ADVISORS SERIES TRUST
THE ROCKHAVEN FUND
THE ROCKHAVEN PREMIER DIVIDEND FUND
SUPPLEMENT AND SHAREHOLDER NOTICE
DATED SEPTEMBER 15, 2000 TO THE PROSPECTUS DATED JANUARY 30, 2000
Effective October 1, 2000, Ultimus Fund Solutions, LLC will take over the
transfer agency and fund accounting role for your account in either The
Rockhaven Fund or The Rockhaven Premier Dividend Fund (each the "Fund",
collectively the "Funds").
Fund operations will not be affected in any way and the toll free Fund phone
numbers will remain the same. However, if you maintain your account directly
with the Funds, as opposed to through your broker, references in the HOW TO
INVEST section of the Prospectus are changed in the following ways:
1. Purchasing shares by mail, please send your application form and check
to The Rockhaven Funds, c/o Ultimus Fund Solutions, LLC, P.O. Box
641745, Cincinnati, OH 45264-1745.
2. Wire purchases should be send to Firstar Bank, N.A. Cinti/Trust, ABA
#0420-0001-3, for credit to [The Rockhaven Fund or The Rockhaven
Premier Dividend Fund], DDA #821663614, for further credit to [your
name and account number].
3. Other Fund requests including redemption requests should be addressed
to The Rockhaven Funds, P.O. Box 46707, Cincinnati, OH 45246-9453.
Thank you for your continued interest in the Funds. If you have any further
questions, please call toll-free 1-800-522-3508.
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THE ROCKHAVEN FUND
THE ROCKHAVEN PREMIER DIVIDEND FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 30, 2000
AS SUPPLEMENTED MAY 3, 2000 AND SEPTEMBER 15, 2000
This Statement of Additional Information ("SAI") is not a prospectus, and
it should be read in conjunction with the Prospectus dated January 30, 2000, as
may be revised from time to time, of The Rockhaven Fund and The Rockhaven
Premier Dividend Fund (the "Premier Dividend Fund" and together, with The
Rockhaven Fund, the "Funds"), each a series of Advisors Series Trust (the
"Trust"). Rockhaven Asset Management, LLC (the "Advisor") is the investment
advisor to the Funds. A copy of the Prospectus may be obtained from the Funds at
100 First Avenue, Suite 850, Pittsburgh, PA 15222, telephone (800) 522-3508.
TABLE OF CONTENTS
Page
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The Trust B-2
Investment Objectives, Policies and Risks B-2
Investment Restrictions B-11
Portfolio Transactions and Brokerage B-12
Portfolio Turnover B-14
Determination of Net Asset Value B-14
Purchase and Redemption of Fund Shares B-14
Management B-17
Distribution Agreement B-20
Distribution Arrangements B-21
Taxation B-21
Dividends and Distributions B-24
Performance Information B-25
General Information B-25
Appendix - Description of Ratings B-27
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THE TRUST
Advisors Series Trust is an open-end, non-diversified management investment
company organized as a Delaware business trust under the laws of the State of
Delaware on October 3, 1996. The Trust currently consists of nineteen series of
shares of beneficial interest, par value $0.01 per share. This SAI relates only
to the Funds.
The Trust is registered with the SEC under the Investment Company Act of 1940
(the "Investment Company Act"). Such a registration does not involve supervision
of the management or policies of the Funds. The Prospectus of the Funds and this
SAI omit certain of the information contained in the Registration Statement
filed with the SEC. Copies of such information may be obtained from the SEC upon
payment of the prescribed fee.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objective of The Rockhaven Fund is seeking above average current
income together with capital appreciation. The primary investment objective of
The Premier Dividend Fund is seeking high current income, with a secondary
objective of seeking capital appreciation. There is no assurance that the Funds
will achieve their investment objectives. The discussion below supplements
information contained in the Funds' Prospectus as to investment objectives,
policies and risks of the Funds.
EQUITY SECURITIES
In addition to the risks associated with particular types of securities, which
are discussed below, the Funds are subject to general market risks. The Funds
invest primarily in common stocks. The market risks associated with stocks
include the possibility that the entire market for common stocks could suffer a
decline in price over a short or even an extended period. This could affect the
net asset value of your Fund's shares. The U.S. stock market tends to be
cyclical, with periods when stock prices generally rise and periods when stock
prices generally decline.
CONVERTIBLE SECURITIES AND WARRANTS
The Funds may also invest in convertible securities and warrants and The Premier
Dividend Fund will invest in a higher percentage of convertible securities than
The Rockhaven Fund. A convertible security is a fixed income security (a debt
instrument or a preferred stock) which may be converted at a stated price within
a specified period of time into a certain quantity of the common stock of the
same or a different issuer. Convertible securities are senior to common stocks
in an issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
A warrant gives the holder a right to purchase at any time during a specified
period a predetermined number of shares of common stock at a fixed price. Unlike
convertible debt securities or preferred stock, warrants do not pay a dividend.
Investments in warrants involve certain risks, including the possible lack of a
liquid market for resale of the warrants, potential price fluctuations as a
result of speculation or other factors, and failure of the price of the
underlying security to reach or have reasonable prospects of reaching a level at
which the warrant can be prudently exercised (in which event the warrant may
expire without being exercised, resulting in a loss of the Fund's entire
investment therein).
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RISKS OF INVESTING IN DEBT SECURITIES
There are a number of risks generally associated with an investment in debt
securities (including convertible securities). Yields on short, intermediate,
and long-term securities depend on a variety of factors, including the general
condition of the money and bond markets, the size of a particular offering, the
maturity of the obligation, and the rating of the issue.
Debt securities with longer maturities tend to produce higher yields and are
generally subject to potentially greater capital appreciation and depreciation
than obligations with short maturities and lower yields. The market prices of
debt securities usually vary, depending upon available yields. An increase in
interest rates will generally reduce the value of such portfolio investments,
and a decline in interest rates will generally increase the value of such
portfolio investments. The ability of the Funds to achieve their investment
objective also depends on the continuing ability of the issuers of the debt
securities in which the Funds invest to meet their obligations for the payment
of interest and principal when due.
RISKS OF INVESTING IN LOWER-RATED DEBT SECURITIES
As set forth in the prospectus, each Fund may invest a portion of its net assets
in debt securities, which may be rated below "Baa" by Moody's or "BBB" by S&P or
below investment grade by other recognized rating agencies, or in unrated
securities of comparable quality under certain circumstances. Securities with
ratings below "Baa" and/or "BBB" are commonly referred to as "junk bonds." Such
bonds are subject to greater market fluctuations and risk of loss of income and
principal than higher rated bonds for a variety of reasons, including the
following:
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and interest
rates affect high yield securities differently from other securities. For
example, the prices of high yield bonds have been found to be less
sensitive to interest rate changes than higher-rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service their principal and interest
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaults, a Fund may incur additional
expenses to seek recovery. In addition, periods of economic uncertainty and
changes can be expected to result in increased volatility of market prices
of high yield bonds and the Fund's asset values.
PAYMENT EXPECTATIONS. High yield bonds present certain risks based on
payment expectations. For example, high yield bonds may contain redemption
and call provisions. If an issuer exercises these provisions in a declining
interest rate market, a Fund would have to replace the security with a
lower yielding security, resulting in a decreased return for investors.
Conversely, a high yield bond's value will decrease in a rising interest
rate market, as will the value of the Fund's assets. If a Fund experiences
unexpected net redemptions, it may be forced to sell its high yield bonds
without regard to their investment merits, thereby decreasing the asset
base upon which the Fund's expenses can be spread and possibly reducing
that Fund's rate of return.
LIQUIDITY AND VALUATION. To the extent that there is no established retail
secondary market, there may be thin trading of high yield bonds, and this
may impact the Advisor's ability to accurately value high yield bonds and a
Fund's assets and hinder a Fund's ability to dispose of the bonds. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds,
especially in a thinly traded market.
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CREDIT RATINGS. Credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. Also,
since credit rating agencies may fail to timely change the credit ratings
to reflect subsequent events, the Advisor must monitor the issuers of high
yield bonds in a Fund's portfolio to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments, and to assure the bonds' liquidity so that Fund can meet
redemption requests. A Fund will dispose of a portfolio security in an
orderly manner when its rating has been downgraded below C.
SHORT-TERM INVESTMENTS
The Funds may invest in any of the following securities and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Funds may
hold certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Funds will be
dollar-denominated obligations of domestic banks, savings and loan associations
or financial institutions which, at the time of purchase, have capital, surplus
and undivided profits in excess of $100 million (including assets of both
domestic and foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully insured
by the U.S. Government.
