The Heritage West
Dividend Capture Income Fund
Semi-Annual Report
November 30, 1998
Dear Shareholders:
As you are aware, the investment objective of The Heritage West
Dividend Capture Income Fund is to achieve a high level of current income -
primarily by buying and selling preferred stocks. Although somewhat insulated
from declines in common stock values, preferred stock prices do experience short
term pricing pressures. This is usually a result of perceived changes in the
fundamentals of a given preferred security's underlying common stock, the
effects of a flight to quality from lower rated issues, mutual fund managers
needing to meet redemptions, or investors' need for liquidity in their
portfolios due to margin calls. The primary factors that affect preferred stock
prices over a longer term are competition for capital from changes in long term
interest rates and, in the case of lower rated preferred securities, the
increased default risk from an economic downturn. Some of these short term and
long term factors had an influence on the Fund's performance in its first two
quarters.
Two weeks after the Fund began operations, the market for common stocks
took a swan dive of over twenty percent in less than three months. Because the
market's correction was so abrupt, a flight to quality ensued which drew capital
out of the stock market and into long term treasury securities and other high
quality income oriented securities. In early July of 1998, the yield on the 30
year Treasury Bond stood at approximately 5.80%. By early October, the yield had
declined to 4.70%. This unusual volatility led the Fund's advisor to shift its
emphasis to investment grade preferred issues - with a move away from higher
yielding lower rated issues such as most REIT preferreds. Although this action
led to lower actual dividend income for the Fund, the dividend capture times
were shortened to the point that annualized dividend income rose.
To take advantage of the common stock market's correction, the Fund's
advisor added several convertible preferred issues to the portfolio.
Representing only a few percent of the Fund's assets, these issues have had a
positive effect on the Fund's Net Asset Value.
Thank you for your continued support of the Fund.
Sincerely,
/s/ Craig O. Jolly
Craig O. Jolly
Portfolio Manager
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO at November 30, 1998 (Unaudited)
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Shares PREFERRED STOCKS: 74.33% Market Value
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<S> <C> <C>
Automotive - Diversified: 2.71%
4,500 General Motors Corporation, Series B 9-1/8% Depositary Shares........... $ 114,750
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Airline: 1.57%
2,000 UAL Corporation Capital Trust I, 13 1/4% Trust Originated
Preferred Securities................................................. 66,500
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Banking - International Financial Services: 6.58%
10,000 Barclays Bank PLC, American Depositary Receipt, Series D................ 278,750
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Computer Equipment: 0.06%
100 Digital Equipment Corporation, Depositary Shares each
representing one-fourth of a share of 8-7/8% Series A
Cumulative Preferred Stock........................................... 2,569
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Distribution - Specialty - Electronic Components: 0.86%
2,000 Premier Farnell plc, American Depositary Receipt........................ 36,500
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Entertainment - Specialty - TV & Radio Programming: 2.65%
3,000 Sinclair Broadcast Group, Inc........................................... 112,125
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Financial Services - Diversified: 3.10%
5,000 Citigroup Inc., 8 1/2% Noncumulative Preferred Stock, Series T.......... 131,250
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Financial Services - Insurance: 1.75%
2,900 Conseco, Inc., 9.16% Trust Originated Preferred Securities.............. 74,312
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Financial Services - Lending - Brokerage: 1.27%
2,000 Fleet Financial Group, Inc., Depositary Shares each
representing a one-tenth interest in a share of 9.35%
Cumulative Preferred
Stock................................................................ 53,750
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</TABLE>
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<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO at November 30, 1998 (Unaudited), continued
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Shares Market Value
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<S> <C> <C>
Financial Services - Securities Brokerage: 4.76%
5,000 DLJ Capital Trust I, 8.42% Preferred Trust Securities................... $ 130,000
2,000 Bear Stearns Finance LLC, 8% Exchangeable Preferred Income
Cumulative Shares ("EPICS"), Series A................................ 50,000
400 Morgan Stanley Group Inc., Depositary Shares each representing
1/4 of a share of 7 3/4% Cumulative Preferred Stock.................. 21,800
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201,800
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Insurance - Specialty - Life: 2.99%
5,000 Commonwealth General LLC, 8 7/8% Cumulative Monthly Income
Preferred Securities ("MIPS")........................................ 126,562
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Medical Clinical Lab Services: 1.04%
1,000 Laboratory Corporation of America Holdings, 8 1/2% Series A
Convertible Exchangeable Preferred Stock............................. 44,000
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Packaging - Specialty - Materials: 3.34%
3,000 Sealed Air Corporation, Series A Convertible Preferred Stock............ 141,375
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Real Estate - General: 3.86%
7,100 Associated Estates Realty Corporation, Depositary
Shares, each representing 1/10 of a share of 9-3/4%
Class A
Cumulative Redeemable Preferred Shares............................... 163,300
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Real Estate - Specialty - Apartments: 7.72%
10,000 Apartment Investment and Management Company, 9 1/2% Class H
Cumulative Preferred Stock........................................... 226,250
4,000 United Dominion Realty Trust, Inc., 8.60% Series B Cumulative
Redeemable Preferred Stock........................................... 100,750
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327,000
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Real Estate - Specialty - Health Care: 2.62%
5,000 G&L Realty Corp., Series A Preferred Stock.............................. 106,250
200 Omega Healthcare Investors, Inc., 9.25% Series A Preferred Stock........ 4,775
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111,025
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</TABLE>
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<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO at November 30, 1998 (Unaudited), continued
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Shares Market Value
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<S> <C> <C>
Real Estate - Specialty - Motel: 11.13%
7,000 Cendant Corporation, Income PRIDES...................................... $ 235,375
10,000 Equity Inns, Inc., 9 1/2% Series A Cumulative Preferred Stock........... 236,250
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471,625
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Telecommunications - Diversified: 3.03%
5,000 GTE Delaware L.P., 9.25% Cumulative Monthly Income Preferred
Securities, Series A ("MIPS")........................................ 128,438
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Telecommunications - Specialty - Cellular: 4.85%
2,500 AirTouch Communications, Inc., 4.25% Class C Convertible
Preferred Stock, Series 1996......................................... 205,312
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Utility - Diversified: 3.06%
5,000 Southwestern Public Service Company, 7.85% Trust Preferred
Securities, Series A................................................. 129,688
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Utility - Electric: 5.39%
