THE AVATAR
ADVANTAGE EQUITY
ALLOCATION FUND
Semi-Annual Report
June 30, 1999
<PAGE>
August 1999
Dear Shareholder,
We are pleased to report on the progress of The Avatar Advantage Equity
Allocation Fund for the six months ended June 30, 1999. For the period, Avatar's
asset allocation philosophy- participating in market gains during market
upswings while protecting those gains against loss during market downturns-
helped the Fund realize a total return of 6.33% (not including the sales
charge). Other market indices for the same period were as follows:
S&P 500 Index 12.40%
Dow Jones Industrials 20.50%
NASDAQ Composite 22.90%
Russell 2000 Index 9.30%
For the first half of the year, Avatar maintained a significant equity position.
Our exposure ranged between 80% and 90% invested in equities and the remainder
in cash.
1999 -- THE FIRST SIX MONTHS IN REVIEW
The year began with all eyes on the Dow 10,000, a mark not reached until April 4
of this year. Four weeks later, the Dow hit 11,000. The road to these record
heights was not a smooth, straightforward trajectory; it was characterized by
fits and starts that never seemed to mesh, particularly during the first
quarter. During the journey, market leadership shifted from the technology
sector to the old standby, cyclical stocks on the domestic front. This period
saw the second impeachment trial of a sitting President-which ended with a
wimper. Internationally, the war in Kosovo began and concluded successfully for
the U.S. and its allies. The U. S. economy continued to churn along with low
inflation, high productivity, rising wages and low unemployment. GDP came in at
4.2%, exceeding expectations for the first quarter. The Asian markets appeared
to be coming out of their collective stupor, led by Japan's moderate recovery,
easing a concern we expressed in our last report. Europe, however, remained on
the sidelines. Our portfolio, heavily invested in cyclical, technology, energy
and financial issues benefited from the change in market leadership. However,
the market's 1 step forward, 2 steps backward performance made it hard to
correctly predict short term trends or sector leaders, making this a roller
coaster market for the faint-hearted.
MARKET OUTLOOK
Corporate earnings currently appear to be poised to surpass analysts'
expectations and will come in at the low double digit range (up from the single
digit predictions of last year). Corporations' ability to sustain their profits
is pushing the markets upward. Defense firms will be the recipients of federal
largess to replenish supplies depleted during the Kosovo action. Possible tax
cuts, if passed by Congress, will
<PAGE>
fuel continued spending by the consumer and may carry the economy into the next
millenium on a surging note. After some uncharacteristically scary economic
reports in May, the June reports were more in line with how most analysts see
the economy--moderate to strong growth with low to non-existent inflationary
pressures. The Federal Reserve's latest move to raise interest rates in late
June will remind markets that it is keeping a steady and cautious hand on the
economy's throttle--poised to act if and when needed. Expectations for growth
for the remainder of the year have been revised upward. Foreign currencies
continue to fall against the dollar, translating into falling prices for U.S.
companies as they compete with cheaper imports. Hopefully, foreign markets that
evaporated for U.S. companies during the Asian crisis will again welcome these
companies. World markets are following the U.S. business model of consolidation
and cost cutting, which may spur stock performance worldwide.
Our models show that the U.S. economy should continue to percolate at a good,
sustainable level that will not set off inflationary or recessionary fears.
While no clear sector leadership has emerged, we hope the trendless phase has
passed, replaced by a broadening of the markets. We still believe that hidden
surprises, most notably Y2K problems, can unduly affect the economy. For that
reason, we remain optimistically cautious.
Sincerely,
/s/ Charles M. White
Charles M. White
Portfolio Manager
President - Avatar Investors Associates Corp
Past performance is not predictive of future performance.
The Fund's average annual total return for the period from inception on December
3, 1997 through June 30, 1999 was 20.50%. The Fund's total return for the
one-year ended June 30, 1999 was 16.87%. If the maximum sales charge was
reflected, the Fund's returns for the same periods would have been 17.02% and
11.61%, respectively.
