As filed with the Securities and Exchange Commission on May 22, 2000
Registration No. 333-17391
File No. 811-07959
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 63
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 64
ADVISORS SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (602) 952-1100
ROBERT H. WADSWORTH
4455 E. Camelback Road, suite 261E
Phoenix, AZ 85018
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On _____________, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On _____________, pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] On _____________, pursuant to paragraph (a)(2) of Rule 485
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As filed with the Securities and Exchange Commission on May 22, 2000
Registration No. 333-17391
File No. 811-07959
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Part A
of
Form N-1A
REGISTRATION STATEMENT
ADVISORS SERIES TRUST
Van Deventer & Hoch American Value Fund
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VAN DEVENTER & HOCH AMERICAN VALUE FUND
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
___________, 2000
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TABLE OF CONTENTS
Page
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VAN DEVENTER & HOCH AMERICAN VALUE FUND.....................................1
What Is the Fund's Goal?...............................................1
What are the Fund's Main Investment Strategies?........................1
What are the Primary Risks of Investing in the Fund?...................2
Who May Want to Invest?................................................3
How Has the Fund Performed?............................................3
What are the Fees And Expenses of the Fund?............................3
Example of Fund Expenses...............................................4
MANAGEMENT..................................................................4
the Adviser............................................................4
Portfolio Manager......................................................4
SHAREHOLDER SERVICES........................................................5
How to Reach the Fund..................................................5
Types of Accounts......................................................5
How to Open an Account.................................................6
How to Purchase Shares.................................................6
How to Sell Shares.....................................................8
Shareholder Services And Policies.....................................10
PRICING OF FUND SHARES.....................................................11
DISTRIBUTIONS..............................................................11
INCOME TAX CONSIDERATIONS..................................................12
MORE ABOUT THE FUND........................................................13
Principal Investment Strategies.......................................13
OTHER INFORMATION CONCERNING THE FUND......................................13
Distribution Arrangements.............................................13
Shareholder Servicing Agents..........................................14
Administrative Services...............................................14
FINANCIAL HIGHLIGHTS.......................................................15
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VAN DEVENTER & HOCH AMERICAN VALUE FUND
WHAT IS THE FUND'S GOAL?
The Fund's goal is to provide investors with long-term growth of capital and
above average current income with investments primarily in equity securities of
U.S. companies.
A fund that seeks long-term GROWTH OF CAPITAL seeks to increase the value of
your investment over a period of three to seven years. CAPITAL, also called
PRINCIPAL, refers to the amount of money that you invest in a fund. If the price
of the Fund's shares or net asset value (NAV) goes up because of an increase in
the value of the securities in the Fund, your CAPITAL will also grow or
appreciate. If, however, the price of the Fund's shares decreases because of a
decline in the value of securities in the Fund, you will lose some of your
CAPITAL. If you choose to have your dividends and other distributions reinvested
in additional shares of the Fund, the amount of the dividends or other
distributions will be added to your initial investment and increase the amount
of your CAPITAL.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund seeks to achieve its goal by investing at least 65% of its total assets
in equity securities of companies based in the U.S.
The Adviser will try to identify equity securities that it believes are
undervalued relative to each company's asset value and its potential earnings
and dividends. There can be no assurance, however, that the Adviser's judgment
about the higher potential value of an equity security will ever be reflected in
the market price of that security.
The Fund seeks to provide a greater yield (or current income) than the average
yield of Standard and Poor's 500 Composite Index stocks by investing in
dividend-paying U.S. companies. This Fund will typically invest in companies
with a market capitalization of at least $200 million. From time to time, the
Fund may also invest in companies with smaller capitalizations. In addition to
common stocks, the Fund may invest in other securities including convertible
debt securities and preferred stock.
What is CAPITALIZATION? CAPITALIZATION or MARKET CAPITALIZATION is the total
value of a company's stock in the marketplace or on a stock exchange. For
example, a company that has issued one million shares that are currently selling
for $50 per share would have a CAPITALIZATION of $50 million.
In selecting investments for the Fund, the Adviser generally seeks companies it
believes exhibit characteristics of financial soundness and are undervalued by
the market. In seeking to identify financially sound companies, the Fund's
Adviser looks for companies with strongly capitalized balance sheets, an ability
to generate substantial cash flow, relatively low levels of leverage, an ability
to meet debt service requirements and a history of paying dividends. In seeking
to identify undervalued companies, the Adviser looks for companies with
substantial tangible assets such as land, timber, oil and other natural
resources, or important brand names, patents, franchises or other intangible
assets which may have greater value than what is reflected in the company's
financial statements. The Fund's Adviser will often select investments for the
Fund which are considered to be unattractive by other investors or are unpopular
with the financial press.
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WHAT ARE THE PRIMARY RISKS OF INVESTING IN THE FUND?
By investing in stocks, the Fund may expose you to certain market risks that
could cause you to lose money, particularly a sudden decline in a holding's
share price or an overall decline in the stock market. As with any stock fund,
the value of your investment will fluctuate on a day-to-day basis with movements
in the stock market, as well as in response to activities of individual
companies. Although the Fund seeks to provide a consistent level of income to
shareholders, its yield may fluctuate significantly in the short term.
The primary risks of investing in the Fund are:
* MARKET RISK: This is the risk that the price of a security will rise
or fall because of changing economic, political or market conditions,
or because of a company's individual situation. Additional
market-related risks for this Fund include the risk that:
+ Value stocks continue to fall out of favor
+ The market continues indefinitely to undervalue the stocks in the
Fund's portfolio
+ The stocks in the Fund's portfolio turn out to be undervalued
because the Adviser's initial evaluation of the stock was
mistaken
* SMALLER COMPANIES: The securities of smaller companies may have more
risks than those of larger companies -- they may be more susceptible
to market downturns, and their prices may be more volatile.
* FOREIGN SECURITIES: Although the fund emphasizes investments in stocks
of U.S. companies, it also may invest up to 20% of its total assets in
foreign securities, including American Depositary Receipts (ADRs). The
Fund expects that its investments in foreign issuers, if any, will
generally be in companies that generate substantial revenues from U.S.
operations and that are listed on U.S. securities exchanges. Because
foreign securities are normally denominated and traded in foreign
currencies, the value of the Fund's foreign investments may be
influenced by currency exchange rates and exchange control
regulations. There may be less information publicly available about
foreign issuers than U.S. issuers, and they are not generally subject
to accounting, auditing and financial reporting standards and
practices comparable to those in the U.S. Foreign securities may be
less liquid and more volatile than comparable U.S. securities.
* INTEREST RATE RISK: In general, the prices of debt securities rise
when interest rates fall and the prices of debt securities fall when
interest rates rise. However, the stock market and stocks that pay
dividends also can be affected.
* SPECIAL RISKS OF CONVERTIBLE SECURITIES: Convertible securities are
subject to the market risk of stocks, while also subject to interest
rate risk and the credit risk of the companies that issue them. Call
provisions may allow the issuer to repay the debt before it matures.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
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WHO MAY WANT TO INVEST?
This Fund may be appropriate for investors who are:
* seeking long-term capital appreciation while also desiring a minimal
level of current income;
* willing to leave their money invested in the Fund for at least three
years;
* able to tolerate a substantial loss in the value of their investment;
* not seeking absolute principal stability.
THE FUND ALONE DOES NOT PROVIDE A BALANCED INVESTMENT PLAN.
HOW HAS THE FUND PERFORMED?
The Fund is new and does not have a full calendar year of investment returns as
of the date of this Prospectus.
WHAT ARE THE FEES AND EXPENSES OF THE FUND?
The Table below describes the fees and expenses that you may pay if you buy and
hold shares of this Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases NONE
Maximum Deferred Sales Charge (Load) NONE
Maximum Sales Charge (Load) Imposed on Reinvested Dividends NONE
Redemption Fee NONE
Exchange Fee NONE
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets).
Management Fees 0.70%
Distribution (12b-1) Fees 0.25%
Other Expenses:
Administrative Services Fees* 0.70%*
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Total Annual Operating Expenses 1.65%
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* The Administrative Services Fee compensates the Adviser for retaining other
service providers needed by the Fund and paying all operating costs of the
Fund, regardless whether those costs are more or less than this Fee.
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EXAMPLE OF FUND EXPENSES
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$168 $520 $897 $1,955
MANAGEMENT
THE ADVISER
The investment adviser for the Fund is Van Deventer & Hoch (the "Adviser"). The
Adviser serves as the investment adviser under an Investment Advisory Agreement
and has overall responsibility for investment decisions of the Fund, subject to
the oversight of the Board of Trustees. For more than a quarter century, the
Adviser has provided investment management and related services to individuals,
institutions, and charitable organizations. As of December 31, 1999, Van
Deventer & Hoch managed approximately $3.1 billion on behalf of individual and
institutional investors. Van Deventer & Hoch is one of fewer than 200 registered
investment advisers admitted to the Investment Counsel Association of America,
which mandates strict requirements for professional and financial
responsibility.
The Adviser is an SEC-registered investment adviser. The Adviser is 50% owned by
certain principals of Highcrest Capital Partners and 50% by members of the
Adviser's management team. The Adviser is headquartered at 800 North Brand
Boulevard, Suite 300, Glendale, California 91203.
For its services, the Fund pays the Advisor an annual fee, payable monthly, of
0.70% of its average daily net assets.
PORTFOLIO MANAGER
Russell D. Kartub, who joined the Adviser in 1984, is responsible for the
day-to-day management of this Fund's portfolio. Since joining Van Deventer &
Hoch, Mr. Kartub has enjoyed increasingly senior positions and since 1997 has
served as a Senior Vice President and the Director of Research. From 1995 until
1997, he was a Senior Vice President and the Director of Information Systems,
and from 1991 until 1995 he was an Assistant Vice President and then a Vice
President. He earned an undergraduate degree from Occidental College in Los
Angeles and then an economics diploma from the London School of Economics.
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SHAREHOLDER SERVICES
This section describes how to do business with the Fund and the services that
are available to shareholders.
HOW TO REACH THE FUND
BY TELEPHONE 1.800.576-8229
Call for account or Fund information
BY REGULAR MAIL Van Deventer & Hoch American Value Fund
AND OVERNIGHT COURIER c/o ICA Fund Services Corp.
4455 East Camelback Road
Suite 261E
Phoenix, AZ 85018
TYPES OF ACCOUNTS
If you are investing in the Fund for the first time, you will need to establish
an account. You may establish the following types of accounts by completing an
account application. To obtain an application, call 1.800.576.8229.
* INDIVIDUAL OR JOINT OWNERSHIP. Individual accounts are owned by one
person. Joint accounts have two or more owners.
* GIFT OR TRANSFER TO MINOR (UGMA OR UTMA). A UGMA (Uniform Gifts to
Minors Act) or UTMA (Uniform Transfers to Minors Act) account is an
account maintained by a custodian for the benefit of a minor. To open
a UGMA or UTMA account, you must include the minor's social security
number on the application.
* TRUST. A trust can open an account. The name of each trustee, the name
of the trust and the date of the trust agreement must be included on
the application.
* CORPORATIONS, PARTNERSHIPS AND OTHER LEGAL ENTITIES. Corporations,
partnerships and other legal entities may also open an account. The
application and resolution form must be signed by a general partner of
the partnership or an authorized officer of the corporation or other
legal entity.
* RETIREMENT. If you are eligible, you may set up your account under a
tax-sheltered retirement plan, such as an Individual Retirement
Account. Call 1.800.576.8229 for more information.
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HOW TO OPEN AN ACCOUNT
Complete and sign the appropriate account application. Please be sure to provide
your social security or taxpayer identification number on the application. Make
your check payable to Van Deventer & Hoch American Value Fund. Send all items to
the following address:
BY REGULAR MAIL Van Deventer & Hoch American Value Fund
AND OVERNIGHT COURIER c/o ICA Fund Services Corp.
4455 East Camelback Road
Suite 261E
Phoenix, AZ 85018
You may also purchase shares through certain financial institutions. These
institutions may have their own procedures for buying and selling shares, and
may charge fees. Contact your financial institution for more information.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on a continuous basis and may be purchased from the
Distributor or a broker-dealer or financial institution that has an agreement
with the Distributor. Purchases may be made Monday through Friday, except on
certain holidays.
The Fund's share price, called net asset value per share, is calculated every
business day. The Fund's shares are sold without a sales charge. Shares are
purchased at net asset value the next time it is calculated after your
investment is received and accepted by the Distributor. Purchase orders though
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 Fund's daily cutoff time. Orders received after that time will be
purchased at the next-determined net asset value. To the extent that these
agents perform shareholder servicing activities for the Fund, they may receive
fees from the Fund for such services. For information on how shares are priced,
please see "Pricing of Fund Shares" below.
NEW PURCHASES. If you are new to the Fund, complete and sign an account
application and mail it along with your check. To establish the telephone
purchase option on your new account, complete the "Telephone Transfer
Authorization" section on the application and attach a check or savings
withdrawal slip from your bank account which you have "voided" by the word
"VOID" across the front.
If you wish to open an account by debiting your checking or savings account,
please attach a "voided" check or savings withdrawal slip, and complete the
"Bank Wire and Electronic Transfer" section of the application.
If you are investing through a tax-sheltered retirement plan for the first time,
you will need a special application. Retirement investing also involves its own
investment procedures. Call 1.800.576.8229 for more information.
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ADDITIONAL PURCHASES. If you already have money invested in a Fund, you can
invest additional money in that Fund in the following ways:
BY MAIL. Complete the remittance slip attached at the bottom of your
confirmation statement. If your investment is in a retirement account,
please indicate whether the purchase is a rollover or a current or prior
year contribution. Send your check and remittance slip or written
instructions to one of the addresses listed above under "How To Open An
Account."
BY TELEPHONE. This service allows you to purchase additional shares quickly
and conveniently through an electronic transfer of money. When you make an
additional purchase by telephone, the Fund will automatically deduct money
from your predesignated bank account for the desired amount. If you have
not established the telephone purchase option, call 1.800.576.8229 to
request the appropriate form.
BY WIRE. Purchases may also be made by wiring money from your bank account
to your Allegiance Fund account. Each time you wish to send a wire, you
must call 1.800.576.8229 before you send money to receive wiring
instructions.
AUTOMATIC INVESTMENT PROGRAM. Automatic investing is an easy way to add to
your account on a regular basis. The Fund offers an automatic investment
plan to help you achieve your financial goals as simply and conveniently as
possible. Please note that there is a $100 minimum investment. Call the
Transfer Agent at 1.800.576.8229 for information.
PAYING FOR SHARES. Please note the following:
* Purchases may be made by check, wire transfer and electronic transfer.
When purchases are made by check, redemptions will not be allowed
until the check clears, which may take 15 calendar days or longer. In
addition, the redemption shares purchased through Automated Clearing
House ("ACH") will not be allowed until your payment clears, which may
take seven business days or longer.
* All purchases must be made in U.S. dollars.
* Checks must be drawn on U.S. banks and must be payable to Van Deventer
& Hoch American Value Fund. Checks that are not made payable directly
to Van Deventer & Hoch American Value Fund ("third party checks") are
not accepted.
