ADVISORS SERIES TRUST, 497, 2000-05-24

ADVISORS SERIES TRUST
497, 2000-05-24

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THE AVATAR
ADVANTAGE
INTERNATIONAL EQUITY
ALLOCATION FUND

PROSPECTUS
APRIL 28, 2000
<PAGE>
TABLE OF CONTENTS

Objective of the Fund 2
Expense Table 4
How the Fund Will Try to Reach Its Investment Objective 5
How the Fund is Managed 9
A Guide for Investors 10
Services Available to Shareholders 12
How to Redeem Your Shares 13
Distributions and Taxes 15
Financial Highlights 17

- --------------------------------------------------------------------------------

OBJECTIVE OF THE FUND

The Avatar Advantage International Equity Allocation Fund (the "Fund") is to
seek long-term capital appreciation by maximizing portfolio returns within
prescribed risk limits by capitalizing on significant global market
inefficiencies.

HOW DOES THE FUND SEEK TO ACHIEVE ITS OBJECTIVE?

Unlike U.S. asset allocation strategies that are limited to three asset classes:
equities, bonds and cash, international asset allocation has a broad spectrum of
countries and asset classes within these countries to add value. Two types of
inefficiencies present investment opportunities in allocating assets. First,
inter-market inefficiencies that occur between countries. Second, intra- market
inefficiencies that occur between equity and cash markets within a particular
country. The Fund seeks to achieve its objective by investing in rising stock
markets outside of the United States and then preserving capital during
high-risk periods. Under normal market conditions, the Fund will invest at least
65% of its total assets in equity securities of issuers from at least three
countries other than the United States. Equity securities include common stocks
and securities having the characteristics of common stocks, such as convertible
securities, rights, warrants and World Equity Benchmark Shares (WEBS). In
addition to investing in equity securities, the Fund may also enter into foreign
currency exchange contracts and purchase other securities to protect against
fluctuations in foreign exchange rates.

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?

The Fund is designed for investors who are willing to accept the risks involved
in investing in foreign securities. These risks include changing market
conditions, economic and political instability and changes in currency exchange
rates. Information on foreign companies is often limited, and financial
information may be prepared following accounting rules that are different from
those used by public companies in the United States. Investing in any equity
security carries a degree of risk. Stock markets move up and down, which can
cause temporary or lengthy fluctuations in the value of the stocks in the Fund's
portfolio.

PROSPECTUS 2
<PAGE>
Since the prices of WEBS are correlated to diversified portfolios, WEBS are
subject to the declining stock prices, underlying index decline and the
possibility that the specific issuer may have financial difficulties. Because
WEBS mirror the performance of a single country index, an economic downturn in a
single country could adversely affect the price of the WEBS for that country.

In addition, because WEBS will continue to be traded even when trading is halted
in the stocks of the underlying indices, price quotations for these securities
may, at times, be based upon non-current price information.

The Fund may also use forward currency contracts to try to offset the rise and
fall of currency values, which may cause the Fund to suffer a loss.

There is the risk that you may lose money on your investment.

FUND PERFORMANCE

CALENDAR YEAR TOTAL RETURN FOR THE FUND

1999
----
20.85%

During the period of time displayed in the bar chart, the Fund's best quarter
was 4Q 99, up 15.17%, and its worst quarter was 1Q 99 down 0.30%.

AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999

1 Year Since Inception*
------ ----------------
Avatar Advantage International
Equity Allocation Fund 20.85% 13.57%
MSCI EAFE plus Canada Index 28.27% 21.80%

*The Fund commenced operations on February 2, 1998.

The Morgan Stanley Capital International (MSCI) EAFE plus Canada Index is a
capitalization-weighted index comprised of stocks representing a sampling of
companies in a manner that replicates the industry composition of certain
foreign markets. Countries included in the Index are Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland and the United Kingdom.

3 PROSPECTUS
<PAGE>
EXPENSE TABLE

You pay certain fees and expenses to buy and hold shares of the Fund. There are
two types of expenses involved: shareholder transaction expenses, such as sales
loads, and annual operating expenses, such as investment advisory fees. THE FUND
IS A NO-LOAD MUTUAL FUND AND HAS NO SHAREHOLDER TRANSACTION EXPENSES.

ANNUAL OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

Investment Advisory Fees............................................. 1.00%
12b-1 Fee............................................................ 0.25%
Other Expenses....................................................... 26.46%
------
Total Annual Fund Operating Expenses................................. 27.71%
Fee Waiver and/or Expense Reimbursement(a)........................... (26.06)%
------
Net Expenses......................................................... 1.65%
======

(a) The Advisor has contractually agreed to waive its fees and/or pay Fund
expenses in order to limit the Fund's Total Annual Fund Operating Expenses
(excluding interest and tax expenses) to 1.65% of average daily net assets.
This contract's term is indefinite and may be terminated only by the Board
of Trustees. The Advisor is permitted to be reimbursed, subject to
limitations, for fees it waives and for Fund expenses it pays.

WHAT DOES THE EXPENSE EXAMPLE SHOW?

This example will help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It is based on the Total Annual Fund
Operating Expenses shown above, and it assumes that these expenses will remain
the same over the time periods shown. The example also assumes that you make a
single $10,000 investment in the Fund to start with and that you earn a 5%
return each year. Finally, it assumes that you redeem all of your shares at the
end of each of the time periods. This example is hypothetical, and your actual
expenses may be higher or lower.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$167 $519 $895 $1,947

PROSPECTUS 4
<PAGE>
HOW THE FUND WILL TRY TO REACH ITS INVESTMENT OBJECTIVE

WHAT ARE THE FUND'S INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND
RELATED RISKS?

INVESTMENT OBJECTIVE

WHAT DOES THE FUND INVEST IN?

Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities of issuers from at least three countries other than
the United States or through the purchase of World Equity Benchmark Shares
(WEBS), which are open-end investment companies that invest in a diversified
portfolio of international equities of a single country. Equity securities
include common stocks and securities having the characteristics of common stock,
such as convertible securities, rights and warrants. In an attempt to hedge the
Fund's portfolio, the Fund may buy and sell options on securities and enter into
futures contracts and options on such contracts.

The Fund may directly invest in the equity securities of companies or indirectly
invest in such companies through the purchase of WEBS located anywhere in the
world but intends to invest principally in the following countries: Australia,
Canada, France, Germany, Hong Kong, Italy, Japan, Netherlands, Spain,
Switzerland and the United Kingdom. The Fund is also permitted to invest up to
10% of its total assets in U.S. companies. The Fund may invest more heavily in
U.S. companies when the Advisor's models indicate that foreign markets or
economic conditions or trends in currency exchange rates favor domestic
securities.

The Fund may invest in foreign securities in the form of American Depositary
Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), International Depositary Receipts (IDRs) or other similar securities
representing an interest in securities of foreign issuers.

OPTIONS ON SECURITIES

The Fund may buy options as a substitute for positions in the underlying
securities. The Fund may also buy call options on securities in order to fix the
cost of a future purchase or to attempt to enhance return. The Fund may buy put
options on securities to hedge against a decline in the value of the securities
it owns. The Fund may also write (sell) put and covered call options on
securities in which it is authorized to invest. Options transactions will be
entered into for hedging purposes and not for speculation.

5 PROSPECTUS
<PAGE>
RISKS. The Fund's ability to use these instruments successfully will depend on
the Advisor's ability to accurately predict movements in the prices of the
securities, interest rates and the securities markets. There is no assurance
that liquid secondary markets for options will always exist, and the correlation
between hedging instruments and the securities or sectors being hedged may be
imperfect. The requirement to cover obligations may impede portfolio management
or the ability to meet redemption requests. It may also be necessary to defer
closing out options positions to avoid adverse tax consequences.

FUTURES AND OPTIONS ON FUTURES

The Fund may enter into futures contracts and forward foreign currency exchange
contracts, or options on those contracts, involving interest rates, securities
and securities indices, for hedging purposes or as a substitute for positions in
the underlying securities, as well as in an attempt to realize income.

RISKS. There are risks involved in the use of futures and options on futures,
including the risk that the prices of the hedging vehicles may not correlate
perfectly with the prices of the securities in the Fund's portfolio. This may
cause the futures contracts or options to react differently from the Fund's
portfolio securities to market changes. In addition, the Advisor could be
incorrect in its expectations about the direction or extent of market movements.
In these events, the Fund could lose money on the futures contracts or options.
It is also not certain that a secondary market for positions in futures
contracts or options will exist at all times, although the Advisor will consider
liquidity before entering into these transactions.

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

Avatar Investors Associates Corp., the Advisor, is a passive investor and will
not focus on the characteristics of individual stocks. The Advisor will use
internally constructed baskets of equity securities or other instruments to make
investments and not engage in active security selection. The Advisor believes
the most important step in its investment process is determining the Fund's
allocation between equity securities and cash reserves in markets around the
world.

The asset allocation decision is based on a proprietary asset allocation model
(described below) which measure the risk and potential reward of investing in
equity securities relative to the safety of cash reserves in markets around the
world. When the Advisor's models indicate that stock market risk is low within a
given country, it maintains a large commitment (as fully invested as
practicable) to equity securities within a given country. When the Advisor's
models indicate that

PROSPECTUS 6
<PAGE>
stock market risk is high within a given country, it shifts an appropriate
amount of the Fund's assets to cash reserves to protect capital. The Advisor may
also shift assets between countries around the world to position itself in
markets it feels are more favorable. These shifts to and from equity securities
are generally made in increments of five to ten percent of the Fund's net
assets, as conditions warrant, based on the Advisor's asset allocation model. To
the extent that cash from additional shareholder investments has been received
by the Fund, that cash could be invested either in foreign markets or in the
United States, depending on which country the Advisor believes the allocation
would be most advantageous.

In creating the Fund's international portfolio, the Advisor employs an active
country allocation approach. Our investment process identifies both attractive
and unattractive markets by using information analyzed through quantitative
techniques. The process contains four elements that incorporates its proprietary
asset allocation model.

STEP 1. EVALUATING INDIVIDUAL MARKET RISK. Our research has identified factors
used to gauge the investment cycles within global markets. These factors,
combined in a disciplined manner, are used to derive a composite score. The
composite scores are used to determine the overall asset allocation mix.
Subsequent to establishing this top-level asset allocation, these scores are
used to determine the individual country overweight and underweight allocations
relative to the designated benchmark. The significant factors used to identify
and measure investment cycles are 1) Economic - economic conditions affect the
overall investment environment. Factors useful in assessing a market's economic
cycle include interest rates, monetary reserves, discount rates, production
levels and employment rates; 2) Market Trend - the market often exhibits
persistent trading patterns that can be identified through a series of technical
factors. Trends differ in length of time. Therefore, the Advisor measures short,
intermediate and long-term momentum; and 3) Valuation - the relative value
between stock prices and a company's, or in this case a country's net worth is
critical in identifying a boom and bust market cycles. Opportunities exist when
a country's market capitalization is overvalued or undervalued relative to the
market's fundamentals.

STEP 2. PORTFOLIO CONSTRUCTION. The composite scores for each country's asset
class are translated into overweight and underweight positions relative to a
designated benchmark. Benchmark guidelines are set for each country based on the
market capitalization weight of each market in the benchmark. These guidelines
are rebalanced monthly. The benchmark guideline for the Fund is the Morgan
Stanley

7 PROSPECTUS
<PAGE>
EAFE plus Canada Index, a capitalization-weighted index comprised of stocks
representing a sampling of companies in a manner that replicates the industry
composition of the markets in which the Advisor would like the Fund to be
invested. The index sets the basis for the Fund's allocation of stocks between
countries. A range above and below the benchmark is then set based on the
trading volume and available investment vehicles for that country. Given these
specified guidelines, the model readings or market risk determine the country
weights

STEP 3. CURRENCY MANAGEMENT. Foreign currency movements influence the value of
all international securities. However, opportunistic hedging can significantly
add value. Through our currency model we are able to determine currency trends
relative to the U.S. dollar. The models identify periods in which currency risks
may adversely impact or enhance the total portfolio value. The critical factors
used to identify currency trends and investing opportunities are the level of
relative interest rates, a country's trade-weighted exchange rate and currency
trend patterns.

STEP 4. PORTFOLIO IMPLEMENTATION. Implementing the recommended allocations is
the final element of the investment process. A large component of an
international portfolio's return is derived from the county allocation decision.
Our process focuses on building a portfolio that replicates the underlying
market. Once the asset allocation mix has been established, each country
portfolio is constructed using exchange-listed WEBs that provide appropriate
market exposure in a cost effective manner.

WHAT ARE THE RISKS OF INVESTING IN FOREIGN SECURITIES?

Investments in foreign securities involve significant and special risks. These
include currency fluctuations, political or economic instability in the country
of issuer and the possible imposition of exchange controls or other laws or
restrictions. In addition, securities prices in foreign markets are generally
subject to different economic, financial, political and social factors than are
the price of securities in U.S. markets. With respect to some foreign countries
there may be the possibility of expropriation or confiscatory taxation,
limitations on liquidity of securities or political or economic developments
which could affect the foreign investments of the Fund. Morever, most securities
of foreign issuers are not registered with the SEC, and most foreign issuers are
not subject to the SEC's reporting requirements. Accordingly, there is likely to
be less publicly available information concerning foreign issuers of securities
held by the Fund than is available concerning U.S. securities issuers. Foreign

PROSPECTUS 8
<PAGE>
companies are also generally not subject to uniform accounting, auditing and
financial reporting standards or to practices and requirements comparable to
those applicable to U.S. companies. There may also be less government
supervision and regulation of foreign broker-dealers, financial institutions and
listed companies than exists in the U.S. These factors could make foreign
investments, especially those in developing countries, (which the Fund may
invest in, but currently does not intend to) more volatile.

WHAT DOES THE FUND USE FOR CASH RESERVES?

The Advisor uses high quality, short-term debt securities and money market
instruments as cash reserves for the Fund. These short-term debt securities and
money market instruments include commercial paper, Money Market Mutual Fund
Shares, certificates of deposit, bankers' acceptances, U.S. Government
securities and repurchase agreements, as well as short-term securities issued by
other sovereign governments and investment grade money market instruments issued
by foreign banking institutions.

HOW THE FUND IS MANAGED

THE ADVISOR

The Fund's Advisor, Avatar Associates, 900 Third Avenue, New York, NY 10022 has
provided asset management services to individuals and institutional investors
since 1970. The Advisor was established and is controlled by its Chairman,
Edward S. Babbitt, Jr. Theodore M. Theodore, Vice Chairman, is principally
responsible for the management of the Fund's portfolio. Mr. Theodore joined the
Advisor in 1989 as a Vice President and portfolio manager. He became a Managing
Director in 1992 and was Co-Chairman of Research at Avatar from 1993 to 1996. In
January 1997 he became Director of Research for the Advisor.

The Advisor provides the Fund with advice on buying and selling securities,
manages the investments of the Fund, furnishes the Fund with office space and
certain administrative services, and provides most of the personnel needed by
the Fund. As compensation, the Fund pays the Advisor a monthly management fee
based upon the average daily net assets of the Fund at the annual rate of 1.00%.

ADDITIONAL MANAGEMENT FEES. The Fund invests in WEBS. WEBS are open-end
investment companies that are managed by an advisor unaffiliated with the
Advisor. WEBS incur their own advisory fees and operating expenses. As such, in
addition to the fees and expenses of the Fund, the Fund's shareholders will also
bear the pro rata portion of each WEBS's advisory fees and operational expenses.

9 PROSPECTUS
<PAGE>
FUND EXPENSES

The Fund is responsible for its own operating expenses. The Advisor has
contractually agreed to reduce its fees and/or pay expenses of the Fund to
ensure that the Fund's aggregate annual operating expenses (excluding interest
and tax expenses) will not exceed 1.65% of the Fund's average daily net assets.
Any reduction in advisory fees or payment of expenses made by the Advisor may be
reimbursed by the Fund if the Advisor requests in subsequent fiscal years. This
reimbursement may be requested if the aggregate amount actually paid by the Fund
toward operating expenses for such fiscal year (taking into account the
reimbursement) does not exceed the applicable limitation on Fund expenses. The
Advisor is permitted to be reimbursed for fee reductions and/or expense payments
made in the prior three fiscal years. (At startup, the Fund is permitted to look
for longer periods of four and five years.) Any such reimbursement will be
reviewed by the Trustees. The Fund must pay its current ordinary operating
expenses before the Advisor is entitled to any reimbursement of fees and/or
expenses.

A GUIDE FOR INVESTORS

PRICING THE FUND'S SHARES

The Fund's price, or net asset value, per share,(its "NAV") is calculated by
dividing the value of a Fund's total assets, less its liabilities, by the number
of its shares outstanding. In calculating the NAV, portfolio securities are
valued using current market values, if available. Securities for which market
quotations are not readily available are valued at fair value determined in good
faith by or under the supervision of the Board of Trustees of the Trust. The NAV
is calculated at the close of regular trading of the New York Stock Exchange
("NYSE"), normally 4:00 p.m., Eastern time.