In addition to buying certificates of deposit and bankers' acceptances, the
Funds also may make interest-bearing time or other interest-bearing deposits in
commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Funds may invest a portion of its
assets in commercial paper and short-term notes. Commercial paper consists of
unsecured promissory notes issued by corporations. Commercial paper and
short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
Commercial paper and short-term notes will consist of issues rated at the time
of purchase "A-2" or higher by Standard & Poor's Ratings Group, "Prime-1" or
"Prime-2" by Moody's Investors Service, Inc., or similarly rated by another
nationally recognized statistical rating organization or, if unrated, will be
determined by the Advisor to be of comparable quality. These rating symbols are
described in the Appendix.
EQUITY-LINKED DERIVATIVES
The Funds may invest in Standard & Poor's ("S&P") Depository Receipts ("SPDRs")
and S&P MidCap 400 Depository Receipts ("MidCap SPDRs"), World Equity Benchmark
Series ("WEBS"), Dow Jones Industrial Average instruments ("DIAMONDS") and
baskets of Country Securities ("OPALS"). Each of these instruments are
derivative securities whose value follows a well-known securities index or
basket of securities.
SPDRs and MidCap SPDRs are designed to follow the performance of the S&P 500
Index and the S&P MidCap 400 Index (the "Underlying Indices"), respectively.
WEBS are currently available in 17 varieties, each designed to follow the
performance of a different Morgan Stanley Capital International country index.
DIAMONDS are designed to follow the performance of the Dow Jones Industrial
Average which tracks the composite stock performance of 30 major U.S. companies
in a diverse range of industries.
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OPALS track the performance of adjustable baskets of stocks owned by Morgan
Stanley Capital (Luxembourg) S.A. (the "Counterparty") until a specified
maturity date. Holders of OPALS will receive semi-annual distributions
corresponding to dividends received on shares contained in the underlying basket
of stocks and certain amounts, net of expenses. On the maturity date of the
OPALS, the holders will receive the physical securities comprising the
underlying baskets. Opals, like many of these types of instruments, represent an
unsecured obligation and therefore carry with them the risk that the
Counterparty will default and the Fund may not be able to recover the current
value of its investment.
Because the prices of SPDRs, MidCap SPDRs, WEBS, DIAMONDS and OPALS are
correlated to diversified portfolios, they are subject to the risk that the
general level of stock prices may decline, that the underlying indices decline
or that financial condition of specific issuers in the underlying indices may
become impaired. However, these securities may not fully replicate the
performance of the underlying indices. In addition, because SPDRs, MidCap SPDRs,
WEBS, DIAMONDS and OPALS will continue to be traded even when trading is halted
in component stocks of the underlying indices, price quotations for these
securities may, at times, be based upon non-current price information with
respect to some of even all of the stocks in the underlying indices.
In addition, because WEBS mirror the performance of a single country index, a
economic downturn in a single country could significantly adversely affect the
price of the WEBS for that country.
OPTIONS ON SECURITIES AND SECURITIES INDICES
WRITING CALL OPTIONS. Each Fund may write covered call options. A call option is
"covered" if a Fund owns the security underlying the call or has an absolute
right to acquire the security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount as are held in a segregated account by the Custodian). The writer of a
call option receives a premium and gives the purchaser the right to buy the
security underlying the option at the exercise price. The writer has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. If the writer of
an exchange-traded option wishes to terminate his obligation, he may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. A writer may not effect a closing
purchase transaction after it has been notified of the exercise of an option.
Effecting a closing transaction in the case of a written call option will permit
a Fund to write another call option on the underlying security with either a
different exercise price, expiration date or both. Also, effecting a closing
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments of a Fund. If
a Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will effect a closing transaction prior to or
concurrent with the sale of the security.
A Fund will realize a gain from a closing transaction if the cost of the closing
transaction is less than the premium received from writing the option or if the
proceeds from the closing transaction are more than the premium paid to purchase
the option. A Fund will realize a loss from a closing transaction if the cost of
the closing transaction is more than the premium received from writing the
option or if the proceeds from the closing transaction are less than the premium
paid to purchase the option. However, because increases in the market price of a
call option will generally reflect increases in the market price of the
underlying security, any loss to a Fund resulting from the repurchase of a call
option is likely to be offset in whole or in part by appreciation of the
underlying security owned by that Fund.
STOCK INDEX OPTIONS. Each Fund may also purchase put and call options with
respect to the S&P 500 and other stock indices. Such options may be purchased as
a hedge against changes resulting from market conditions in the values of
securities which are held in a Fund's portfolio or which it intends to purchase
or sell, or when they are economically appropriate for the reduction of risks
inherent in the ongoing management of a Fund.
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The distinctive characteristics of options on stock indices create certain risks
that are not present with stock options generally. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether a Fund will realize a gain or loss on the purchase
or sale of an option on an index depends upon movements in the level of stock
prices in the stock market generally rather than movements in the price of a
particular stock. Accordingly, successful use by a Fund of options on a stock
index would be subject to the Advisor's ability to predict correctly movements
in the direction of the stock market generally. This requires different skills
and techniques than predicting changes in the price of individual stocks.
Index prices may be distorted if trading of certain stocks included in the index
is interrupted. Trading of index options also may be interrupted in certain
circumstances, such as if trading were halted in a substantial number of stocks
included in the index. If this were to occur, a Fund would not be able to close
out options which it had purchased, and if restrictions on exercise were
imposed, that Fund might be unable to exercise an option it holds, which could
result in substantial losses to that Fund. It is the policy of the Funds to
purchase put or call options only with respect to an index which the Advisor
believes includes a sufficient number of stocks to minimize the likelihood of a
trading halt in the index.
RISKS OF INVESTING IN OPTIONS. There are several risks associated with
transactions in options on securities and indices. Options may be more volatile
than the underlying instruments and, therefore, on a percentage basis, an
investment in options may be subject to greater fluctuation than an investment
in the underlying instruments themselves. There are also significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objective. In addition, a liquid secondary market for particular options may
be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of option of underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or clearing corporation may not at all times be adequate to handle
current trading volume; or one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or unexpected events. The extent to which
a Fund may enter into options transactions may be limited by the Internal
Revenue Code requirements for qualification as a regulated investment company.
See "Dividends, Distributions and Taxes."
DEALER OPTIONS. Each Fund may engage in transactions involving dealer options as
well as exchange-traded options. Certain risks are specific to dealer options.
While the Funds might look to a clearing corporation to exercise exchange-traded
options, if a Fund were to purchase a dealer option it would need to rely on the
dealer from which it purchased the option to perform if the option were
exercised. Failure by the dealer to do so would result in the loss of the
premium paid by a Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid market while dealer
options may not. Consequently, a Fund may generally be able to realize the value
of a dealer option it has purchased only by exercising or reselling the option
to the dealer who issued it. Similarly, when a Fund writes a dealer option, that
Fund may generally be able to close out the option prior to its expiration only
by entering into a closing purchase transaction with the dealer to whom that
Fund originally wrote the option. While a Fund will seek to enter into dealer
options only with dealers who will agree to and which are expected to be capable
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of entering into closing transactions with that Fund, there can be no assurance
that a Fund will at any time be able to liquidate a dealer option at a favorable
price at any time prior to expiration. Unless a Fund, as a covered dealer call
option writer, is able to effect a closing purchase transaction, it will not be
able to liquidate securities (or other assets) used as cover until the option
expires or is exercised. In the event of insolvency of the other party, a Fund
may be unable to liquidate a dealer option. With respect to options written by a
Fund, the inability to enter into a closing transaction may result in material
losses to that Fund. For example, because a Fund must maintain a secured
position with respect to any call option on a security it writes, that Fund may
not sell the assets which it has segregated to secure the position while it is
obligated under the option. This requirement may impair that Fund's ability to
sell portfolio securities at a time when such sale might be advantageous.
The Staff of the Securities and Exchange Commission (the "Commission") has taken
the position that purchased dealer options are illiquid securities. A Fund may
treat the cover used for written dealer options as liquid if the dealer agrees
that the Fund may repurchase the dealer option it has written for a maximum
price to be calculated by a predetermined formula. In such cases, the dealer
option would be considered illiquid only to the extent the maximum purchase
price under the formula exceeds the intrinsic value of the option. With that
exception, however, a Fund will treat dealer options as subject to that Fund's
limitation on unmarketable securities. If the Commission changes its position on
the liquidity of dealer options, each Fund will change its treatment of such
instruments accordingly.
FOREIGN INVESTMENTS AND CURRENCIES
Each Fund may invest in securities of foreign issuers that are publicly traded
in the United States. Each Fund may also invest in depositary receipts.
DEPOSITARY RECEIPTS. Depositary Receipts ("DRs") include American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") or other forms of depositary receipts. DRs are receipts
typically issued in connection with a U.S. or foreign bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign securities
involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency, diversification
and balance of payments position. The internal politics of certain foreign
countries may not be as stable as those of the United States. Governments
in certain foreign countries also continue to participate to a significant
degree, through ownership interest or regulation, in their respective
economies. Action by these governments could include restrictions on
foreign investment, nationalization, expropriation of goods or imposition
of taxes, and could have a significant effect on market prices of
securities and payment of interest. The economies of many foreign countries
are heavily dependent upon international trade and are accordingly affected
by the trade policies and economic conditions of their trading partners.
Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
CURRENCY FLUCTUATIONS. The Funds may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S.
dollar value of the Funds' assets denominated in that currency. Such
changes will also affect the Funds' income. The value of the Funds'assets
may also be affected significantly by currency restrictions and exchange
control regulations enacted from time to time.
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LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and
less financial information available to issuers, than is available in the
United States.
TAXES. The interest payable on certain of a Fund's foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the
net amount of income available for distribution to the Fund's shareholders.
RISK FACTORS REGARDING EMERGING MARKETS INVESTMENTS. Investments in securities
issued by the governments of emerging or developing countries, and of companies
within those countries, involves greater risks than other foreign investments.
Investments in emerging or developing markets involve exposure to economic and
legal structures that are generally less diverse and mature (and in some cases
the absence of developed legal structures governing private and foreign
investments and private property), and to political systems which can be
expected to have less stability, than those of more developed countries. The
risks of investment in such countries may include matters such as relatively
unstable governments, higher degrees of government involvement in the economy,
the absence until recently of capital market structures or market-oriented
economies, economies based on only a few industries, securities markets which
trade only a small number of securities, restrictions on foreign investment in
stocks, and significant foreign currency devaluations and fluctuations. Emerging
markets can be substantially more volatile than both U.S. and more developed
foreign markets. Such volatility may be exacerbated by illiquidity. The average
daily trading volume in all of the emerging markets combined is a small fraction
of the average daily volume of the U.S. market. Small trading volumes may result
in a Fund being forced to purchase securities at substantially higher prices
than the current market, or to sell securities at much lower prices than the
current market.
In considering whether to invest in the securities of a foreign company, the
Advisor considers such factors as the characteristics of the particular company,
differences between economic trends and the performance of securities markets
within the U.S. and those within other countries, and also factors relating to
the general economic, governmental and social conditions of the country or
countries where the company is located. The extent to which a Fund will be
invested in foreign companies and countries and depository receipts will
fluctuate from time to time within the limitations described in the prospectus,
depending on the Advisor's assessment of prevailing market, economic and other
conditions.
REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements. Under
such agreements, the seller of the security agrees to repurchase it at a
mutually agreed upon time and price. The repurchase price may be higher than the
purchase price, the difference being income to the Funds, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Funds together with the repurchase price on repurchase. In either case, the
income to the Funds is unrelated to the interest rate on the U.S. Government
security itself. Such repurchase agreements will be made only with banks with
assets of $500 million or more that are insured by the Federal Deposit Insurance
Corporation or with Government securities dealers recognized by the Federal
Reserve Board and registered as broker-dealers with the Securities and Exchange
Commission ("SEC") or exempt from such registration. The Funds will generally
enter into repurchase agreements of short durations, from overnight to one week,
although the underlying securities generally have longer maturities. A Fund may
not enter into a repurchase agreement with more than seven days to maturity if,
as a result, more than 15% of the value of its net assets would be invested in
illiquid securities including such repurchase agreements.
For purposes of the Investment Company Act, a repurchase agreement is deemed to
be a loan from the Fund to the seller of the U.S. Government security subject to
the repurchase agreement. It is not clear whether a court would consider the
U.S. Government security acquired by a Fund subject to a repurchase agreement as
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being owned by the Fund or as being collateral for a loan by the Fund to the
seller. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the U.S. Government security before its repurchase
under a repurchase agreement, a Fund could encounter delays and incur costs
before being able to sell the security. Delays may involve loss of interest or a
decline in price of the U.S. Government security. If a court characterizes the
transaction as a loan and the Fund has not perfected a security interest in the
U.S. Government security, the Fund may be required to return the security to the
seller's estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, a Fund would be at the risk of losing some or all of the
principal and income involved in the transaction. As with any unsecured debt
instrument purchased for the Funds, the Advisor seeks to minimize the risk of
loss through repurchase agreements by analyzing the creditworthiness of the
other party, in this case the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the security. However, the Funds
will always receive as collateral for any repurchase agreement to which they are
a party securities acceptable to the Advisor, the market value of which is equal
to at least 100% of the amount invested by the Funds plus accrued interest, and
the Funds will make payment against such securities only upon physical delivery
or evidence of book entry transfer to the account of its Custodian. If the
market value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Funds will
direct the seller of the U.S. Government security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that the
Funds could be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS
Each Fund may purchase securities on a "when-issued," forward commitment or
delayed settlement basis. In this event, the Custodian will set aside liquid
assets equal to the amount of the commitment in a separate account. Normally,
the Custodian will set aside portfolio securities to satisfy a purchase
commitment. In such a case, a Fund may be required subsequently to set aside
additional assets in order to assure that the value of the account remains equal
to the amount of that Fund's commitment. It may be expected that a Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.
The Funds do not intend to engage in these transactions for speculative purposes
but only in furtherance of their investment objectives. Because a Fund will set
aside liquid assets to satisfy its purchase commitments in the manner described,
that Fund's liquidity and the ability of the Advisor to manage it may be
affected in the event that Fund's forward commitments, commitments to purchase
when-issued securities and delayed settlements ever exceeded 15% of the value of
its net assets.
A Fund will purchase securities on a when-issued, forward commitment or delayed
settlement basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to that Fund
on the settlement date. In these cases a Fund may realize a taxable capital gain
or loss. When a Fund engages in when-issued, forward commitment and delayed
settlement transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in a Fund's incurring a loss or
missing an opportunity to obtain a price credited to be advantageous.
The market value of the securities underlying a when-issued purchase, forward
commitment to purchase securities, or a delayed settlement and any subsequent
fluctuations in their market value is taken into account when determining the
market value of a Fund starting on the day that Fund agrees to purchase the
securities. A Fund does not earn interest on the securities it has committed to
purchase until they are paid for and delivered on the settlement date.
B-9
<PAGE>
BORROWING
Each Fund is authorized to borrow money from time to time for temporary,
extraordinary or emergency purposes or for clearance of transactions in amounts
up to 5% of the value of its total assets at the time of such borrowings
INVESTMENT COMPANIES
The Funds may invest in shares of other investment companies. The Funds may
invest in money market mutual funds in connection with their management of daily
cash positions. In addition to the advisory and operational fees a Fund bears
directly in connection with its own operation, the Fund would also bear its pro
rata portions of each other investment company's advisory and operational
expenses.
ILLIQUID SECURITIES
Neither Fund may invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The Advisor will monitor the amount of
illiquid securities in the Funds' portfolios, under the supervision of the
Trust's Board of Trustees, to ensure compliance with the Funds' investment
restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Funds might be
unable to sell restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. The Funds might also have to register such restricted
securities in order to sell them, resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not reflect the actual liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the SEC under the Securities Act,
the Trust's Board of Trustees may determine that such securities are not
illiquid securities despite their legal or contractual restrictions on resale.
In all other cases, however, securities subject to restrictions on resale will
be deemed illiquid.
GOVERNMENT OBLIGATIONS
Each Fund may make short-term investments in U.S. Government obligations. Such
obligations include Treasury bills, certificates of indebtedness, notes and
bonds, and issues of such entities as the Government National Mortgage
Association ("GNMA"), Export-Import Bank of the United States, Tennessee Valley
Authority, Resolution Funding Corporation, Farmers Home Administration, Federal
Home Loan Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Federal Land Banks, Federal Housing Administration, Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation, and the Student
Loan Marketing Association. Some of these obligations, such as those of the
B-10
<PAGE>
GNMA, are supported by the full faith and credit of the U.S. Treasury; others,
such as those of the Export-Import Bank of United States, are supported by the
right of the issuer to borrow from the Treasury; others, such as those of the
FNMA, are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law.
ZERO COUPON SECURITIES
Each Fund may invest up to 35% of its net assets in zero coupon securities. Zero
coupon securities are debt securities which have been stripped of their
unmatured interest coupons and receipts, or certificates representing interests
in such stripped debt obligations or coupons. Because a zero coupon security
pays no interest to its holder during its life or for a substantial period of
time, it usually trades at a deep discount from its face or par value and will
be subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest.
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Fund may acquire variable and floating rate instruments. Such instruments
are frequently not rated by credit rating agencies; however, unrated variable
and floating rate instruments purchased by a Fund will be determined by the
Advisor under guidelines established by the Trust's Board of Trustees to be of
comparable quality at the time of the purchase to rated instruments eligible for
purchase by a Fund. In making such determinations, the Advisor will consider the
earning power, cash flow and other liquidity ratios of the issuers of such
instruments (such issuers include financial, merchandising, bank holding and
other companies) and will monitor their financial condition. An active secondary
market may not exist with respect to particular variable or floating rate
instruments purchased by a Fund. The absence of such an active secondary market
could make it difficult for the Funds to dispose of the variable or floating
rate instrument involved in the event of the issuer of the instrument defaulting
on its payment obligation or during periods in which a Fund is not entitled to
exercise its demand rights, and a Fund could, for these or other reasons, suffer
a loss to the extent of the default. Variable and floating rate instruments may
be secured by bank letters of credit.