* Cash and credit card checks are not accepted.
* If a check does not clear your bank, the Fund reserves the right to
cancel the purchase.
* If the Fund is unable to debit your predesignated bank account on the
day you purchase shares, it may make additional attempts or cancel the
purchase.
If your purchase is canceled, you will be responsible for any losses or fees
imposed by your bank and losses that may be incurred as a result of any decline
in the value of the canceled purchase. The Fund has the authority to redeem
shares in your account(s) to cover any losses due to changes in share price. The
Fund reserves the right to reject any specific purchase or exchange request.
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MINIMUM INVESTMENTS. The following minimums apply unless they are waived by the
Distributor.
To open an account $2,500
For tax-sheltered retirement plans 1,000
To add to an account 100
Through automatic investment plans 100
Minimum account balance 500
For tax-sheltered retirement plans 500
HOW TO SELL SHARES
Selling your shares in the Fund is called a "redemption" because the Fund buys
back its shares. On any business day, you may sell (redeem) all or a portion of
your shares. If the shares being sold were recently purchased by check,
telephone or through an automatic investment program, the Fund may delay the
mailing of your redemption check for up to ten business days after purchase to
allow the purchase to clear. Your transaction will be processed at net asset
value the next time it is calculated after the Fund receives your redemption
request in good order. You may gain or lose money when you redeem your shares.
Please note that a redemption is treated as a sale for tax purposes, and could
result in taxable gain or loss in a non-tax-sheltered account.
BY MAIL. To redeem all or part of your shares by mail, please send your request
in writing to the address listed above under "How To Open An Account" and
include the following information (please refer to "Signature Guarantees" below
if your redemption request is over $100,000):
* the name of the Fund(s),
* the account number(s),
* the amount of money or number of shares being redeemed,
* the name(s) on the account,
* the signature(s) of all registered account owners, and
* your daytime telephone number.
Signature requirements vary based on the type of account you have:
* INDIVIDUAL, JOINT TENANTS, TENANTS-IN-COMMON: Written instructions
must be signed by each shareholder exactly as the names appear on the
account.
* UGMA OR UTMA: Written instructions must be signed by the custodian as
it appears on the account.
* SOLE PROPRIETOR, GENERAL PARTNER: Written instructions must be signed
by an authorized individual as it appears on the account.
* CORPORATION, ASSOCIATION: Written instructions must be signed by the
person(s) authorized to act on the account. A certified copy of the
corporate resolution, authorizing the signer to act, must accompany
the request.
* TRUST: Written instructions must be signed by the trustee(s). If the
name of the current trustee(s) does not appear on the account, a
certified certificate of incumbency dated within 60 days must also be
submitted.
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* RETIREMENT: Written instructions must be signed by the account owner.
Call the Transfer Agent at 1.800.576.8229 for more information.
BY TELEPHONE. If you selected this option on your account application, you may
make redemptions from your account by calling the Transfer Agent at
1.800.576.8229 unless you have notified the Transfer Agent of an address change
within the preceding 30 days. Telephone redemption in excess of $25,000 will
only be made by wire to a bank account on record with the Fund. Unless an
investor indicates otherwise on the account application, the Fund will be
authorized to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as his or her
representative, who can provide the Fund with his or her account registration
and address as its appears on the Fund' records. The Fund requires that requests
for redemptions of over $100,000 be in writing with signatures guaranteed (see
below). You may not close your account by telephone. SYSTEMATIC WITHDRAWAL PLAN.
Under this plan, you may redeem $50 or more monthly, quarterly or semi-annually.
A minimum account balance of $5,000 is required to establish an automatic
withdrawal plan. For more information or to sign up for this service, please
call the Transfer Agent at 1.800.576.8229.
THROUGH YOUR INVESTMENT REPRESENTATIVE. Your investment representative must
receive your request before the close of regular trading on the New York Stock
Exchange 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.
PAYMENT OF REDEMPTION PROCEEDS. Payments may be made by check, wire transfer or
electronic transfer.
* BY CHECK. Redemption proceeds will be sent to the shareholder(s) on
our records at the address on our records within seven days after
receipt of a valid redemption request.
* BY WIRE. If you have selected this option on your application, your
redemption proceeds will be wired directly into your designated bank
account normally on the next business day after receipt of your
redemption request is received. There is no limitation on redemptions
by wire; however, there is a $12 fee for each wire and your bank may
charge an additional fee to receive the wire. If you would like to
establish this option on an existing account, please call the Transfer
Agent at 1.800.576.8229 to sign up for this service. Wire redemptions
are not available for retirement accounts.
* BY ELECTRONIC TRANSFER. If you have established this option, your
redemption proceeds will be transferred electronically to your
predesignated bank account. To establish this option on an existing
account, please call the Transfer Agent at 1.800.576.8229 to request
the appropriate form.
SIGNATURE GUARANTEES. In addition to the signature requirements described above,
a signature guarantee is required if:
* You would like the check made payable to anyone other than the
shareholder(s) on our records.
* You would like the check mailed to an address other than the address
on our records.
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* You would like the check mailed to an address on our records that has
changed in the past 30 days.
* Your redemption request is over $100,000.
The Fund may also require signature guarantees for other redemptions. A
signature guarantee assures that a signature is genuine and protects
shareholders from unauthorized account transfers. Banks, savings and loan
associations, trust companies, credit unions, broker-dealers and member firms of
a national securities exchange may guarantee signatures. Call your financial
institution to determine if it has this capability.
SHAREHOLDER SERVICES AND POLICIES
REDEMPTION PROCEEDS. The Fund' policy is to pay redemption proceeds in cash, but
the Fund reserves the right to change this policy and to pay in-kind in certain
cases by delivering to you investment securities equal to the redemption price.
In these cases, you might have to pay brokerage costs when converting the
securities to cash. The right of any shareholder to receive redemption proceeds
may be suspended, or payment may be postponed, in certain circumstances. These
circumstances include any period the New York Stock Exchange is closed (other
than weekends or holidays) or trading on the Exchange is restricted, any period
when an emergency exists and any time the Securities and Exchange Commission
allows mutual Fund to delay payments for the protection of investors.
TAXPAYER IDENTIFICATION NUMBER. On the account application or other appropriate
form, you will be asked to certify that your social security or taxpayer
identification number is correct and that you are not subject to backup
withholding for failing to report income to the IRS. If you are subject to
backup withholding or you did not certify your taxpayer identification number,
the IRS requires the Fund to withhold 31% of any dividends and redemption or
exchange proceeds. The Fund reserves the right to reject any application that
does not include a certified social security or taxpayer identification number.
SHARE OWNERSHIP. The Fund keeps a record of the ownership of its shares, and
share certificates are not issued.
INVOLUNTARY REDEMPTIONS. If your account balance falls below $500 due to
redemption, exchanges, or if you purchase through the Automatic Investment Plan
and fail to meet the Fund's investment minimum within a twelve-month period, you
will be given at least 30 days to re-establish the minimum balance. If you do
not, your account may be closed and the proceeds sent to you.
TELEPHONE TRANSACTIONS. You may buy or sell shares by telephone if you selected
this option on your account application. If you wish to establish this option on
an existing account, please call 1.800.576.8229 to request the appropriate form.
The Fund and its agents will not be responsible for any losses that may result
from acting on wire or telephone instructions that it reasonably believes to be
genuine. The Fund and their agents will each follow reasonable procedures to
confirm that instructions received by telephone are genuine, which may include
taping telephone conversations. It may be difficult to reach the Fund by
telephone during periods of unusual market activity.
ADDRESS CHANGES. To change the address on your account, call 1.800.576.8229 or
send a written request signed by all account owners. Include the name of your
Fund(s), the account numbers(s), the name(s) on the account and both the old and
new addresses.
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NAME/ACCOUNT OWNERSHIP CHANGES. To change the name on an account, the shares are
generally transferred to a new account. In some cases, certain legal documents
may be required. For more information, call 1.800.576.8229. If your shares are
held by a financial institution, contact that financial institution for
ownership changes.
STATEMENTS AND REPORTS. The Fund will send you a confirmation statement after
every transaction that affects your account balance or your account
registration. If you are enrolled in an automatic investment program and invest
on a monthly basis, you will receive quarterly confirmations. Information about
the tax status of income dividends and capital gains distributions will be
mailed to shareholders early each year. Financial reports for the Fund, which
include a list of the Fund' portfolio holdings, will be mailed twice each year
to all shareholders.
PRICING OF FUND SHARES
The net asset value per share (NAV) of the Fund is calculated on each day the
New York Stock Exchange is open. The NAV is the value of a single share of a
Fund. The Fund's NAV is calculated at the close of business of the New York
Stock Exchange, normally 4:00 p.m. Eastern time. The NAV is generally based on
the market value of the securities held in the Fund, or, if market values are
not available, the fair value of securities is determined using procedures that
the Board of Trustees has approved.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when the Fund does not price its
shares. Therefore, the NAV of any Fund holding foreign securities may change on
days when shareholders will not be able to buy or sell their Fund shares.
DISTRIBUTIONS
As a Fund shareholder, you are entitled to your share of the Fund's net income
and gains on its investments. The Fund passes substantially all of its earnings
along to its investors as distributions. When a Fund earns dividends from stocks
and interest from bonds and other debt securities and distributes these earnings
to shareholders, it is called a DIVIDEND DISTRIBUTION. A Fund realizes capital
gains when it sells securities for a higher price than it paid. When these gains
are distributed to shareholders, it is called a CAPITAL GAIN DISTRIBUTION.
Dividend distributions may be made several times a year, while capital gain
distributions are generally made annually.
Your distributions of dividends and capital gains, if any, are paid once
annually, usually after the end of the Fund's October 31st fiscal year end.
You will receive distributions from a Fund in additional shares of that Fund
unless you choose to receive your distributions in cash. If you wish to change
the way in which you receive dividends, you should call the Transfer Agent at
1.800.576.8229 for instructions.
If you have elected to receive dividends and/or distributions in cash, and the
postal or other delivery service returns your check to the Fund as
undeliverable, you will not receive interest on amounts represented by the
uncashed checks.
11
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INCOME TAX CONSIDERATIONS
Your investment in the Fund will have tax consequences that you should consider.
Some of the more common federal tax consequences are described here, but you
should consult your tax adviser about your own particular situation.
TAXES ON DISTRIBUTIONS. You will generally have to pay federal income tax on all
Fund distributions. Your distributions will be taxed in the same manner whether
you receive the distributions in cash or additional shares of the Fund.
Distributions that are derived from net long-term capital gains generally will
be taxed as long-term capital gains. The rate of tax will generally depend on
how long the Fund held the securities on which it realized the gains. All other
distributions, including short-term capital gains, generally will be taxed as
ordinary income.
The Fund expects that its distributions will consist of both net long-term
capital gains and ordinary income
TAXES ON SALE OR EXCHANGE. If you sell your shares of the Fund, or exchange them
for shares of another Fund, you generally will be subject to tax on any taxable
gain. Your taxable gain is computed by subtracting your tax basis in the shares
from the redemption proceeds (in the case of a sale) or the value of the shares
received (in the case of an exchange). Because your tax basis depends on the
original purchase price and on the price at which any dividends may have been
reinvested, you should be sure to keep your account statements so that you or
your tax preparer will be able to determine whether a sale or exchange will
result in a taxable gain.
"BUYING A DIVIDEND". If you buy shares in the Fund just before the Fund makes
any distribution, you will receive some of the purchase price back in the form
of a taxable distribution.
TAX WITHHOLDING. If you are not a U.S. citizen or resident, or if you are
subject to "backup withholding," the Fund may be required to withhold a portion
of your distributions and, in some cases, redemption proceeds, as a payment of
federal income tax.
The above is only a summary of certain federal income tax consequences of
investing in the Fund. You should consult your tax adviser to determine the
precise effect of an investment in the Fund on your particular tax situation
(including possible liability for state and local taxes and, for foreign
shareholders, U.S. withholding taxes).
12
<PAGE>
MORE ABOUT THE FUND
PRINCIPAL INVESTMENT STRATEGIES
The principal investment strategies of the Fund are strategies that, in the
opinion of the Adviser, are most likely to be important in trying to achieve the
Fund' investment objectives. Of course, there can be no assurance that the Fund
will achieve its investment objective. Please note that the Fund may also use
strategies and invest in securities that are not described in this Prospectus,
but which are described in the Statement of Additional Information.
Investors should note that during periods of unusual economic or market
conditions or for temporary defensive purposes or liquidity, the Fund may invest
without limit in cash and in U.S. dollar-denominated high-quality money market
instruments and other short-term securities. These investments may result in a
lower yield and have less potential for capital appreciation than would be
available from investments typically held by the Fund and may prevent the Fund
from achieving its investment objective.
The Fund is actively managed, and the portfolio managers may trade securities
frequently, resulting, from time to time, in an annual portfolio turnover rate
of over 100%. Trading securities may produce capital gains, which are taxable to
shareholders when distributed. Active trading may also increase the amount of
mark-ups and fees to broker-dealers that a Fund pays when it buys and sells
securities.
OTHER INFORMATION CONCERNING THE FUND
DISTRIBUTION ARRANGEMENTS
The Fund's distributor is First Fund Distributors, Inc. (the "Distributor"), an
affiliate of Investment Company Administration, L.L.C., the Fund'
sub-administrator. The Distributor's principal place of business is located at
4455 East Camelback Road, Suite 261E, Phoenix, Arizona 85018.
The Fund does not charge any sales loads, deferred sales loads or other fees in
connection with the purchase of shares. The Fund has adopted a plan under Rule
12b-1 ("Plan"). The Plan allows a Fund to use part of the Fund's assets (up to
.25% of its average daily net assets) for the sale and distribution of its
shares, including advertising, marketing and other promotional activities.
Expenses permitted to be paid by the Fund under their Plan include: preparation,
printing and mailing 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 solicitation;
advertising; public relations; compensation of sales personnel; advisers or
other third parties for their assistance with respect to the distribution of the
Fund' shares; payments to financial intermediaries for shareholder support;
administrative and accounting services with respect to the shareholders of the
Fund; and such other expenses as may be approved from time to time by the Board
of Trustees.
Because these fees are paid out of assets of the Fund, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
The Plan allows excess distribution expenses to be carried forward by the
Adviser, as Distribution Coordinator, and resubmitted in a subsequent fiscal
year provided that (i) distribution expenses cannot be carried forward for more
than three years following initial submission; (ii) the Board of Trustees has
made a determination at the time of initial submission that the distribution
13
<PAGE>
expenses are appropriate to be carried forward; and (iii) the Board of Trustees
makes a further determination, at the time any distribution expenses which have
been carried forward are resubmitted for payment, to the effect that payment at
the time is appropriate, consistent with the objectives of the Plan and the
current best interest of shareholders.
SHAREHOLDER SERVICING AGENTS
The Fund has entered into shareholder servicing agreement with certain
shareholder servicing agents (including the Adviser) under which the shareholder
servicing agents have agreed to provide certain support services to their
customers who beneficially own shares of the Fund. These services include
assisting with purchase and redemption transactions, maintaining shareholder
accounts and records, furnishing customer statements, transmitting shareholder
reports and communications to customers and other similar shareholder liaison
services. For performing these services, each shareholder servicing agent
receives a fee based on the average daily net assets of shares of the Fund held
by investors for whom the servicing agent maintains a servicing relationship.