HOW TO PURCHASE SHARES OF THE FUND

The Fund was established primarily to serve those investors in the qualified
retirement plan market. There are several ways to purchase shares of the Fund.
An Application Form, which accompanies this Prospectus, is used if you send
money directly to the Fund by mail or by wire. If you have questions about how
to invest, or about how to complete the Application Form, please call an account
representative at (800)576-8229

YOU MAY SEND MONEY TO THE FUND BY MAIL

If you wish to invest by mail, simply complete the Application Form and mail it
with a check (made payable to the Avatar Advantage International Equity
Allocation Fund) to the Fund's Shareholder Servicing Agent, ICA Fund Services
Corp., at the following address:

Avatar Advantage International Equity Allocation Fund
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018

PROSPECTUS 10
<PAGE>
YOU MAY WIRE MONEY TO THE FUND

Before sending a wire, you should call the Fund at (800) 576-8229 between 8:30
a.m. and 7:00 p.m., Eastern time, on a day when the NYSE is open for trading, in
order to receive an account number. It is important to call and receive this
account number, because if your wire is sent without it or without the name of
the Fund, there may be a delay in investing the money you wire. You should then
ask your bank to wire money to:

Firstar Bank, N.A.
ABA # 0420-0001-3
for credit to Avatar Advantage International Equity Allocation Fund
DDA # 488886201
for further credit to [your name and account number]

Your bank may charge you a fee for sending a wire to the Fund.

YOU MAY PURCHASE SHARES THROUGH AN INVESTMENT BROKER

You may buy and sell shares of the Fund through certain brokers (and their
agents, together "brokers") that have made arrangements with the Fund. An order
placed with such a broker is treated as if it were placed directly with the
Fund, and will be executed at the next share price calculated by the Fund. Your
shares will be held in a pooled account in the broker's name, and the broker
will maintain your individual ownership information. The Fund may pay the broker
for maintaining these records as well as providing other shareholder services.
In addition, the broker may charge you a fee for handling your order. The broker
is responsible for processing your order correctly and promptly, keeping you
advised of the status of your individual account, confirming your transactions
and ensuring that you receive copies of the Fund's Prospectus.

MINIMUM INVESTMENTS

The minimum initial investment in the Fund is $2,500. The minimum subsequent
investment is $250. However, if you are investing in an Individual Retirement
Account (IRA), or you are starting an Automatic Investment Plan (see below), the
minimum initial and subsequent investments are $1,000 and $50, respectively.

SUBSEQUENT INVESTMENTS

You may purchase additional shares of the Fund by sending a check, with the stub
from an account statement, to the Fund at the address above. Please also write
your account number on the check. (If you do not have a stub from an account
statement, you can write your name, address and account number on a separate
piece of paper and enclose it with your check.) If you want to send additional
money for investment by wire, it is important for you to call the Fund at (800)
576-8229. You may also make additional purchases through an investment dealer,
as described above.

11 PROSPECTUS
<PAGE>
WHEN IS MONEY INVESTED IN THE FUND?

Any money received for investment in the Fund from an investor, whether sent by
check or by wire, is invested at the NAV of the Fund which is next calculated
after the money is received (assuming the check or wire correctly identifies the
Fund and account), less any sales charge (if applicable). Orders received from
dealers are invested at the NAV next calculated after the order is received,
less any sales charge (if applicable). A check or wire received after the NYSE
closes is invested as of the next calculation of the Fund's NAV.

OTHER INFORMATION

The Distributor may waive the minimum investment requirements for purchases by
certain group or retirement plans. All investments must be made in U.S. dollars,
and checks must be drawn on U.S. banks. Third party checks will not be accepted.
A charge may be imposed if a check used to make an investment does not clear.
The Fund and the Distributor reserve the right to reject any investment, in
whole or in part. Federal tax law requires that investors provide a certified
taxpayer identification number and other certifications on opening an account in
order to avoid backup withholding of taxes. See the Application Form for more
information about backup withholding.

SERVICES AVAILABLE TO SHAREHOLDERS

RETIREMENT PLANS

You may obtain prototype IRA plans from the Fund. Shares of the Fund are also
eligible investments for other types of retirement plans.

AUTOMATIC INVESTING BY CHECK

You may make regular monthly investments in the Fund using the "Automatic
Investment Plan." A check is automatically drawn on your personal checking
account each month for a predetermined amount (but not less than $100), as if
you had written it directly. Upon receipt of the withdrawn money, the Fund
automatically invests the money in additional shares of the Fund at the current
NAV. Applications for this service are available from the Fund or you may simply
complete this section on the new account application form. There is no charge to
you for this service. The Funds may terminate or modify this privilege at any
time, and shareholders may terminate their participation by notifying the
Shareholder Servicing Agent in writing, sufficiently in advance of the next
withdrawal.

AUTOMATIC WITHDRAWALS

The Fund offers a Systematic Withdrawal Program whereby shareholders may request
that a check drawn in a predetermined amount be sent to them each month or
calendar quarter. To start this

PROSPECTUS 12
<PAGE>
Program, your account must have Fund shares with a value of at least $10,000,
and the minimum amount that may be withdrawn each month or quarter is $50. This
Program may be terminated or modified by a shareholder or the Fund at any time
without charge or penalty. A withdrawal under the Systematic Withdrawal Program
involves a redemption of Fund shares, and may result in a gain or loss for
federal income tax purposes. In addition, if the amount withdrawn exceeds the
dividends credited to your account, the account ultimately may be depleted.

HOW TO REDEEM YOUR SHARES

You have the right to redeem all or any portion of your Fund shares on each day
the NYSE is open for trading.

REDEMPTION IN WRITING

You may redeem your shares by simply sending a written request to the Fund. You
should give your account number and state whether you want all or part of your
shares redeemed. The letter should be signed by all of the shareholders whose
names appear in the account registration. You should send your redemption
request to:

Avatar Advantage International Equity Allocation Fund
4455 E. Camelback Road, Suite 261E
Phoenix, AZ 85018

SIGNATURE GUARANTEE

If the value of the shares you wish to redeem exceeds $100,000, or is being sent
to any address other than that to where we send your statements, the signatures
on the redemption request must be guaranteed by an "eligible guarantor
institution." These institutions include banks, broker-dealers, credit unions
and savings institutions. A broker-dealer guaranteeing a signature must be a
member of a clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program. A notary public is not an
acceptable guarantor.

REDEMPTION BY TELEPHONE

If you complete the Redemption by Telephone portion of the Fund's Application
Form, you may redeem shares on any business day the NYSE is open by calling the
Fund's Shareholder Servicing Agent at (800) 576-8229 before 4:00 p.m. Eastern
time. Redemption proceeds will be mailed or wired, at your direction, on the
next business day to the bank account you designated on the Application Form.
The minimum amount that may be wired is $1,000 (wire charges, if any, will be
deducted from redemption proceeds). Telephone redemptions cannot be made for IRA
accounts.

PROSPECTUS 13
<PAGE>
By establishing telephone redemption privileges, you authorize the Fund and its
Shareholder Servicing Agent to act upon the instruction of any person who makes
the telephone call to redeem shares from your account and transfer the proceeds
to the bank account designated in the Application Form. The Fund and the
Shareholder Servicing Agent will use procedures to confirm that redemption
instructions received by telephone are genuine, including recording of telephone
instructions and requiring a form of personal identification before acting on
these instructions. If these normal identification procedures are followed,
neither the Fund nor the Shareholder Servicing Agent will be liable for any
loss, liability, or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
The Fund may change, modify, or terminate these privileges at any time upon at
least 60 days notice to shareholders.

You may request telephone redemption privileges after your account is opened;
however, the authorization form will require a separate signature guarantee.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity.

THE PRICE USED FOR A REDEMPTION

The redemption price is the NAV of the Fund's shares next determined after
shares are validly tendered for redemption. All signatures of account holders
must be included in the request, and a signature guarantee, if required, must
also be included for the request to be valid.

WHEN REDEMPTION PAYMENTS ARE MADE

If shares were purchased by wire, they cannot be redeemed until the day after
the Application Form is received. If shares were purchased by check and then
redeemed shortly after the check is received, the Fund may delay sending the
redemption proceeds until it has been notified that the check used to purchase
the shares has been collected, a process which may take up to 15 days. This
delay may be avoided by investing by wire or by using a certified or official
bank check to make the purchase.

REPURCHASES FROM DEALERS

The Fund may accept orders to sell shares from an investment dealer (or their
agent) on behalf of a dealer's (or their agent's) customers. The

PROSPECTUS 14
<PAGE>
NAV for a sale is that next calculated after receipt of the order from the
dealer (or agent). The dealer (or agent) is responsible for forwarding any
documents required in connection with a redemption, including a signature
guarantee, and the Fund may cancel the order if these documents are not received
promptly.

OTHER INFORMATION ABOUT REDEMPTIONS

A redemption may result in recognition of a gain or loss for federal income tax
purposes. Due to the relatively high cost of maintaining smaller accounts, the
shares in your account (unless it is a retirement plan or Uniform Gifts or
Transfers to Minors Act account) may be redeemed by the Fund if, due to
redemptions you have made, the total value of your account is reduced to less
than $500. If the Fund determines to make such an involuntary redemption, you
will first be notified that the value of your account is less than $500, and you
will be allowed 30 days to make an additional investment to bring the value of
your account to at least $500 before the Fund takes any action.

DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Dividends from net investment income, if any, are normally declared and paid by
the Fund in December. Capital gains distributions, if any, are also normally
made in December, but the Fund may make an additional payment of dividends or
distributions if it deems it desirable at another time during any year.

Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares of the Fund at the NAV on the
reinvestment date unless you have previously requested in writing to the
Shareholder Servicing Agent or on the Account Application Form that payment be
made in cash.

Any dividend or distribution paid by the Fund has the effect of reducing the NAV
on the record date by the amount of the dividend or distribution. You should
note that a dividend or distribution paid on shares purchased shortly before
that dividend or distribution was declared will be subject to income taxes even
though the dividend or distribution represents, in substance, a partial return
of capital to you.

TAXES

15 PROSPECTUS
<PAGE>
advisors concerning federal, state and local taxation of distributions from the
Fund.

DISTRIBUTION ARRANGEMENTS

The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. This rule allows the Fund to pay distribution
fees for the sale and distribution of its shares and for services provides to
its shareholders. The maximum amount of the fee authorized is 0.25% of the
Fund's average daily net assets annually, which is payable to the Advisor, as
Distribution Coordinator. Because these fees are paid out of the Fund's assets
on an on-going basis, over time these fees will increase the cost of your
investment in Fund shares and may cost you more than paying other types of sales
charges.

PROSPECTUS 16
<PAGE>
FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance during its past fiscal year. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, for the year ended
December 31, 1999, and by other independent accountants for the period prior to
December 31, 1999. PricewaterhouseCoopers LLP's report and the Fund's financial
statements are included in the Fund's annual report which is available upon
request.

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------

Year Feb. 2, 1998*
Ended through
Dec. 31, 1999 Dec. 31, 1998
------------- -------------

Net asset value, beginning of period.......... $ 9.94 $10.00
------ ------

Income from investment operations:
Net investment income (loss)............... (0.07) 0.23
Net realized and unrealized gain
on securities............................ 2.14 0.30
------ ------
Total from investment operations.............. 2.07 0.53
------ ------

Less distributions:
From net investment income................. 0.00 (0.21)
From net capital gains..................... (0.14) (0.38)
In excess of net realized gains............ (0.13) 0.00
------ ------
Total distributions paid...................... (0.27) (0.59)
------ ------

Net asset value, end of period................ $11.74 $ 9.94
====== ======

Total return.................................. 20.85% 5.50%**

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)......... $ 508 $ 413

Ratio of expenses to average net assets....... 1.65% 1.65%+
Ratio of net investment income/(loss)
to average net assets...................... (0.69)% 2.45%+

Portfolio turnover rate....................... 67.19% 177.43%

* Commencement of operations.
+ Annualized.
** Not Annualized.

15 PROSPECTUS
<PAGE>
THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND,
A SERIES OF ADVISORS SERIES TRUST

For More Information

The Statement of Additional Information (SAI) for the Fund 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 reports include a
discussion of the market conditions and investment strategies which
significantly affected the Fund's performance during its last fiscal year.

The SAIs and shareholder reports are available free upon request. To request
them or other information, or to ask any questions, please call or write:

1-800-576-8229

Avatar Advantage International Equity Allocation Fund
c/o ICA Fund Services Corp.
4455 E. Camelback Road
Suite 261E
Phoenix AZ 85018

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 the Room's operations.

Reports and other Fund information are also available on the SEC's Internet site
at http://www.sec.gov. Copies of this information may be obtained, for
duplicating fees, by writing to the SEC's Public Reference Section, Washington,
DC 20549-6009 or via email at [email protected].

The Fund's SEC File Number is 811-07959.
<PAGE>
This Prospectus sets forth basic information about the Fund that you should know
before investing. It should be read and retained for future reference.

SHARES OF THE FUND HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
THE AVATAR

ADVANTAGE EQUITY

ALLOCATION FUND

THE AVATAR

ADVANTAGE

BALANCED FUND

PROSPECTUS

APRIL 28, 2000

This combined Prospectus sets forth basic information about the Funds that you
should know before investing. It should be read and retained for future
reference.

SHARES OF THE FUNDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS

Objectives of the Funds 2
Expense Table 4
How the Funds Will Try to Reach
Their Investment Objectives 5
How the Funds are Managed 7
A Guide for Investors 10
Services Available to Shareholders 14
How to Redeem Your Shares 15
Distributions and Taxes 17
Financial Highlights 19

OBJECTIVES OF THE FUNDS

The AVATAR ADVANTAGE EQUITY ALLOCATION FUND (the "Equity Fund") invests in
equity securities for the purpose of seeking long-term capital appreciation. The
AVATAR ADVANTAGE BALANCED FUND (the "Balanced Fund") (collectively the "Funds")
invests in equity securities, bonds and money-market securities for the purpose
of seeking long-term capital appreciation and preserving capital during market
downturns.

WHAT ARE THE PRINCIPLE RISKS OF INVESTING IN THE FUNDS?

The risk exists that you could lose money on your investment in either Fund.
This could happen if any of the following events happen:

IN EITHER FUND

* The market in general, in which a Fund invests, falls.

* The Advisor is incorrect in its expectations about the direction or extent
of market movements.

* The prices of futures and options on futures may not correlate with the
prices of the securities in a Fund's portfolio.

* A Fund cannot liquidate its positions in futures and options on futures
because a secondary market for these securities may not exist at all times.

IN THE EQUITY FUND

* Companies in which the Fund invests do not grow, grow more slowly than
anticipated or fall in value.

* A particular segment of the stock market where the Equity Fund is heavily
invested falls out of favor with investors.

* The Advisor's asset allocation model fails to direct the Advisor to the
most appropriate mix of cash and equity securities.

IN THE BALANCED FUND

* The Advisor's asset allocation model fails to direct the Advisor to the
most appropriate mix of equity securities, bonds or cash.

* Interest rates rise, causing bond prices to fall.

* The issuer of a bond held in the Balanced Fund's portfolio defaults or
threatens default on payment of interest to investors.

By themselves, the Funds may not be a complete investment plan for you. No Fund
can guarantee that it will achieve its investment objective. When you sell your

PROSPECTUS 2
<PAGE>
shares, you may lose money. An investment in the Balanced Fund, which may invest
in Money Market instruments, is not a bank deposit and is not insured or
guaranteed by any government agency.

WHAT IS THE FUNDS' PERFORMANCE?

The following performance information illustrates some of the risk of investing
in the Funds. The bar charts show the Equity Fund's total return for calendar
years 1998 and 1999 and the Balanced Fund's total return for calendar year 1999.
A table, which follows each bar chart, shows each Fund's average annual total
return over time compared with broad-based market indices. Past performance is
no guarantee of future results.

CALENDAR YEAR TOTAL RETURNS FOR THE EQUITY FUND

During the period of time displayed in the bar chart, the Equity Fund's best
quarter was Q4 1998, up 17.13% and its worst quarter was Q3 1998, down 6.16%.

1998 1999
---- ----
25.81% 17.11%

The bar chart does not reflect sales charges that you may pay to purchase Fund
shares. If they were included, the returns would be less than those shown.

AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999

1 Year Since Inception*
------ ----------------
The Equity Fund** 11.84% 18.00%
The S&P 500 Index 19.53% 23.42%

- ----------
* The inception date of the Equity Fund was December 3, 1997.
** Average annual total returns reflect sales load.

The S&P 500 Composite Stock Price Index is a broad market-capitalization
weighted index of 500 stocks designed to represent the broad domestic economy.

CALENDAR YEAR TOTAL RETURN FOR THE BALANCED FUND

During the period of time displayed in the bar chart, the Balanced Fund's best
quarter was Q4 1999, up 11.80% and its worst quarter was Q3 1999, down 3.17%.

The bar chart does not reflect sales charges that you may pay to purchase Fund
shares. If they were included, the returns would be less than those shown.

1999
----
11.82%

3 PROSPECTUS
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999
1 Year Since Inception*
------ ----------------
The Balanced Fund** 6.79% 14.94%
Blended Index 19.53% 5.65%

- ----------
* The inception date of the Balanced Fund was January 13, 1998.
** Average annual total returns reflect sales load.