INVESTMENT RESTRICTIONS
The Trust (on behalf of each Fund) has adopted the following restrictions as
fundamental policies, which may not be changed without the favorable vote of the
holders of a "majority," as defined in the Investment Company Act, of the
outstanding voting securities of the Fund. Under the Investment Company Act, the
"vote of the holders of a majority of the outstanding voting securities" means
the vote of the holders of the lesser of (i) 67% of the shares of the Fund
represented at a meeting at which the holders of more than 50% of its
outstanding shares are represented or (ii) more than 50% of the outstanding
shares of the Fund. If a percentage representation is adhered to at the time of
investment, a subsequent increase or decrease in percentage resulting from a
change in the value of assets will not constitute a violation of that
restriction, except with respect to policies on borrowing and illiquid
securities, or as otherwise noted.
Each Fund is diversified. This means that as to 75% of each Fund's total assets
(1) no more than 5% may be in the securities of a single issuer, (2) neither
Fund may hold more than 10% of the outstanding voting securities of a single
issuer.
B-11
<PAGE>
In addition, neither Fund may:
1. Issue senior securities, as defined in the Investment Company Act, except
that this restriction shall not be deemed to prohibit the Fund from (a)
making any permitted borrowings, mortgages or pledges or (b) entering into
options, futures or repurchase transactions.
2. Mortgage, pledge or hypothecate any of its assets except in connection with
any borrowings.
3. Invest 25% or more of the market value of its assets in the securities of
companies engaged in any one industry, except that this restriction does
not apply to investment in the securities of the U.S. Government, its
agencies or instrumentalities.
4. Purchase real estate, commodities or commodity contracts. (As a matter of
operating policy, the Board of Trustees may authorize the Funds in the
future to engage in certain activities regarding futures contracts for bona
fide hedging purposes; any such authorization will be accompanied by
appropriate notification to shareholders.)
5. Make loans to others, except (a) through the purchase of debt securities in
accordance with its investment objective and policies, or (b) to the extent
the entry into a repurchase agreement is deemed to be a loan.
6. Borrow money or pledge its assets, except that the Funds may borrow on an
unsecured basis from banks for temporary or emergency purposes or for the
clearance of transactions in amounts not exceeding 5% of its total assets
(including the amount borrowed).
7. Purchase securities on margin, participate on a joint or joint and several
basis in any securities trading account, or underwrite securities. (Does
not preclude the Funds from obtaining such short-term credit as may be
necessary for the clearance of purchases and sales of its portfolio
securities.)
The Funds observe the following restrictions as a matter of operating but not
fundamental policy, pursuant to positions taken by federal regulatory
authorities. The Funds may not:
1. Invest in securities of other investment companies except as permitted
under the Investment Company Act.
2. Invest, in the aggregate, more than 15% of its net assets in securities
with legal or contractual restrictions on resale, securities which are not
readily marketable and repurchase agreements with more than seven days to
maturity.
3. Invest in any issuer for purposes of exercising control or management;
4. Sell securities short; or
5. Invest in stock index futures, currency or financial futures or related
options.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Pursuant to the Investment Advisory Agreement, the Advisor determines which
securities are to be purchased and sold by the Funds and which broker-dealers
will be used to execute the Funds' portfolio transactions. Purchases and sales
of securities in the over-the-counter market will be executed directly with a
"market-maker" unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained by using a broker for the transaction.
Purchases of portfolio securities for the Funds also may be made directly from
issuers or from underwriters. Where possible, purchase and sale transactions
will be made through dealers (including banks) which specialize in the types of
securities which the Funds will be holding, unless better executions are
available elsewhere. Dealers and underwriters usually act as principal for their
own account. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
B-12
<PAGE>
between the bid and the asked price. If the execution and price offered by more
than one broker, dealer or underwriter are comparable, the order may be
allocated to a broker, dealer or underwriter that has provided research or other
services as discussed below. In placing portfolio transactions, the Advisor will
use its best efforts to choose a broker-dealer capable of providing the services
necessary to obtain the most favorable price and execution available. The full
range and quality of services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm's risk in positioning a
block of securities, and other factors. In those instances where it is
reasonably determined that more than one broker-dealer can offer the most
favorable price and execution available, consideration may be given to those
broker-dealers which furnish or supply research and statistical information to
the Advisor that it may lawfully and appropriately use in its investment
advisory capacities, as well as provide other services in addition to execution
services. The Advisor considers such information, which is in addition to and
not in lieu of the services required to be performed by it under its Agreement
with the Funds, to be useful in varying degrees, but of indeterminable value.
Portfolio transactions may be placed with broker-dealers who sell shares of the
Funds subject to rules adopted by the National Association of Securities
Dealers, Inc.
While it is the Funds' general policy to seek first to obtain the most favorable
price and execution available, in selecting a broker-dealer to execute portfolio
transactions for the Funds, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Funds or to the
Advisor, even if the specific services are not directly useful to the Funds and
may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Funds may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Advisor to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Advisor's overall responsibilities to the
Funds.
Investment decisions for the Funds are made independently from those of other
client accounts or mutual funds managed or advised by the Advisor. Nevertheless,
it is possible that at times identical securities will be acceptable for both
the Funds and one or more of such client accounts. In such event, the position
of the Funds and such client account(s) in the same issuer may vary and the
length of time that each may choose to hold its investment in the same issuer
may likewise vary. However, to the extent any of these client accounts seeks to
acquire the same security as a Fund at the same time, the Fund may not be able
to acquire as large a portion of such security as it desires, or it may have to
pay a higher price or obtain a lower yield for such security. Similarly, a Fund
may not be able to obtain as high a price for, or as large an execution of, an
order to sell any particular security at the same time. If one or more of such
client accounts simultaneously purchases or sells the same security that a Fund
is purchasing or selling, each day's transactions in such security will be
allocated between the Fund and all such client accounts in a manner deemed
equitable by the Advisor, taking into account the respective sizes of the
accounts and the amount being purchased or sold. It is recognized that in some
cases this system could have a detrimental effect on the price or value of the
security insofar as the Fund is concerned. In other cases, however, it is
believed that the ability of a Fund to participate in volume transactions may
produce better executions for the Fund.
The Funds do not place securities transactions through brokers solely for
selling shares of the Funds, although the Funds may consider the sale of shares
as a factor in allocating brokerage. However, as stated above, broker-dealers
who execute brokerage transactions may effect purchases of shares of the Funds
for their customers. Brokerage commissions paid during the period beginning
October 1, 1998 and ending September 30, 1999, aggregated $7,287 and $12,966,
for The Rockhaven Fund and The Rockhaven Premier Dividend Fund, respectively.
B-13
<PAGE>
PORTFOLIO TURNOVER
Although the Funds generally will not invest for short-term trading purposes,
portfolio securities may be sold without regard to the length of them they have
been held when, in the opinion of the Advisor, investment considerations warrant
such action. Portfolio turnover rate is calculated by dividing (1) the lesser of
purchases or sales of portfolio securities for the fiscal year by (2) the
monthly average of the value of portfolio securities owned during the fiscal
year. A 100% turnover rate would occur if all the securities in the Fund's
portfolio, with the exception of securities whose maturities at the time of
acquisition were one year or less, were sold and either repurchased or replaced
within one year. A high rate of portfolio turnover (100% or more) generally
leads to higher transaction costs and may result in a greater number of taxable
transactions. It is anticipated that annual portfolio turnover rates will be
approximately 200% for each Fund.
Turnover during the fiscal year from October 1, 1998 through September 30, 1999
for The Rockhaven Fund and The Premier Dividend Fund was 113.36% and 120.16%,
respectively.
DETERMINATION OF NET ASSET VALUE
As noted in the Prospectus, the net asset value and offering price of shares of
each Fund will be determined once daily as of the close of public trading on the
New York Stock Exchange ("NYSE") (normally 4:00 p.m. Eastern time) on each day
that the NYSE is open for trading. The Funds do not expect to determine the net
asset value of their shares on any day when the NYSE is not open for trading
even if there is sufficient trading in their portfolio securities on such days
to materially affect the net asset value per share. However, the net asset value
of Fund shares may be determined on days the NYSE is closed or at times other
than 4:00 p.m. if the Board of Trustees decides it is necessary.