The S&P 500 Stock Index is a broad market capitalization-weighted index of 500
stocks designed to represent the broad domestic economy.
The Russell 2000 Index is a widely regarded small cap index of the 2,000
smallest securities of the Russell 3000 Index which is comprised of the 3,000
largest U.S. securities as determined by total market capitalization.
Indexes do not incur expenses and are not available for direct investment.
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 85.18% Market Value
- --------------------------------------------------------------------------------
AEROSPACE/DEFENSE EQUIPMENT: 2.16%
4,200 United Technologies Corporation............... $ 301,088
-----------
AUTOMOBILES: 0.81%
2,000 Ford Motor Company............................ 112,875
-----------
BANKS: 7.56%
7,800 Citigroup Inc................................. 370,500
4,700 Firstar Corporation........................... 131,600
3,400 SouthTrust Corporation........................ 130,475
5,800 The Bank of New York Company, Inc............. 212,788
2,400 The Chase Manhattan Corporation............... 207,900
-----------
1,053,263
-----------
BEVERAGES - NON-ALCOHOLIC: 1.94%
7,000 PepsiCo, Inc................................. 270,813
-----------
BUILDING MATERIALS CHAINS: 1.06%
2,300 The Home Depot, Inc........................... 148,206
-----------
CHEMICALS: 1.18%
2,400 E. I. du Pont de Nemours and Company.......... 163,950
-----------
COMPUTER - SOFTWARE: 5.00%
1,700 BMC Software, Inc............................. 91,800
4,800 Microsoft Corporation*........................ 432,900
3,000 Xilinx, Inc.*................................ 171,750
-----------
696,450
-----------
COMPUTER SERVICES: 1.90%
1,100 America Online, Inc........................... 121,550
2,600 EMC Corporation*.............................. 143,000
-----------
264,550
-----------
COSMETICS AND TOILETRIES: 1.70%
2,400 Colgate-Palmolive Company..................... 237,000
-----------
See Notes to Financial Statements.
4
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING: 4.29%
3,600 General Electric Company...................... $ 406,800
6,600 Masco Corporation............................. 190,575
-----------
597,375
-----------
ELECTRONIC COMPONENTS - SEMICONDUCTORS: 2.48%
1,700 Applied Materials, Inc.*...................... 125,588
3,700 Intel Corporation............................. 220,150
-----------
345,738
-----------
ENTERTAINMENT: 1.08%
-----------
4,900 The Walt Disney Company....................... 150,981
-----------
FINANCE COMPANIES: 2.34%
3,000 Federal National Mortgage Association......... 205,125
1,100 The Charles Schwab Corporation................ 120,863
-----------
325,988
-----------
FOOD - MISCELLANEOUS: 1.37%
3,800 H. J. Heinz Company........................... 190,475
-----------
FOOD - RETAIL: 1.95%
5,500 Safeway Inc.*................................. 272,250
-----------
FORESTRY: 0.94%
1,900 Weyerhaeuser Company.......................... 130,625
-----------
INSURANCE: 3.18%
2,752 American International Group, Inc............. 322,156
1,800 The Equitable Companies Incorporated.......... 120,600
-----------
442,756
-----------
LASER SYSTEMS/COMPONENTS: 0.95%
800 Uniphase Corporation*......................... 132,800
-----------
MANUFACTURING: 1.00%
1,700 Illinois Tool Works Inc....................... 139,400
-----------
See Notes to Financial Statements.