The Blended Index consists of the S&P 500 Index (60%) and the Lehman Corporate
Bond Index (40%). The S&P 500 Stock Index is a broad market
capitalization-weighted index of 500 stocks designed to represent the broad
domestic economy. The Lehman Corporate Bond Index includes all publicly issued,
fixed-rate, non-convertible investment grade domestic corporate debt issues and
also includes Yankee Bonds.

EXPENSE TABLE

You pay certain fees and expenses to buy and hold shares in a Fund. There are
two types of expenses involved: shareholder transaction expenses, such as sales
loads, and annual operating expenses, such as investment advisory fees.

SHAREHOLDER TRANSACTION EXPENSES Equity Fund Balanced Fund
----------- -------------
(fees paid directly from your investment)

Sales Load Imposed on Purchases ................... 4.50% 4.50%
Deferred Redemption Fee (a) ....................... 1.00% 1.00%

ANNUAL OPERATING EXPENSES

(expenses that are deducted from Fund assets)

Investment Advisory Fees .......................... 0.85% 0.75%
12b-1 Fee ......................................... 0.25% 0.25%
Other Expenses .................................... 0.89% 6.28%
---- ----

Total Annual Fund Operating Expenses .............. 1.99% 7.28%
Fee Waiver and/or Expense
Reimbursement (b) .............................. (0.49)% (5.88)%
---- ----

Net expenses ...................................... 1.50% 1.40%
==== ====

- ----------
(a) The Redemption Fee (as a percentage of original purchase price or
redemption proceeds, whichever is lower) will be imposed on redemptions
made within 1 year of purchase.
(b) The Advisor has contractually agreed to waive its fees and/or pay Fund
expenses in order to limit each Fund's Total Annual Operating Expenses
(excluding interest and tax expenses) as indicated above. This contract's
term is indefinite and may be terminated only by the Board of Trustees. The
Advisor is permitted to be reimbursed, subject to limitations, for fees it
waives and for Fund expenses it pays.

PROSPECTUS 4
<PAGE>
WHAT DOES THE EXPENSE EXAMPLE SHOW?

This example will help you compare the cost of investing in the Funds with the
cost of investing in other mutual funds. It is based on the total annual
operating expenses shown above, and it assumes that these expenses will remain
the same over the time periods shown. It also assumes that you make a single
$10,000 investment in each Fund to start with and that you earn a 5% return each
year. Finally, the example assumes that you redeem all of your shares at the end
of each of the time periods. This example is hypothetical, and your actual
expenses may be higher or lower.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
EQUITY FUND $694 $902 $1,230 $2,154
Without redemption: $595 $902 $1,230 $2,154
BALANCED FUND $684 $872 $1,180 $2,049
Without redemption: $585 $872 $1,180 $2,049

HOW THE FUNDS WILL TRY TO REACH THEIR INVESTMENT OBJECTIVES

Both Funds seek long-term capital appreciation by participating in rising
markets. The Balanced Fund also seeks to preserve capital.

Avatar Investors Associates Corp., the Advisor, believes that the most important
step in its investment process is determining how to allocate a Fund's
portfolio. The Advisor maintains asset allocation models for the Funds.

In the Equity Fund, when the Advisor believes market risk is low, it maintains a
large commitment (as fully invested as practical) to equity securities. When the
Advisor believes market risk is high, it shifts an appropriate amount of the
Equity Fund's assets into cash reserves to protect capital. These shifts from
and to equity securities are generally made in increments of five to ten percent
of the Equity Fund's total net assets, as conditions warrant based on the
Advisor's asset allocation model.

In the Balanced Fund, when the Advisor believes market risk is low, it invests
as fully as practical in stocks and bonds. When the Advisor believes market risk
is high, it reduces equity security and bond holdings. These shifts are
generally made in increments of five to ten percent of the Balanced Fund's total
net assets, as conditions warrant based on the Advisor's asset allocation model.
However, the Balanced Fund will at all times maintain at least 25% of the value
of its total assets in fixed-income senior securities.

The Advisor's asset allocation models measure liquidity in the market place.
Based on its experience and research, the Advisor believes that changes in
financial liquidity - for example, money, credit and reserves - are the best

5 PROSPECTUS
<PAGE>
measures of investment market risk. When this liquidity expands beyond what is
needed by the "real" or production side of the economy, much of the excess moves
into the stock and bond markets. This movement causes stock and bond prices to
rise. On the other hand, when liquidity is contracting, economic demands siphon
money away from the stock and bond markets. Investment risks increase, and stock
and bond prices are subject to declines. Thus, the Advisor makes orderly asset
mix decisions by measuring and reacting to current market risk levels as
quantified by the Advisor's models.

HOW DOES THE ADVISOR SELECT EQUITY SECURITIES FOR EACH FUND'S PORTFOLIO?

The Advisor's approach to purchasing equity securities is the same for both
Funds. The Advisor selects equity securities, consisting of common stocks and
securities having the characteristics of common stocks, such as convertible
securities, rights and warrants, on the basis of both quantitative and
qualitative analysis. It screens a universe of more than 3,400 stocks for
liquidity, in order to identify stocks with sufficient trading volume to
establish or eliminate a position quickly and cost-effectively. This screen
reduces the list of potential candidates to 600 to 700 actively traded issues.
The Advisor then ranks each security on both growth and value factors, to
identify stocks that possess good growth potential at reasonable prices. The
Advisor's qualitative analysis involves identifying the investment themes and
stocks that are the best performers in the current market environment. The
Standard and Poor's 500 ("S&P 500") benchmarks are employed to determine
industry and sector weight. When the Advisor desires maximum exposure to
equities, each Fund's diversified portfolio is expected to have between 50 and
70 separate securities. The Advisor may sell a stock when its asset allocation
model calls for a reduction in the exposure to equities, when the stock becomes
less attractive due to deteriorating fundamentals or when the stock's price
falls to a pre-set limit.

HOW DOES THE ADVISOR SELECT BONDS FOR THE BALANCED FUND'S PORTFOLIO?

The Advisor purchases only U.S. Government Securities for the Balance Fund thus
avoiding the risks associated with corporate debt. The Advisor actively adjusts
the maturity and duration of the securities from among which it chooses.
Utilizing various strategies, the Advisor tailors the holdings based on current
bond market research and analysis. Quantitative analysis helps determine optimal
bond portfolio duration while qualitative analysis helps to carefully assess
various maturity combinations to achieve a duration target.

The Advisor does not expect either Fund's annual turnover rate to exceed 150%.

PROSPECTUS 6
<PAGE>
High portfolio turnover will increase transaction costs and may result in higher
taxes for you compared to other mutual funds with lower turnover rates.

FUTURES AND OPTIONS ON FUTURES

The Funds may enter into futures contracts, or options on those contracts,
involving interest rates, securities and securities indices, for hedging
purposes or as a substitute for positions in the underlying securities. As a
general rule, the Funds will not purchase or sell futures if, immediately
thereafter, more than 25% of a Fund's net assets would be hedged.

LENDING SECURITIES

To increase its income, the Fund may lend securities from its portfolio to
brokers, dealers and other financial institutions. No more than one-third of the
Funds' total assets may be loaned. The Funds' loans of portfolio securities will
be collateralized at all times by high quality liquid securities. Under the
present regulatory requirements which govern loans of portfolio securities, the
loan collateral must, on each business day, at least equal the value of the
loaned securities and must consist of cash, letters of credit of domestic banks
or domestic branches of foreign banks, or securities of the U.S. Government or
its agencies. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by the Funds if the demand meets the terms of the
letter. Such terms and the issuing bank would have to be satisfactory to the
Funds. Any loan might be secured by any one or more of the three types of
collateral. The terms of the Funds' loans must permit the Fund to reacquire
loaned securities on five days' notice or in time to vote on any serious matter
and must meet certain tests under the Internal Revenue Code of 1986.

WHAT DO THE FUNDS USE FOR CASH RESERVES?

The Advisor uses high quality, short-term debt securities and money market
instruments as cash reserves for the Funds. These short-term debt securities and
money market instruments include shares of Money Market mutual funds, commercial
paper, certificates of deposit, bankers' acceptances, U.S. Government securities
and repurchase agreements. The Funds may also buy mortgage-backed securities.

HOW THE FUNDS ARE MANAGED

THE ADVISOR

The Funds' Advisor, Avatar Associates, 900 Third Avenue, New York, NY 10022 has
provided asset management services to individuals and institutional investors
since 1970. The Advisor was established and is controlled by its Chairman,
Edward S. Babbitt, Jr. Both Funds are managed by a committee of in-house
investment professionals to maximize overall effectiveness using the asset
allocation techniques and strategies developed by the Advisor.

7 PROSPECTUS
<PAGE>
The Advisor provides the Funds with advice on buying and selling securities,
manages the investments of the Funds, furnishes the Funds with office space and
certain administrative services, and provides most of the personnel needed by
the Funds. As compensation, the Funds pay the Advisor a monthly management fee
based upon the average daily net assets of the Fund at the annual rate of 0.85%
for the Equity Fund and 0.75% for the Balanced Fund. During the last fiscal
period, total fees paid to the Advisor for the Equity Fund amounted to $50,666,
net of waiver. The Advisor waived its entire fee of $11,764 for the Balanced
Fund.

PRIOR PERFORMANCE OF THE ADVISOR

The table which follows this discussion sets forth composite performance data
relating to the historical performance of institutional private accounts managed
by the Advisor for the periods indicated, that have investment objectives,
policies, strategies and risks substantially similar to those of the Funds
(each, a "Composite"). The data is provided to illustrate the past performance
of the Advisor in managing substantially similar accounts and does not represent
the performance of the Funds. You should not consider this performance data as
an indication of future performance of a Fund or of the Advisor.

The following Composite performance data tables were calculated in accordance
with recommended standards of the Association for Investment Management and
Research (AIMR* ). All returns presented were calculated on a total return basis
and include all dividends and interest, accrued income and realized and
unrealized gains and losses. All returns reflect the deduction of investment
advisory fees (For the Equity Composite: At actual rates paid from 1983 to the
present; returns prior to 1983 reflect the deduction of a fee of 1% per annum,
the Advisor's highest advisory fee.), brokerage commissions and execution costs
paid by institutional private accounts of the Advisor without provision for
federal or state income taxes. Custodial fees, if any, were not included in the
calculation. Each Composite includes all actual, fee-paying, discretionary
institutional private accounts managed by the Advisor that have investment

- ----------
* AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisors. These AIMR
performance presentation standards are intended to (i) promote full and
fair presentations by investment advisors of their performance results, and
(ii) ensure uniformity in reporting so that performance results of
investment advisors are directly comparable.

PROSPECTUS 8
<PAGE>
objectives, policies, strategies and risks substantially similar to those of the
Composite. Securities transactions are accounted for on the trade date and
accrual accounting is used. Cash and equivalents are included in performance
returns. Beginning in January 1993 for the Equity Composite and beginning in
January 1994 for the Balanced Composite, the quarterly returns combine the
individual accounts' returns (calculated on a time-weighted rate of return that
is revalued whenever cash flows exceed 3% of the value of the account) by
asset-weighting each individual account's asset value as of the beginning of the
quarter. Quarterly returns prior to that time are equally weighted. The yearly
returns are computed by geometrically linking the returns of each quarter within
the calendar year.

The institutional private accounts that are included in each Composite are not
subject to the same types of expenses to which the Funds are subject to nor to
the diversification requirements, specific tax restrictions and investment
limitations imposed on the Funds by the Investment Company Act or the Internal
Revenue Code. Consequently, the performance results for the Composites could
have been adversely affected if the institutional private accounts included in
the Composites had been regulated as investment companies.

The investment results of the Composites presented below are unaudited and are
not intended to predict or suggest the returns that might be experienced by the
Funds or an individual investing in the Funds. Investors should also be aware
that the use of the methodology required by Securities and Exchange Commission
rules could result in different performance data than that shown.

EQUITY COMPOSITE
- ----------------

ANNUALIZED TOTAL RETURNS FOR YEAR ENDED DECEMBER 31, 1999

Number of Years Advisor's Composite S&P 500
- --------------- ------------------- -------
One Year 17.4% 21.0%
Three Years 20.5% 27.6%
Five Years 20.3% 28.5%
Ten Years 14.2% 18.2%
Inception (1/1/74) 14.6% 15.1%

9 PROSPECTUS
<PAGE>
BALANCED COMPOSITE

ANNUALIZED TOTAL RETURNS FOR YEAR ENDED DECEMBER 31, 1999

Number of Years Advisor's Composite 60s/30b/10c*
- --------------- ------------------- ------------
One Year 10.7% 12.4%
Three Years 15.8% 18.8%
Five Years 16.8% 19.9%
Ten Years 12.8% 13.9%
Inception (7/1/86) 12.8% 13.4%

- ----------
* The 60s/30b/10c Index is a blended index that provides the most appropriate
comparison for the Advisor's composite. The Index is weighted 60% S&P 500
Index, 30% Lehman Corporate Bond Index (including all publicly issued,
fixed-rate, non-convertible investment grade domestic corporate debt issues
and Yankee Bonds) and 10% cash equivalent securities (primarily Treasury
bills).

FUND EXPENSES

Each Fund is responsible for its own operating expenses. The Advisor has
contractually agreed to reduce its fees and/or pay expenses of the Funds to
ensure that the Funds' aggregate annual operating expenses (excluding interest
and tax expenses) will not exceed 1.50% and 1.40% of the Funds' average daily
net assets, for the Equity Fund and Balanced Fund, respectively. Any reduction
in advisory fees or payment of expenses made by the Advisor may be reimbursed by
each Fund if the Advisor requests in subsequent fiscal years. This reimbursement
may be requested if the aggregate amount actually paid by each Fund toward
operating expenses for such fiscal year (taking into account the reimbursement)
does not exceed the applicable limitation on Fund expenses. The Advisor is
permitted to be reimbursed for fee reductions and/or expense payments made in
the prior three fiscal years. (At startup, the Fund is permitted to look for
longer periods of four and five years.) Any such reimbursement will be reviewed
by the Trustees. Each Fund must pay its current ordinary operating expenses
before the Advisor is entitled to any reimbursement of fees and/or expenses.

A GUIDE FOR INVESTORS

PRICING THE FUNDS' SHARES

Each Fund's price, or net asset value per share, is calculated by dividing the
value of a Fund's total assets, less its liabilities, by the number of its
shares outstanding. In calculating the net asset value, portfolio securities are
valued using current market values, if available. Securities for which market

PROSPECTUS 10
<PAGE>
quotations are not readily available are valued at fair values determined in
good faith by or under the supervision of the Board of Trustees of the Trust.
The net asset value is calculated at the close of regular trading of the New
York Stock Exchange ("NYSE"), normally 4:00 p.m., Eastern time.

HOW TO PURCHASE SHARES OF THE FUNDS

There are several ways to purchase shares of the Funds. An Application Form,
which accompanies this Prospectus, is used if you send money directly to the
Funds by mail or by wire. If you have questions about how to invest, or about
how to complete the Application Form, please call an account representative at
(888) 263-6452.

YOU MAY SEND MONEY TO THE FUND
BY MAIL

If you wish to invest by mail, simply complete the Application Form and mail it
with a check (made payable to the Avatar Funds) to the Funds' Shareholder
Servicing Agent, American Data Services, Inc. at the following address:

The Avatar Funds
P.O. Box 640947
Cincinnati, OH 45264-0947

If you wish to send your Application Form and check via an overnight delivery
services (such as FedEx), delivery cannot be made to a post office box. In that
case, you should use the following address:

The Avatar Funds
c/o Firstar Bank
Mutual Fund Custody Department
425 Walnut Street, M/L 6118,
Sixth Floor
Cincinnati, OH 45202

YOU MAY WIRE MONEY TO THE FUNDS

Before sending a wire, you should call the Fund at (888) 263-6452 between 9:00
a.m. and 5:00 p.m., Eastern time, on a day when the NYSE is open for trading, in
order to receive an account number. It is important to call and receive this
account number, because if your wire is sent without it or without the name of
the Fund, there may be a delay in investing the money you wire. You should then
ask your bank to wire money to:

Firstar Bank

ABA # 0420-0001-3
for credit to [Avatar Fund of your choice]
DDA # 488840232
for further credit to [your name
and account number]

Your bank may charge you a fee for sending a wire to the Fund.

YOU MAY PURCHASE SHARES THROUGH AN INVESTMENT DEALER

11 PROSPECTUS

any sales charge (if applicable). Your shares will be held in a pooled account
in the broker's name, and the broker will maintain your individual ownership
information. The Fund may pay the broker for maintaining these records as well
as providing other shareholder services. In addition, the broker may charge you
a fee for handling your order. The broker is responsible for processing your
order correctly and promptly, keeping you advised of the status of your
individual account, confirming your transactions and ensuring that you receive
copies of the Fund's prospectus.

Investment Advisors or Financial Planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisors or financial planners who place trades for their own accounts, if the
accounts are linked to the master account of such investment advisor or
financial planner on the books and records of the broker or agent may place
trades with the Fund at Net Asset Value. Additionally, retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to, those defined in section 401(a), 403(b), or 457 of the Internal
Revenue Code and "rabbi trusts" may also purchase at Net Asset Value.

MINIMUM INVESTMENTS

The minimum initial investment in each Fund is $2,500. The minimum subsequent
investment is $250. However, if you are investing in an Individual Retirement
Account ("IRA"), or you are starting an Automatic Investment Plan (see below),
the minimum initial and subsequent investments are $1,000 and $50, respectively.