The Fund's securities, including ADRs, EDRs and GDRs, which are traded on
securities exchanges are valued at the last sale price on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last available bid and asked price. Securities that are traded on more than
one exchange are valued on the exchange determined by the Advisor to be the
primary market. 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 and assets for which market quotations are
not readily available (including restricted securities which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the Board.
The net asset value per share of each Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
As of the date of this SAI, the NYSE is open for trading every weekday except
for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
PURCHASE AND REDEMPTION OF FUND SHARES
The information provided below supplements the information contained in the
Funds' Prospectus regarding the purchase and redemption of each Fund's shares.
B-14
<PAGE>
HOW TO BUY SHARES
Fund shares are purchased at the public offering price (net asset value plus the
applicable sales charge) next determined after the Transfer Agent receives your
order in proper form. In most cases, in order to receive that day's public
offering price, the Transfer Agent must receive your order in proper form before
the close of regular trading on the New York Stock Exchange ("NYSE"), currently
4:00 p.m. Orders are in proper form only after investment money is converted to
U.S. dollars. Orders paid by check and received by 4:00 p.m., Eastern Time, will
generally be available for the purchase of shares the following business day.
If you are considering redeeming or transferring shares to another person
shortly after purchase, you should pay for those shares with a certified check
to avoid any delay in redemption or transfer. Otherwise the Funds may delay
payment until the purchase price of those shares has been collected, which may
take up to 15 calender days. To eliminate the need for safekeeping, the Funds
will not issue certificates for your shares unless you request them.
The Trust reserves the right in its sole discretion (1) to suspend the continued
offering of the Funds' shares, (2) to reject purchase orders in whole or in part
when in the judgment of the Advisor or the Distributor such rejection is in the
best interest of the Funds, and (3) to reduce or waive the minimum for initial
and subsequent investments for certain fiduciary accounts or under circumstances
where certain economies can be achieved in sales of the Funds' shares.
Selected securities brokers, dealers or financial intermediaries may offer
shares of the Funds. Investors should contact these agents directly for
appropriate instructions, as well as information pertaining to accounts and any
service or transaction fees that may be charged by those agents. Purchase orders
through securities brokers, dealers and other financial intermediaries are
effected at the next-determined net asset value after receipt of the order by
such agent before the Funds' daily cutoff time, currently the close of regular
NYSE trading. Orders received after that time will be purchased at the
next-determined net asset value.
The Funds may also issue Fund shares in exchange for appropriate portfolio
securities. Such transactions may benefit the Funds by eliminating the
transaction costs that would otherwise be borne by the Funds in purchasing
portfolio securities in the stock markets. Under certain limited conditions, an
investor may purchase Fund shares with portfolio securities that are moved into
a Fund's portfolio on a tax-free basis for the investor. In such instance, the
unrealized gain or loss in the transferred portfolio would become unrealized
gain or loss for the Fund.
DEALER COMMISSIONS
The Distributor pays a portion of the sales charges imposed on purchases of the
Funds' shares to retail dealers, as follows:
Dealer Commission
as a % of
Your Investment Offering Price
--------------- --------------
Up to $99,000 5.00%
$100,000-$249,000 4.00%
$250,000-$499,999 3.00%
$500,000-$999,999 1.75%
$1,000,000 and over none
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular trading,
either directly to the Fund or through your investment representative. The Fund
will forward redemption proceeds or redeem shares for which it has collected
payment of the purchase price.
B-15
<PAGE>
Payments to shareholders for shares of a Fund redeemed directly from the Fund
will be made as promptly as possible but no later than seven days after receipt
by the Fund's Transfer Agent of the written request in proper form, with the
appropriate documentation as stated in the Prospectus, except that a Fund may
suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the NYSE is restricted as determined by the SEC or
the NYSE is closed for other than weekends and holidays; (b) an emergency exists
as determined by the SEC making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable; or (c) for such other period
as the SEC may permit for the protection of the Funds' shareholders. At various
times, a Fund may be requested to redeem shares for which it has not yet
received confirmation of good payment; in this circumstance, the Fund may delay
the redemption until payment for the purchase of such shares has been collected
and confirmed to the Fund.
SELLING SHARES DIRECTLY TO THE FUND
Send a signed letter of instruction to the Transfer Agent, along with any
certificates that represent shares you want to sell. The price you will receive
is the next net asset value calculated after the Fund receives your request in
proper form. In order to receive that day's net asset value, the Transfer Agent
must receive your request before the close of regular trading on the NYSE.
SELLING SHARES THROUGH YOUR INVESTMENT REPRESENTATIVE
Your investment representative must receive your request before the close of
regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services. If you
sell shares having a net asset value of $100,000 or more, a signature guarantee
is required.
If you want your redemption proceeds sent to an address other than your address
as it appears on the Transfer Agent's records, a signature guarantee is
required. The Funds may require additional documentation for the sale of shares
by a corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Transfer Agent for details.
Signature guarantees may be obtained from a bank, broker-dealer, credit union
(if authorized under state law), securities exchange or association, clearing
agency or savings institution. A notary public cannot provide a signature
guarantee
DELIVERY OF PROCEEDS
The Funds generally send you payment for your shares the business day after your
request is received in proper form, assuming the Funds have collected payment of
the purchase price of your shares. Under unusual circumstances, the Funds may
suspend redemptions, or postpone payment for more than seven days, as permitted
by federal securities law.
TELEPHONE REDEMPTIONS
Telephone transaction privileges are made available to shareholders
automatically upon opening an account unless the privilege is declined in the
Account Application. Upon receipt of any instructions or inquiries by telephone
from a shareholder or, if held in a joint account, from either party, or from
any person claiming to be the shareholder, the Funds or their agent is
authorized, without notifying the shareholder or joint account parties, to carry
out the instructions or to respond to the inquiries, consistent with the service
options chosen by the shareholder or joint shareholders in his or their latest
Account Application or other written request for services, including purchasing
or redeeming shares of the Funds and depositing and withdrawing monies from the
bank account specified in the Bank Account Registration section of the
shareholder's latest Account Application or as otherwise properly specified to
the Funds in writing.
B-16
<PAGE>
The Transfer Agent will employ these and other reasonable procedures to confirm
that instructions communicated by telephone are genuine; if such procedures are
observed, neither the Funds nor their agents will be liable for any loss,
liability, cost or expense arising out of any redemption request, including any
fraudulent or unauthorized request. For information, consult the Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
REDEMPTIONS-IN-KIND
The Funds intend to pay cash (U.S. dollars) for all shares redeemed, but, under
abnormal conditions that make payment in cash unwise, the Fund may make payment
partly in its portfolio securities with a current amortized cost or market
value, as appropriate, equal to the redemption price. Although the Fund does not
anticipate that it will make any part of a redemption payment in securities, if
such payment were made, an investor may incur brokerage costs in converting such
securities to cash. The Trust has elected to be governed by the provisions of
Rule 18f-1 under the Investment Company Act, which require that the Fund pay in
cash all requests for redemption by any shareholder of record limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of such period.
MANAGEMENT
The overall management of the business and affairs of the Trust is vested with
its Board of Trustees. The Board approves all significant agreements between the
Trust and persons or companies furnishing services to it, including the
agreements with the Advisor, Administrator, Custodian and Transfer Agent. The
day to day operations of the Trust are delegated to its officers, subject to the
Fund's investment objective and policies and to general supervision by the Board
of Trustees.
The Trustees and officers of the Trust, their birth dates and positions with the
Trust, their business addresses and principal occupations during the past five
years are:
WALTER E. AUCH, SR. (born 1921) Trustee
6001 N. 62nd Place, Paradise Valley, AZ 85153. Business Consultant and Director,
Nicholas-Applegate Institutional Mutual Funds, Salomon Smith Barney Trak Funds
and Concert Series, Pimco Advisors L.P., Banyan Strategic Realty Trust, Legend
Properties and Senele Group.
ERIC M. BANHAZL* (born 1957) Trustee, President and Treasurer
2020 E. Financial Way, Glendora, CA 91741. Executive Vice President, Investment
Company Administration, LLC; Vice President, First Fund Distributors, Inc.;
Treasurer, Guinness Flight Investment Funds, Inc.
DONALD E. O'CONNOR (born 1936) Trustee
1700 Taylor Avenue, Fort Washington, MD 20744. Retired; formerly Executive Vice
President and Chief Operating Officer of ICI Mutual Insurance Company (until
January, 1997); Vice President, Operations, Investment Company Institute (until
June, 1993); Independent Director, The Parnassus Fund, The Parnassus Income
Fund, and Allegiance Investment Trust.
B-17
<PAGE>
GEORGE T. WOFFORD III (born 1939) Trustee
305 Glendora Circle, Danville, CA 94526. Senior Vice President, Information
Services, Federal Home Loan Bank of San Francisco.
STEVEN J. PAGGIOLI (born 1950) Vice President
915 Broadway, Suite 1605, New York, NY 10010. Executive Vice President,
Investment Company Administration, LLC; Vice President, First Fund Distributors,
Inc.; President and Trustee, Professionally Managed Portfolios; Trustee, The
Managers Funds.
