Less distributions:
From net investment income............... (0.19) (0.20)
------ ------
Net asset value, end of period.............. $13.12 $ 9.80
====== ======
Total return***............................. 35.98% (0.10%)+
Ratios/supplemental data:
Net assets, end of period (thousands)....... $8,737 $1,679
Ratio of expenses to average net assets:
Before expense reimbursement............. 3.06% 11.28%**
After expense reimbursement.............. 1.50% 1.49%**
Ratio of net investment income to
average net assets
After expense reimbursement.............. 1.51% 2.62%**
Portfolio turnover rate..................... 120.16% 147.56%
* Commencement of operations.
** Annualized.
*** Does not reflect sales load.
+ Not Annualized.
See accompanying Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS at September 30, 1999
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Rockhaven Fund and Rockhaven Premier Dividend Fund (the "Funds") are
each 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 Rockhaven Fund's
primary investment objective is obtaining above average current income together
with capital appreciation. The Rockhaven Premier Dividend Fund's primary
investment objective is obtaining high current income and its secondary
objective is seeking capital appreciation. The Funds attempt to achieve their
objectives by investing in a diversified portfolio of equity securities. The
Funds began operations on November 3, 1997.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. These policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION: The Funds' investments are carried at fair 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 value 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 Funds' 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. 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.
<PAGE>
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the year ended September 30, 1999, Rockhaven Asset Management, LLC (the
"Advisor") provided the Funds 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 each
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 each
Fund. For the year ended September 30, 1999, the Rockhaven Fund and The
Rockhaven Premier Dividend Fund incurred $23,276 and $40,522, respectively, in
Advisory Fees.
The Funds are responsible for their own operating expenses. The Advisor has
agreed to reduce fees payable to it by each Fund and to pay each Fund's
operating expenses to the extent necessary to limit each 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 a
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 the Fund's expenses. The Advisor is permitted to be reimbursed
only for fee reductions and expense payments made in the previous three fiscal
years, but is permitted to look back five years and four years, respectively,
during the initial six years and seventh year of the Fund's operations. Any such
reimbursement is also contingent upon Board of Trustees' subsequent review and
ratification of the reimbursed amounts. Such reimbursement may not be paid prior
to a Fund's payment of current ordinary operating expenses. For the year ended
September 30, 1999, the Advisor reduced its fees and absorbed Fund expenses in
the amount of $96,186 for The Rockhaven Fund and $85,162 for The Rockhaven
Premier Dividend Fund; no amounts were reimbursed to the Advisor. Cumulative
expenses subject to recapture pursuant to the aforementioned conditions amounted
to $183,829 for The Rockhaven Fund and $174,525 for The Rockhaven Premier
Dividend Fund at September 30, 1999.
Investment Company Administration, L.L.C. (the "Administrator") acts as the
Funds' Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Funds; 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 Fund expenses and reviews each 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 Funds'
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.
<PAGE>
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 Funds 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 each 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 ending September 30,
1999, the Funds paid the Distribution Coordinator in the amount of $7,759 for
The Rockhaven Fund and $13,507 for The Rockhaven Premier Dividend Fund.
NOTE 5 - SECURITIES TRANSACTIONS
For the year ended September 30, 1999, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, for The
Rockhaven Fund, were $3,901,698 and $3,397,456, respectively.
For the year ended September 30, 1999, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, for The
Rockhaven Premier Dividend Fund, were $12,190,124 and $6,319,160, respectively.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Rockhaven Fund and The
Rockhaven Premier Dividend Fund, series of Advisors Series Trust (the "Funds")
at September 30, 1999, and the results of their operations, the changes in their
net assets and their financial highlights for the year then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at September 30, 1999 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above. The financial statements for the period from November 3, 1997
(commencement of operations) to September 30, 1998, including financial
highlights for the period then ended, were audited by other independent
accountants whose report dated October 23, 1998 expressed an unqualified opinion
on those financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
November 5, 1999
<PAGE>
CHANGE IN INDEPENDENT ACCOUNTANT
On August 27, 1999, McGladrey & Pullen, LLP ("McGladrey") resigned as
independent auditors of the Funds pursuant to an agreement by
PricewaterhouseCoopers LLP ("PwC") to acquire McGladrey's investment company
practice. The McGladrey partners and professionals serving the Funds at the time
of the acquisition joined PwC.
The reports of McGladrey on the financial statements of the Funds during the
prior fiscal year contained no adverse opinion or disclaimer of opinion, and
were not qualified or modified as to uncertainty, audit scope or accounting
principles.
In connection with its audit for the period from November 3, 1997 (commencement
of operations) through September 30, 1998, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.
On September 10, 1999, the Funds, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.
<PAGE>
ADVISOR
Rockhaven Asset Management, LLC
100 First Avenue, Suite 850
Pittsburgh, PA 15222
www.rockhaven.com
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
CUSTODIAN
Firstar Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT
American Data Services, Inc.
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
888-263-6452
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
AUDITORS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
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.