5
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
MANUFACTURING - MISCELLANEOUS: 5.35%
1,700 Danaher Corporation........................... $ 98,813
3,700 Maytag Corporation............................ 257,844
4,100 Tyco International Ltd........................ 388,475
-----------
745,131
-----------
MEDICAL - DRUGS: 5.71%
4,200 Bristol-Myers Squibb Company.................. 295,838
1,300 Pfizer, Inc................................... 142,675
3,600 Pharmacia & Upjohn, Inc....................... 204,525
2,200 Warner-Lambert Company........................ 152,625
-----------
795,663
-----------
METAL - ALUMINUM: 1.07%
2,400 Alcoa Inc..................................... 148,500
-----------
NATURAL GAS: 1.07%
3,500 The Williams Companies, Inc................... 148,969
-----------
NETWORKING PRODUCTS: 2.06%
4,450 Cisco Systems, Inc............................ 287,025
-----------
OIL - INTEGRATED: 1.37%
3,000 Schlumberger Limited.......................... 191,063
-----------
PETROLEUM PRODUCTS: 5.23%
2,300 Burlington Resources Inc...................... 99,475
2,000 Enron Corp.................................... 163,500
2,800 Exxon Corporation............................. 215,950
4,000 Texaco Inc.................................... 250,000
-----------
728,925
-----------
POLLUTION CONTROL: 1.47%
3,800 Waste Management, Inc.*....................... 204,250
-----------
RETAIL - DEPARTMENT STORES: 3.40%
1,700 Dayton Hudson Corporation..................... 110,500
2,800 Federated Department Stores, Inc.*............ 148,225
4,275 The Gap, Inc.................................. 215,353
-----------
474,078
-----------
See Notes to Financial Statements.
6
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
RETAIL - RESTAURANTS: 1.16%
5,700 Wendy's International, Inc.................... $ 161,381
-----------
RETAIL - SPECIALTY: 0.61%
1,900 AnnTaylor, Inc.*.............................. 85,500
-----------
STEEL PRODUCERS: 0.79%
4,100 USX Corporation............................... 110,700
-----------
TELECOMMUNICATION SERVICES: 1.47%
2,700 GTE Corporation............................... 204,525
-----------
TELECOMMUNICATIONS EQUIPMENT: 2.67%
5,510 Lucent Technologies Inc....................... 371,581
-----------
TELEPHONE - LONG DISTANCE: 0.52%
2,000 Scientific-Atlanta, Inc....................... 72,000
-----------
TELEPHONE SERVICES: 5.74%
2,150 AT&T Corp..................................... 119,997
6,400 BellSouth Corporation......................... 300,000
4,400 MCI WorldCom Incorporated*.................... 379,500
-----------
799,497
-----------
TRANSPORTATION - RAIL: 1.42%
3,400 Union Pacific Corporation..................... 198,263
-----------
UTILITIES: 1.21%
2,900 The AES Corporation........................... 168,563
-----------
TOTAL COMMON STOCKS (COST $9,263,838) ........ 11,872,193
-----------
Principal Amount U.S. GOVERNMENT OBLIGATIONS: 12.90%
- --------------------------------------------------------------------------------
1,800,000 U.S. Treasury Bill, due 7/15/99............... 1,797,431
-----------
See Notes to Financial Statements.
7
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
Shares SHORT-TERM INVESTMENTS: 1.52% Market Value
- --------------------------------------------------------------------------------
212,479 Firstar Stellar Treasury Fund................. 212,479
------------
TOTAL INVESTMENTS IN SECURITIES
(COST $11,273,748+): 99.60% ............... $ 13,882,103
OTHER ASSETS LESS LIABILITIES: 0.40%.......... 55,724
------------
TOTAL NET ASSETS: 100.00% .................... $ 13,937,827
============
*Non-income producing security.