ROBERT H. WADSWORTH (born 1940) Vice President
4455 E. Camelback Rd. Suite 261-E, Phoenix, AZ 85018. President, Robert H.
Wadsworth & Associates, Inc., Investment Company Administration, LLC and First
Fund Distributors, Inc.; Vice President, Professionally Managed Portfolios;
President, Guinness Flight Investment Funds, Inc.; Director, Germany Fund, Inc.,
New Germany Fund, Inc., Central European Equity Fund, Inc. and Deutsche Funds,
Inc.
CHRIS O. MOSER (born 1949) Secretary
4455 E. Camelback Rd. Suite 261-E, Phoenix, AZ 85018. Employed by Investment
Company Administration, LLC (since July 1996); Formerly employed by Bank One,
N.A. (From August 1995 until July 1996; O'Connor, Cavanagh, Anderson,
Killingsworth and Beshears (law firm) (until August 1995). * denotes Trustee who
is an "interested person" of the Trust under the Investment Company Act.
Set forth below is the rate of compensation received by the following Trustees
from all other portfolios of the Trust. This total amount is allocated among the
portfolios. Disinterested Trustees receive an annual fee of $12,000.
Disinterested Trustees are also reimbursed for expenses in connection with each
Board meeting attended. No other compensation or retirement benefits were
received by any Trustee or officer from other portfolios of the Trust. The Trust
has no pension or retirement plan. No other entity affiliated with the Trust
pays any compensation to the Trustees.
The Trust has no pension or retirement plan. No other entity affiliated with the
Trust pays any compensation to the Trustees.
For the fiscal year ended September 30, 1999, Trustees' fees and expenses in the
amount of $6,678 were allocated to the Funds.
Name and Position Aggregate Compensation From the Trust
----------------- -------------------------------------
Walter E. Auch, Sr., Trustee $12,000
Donald E. O'Connor, Trustee $12,000
George T. Wofford III, Trustee $12,000
The Declaration of Trust provides that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust, unless,
as to liability to the Trust or its shareholders, it is finally adjudicated that
they engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices or with respect to any matter
unless it is finally adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interest of the Trust. In
the case of settlement, such indemnification will not be provided unless it has
been determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a written
opinion of independent counsel, that such officers or Trustees have not engaged
in willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
B-18
<PAGE>
THE ADVISOR
Rockhaven Asset Management, LLC acts as investment advisor to the Funds pursuant
to an Investment Advisory Agreement (the "Advisory Agreement"). Subject to such
policies as the Board of Trustees may determine, the Advisor is responsible for
investment decisions for the Funds. Pursuant to the terms of the Advisory
Agreement, the Advisor provides the Funds with such investment advice and
supervision as it deems necessary for the proper supervision of the Funds'
investments. The Advisor continuously provides investment programs and determine
from time to time what securities shall be purchased, sold or exchanged and what
portion of the Funds' assets shall be held uninvested. The Advisor furnishes, at
its own expense, all services, facilities and personnel necessary in connection
with managing the investments and effecting portfolio transactions for the
Funds. The Advisory Agreement will continue in effect from year to year only if
such continuance is specifically approved at least annually by the Board of
Trustees or by vote of a majority of each Fund's outstanding voting securities
and by a majority of the Trustees who are not parties to the Advisory Agreement
or interested persons of any such party, at a meeting called for the purpose of
voting on such Advisory Agreement.
Pursuant to the terms of the Advisory Agreement, the Advisor is permitted to
render services to others. The Advisory Agreement is terminable without penalty
by the Trust on behalf of a Fund on not more than 60 days', nor less than 30
days', written notice when authorized either by a majority vote of the Fund's
shareholders or by a vote of a majority of the Board of Trustees of the Trust,
or by the Advisor on not more than 60 days', nor less than 30 days', written
notice, and will automatically terminate in the event of its "assignment" (as
defined in the Investment Company Act). The Advisory Agreement provides that the
Advisor under such agreement shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the execution of portfolio transactions for the Funds, except for
wilful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
thereunder.
In the event the operating expenses of a Fund, including all investment advisory
and administration fees, but excluding brokerage commissions and fees, taxes,
interest and extraordinary expenses such as litigation, for any fiscal year
exceed the Fund's expense limitation, the Advisor shall reduce its advisory fee
(which fee is described below) to the extent of its share of such excess
expenses. The amount of any such reduction to be borne by the Advisor shall be
deducted from the monthly advisory fee otherwise payable with respect to the
Fund during such fiscal year; and if such amounts should exceed the monthly fee,
the Advisor shall pay to the Fund its share of such excess expenses no later
than the last day of the first month of the next succeeding fiscal year.
In consideration of the services provided by the Advisor pursuant to the
Advisory Agreement, the Advisor is entitled to receive from each Fund an
investment advisory fee computed daily and paid monthly based on a rate equal to
a percentage of the Fund's average daily net assets specified in the Prospectus.
However, the Advisor may voluntarily agree to waive a portion of the fees
payable to it on a month-to-month basis.
The Funds are responsible for their own operating expenses. The Advisor has
contractually agreed to reduce fees payable to it by the Funds and to pay the
Funds' operating expenses to the extent necessary to limit each Fund's aggregate
annual operating expenses (excluding interest and tax expenses) to the limit set
forth in the Expense Table (the "expense cap"). Any such reductions made by the
Advisor in its fees or payment of expenses which are the Funds' obligation are
subject to reimbursement by the Funds to the Advisor, if so requested by the
Advisor, in subsequent fiscal years if the aggregate amount actually paid by the
Funds toward the operating expenses for such fiscal year (taking into account
the reimbursement) do 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.
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<PAGE>
During the period beginning October 1, 1998 through September 30, 1999, the
Advisor earned $23,276 and $40,522 in advisory fees for The Rockhaven Fund and
The Premier Dividend Fund, respectively. The Advisor has contractually agreed to
limit total fund operating expenses to 1.50% of average net assets annually for
both Funds. As a result of that limitation, the Advisor waived the full amount
of its fee and paid Fund operating expenses in the amount of $96,186 and $85,162
for The Rockhaven Fund and The Premier Dividend Fund, respectively.
The Advisor is controlled by Christopher H. Wiles and AmSouth Bancorporation.
THE ADMINISTRATOR
Pursuant to an Administration Agreement (the "Administration Agreement"),
Investment Company Administration, LLC is the administrator of the Funds (the
"Administrator"). The Administrator provides certain administrative services to
the Funds, including, among other responsibilities, coordinating the negotiation
of contracts and fees with, and the monitoring of performance and billing of,
the Funds' independent contractors and agents; preparation for signature by an
officer of the Trust of all documents required to be filed for compliance by the
Trust and the Funds with applicable laws and regulations excluding those of the
securities laws of various states; arranging for the computation of performance
data, including net asset value and yield; responding to shareholder inquiries;
and arranging for the maintenance of books and records of the Funds, and
providing, at its own expense, office facilities, equipment and personnel
necessary to carry out its duties. In this capacity, the Administrator does not
have any responsibility or authority for the management of the Funds, the
determination of investment policy, or for any matter pertaining to the
distribution of Fund shares.
The Administration Agreement is terminable without penalty by the Trust on
behalf of the Fund or by the Administrator on 60 days' written notice (as
defined in the Investment Company Act). The Administration Agreement also
provides that neither the Administrator or its personnel shall be liable for any
error of judgment or mistake of law or for any act or omission in the
administration of the Funds, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Administration
Agreement.
For its services, the Administrator receives a monthly fee from each Fund at the
following annual rate, subject to a $30,000 annual minimum:
Fund Asset Level Fee Rate
---------------- --------
First $50 million 0.20% of average daily net assets
Next $50 million 0.15% of average daily net assets
Next $50 million 0.10% of average daily net assets
Next $50 million, and thereafter 0.05% of average daily net assets
DISTRIBUTION AGREEMENT
The Trust has entered into a Distribution Agreement (the "Distribution
Agreement") with First Fund Distributors, Inc. (the "Distributor"), pursuant to
which the Distributor acts as the Funds' underwriter, provides certain
administration services and promotes and arranges for the sale of the Funds'
shares. The Distributor is an affiliate of the Administrator.
The Distribution Agreement will continue in effect with respect to a Fund only
if such continuance is specifically approved at least annually by the Board of
Trustees or by vote of a majority of the Fund's outstanding voting securities
and, in either case, by a majority of the Trustees who are not parties to the
Distribution Agreement or "interested persons" (as defined in the Investment
Company Act) of any such party. The Distribution Agreement is terminable without
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penalty by the Trust on behalf of a Fund on 60 days' written notice when
authorized either by a majority vote of the Fund's shareholders or by vote of a
majority of the Board of Trustees of the Trust, including a majority of the
Trustees who are not "interested persons" (as defined in the Investment Company
Act) of the Trust, or by the Distributor on 60 days' written notice, and will
automatically terminate in the event of its "assignment" (as defined in the
Investment Company Act). The Distribution Agreement also provides that neither
the Distributor nor its personnel shall be liable for any act or omission in the
course of, or connected with, rendering services under the Distribution
Agreement, except for willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties.