SUBSEQUENT INVESTMENTS

You may purchase additional shares of the Funds by sending a check, with the
stub from an account statement, to the Funds at the address above. Please also
write your account number on the check. (If you do not have a stub from an
account statement, you can write your name, address and account number on a
separate piece of paper and enclose it with your check.) If you want to send
additional money for investment by wire, it is important for you to call the
Fund at (888) 263-6452. You may also make additional purchases through an
investment dealer, as described above.

WHAT IS THE PRICE YOU PAY FOR EACH SHARE OF THE FUNDS?

When you invest in the Funds, you pay the "offering price" of a share. The
offering price of shares is the net asset value (the "NAV") per share plus a
sales charge that is based on the amount purchased. The sales charge is 4.50% of
the offering price (4.71% of the NAV). The entire sales charge will be retained
by the selling broker/dealer.

PROSPECTUS 12
<PAGE>
PURCHASES AT NET ASSET VALUE - Shares of the Funds may be purchased at NAV by
(i) officers, Trustees, directors and full time employees of the Trust, the
Advisor, the Administrator and affiliates of those companies, or by their family
members; (ii) registered representatives and employees of firms which have
selling agreements with the Distributor; (iii) investment advisors, financial
planners or other intermediaries who place trades for their own accounts or the
accounts of their clients and who charge a management, consulting or other fee
for their services; (iv) clients of such investment advisors, including pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code and deferred compensation and annuity plans under
Sections 457 and 403 of the Internal Revenue Code, financial planners or other
intermediaries who place trades for their own accounts if the accounts are
linked to the master account of such investment advisor, financial planner or
other intermediary on the books and records of the broker or agent; and (v) by
such other investors who are determined to have acquired shares under
circumstances not involving any sales expense to the Fund or Distributor. The
Distributor or Distribution Coordinator has the right to decide whether a
purchase may be made at net asset value.

If an investment is made at net asset value that meets any of the above
referenced requirements, the Advisor may pay supplemental distribution
assistance out of its own resources, to any dealer who has executed a selling
agreement with the Distributor through which the purchase is made. Additionally,
the Advisor, at its discretion, may pay a "finders fee" to any person who has
assisted the Advisor or Distributor in securing additional investments in the
Funds.

MONEY INVESTED IN A FUND

Any money received for investment in a Fund from an investor, whether sent by
check or by wire, is invested at the NAV of a Fund which is next calculated
after the money is received (assuming the check or wire correctly identifies the
Fund and account), less any sales charge (if applicable). Orders received from
dealers are invested at the net asset value next calculated after the order is
received, less any sales charge (if applicable). A check or wire received after
the NYSE closes is invested as of the next calculation of a Fund's NAV.

OTHER INFORMATION

The Funds' Distributor may waive the minimum investment requirements for
purchases by certain group or retirement plans. All investments must be made in
U.S. dollars, and checks must be drawn on U.S. banks. Third party checks will

13 PROSPECTUS
<PAGE>
not be accepted. A charge may be imposed if a check used to make an investment
does not clear. The Funds and the Distributor reserve the right to reject any
investment, in whole or in part. Federal tax law requires that investors provide
a certified taxpayer identification number and other certifications on opening
an account in order to avoid backup withholding of taxes. See the Application
Form for more information about backup withholding. The Funds, under certain
circumstances, may accept investments of securities appropriate for a Fund's
portfolio, in lieu of cash. Prior to making such a purchase, you should call the
Advisor to determine if such an investment may be made. The Advisor may, at its
own expense, pay third parties for assistance in gathering assets for the Funds.

SERVICES AVAILABLE TO SHAREHOLDERS

RETIREMENT PLANS

You may obtain prototype IRA plans from the Funds. Shares of the Funds are also
eligible investments for other types of retirement plans.

AUTOMATIC INVESTING BY CHECK

You may make regular monthly investments in the Funds using the "Automatic
Investment Plan." A check is automatically drawn on your personal checking
account each month for a predetermined amount (but not less than $50), as if you
had written it directly. Upon receipt of the withdrawn money, the Fund
automatically invests the money in additional shares of the Fund at the current
net asset value. Applications for this service are available from the Fund or
you may simply complete this section on the new account application form. There
is no charge to you for this service. The Funds may terminate or modify this
privilege at any time, and shareholders may terminate their participation by
notifying the Shareholder Servicing Agent in writing, sufficiently in advance of
the next withdrawal.

AUTOMATIC WITHDRAWALS

The Funds offer a Systematic Withdrawal Program whereby shareholders may request
that a check drawn in a predetermined amount be sent to them each month or
calendar quarter. To start this Program, your account must have Fund shares with
a value of at least $10,000, and the minimum amount that may be withdrawn each
month or quarter is $50. This Program may be terminated or modified by a
shareholder or the Funds at any time without charge or penalty. A withdrawal
under the Systematic Withdrawal Program involves a redemption of shares of a
Fund, and may result in a gain or loss for federal income tax purposes. In
addition, if the amount withdrawn exceeds the dividends credited to your
account, the account ultimately may be depleted.

PROSPECTUS 14
<PAGE>
HOW TO REDEEM YOUR SHARES

You have the right to redeem all or any portion of your shares of a Fund on each
day the NYSE is open for trading. A redemption fee of 1.00% (as a percentage of
original purchase price or redemption proceeds, whichever is lower) will be
imposed on redemptions made within 1 year of purchase. In order to keep any
applicable redemption fee as low as possible, shares not subject to a redemption
fee will be sold first, on a first-in, first-out basis.

REDEMPTION IN WRITING

You may redeem your shares by simply sending a written request to the Funds. You
should give your account number and state whether you want all or part of your
shares redeemed. The letter should be signed by all of the shareholders whose
names appear in the account registration. You should send your redemption
request to:

The Avatar Funds
150 Motor Parkway, Suite 109
Hauppauge, NY 11788

SIGNATURE GUARANTEE

REDEMPTION BY TELEPHONE

If you complete the Redemptions by Telephone portion of the Fund's Application
Form, you may redeem shares on any business day the NYSE is open by calling the
Funds' Shareholder Servicing Agent at (888) 263-6452 before 4:00 p.m. Eastern
time. Redemption proceeds will be mailed or wired, at your direction, on the
next business day to the bank account you designated on the Application Form.
The minimum amount that may be wired is $1,000 (wire charges, if any, will be
deducted from redemption proceeds). Telephone redemptions cannot be made for IRA
accounts.

By establishing telephone redemption privileges, you authorize the Funds and
their Shareholder Servicing Agent to act upon the instruction of any person who
makes the telephone call to redeem shares from your account and transfer the
proceeds to the bank account designated in the Application Form. The Funds and

15 PROSPECTUS
<PAGE>
the Shareholder Servicing Agent will use procedures to confirm that redemption
instructions received by telephone are genuine, including recording of telephone
instructions and requiring a form of personal identification before acting on
these instructions. If these normal identification procedures are followed,
neither the Funds nor the Shareholder Servicing Agent will be liable for any
loss, liability, or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
The Fund may change, modify, or terminate these privileges at any time upon at
least 60 days notice to shareholders.

THE PRICE USED FOR A REDEMPTION

The redemption price is the net asset value of the Fund's shares, less the
Redemption Fee (if applicable) next determined after shares are validly tendered
for redemption. All signatures of account holders must be included in the
request, and a signature guarantee, if required, must also be included for the
request to be valid.

WHEN REDEMPTION PAYMENTS ARE MADE

REPURCHASES FROM DEALERS

The Funds may accept orders to sell shares from an investment dealer (or their
agent) on behalf of a dealer's (or their agent's) customers. The NAV for a sale
is that next calculated after receipt of the order from the dealer (or agent).

PROSPECTUS 16
<PAGE>
The dealer (or agent) is responsible for forwarding any documents required in
connection with a redemption, including a signature guarantee, and the Funds may
cancel the order if these documents are not received promptly.

OTHER INFORMATION ABOUT REDEMPTIONS

DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Dividends from net investment income, if any, are normally declared and paid by
the Funds in December. Capital gains distributions, if any, are also normally
made in December, but the Funds may make an additional payment of dividends or
distributions if it deems it desirable at another time during any year.

Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares of the Fund at the net asset
value per share on the reinvestment date unless you have previously requested in
writing to the Shareholder Servicing Agent or on the Account Application Form
that payment be made in cash.

Any dividend or distribution paid by the Fund has the effect of reducing the net
asset value per share on the record date by the amount of the dividend or
distribution. You should note that a dividend or distribution paid on shares
purchased shortly before that dividend or distribution was declared will be
subject to income taxes even though the dividend or distribution represents, in
substance, a partial return of capital to you.

TAXES

Distributions made by the Funds will be taxable to shareholders whether received
in shares (through dividend reinvestment) or in cash. Distributions derived from
net investment income, including net short-term capital gains, are taxable to
shareholders as ordinary income. Distributions designated as capital gains
dividends are taxable as capital gains regardless of the length of time shares
of a Fund have been held. You should consult your own advisors concerning
federal, state and local taxation of distributions from the Funds.

17 PROSPECTUS
<PAGE>
DISTRIBUTION ARRANGEMENTS

The Funds have adopted a distribution plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. This rule allows a Fund to pay distribution fees
for the sale and distribution of its shares and for services it provides to its
shareholders. The maximum amount of the fee authorized is 0.25% of each Fund's
average daily net assets annually, which is payable to the Advisor, as
Distribution Coordinator. Because these fees are paid out of each Fund's assets
on an on-going basis, over time these fees will increase the cost of your
investment in the Fund and may cost you more than paying other types of sales
charges.

PROSPECTUS 18
<PAGE>
FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance during its past fiscal year. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP for the year ended
December 31, 1999, and by other independent accountants for the periods prior to
December 31, 1999. PricewaterhouseCoopers LLP's report and each Fund's financial
statements are included in the Fund's annual report which is available upon
request.

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
EQUITY FUND
-------------------------------------------
Year Year Dec. 3, 1997*
Ended Ended through
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value,
beginning of period .................. $ 11.84 $ 10.02 $ 10.00

Income from investment operations:

Net investment income ................... 0.01 0.05 0.01
Net realized and unrealized gain
on securities ......................... 1.98 2.48 0.02
Total from investment operations ........ 1.99 2.53 0.03
Less distributions:
From net investment income ............ (0.00) (0.05) (0.01)
From capital gains .................... (1.38) (0.64) 0.00
In excess of net realized gains ....... (0.14) 0.00 0.00
Tax return of capital ................. (0.00) 0.02) 0.00
------- ------- -------
Total distributions ..................... (1.52) (0.71) (0.01)
------- ------- -------
Net asset value, end of period .......... $ 12.31 $ 11.84 $ 10.02
======= ======= =======
Total return ............................ 17.11% 25.81% 0.22%++
Ratios/supplemental data:
Net assets, end of period (millions) .... $ 14.1 $ 14.7 $ 20.2
Ratio of expenses to average net assets:
Before expense reimbursement .......... 1.99% 2.03% 1.52%+
After expense reimbursement ........... 1.50% 1.50% 1.39%+
Ratio of net investment income
to average net assets:
After expense reimbursement ........... 0.08% 0.36% 0.47%+
Portfolio turnover rate ................. 101.86% 79.95% 2.48%++
</TABLE>

- ----------
* Commencement of operations.
+ Annualized.
++ Not annualized.

19
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD

BALANCED FUND

Year Jan. 13, 1998*
Ended through
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
Net asset value, beginning of period ......... $ 11.95 $ 10.00
--------- ---------
Income from investment operations:

Net investment income ...................... 0.21 0.19
Net realized and unrealized gain
on investments ........................... 1.17 2.11
--------- ---------

Total from investment operations ............. 1.38 2.30
--------- ---------
Less distributions:
From net investment income ................. (0.21) (0.19)
From capital gains ......................... (0.67) (0.16)
In excess of net realized gains ............ (0.04) 0.00
--------- ---------

Total distributions .......................... (0.92) (0.35)
--------- ---------

Net asset value, end of period ............... $ 12.41 $ 11.95
========= =========

Total return ................................. 11.82% 23.11%++

RATIOS/SUPPLEMENTAL DATA:

Net assets, end of period (thousands) ........ $ 1,725 $ 1,543

Ratio of expenses to average net assets:

Before expense reimbursement ............... 7.28% 8.59%+
After expense reimbursement ................ 1.40% 1.40%+
Ratio of net investment income
to average net assets:

After expense reimbursement ................ 1.73% 1.89%+

Portfolio turnover rate ...................... 101.53% 95.00%

- ----------
* Commencement of operations.
+ Annualized.
++ Not annualized.

20
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND AND
THE AVATAR ADVANTAGE BALANCED FUND,
EACH A SERIES OF ADVISORS SERIES TRUST

For More Information

The Statement of Additional Information (SAI) includes additional information
about the Funds.

Each Fund's annual and semi-annual report to shareholders contains additional
information about the Funds' investments. The annual reports include a
discussion of the market conditions and investment strategies which
significantly affected each Fund's performance during their last fiscal year.

The SAIs and shareholder reports are available free upon request. To request
them or other information, or to ask any questions, please call or write:

1-888-263-6452

The Avatar Funds
150 Motor Parkway, Suite 109
Hauppauge, NY 11788

The SAIs 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 the Room's operations.

The Funds' SEC File Number is 811-07959.
<PAGE>
THE AL FRANK FUND

[PHOTO OF AL FRANK]

PROSPECTUS
APRIL 28, 2000

THE AL FRANK FUND
465 FOREST AVENUE, SUITE I
LAGUNA BEACH, CA 92651
SHAREHOLDER SERVICES: (888) 263-6443
DAILY NAV: (877) 654-1325
WWW.ALFRANK.COM
<PAGE>
THE AL FRANK FUND

PROSPECTUS

APRIL 28, 2000

THE AL FRANK FUND invests in value stocks for growth of capital.

This Prospectus contains basic information that you should know before you
invest. Please read it and keep it for future reference.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS

Goal and Strategy......................................................... 3
Fund Performance.......................................................... 4
Expense Table............................................................. 4
Investment Objectives, Principal Strategies And Related Risks............. 6
Management of The Fund.................................................... 7
Investor Guide............................................................ 8
Services Available to Shareholders........................................ 10
How to Redeem Your Shares................................................. 10
Distributions and Taxes................................................... 12
Financial Highlights...................................................... 14

2
<PAGE>
GOAL AND STRATEGY

WHAT IS THE FUND'S GOAL?

The Fund seeks growth of capital.

HOW WILL THE FUND TRY TO REACH ITS GOAL?

Al Frank Asset Management, Inc. (the Advisor) selects equity securities that it
believes are out of favor and undervalued. The Advisor then purchases the
securities and holds them until it believes that the securities have reached a
fair value or sells them when it believes a strong market sell signal has been
generated. The Advisor does not expect the Fund's annual turnover rate to exceed
25%.

For leverage purposes, the Fund may borrow money from banks, up to one-third of
its total assets, and may also sell securities short. If the Advisor believes
that market conditions warrant a temporary defensive position, the Fund may
invest without limit in high-quality, short-term debt securities and money
market instruments. In this scenario, the Fund will not be pursuing its stated
goal.

WHAT ARE THE PRINCIPLE RISKS OF INVESTING IN THE FUND?

The value of your investment in the Fund will go up and down as the stocks in
the Fund's portfolio change in price. The prices of the stocks the Advisor
selects may fall. Also, the stock market may decline suddenly and for extended
periods adversely affecting the prices of the stocks held by the Fund.

Additional risks are associated with borrowing money and selling stocks short.
Please see a description of these risks in the "Investment Objectives, Principal
Strategies and Related Risks" section of this prospectus.

By itself, the Fund is not a complete, balanced investment plan and no fund can
guarantee that it will achieve its goal. When you sell your shares, you may lose
money.

3
<PAGE>
FUND PERFORMANCE

The following performance information indicates some of the risks of investing
in the Fund. The bar chart shows the Fund's total return for calendar years 1998
(first year of operations) and 1999. The table shows the Fund's average return
over time compared with a broad-based market index. This past performance is no
guarantee of future results.

Calendar Year Total Returns(%)*

1998 1999
---- ----
-9.30% 60.42%

- ----------
* The Fund's year-to-date return as of 3/31/00 was 19.86%.

During the period of time displayed in the bar chart, the Fund's best quarter
was Q2 1999, up 34.32%, and its worst quarter was Q3 1998, down 22.48%.

ADDITIONAL TOTAL RETURN INFORMATION
As of December 31, 1999
1 Year Since Inception*
------ ---------------
The Al Frank Fund 60.42% 20.69%
Russell 2000 Index 19.62% 7.49%
Wilshire 5000 Index 23.56% 21.95%

- ----------
* The Fund commenced operations on January 2, 1998.

The Russell 2000 Index is a widely regarded small cap index of the 2,000
smallest stocks of the Russell 3000 Index which comprises the 3,000 largest U.S.
stocks as determined by total market capitalization. As the Index is
reformulated in June, several of the Russell 2000 stocks have much higher market
capitalizations than when assigned to the Index.

The Wilshire 5000 Index measures the performance of all U.S. headquartered
equity securities with readily available price data.