Shareholder servicing agents may subcontract with other parties for shareholder
support services.
Shareholder servicing agents may offer additional services to their customers,
such as pre-authorized or systematic purchase and redemption plans. Each
shareholder servicing agent may establish its own terms and conditions,
including limitations on the amounts of subsequent transactions, with respect to
such services. Certain shareholder servicing agents may (although they are not
required by the Fund to do so) credit to the accounts of their customers from
whom they are already receiving other fees an amount not exceeding such other
fees or the fees for their services as shareholder servicing agents.
The Adviser and certain broker-dealers and other shareholder servicing agents
may, at their own expense, provide gifts, such as computer software packages,
guides and books related to investment or additional Fund shares valued up to
$100 to their customers who invest in the Fund.
The Adviser may, from time to time, at its own expense out of compensation
retained by it from the Fund or other sources available to it, make additional
payments to certain selected dealers or other shareholder servicing or
soliciting agents for performing administrative and other services. This
compensation does not represent an additional expense to the Fund or its
shareholders because it will be paid by the Adviser.
ADMINISTRATIVE SERVICES
The Adviser has retained Investment Company Administration, L.L.C. ("ICA") to
prepare various federal and state regulatory filings, reports and returns for
the Fund, to prepare reports and materials to be supplied to Trustees, to
monitor the activities of the Fund' custodian, shareholder servicing agent and
accountants, and to coordinate the preparation and payment of Fund expenses and
review the Fund' expense accruals. The Adviser pays ICA's fees out of the
Administrative Services Fee.
United Missouri Bank, N.A. acts as the Fund's custodian and ICA Fund Services
Corp. acts as the Fund's transfer agent. The Adviser also pays the custodian's
and transfer agent's fees out of the Administrative Services Fee.
The Adviser pays the other expenses incurred in the Fund's operations out of the
Administrative Services Fee. These expenses include registration fees; expenses
of the Fund's custodian for all services to the Fund, including safekeeping of
Fund and securities and maintaining required books and accounts; expenses of
preparing and mailing reports to investors and to government offices and
commissions; expenses of meetings of investors; fees and expenses of independent
14
<PAGE>
accountants, of legal counsel and of the transfer agent, registrar or dividend
disbursing agent of the Fund; insurance premiums; and expenses of calculating
the net asset value of, and the net income on, shares of the Fund. The Fund
remains responsible for its share of compensation paid to the disinterested
Trustees, interest and taxes.
FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance since its commencement of operations. Certain information
reflects financial results for a single Fund share. The total return in the
table represents the rate that an investor would have earned or lost on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by _________________, whose
report dated November 30, 1999, along with the Fund's financial statements, is
included in the Fund's Annual Report, which is available upon request.
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
May 7, 1999*
To
October 31, 1999
----------------
Net asset value, beginning of period $ 13.60
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.08
Net realized and unrealized loss on investments (1.77)
-------
Total from investment operations (1.69)
-------
Net asset value, end of period $ 11.91
=======
Total return (12.43%)
-------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $10,618
Average net assets (in thousands) $11,895
Ratio of expenses to average net assets** 1.29%
Ratio of net investment income to average net assets** 1.23%
Portfolio turnover rate 25.16%
* Commencement of the Fund.
** Annualized.
15
<PAGE>
VAN DEVENTER & HOCH AMERICAN VALUE FUND,
A SERIES OF ADVISORS SERIES TRUST
FOR MORE INFORMATION
The Statement of Additional Information (SAI) includes additional information
about the Fund.
The Fund's annual and semi-annual reports to shareholders contain additional
information about the Fund's investments. The annual report includes a
discussion of the market conditions and investment strategies which
significantly affected the Fund's performance during its last fiscal year.
The SAI and shareholder reports are available free upon request. To request them
or other information, or to ask any questions, please call or write:
VAN DEVENTER & HOCH AMERICAN VALUE FUND
c/o ICA Fund Services Corp.
4455 East Camelback Road
Suite 261E
Phoenix, AZ 85018
Telephone: 1.800.547.7787
The SAI and other Fund information may also be reviewed and copied at the SEC's
Public Reference Room in Washington, DC. Call 1-202-942-8090 for information
about its operations.
Reports and other Fund information are also available on the SEC's Internet site
at www.sec.gov. Copies of this information may be obtained, upon payment of the
proper duplicating fees, by writing to the SEC's Public Reference Section,
Washington, DC 20549-6009 or by email at [email protected].
The Fund's SEC File Number is 811-07959.
<PAGE>
As filed with the Securities and Exchange Commission on May 22, 2000
Registration No. 333-17391
File No. 811-07959
================================================================================
Part B
of
Form N-1A
REGISTRATION STATEMENT
ADVISORS SERIES TRUST
Van Deventer & Hoch American Value Fund
================================================================================
<PAGE>
Statement of Additional Information
_______, 2000
VAN DEVENTER & HOCH AMERICAN VALUE FUND
This Statement of Additional Information provides information regarding the
activities and operations of the Van Deventer & Hoch American Value Fund (the
"Fund"), a series of Advisors Series Trust (the "Trust"), and should be read
together with the Fund's Prospectus dated _________, 2000. You may obtain a
Prospectus without charge by calling 1.800.576.8229.
Certain financial information included in the Annual Report to shareholders
is incorporated by reference into this Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT
A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS ONLY IF PRECEDED
OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
TABLE OF CONTENTS
Page
----
TRUST HISTORY...............................................................1
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS.......................1
INVESTMENT STRATEGIES AND RISKS...........................................1
FUND POLICIES............................................................11
TEMPORARY DEFENSIVE POSITION.............................................13
PORTFOLIO TURNOVER.......................................................14
MANAGEMENT.................................................................14
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........................15
INVESTMENT ADVISORY AND OTHER SERVICES.....................................16
INVESTMENT ADVISER.......................................................16
DISTRIBUTOR..............................................................16
ADMINISTRATIVE SERVICES..................................................17
THE ADMINISTRATOR........................................................17
DIVIDEND DISBURSING AGENT AND TRANSFER AGENT.............................18
CUSTODIAN................................................................18
COUNSEL AND INDEPENDENT ACCOUNTANTS......................................18
BROKERAGE ALLOCATION AND OTHER PRACTICES...................................18
BROKERAGE TRANSACTIONS...................................................18
BROKERAGE SELECTION......................................................19
PURCHASE, REDEMPTION AND PRICING OF SHARES.................................20
DETERMINATION OF NET ASSET VALUE.........................................20
PURCHASE AND REDEMPTION OF SHARES........................................22
SYSTEMATIC WITHDRAWAL PLAN...............................................22
TAXES......................................................................23
TAX STATUS OF THE FUND...................................................23
TAXATION OF FUND DISTRIBUTIONS...........................................23
ADDITIONAL INFORMATION RELATING TO FUND INVESTMENTS......................25
ADDITIONAL INFORMATION RELATING TO FOREIGN INVESTMENTS...................25
FOREIGN SHAREHOLDERS.......................................................26
BACKUP WITHHOLDING.........................................................26
PERFORMANCE INFORMATION....................................................26
FINANCIAL STATEMENTS.......................................................27
APPENDIX A: DESCRIPTION OF SECURITIES RATINGS..............................28
i
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TRUST HISTORY
Advisors Series Trust (the "Trust") is an open-end management investment
company organized as a Massachusetts business trust. The Trust consists of
various series which represent separate investment portfolios. This SAI relates
only to the Fund.
The Trust is registered with the SEC as a management investment company.
Such a registration does not involve supervision of the management or policies
of the Fund. The Prospectus of the Fund 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.
Prior to ___________, 2000, the Fund was named Allegiance American Value
Fund, which was a series of Allegiance Investment Trust. The Fund changed its
name from Van Deventer & Hoch Funds on September 2, 1998 to Allegiance American
Value Fund.
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
INVESTMENT STRATEGIES AND RISKS
The principal investment policies and strategies of the Fund are described
in the Prospectus by which shares of that Fund are offered. The achievement of
the Fund's investment objective will depend upon market conditions generally and
on the Adviser's analytical and portfolio management skills. The permitted
investments and investment techniques described below, in alphabetical order,
supplements the information contained in the Prospectus.
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<PAGE>
PORTFOLIO SECURITIES
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are securities, typically issued by a
U.S. financial institution, that evidence ownership interests in a security or a
pool of securities issued by a foreign issuer. European Depositary Receipts
("EDRs"), which are sometimes referred to as Continental Depositary Receipts
("CDRs"), are securities, typically issued by a non-U.S. financial institution,
that evidence ownership interests in a security or a pool of securities issued
by either a U.S. or foreign issuer. ADRs, EDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all the costs of the
unsponsored facility and the depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass voting rights through to the holders
of the receipts in respect to the deposited securities.
ASSET-BACKED SECURITIES
In addition to mortgage-backed securities, the Fund may invest in
asset-backed securities including company receivables, truck and auto loans,
leases, and credit card receivables. These issues may be traded over-the-counter
and typically have a short to intermediate maturity structure depending on the
paydown characteristics of the underlying financial assets which are passed
through to the security holder. The Fund will limit its investments to 5% of its
total assets.
Asset-backed securities present certain risks. For instance, in the case of
credit card receivables, these securities may not have the benefit of any
security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there would be a risk that the purchaser
would acquire an interest superior to that of the holders of the related
automobile receivables. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in all of the obligations backing such receivables. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities. The underlying
assets (E.G., loans) are also subject to prepayments which shorten the
securities' weighted-average life and may lower their return.
Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on underlying assets to make payments, the securities may
contain elements of credit support which fall into two categories: (i) liquidity
protection and (ii) protection against losses resulting from ultimate default by
an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses resulting from ultimate default ensures
payment through insurance policies or letters of credit obtained by the issuer
or sponsor from third parties. A Fund will not pay any additional or separate
fees for credit support. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.
2
<PAGE>
BANK OBLIGATIONS
Bank obligations include certificates of deposit, time deposits (including
Eurodollar time deposits), and bankers' acceptances and other short-term debt
obligations issued by domestic banks, foreign subsidiaries or foreign branches
of domestic banks, domestic and foreign branches of foreign banks, domestic
savings and loan associations, and other banking institutions. The Fund have
established certain minimum credit quality standards for bank obligations in
which they invest.
The Fund are not prohibited from investing in obligations of banks that are
clients of the Distributor. However, the purchase of shares of the Fund by such
banks or by their customers will not be a consideration in determining which
bank obligations the Fund will purchase.
BANKERS' ACCEPTANCES
A banker's acceptance is a bill of exchange or time draft drawn on and
accepted by a commercial bank. It is used by corporations to finance the
shipment and storage of goods and to furnish dollar exchange. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT
A certificate of deposit is a negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market before maturity.
COMMERCIAL PAPER
Commercial paper is the term used to designate unsecured short-term
promissory notes issued by corporations and other entities. Maturities on these
issues vary from one to 270 days.
COMMON AND PREFERRED STOCK
Common stocks are generally more volatile than other securities. Preferred
stocks share some of the characteristics of both debt and equity investments and
are generally preferred over common stocks with respect to dividends and in
liquidation.
CONVERTIBLE SECURITIES
Convertible securities have characteristics similar to both fixed income
and equity securities. Because of the conversion feature, the market value of
convertible securities tends to move together with the market value of the
underlying stock. The value of convertible securities is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions. Convertible securities include both debt obligations and preferred
stock.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because investments in foreign companies usually involve currencies of
foreign countries, the value of the assets of a Fund with investments in foreign
companies as measured in U.S. dollars may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange control regulations.
Although such Fund's assets are valued daily in terms of U.S. dollars, the Fund
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. A Fund may conduct its foreign currency exchange transactions
on a spot basis or for settlement on a future date (i.e., a "forward foreign
currency" contract or "forward" contract). A Fund may convert currency on a spot
basis from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund do not currently intend to speculate in foreign
currency exchange rates or forward contracts.
3
<PAGE>
FOREIGN SECURITIES
The Fund may invest in certain obligations or securities of foreign
issuers. Permissible investments include obligations of foreign branches of U.S.
banks and of foreign banks, including certificates of deposit and time deposits
(including Eurodollar time deposits).
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, the value of securities
denominated in foreign currencies and of dividends and interest paid with
respect to those securities, will fluctuate based on the relative strength of
the U.S. dollar. In addition, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing and financial
reporting requirements comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitation on the removal of funds or other assets of a
Fund, political or financial instability or diplomatic and other developments
which would affect such investments. Further, economies of particular countries
or areas of the world may differ favorably or unfavorably from the economy of
the U.S.
It is anticipated that in most cases the best available market for foreign
securities would be on exchanges or in over-the-counter markets located outside
the U.S. Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S., and securities of some foreign
issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. companies. Foreign security
trading practices, including those involving securities settlement where a
Fund's assets may be released prior to receipt of payment, may expose a Fund to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. In addition, foreign brokerage commissions are generally higher
than commissions on securities traded in the U.S. and may be non-negotiable. In
general, there is less overall governmental supervision and regulation of
foreign securities exchanges, brokers and listed companies than in the U.S.
A Fund may invest in foreign securities markets that impose restrictions on
transfer of the proceeds from that market to the United States or to United
States persons. Although securities subject to these transfer restrictions may
be marketable abroad, they may be less liquid than foreign securities that are
not subject to such restrictions.
Foreign issuers of securities or obligations are often subject to
accounting treatment and engage in business practices different from those
respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
The Stock Fund may invest in securities issued by entities based in
developing countries throughout the world. All of the risks of investing in
securities of foreign issuers are heightened for securities of issuers in
developing countries, and extreme volatility can be associated with these
investments. Such investments may also entail higher custodial fees and sales
commissions than domestic investments.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
The Fund may invest up to 25 percent of its assets in forward commitments
or commitments to purchase securities on a when-issued basis. Forward
commitments or purchases of securities on a when-issued basis are transactions
where the price of the securities is fixed at the time of the commitment and
delivery and payment normally take place beyond conventional settlement time
after the date of commitment to purchase. The Fund will make commitments to
purchase obligations on a when-issued basis only with the intention of actually
acquiring the securities, but may sell them before the settlement date. The
when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case,
there could be an unrealized loss at the time of delivery.
4
<PAGE>
While awaiting delivery of securities purchased on a when-issued basis, a
Fund will establish a segregated account consisting of liquid securities equal
to the amount of the commitments to purchase securities on such basis. If the
value of these assets declines, the Fund will place additional liquid assets in
the account on a daily basis so that the value of the assets in the account is
equal to the amount of the commitments.
FUTURES CONTRACTS
Subject to applicable laws, the Fund may enter into bond and interest rate
futures contracts. The Fund intend to use futures contracts only for bona fide
hedging purposes. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a specified security at a
specified future time and at a specified price. A "sale" of a futures contract
entails a contractual obligation to deliver the underlying securities called for
by the contract, and a "purchase" of a futures contract entails a contractual
obligation to acquire such securities, in each case in accordance with the terms
of the contract. Futures contracts must be executed through a futures commission
merchant, or brokerage firm, which is a member of an appropriate exchange
designated as a "contract market" by the Commodity Futures Trading Commission
("CFTC").