+Gross unrealized appreciation and depreciation of securities is as follows:
Gross unrealized appreciation................. $ 2,707,909
Gross unrealized depreciation................. (99,554)
------------
Net unrealized appreciation............... $ 2,608,355
============
8
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $11,273,748) ..... $ 13,882,103
Receivables:
Dividends and interest .................................. 8,568
Fund shares sold ........................................ 1,000
Securities sold ......................................... 63,618
Deferred organization costs ................................ 23,991
Prepaid expenses ........................................... 2,948
------------
Total assets ......................................... 13,982,228
------------
LIABILITIES
Payables:
Due to Advisor .......................................... 4,237
Administration fee ...................................... 2,466
Distribution fees ....................................... 3,071
Fund shares repurchased ................................. 23,843
Accrued expenses ........................................... 10,784
------------
Total liabilities .................................... 44,401
------------
NET ASSETS .................................................... $ 13,937,827
============
Net asset value and redemption price per share
($13,937,827 / 1,106,944 shares outstanding; unlimited
number of shares authorized without par value) ............. $ 12.59
============
Offering Price per Share ($12.59 / 0.955) ..................... $ 13.18
============
COMPONENTS OF NET ASSETS
Paid-in capital ............................................ $ 10,226,939
Accumulated net investment loss ............................ (7,015)
Undistributed net realized gain on investments ............. 1,109,548
Net unrealized appreciation on investments ................. 2,608,355
------------
Net assets .............................................. $ 13,937,827
============
See Notes to Financial Statements.
9
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends .............................................. $ 62,434
Interest ............................................... 38,455
-----------
Total income ..................................... 100,889
Expenses
Advisory fees (Note 3) ................................. 61,146
Distribution fees (Note 4) ............................. 17,984
Administration fees (Note 3) ........................... 14,900
Fund Accounting fees ................................... 10,413
Audit fees ............................................. 7,058
Transfer agent fees .................................... 6,447
Custody fees ........................................... 3,781
Legal fees ............................................. 3,502
Amortization of deferred organization costs ............ 3,472
Reports to shareholders ................................ 3,472
Miscellaneous .......................................... 2,976
Insurance .............................................. 2,516
Registration fees ...................................... 2,488
Trustees' fees ......................................... 1,574
-----------
Total expenses ...................................... 141,729
Less: Advisory fee waiver and
absorption (Note 3) .............................. (33,825)
-----------
Net expenses ........................................ 107,904
-----------
Net investment loss .............................. (7,015)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from security transactions .............. 1,146,894
Net change in unrealized appreciation on
investments ............................................ (221,460)
-----------
Net realized and unrealized gain on investments ........ 925,434
-----------
Net Increase in Net Assets Resulting
from Operations ............................... $ 918,419
===========
See Notes to Financial Statements.
10
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1999# December 31, 1998
-------------- -----------------
NET INCREASE IN ASSETS FROM
OPERATIONS
Net investment (loss) income ........... $ (7,015) $ 53,644
Net realized gain from security
transactions .......................... 1,146,894 830,832
Net realized loss from futures
transactions .......................... -- (60,910)
Net change in unrealized appreciation
on investments ........................ (221,460) 2,757,250
----------- -----------
Net increase in net assets resulting
from operations ..................... 918,419 3,580,816
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............. -- (59,113)
From capital gains ..................... -- (740,543)
Tax Return of Capital .................. -- (28,412)
----------- -----------
Total dividends and distributions
to shareholders .................... -- (828,068)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets derived from
net change in outstanding shares (a) .. (1,670,403) (8,308,922)
----------- -----------
Total decrease in net assets ........ (751,984) (5,556,174)
NET ASSETS
Beginning of period ....................... 14,689,811 20,245,985
----------- -----------
End of period (including accumulated
net investment loss of ($7,015) and
($0), respectively) ...................... $13,937,827 $14,689,811
=========== ===========
(a) A summary of capital shares transactions is as follows:
Six Months Ended Year Ended
June 30, 1999# Dec. 31, 1998
---------------------- ---------------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold ........... 58,847 $ 698,476 194,971 $ 2,180,409
Shares issued in
reinvestment of
distributions ........ -- -- 74,946 828,068
Shares redeemed ....... (192,704) (2,368,879) (1,050,075) (11,317,399)
-------- ----------- ---------- ------------
Net decrease .......... (133,857) $(1,670,403) (780,158) $ (8,308,922)
======== =========== ========== ============
# Unaudited
See Notes to Financial Statements.