EXPENSE TABLE

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. There are two types of expenses involved: shareholder
transaction expenses, such as sales loads and redemption fees, and annual
operating expenses, such as investment advisory fees. THE FUND IS A NO-LOAD
MUTUAL FUND.

4
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
(fees paid directly from your investment)

Maximum Sales Load Imposed on Purchases................................ None
Maximum Sales Load Imposed on Reinvested Dividends..................... None
Deferred Sales Load.................................................... None
Redemption Fee (a) (on shares held less than 6 months)................. 2.00%

ANNUAL OPERATING EXPENSES
(expenses that are deducted from Fund assets)

Investment Advisory Fees............................................... 1.00%
Rule 12b-1 Distribution Fee............................................ 0.25%
Other Expenses......................................................... 2.35%
-----
Total Annual Fund Operating Expenses................................... 3.60%
Expense Reimbursements (b)............................................. (1.35)%
-----
Net Expenses........................................................... 2.25%
=====

(a) A 2.00% redemption fee, payable to the Fund, will be assessed on shares
purchased and held for less than 6 months.

(b) The Advisor has contractually agreed to waive its fees and/or pay Fund
expenses in order to limit the Fund's total annual operating expenses
(excluding interest and tax expenses) to 2.25%. This contract's term is
indefinite and may be terminated only by the Board of Trustees. The Advisor
is permitted to be reimbursed, subject to limitations, for fees it waives
and for Fund expenses it pays.

EXPENSE EXAMPLE

This Example will help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It is based on the total annual
operating expenses shown above, and it assumes that these expenses will remain
the same over the time periods shown. It also assumes that you make a single
$10,000 investment in the Fund to start with and that you earn a 5% return each
year. Finally, it assumes that you redeem all of your shares at the end of each
of the time periods. Again, this Example is hypothetical, and your actual
expenses may be higher or lower.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$228 $703 $1,205 $2,585

5
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL STRATEGIES AND RELATED RISKS

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The investment objective of the Fund is to seek growth of capital.

HOW DOES THE FUND SEEK TO ACHIEVE ITS OBJECTIVE?

The Advisor selects equity securities for the Fund's portfolio that it believes
are out of favor and undervalued - i.e., those trading for low fundamental
valuations relative to what the Advisor thinks their businesses will be worth
over the next five years. The Advisor then attempts to purchase the securities
and hold them until it believes that the securities have reached a fair value.

There is no assurance that the Fund's objective will be achieved. As prices of
common stocks and other securities fluctuate, the value of an investment in the
Fund will vary as the market value of its investment portfolio changes.

HOW DOES THE ADVISOR SELECT EQUITY SECURITIES FOR THE FUND'S PORTFOLIO?

The Advisor selects equity securities, consisting of common stocks and
securities having the characteristics of common stocks, such as convertible
securities, rights and warrants, on the basis of fundamental corporate analysis.
It screens a universe of more than 6,000 stocks in order to identify those with
low price-to-earnings, price-to-book value, price-to-cash flow and
price-to-revenues. The Advisor also uses technical analysis to anticipate
periods when the securities markets are either extremely undervalued and
oversold, or overvalued and overbought. When the Advisor believes the market is
undervalued, it may borrow money to leverage the Fund's portfolio, as described
below. When it believes the market is overvalued, it may take a temporary
defensive position or use options, as described below. The Fund's portfolio is
expected to be highly diversified, generally with more than 100 separate
securities.

The Advisor sells a stock when its analysis indicates that it is fairly valued.
A stock is fairly valued if it has achieved, in the Advisor's opinion, an
attractive price to earning ratio, price to book value or price to sales ratio,
or some other attractive fundamentally valued measure of the stock.

WHAT DOES THE FUND USE FOR CASH RESERVES?

For temporary defensive purposes, the Advisor may invest up to 100% of the
Fund's total assets in high-quality, short-term debt securities and money-market
instruments. These short-term debt securities and money-market instruments
include shares of other mutual funds, commercial paper, certificates of deposit,
bankers' acceptances, U.S. Government securities and repurchase agreements.

BORROWING MONEY.

The Fund may borrow money from banks for leverage, up to one-third of its total
assets. The use of borrowing by the Fund involves special risks that may not be
associated with other funds having similar objectives and policies. Leverage
magnifies the effect of fluctuating stock prices on the value of the Fund's
shares that you own. The asset value per share of the Fund will tend to increase
more when its portfolio securities increase in value and to decrease more when
its portfolio securities decrease in value than would otherwise be the case if
the Fund did not borrow funds. In addition, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, the
Fund might have to sell portfolio securities to meet interest or principal

6
<PAGE>
payments at a time when the principal strategy does not favor such sales. The
Fund is required to designate assets with its custodian equal to the amount it
has borrowed.

SELLING SHORT.

The Fund may sell securities short by borrowing securities it does not own and
selling them. The Fund is then obligated to replace the borrowed securities by
purchasing them at the market price at a later time. If the securities sold
short increase in value between the time of sale and the time the Fund purchases
them, the Fund will incur a loss. On the other hand, if the securities decline
in value, the Fund may repurchase them at a lower price and realize a profit.
There are limits on the extent to which the Fund may engage in short sales, as
described in the Fund's Statement of Additional Information (SAI). Please see
the back cover of this prospectus for information on how to obtain the SAI.

MANAGEMENT OF THE FUND

THE ADVISOR.

The Fund's Advisor, Al Frank Asset Management, Inc., 465 Forest Avenue, Suite I,
Laguna Beach, California 92651, has provided asset management services to
individuals and institutional investors since 1977. The Advisor was established
and is partially controlled by its Founder, Al Frank. Mr. Frank and John
Buckingham, another member of the firm, are principally responsible for the
management of the Fund's portfolio. Mr. Buckingham has been Executive Vice
President and Director of Research of the Advisor since 1990, having joined the
firm in 1987. The Advisor also publishes a newsletter under the name THE PRUDENT
SPECULATOR. This publication has been in circulation for over 23 years. On
November 5, 1999, shareholders of the Fund voted to approve an exchange
agreement allowing AF Holdings, Inc. to acquire all the outstanding capital
stock of Al Frank Asset Management, Inc. ("AFAM"), the investment Advisor of the
Fund. AF Holdings, Inc. is a privately-owned Minnesota corporation. Under the
agreement, AFAM continued to advise the Fund and AFAM's principals, Al Frank and
John Buckingham continued to serve as the day-to-day portfolio managers of the
Fund.

FUND EXPENSES.

The Fund is responsible for its own operating expenses. The Advisor has
contractually agreed to reduce its fees and/or pay expenses of the Fund to
ensure that the Fund's aggregate annual operating expenses (excluding interest
and tax expenses) will not exceed 2.25% of the Fund's average daily net assets.
Any reduction in advisory fees or payment of expenses made by the Advisor may be
reimbursed by the Fund if the Advisor requests in subsequent fiscal years. This
reimbursement may be requested if the aggregate amount actually paid by the Fund
toward operating expenses for such fiscal year (taking into account the
reimbursement) does not exceed the applicable limitation on Fund expenses. The
Advisor is permitted to be reimbursed for fee reductions and/or expense payments
made in the prior three fiscal years. (At startup, the Fund is permitted to look
for longer periods of four and five years.) Any such reimbursement will be
reviewed by the Trustees. The Fund must pay its current ordinary operating
expenses before the Advisor is entitled to any reimbursement of fees and/or
expenses.

7
<PAGE>
INVESTOR GUIDE

PRICING THE FUND'S SHARES.

The Fund's price, or net asset value per share, is calculated by dividing the
value of the Fund's total assets, less its liabilities, by the number of its
shares outstanding. In calculating the net asset value, portfolio securities are
valued using current market values, if available. Securities for which market
quotations are not readily available are valued at fair values determined in
good faith by or under the supervision of the Board of Trustees of the Trust.
The net asset value is calculated at the close of regular trading of the New
York Stock Exchange ("NYSE"), normally 4:00 pm, Eastern time.

HOW TO PURCHASE SHARES OF THE FUND.

There are several ways to purchase shares of the Fund. An Application Form,
which accompanies this Prospectus, is used if you send money directly to the
Fund by mail or by wire. If you have questions about how to invest, or about how
to complete the Application Form, please call an account representative at (888)
263-6443.

YOU MAY SEND MONEY TO THE FUND BY MAIL.

If you wish to invest by mail, simply complete the Application Form and mail it
with a check (made payable to The Al Frank Fund) to the Fund's Shareholder
Servicing Agent, American Data Services, Inc., at the following address:

The Al Frank Fund
P.O. Box 641265
Cincinnati, OH 45264-1265

If you wish to send your Application Form and check via an overnight delivery
service (such as Federal Express) you should use the following address:

The Al Frank Fund
c/o Firstar Bank, N.A.
Mutual Fund Custody Department
425 Walnut Street, M/L 6118, Sixth Floor
Cincinnati, OH 45202
(888) 263-6443

YOU MAY WIRE MONEY TO THE FUND.

Before sending a wire, you should call the Fund at (888) 263-6443 between 9:00
a.m. and 5:00 p.m., Eastern time, on a day when the New York Stock Exchange
("NYSE") is open for trading, in order to receive an account number. It is
important to call and receive this account number, because if your wire is sent
without it or without the name of the Fund, there may be a delay in investing
the money you wire. You should then ask your bank to wire money to:

Firstar Bank, N.A.
ABA # 0420-0001-3
for credit to The Al Frank Fund
DDA # 488877309
for further credit to [your name and account number]

Your bank may charge you a fee for sending a wire to the Fund.

8
<PAGE>
YOU MAY PURCHASE SHARES THROUGH AN AUTHORIZED INVESTMENT DEALER.

You may buy and sell Fund shares through certain brokers (and their authorized
agents, together "brokers") that have made arrangements with the Fund. An order
placed with such a broker is treated as if it were placed directly with the
Fund, and will be executed at the next share price calculated by the Fund. Your
shares will be held in a pooled account in the broker's name, and the broker
will maintain your individual ownership information. The Fund may pay the broker
for maintaining these records as well as providing other shareholder services.
In addition, the broker may charge you a fee for handling your order. The broker
is responsible for processing your order correctly and promptly, keeping you
advised of the status of your individual account, confirming your transactions
and ensuring that you receive copies of the Fund's prospectus.

MINIMUM INVESTMENTS.

The minimum initial investment in the Fund is $5,000. The minimum subsequent
investment is $500. However, if you are investing in an Individual Retirement
Account ("IRA"), or you are starting an Automatic Investment Plan (see below),
the minimum initial and subsequent investments are $2,000 and $250,
respectively.

SUBSEQUENT INVESTMENTS.

You may purchase additional shares of the Fund by sending a check, with the stub
from an account statement, to the Fund at the previously noted address. Please
also write your account number on the check. If you do not have a stub from an
account statement, you can write your name, address and account number on a
separate piece of paper and enclose it with your check. If you want to send
additional money for investment by wire, it is important for you to call the
Fund at (888) 263-6443. You may also make additional purchases through an
investment broker or dealer, as described above.

WHEN IS MONEY INVESTED IN THE FUND?

Any money received for investment in the Fund from an investor, whether sent by
check or by wire, is invested at the net asset value of the Fund which is next
calculated after the money is received (assuming the check or wire correctly
identifies the Fund and account). Orders received from dealers are invested at
the net asset value next calculated after the order is received. A check or wire
received after the NYSE closes is invested as of the next calculation of the
Fund's net asset value.

OTHER INFORMATION.

The Fund's Distributor may waive the minimum investment requirements for
purchases by certain group or retirement plans. All investments must be made in
U.S. dollars, and checks must be drawn on U.S. banks. Third-party checks will
not be accepted. A charge may be imposed if a check used to make an investment
does not clear. The Fund and its Distributor reserve the right to reject any
investment, in whole or in part. Federal tax law requires that investors provide
a certified taxpayer identification number and other certifications on opening
an account in order to avoid backup withholding of taxes. See the Application
Form for more information about backup withholding. The Fund is not required to
issue share certificates. All shares are held in non-certificated form on the
books of the Fund, for the account of the shareholder. The Fund, under certain
circumstances, may accept investments of securities appropriate for the Fund's
portfolio, in lieu of cash. Prior to making such a purchase, you should call the
Advisor to determine if such an investment may be made. The Advisor may, at its
own expense, pay third parties for assistance in gathering assets for the Fund.

9
<PAGE>
The daily Net Asset Value (NAV) can be obtained from The Al Frank Fund website
(www.alfrank.com) or by calling toll-free 877-654-1325.

SERVICES AVAILABLE TO SHAREHOLDERS

RETIREMENT PLANS.

You may obtain prototype IRA plans from the Fund. Shares of the Fund are also
eligible investments for other types of retirement plans.

AUTOMATIC INVESTING BY CHECK.

You may make regular monthly investments in the Fund using the Automatic
Investment Plan. A check is automatically drawn on your personal checking
account each month for a predetermined amount (but not less than $250), as if
you had written it directly. Upon receipt of the withdrawn funds, the Fund
automatically invests the money in additional shares of the Fund at the current
net asset value. Applications for this service are available from the Fund.
There is no charge by the Fund for this service. The Fund may terminate or
modify this privilege at any time, and shareholders may terminate their
participation by notifying the Shareholder Servicing Agent in writing,
sufficiently in advance of the next withdrawal.

AUTOMATIC WITHDRAWALS.

The Fund offers a Systematic Withdrawal Program whereby shareholders may request
that a check drawn in a predetermined amount be sent to them each month or
calendar quarter. To start this Program, your account must have Fund shares with
a value of at least $10,000, and the minimum amount that may be withdrawn each
month or quarter is $50. This Program may be terminated or modified by a
shareholder or the Fund at any time without charge or penalty. A withdrawal
under the Systematic Withdrawal Program involves a redemption of shares of the
Fund, and may result in a gain or loss for federal income tax purposes. No
redemption fee will apply to redemptions made under the Automatic Withdrawal
Program. In addition, if the amount withdrawn exceeds the dividends credited to
your account, the account ultimately may be depleted.

HOW TO REDEEM YOUR SHARES

You have the right to redeem all or any portion of your shares of the Fund at
their net asset value on each day the NYSE is open for trading. You will be
charged a 2.00% redemption fee, payable to the Fund, on shares redeemed within 6
months of the purchase date. The fee will be applied on a first-in, first-out
basis.

REDEMPTION IN WRITING.

The Al Frank Fund
150 Motor Parkway, Suite 109
Hauppauge, NY 11788

10
<PAGE>
SIGNATURE GUARANTEE.

If the value of the shares you wish to redeem exceeds $100,000, the signatures
on the redemption request must be guaranteed by an "eligible guarantor
institution." These institutions include banks, broker-dealers, credit unions
and savings institutions. A broker-dealer guaranteeing a signature must be a
member of a clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees. Signature
guarantees will be accepted from any eligible guarantor institution which
participates in a signature guarantee program. A notary public is not an
acceptable guarantor.

REDEMPTION BY TELEPHONE.

If you complete the Redemption by Telephone portion of the Fund's Application
Form, you may redeem shares on any business day the NYSE is open by calling the
Fund's Shareholder Servicing Agent at (888) 263-6443 before 4:00 p.m. Eastern
time. Redemption proceeds will be mailed or wired, at your direction, on the
next business day to the bank account you designated on the Application Form.
The minimum amount that may be wired is $1,000 (wire charges, if any, will be
deducted from redemption proceeds). Telephone redemptions cannot be made for IRA
accounts.

By establishing telephone redemption privileges, you authorize the Fund and its
Shareholder Servicing Agent to act upon the instruction of any person who makes
the telephone call to redeem shares from your account and transfer the proceeds
to the bank account designated in the Application Form. The Fund and the
Shareholder Servicing Agent will use procedures to confirm that redemption
instructions received by telephone are genuine, including recording of telephone
instructions and requiring a form of personal identification before acting on
these instructions. If these normal identification procedures are followed,
neither the Fund nor the Shareholder Servicing Agent will be liable for any
loss, liability, or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
The Fund may change, modify, or terminate these privileges at any time upon at
least 60 days notice to shareholders.

WHAT PRICE IS USED FOR A REDEMPTION?

The redemption price is the net asset value of the Fund's shares less the
redemption fee (if applicable), next determined after shares are validly
tendered for redemption. All signatures of account holders must be included in
the request, and a signature guarantee, if required, must also be included for
the request to be valid.

WHEN ARE REDEMPTION PAYMENTS MADE?

As noted above, redemption payments for telephone redemptions are sent on the
day after the telephone call is received. Payments for redemptions sent in
writing are normally made promptly, but no later than seven days after the
receipt of a request that meets requirements described above. However, the Fund
may suspend the right of redemption under certain extraordinary circumstances in
accordance with rules of the Securities and Exchange Commission. If shares were
purchased by wire, they cannot be redeemed until the day after the Application
Form is received. If shares were purchased by check and then redeemed shortly
after the check is received, the Fund may delay sending the redemption proceeds
until it has been notified that the check used to purchase the shares has been

11
<PAGE>
collected, a process which may take up to 15 days. This delay may be avoided by
investing by wire or by using a certified or official bank check to make the
purchase.

REPURCHASES FROM DEALERS.