When a Fund purchases or sells a futures contract, the Trust must allocate
assets of that Fund as an initial deposit on the contract. The initial deposit
may be as low as approximately 5 percent or less of the value of the contract.
The futures contract is marked to market daily thereafter and the Fund may be
required to pay or entitled to receive additional "variation margin," based on
decrease or increase in the value of the futures contract.
Futures contracts call for the actual delivery or acquisition of
securities, or in the case of futures contracts based on indices, the making or
acceptance of a cash settlement at a specified future time. However, the
contractual obligation is usually fulfilled before the date specified in the
contract by closing out the futures contract position through the purchase or
sale, on a commodities exchange, of an identical futures contract. Positions in
futures contracts may be closed out only if a liquid secondary market for such
contract is available, and there can be no assurance that such a liquid
secondary market will exist for any particular futures contract.
A Fund's ability to hedge effectively through transactions in futures
contracts depends on, among other factors, the Adviser's judgment as to the
expected price movements in the securities underlying the futures contracts. In
addition, it is possible in some circumstances that a Fund would have to sell
securities from its portfolio to meet "variation margin" requirements at a time
when it may be disadvantageous to do so.
GUARANTEED INVESTMENT CONTRACTS (GIC)
A GIC is a contract between an insurance company and, generally, an
institutional investor that guarantees the investor a specified interest rate
for a specific period and the return of the investor's principal.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the
lending bank or agent for a syndicate of lending banks, and sold by the lending
bank or syndicate member. The Fund may purchase interests only in loan
participations issued by a bank in the United States with assets exceeding $1
billion and for which the underlying loan is issued by borrowers in whose
obligations the Fund may invest. Because the intermediary bank does not
guarantee a loan participation in any way, a loan participation is subject to
the credit risk generally associated with the underlying corporate borrower. In
addition, in the event the underlying corporate borrower defaults, a Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of the borrower. Under the terms of a loan participation, the
purchasing Fund may be regarded as a creditor of the intermediary bank so that
the Fund may also be subject to the risk that the issuing bank may become
insolvent.
5
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MONEY MARKET FUNDS
A money market fund is an investment company that limits its investments to
high quality money market instruments with a weighted-average maturity of 90
days or less. The of the Fund may invest in money market funds, but not more
than 5 percent of its assets in any one money market fund or more than 10
percent of its assets in other investment companies, including money market
funds. When a Fund invests in a money market fund, a shareholder bears not only
his or her proportionate share of the Fund's expenses, but also indirectly his
or her share of the expenses of the money market fund, including management
fees.
OPTIONS
The Fund may for hedging purposes and in order to generate additional
income, write call options on a covered basis, provided that the aggregate value
of such options may not exceed 10 percent of the Fund's net assets as of the
time the Fund enters into such options.
The purchaser of a call option has the right to buy, and the writer (in
this case a Fund) of a call option has the obligation to sell, an underlying
security at a specified exercise price during a specified option period. The
advantage to a Fund of writing covered calls is that the Fund receives a premium
for writing the call, which is additional income. However, if the security rises
in value and the call is exercised, the Fund may not participate fully in the
market appreciation of the security.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time at which the writer effects a closing purchase
transaction.
A closing purchase transaction is one in which a Fund, when obligated as a
writer of an option, terminates its obligation by purchasing an option of the
same series as the option previously written. A closing purchase transaction
cannot be effected with respect to an option once the Fund writing the option
has received an exercise notice for such option. Closing purchase transactions
will ordinarily be effected to realize a profit on an outstanding call option,
to prevent an underlying security from being called, to permit the sale of the
underlying security or to enable a Fund to write another call option on the
underlying security with either a different exercise price or different
expiration date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the net amount of the original
premium received on the call option is more or less than the cost of effecting
the closing purchase transaction. Any loss incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
sale of a different call option on the same underlying security. Such a loss may
also be wholly or partially offset by unrealized appreciation in the market
value of the underlying security. Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part by a decline in the
market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between (a) the cost of the underlying security and (b)
the proceeds of the sale of the security, plus the amount of the premium on the
option, less the commission paid.
The market value of a call option generally reflects the market price of
the underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
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The Stock Fund will write call options only on a covered basis, which means
that the Fund will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, the Fund would be required to continue to hold a security which it
might otherwise wish to sell, or deliver a security it would want to hold.
Options written by a Fund will normally have expiration dates between one and
nine months from the date written. The exercise price of a call option may be
below, equal to or above the current market value of the underlying security at
the time the option is written.
A Fund may also purchase put and call options. Put options are purchased to
hedge against a decline in the value of securities held in the Fund's portfolio.
If such a decline occurs, the put options will permit the Fund to sell the
securities underlying such options at the exercise price, or to close out the
options at a profit. The premium paid for a put or a call option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise of the option, and, unless the price of the underlying security rises
or declines sufficiently, the option may expire worthless to the Fund. In
addition, in the event that the price of the security in connection with which
an option was purchased moves in a direction favorable to the Fund, the benefits
realized by the Fund as a result of such favorable movement will be reduced by
the amount of the premium paid for the option and related transaction costs.
OPTIONS ON FUTURES CONTRACTS
The Fund may also, subject to any applicable laws, purchase and write
options on futures contracts for hedging purposes only. The holder of a call
option on a futures contract has the right to purchase the futures contract, and
the holder of a put option on a futures contract has the right to sell the
futures contract, in either case at a fixed exercise price up to a stated
expiration date or, in the case of certain options, on a stated date. Options on
futures contracts, like futures contracts, are traded on contract markets.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of the
futures contract. A Fund will receive an option premium when it writes the call,
and, if the price of the futures contract at expiration of the option is below
the option exercise price, the Fund will retain the full amount of this option
premium, which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. Similarly, the writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the securities deliverable upon exercise of the futures contract. If a
Fund writes an option on a futures contract and that option is exercised, the
Fund may incur a loss, which loss will be reduced by the amount of the option
premium received, less related transaction costs. A Fund's ability to hedge
effectively through transactions in options on futures contracts depends on,
among other factors, the degree of correlation between changes in the value of
securities held by the Fund and changes in the value of its futures positions.
This correlation cannot be expected to be exact, and the Fund bears a risk that
the value of the futures contract being hedged will not move in the same amount,
or even in the same direction, as the hedging instrument. Thus it may be
possible for a Fund to incur a loss on both the hedging instrument and the
futures contract being hedged.
The ability of a Fund to engage in options and futures strategies depends
also upon the availability of a liquid market for such instruments. There can be
no assurance that such a liquid market will exist for such instruments.
OPTIONS ON STOCK INDICES
The Stock Fund may engage in transactions involving options on stock
indices. A stock index assigns relative values to the common stocks included in
the index, and the index fluctuates with changes in the market values of the
underlying common stocks. The Stock Fund will not engage in transactions in
options on stock indices for speculative purposes but only to protect
appreciation attained, to offset capital losses and to take advantage of the
liquidity available in the option markets. The aggregate premium paid on all
options on stock indices will not exceed 5 percent of the total assets of the
Stock Fund.
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Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
option premium received, to make delivery of this amount. Gain or loss to the
Fund on transactions in stock index options will depend on price movements in
the stock market generally (or in a particular industry or segment of the
market) rather than price movements of individual securities.
As with stock options, the Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the stock
included in the index. Some stock index options are based on a broad market
index such as the Standard & Poor's 500 or the New York Stock Exchange Composite
Index, or a narrower market index such as the Standard & Poor's 100. Indices are
also based on an industry or market segment such as the AMEX Oil and Gas Index
or the Computer and Business Equipment Index. Options on stock indices are
currently traded on the following exchanges, among others: The Chicago Board
Options Exchange, New York Stock Exchange and American Stock Exchange.
A Fund's ability to hedge effectively all or a portion of its securities
through transactions in options on stock indices depends on the degree to which
price movements in the underlying index correlate with price movements in the
securities held by the Fund. Since the Fund will not duplicate all of the
components of an index, the correlation will not be exact. Consequently, the
Fund bears the risk that the prices of the securities being hedged will not move
in the same amount as the hedging instrument. It is also possible that there may
be a negative correlation between the index or other securities underlying the
hedging instrument and the hedged securities which would result in a loss on
both such securities and the hedging instrument.
Positions in stock index options may be closed out only on an exchange
which provides a secondary market. There can be no assurance that a liquid
secondary market will exist for any particular stock index option. Thus, it may
not be possible to close such an option. The inability to close options
positions could have an adverse impact on a Fund's ability to effectively hedge
its securities. The Fund will enter into an option position only if there
appears to the Adviser of such Fund, at the time of investment, to be a liquid
secondary market for such options.
OTHER INVESTMENT COMPANIES
Subject to applicable statutory and regulatory limitations, assets of the
Fund may be invested in shares of other investment companies (such as mutual
funds) and foreign investment trusts. Those investment companies and investment
trusts must invest in securities in which the Fund can invest in a manner
consistent with the Fund' investment objectives. A Fund's purchase of investment
company securities may result in the duplication of management fees and
expenses.
RECEIPTS
Receipts are interests in separately traded interest and principal
component parts of U.S. Treasury obligations that are issued by banks and
brokerage firms and are created by depositing U.S. Treasury obligations into a
special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. Receipts include Treasury Receipts ("TRs"), Treasury Investment
Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury Securities
("CATS"). TRS, TIGRs and CATS are sold as zero coupon securities.
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REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A Fund's repurchase
agreements will generally involve a short-term investment in a U.S. Government
security or other high-grade liquid debt security, with the seller (a primary
securities dealer recognized by the Federal Reserve Bank of New York or a
national member bank as defined in Section 3(d)(1) of the Federal Deposit
Insurance Act, as amended) of the underlying security agreeing to repurchase it
at a mutually agreed-upon time and price (including principal and interest). The
repurchase price is generally higher than the purchase price, the difference
being interest income to that Fund. Alternatively, the purchase and repurchase
prices may be the same, with interest at a stated rate due to a Fund together
with the repurchase price on the date of repurchase. In either case, the income
to a Fund is unrelated to the interest rate on the underlying security.
Under each repurchase agreement, the seller is required to maintain the
value of the securities subject to the repurchase agreement at not less than
their repurchase price. The Adviser, acting under the supervision of the Board,
reviews on a periodic basis the suitability and creditworthiness, and the value
of the collateral, of those sellers with whom the Fund enter into repurchase
agreements to evaluate potential risk. All repurchase agreements will be made
pursuant to procedures adopted and regularly reviewed by the Board.
The Fund generally will enter into repurchase agreements of short
maturities, from overnight to one week, although the underlying securities will
generally have longer maturities. The Fund regard repurchase agreements with
maturities in excess of seven days as illiquid. A Fund may not invest more than
15% of the value of its net assets in illiquid securities, including repurchase
agreements with maturities greater than seven days.
For purposes of the Investment Company Act of 1940 ("Investment Company
Act"), a repurchase agreement is deemed to be a collateralized loan from a Fund
to the seller of the security subject to the repurchase agreement. It is not
clear whether a court would consider the security acquired by a Fund subject to
a repurchase agreement as being owned by that Fund or as being collateral for a
loan by that Fund to the seller. If bankruptcy or insolvency proceedings are
commenced with respect to the seller of the security before its repurchase, a
Fund may 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
security. If a court characterizes such a transaction as a loan and a Fund has
not perfected a security interest in the security, that Fund may be required to
return the security to the seller's estate and be treated as an unsecured
creditor. As such, a Fund would be at risk of losing some or all of the
principal and income involved in the transaction. As with any unsecured debt
instrument purchased for a Fund, the Adviser seeks to minimize the risk of loss
through repurchase agreements by analyzing the creditworthiness of the seller of
the security.
Apart from the risk of bankruptcy or insolvency proceedings, a Fund also
runs the risk that the seller may fail to repurchase the security. However, the
Fund always requires collateral for any repurchase agreement to which it is a
party in the form of securities acceptable to it, the market value of which is
equal to at least 100% of the amount invested by the Fund plus accrued interest,
and the Fund makes payment against such securities only upon physical delivery
or evidence of book entry transfer to the account of its custodian bank. If the
market value of the security subject to the repurchase agreement becomes less
than the repurchase price (including interest), a Fund, pursuant to its
repurchase agreement, may require the seller of the security to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement equals or exceeds the repurchase price (including interest)
at all times.
RESTRICTED SECURITIES
Restricted securities are securities that may not be sold to the public
without registration under the Securities Act of 1933 (the "1933 Act") absent an
exemption from registration. Many restricted securities are illiquid but the
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Adviser may determine that at the time of investment such securities are not
illiquid (generally, an illiquid security is one that cannot be disposed of
within seven days in the ordinary course of business at its full value), based
on guidelines which are the responsibility of and are periodically reviewed by
the Board of Trustees. Under these guidelines, the Adviser will consider the
frequency of trades and quotes for the security, the number of dealers in, and
potential purchasers for, the securities, dealer undertakings to make a market
in the security, and the nature of the security and of the marketplace trades.
In purchasing such restricted securities, the intention of the Adviser is to
rely upon the exemption from registration provided by Rule 144A promulgated
under the 1933 Act. Restricted securities not determined to be liquid may be
purchased subject to the Fund's limitation on all illiquid securities (15
percent of net assets of the Fund).
A Fund may purchase restricted securities that are not registered for sale
to the general public if it is determined that there is a dealer or
institutional market in the securities. In that case, the securities will not be
treated as illiquid for purposes of the Fund's investment limitation described
above. The Trustees will review these determinations. These securities are known
as "Rule 144A securities" because they are traded under Rule 144A of the 1933
Act among qualified institutional buyers.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale of securities held by a Fund
and the agreement by the Fund to repurchase the securities at an agreed-upon
price, date and interest payment. When a Fund enters into reverse repurchase
transactions, securities of a dollar amount equal in value to the securities
subject to the agreement will be maintained in a segregated account with the
Fund's custodian. Such assets are marked to market daily to ensure that full
collateralization is maintained. The segregation of assets could impair the
Fund's ability to meet its current obligations or impede investment management
if a large portion of the Fund's assets are involved. Reverse repurchase
agreements are considered to be a form of borrowing.
The Fund may use the proceeds of reverse purchase agreements to provide
liquidity to meet redemption requests when sale of the Fund's securities is
disadvantageous.
SECURITIES LENDING
The Fund may lend securities pursuant to agreements requiring that the
loans be continuously secured by liquid securities, as collateral equal to 100%
of the market value at all times of the securities lent. Such loans will not be
made if, as a result, the aggregate amount of all outstanding securities loans
for the Fund exceed 30 percent of a Fund's total assets. A Fund will continue to
receive interest on the securities lent while simultaneously earning interest on
the investment of the collateral. However, a Fund will normally pay lending fees
to such broker-dealers and related expenses from the interest earned on invested
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to a Fund to be of good
standing and when, in the judgment of the Adviser, the consideration which can
be earned currently from such securities loans justifies the attendant risk. Any
loan may be terminated by either party upon reasonable notice to the other
party. The Fund may use the Distributor or a broker/dealer affiliate of an
Adviser as a broker in these transactions.