3,800 Jersey Central Power & Light Company, Monthly Income Preferred
Securities, 8.56%, Series A.......................................... 97,375
5,000 Potomac Electric Power Company Trust I, 7 3/8% Trust Originated
Preferred Securities................................................. 128,750
100 Southern California Edison Company, Cumulative Preferred,
4.78% Series......................................................... 2,075
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228,200
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Total Preferred Stocks (cost $3,164,582)................................ 3,148,831
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Principal Amount DEBT INSTRUMENTS: 6.70%
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Insurance - Diversified: 0.30%
$ 500 The Allstate Corporation, 7.125% Senior Quarterly Interest Bonds........ 12,750
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Insurance - Municipal Bond: 0.30%
500 Ambac Financial Group, Inc., 7.08% Debentures........................... 12,750
</TABLE>
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<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO at November 30, 1998 (Unaudited), continued
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Amount Market Value
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<S> <C> <C>
Insurance - Specialty - Long Term Disability: 3.05%
$ 5,000 UNUM Corporation, 8.8% Monthly Income Debt
Securities ("MIDS").................................................. $ 129,063
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Utility - Electric: 3.05%
5,000 Consolidated Edison Company of New York, Inc., 7-3/4% Quarterly
Income Capital Securities (Series A Subordinated Deferrable
Interest Debentures)................................................. 129,063
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Total Debt Instruments (cost $283,563).................................. 283,626
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SHORT-TERM INVESTMENTS: 9.34%
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400,000 U.S. Treasury Bills, 2/25/2099 (cost $395,512).......................... 395,580
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Total Investments in Securities (cost $3,843,657+): 90.37%.............. 3,828,036
Other Assets less Liabilities: 9.63%.................................... 407,972
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Total net assets: 100.00% .............................................. $ 4,236,008
====================================================================================================================================
+At November 30, 1998, the cost of securities for Federal tax purposes was the
same as the basis for financial reporting. Unrealized appreciation and
depreciation of securities were as follows:
Gross unrealized appreciation........................................... $ 72,901
Gross unrealized depreciation........................................... (88,522)
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Net unrealized depreciation $ (15,621)
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES at November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
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<S> <C>
ASSETS:
Investments in securities, at value (identified cost $3,843,657)....................... $ 3,828,036
Cash................................................................................... 279,570
Receivables
Due from Advisor................................................................. 28,771
Securities sold.................................................................. 224,393
Fund shares sold................................................................. 29,394
Dividends and interest........................................................... 17,633
Deferred organization costs............................................................ 31,931
Other assets........................................................................... 14,754
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Total assets............................................................... 4,454,482
LIABILITIES:
Payables
Administration fee............................................................... 2,466
Secutities purchased............................................................. 141,175
Deferred organization costs...................................................... 35,000
Accrued expenses....................................................................... 39,833
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Total liabilities.......................................................... 218,474
NET ASSETS .................................................................................. $ 4,236,008
====================================================================================================================================
Net asset value, offering and redemption price per share
($4,236,008/349,315 shares outstanding;
unlimited number of shares (par value $0.01) authorized)............................... $12.13
====================================================================================================================================
COMPONENTS OF NET ASSETS
Paid-in capital........................................................................ $ 4,239,120
Undistributed net investment income.................................................... 21,661
Accumulated net realized loss on investments........................................... (9,152)
Net unrealized depreciation on investments............................................. (15,621)
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Net assets........ $ 4,236,008
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
For the Period from June 24, 1998* through November 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
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<S> <C>
INVESTMENT INCOME
Income
Dividends........................................................................ $ 133,639
Interest......................................................................... 2,291
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Total income............................................................... 135,930
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Expenses
Administration fees (Note 3)..................................................... 13,150
Advisory fees (Note 3)........................................................... 13,342
Amortization of deferred organization costs...................................... 3,069
Custodian and accounting fees.................................................... 11,426
Other............................................................................ 2,689
Professional fees................................................................ 9,206
Registration fees................................................................ 3,421
Reports to shareholders.......................................................... 3,069
Transfer agent fees.............................................................. 7,453
Trustees' fees................................................................... 2,129
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Total expenses............................................................. 68,954
Less: advisory fee waiver and absorption (Note 3).......................... (42,114)
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Net expenses............................................................... 26,840
Net investment income ............................................... 109,090
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions........................................... (9,152)
Net change in unrealized depreciation on investments................................... (15,621)
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Net realized and unrealized loss on investments.................................. (24,773)
Net Increase in Net Assets Resulting from Operations ..................... $ 84,317
====================================================================================================================================
* Commencement of operations.