DISTRIBUTION ARRANGEMENTS
Pursuant to a plan of distribution adopted by the Trust, on behalf of the Funds,
pursuant to Rule 12b-1 under the Investment Company Act (the "Plan"), each Fund
may pay distribution and related expenses up to .25% of its average annual net
assets, as compensation, to the Advisor as Distribution Coordinator. Expenses
permitted to compensate the Advisor for include preparation, printing and
mailing of prospectuses, shareholder reports such as semi-annual and annual
reports, performance reports and newsletters, sales literature and other
promotional material to prospective investors, direct mail solicitations,
advertising, public relations, compensation of sales personnel, advisors or
other third parties for their assistance with respect to the distribution of the
Fund's shares, payments to financial intermediaries for shareholder support,
administrative and accounting services with respect to shareholders of the Fund
and such other expenses as may be approved from time to time by the Board of
Trustees of the Trust.
Under the Plan, the Trustees will be furnished quarterly with information
detailing the amount of expenses paid under the Plan and the purposes for which
payments were made. The Plan may be terminated at any time by vote of a majority
of the Trustees of the Trust who are not interested persons. Continuation of the
Plan is considered by such Trustees no less frequently than annually. During the
period beginning October 1, 1998 and ending September 30, 1999, The Rockhaven
Fund paid the Distribution Coordinator distribution fees totaling $7,759 and The
Premier Dividend Fund paid the Distribution Coordinator distribution fees
totaling $13,507. These fees were used to pay the Advisor for Fund advertising
expenses, presentation and road show expenses incurred, marketing-related
printing fees, and compensation to employees involved in distribution of Fund
shares.
TAXATION
The Funds intend to continue to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, (the
"Code"), for each taxable year by complying with all applicable requirements
regarding the source of its income, the diversification of its assets, and the
timing of its distributions. The Fund's policy is to distribute to its
shareholders all of its investment company taxable income and any net realized
capital gains for each fiscal year in a manner that complies with the
distribution requirements of the Code, so that the Fund will not be subject to
any federal income or excise taxes based on net income. However, the Board may
elect to pay such excise taxes if it determines that payment is, under the
circumstances, in the best interests of the Funds.
In order to qualify as a regulated investment company, the Funds must, among
other things, (a) derive at least 90% of its gross income each year from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock or securities or foreign
currency gains related to investments in stock or securities, or other income
(generally including gains from options, futures or forward contracts) derived
with respect to the business of investing in stock, securities or currency, and
(b) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of its assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies
and other securities limited, for purposes of this calculation, in the case of
other securities of any one issuer to an amount not greater than 5% of the
Fund's assets or 10% of the voting securities of the issuer, and (ii) not more
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<PAGE>
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities or securities of other regulated
investment companies). As such, and by complying with the applicable provisions
of the Code, the Fund will not be subject to federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders in
accordance with the timing requirements of the Code. If the Fund is unable to
meet certain requirements of the Code, it may be subject to taxation as a
corporation.
Distributions of net investment income and net realized capital gains by the
Fund will be taxable to shareholders whether made in cash or reinvested by the
Fund in shares. In determining amounts of net realized capital gains to be
distributed, any capital loss carry-overs from the eight prior taxable years
will be applied against capital gains. Shareholders receiving a distribution
from the Fund in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date. Fund distributions also
will be included in individual and corporate shareholders' income on which the
alternative minimum tax may be imposed.
The Fund or the securities dealer effecting a redemption of the Fund's shares by
a shareholder will be required to file information reports with the Internal
Revenue Service ("IRS") with respect to distributions and payments made to the
shareholder. In addition, the Fund will be required to withhold federal income
tax at the rate of 31% on taxable dividends, redemptions and other payments made
to accounts of individual or other non-exempt shareholders who have not
furnished their correct taxpayer identification numbers and certain required
certifications on the New Account application or with respect to which the Fund
or the securities dealer has been notified by the IRS that the number furnished
is incorrect or that the account is otherwise subject to withholding.
The Fund intends to declare and pay dividends and other distributions, as stated
in the prospectuses. In order to avoid the payment of any federal excise tax
based on net income, the Fund must declare on or before December 31 of each
year, and pay on or before January 31 of the following year, distributions at
least equal to 98% of its ordinary income for that calendar year and at least
98% of the excess of any capital gains over any capital losses realized in the
one-year period ending October 31 of that year, together with any undistributed
amounts of ordinary income and capital gains (in excess of capital losses) from
the previous calendar year.
The Fund may receive dividend distributions from U.S. corporations. To the
extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.
If more than 50% in value of the total assets of the Fund at the end of its
fiscal year is invested in stock or securities of foreign corporations, the Fund
may elect to pass through to its shareholders the pro rata share of all foreign
income taxes paid by the Fund. If this election is made, shareholders will be
(i) required to include in their gross income their pro rata share of the Fund's
foreign source income (including any foreign income taxes paid by the Fund), and
(ii) entitled either to deduct their share of such foreign taxes in computing
their taxable income or to claim a credit for such taxes against their U.S.
income tax, subject to certain limitations under the Code, including certain
holding period requirements. In this case, shareholders will be informed in
writing by the Fund at the end of each calendar year regarding the availability
of any credits on and the amount of foreign source income (including or
excluding foreign income taxes paid by the Fund) to be included in their income
tax returns. If not more than 50% in value of the Fund's total assets at the end
of its fiscal year is invested in stock or securities of foreign corporations,
the Fund will not be entitled under the Code to pass through to its shareholders
their pro rata share of the foreign taxes paid by the Fund. In this case, these
taxes will be taken as a deduction by the Fund.
The Fund may be subject to foreign withholding taxes on dividends and interest
earned with respect to securities of foreign corporations.
B-22
<PAGE>
The use of hedging strategies, such as entering into futures contracts and
forward contracts and purchasing options, involves complex rules that will
determine the character and timing of recognition of the income received in
connection therewith by the Fund. Income from foreign currencies (except certain
gains therefrom that may be excluded by future regulations) and income from
transactions in options, futures contracts and forward contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.
For accounting purposes, when the Fund purchases an option, the premium paid by
the Fund is recorded as an asset and is subsequently adjusted to the current
market value of the option. Any gain or loss realized by the Fund upon the
expiration or sale of such options held by the Fund generally will be capital
gain or loss.
Any security, option, or other position entered into or held by the Fund that
substantially diminishes the Fund's risk of loss from any other position held by
the Fund may constitute a "straddle" for federal income tax purposes. In
general, straddles are subject to certain rules that may affect the amount,
character and timing of the Fund's gains and losses with respect to straddle
positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that the Fund's holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Fund that may mitigate the effects of the straddle rules.
Certain options, futures contracts and forward contracts that are subject to
Section 1256 of the Code ("Section 1256 Contracts") and that are held by the
Fund at the end of its taxable year generally will be required to be "marked to
market" for federal income tax purposes, that is, deemed to have been sold at
market value. Sixty percent of any net gain or loss recognized on these deemed
sales and 60% of any net gain or loss realized from any actual sales of Section
1256 Contracts will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss.
Section 988 of the Code contains special tax rules applicable to certain foreign
currency transactions that may affect the amount, timing and character of
income, gain or loss recognized by the Fund. Under these rules, foreign exchange
gain or loss realized with respect to foreign currency-denominated debt
instruments, foreign currency forward contracts, foreign currency denominated
payables and receivables and foreign currency options and futures contracts
(other than options and futures contracts that are governed by the
mark-to-market and 60/40 rules of Section 1256 of the Code and for which no
election is made) is treated as ordinary income or loss. Some part of the Fund's
gain or loss on the sale or other disposition of shares of a foreign corporation
may, because of changes in foreign currency exchange rates, be treated as
ordinary income or loss under Section 988 of the Code rather than as capital
gain or loss.
A shareholder who purchases shares of the Fund by tendering payment for the
shares in the form of other securities may be required to recognize gain or loss
for income tax purposes on the difference, if any, between the adjusted basis of
the securities tendered to the fund and the purchase price of the Fund's shares
acquired by the shareholder.
Section 475 of the Code requires that a "dealer" in securities must generally
"mark to market" at the end of its taxable year all securities which it owns.