SECURITIES RATED BAA OR BBB
The Fund may purchase the lowest categories of investment grade securities,
meaning those rated BAA by Moody's or BBB by Standard & Poor's, which may have
poor protection of payment of principal and interest.
STRIPS
The Fund may invest in Separately Traded Interest and Principal Securities
("STRIPS"), which are component parts of U.S. Treasury Securities traded through
the Federal Reserve Book-Entry System. The Adviser to a Fund will purchase only
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those STRIPS that it determines are liquid or, if illiquid, do not violate such
Fund's investment policy concerning investments in illiquid securities. While
there is no limitation on the percentage of any other Fund's assets that may be
comprised of STRIPS, the Adviser to the Fund will monitor the level of such
holdings to avoid the risk of impairing shareholders' redemption rights. The
interest-only component is extremely sensitive to the rate of principal payments
on the underlying obligation. The market value of the principal-only component
generally is unusually volatile in response to changes in interest rates.
VARIABLE AMOUNT MASTER DEMAND NOTES
The Fund may invest in variable amount master demand notes which may or may
not be backed by bank letters of credit. These notes permit the investment of
fluctuating amounts at varying market rates of interest pursuant to direct
arrangements between the Fund, as lender, and the borrower. Such notes provide
that the interest rate on the amount outstanding varies on a daily, weekly or
monthly basis depending upon a stated short-term interest rate index. Both the
lender and the borrower have the right to reduce the amount of outstanding
indebtedness at any time. There is no secondary market for the notes. It is not
generally contemplated that such instruments will be traded.
WARRANTS
A warrant is an instrument issued by a corporation which gives the holder
the right to subscribe to a specified amount of the corporation's capital stock
at a set price for a specified period of time. The of the Stock Fund may invest
up to 5% of its net assets in warrants. Included in this limitation may be
warrants not listed on the New York Stock Exchange or American Stock Exchange.
ZERO COUPON SECURITIES
A zero coupon security pays no interest or principal to its holder during
its life. A zero coupon security is sold at a discount, frequently substantial,
and redeemed at face value at its maturity date. The market prices of zero
coupon securities are generally more volatile than the market prices of
securities of similar maturity that pay interest periodically, and zero coupon
securities are likely to react more to interest rate changes than non-zero
coupon securities with similar maturity and credit qualities.
FUND POLICIES
FUNDAMENTAL POLICIES
The following are fundamental policies of the Fund and may not be changed
without approval by holders of a majority of the outstanding voting securities
of that Fund, which as used in this Statement of Additional Information means
the vote of the lesser of (i) 67 percent or more of the outstanding voting
securities of the Fund present at a meeting at which the holders of more than 50
percent of the outstanding voting securities of the Fund is present or
represented by proxy, or (ii) more than 50 percent of the outstanding voting
securities of the Fund. The term "voting securities" as used in this paragraph
has the same meaning as in the Investment Company Act of 1940, as amended (the
"Investment Company Act").
1. The Fund may not purchase any securities which would cause more than 25
percent of the total assets of the Fund to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry. This limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities. For
purposes of this limitation, (i) utility companies will be divided
according to their services; for example, gas, gas transmission, electric
and telephone will each be considered a separate industry; (ii) financial
service companies will be classified according to the end users of their
services; for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; (iii) supranational
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entities will be considered to be a separate industry; and (iv) loan
participations are considered to be issued by both the issuing bank and the
underlying corporate borrower. Otherwise, for purposes of this restriction,
the Fund generally relies on the U.S. Office of Management and Budget's
Standard Industrial Classifications.
2. The Fund may not make loans, except that a Fund may (a) purchase or hold
debt instruments in accordance with its investment objective and policies;
(b) enter into repurchase agreements; and (c) engage in securities lending
in an aggregate amount not exceeding 30 percent of its total assets.
3. The Fund may not acquire more than 10 percent of the voting securities of
any one issuer (except securities issued or guaranteed by the United
States, its agencies or instrumentalities and repurchase agreements
involving such securities) or invest more than 5 percent of the total
assets of the Fund in the securities of an issuer (except securities issued
or guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities); provided, that the
foregoing limitation shall not apply to 25 percent of the total assets of
the Stock Fund.
4. The Fund may not borrow, except that a Fund may borrow money from banks and
may enter into reverse repurchase agreements, in either case in an amount
not to exceed 33-1/3 percent of that Fund's total assets and then only as a
temporary measure for extraordinary or emergency purposes (which may
include the need to meet shareholder redemption requests). This borrowing
provision is included solely to facilitate the orderly sale of Fund
securities to accommodate heavy redemption requests if they should occur
and is not for investment purposes. A Fund will not purchase any securities
for its portfolio at any time at which its borrowings equal or exceed 10
percent of its total assets (taken at market value), and any interest paid
on such borrowings will reduce income. Transactions that are fully
collateralized in a manner that does not involve the prohibited issuance of
a "senior security" within the meaning of Section 18(f) of the 1940 Act
shall not be regarded as borrowings for the purposes of this restriction.
5. The Fund may not pledge, mortgage or hypothecate assets except to secure
temporary borrowings permitted by 4 above.
6. The Fund may not purchase or sell real estate, including real estate
limited partnership interests, commodities and commodities contracts, but
excluding interests in a pool of securities that are secured by interests
in real estate. However, subject to its permitted investments, any Fund may
invest in companies that invest in real estate, commodities or commodities
contracts. The Fund may invest in futures contracts and options thereon to
the extent described in the Prospectus and elsewhere in this Statement of
Additional Information.
7. The Fund may not act as an underwriter of securities of other issuers,
except as it may be deemed an underwriter under federal securities laws in
selling a security held by the Fund.
8. The Fund may not purchase securities of other investment companies except
as permitted by the Investment Company Act and the rules and regulations
thereunder. Under these rules and regulations, the Fund is prohibited from
acquiring the securities of other investment companies if, as a result of
such acquisition, (a) such Fund owns more than 3 percent of the total
voting stock of the company; (b) securities issued by any one investment
company represent more than 5 percent of the total assets of such Fund; or
(c) securities (other than treasury stock) issued by all investment
companies represent more than 10 percent of the total assets of such Fund.
A Fund's purchase of such investment company securities results in the
layering of expenses, such that shareholders would indirectly bear a
proportionate share of the operating expenses of such investment companies,
including advisory fees.
It is the position of the SEC's staff that certain non-governmental issuers
of CMOs and REMICs constitute investment companies pursuant to the
Investment Company Act and either (a) investments in such instruments are
subject to the limitations set forth above or (b) the issuers of those
instruments have received orders from the Securities and Exchange
Commission exempting such instruments from the definition of investment
company.
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9. The Fund may not issue senior securities, as defined in the Investment
Company Act, except that this restriction shall not be deemed to prohibit
that Fund from (a) making any permitted borrowings, mortgages or pledges,
(b) entering into permissible repurchase and dollar roll transactions, or
(c) entering other borrowings as permitted by rule, regulation or order of
the SEC.
NON-FUNDAMENTAL POLICIES
The following policies are not fundamental and may be changed by the Board
of Trustees with respect to any Fund without approval by the shareholders of
that Fund:
1. The Fund may invest in warrants in an amount not exceeding 5 percent of the
Fund's net assets as valued at the lower of cost or market value; included
in these amounts may be warrants not listed on the New York Stock Exchange
or American Stock Exchange.
2. The Fund may invest in illiquid securities, including (under current SEC
interpretations) restricted securities (excluding liquid Rule 144A-eligible
restricted securities as defined below), securities which are not otherwise
readily marketable, repurchase agreements that mature in more than seven
days and over-the-counter options (and securities underlying such options)
in an amount exceeding, in the aggregate, 15 percent of that Fund's net
assets.
The foregoing limitation does not apply to restricted securities, including
those issued pursuant to Rule 144A under the 1933 Act, if it is determined
by or under procedures established by the Board of Trustees of the Trust
that, based on trading markets for the specific restricted security in
question, such security is not illiquid.
3. The Fund may not invest in companies for the purpose of exercising control
or management of the issuers.
4. The Fund may not make short sales of securities, maintain a short position
or purchase securities on margin, except that the Fund may obtain
short-term credits as necessary for the clearance of security transactions.
5. The Fund may not write or purchase puts, calls, or other options or
combinations thereof, except that the Fund may write covered call options
with respect to any or all of the securities it holds, subject to any
limitations described in the Prospectus or elsewhere in this Statement of
Additional Information and the Fund may purchase and sell other options as
described in the Prospectus.
Except for non-fundamental policy number two as to illiquid securities,
which applies at all times, the foregoing percentages will apply at the
time of the purchase of a security and shall not be considered violated
unless an excess occurs or exists immediately after and as a result of a
purchase of such security.
TEMPORARY DEFENSIVE POSITION
During periods of unusual economic or market conditions or for temporary
defensive purposes or liquidity, the Fund may invest without limit in cash and
in U.S. dollar-denominated high quality money market and short-term instruments.
These investments may result in a lower yield than would be available from
investments with a lower quality or longer term. A temporary defensive position
may also prevent a Fund from achieving its investment objective.
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PORTFOLIO TURNOVER
The frequency of the Fund's portfolio transactions -- the portfolio
turnover rate -- will vary from year to year depending on market conditions. The
Fund will engage in portfolio trading if the Adviser believes a transaction, net
of costs (including custodial charges), will help it achieve its investment
objective. Before the Stock Fund invests in both equity and debt securities,
this policy will apply with respect to both the equity and debt portions of the
portfolio.
Below are some basic principles with respect to portfolio turnover rate:
> A 100% turnover rate indicates that the equivalent of all of the Fund's
assets have been sold and reinvested in a year;
> The amount of brokerage commissions will tend to increase as the level of
portfolio activity increases; and
> High portfolio turnover may result in the realization of substantial net
capital gains or losses.
The Fund's portfolio turnover rate for the period May 7, 1999 to October 31,
1999 was 25.16%.
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 objectives and policies and to general supervision by the
Board of Trustees.
The Trustees and officers of the Trust, their ages and positions with the
Trust, their business addresses and principal occupations during the past five
years are:
<TABLE>
<CAPTION>
Name, Address and Age Position Principal Occupation During Past Five Years
- --------------------- -------- -------------------------------------------
<S> <C> <C>
Walter Auch, Sr.(Born 1921) Trustee Director, Nicholas-Applegate Mutual Funds, Brinson Funds
6001 N. 62nd Place (since 1994), Smith Barney Trak Fund, Pimco Advisors L.P.,
Paradise Valley, AZ 85253 Banyan Realty Trust, Banyan Land Fund II and Legend Properties.
Eric Banhazl (Born 1957)* Trustee, Senior Vice President, Investment Company Administration LLC;
2025 E. Financial Way President and Vice President, First Fund Distributors, Inc.; Assistant Treasurer,
Glendora, CA 91740 Treasurer RNC Mutual Fund Group; Treasurer, Guinness Flight Investment
Funds, Inc. and Professionally Managed Portfolios.
Donald O'Connor (Born 1936) Trustee Retired; formerly Executive Vice President and Chief Operating
1700 Taylor Avenue Officer of ICI Mutual Insurance Company (until January, 1997),
Fort Washington MD, 20744 Vice President, Operations, Investment Company Institute
(until June, 1993).
George Wofford III Trustee Vice President, Information Services, Federal Home Loan Bank of
(Born 1939) San Francisco (since March, 1993); formerly Director of
305 Glendora Circle Management Information Services, Morrison & Foerster (law
Danville, CA 94526 firm).
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Name, Address and Age Position Principal Occupation During Past Five Years
- --------------------- -------- -------------------------------------------
<S> <C> <C>
Steven J. Paggioli Vice Executive Vice President, Robert H. Wadsworth & Associates, Inc.
(Born 1950) President and Investment Company Administration LLC; Vice President,
479 W. 22nd Street First Fund Distributors, Inc.; President and Trustee,
New York, NY 10011 Professionally Managed Portfolios; Director, Managers Funds, Inc.
Robert H. Wadsworth Vice President, Robert H. Wadsworth & Associates, Inc., Investment
(Born 1940) President Company Administration, LLC and First Fund Distributors, Inc.;
4455 E. Camelback Road Vice President, Professionally Managed Portfolios; President,
Suite 261E Guinness Flight Investment Funds, Inc.; Director, Germany Fund,
Phoenix, AZ 85018 Inc., New Germany Fund, Inc. and Central European Equity Fund,
Inc. and Deutsche Funds, Inc.
Chris O. Moser (Born 1949) Secretary Employed by Investment Company Administration LLC (since
4455 E. Camelback Road July, 1996); formerly employed by Bank One, N.A. (from August,
Suite 261E 1995 until July, 1996); O'Connor, Cavanagh, Anderson,
Phoenix, AZ 85018 Killingsworth and Beshears (law firm) (until August, 1995).
</TABLE>
* denotes Trustee who is an "interested person" of the Trust under the 1940 Act.
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
For the fiscal year ended December 31, 1999, Trustees' fees and expenses in the
amount of $12,000 per independent Trustee were paid by the Trust. The Trust has
no pension or retirement plan. No other entity affiliated with the
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
PRINCIPAL HOLDERS
As of ___________, 2000, the following persons held of record 5% or more of
the outstanding shares of the Fund:
Shareholder Name and Address % Held
---------------------------- ------
Charles Schwab and Co. Inc.(1)
Reinvest Account
9601 E. Pandrama Dr.
Englewood, CO 80112-3441 xx.xx%
Donald Harris
100 N. San Rafael Ave.,
Pasadena, CA 91105-1200 x.xx%
Grace M. Byrnes
Grandchildrens Trust
G. Patrick Byrnes TTEE
541 4th St.
Manhattan Beach, CA 90266-6428 x.xx%
(1) Charles Schwab & Co. Inc. is the nominee account for many individual
shareholder accounts; the Fund is not aware of the size or identity of any
individual accounts.
15
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The Fund has entered into an Investment Advisory Agreement ("Advisory
Agreement") with Van Deventer & Hoch with respect to the Fund. The Advisory
Agreement with Van Deventer & Hoch for the Fund is dated as of May 7, 1999. Van
Deventer & Hoch is referred to in this Statement of Additional Information as
the "Adviser."
Van Deventer & Hoch is entitled to receive investment advisory fees, which
are accrued daily and payable monthly, 0.70% of the Stock Fund's average daily
net assets. The Fund paid the Advisor $40,379 in advisory fees for the period
May 7, 1999 to October 31, 1999.
The continuance of the Advisory Agreement, after the first two years, must
be specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are neither parties to the
Advisory Agreement nor "interested persons" of any party thereto, cast in person
at a meeting called for the purpose of voting on such approval. The Advisory
Agreement will terminate automatically if it is assigned, and is terminable at
any time without penalty by the Trustees of the Trust or with respect to any
Fund, by a majority of the outstanding shares of that Fund, on not less than 30
nor more than 60 days' written notice to the Adviser, or by the Adviser on 90
days' written notice to the Trust.