The Fund may accept orders to repurchase shares from an investment dealer on
behalf of a dealer's customers. The net asset value for a repurchase is that
next calculated after receipt of the order from the dealer. The dealer is
responsible for forwarding any documents required in connection with a
redemption, including a signature guarantee, and the Fund may cancel the order
if these documents are not received promptly.

OTHER INFORMATION ABOUT REDEMPTIONS.

DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS.

Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares of the Fund at the net asset
value per share on the reinvestment date unless you have previously requested in
writing to the Shareholder Servicing Agent or on the new account application
form that payment be made in cash.

TAXES.

Distributions made by the Fund will be taxable to shareholders whether received
in shares (through dividend reinvestment) or in cash. Distributions derived from
net investment income, including net short-term capital gains, are taxable to
shareholders as ordinary income. Distributions designated as capital gains
dividends are taxable as long-term capital gains regardless of the length of
time you have owned your Fund shares. The maximum capital gains rate for
corporate shareholders is the same as the maximum tax rate for ordinary income.
Although distributions are generally taxable when received, certain
distributions made in January are taxable as if received the prior December. You
will be informed annually of the amount and nature of the Fund's distributions.
You should consult your own tax advisors concerning federal, state and local
taxation of distributions from the Fund.

12
<PAGE>
DISTRIBUTION ARRANGEMENTS.

The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. This rule allows the Fund to pay distribution
fees for the sale and distribution of its shares and for services provided to
its shareholders. The maximum amount of the fee authorized is 0.25% of the
Fund's average daily net assets annually, which is payable to the Advisor, as
Distribution Coordinator. Because these fees are paid out of the Fund's assets
on an on-going basis, over time these fees will increase the cost of your
investment in Fund shares and may cost you more than paying other types of sales
charges.

13
<PAGE>
FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance during its past fiscal year. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP for the year ended
December 31, 1999 and by other independent accountants for the period ended
December 31, 1998. PricewaterhouseCoopers LLP's report and the Fund's financial
statements are included in the Fund's annual report which is available upon
request.

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD.

Year January 2, 1998*
Ended through
December 31, 1999 December 31, 1998
----------------- -----------------
Net asset value, beginning of period ..... $ 9.07 $ 10.00

Income from investment operations:
Net investment loss .................... (0.21) (0.08)
Net realized and unrealized
gain/(loss) on securities ............ 5.69 (0.85)
Total from investment operations ......... 5.48 (0.93)

Net asset value, end of period ........... $ 14.55 $ 9.07

Total return ............................. 60.42% (9.30%)+

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) .... $ 7,663 $ 7,042

Ratio of expenses to average net assets .. 2.20% 2.25%+/-
Ratio of net investment loss
to average net assets .................. (1.32%) (1.28%)+/-

Portfolio turnover rate .................. 19.00% 5.82%

- ----------
* Commencement of operations.
+/- Annualized.
+ Not annualized
<PAGE>
ADVISOR

Al Frank Asset Management, Inc.
465 Forest Avenue, Suite I
Laguna Beach, California 92651

DISTRIBUTOR

First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261-E
Phoenix, Arizona 85018

CUSTODIAN

Firstar Institutional Custody Services
425 Walnut Street, M/L 6118
Cincinnati, Ohio 45202

TRANSFER AGENT

American Data Services, Inc.
150 Motor Parkway, Suite 109
Hauppauge, New York 11788

AUDITORS

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

LEGAL COUNSEL

Paul, Hastings, Janofsky & Walker, LLP
345 California Street
San Francisco, California 94104

<PAGE>
THE AL FRANK 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:

888-263-6443 (Shareholder Services)
877-654-1325 (Daily NAV)

The Al Frank Fund
c/o American Data Services
150 Motor Parkway, Ste. 109
Hauppauge, NY 11788

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>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND

Statement of Additional Information

Dated April 28, 2000

This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the prospectus dated April 28, 2000, as may
be revised from time to time, of The Avatar Advantage International Equity
Allocation Fund (the "Fund"), a series of Advisors Series Trust (the "Trust").
Avatar Associates (the "Advisor") is the Advisor to the Fund. A copy of the
prospectus may be obtained from the Fund by writing to 900 Third Avenue, New
York, NY 10022 or by telephone at 800-585-8052.

TABLE OF CONTENTS

THE TRUST................................................................. B-2

INVESTMENT OBJECTIVES AND POLICIES........................................ B-2
Investment Strategies and Risks......................................... B-2
Fund Policies........................................................... B-14

MANAGEMENT OF THE FUND.................................................... B-15

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES....................... B-16

INVESTMENT ADVISORY AND OTHER SERVICES.................................... B-16

DISTRIBUTION ARRANGEMENTS................................................. B-18

PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... B-19

NET ASSET VALUE........................................................... B-20

TAXATION ................................................................. B-20

DIVIDENDS AND DISTRIBUTIONS............................................... B-23

PERFORMANCE INFORMATION................................................... B-24

OTHER INFORMATION......................................................... B-24

GENERAL INFORMATION....................................................... B-24

APPENDIX ................................................................. B-26

B-1
<PAGE>
THE TRUST

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.

INVESTMENT OBJECTIVES AND POLICIES

The investment objective of the Fund is to seek long-term capital
appreciation by maximizing portfolio returns within prescribed risk limits by
capitalizing on significant global market inefficiencies. There is no assurance
that the Fund will achieve its investment objective. The discussion below
supplements information contained in the prospectus as to investment policies of
the Fund. The Fund is a management, open-end, diversified investment company.

INVESTMENT STRATEGIES AND RISKS

CONVERTIBLE SECURITIES AND WARRANTS

The Fund may invest in convertible securities and warrants. A
convertible security is a fixed income security (a debt instrument or a
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
gives an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the issuing company depending upon a
market price advance in the convertible security's underlying common stock.

A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment therein).

SHORT-TERM INVESTMENTS

The Fund may invest in any of the following securities and instruments:

INVESTMENT COMPANY SECURITIES. The Fund may invest in shares of other
investment companies. The Fund may invest in money market mutual funds in
connection with its management of daily cash positions. In addition to the
advisory and operational fees a Fund bears directly in connection with its own
operation, the Fund would also bear its pro rata portions of each other
investment company's advisory and operational expenses.

BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS.
The Fund may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.

B-2
<PAGE>
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
principal amount of such bank obligations are fully insured by the U.S.
Government. If the Fund holds instruments of foreign banks or financial
institutions, it may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. See "Foreign Investments" below. Such
risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.

Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.

As a result of federal and state laws and regulations, domestic banks
are, among other things, required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and subject to
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations that the
Fund may acquire.

In addition to purchasing certificates of deposit and bankers'
acceptances, to the extent permitted under its investment objectives and
policies stated above and in its prospectus, the Fund may make interest-bearing
time or other interest-bearing deposits in commercial or savings banks. Time
deposits are non-negotiable deposits maintained at a banking institution for a
specified period of time at a specified interest rate.

COMMERCIAL PAPER, SHORT-TERM NOTES AND OTHER CORPORATE OBLIGATIONS. The
Fund may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term notes will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.

Commercial paper and short-term notes will consist of issues rated at
the time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's,
or similarly rated by another nationally recognized statistical rating
organization or, if unrated, will be determined by the Advisor to be of
comparable quality. These rating symbols are described in the Appendix.

Corporate obligations include bonds and notes issued by corporations to
finance longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, the Fund may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated "AA" or higher by S&P or "Aa"
or higher by Moody's. These rating symbols are described in the Appendix.

GOVERNMENT OBLIGATIONS

The Fund may make short-term investments in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association.

B-3
<PAGE>
to borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.

The Fund may invest in sovereign debt obligations of foreign countries.
A sovereign debtor's willingness or ability to repay principal and interest in a
timely manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to meet
such conditions could result in the cancellation of such third parties'
commitments to lend funds to the sovereign debtor, which may further impair such
debtor's ability or willingness to service its debt in a timely manner.

MORTGAGE-RELATED SECURITIES

The Fund may invest in mortgage-related securities. Mortgage-related
securities are derivative interests in pools of mortgage loans made to U.S.
residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. The Fund may also invest in debt
securities which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of U.S. mortgage-related securities.

U.S. MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by GNMA) are described as "modified pass-throughs." These
securities entitle the holder to receive all interest and principal payments
owed on the mortgage pool, net of certain fees, at the scheduled payment dates
regardless of whether or not the mortgagor actually makes the payment.

The principal governmental guarantor of U.S. mortgage-related
securities is GNMA, a wholly owned United States Government corporation within
the Department of Housing and Urban Development. GNMA is authorized to
guarantee, with the full faith and credit of the United States Government, the
timely payment of principal and interest on securities issued by institutions
approved by GNMA (such as savings and loan institutions, commercial banks and
mortgage bankers) and backed by pools of mortgages insured by the Federal
Housing Agency or guaranteed by the Veterans Administration.

Government-related guarantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders and subject to general regulation by the Secretary of Housing and
Urban Development. FNMA purchases conventional residential mortgages not insured
or guaranteed by any government agency from a list of approved seller/services
which include state and federally chartered savings and loan associations,
mutual savings banks, commercial banks and credit unions and mortgage bankers.
FHLMC is a government-sponsored corporation created to increase availability of
mortgage credit for residential housing and owned entirely by private
stockholders. FHLMC issues participation certificates which represent interests
in conventional mortgages from FHLMC's national portfolio. Pass-through
securities issued by FNMA and participation certificates issued by FHLMC are

B-4
<PAGE>
guaranteed as to timely payment of principal and interest by FNMA and FHLMC,
respectively, but are not backed by the full faith and credit of the United
States Government.

Although the underlying mortgage loans in a pool may have maturities of
up to 30 years, the actual average life of the pool certificates typically will
be substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Prepayment rates vary widely
and may be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the pool certificates. Conversely, when interest rates
are rising, the rate of prepayments tends to decrease, thereby lengthening the
actual average life of the certificates. Accordingly, it is not possible to
predict accurately the average life of a particular pool.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A domestic or foreign CMO
in which the Fund may invest is a hybrid between a mortgage-backed bond and a
mortgage pass-through security. Like a bond, interest is paid, in most cases,
semiannually. CMOs may be collateralized by whole mortgage loans, but are more
typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, FNMA or equivalent foreign entities.

CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal and
interest received from the pool of underlying mortgages, including prepayments,
is first returned to the class having the earliest maturity date or highest
maturity. Classes that have longer maturity dates and lower seniority will
receive principal only after the higher class has been retired.

FOREIGN INVESTMENTS AND CURRENCIES. The Fund may invest in securities
of foreign issuers that are not publicly traded in the United States. The Fund
may also invest in depositary receipts and in foreign currency futures contracts
and may purchase and sell foreign currency on a spot basis.

DEPOSITARY RECEIPTS. Depositary Receipts ("DRs") include American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other forms of depositary receipts.
DRs are receipts typically issued in connection with a U.S. or foreign bank or
trust company which evidence ownership of underlying securities issued by a
foreign corporation.

EQUITY-LINKED DERIVATIVES--WEBS AND OPALS.

The Fund may invest in World Equity Benchmark Series ("WEBS") and
baskets of Country Securities ("OPALS") and other similar equity-linked
derivative investments. Each of these instruments are derivative securities
whose value follows a well-known securities index or basket of securities. WEBS
are exchange traded mutual funds and are charged a management fee.

OPALS track the performance of adjustable baskets of stocks owned by
Morgan Stanley Capital (Luxembourg) S.A. (the "Counterparty") until a specified
maturity date. Holders of OPALS will receive semi-annual distributions
corresponding to dividends received on shares contained in the underlying basket
of stocks and certain amounts, net of expenses. On the maturity date of the
OPALS, the holders will receive the physical securities comprising the
underlying baskets. Opals, like many of these types of instruments, represent an
unsecured obligation and therefore carry with them the risk that the
Counterparty will default and the Fund may not be able to recover the current
value of its investment.

Because the prices of WEBS and OPALS are correlated to diversified
portfolios, they are subject to the risk that the general level of stock prices
may decline, that the underlying indices decline or that financial condition of
specific issuers in the underlying indices may become impaired. However, these
securities may not fully replicate the performance of the underlying indices. In
addition, because WEBS and OPALS will continue to be traded even when trading is
halted in component stocks of the underlying indices, price quotations for these
securities may, at times, be based upon non-current price information with
respect to some of even all of the stocks in the underlying indices. Because
WEBS mirror the performance of a single country index, a economic downturn in a
single country could significantly adversely affect the price of the WEBS for
that country.

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RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign
securities involve certain inherent risks, including the following:

POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.

CURRENCY FLUCTUATIONS. The Fund may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Fund's assets denominated in that currency. Such changes will also
affect the Fund's income. The value of the Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.

MARKET CHARACTERISTICS. The Advisor expects that many foreign
securities in which the Fund invests will be purchased in over-the-counter
markets or on exchanges located in the countries in which the principal offices
of the issuers of the various securities are located, if that is the best
available market. Foreign exchanges and markets may be more volatile than those
in the United States. While growing in volume, these markets usually have
substantially less volume than U.S. markets, and the Fund's portfolio securities
may be less liquid and more volatile than U.S. Government securities. Moreover,
settlement practices for transactions in foreign markets may differ from those
in United States markets, and may include delays beyond periods customary in the
United States. Foreign security trading practices, including those involving
securities settlement where Fund assets may be released prior to receipt of
payment or securities, may expose the Fund to increased risk in the event of a
failed trade or the insolvency of a foreign broker-dealer.

Transactions in options on securities, futures contracts, futures
options and currency contracts may not be regulated as effectively on foreign
exchanges as similar transactions in the United States, and may not involve
clearing mechanisms and related guarantees. The value of such positions also
could be adversely affected by the imposition of different exercise terms and
procedures and margin requirements than in the United States. The value of the
Fund's positions may also be adversely impacted by delays in its ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States.

LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.

TAXES. The interest and dividends payable on certain of the Fund's
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Fund's
shareholders.

COSTS. To the extent that the Fund invests in foreign securities, its
expense ratio is likely to be higher than those of investment companies
investing only in domestic securities, since the cost of maintaining the custody
of foreign securities is higher.

EMERGING MARKETS. Some of the securities in which the Fund may invest
may be located in developing or emerging markets, which entail additional risks,
including less social, political and economic stability; smaller securities
markets and lower trading volume, which may result in a less liquidity and
greater price volatility; national policies that may restrict the Fund's
investment opportunities, including restrictions on investment in issuers or
industries, or expropriation or confiscation of assets or property; and less
developed legal structures governing private or foreign investment. The extent

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to which the Fund will be invested in foreign companies and countries and
depository receipts will fluctuate from time to time within the limitations
described in the prospectus, depending on the Advisor's assessment of prevailing
market, economic and other conditions.

OPTIONS ON SECURITIES

PURCHASING PUT AND CALL OPTIONS. The Fund may purchase covered "put"
and "call" options with respect to securities which are otherwise eligible for
purchase by the Fund subject to certain restrictions. The Fund will engage in
trading of such derivative securities exclusively for hedging purposes.

If the Fund purchases a put option, the Fund acquires the right to sell
the underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when the Advisor perceives significant short-term risk but
substantial long-term appreciation for the underlying security. The put option
acts as an insurance policy, as it protects against significant downward price
movement while it allows full participation in any upward movement. If the Fund
is holding a security which it feels has strong fundamentals, but for some
reason may be weak in the near term, the Fund may purchase a put option on such
security, thereby giving itself the right to sell such security at a certain
strike price throughout the term of the option. Consequently, the Fund will
exercise the put only if the price of such security falls below the strike price
of the put. The difference between the put's strike price and the market price
of the underlying security on the date the Fund exercises the put, less
transaction costs, will be the amount by which the Fund will be able to hedge
against a decline in the underlying security. If during the period of the option
the market price for the underlying security remains at or above the put's
strike price, the put will expire worthless, representing a loss of the price
the Fund paid for the put, plus transaction costs. If the price of the
underlying security increases, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put may be sold.

If the Fund purchases a call option, it acquires the right to purchase
the underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the Fund has a short position in the
underlying security and the security thereafter increases in price. The Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If the call option has been
purchased to hedge a short position of the Fund in the underlying security and
the price of the underlying security thereafter falls, the profit the Fund
realizes on the cover of the short position in the security will be reduced by
the premium paid for the call option less any amount for which such option may
be sold.

Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. The Fund generally will purchase only those options for which the
Advisor believes there is an active secondary market to facilitate closing
transactions.

WRITING CALL OPTIONS. The Fund may write covered call options. A call
option is "covered" if the Fund owns the security underlying the call or has an
absolute right to acquire the security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount as are held in a segregated account by the Custodian). The writer of
a call option receives a premium and gives the purchaser the right to buy the
security underlying the option at the exercise price. The writer has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. If the writer of
an exchange-traded option wishes to terminate his obligation, he may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. A writer may not effect a closing
purchase transaction after it has been notified of the exercise of an option.

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Fund. If the Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.

The Fund will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option or if the proceeds from the closing transaction are more than the premium
paid to purchase the option. The Fund will realize a loss from a closing
transaction if the cost of the closing transaction is more than the premium
received from writing the option or if the proceeds from the closing transaction
are less than the premium paid to purchase the option. However, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss to the Fund resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the Fund.