11
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------
Six Months Year December 3, 1997*
Ended Ended through
June 30, 1999# December 31, 1998 December 31, 1997
-------------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value,
beginning of period ........... $11.84 $10.02 $10.00
------ ------ ------
Income from investment operations:
Net investment (loss)
income ..................... (0.01) 0.05 0.01
Net realized and unrealized
gain on investments ........ 0.76 2.48 0.02
------ ------ ------
Total from investment
operations .................... 0.75 2.53 0.03
------ ------ ------
Less distributions:
From net investment
income ..................... -- (0.05) (0.01)
From net capital gains ........ -- (0.64) --
Tax return of capital ......... -- (0.02) --
------ ------ ------
Total distributions .............. -- (0.71) (0.01)
------ ------ ------
Net asset value, end of period ... $12.59 $11.84 $10.02
====== ====== ======
Total return...................... 6.33%** 25.81% 0.22%**
Ratios/supplemental data:
Net assets, end of
period (millions).............. $ 13.9 $ 14.7 $ 20.2
Ratio of expenses to average net assets:
Before expense reimbursement .. 1.97%+ 2.03% 1.52%+
After expense reimbursement ... 1.50%+ 1.50% 1.39%+
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement .. (0.57%)+ (0.17%) 0.33%+
After expense reimbursement ... (0.10%)+ 0.36% 0.47%+
Portfolio turnover rate........... 54.22% 79.95% 2.48%
</TABLE>
# Unaudited.
* Commencement of operations.
** Does not include sales load and is not annualized.
+Annualized.
See Notes to Financial Statements.
12
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
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 market
value. Securities that are primarily traded on a national securities
exchange shall be valued at the last sale price on the exchange on
which they are primarily traded on the day of valuation or, if there
has been no sale on such day, at the mean between the bid and asked
prices. Securities primarily traded in the NASDAQ National Market
System for which market quotations are readily available shall be
valued at the last sale price on the day of valuation, or if there has
been no sale on such day, at the mean between the bid and asked
prices. Over-the-counter ("OTC") securities which are not traded in
the NASDAQ National Market System shall be valued at the most recent
trade price. Securities for which market quotations are not readily
available, if any, are valued following procedures approved by the
Board of Trustees. Short-term investments are valued at amortized
cost, which approximates market value.
B. Federal Income Taxes: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no federal income tax
provision is required.
C. Security Transactions, Dividends and Distributions: Security
transactions are accounted for on the trade date. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Realized gains and losses on securities sold are determined on the
basis of identified cost.
13
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
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. 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.
F. 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
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 Company 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.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the six months ended June 30, 1999, Avatar Investors Associates Corp
(the "Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnished all investment advice,
office space, facilities, and provides most of the personnel needed by the Fund.
As compensation for its services, the Advisor is entitled to a monthly fee at
the annual rate of 0.85% based upon the average daily net assets of the Fund.
14
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
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 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 six months ended June 30,1999, the Advisor reduced its fees and absorbed
Fund expenses in the amount of $33,825; no amounts were reimbursed.
Investment Company Administration, L.L.C. (the "Administrator") acts as the
Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of the Fund's expenses and reviews the
Fund's expense accruals. For its services, the Administrator receives a monthly
fee at the 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.
15
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS AT JUNE 30, 1999 (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------
NOTE 4 - DISTRIBUTION COSTS
The Fund has adopted a Distribution Plan (the "Plan") in accordance with
Rule 12b-1 under the 1940 Act. The Plan provides that the Fund may pay a fee to
the Advisor, as Distribution Coordinator, at an annual rate of up to 0.25% of
the average daily net assets of the Fund. The fee is paid to the Advisor as
reimbursement for, or in anticipation of, expenses incurred for
distribution-related activity. During the six months ended June 30, 1999, the
Fund paid the Advisor in the amount of $17,984.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 1999, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$6,678,989 and $7,490,969, respectively.
16
<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
Firstar Institutional Custody Services
425 Walnut Street M/L 6118
Cincinnati, Ohio 45202
TRANSFER AGENT
American Data Services, Inc.
150 Motor Parkway, Suite 109
Hauppauge, New York 11788
888-263-6452
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.