The Advisory Agreement provides that neither the Adviser nor its personnel
shall be liable (1) for any error of judgment or mistake of law; (2) for any
loss arising out of any investment; or (3) for any act or omission in the
execution of security transactions for the Trust or any Fund, except that the
Adviser and its personnel shall not be protected against any liability to the
Trust, any Fund or its shareholders by reason of willful misfeasance, bad faith
or gross negligence on its or their part in the performance of its or their
duties or from reckless disregard of its or their obligations or duties
thereunder.
DISTRIBUTOR
First Fund Distributors, Inc. (the "Distributor") and the Fund are parties
to a distribution agreement ("Distribution Agreement"), dated as of May 7, 1999.
The Distributor has its principal business offices at 4455 East Camelback Road,
Suite 261E, Phoenix, Arizona 85018.
The Fund has adopted a distribution plan dated as of May 7, 1999 (the
"Plan") with respect to the Stock Fund. The Plan has been adopted pursuant to
Rule 12b-1 under the Investment Company Act.
The Distribution Agreement and the Plan provide that the Fund will pay the
Adviser, as the Distribution Coordinator, a fee calculated daily and paid
monthly at an annual rate of 0.25% of the average daily net assets of the of the
Stock Fund. The Adviser can use these fees to compensate broker/dealers and
service providers (including each Adviser and its affiliates) which provide
administrative and/or distribution services to holders of these shares or their
customers who beneficially own these shares. The Fund paid $14,421 in
distribution fees for the period May 7, 1999 to October 31, 1999.
The Distribution Agreement is renewable annually and may be terminated by
the Distributor, by the Trustees of the Trust who are not interested persons and
have no financial interest in the Plans or any related agreement ("Qualified
Trustees"), or with respect to any particular Fund or class of shares, by a
majority vote of the outstanding shares of that Fund or such class of shares, as
applicable, for which the Distribution Agreement is in effect upon not more than
60 days' written notice by either party.
16
<PAGE>
The Fund has adopted the Plan in accordance with the provisions of Rule
12b-1 under the Investment Company Act, which regulates circumstances under
which an investment company may, directly or indirectly, bear expenses relating
to the distribution of its shares. Continuance of the Plan must be approved
annually by a majority of the Trustees of the Trust and by a majority of the
Qualified Trustees. The Plan requires that quarterly written reports of money
spent under such Plan and of the purposes of such expenditures be furnished to
and reviewed by the Trustees. Expenditures may include (1) the cost of
prospectuses, reports to shareholders, sales literature and other materials for
potential investors; (2) advertising; (3) expenses incurred in connection with
the promotion and sale of the Fund's shares, including the Adviser's expenses
for travel, communication, and compensation and benefits for sales personnel;
and (4) any other expenses reasonably incurred in connection with the
distribution and marketing of the shares subject to approval of a majority of
the Qualified Trustees. The Plan may not be amended to materially increase the
amount that may be spent under the Plan without approval by a majority of the
outstanding shares of the Fund or the class of shares which are subject to such
Plan. All material amendments of the Plan require approval by a majority of the
Trustees of the Trust and of the Qualified Trustees.
From time to time, the Adviser may provide incentive compensation to its
own employees and employees of banks, broker-dealers and investment counselors
in connection with the sale of shares of the Fund. Promotional incentives such
as cash or other compensation, including merchandise, airline vouchers, trips
and vacation packages will be offered uniformly to all program participants and
may be predicated upon the amount of shares of the Fund sold by the participant,
subject to applicable legal requirements.
ADMINISTRATIVE SERVICES
The Fund has entered into an Administrative Services Agreement with the
Adviser, dated May 7, 1999 (the "Administrative Services Agreement"). The Fund
pays the Adviser an Administrative Services Fee of 0.35% of its daily average
net assets, accrued daily and paid monthly. The fee payable to the Adviser by
the Fund under the Administrative Services Agreement is the only fee or expense
payable by the fund for the following ordinary services: all administrative
services, primarily by retaining the Subadministrator, as described below,
custody and transfer agency services by retaining the Custodian and Transfer
Agent named below, and all other ordinary services and operating expenses (other
than brokerage commissions, dealer mark-ups, taxes, interest and extraordinary
items).
The Administrative Services Fee paid to the Adviser effectively limits the
Fund's operating expenses. The Adviser may potentially earn greater profits
under the Administrative Services Agreement if assets of the Fund grow
sufficiently large to reduce actual operating expenses to less than the
Adviser's Administrative Services Fee. The Board of Trustees will consider the
level of profitability of the Administrative Services Fee in its decision to
renew the Advisory Agreement.
The Fund paid $20,189 in Administrative Services Fee for the period May 7,
1999 to October 31, 1999.
THE ADMINISTRATOR
The Adviser and Investment Company Administration, L.L.C. (the
"Subadministrator") are parties to a subadministration agreement (the
"Subadministration Agreement") with respect to the Fund. The Subadministration
Agreement provides that the Subadministrator shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Subadministration Agreement relates, except a loss
that results from willful misfeasance, bad faith or gross negligence on the part
of the Subadministrator in the performance of its duties or from reckless
disregard by it of its duties and obligations under the Subadministration
Agreement. The Subadministration Agreement renews each year unless terminated
according to its terms. The Adviser pays the Subadministrator's fee out of the
Administrative Services Fee.
17
<PAGE>
Under the Subadministration Agreement, the Subadministrator provides
administrative and fund accounting services to the Fund, including, among other
responsibilities, coordinating the negotiation of contracts and fees with, and
the monitoring of performance and billing of, the Fund' 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 Fund with
applicable laws and regulations excluding those of the securities laws of
various states; arranging for the computation or performance of data, including
net asset value and yield; responding to shareholder inquiries; and arranging
for the maintenance of books and records of the Fund, and providing, at its own
expense, office facilities, equipment and personnel necessary to carry out its
business. In this capacity, the Subadministrator does not have any
responsibility or authority for the management of the Fund, the determination of
investment policy, or for any matter pertaining to the distribution of Fund
shares.
DIVIDEND DISBURSING AGENT AND TRANSFER AGENT
ICA Fund Services Corp., 4455 East Camelback Road, Suite 261E, Phoenix, AZ
85018 is the Fund' dividend disbursing and payment agent, and the transfer
agent. The Adviser pays the dividend disbursing and transfer agent out of the
Administrative Services Fee.
CUSTODIAN
Pursuant to a Custodian Agreement, United Missouri Bank, N.A., 928 Grand
Boulevard, Kansas City, MO 64106, acts as custodian of the Fund' assets (the
"Custodian"). The Custodian's responsibilities include holding and administering
the Fund's cash and securities, handling the receipt and delivery of securities,
furnishing a statement of all transactions and entries for the account of the
Fund, and furnishing the Fund with such other reports covering securities held
by it or under its control as may be agreed upon from time to time. The
Custodian and its agents (including foreign sub-custodians) may make
arrangements with the Depository Trust Company and other foreign or domestic
depositories or clearing agencies, including the Federal Reserve Bank and any
foreign depository or clearing agency, whereby certain securities may be
deposited for the purpose of allowing transactions to be made by bookkeeping
entry without physical delivery of such securities, subject to such restrictions
as may be agreed upon by the Custodian and the Fund. Fund securities may be held
by a sub-custodian bank approved by the Trustees. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Adviser pays the Custodian's fees out of the
Administrative Services Fee.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Paul, Hastings, Janofsky & Walker LLP, 345 California Street, San
Francisco, California 94104, is counsel for the Fund. PricewaterhouseCoopers
LLP, 400 South Hope Street, Los Angeles, California 90071-2889, serves as
independent accountants for the Fund providing audit and accounting services
including: (i) examination of the annual financial statements, (ii) assistance
and consultation with respect to the preparation of filings with the Securities
and Exchange Commission, and (iii) preparation of annual income tax returns.
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS
Specific decisions to purchase or sell securities for a Fund are made by a
portfolio manager who is an employee of the Adviser, and who is appointed and
supervised by the senior officers of the Adviser. A portfolio manager may serve
other clients of the Adviser or of an affiliate of the Adviser in a similar
capacity.
18
<PAGE>
Subject to policies established by the Trustees, the Adviser to a Fund is
responsible for placing the orders to execute transactions for such Fund. In
placing orders, it is the policy of the Fund for the Adviser to seek to obtain
the best net results taking into account such factors as price (including the
applicable dealer spread), the size, type and difficulty of the transaction
involved, the firm's general execution and operational facilities, and the
firm's risk in positioning the securities involved. While the Adviser seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available.
Bonds and debentures are usually traded over-the-counter, but may be traded
on an exchange. Where possible, the Adviser will deal directly with the dealers
who make a market in the securities involved except in those circumstances where
the Adviser believes better prices and execution are available elsewhere. Such
dealers usually are acting as principal for their own account. On occasion,
securities may be purchased directly from the issuer. The cost of executing
transactions for the Fund will primarily consist of dealer spreads and brokerage
and underwriting commissions.
For the period May 7, 1999 to October 31, 1999, the Fund paid $9,418 in
commissions.
BROKERAGE SELECTION
The Adviser selects brokers or dealers to execute transactions for the
purchase or sale of securities for the Fund on the basis of the Adviser's
judgment of their professional capability to provide the service. The primary
consideration is to have brokers or dealers execute transactions at the best
price and execution. Best price and execution refers to many factors, including
the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. The Adviser's determination of what are
reasonably competitive rates is based upon the professional knowledge of the
Adviser's portfolio managers as to rates paid and charged for similar
transactions throughout the securities industry. In some instances, a Fund pays
a minimal share transaction cost when the transaction presents no difficulty.
Some trades are made on a net basis where a Fund either buys securities directly
from the dealer or sells them to the dealer. In these instances, there is no
direct commission charged but there is a spread (the difference between the buy
and sell price) which is the equivalent of a commission.
The Adviser may allocate, out of all commission business generated by the
funds and accounts under its management, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software used in securities
analyses; and providing fund performance evaluation and technical market
analyses. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more portfolios under
its management and may not be used exclusively with respect to the fund or
account generating the brokerage. Not all brokerage and research services are
useful or of value in advising any particular Fund.
As provided in the Securities Exchange Act of 1934 (the "1934 Act"), higher
commissions may be paid to broker/dealers who provide brokerage and research
services than to broker/dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker/dealers
who provide such brokerage and research services, the commissions paid to such
broker/dealers are not, in general, expected to be higher than commissions that
would be paid to broker/dealers not providing such services. Further, in
general, any such commissions are reasonable in relation to the value of the
brokerage and research services provided. Unless otherwise directed by the Fund,
a commission higher than one charged elsewhere will not be paid to a
broker/dealer solely because it provided research services to the Adviser.
19
<PAGE>
Investment decisions for the Fund are made independently from those of
other client accounts of the Adviser or its affiliates, and suitability is
always a paramount consideration. Nevertheless, it is possible that at times the
same securities will be acceptable for one or more Fund and for one or more of
such client accounts. The Adviser and its personnel may have interests in one or
more of those client accounts, either through direct investment or because of
management fees based on gains in the account. The Adviser has adopted
allocation procedures to ensure the fair allocation of securities and prices
between the Fund and the Adviser's various other accounts. These procedures
emphasize the desirability of bunching trades and price averaging (see below) to
achieve objective fairness among clients advised by the same portfolio manager
or portfolio team. Where trades cannot be bunched, the procedures specify
alternatives designed to ensure that buy and sell opportunities are allocated
fairly and that, over time, all clients are treated equitably. The Adviser's
trade allocation procedures also seek to ensure reasonable efficiency in client
transactions, and they provide portfolio managers with reasonable flexibility to
use allocation methodologies that are appropriate to their investment discipline
on client accounts.
To the extent any of the Adviser's client accounts and a Fund seek to
acquire the same security at the same general time (especially if that security
is thinly traded or is a small-cap stock), that 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 generally will
be allocated between that Fund and all such client accounts in a manner deemed
equitable by the Adviser, taking into account the respective sizes of the
accounts, the amount being purchased or sold and other factors deemed relevant
by the Adviser. In many cases, a Fund's transactions are bunched with the
transactions for other client accounts. It is recognized that in some cases this
system could have a detrimental effect on the price or value of the security
insofar as that Fund is concerned. In other cases, however, it is believed that
the ability of the Fund to participate in volume transactions may produce better
executions for that Fund.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Adviser may
place orders for a Fund with broker/dealers who have agreed to defray certain
Fund expenses such as custodian fees, and may, at the request of the
Distributor, give consideration to sales of shares of the Fund as a factor in
the selection of brokers and dealers to execute Fund transactions.
PURCHASE, REDEMPTION AND PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The net asset value per share of a Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets,
which include accrued but undistributed income; the resulting net assets are
divided by the number of shares of that Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
The net asset value of the shares of the Fund is determined on each day on
which the New York Stock Exchange ("NYSE") is open. This determination is made
once during each such day, as of 4:00 P.M.(Eastern Time) or earlier when trading
closes earlier with respect to the Fund. It is expected that the NYSE will be
closed on Saturdays and Sundays and for New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas. The Tax-Free and Bond Fund will not determine
their net asset values on bank holidays. The national bank holidays, in addition
to the days listed above, include January 2, Columbus Day, Veteran's Day and
December 26. The Fund may, but do not expect to, determine the net asset values
of their shares on any day when the NYSE is not open for trading if there is
sufficient trading in their portfolio securities on such days to affect
materially the per-share net asset value.
20
<PAGE>
Generally, trading in and valuation of foreign securities is substantially
completed each day at various times prior to the close of the NYSE. In addition,
trading in and valuation of foreign securities may not take place on every day
in which the NYSE is open for trading. Furthermore, trading takes place in
various foreign markets on days in which the NYSE is not open for trading and on
which the Fund' net asset values are not calculated. Occasionally, events
affecting the values of such securities in U.S. dollars on a day on which a Fund
calculates its net asset value may occur between the times when such securities
are valued and the close of the NYSE that will not be reflected in the
computation of that Fund's net asset value unless the Board or its delegates
deem that such events would materially affect the net asset value, in which case
an adjustment would be made.
Generally, the Fund' investments are valued at market value or, in the
absence of a market value, at fair value as determined in good faith by the
Adviser pursuant to procedures approved by or under the direction of the Board.
The Fund' securities, including ADRs, EDRs and CDRs, 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 Adviser to be the
primary market. Securities traded in the over-the-counter market are valued at
the mean between the last available bid and asked price prior to the time of
valuation. 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.
Short-term debt obligations with remaining maturities in excess of 60 days
are valued at current market prices, as discussed above. Short-term securities
with 60 days or less remaining to maturity are, unless conditions indicate
otherwise, amortized to maturity based on their cost to a Fund if acquired
within 60 days of maturity or, if already held by a Fund on the 60th day, based
on the value determined on the 61st day.
Corporate debt securities, mortgage-related securities and asset-backed
securities held by the Fund are valued on the basis of valuations provided by
dealers in those instruments, by an independent pricing service, approved by the
appropriate Board, or at fair value as determined in good faith by procedures
approved by the Board. Any such pricing service, in determining value, will use
information with respect to transactions in the securities being valued,
quotations from dealers, market transactions in comparable securities, analyses
and evaluations of various relationships between securities and
yield-to-maturity information.