RISKS OF INVESTING IN OPTIONS. There are several risks associated with
transactions in options on securities. Options may be more volatile than the
underlying securities and, therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying securities themselves. There are also significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its objective.
In addition, a liquid secondary market for particular options may be absent for
reasons which include the following: there may be insufficient trading interest
in certain options; restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options of underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or
clearing corporation may not at all times be adequate to handle current trading
volume; or one or more exchanges could, for economic or other reasons, decide or
be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by a clearing corporation as a
result of trades on that exchange would continue to be exercisable in accordance
with their terms.

A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events. The
extent to which the Fund may enter into options transactions may be limited by
the Internal Revenue Code of 1986 (the "Code") requirements for qualification of
the Fund as a regulated investment company. See "Dividends and Distributions"
and "Taxation."

DEALER OPTIONS. The Fund will engage in transactions involving dealer
options as well as exchange-traded options. Certain additional risks are
specific to dealer options. While the Fund might look to a clearing corporation
to exercise exchange-traded options, if the Fund were to purchase a dealer
option it would need to rely on the dealer from which it purchased the option to
perform if the option were exercised. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as loss of the
expected benefit of the transaction.

Exchange-traded options generally have a continuous liquid market while
dealer options may not. Consequently, the Fund may generally be able to realize
the value of a dealer option it has purchased only by exercising or reselling
the option to the dealer who issued it. Similarly, when the Fund writes a dealer
option, the Fund may generally be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to whom the Fund originally wrote the option. While the Fund will seek to enter
into dealer options only with dealers who will agree to and which are expected
to be capable of entering into closing transactions with the Fund, there can be
no assurance that the Fund will at any time be able to liquidate a dealer option
at a favorable price at any time prior to expiration. Unless the Fund, as a
covered dealer call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
as cover until the option expires or is exercised. In the event of insolvency of
the other party, the Fund may be unable to liquidate a dealer option. With
respect to options written by the Fund, the inability to enter into a closing
transaction may result in material losses to the Fund. For example, because the
Fund must maintain a secured position with respect to any call option on a
security it writes, the Fund may not sell the assets which it has segregated to

B-8
<PAGE>
secure the position while it is obligated under the option. This requirement may
impair the Fund's ability to sell portfolio securities at a time when such sale
might be advantageous. The Staff of the Securities and Exchange Commission (the
"Commission") has taken the position that purchased dealer options are illiquid
securities. The Fund may treat the cover used for written dealer options as
liquid if the dealer agrees that the Fund may repurchase the dealer option it
has written for a maximum price to be calculated by a predetermined formula. In
such cases, the dealer option would be considered illiquid only to the extent
the maximum purchase price under the formula exceeds the intrinsic value of the
option. Accordingly, the Fund will treat dealer options as subject to the Fund's
limitation on illiquid securities. If the Commission changes its position on the
liquidity of dealer options, the Fund will change its treatment of such
instruments accordingly.

SPREAD TRANSACTIONS. The Fund may purchase covered spread options from
securities dealers. These covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives the
Fund the right to put securities that it owns at a fixed dollar spread or fixed
yield spread in relationship to another security that the Fund does not own, but
which is used as a benchmark. The risk to the Fund, in addition to the risks of
dealer options described above, is the cost of the premium paid as well as any
transaction costs. The purchase of spread options will be used to protect the
Fund against adverse changes in prevailing credit quality spreads, I.E., the
yield spread between high quality and lower quality securities. This protection
is provided only during the life of the spread options.

FUTURES CONTRACTS

The Fund may invest in futures contracts as a hedge against changes in
market conditions or interest rates. The Fund will trade in such derivative
securities for bona fide hedging purposes and otherwise in accordance with the
rules of the Commodity Futures Trading Commission ("CFTC"). The Fund will
segregate liquid assets in a separate account with its Custodian when required
to do so by CFTC guidelines in order to cover its obligation in connection with
futures transactions.

No price is paid or received by the Fund upon the purchase or sale of a
futures contract. When it enters into a domestic futures contract, the Fund will
be required to deposit in a segregated account with its Custodian an amount of
cash or U.S. Treasury bills equal to approximately 5% of the contract amount.
This amount is known as initial margin. The margin requirements for foreign
futures contracts may be different.

The nature of initial margin in futures transactions is different from
that of margin in securities transactions. Futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments (called variation margin) to and from the broker will be
made on a daily basis as the price of the underlying stock index fluctuates, to
reflect movements in the price of the contract making the long and short
positions in the futures contract more or less valuable. For example, when the
Fund has purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased in value and
the Fund will receive from the broker a variation margin payment equal to that
increase in value. Conversely, when the Fund has purchased a stock index futures
contract and the price of the underlying stock index has declined, the position
will be less valuable and the Fund will be required to make a variation margin
payment to the broker.

At any time prior to expiration of a futures contract, the Fund may
elect to close the position by taking an opposite position, which will operate
to terminate the Fund's position in the futures contract A final determination
of variation margin is made on closing the position. Additional cash is paid by
or released to the Fund, which realizes a loss or a gain.

In addition to amounts segregated or paid as initial and variation
margin, the Fund must segregate liquid assets with its custodian equal to the
market value of the futures contracts, in order to comply with Commission
requirements intended to ensure that the Fund's use of futures is unleveraged.
The requirements for margin payments and segregated accounts apply to both
domestic and foreign futures contracts.

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<PAGE>
STOCK INDEX FUTURES CONTRACTS. The Fund may invest in futures contracts
on stock indices. Currently, stock index futures contracts can be purchased or
sold with respect to, among others, the S&P 500 Stock Price Index on the Chicago
Mercantile Exchange, the Major Market Index on the Chicago Board of Trade, the
New York Stock Exchange Composite Index on the New York Futures Exchange and the
Value Line Stock Index on the Kansas City Board of Trade.

INTEREST RATE OR FINANCIAL FUTURES CONTRACTS. The Fund may invest in
interest rate or financial futures contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, a contract is made to purchase or sell a bond in the future for
a set price on a certain date. Historically, the prices for bonds established in
the futures markets have generally tended to move in the aggregate in concert
with cash market prices, and the prices have maintained fairly predictable
relationships.

The sale of an interest rate or financial futures contract by the Fund
would create an obligation by the Fund, as seller, to deliver the specific type
of financial instrument called for in the contract at a specific future time for
a specified price. A futures contract purchased by the Fund would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.

Although interest rate or financial futures contracts by their terms
call for actual delivery or acceptance of securities, in most cases the
contracts are closed out before the settlement date without delivery of
securities. Closing out of a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.

The Fund will deal only in standardized contracts on recognized
exchanges. Each exchange guarantees performance under contract provisions
through a clearing corporation, a nonprofit organization managed by the exchange
membership. Domestic interest rate futures contracts are traded in an auction
environment on the floors of several exchanges - principally, the Chicago Board
of Trade and the Chicago Mercantile Exchange. A public market now exists in
domestic futures contracts covering various financial instruments including
long-term United States Treasury bonds and notes; GNMA modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and 90-day
commercial paper. The Fund may trade in any futures contract for which there
exists a public market, including, without limitation, the foregoing
instruments.

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS. There are several risks
related to the use of futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the price of the futures contract
and movements in the price of the securities which are the subject of the hedge.
The price of the future may move more or less than the price of the securities
being hedged. If the price of the future moves less than the price of the
securities which are the subject of the hedge, the hedge will not be fully
effective, but if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
future. If the price of the future moves more than the price of the hedged
securities, the Fund will experience either a loss or a gain on the future which
will not be completely offset by movements in the price of the securities which
are subject to the hedge.

To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of the futures contract,
the Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the historical volatility of the
prices of such securities has been greater than the historical volatility over

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such time period of the future. Conversely, the Fund may buy or sell fewer
futures contracts if the historical volatility of the price of the securities
being hedged is less than the historical volatility of the futures contract
being used. It is possible that, when the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance while the
value of securities held in the Fund's portfolio may decline. If this occurs,
the Fund will lose money on the future and also experience a decline in value in
its portfolio securities. However, the Advisor believes that over time the value
of a diversified portfolio will tend to move in the same direction as the market
indices upon which the futures are based. Where futures are purchased to hedge
against a possible increase in the price of securities before the Fund is able
to invest its cash (or cash equivalents) in securities (or options) in an
orderly fashion, it is possible that the market may decline instead. If the Fund
then decides not to invest in securities or options at that time because of
concern as to possible further market decline or for other reasons, it will
realize a loss on the futures contract that is not offset by a reduction in the
price of securities purchased.

In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the stock index or cash market due to certain market distortions.
All participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the index or
cash market and futures markets. In addition, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may also cause temporary price distortions. As a result of price distortions in
the futures market and the imperfect correlation between movements in the cash
market and the price of securities and movements in the price of futures, a
correct forecast of general trends by the Advisor may still not result in a
successful hedging transaction over a very short time frame.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Fund may
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. When futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of the
securities will in fact correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.

Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.

Successful use of futures by the Fund is also subject to the Advisor's
ability to predict correctly movements in the direction of the market. For
example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting stocks held in its portfolio and stock prices
increase instead, the Fund will lose part or all of the benefit of the increased
value of the stocks which it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.

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In the event of the bankruptcy of a broker through which the Fund
engages in transactions in futures contracts or options, the Fund could
experience delays and losses in liquidating open positions purchased or sold
through the broker, and incur a loss of all or part of its margin deposits with
the broker.

RESTRICTIONS ON THE USE OR FUTURES CONTRACTS. The Fund will not engage
in transactions in futures contracts for speculation, but only as a hedge
against changes resulting from market conditions in the values of securities
held in the Fund's portfolio or which it intends to purchase and where the
transactions are economically appropriate to the reduction of risks inherent in
the ongoing management of the Fund. The Fund may not purchase or sell futures
if, immediately thereafter, more than 25% of its net assets would be hedged. The
Fund also may not purchase or sell futures if, immediately thereafter, the sum
of the amount of margin deposits on the Fund's existing futures positions would
exceed 5% of the market value of the Fund's net assets.

These restrictions, which are derived from current federal regulations
regarding the use of futures by mutual funds, are not "fundamental restrictions"
and may be changed by the Trustees of the Trust if applicable law permits such a
change and the change is consistent with the overall investment objective and
policies of the Fund.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, the Fund acquires securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Advisor, subject to the seller's agreement to repurchase and
the Fund's agreement to resell such securities at a mutually agreed upon date
and price. The repurchase price generally equals the price paid by the Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the underlying portfolio security). Securities subject
to repurchase agreements will be held by the Custodian or in the Federal
Reserve/Treasury Book-Entry System or an equivalent foreign system. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities at not less than 102% of the repurchase price under the
agreement. If the seller defaults on its repurchase obligation, the Fund will
suffer a loss to the extent that the proceeds from a sale of the underlying
securities are less than the repurchase price under the agreement. Bankruptcy or
insolvency of such a defaulting seller may cause the Fund's rights with respect
to such securities to be delayed or limited. Repurchase agreements are
considered to be loans under the 1940 Act.

WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS

The Fund may purchase securities on a "when-issued," forward commitment
or delayed settlement basis. In this event, the Custodian will segregate liquid
assets equal to the amount of the commitment in a separate account. Normally,
the Custodian will set aside portfolio securities to satisfy a purchase
commitment. In such a case, the Fund may be required subsequently to segregate
additional assets in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.

The Fund does not intend to engage in these transactions for
speculative purposes but only in furtherance of its investment objectives.
Because the Fund will segregate liquid assets to satisfy its purchase
commitments in the manner described, the Fund's liquidity and the ability of the
Advisor to manage it may be affected in the event the Fund's forward
commitments, commitments to purchase when-issued securities and delayed
settlements ever exceeded 15% of the value of its net assets.

The Fund will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Fund may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a taxable capital gain or loss. When the Fund engages in when-issued,
forward commitment and delayed settlement transactions, it relies on the other
party to consummate the trade. Failure of such party to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price credited to
be advantageous.

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The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of the Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.

LENDING PORTFOLIO SECURITIES

The Fund may lend its portfolio securities in an amount not exceeding
one-third of its total assets to financial institutions such as banks and
brokers if the loan is collateralized in accordance with applicable regulations.
Under the present regulatory requirements which govern loans of portfolio
securities, the loan collateral must, on each business day, at least equal the
value of the loaned securities and must consist of cash, letters of credit of
domestic banks or domestic branches of foreign banks, or securities of the U.S.
Government or its agencies. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank would have to be
satisfactory to the Fund. Any loan might be secured by any one or more of the
three types of collateral. The terms of the Fund's loans must permit the Fund to
reacquire loaned securities on five days' notice or in time to vote on any
serious matter and must meet certain tests under the Code.

SHORT SALES

The Fund is authorized to make short sales of securities. In a short
sale, the Fund sells a security which it does not own, in anticipation of a
decline in the market value of the security. To complete the sale, the Fund must
borrow the security (generally from the broker through which the short sale is
made) in order to make delivery to the buyer. The Fund is then obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The Fund is said to have a "short position" in the securities
sold until it delivers them to the broker. The period during which the Fund has
a short position can range from one day to more than a year. Until the security
is replaced, the proceeds of the short sale are retained by the broker, and the
Fund is required to pay to the broker a negotiated portion of any dividends or
interest which accrue during the period of the loan. To meet current margin
requirements, the Fund is also required to deposit with the broker additional
cash or securities so that the total deposit with the broker is maintained daily
at 150% of the current market value of the securities sold short (100% of the
current market value if a security is held in the account that is convertible or
exchangeable into the security sold short within 90 days without restriction
other than the payment of money).

Short sales by the Fund create opportunities to increase the Fund's
return but, at the same time, involve specific risk considerations and may be
considered a speculative technique. Since the Fund in effect profits from a
decline in the price of the securities sold short without the need to invest the
full purchase price of the securities on the date of the short sale, the Fund's
net asset value per share will tend to increase more when the securities it has
sold short decrease in value, and to decrease more when the securities it has
sold short increase in value, than would otherwise be the case if it had not
engaged in such short sales. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of any premium, dividends or
interest the Fund may be required to pay in connection with the short sale.
Furthermore, under adverse market conditions the Fund might have difficulty
purchasing securities to meet its short sale delivery obligations, and might
have to sell portfolio securities to raise the capital necessary to meet its
short sale obligations at a time when fundamental investment considerations
would not favor such sales.

ILLIQUID SECURITIES

The Fund may not invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The Advisor will monitor the amount of
illiquid securities in the Fund's portfolio, under the supervision of the
Trust's Board of Trustees, to ensure compliance with the Fund's investment
restrictions.

B-13
<PAGE>
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.

In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Trust's Board of Trustees may determine that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid.

FUND POLICIES

The Trust (on behalf of the Fund) has adopted the following
restrictions as fundamental policies, which may not be changed without the
favorable vote of the holders of a "majority," as defined in the 1940 Act, of
the outstanding voting securities of the Fund. Under the 1940 Act, the "vote of
the holders of a majority of the outstanding voting securities" means the vote
of the holders of the lesser of (i) 67% of the shares of the Fund represented at
a meeting at which the holders of more than 50% of its outstanding shares are
represented or (ii) more than 50% of the outstanding shares of the Fund.

As a matter of fundamental policy, the Fund is diversified. The Fund's
investment objective is also fundamental.

In addition, the Fund may not:

1. Issue senior securities, borrow money or pledge its assets, except
that (i) the Fund may borrow from banks in amounts not exceeding one-third of
its total assets (including the amount borrowed) for temporary and emergency
purchases; and (ii) this restriction shall not prohibit the Fund from engaging
in options transactions or short sales;

2. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;

3. Act as underwriter (except to the extent the Fund may be deemed to
be an underwriter in connection with the sale of securities in its investment
portfolio);

4. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);

5. Purchase or sell real estate or interests in real estate or real
estate limited partnerships (although the Fund may purchase and sell securities
which are secured by real estate and securities of companies which invest or
deal in real estate);

6. Purchase or sell commodities or commodity futures contracts, except
that the Fund may purchase and sell foreign currency contracts in accordance
with any rules of the Commodity Futures Trading Commission;

7. Make loans of money (except for purchases of debt securities
consistent with the investment policies of the Fund and except for repurchase
agreements); or

8. Make investments for the purpose of exercising control or
management. The Fund observes the following restrictions as a matter of
operating but not fundamental policy, pursuant to positions taken by federal
regulatory authorities:

B-14
<PAGE>
The Fund may not:

1. Invest in the securities of other investment companies or purchase
any other investment company's voting securities or make any other investment in
other investment companies except to the extent permitted by federal
law;

2. Invest more than 15% of its net assets in securities which are
restricted as to disposition or otherwise are illiquid or have no readily
available market (except for securities which are determined by the Board of
Trustees to be liquid); or

3. borrow money from banks to purchase securities.

MANAGEMENT OF THE FUND

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
6001 N. 62nd Place Funds (since 1994), Smith Barney Trak Fund, Pimco
Paradise Valley, AZ 85253 Advisors L.P., Banyan Realty Trust, Banyan Land Fund II
and Legend Properties.

Eric Banhazl (Born 1957)* Trustee, Senior Vice President, Investment Company
2025 E. Financial Way President and Administration Corporation; Vice President, First Fund
Glendora, CA 91740 Treasurer Distributors; Assistant, 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
1700 Taylor Avenue Operating Officer of ICI Mutual Insurance Company
First Washington, MD, 20744 (until January, 1997), Vice President, Operations,
Investment Company Institute (until June, 1993).