The resulting gain or loss is treated as ordinary (and not capital) gain or
loss, except to the extent allocable to periods during which the dealer held the
security for investment. The "mark to market" rules do not apply, however, to a
security held for investment which is clearly identified in the dealer's records
as being held for investment before the end of the day in which the security was
acquired. The IRS has issued guidance under Section 475 that provides that, for
example, a bank that regularly originates and sells loans is a dealer in
securities, and subject to the "mark to market" rules. Shares of the Fund held
B-23
<PAGE>
by a dealer in securities will be subject to the "mark to market" rules unless
they are held by the dealer for investment and the dealer property identifies
the shares as held for investment.
Redemptions and exchanges of shares of the Fund will result in gains or losses
for tax purposes to the extent of the difference between the proceeds and the
shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends during such six-month period. All or a portion
of a loss realized upon the redemption of shares may be disallowed to the extent
shares are purchased (including shares acquired by means of reinvested
dividends) within 30 days before or after such redemption.
Distributions and redemptions may be subject to state and local income taxes,
and the treatment thereof may differ from the federal income tax treatment.
Foreign taxes may apply to non-U.S. investors.
The above discussion and the related discussion in the prospectuses are not
intended to be complete discussions of all applicable federal tax consequences
of an investment in the Fund. The law firm of Paul, Hastings, Janofsky & Walker
LLP has expressed no opinion in respect thereof. Nonresident aliens and foreign
persons are subject to different tax rules, and may be subject to withholding of
up to 30% on certain payments received from the Fund. Shareholders are advised
to consult with their own tax advisers concerning the application of foreign,
federal, state and local taxes to an investment in the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Funds will receive income in the form of dividends and interest earned on
its investments in securities. This income, less the expenses incurred in its
operations, is each Fund's net investment income, substantially all of which
will be declared as dividends to each Fund's shareholders.
The amount of income dividend payments by the Funds is dependent upon the amount
of net investment income received by the Fund from its portfolio holdings, is
not guaranteed and is subject to the discretion of the Board. The Fund does not
pay "interest" or guarantee any fixed rate of return on an investment in its
shares.
The Fund also may derive capital gains or losses in connection with sales or
other dispositions of its portfolio securities. Any net gain the Fund may
realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held more than the period
required for long-term capital gain or loss recognition or otherwise producing
long-term capital gains and losses, the Fund will have a net long-term capital
gain. After deduction of the amount of any net short-term capital loss, the
balance (to the extent not offset by any capital losses carried over from the
eight previous taxable years) will be distributed and treated as long-term
capital gains in the hands of the shareholders regardless of the length of time
the Fund's shares may have been held by the shareholders. For more information
concerning applicable capital gains tax rates, see your tax advisor.
Any dividend or distribution paid by the Fund reduces the Fund's net asset value
per share on the date paid by the amount of the dividend or distribution per
share. Accordingly, a dividend or distribution paid shortly after a purchase of
shares by a shareholder would represent, in substance, a partial return of
capital (to the extent it is paid on the shares so purchased), even though it
would be subject to income taxes.
Dividends and other distributions will be made in the form of additional shares
of the Fund unless the shareholder has otherwise indicated. Investors have the
right to change their elections with respect to the reinvestment of dividends
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<PAGE>
and distributions by notifying the Transfer Agent in writing, but any such
change will be effective only as to dividends and other distributions for which
the record date is seven or more business days after the Transfer Agent has
received the written request.
PERFORMANCE INFORMATION
TOTAL RETURN
Average annual total return quotations used in the Fund's advertising and
promotional materials are calculated according to the following formula:
n
P(1 + T) = ERV
where "P" equals a hypothetical initial payment of $1,000; "T" equals average
annual total return; "n" equals the number of years; and "ERV" equals the ending
redeemable value at the end of the period of a hypothetical $1,000 payment made
at the beginning of the period.
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication. Average annual total
return, or "T" in the above formula, is computed by finding the average annual
compounded rates of return over the period that would equate the initial amount
invested to the ending redeemable value. Average annual total return assumes the
reinvestment of all dividends and distributions.
For the period from October 1, 1998 through September 30, 1999, The Rockhaven
Fund and The Premier Dividend Fund had Total Returns of 21.88% and 35.98%,
respectively.
OTHER INFORMATION
Performance data of the Fund quoted in advertising and other promotional
materials represents past performance and is not intended to predict or
guarantee future results. The return and principal value of an investment in the
Fund will fluctuate, and an investor's redemption proceeds may be more or less
than the original investment amount. In advertising and promotional materials
the Fund may compare its performance with data published by Lipper Analytical
Services, Inc. ("Lipper") or CDA Investment Technologies, Inc. ("CDA"). The Fund
also may refer in such materials to mutual fund performance rankings and other
data, such as comparative asset, expense and fee levels, published by Lipper or
CDA. Advertising and promotional materials also may refer to discussions of the
Fund and comparative mutual fund data and ratings reported in independent
periodicals including, but not limited to, THE WALL STREET JOURNAL, MONEY
Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD and BARRON'S.
GENERAL INFORMATION
Advisors Series Trust is an open-end management investment company organized as
a Delaware Business Trust under the laws of the State of Delaware on October 3,
1996. The Trust currently consists of 19 series of shares of beneficial
interest, par value $0.01 per share. The Agreement and Declaration of Trust
permits the Trustees to issue an unlimited number of full and fractional shares
of beneficial interest and to divide or combine the shares into a greater or
lesser number of shares without thereby changing the proportionate beneficial
interest in the Fund. Each share represents an interest in the Fund
proportionately equal to the interest of each other share. Upon the Fund's
liquidation, all shareholders would share pro rata in the net assets of the Fund
available for distribution to shareholders.
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<PAGE>
The Agreement and Declaration of Trust does not require the issuance of stock
certificates. If stock certificates are issued, they must be returned by the
registered owners prior to the transfer or redemption of shares represented by
such certificates.
If they deem it advisable and in the best interest of shareholders, the Board of
Trustees may create additional series of shares which differ from each other
only as to dividends. The Board of Trustees has created 19 series of shares, and
may create additional series in the future, each of which have separate assets
and liabilities. Income and operating expenses not specifically attributable to
a particular Fund are be allocated fairly among the Funds by the Trustees,
generally on the basis of the relative net assets of each Fund.
Rule 18f-2 under the Investment Company Act provides that as to any investment
company which has two or more series outstanding and as to any matter required
to be submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
The Funds' custodian, Firstar Bank, 425 Walnut Street, Cincinnati, Ohio 45202 is
responsible for holding the Funds' assets. The Custodian does not participate in
decisions relating to the purchase and sale of securities by the Fund. Ultimus
Fund Solutions, LLC, 135 Merchant Street, Suite 230, Cincinnati, OH 45246 acts
as the Funds' accounting services agent. The Fund's independent accountants,
PricewaterhouseCoopers, LLP, 1177 Avenue of the Americas, New York, NY 10036,
assist in the preparation of certain reports to the Securities and Exchange
Commission and the Funds' tax returns. Paul, Hastings Janofsky & Walker are
legal counsel to the Fund.
Shares of the Funds owned by the Trustees and officers as a group were less than
1% at November 22, 1999.
On November 22, 1999, the following additional persons owned of record and/or
beneficially more than 5% of The Rockhaven Fund's outstanding voting securities:
Lawrence R. Garlock, Janice O. Garlock, JT TEN, 303 Churchill Road, Greensburg,
PA 15601; 16.60% record.
On November 22, 1999, the following additional persons owned of record and/or
beneficially more than 5% of The Premier Dividend Fund's outstanding voting
securities:
Lawrence R. Garlock, Janice O. Garlock, JTWROS, 303 Churchill Road, Greensburg,
PA 15601; 7.62% record.
The validity of the Funds' shares have been passed on by Paul, Hastings,
Janofsky & Walker LLP, 345 California Street, San Francisco, CA 94104.
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APPENDIX
DESCRIPTION OF RATINGS
MOODY'S INVESTORS SERVICE, INC.: CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA -- Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B -- Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
CAA -- Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
CA -- Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C -- Bonds rated C are the lowest-rated class of bonds, and such issues can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modified 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORPORATION: CORPORATE BOND RATINGS
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
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A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB- rating.
CCC -- Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or B- Rating.
CC -- Debt rated CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C -- The Rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Moody's commercial paper ratings are assessments of the issuer's ability to
repay punctually promissory obligations. Moody's employs the following
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1--highest quality; Prime 2--higher
quality.
STANDARD & POOR'S RATINGS GROUP
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment. Ratings are graded into four categories, ranging
from "A" for the highest quality obligations to "D" for the lowest. Issues
assigned the highest rating, A, are regarded as having the greatest capacity for
timely payment. Issues in this category are delineated with the numbers "1", "2"
and "3" to indicate the relative degree of safety. The designation A-1 indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. A "+" designation is applied to those issues rated "A-1" which
possess extremely strong safety characteristics. Capacity for timely payment on
issues with the designation "A-2" is strong. However, the relative degree of
safety is not as high as for issues designated A-1.
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