An option that is written by a Fund is generally valued at the last sale
price or, in the absence of the last sale price, the last offer price. An option
that is purchased by a Fund is generally valued at the last sale price or, in
the absence of the last sale price, the last bid price. The value of a futures
contract equals the unrealized gain or loss on the contract that is determined
by marking the contract to the current settlement price for a like contract on
the valuation date of the futures contract if the securities underlying the
futures contract experience significant price fluctuations after the
determination of the settlement price. When a settlement price cannot be used,
futures contracts will be valued at their fair market value as determined by or
under the direction of the Board.
If any securities held by a Fund are restricted as to resale or do not have
readily available market quotations, the Adviser determines their fair value,
following procedures approved by the Board. The Trustee periodically reviews
such valuations and valuation procedures. The fair value of such securities is
generally determined as the amount which a Fund could reasonably expect to
realize from an orderly disposition of such securities over a reasonable period
of time. The valuation procedures applied in any specific instance are likely to
21
<PAGE>
vary from case to case. However, consideration is generally given to the
financial position of the issuer and other fundamental analytical data relating
to the investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by a Fund in
connection with such disposition). In addition, specific factors are also
generally considered, such as the cost of the investment, the market value of
any unrestricted securities of the same class (both at the time of purchase and
at the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
Any assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the official exchange rate or,
alternatively, at the mean of the current bid and asked prices of such
currencies against the U.S. dollar last quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing service
that takes into account the quotes provided by a number of such major banks. If
neither of these alternatives is available or both are deemed not to provide a
suitable methodology for converting a foreign currency into U.S. dollars, the
Board in good faith will establish a conversion rate for such currency.
All other assets of the Fund are valued in such manner as the Board in good
faith deems appropriate to reflect their fair value.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are sold on a continuous basis and may be purchased from
the Distributor or a broker-dealer or financial institution that has an
agreement with the Distributor. Purchases may be made Monday through Friday,
except on certain holidays. Shares are purchased at net asset value the next
time it is calculated after your investment is received and accepted by the
Distributor.
On any business day, shareholders may redeem all or a portion of their
shares. If the shares being redeemed were purchased by check, telephone or
through an automatic investment program, the Fund may delay the mailing of the
redemption check for up to 10 business days after purchase to allow the purchase
to clear. The redemption will be processed at net asset value the next time it
is calculated after the redemption request in good order is received. A
redemption is treated as a sale for tax purposes, and could result in taxable
gain or loss in a non-tax-sheltered account.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the Securities and Exchange Commission by rule or
regulation upon application by a Fund pursuant to Section 22(e) of the
Investment Company Act) as a result of which disposal or valuation of a Fund's
securities is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission has permitted by order. The Fund also
reserves the right to suspend sales of shares of any Fund for any period during
which the New York Stock Exchange, the Adviser, the Administrator or the
Custodian is not open for business.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may direct the shareholder servicing agent to send him or her
regular monthly, quarterly, or semi-annual payments, as designated on the
Account Application and based upon the value of his or her account. Each payment
under a Systematic Withdrawal Plan ("SWP") must be at least $50, except in
certain limited circumstances. Such payments are drawn from the proceeds of the
redemption of shares held in the shareholder's account (which would be a return
of principal and, if reflecting a gain, would be taxable). To the extent that
redemptions for such periodic withdrawals exceed dividend income reinvested in
the account, such redemptions will reduce, and may eventually exhaust, the
number of shares in the shareholder's account. All dividend and capital gain
distributions for an account with a SWP will be reinvested in additional full
and fractional shares of the applicable Fund at the net asset value in effect at
the close of business on the record date for such distributions.
22
<PAGE>
To initiate a SWP, shares having an aggregate value of at least $5,000 must
be held on deposit by the shareholder servicing agent. The shareholder, by
written instruction to the shareholder servicing agent, may deposit into the
account additional shares of the applicable Fund, change the payee, or change
the dollar amount of each payment. The shareholder servicing agent may charge
the account for services rendered and expenses incurred beyond those normally
assumed by the applicable Fund with respect to the liquidation of shares.
No charge is currently assessed against the account, but one could be
instituted by the shareholder servicing agent on 60 days' notice in writing to
the shareholder in the event that the applicable Fund ceases to assume the cost
of these services. Any Fund may terminate any SWP for an account if the value of
the account falls below $5,000 as a result of share redemptions (other than as a
result of a SWP) or an exchange of shares of the Fund for shares of another
Fund. Any such plan may be terminated at any time by either the shareholder or
the applicable Fund.
TAXES
TAX STATUS OF THE FUND
The Fund intends to continue to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986 as amended, (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 Fund.
In order to qualify as a regulated investment company under Subchapter M,
the Fund 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 stocks or other 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 that Fund's assets or 10% of the voting securities of the
issuer, and (ii) not more 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, a 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 a Fund is unable to meet certain requirements of the Code, it may be
subject to taxation as a corporation.
Because the Fund intends to distribute all of its net investment income and
net realized capital gains to shareholders in accordance with the timing
requirements imposed by the Code, it is not expected that the Fund will be
required to pay any federal income or excise taxes, although a Fund's
foreign-source income may be subject to foreign taxes. If a Fund should fail to
qualify as a "regulated investment company" in any year, the Fund would incur a
regular corporate federal income tax upon its taxable income and the Fund's
distributions would generally be taxable as ordinary dividend income to its
shareholders.
TAXATION OF FUND DISTRIBUTIONS
DISTRIBUTIONS -- GENERAL. The Fund intends to declare and pay dividends and
other distributions, as stated in the Prospectus. 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.
23
<PAGE>
Any Fund dividend that is declared in October, November, or December of a
calendar year, that is payable to shareholders of record in such a month, and
that is paid the following January will be treated as if received by the
shareholders on December 31 of the year in which the dividend is declared. The
Fund will notify shareholders regarding the federal tax status of distributions
after the end of each calendar year. Dividends and other distributions will be
reinvested in additional shares of the applicable Fund unless the shareholder
has otherwise indicated. Investors have the right to change their elections with
respect to the reinvestment of dividends 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.
The Fund receives income in the form of dividends and interest earned on
their investments in securities. This income, less the expenses incurred in
their operations, is the Fund' net investment income, substantially all of which
will be declared as dividends to the Fund' shareholders. Shareholders of Fund
will have to pay federal income taxes and may be subject to state or local
income taxes on the dividends and capital gain distributions they receive from
those Fund. Dividends from ordinary income and any distributions from net
short-term capital gains are taxable to shareholders as ordinary income for
federal income tax purposes, whether paid in cash or in additional shares.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses), whether paid in cash or in additional
shares, are taxable to shareholders as long-term capital gains for federal
income tax purposes without regard to the length of time the shareholders have
held their shares. Such capital gains will generally be taxable to shareholders
as if the shareholders had directly realized gains from the same sources from
which they were realized by the Fund.
A portion of the Stock Fund' ordinary income dividends (but none of their
capital gain distributions) is normally eligible for the dividends received
deduction for corporations if the recipient otherwise qualifies for that
deduction with respect to its holding of Fund shares. Availability of the
deduction for particular corporate shareholders is subject to certain
limitations, and deducted amounts may be subject to the alternative minimum tax
or result in certain basis adjustments.
Distributions of net capital gains and net short-term capital gains from
the Fund will reduce the distributing Fund's net asset value per share.
Shareholders who buy shares just before the record date for any such
distribution may pay the full price for the shares and then effectively receive
a portion of the purchase price back as a taxable distribution.
Distributions of a Fund that are derived from interest on obligations of
the U.S. Government and certain of its agencies and instrumentalities (but
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes. The Fund intends to
advise shareholders of the extent, if any, to which their respective
distributions consist of such interest. Shareholders are urged to consult their
tax advisers regarding the possible exclusion of such portion of their dividends
for state and local income tax purposes.
DISPOSITION OF SHARES. In general, any gain or loss realized upon a taxable
disposition of shares of a Fund by a shareholder that holds such shares as a
capital asset will be treated as long-term capital gain or loss if the shares
have been held for more than twelve months and otherwise as short-term capital
gain or loss. Any loss realized upon the disposition of shares in a Fund held
for six months or less will (if not disallowed as described in the preceding
sentence) be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales.
24
<PAGE>
ADDITIONAL INFORMATION RELATING TO FUND INVESTMENTS
The Fund' current dividend and accounting policies will affect the amount,
timing, and character of distributions to shareholders, and may make an economic
return of capital taxable to shareholders. Any investment by a Fund in
zero-coupon bonds, certain stripped securities including STRIPS, and certain
securities purchased at a market discount will cause the Fund to recognize
income prior to the receipt of cash payments with respect to those securities.
In order to distribute this income and avoid a tax on the Fund, a Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold, potentially resulting in additional taxable gain or loss to
the Fund.
An investment by a Fund in residual interests of a CMO that has elected to
be treated as a REMIC can create complex tax problems, especially if the Fund
has state or local governments or other tax-exempt organizations as
shareholders.
Fund transactions in options, futures contracts, forward contracts, short
sales "against the box," swaps and related transactions will be subject to
special tax rules that may affect the amount, timing, and character of Fund
income and distributions to shareholders. For example, certain positions held by
a Fund on the last business day of each taxable year will be marked to market
(treated as if closed out) on that day, and any gain or loss associated with the
positions will be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by a Fund that substantially diminish its risk of
loss with respect to other positions in its portfolio may constitute
"straddles," and may be subject to special tax rules that would cause deferral
of Fund losses, adjustments in the holding periods of Fund securities, and
conversion of short-term into long-term capital losses. Certain tax elections
exist for straddles that may alter the effects of these rules. The Fund will
limit their activities in options, futures contracts, forward contracts, swaps
and related transactions to the extent necessary to meet the requirements of
Subchapter M of the Code.
ADDITIONAL INFORMATION RELATING TO FOREIGN INVESTMENTS
Special tax considerations apply with respect to a Fund's foreign
investments. Investment income received by a Fund from sources within foreign
countries may be subject to foreign taxes. The Fund do not expect to be able to
pass through to shareholders foreign tax credits or deductions with respect to
such foreign taxes. The United States has entered into tax treaties with many
foreign countries that may entitle the Fund to a reduced rate of tax or an
exemption from tax on such income. The Fund intend to qualify for treaty reduced
rates where available. It is not possible, however, to determine a Fund's
effective rate of foreign tax in advance since the amount of the Fund's assets
to be invested within various countries is not known.
Foreign exchange gains and losses realized by a Fund will generally be
treated as ordinary income and losses. Use of foreign currencies for non-hedging
purposes may be limited in order to avoid a tax on the applicable Fund.
Occasionally, a Fund may invest in stock of foreign issuers deemed to be
"passive foreign investment companies" for U.S. tax purposes. Any Fund making
such an investment may be liable for U.S. income taxes on certain distributions
and realized capital gains from stock of such issuers. Any Fund making such an
investment also may elect to mark to market its investments in "passive foreign
investment companies" on the last day of each taxable year, which may cause the
Fund to recognize ordinary income prior to the receipt of cash payments with
respect to those investments. In order to distribute that income and avoid a tax
on the Fund, such a Fund may be required to liquidate portfolio securities that
it might otherwise have continued to hold.
25
<PAGE>
FOREIGN SHAREHOLDERS
Taxable dividends and certain other payments to persons who are not
citizens or residents of the United States or U.S. entities ("Non-U.S. Persons")
are generally subject to U.S. tax withholding at a rate of 30%, although the 30%
rate may be reduced to the extent provided by an applicable tax treaty. The Fund
intend to withhold tax payments at the rate of 30% (or the lower treaty rate) on
taxable dividends and other payments to Non-U.S. Persons that are subject to
such withholding. Any amounts withheld in excess of a person's actual tax
liability may be recovered by that person by filing a claim for refund with the
U.S. Internal Revenue Service within the time period appropriate for such
claims. Distributions received from the Fund by Non-U.S. Persons also may be
subject to tax under the laws of their own jurisdictions.
BACKUP WITHHOLDING
The Fund or any securities dealer effecting a redemption of the Fund'
shares by a shareholder will be required to file information reports with the
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 (including a Non-U.S. Person) who
have not furnished their correct taxpayer identification numbers and made
certain required certifications on the Account Application Form or with respect
to which a 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. Backup withholding will not, however be applied to payments that
have been subject to 30% withholding.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. From time to time, the Fund may advertise
total return for a Fund. The total return of a Fund refers to the average
compounded rate of return on a hypothetical investment for designated time
periods (including, but not limited to, the period from which the Fund commenced
operations through the specified date), and assumes that the entire investment
is redeemed at the end of each period. Any statements of total return for a Fund
will be accompanied by information on that Fund's average annual compounded rate
of return over the most recent four calendar quarters and the period from that
Fund's inception of operations. The Fund may also advertise aggregate and
average total return information over different periods of time. A Fund's
"average annual total return" figures are computed according to a formula
prescribed by the SEC expressed as follows:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or 10-year
period at the end of each respective period (or fractional
portion thereof), assuming reinvestment of all dividends
and distributions and complete redemption of the hypothetical
investment at the end of the measuring period.
AGGREGATE TOTAL RETURN. A Fund's "aggregate total return" figure represents
the cumulative change in the value of an investment in that Fund for the
specified period and are computed by the following formula prescribed by the
SEC:
26
<PAGE>
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a l-, 5- or 10-year period at the
end of a l-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions and complete redemption of the hypothetical
investment at the end of the measuring period.
The Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of that Fund's performance for any specified period in the
future. In addition, because performance will fluctuate, it may not provide a
basis for comparing an investment in that Fund with certain bank deposits or
other investments that pay a fixed yield for a stated period of time. Investors
comparing that Fund's performance with that of other investment companies should
give consideration to the quality and maturity of the respective investment
companies' portfolio securities.
A Fund's performance may from time to time be compared to that of other
mutual funds tracked by mutual fund rating services, broad groups of comparable
mutual funds or unmanaged indices, which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs. In
reports and other communications to shareholders or in advertising and sales
literature. The Fund may also show the historical performance of other
investment vehicles or groups of other mutual funds, and may compare tax
equivalent yields to taxable yields. Any given "performance" or performance
comparison should not be considered as representative of any performance in the
future. In addition, there may be differences between the Fund and the various
indexes and reporting services which may be quoted by the Fund.
For the period May 7, 1999 to October 31, 1999 the Fund's total return was
- -12.43%.
FINANCIAL STATEMENTS
The Annual Report to shareholders of the Fund for the period ended October
31, 1999 is a separate document and the financial statements appearing in it are
incorporated by reference in this Statement of Additional Information. Those
financial statements have been audited by _____________________, whose report
appears in the Annual Report. The financial statements have been incorporated in
this Statement of Additional Information in reliance on the report of
_____________________, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
27
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS (1)
The ratings of Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Rating Services ("S&P"), and Fitch IBCA, Inc. ("Fitch IBCA") represent
their opinions as to the quality of various debt securities, and are not
absolute standards of quality. Debt securities with the same maturity, coupon
and rating may have different yields, while debt securities of the same maturity
and coupon with different ratings may have the same yield. The ratings below are
as described by the rating agencies. Ratings are generally given to securities
at the time of issuance. While the rating agencies may, from time to time,
revise such ratings, they undertake no obligation to do so.