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
<CAPTION>
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June 24, 1998*
through
November 30, 1998
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<S> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income........................................................................ $ 109,090
Net realized loss from security transactions................................................. (9,152)
Net change in unrealized depreciation on investments......................................... (15,621)
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Net increase in net assets resulting from operations .................................. 84,317
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DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................................................................ (87,429)
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CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change in outstanding shares (a)................. 4,239,120
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Total increase in net assets ............................................................. 4,236,008
NET ASSETS
Beginning of period............................................................................. --
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End of period .................................................................................. $4,236,008
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(a) A summary of capital shares transactions is as follows:
June 24, 1998*
through
November 30, 1998
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Shares Value
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Shares sold ........................................................... 345,882 $4,198,285
Shares issued in reinvestment of distributions......................... 3,859 45,859
Shares redeemed........................................................ (426) (5,024)
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Net increase........................................................... 349,315 $4,239,120
====================================================================================================================================
*Commencement of operations.
</TABLE>
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<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a capital share outstanding throughout the period (Unaudited)
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June 24, 1998*
through
November 30, 1998
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<S> <C>
Net asset value, beginning of period................................................. $12.25
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Income from investment operations:
Net investment income.......................................................... 0.27
Net realized and unrealized loss on investments................................ (0.18)
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Total from investment operations..................................................... 0.09
Less distributions:
From net investment income..................................................... (0.21)
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Net asset value, end of period....................................................... $12.13
====================================================================================================================================
Total return (sales load not included)............................................... 3.23%+
Ratios/supplemental data:
Net assets, end of period (millions)................................................. $ 4.2
Ratio of expenses to average net assets:
Before expense reimbursement................................................... 5.17%++
After expense reimbursement.................................................... 2.00%++
Ratio of net investment income to average net assets:
Before expense reimbursement................................................... 5.02%++
After expense reimbursement.................................................... 8.18%++
Portfolio turnover rate.............................................................. 192.36%
*Commencement of operations.
++Annualized.
+Not annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS at November 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Heritage West Dividend Capture Income 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 June 24, 1998.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Security Valuation: The Fund's investments are carried at market
value. Securities 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. 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 period ended November 30, 1998, Heritage West Advisors, LLC (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% based upon the average daily net assets of the Fund. For
the period ended November 30, 1998, the Fund incurred $13,343 in Advisory Fees.
<PAGE>
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 2% 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' subsequent review and
ratification of the reimbursed amounts. Such reimbursement may not be paid prior
to the Fund's payment of current ordinary operating expenses. For the period
ended November 30, 1998, the Advisor reduced its fees and absorbed Fund expenses
in the amount of $42,114; no amounts were reimbursed to the Advisor.
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 annual rate of 0.20% of average daily net assets, subject to a
minimum fee of $30,000 annually.
Heritage West Securities (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 Advisor.
Certain officers of the Fund are also officers and/or directors of the
Administrator.
NOTE 4 - PURCHASES AND SALES OF SECURITIES
For the period ended November 30, 1998, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$7,013,104 and $3,555,806, respectively.
<PAGE>
Advisor
Heritage West Advisers, LLC
7373 North Scottsdale Road
Suite D-201
Scottsdale, Arizona 85253
Distributor
Heritage West Securities, Inc.
7373 North Scottsdale Road
Suite D-201
Scottsdale, Arizona 85253
Custodian
Star Bank, N.A.
425 Walnut Street, M/L 6118, Sixth Floor
Cincinnati, Ohio 45202
Transfer Agent
American Data Services, Inc.
150 Motor Parkway, Suite 109
Hauppauge, New York 11788-0132
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
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