- ----------
(1) As described by the rating agencies. Ratings are generally given to
securities at the time of issuance. While the rating agencies may, from
time to time, revise such ratings, they undertake no obligation to do so.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
FOUR HIGHEST BOND RATINGS
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge." 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 investments 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,
since 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 greater
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Note: Those bonds in the Aa, A and Baa categories which Moody's believes possess
the strongest credit attributes are designated by the symbols Aa1, A1 and
Baa1.
DESCRIPTION OF STANDARD & POOR'S RATING SERVICES
FOUR HIGHEST BOND RATINGS
AAA. An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA. An obligation rated AA differs from the highest rated issues only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is still strong.
A. An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
28
<PAGE>
BBB. An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Plus (+) or minus (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF FITCH IBCA, INC.'S
FOUR HIGHEST INTERNATIONAL LONG-TERM CREDIT RATINGS
When assigning ratings, Fitch IBCA considers the historical and prospective
financial condition, quality of management, and the operating performance of the
issuer and of any guarantor, any special features of a specific issue or
guarantee, the issue's relationship to other obligations of the issuer, as well
as developments in the economic and political environment that might affect the
issuer's financial strength and credit quality.
Variable rate demand obligations and other securities which contain a
demand feature will have a dual rating, such as "AAA/F1+." The first rating
denotes long-term ability to make principal and interest payments. The second
rating denotes ability to meet a demand feature in full and on time.
AAA Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA Very high credit quality. "AA" ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
BBB Good credit quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
A plus (+) or minus (-) may be appended to a rating to denote relative
status within major rating categories. Such suffixes are not added to the "`AAA"
long-term category.
DESCRIPTION OF FITCH IBCA, INC.'S
TWO HIGHEST INTERNATIONAL SHORT-TERM CREDIT RATINGS
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F1 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the case
of the higher ratings.
29
<PAGE>
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually short-term senior debt obligations having an original maturity
not in excess of one year.
PRIME-1. Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics: (1)
leading market positions in well-established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structure with
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2. Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S RATING SERVICES
TWO HIGHEST COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1. A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligations is still strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2. A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
30
<PAGE>
INVESTMENT ADVISERS VAN DEVENTER & HOCH AMERICAN VALUE FUND
Van Deventer & Hoch
800 North Brand Boulevard, Suite 300
Glendale, California 91203
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, Arizona 85018
ADMINISTRATOR
Van Deventer & Hoch
800 North Brand Boulevard, Suite 300
Glendale, California 91203
SUB-ADMINISTRATOR
Investment Company Administration, L.L.C.
2020 E. Financial Way, Suite 100
Glendora, California 91741
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
INDEPENDENT ACCOUNTANTS
STATEMENT OF ADDITIONAL INFORMATION
CUSTODIAN
United Missouri Bank, N.A. March 1, 2000
928 Grand Boulevard
Kansas City, Missouri 64106
Allegiance Fund:
* are not insured by the FDIC or any other governmental agency;
* are not guaranteed by Van Deventer & Hoch or any of its affiliates;
and
* involve investment risks, including possible loss of principal.
<PAGE>
As filed with the Securities and Exchange Commission on May 22, 2000
Registration No. 333-17391
File No. 811-07959
================================================================================
Part C
of
Form N-1A
REGISTRATION STATEMENT
ADVISORS SERIES TRUST
================================================================================
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Agreement and Declaration of Trust (1)
(b) By-Laws (1)
(c) Not applicable
(d) (i) Form of Investment Advisory Agreement (4)
(ii) Form of Amendment to Investment Advisory Agreement (5)
(e) Distribution Agreement (2)
(f) Not applicable
(g) Custodian Agreement (3)
(h) (i) Administration Agreement with Investment Company
Administration Corporation (2)
(ii) Fund Accounting Service Agreement (2)
(iii) Transfer Agency and Service Agreement (2)
(i) Consent of Counsel (8)
(j) Consent of Independant Accountants (8)
(k) Not applicable
(l) Investment letters (3)
(m) Form of Rule 12b-1 Plan (4)
(n) Not applicable
(o) Not applicable
(p) Code of Ethics
(i) Advisors Series Trust Code of Ethics (6)
(ii) First Fund Distributor, Inc.'s Code of Ethics (7)
- ----------
(1) Previously filed with the Registration Statement on Form N-1A (File No.
333-17391) on December 6, 1996 and incorporated herein by reference.
(2) Previously filed with Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 333-17391) on January 29, 1997 and
incorporated herein by reference.
(3) Previously filed with Pre-Effective Amendment No. 2 to the Registration
Statement on Form N-1A (File No. 333-17391) on February 28, 1997 and
incorporated herein by reference.
(4) Previously filed with Post-Effective Amendment No. 37 to the Registration
Statement on Form N-1A (File No. 333-17391) on January 15, 1999 and
incorporated herein by reference.
(5) Previously filed with Post-Effective Amendment No. 45 to the Registration
Statement on Form N-1A (File No. 333-17391) on June 30, 1999 and
incorporated herein by reference.
(6) Previously filed with Post-Effective Amendment No. 61 to the Registration
Statement on Form N-1A (File No. 333-17391 on April 19, 2000 and
incorporated herein by reference.
(7) Previously filed with Post-Effective Amendment No. 62 to the Registration
Statement on Form N-1A (File No. 333-17391 on April 28, 2000 and
incorporated herein by reference.
(8) To be filed by Amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
Article VI of Registrant's By-Laws states as follows:
SECTION 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a Trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
Trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
<PAGE>
Trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
SECTION 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of this Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding, if it is determined that person acted in
good faith and reasonably believed:
(a) in the case of conduct in his official capacity as a Trustee of the
Trust, that his conduct was in the Trust's best interests, and
(b) in all other cases, that his conduct was at least not opposed to the
Trust's best interests, and
(c) in the case of a criminal proceeding, that he had no reasonable cause
to believe the conduct of that person was unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of this
Trust or that the person had reasonable cause to believe that the person's
conduct was unlawful.
SECTION 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of this Trust to procure a judgment in
its favor by reason of the fact that that person is or was an agent of this
Trust, against expenses actually and reasonably incurred by that person in
connection with the defense or settlement of that action if that person acted in
good faith, in a manner that person believed to be in the best interests of this
Trust and with such care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances.
SECTION 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision to
the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue, or matter as to which that person
shall have been adjudged to be liable on the basis that personal
benefit was improperly received by him, whether or not the benefit
resulted from an action taken in the person's official capacity; or
<PAGE>
(b) In respect of any claim, issue or matter as to which that person shall
have been adjudged to be liable in the performance of that person's
duty to this Trust, unless and only to the extent that the court in
which that action was brought shall determine upon application that in
view of all the circumstances of the case, that person was not liable
by reason of the disabling conduct set forth in the preceding
paragraph and is fairly and reasonably entitled to indemnity for the
expenses which the court shall determine; or
(c) of amounts paid in settling or otherwise disposing of a threatened or
pending action, with or without court approval, or of expenses
incurred in defending a threatened or pending action which is settled
or otherwise disposed of without court approval, unless the required
approval set forth in Section 6 of this Article is obtained.
SECTION 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of this
Trust has been successful on the merits in defense of any proceeding referred to
in Sections 2 or 3 of this Article or in defense of any claim, issue or matter
therein, before the court or other body before whom the proceeding was brought,
the agent shall be indemnified against expenses actually and reasonably incurred
by the agent in connection therewith, provided that the Board of Trustees,
including a majority who are disinterested, non-party Trustees, also determines
that based upon a review of the facts, the agent was not liable by reason of the
disabling conduct referred to in Section 4 of this Article.
SECTION 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of Trustees who are not parties
to the proceeding and are not interested persons of the Trust (as
defined in the Investment Company Act of 1940); or
(b) A written opinion by an independent legal counsel.
SECTION 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding upon a written undertaking by or on behalf of the agent, to repay the
amount of the advance if it is ultimately determined that he or she is not
entitled to indemnification, together with at least one of the following as a
condition to the advance: (i)security for the undertaking; or (ii) the existence
of insurance protecting the Trust against losses arising by reason of any lawful
advances; or (iii) a determination by a majority of a quorum of Trustees who are
not parties to the proceeding and are not interested persons of the Trust, or by
an independent legal counsel in a written opinion, based on a review of readily
available facts that there is reason to believe that the agent ultimately will
be found entitled to indemnification. Determinations and authorizations of
payments under this Section must be made in the manner specified in Section 6 of
this Article for determining that the indemnification is permissible.
SECTION 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
<PAGE>
SECTION 9. LIMITATIONS. No indemnification or advance shall be made under
this Article, except as provided in Sections 5 or 6 in any circumstances where
it appears:
(a) that it would be inconsistent with a provision of the Agreement and
Declaration of Trust of the Trust, a resolution of the shareholders,
or an agreement in effect at the time of accrual of the alleged cause
of action asserted in the proceeding in which the expenses were
incurred or other amounts were paid which prohibits or otherwise
limits indemnification; or
(b) that it would be inconsistent with any condition expressly imposed by
a court in approving a settlement.
SECTION 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article and the Agreement and Declaration of Trust of the
Trust.
SECTION 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The information required by this item with respect to Van Deventer & Hoch,
the Adviser to the Van Deventer & Hoch American Value Fund is as follows:
See information in Part A (Prospectus) and Part B (Statement of Additional
Information) for information on Messrs. Snyders and Bock. Messrs. Putnam,
Lovell, Morris and Ms. Thornton, who are indirect owners of the Manager (through
their interests in a limited partner of a general partner of the Manager), also
are principals in the investment banking firm of Putnam, Lovell, de Guardiola &
Thornton, which specializes in the investment management industry.
<PAGE>
Information required by this item is contained in the Form ADV of the
following entities and is incorporated herein by reference:
Name of Investment Adviser File No.
-------------------------- --------
Rockhaven Asset Management, LLC 801-54084
Capital Advisors, Inc. 801-14050
Chase Investment Counsel Corp. 801-3396
Avatar Investors Associates Corp. 801-7061
The Edgar Lomax Company 801-19358
AF Holdings, Inc. 801-30528
Heritage West Advisors, LLC 801-55233
Howard Capital Management 801-10188
Segall Bryant & Hamill 801-47232
National Asset Management Corporation 801-14666
Charter Financial Group, Inc. 801-50956
Chartwell Investment Partners 801-54124
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The Registrant's principal underwriter also acts as principal
underwriter for the following investment companies:
Guinness Flight Investment Funds
Fleming Capital Mutual Fund Group, Inc.
Fremont Mutual Funds, Inc.
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Investment Trust
O'Shaughnessy Funds, Inc.
PIC Investment Trust
The Purisima Funds
Professionally Managed Portfolios
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group, Inc.
Brandes Investment Trust
Allegiance Investment Trust
The Dessauer Global Equity Fund
Puget Sound Alternative Investment Trust
UBS Private Investor Funds
FFTW Funds, Inc.
Investors Research Fund, Inc.
Harding, Loevner Funds, Inc.
Samco Funds, Inc.
TIFF Investment Program
Trust for Investment Managers
<PAGE>
(b) The following information is furnished with respect to the officers and
directors of First Fund Distributors, Inc.:
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ---------------- ----------- ----------
Robert H. Wadsworth President and Vice President
4455 E. Camelback Road Treasurer
Suite 261E
Phoenix, AZ 85018
Eric M. Banhazl Vice President President,
2020 E. Financial Way, Ste. 100 Treasurer
Glendora, CA 91741 and Trustee
Steven J. Paggioli Vice President and Vice President
915 Broadway, Ste. 1605 Secretary
New York, New York 10010
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession of the following persons:
(a) the documents required to be maintained by paragraph (4) of Rule
31a-1(b) will be maintained by the Registrant;
(b) the documents required to be maintained by paragraphs (5), (6), (10)
and (11) of Rule 31a-1(b) will be maintained by the respective investment
advisors:
American Trust Company, One Court Street, Lebanon, NH 03766
Rockhaven Asset Management, 100 First Avenue, Suite 1050, Pittsburgh, PA
15222
Chase Investment Counsel Corp., 300 Preston Avenue, Charlottesville, VA
22902
Avatar Associates Investment Corp., 900 Third Avenue, New York, NY 10022
The Edgar Lomax Company, 6564 Loisdale Court, Springfield, VA 22150
AF Holdings, Inc. 465 Forest Avenue, Suite I, Laguna Beach, CA 92651
Heritage West Advisors, LLC, 1850 North Central Ave., Suite 610, Phoenix,
AZ 85004
<PAGE>
Liberty Bank and Trust Company, 4101 Pauger St., Suite 105, New Orleans, LA
70122
Howard Capital Management, 45 Rockefeller Plaza, Suite 1440, New York, New
York 10111
Segall Bryant & Hamill, 10 South Wacker Drive, Suite 2150, Chicago, IL
60606
National Asset Management Corporation, 101 South Fifth Street, Louisville,
KY 40202
Charter Financial Group, Inc., 1401 I Street N.W., Suite 505, Washington,
DC 20005
Chartwell Investment Partners, 1235 Westlakes Drive, Suite 330, Berwyn, PA
19312
Capital Advisors, Inc. 3205 S. Boston Ave., Suite 1300, Tulsa, OK 74013
(c) with respect to The Heritage West Preferred Securities Income Fund
series of the Registrant, all other records will be maintained by the
Registrant; and
(d) all other documents will be maintained by Registrant's custodian,
Firstar Bank, 425 Walnut Street, Cincinnati, OH 45202.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Registrant hereby undertakes to:
(a) Furnish each person to whom a Prospectus is delivered a copy of the
applicable latest annual report to shareholders, upon request and
without charge.
(b) If requested to do so by the holders of at least 10% of the Trust's
outstanding shares, call a meeting of shareholders for the purposes of
voting upon the question of removal of a trustee and assist in
communications with other shareholders.
(c) On behalf of each of its series, to change any disclosure of past
performance of an Advisor to a series to conform to changes in the
position of the staff of the Commission with respect to such
presentation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this amendment to
this Registration Statement to be signed on its behalf by the undersigned, there
to duly authorized in the City of Phoenix and State of Arizona on the 19th day
of May, 2000.
ADVISORS SERIES TRUST
By /s/ Eric M. Banhazl*
-------------------------------------
Eric M. Banhazl
President
This Amendment to the Registration Statement on Form N-1A of Advisors
Series Trust has been signed below by the following persons in the capacities
indicated on May 19, 2000.
/s/ Eric M. Banhazl* President, Principal Financial
- ----------------------------------- and Accounting Officer, and Trustee
Eric M. Banhazl
/s/ Walter E. Auch Sr.* Trustee
- -----------------------------------
Walter E. Auch, Sr.
/s/ Donald E. O'Connor* Trustee
- -----------------------------------
Donald E. O'Connor
/s/ George T. Wofford III* Trustee
- -----------------------------------
George T. Wofford III
* /s/ Robert H. Wadsworth
- -----------------------------------
By: Robert H. Wadsworth
Attorney in Fact