George Wofford III (Born 1939) Trustee Vice President, Information Services, Federal Home Loan
305 Glendora Circle Bank of San Francisco (since March, 1993); formerly
Danville, CA 94526 Director of Management Information Services, Morrison &
Foerster (law firm).

Steven Paggioli (Born 1950) Vice Executive Vice President, Robert H. Wadsworth &
479 W. 22nd Street President Associates, Inc. and Investment Company Administration
New York, NY 10011 Corporation; Vice President First Fund Distributors,
Inc.; President and Trustee, Professionally Managed
Portfolios; Director, Managers Funds, Inc.

Robert Wadsworth (Born 1940) Vice President, Robert H. Wadsworth & Associates, Inc.,
4455 E. Camelback Road President Investment Company Administration Corporation and First
Suite 261E Fund Distributors, Inc.; Vice President, Professionally
Phoenix, AZ 85018 Managed Portfolios; President, Guinness Flight
Investment Funds, Inc.; Director, Germany Fund, Inc.,
New Germany Fund., Central European Equity Fund, Inc.
and Deutsche Funds, Inc.
</TABLE>

B-15
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------- -------- -------------------------------------------
<S> <C> <C>
Chris Moser (Born 1949) Secretary Employed by Investment Company Administration
4455 E. Camelback Road Corporation (since July, 1996); formerly employed by
Suite 261E Bank One, N.A. (from August until July, 1996);
Phoenix, AZ 85018 O'Connor, Cavanagh, Anderson, 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 calendar-year ended December 31, 1999. The Trust has no pension or
retirement plan. No other entity affiliated with the Trust pays any compensation
to the Trustees.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Shares of the Fund owned by the Trustees and officers as a group were
less than 1% at March 31, 2000.

As of March 24, 2000, the Fund was controlled by Theodore M. Theodore,
IRA Account, c/o Avatar Assoc., 900 Third Ave. 33rd Floor, New York, NY 10022
who owned 48.80% of the outstanding shares of the Fund. The controlling
shareholder would be able to control decisions made by the shareholders with
respect to matters affecting only the Fund, such as the Investment Advisory
Agreement. Other principal shareholders include Susan Babbitt, IRA Account, 43
W. 12th St., New York, NY 10022, who owns 24.53% of the outstanding shares of
the Fund and Edward Babbitt, IRA Account, 43 W. 12th St., New York, NY 10022,
who owns 25.05% of the outstanding shares of the Fund.

INVESTMENT ADVISORY AND OTHER SERVICES

Subject to the supervision of the Board of Trustees, investment
management and related services are provided by the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement").

Under the Advisory Agreement, the Advisor agrees to invest the assets
of the Fund in accordance with the investment objectives, policies and
restrictions of the Fund as set forth in the Fund's and Trust's governing
documents, including, without limitation, the Trust's Agreement and Declaration
of Trust and By-Laws; the Fund's prospectus, statement of additional
information, and undertakings; and such other limitations, policies and
procedures as the Trustees of the Trust may impose from time to time in writing
to the Advisor. In providing such services, the Advisor shall at all times
adhere to the provisions and restrictions contained in the federal securities
laws, applicable state securities laws, the Code, and other applicable law.

B-16
<PAGE>
obligations under the Advisory Agreement. Personnel of the Advisor may serve as
officers of the Trust provided they do so without compensation from the Trust.
Without limiting the generality of the foregoing, the staff and personnel of the
Advisor shall be deemed to include persons employed or retained by the Advisor
to furnish statistical information, research, and other factual information,
advice regarding economic factors and trends, information with respect to
technical and scientific developments, and such other information, advice and
assistance as the Advisor or the Trust's Board of Trustees may desire and
reasonably request. With respect to the operation of the Fund, the Advisor has
agreed to be responsible for the expenses of printing and distributing extra
copies of the Fund's prospectus, statement of additional information, and sales
and advertising materials (but not the legal, auditing or accounting fees
attendant thereto) to prospective investors (but not to existing shareholders);
and the costs of any special Board of Trustees meetings or shareholder meetings
convened for the primary benefit of the Advisor.

As compensation for the Advisor's services, the Fund pays it an
advisory fee at the rate specified in the prospectus. In its undertaking to
limit Fund operating expenses during the year, the Advisor waived its entire
advisory fee earned. In addition to the fees payable to the Advisor and the
Administrator, the Trust is responsible for its operating expenses, including:
fees and expenses incurred in connection with the issuance, registration and
transfer of its shares; brokerage and commission expenses; all expenses of
transfer, receipt, safekeeping, servicing and accounting for the cash,
securities and other property of the Trust for the benefit of the Fund including
all fees and expenses of its custodian, shareholder services agent and
accounting services agent; interest charges on any borrowings; costs and
expenses of pricing and calculating its daily net asset value and of maintaining
its books of account required under the 1940 Act; taxes, if any; a pro rata
portion of expenditures in connection with meetings of the Fund's shareholders
and the Trust's Board of Trustees that are properly payable by the Fund;
salaries and expenses of officers and fees and expenses of members of the
Trust's Board of Trustees or members of any advisory board or committee who are
not members of, affiliated with or interested persons of the Advisor or
Administrator; insurance premiums on property or personnel of the Fund which
inure to its benefit, including liability and fidelity bond insurance; the cost
of preparing and printing reports, proxy statements, prospectuses and statements
of additional information of the Fund or other communications for distribution
to existing shareholders; legal, auditing and accounting fees; trade association
dues; fees and expenses (including legal fees) of registering and maintaining
registration of its shares for sale under federal and applicable state and
foreign securities laws; all expenses of maintaining and servicing shareholder
accounts, including all charges for transfer, shareholder recordkeeping,
dividend disbursing, redemption, and other agents for the benefit of the Fund,
if any; and all other charges and costs of its operation plus any extraordinary
and non-recurring expenses, except as otherwise prescribed in the Advisory
Agreement.

The Fund is responsible for its own operating expenses. The Advisor has
contractually agreed to reduce fees payable to it by the Fund and to pay Fund
operating expenses to the extent necessary to limit the Fund's aggregate annual
operating expenses (excluding interest and tax expenses) to the limit set forth
in the Expense Table (the "expense cap"). Any such reductions made by the
Advisor in its fees or payment of expenses which are the Fund's obligation are
subject to reimbursement by the Fund to the Advisor, if so requested by the
Advisor, in subsequent fiscal years if the aggregate amount actually paid by the
Fund toward the operating expenses for such fiscal year (taking into account the
reimbursement) does not exceed the applicable limitation on Fund expenses. The
Advisor is permitted to be reimbursed only for fee reductions and expense
payments made in the previous three fiscal years, but is permitted to look back
five years and four years, respectively, during the initial six years and
seventh year of the Fund's operations. Any such reimbursement is also contingent
upon Board of Trustees' subsequent review and ratification of the reimbursed
amounts. Such reimbursement may not be paid prior to the Fund's payment of
current ordinary operating expenses.

During the year ended December 31, 1998, the Advisor waived its fee of
$3,577 and reimbursed the Fund for additional operating expenses in the amount
of $104,790. During the year ended December 31, 1999, the Advisor waived its fee
of $4,350 and reimbursed the Fund for additional operating expenses in the
amount of $109,091.

Under the Advisory Agreement, the Advisor will not be liable to the
Trust or the Fund or any shareholder for any act or omission in the course of,
or connected with, rendering services or for any loss sustained by the Trust
except in the case of a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages will be limited as

B-17
<PAGE>
provided in the 1940 Act) or of willful misfeasance, bad faith or gross
negligence, or reckless disregard of its obligations and duties under the
Agreement.

The Advisory Agreement will remain in effect for a period not to exceed
two years. Thereafter, if not terminated, the Advisory Agreement will continue
automatically for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a majority vote of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund.

The Advisory Agreement is terminable by vote of the Board of Trustees
or by the holders of a majority of the outstanding voting securities of the Fund
at any time without penalty, on 60 days written notice to the Advisor.
The Advisory Agreement also may be terminated by the Advisor on 60 days written
notice to the Trust. The Advisory Agreement terminates automatically upon its
assignment (as defined in the 1940 Act).

THE ADMINISTRATOR. The Administrator has agreed to be responsible for
providing such services as the Trustees may reasonably request, including but
not limited to (i) maintaining the Trust's books and records (other than
financial or accounting books and records maintained by any custodian, transfer
agent or accounting services agent); (ii) overseeing the Trust's insurance
relationships; (iii) preparing for the Trust (or assisting counsel and/or
auditors in the preparation of) all required tax returns, proxy statements and
reports to the Trust's shareholders and Trustees and reports to and other
filings with the Commission and any other governmental agency (the Trust
agreeing to supply or cause to be supplied to the Administrator all necessary
financial and other information in connection with the foregoing); (iv)
preparing such applications and reports as may be necessary to permit the offer
and sale of the shares of the Trust under the securities or "blue sky" laws of
the various states selected by the Trust (the Trust agreeing to pay all filing
fees or other similar fees in connection therewith); (v) responding to all
inquiries or other communications of shareholders, if any, which are directed to
the Administrator, or if any such inquiry or communication is more properly to
be responded to by the Trust's custodian, transfer agent or accounting services
agent, overseeing their response thereto; (vi) overseeing all relationships
between the Trust and any custodian(s), transfer agent(s) and accounting
services agent(s), including the negotiation of agreements and the supervision
of the performance of such agreements; and (vii) authorizing and directing any
of the Administrator's directors, officers and employees who may be elected as
Trustees or officers of the Trust to serve in the capacities in which they are
elected. All services to be furnished by the Administrator under this Agreement
may be furnished through the medium of any such directors, officers or employees
of the Administrator. For its services, the Administrator receives a fee monthly
at the following annual rate, subject to a $30,000 minimum:

FUND ASSET LEVEL FEE RATE
- ---------------- --------
First $50 million 0.20% of average daily net assets
Next $50 million 0.15% of average daily net assets
Next $50 million 0.10% of average daily net assets
Next $50 million, and thereafter 0.05% of average daily net assets

For the year ended December 31, 1999, the Administrator received fees
of $30,000. For the period from February 2, 1998 (commencement of operations) to
December 31, 1998, the Administrator received fees of $26,712.

DISTRIBUTION ARRANGEMENTS

First Fund Distributors, Inc. (the "Distributor"), a corporation partly
owned by Messrs. Paggioli and Wadsworth, acts as the Fund's principal
underwriter in a continuous public offering of the Fund's shares. The
Distribution Agreement between the Fund and the Distributor continues in effect
from year to year if approved at least annually by (i) the Board of Trustees or
the vote of a majority of the outstanding shares of the Fund (as defined in the
1940 Act) and (ii) a majority of the Trustees who are not interested persons of
any such party, in each case cast in person at a meeting called for the purpose

B-18
<PAGE>
of voting on such approval. The Distribution Agreement may be terminated without
penalty by the parties thereto upon sixty days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act.

The Fund has adopted a Distribution Plan in accordance with Rule 12b-1
(the "Plan") under the 1940 Act. The Plan provides that the Fund will pay a fee
to the Advisor as Distribution Coordinator at an annual rate of up to 0.25% of
the average daily net assets of the Fund. The fee is paid to the Advisor as
reimbursement for, or in anticipation of, expenses incurred for distribution
related activity. During the year ended December 31, 1999, the Fund paid $1,088
in distribution fees, of which all were paid out as miscellaneous expenses.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Advisory Agreement states that the Advisor shall be responsible for
broker-dealer selection and for negotiation of brokerage commission rates,
provided that the Advisor shall not direct orders to an affiliated person of the
Advisor without general prior authorization to use such affiliated broker or
dealer by the Trust's Board of Trustees. The Advisor's primary consideration in
effecting a securities transaction will be execution at the most favorable
price. In selecting a broker-dealer to execute each particular transaction, the
Advisor may take the following into consideration: the best net price available;
the reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on a
continuing basis. The price to the Fund in any transaction may be less favorable
than that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.

Subject to such policies as the Advisor and the Board of Trustees of
the Trust may determine, the Advisor shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer that
provides (directly or indirectly) brokerage or research services to the Advisor
an amount of commission for effecting a portfolio transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities with respect to
the Fund. The Advisor is further authorized to allocate the orders placed by it
on behalf of the Fund to such brokers or dealers who also provide research or
statistical material, or other services, to the Trust, the Advisor, or any
affiliate of either. Such allocation shall be in such amounts and proportions as
the Advisor shall determine, and the Advisor shall report on such allocations
regularly to the Advisor and the Trust, indicating the broker-dealers to whom
such allocations have been made and the basis therefor. The Advisor is also
authorized to consider sales of shares of the Fund as a factor in the selection
of brokers or dealers to execute portfolio transactions, subject to the
requirements of best execution, I.E., that such brokers or dealers are able to
execute the order promptly and at the best obtainable securities price.

On occasions when the Advisor deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients of the Advisor,
the Advisor, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and the most efficient execution.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Advisor in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.

Portfolio turnover for the year ended December 31, 1999 was 67.19%.

Brokerage Commissions paid during the year ended December 31, 1999,
totaled $2,598. Brokerage Commissions paid during the period ended December 31,
1998, totaled $7,058.

B-19
<PAGE>
NET ASSET VALUE

The NAV of the Fund's shares will fluctuate and is determined as of the
close of trading on the New York Stock Exchange (the "NYSE") (generally 4:00
p.m. Eastern time) each business day. The NYSE annually announces the days on
which it will not be open for trading. The most recent announcement indicates
that it will not be open on the following days: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, the NYSE may close on
days not included in that announcement.

The NAV per share is computed by dividing the value of the securities
held by the Fund plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued expenses)
by the total number of shares in the Fund outstanding at such time.

Generally, the Fund's investments are valued at market value or, in the
absence of a market value, at fair value as determined in good faith by the
Advisor and the Trust's Valuation Committee pursuant to procedures approved by
or under the direction of the Board.

The Fund's securities, including ADRs, EDRs and GDRs, which are traded
on securities exchanges are valued at the last sale price on the exchange on
which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last bid and asked prices. Securities that are traded on more than one
exchange are valued on the exchange determined by the Advisor to be the primary
market. Securities traded in the over-the-counter market are valued at the last
sale price or, lacking any reported sales, at the mean between the last bid and
asked prices. 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 the Fund if
acquired within 60 days of maturity or, if already held by the Fund on the 60th
day, based on the value determined on the 61st day.

An option that is written by the 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 the Fund is generally valued at the last sale price
or, in the absence of the last sale price, the last bid price. If an options
exchange closes after the time at which the Fund's net asset value is
calculated, the last sale or last bid and asked prices as of that time will be
used to calculate the net asset value.

All other assets of the Fund are valued in such manner as the Board in
good faith deems appropriate to reflect their fair value.

TAXATION

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, (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.

B-20
<PAGE>
least 50% of the market value of its assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies
and other securities limited, for purposes of this calculation, in the case of
other securities of any one issuer to an amount not greater than 5% of the
Fund's assets or 10% of the voting securities of the issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities or securities of other regulated
investment companies). As such, and by complying with the applicable provisions
of the Code, the Fund will not be subject to federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders in
accordance with the timing requirements of the Code. If the Fund is unable to
meet certain requirements of the Code, it may be subject to taxation as a
corporation.

Distributions of net investment income and net realized capital gains
by the Fund will be taxable to shareholders whether made in cash or reinvested
by the Fund in shares. In determining amounts of net realized capital gains to
be distributed, any capital loss carry-overs from the eight prior taxable years
will be applied against capital gains. Shareholders receiving a distribution
from the Fund in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date. Fund distributions also
will be included in individual and corporate shareholders' income on which the
alternative minimum tax may be imposed.

The Fund or the securities dealer effecting a redemption of the Fund's
shares by a shareholder will be required to file information reports with the
Internal Revenue Service ("IRS") with respect to distributions and payments made
to the shareholder. In addition, the Fund will be required to withhold federal
income tax at the rate of 31% on taxable dividends, redemptions and other
payments made to accounts of individual or other non-exempt shareholders who
have not furnished their correct taxpayer identification numbers and certain
required certifications on the New Account application or with respect to which
the Fund or the securities dealer has been notified by the IRS that the number
furnished is incorrect or that the account is otherwise subject to withholding.

The Fund intends to declare and pay dividends and other distributions,
as stated in the prospectuses. In order to avoid the payment of any federal
excise tax based on net income, the Fund must declare on or before December 31
of each year, and pay on or before January 31 of the following year,
distributions at least equal to 98% of its ordinary income for that calendar
year and at least 98% of the excess of any capital gains over any capital losses
realized in the one-year period ending October 31 of that year, together with
any undistributed amounts of ordinary income and capital gains (in excess of
capital losses) from the previous calendar year.

The Fund may receive dividend distributions from U.S. corporations. To
the extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.

If more than 50% in value of the total assets of the Fund at the end of
its fiscal year is invested in stock or securities of foreign corporations, the
Fund may elect to pass through to its shareholders the pro rata share of all
foreign income taxes paid by the Fund. If this election is made, shareholders
will be (i) required to include in their gross income their pro rata share of
the Fund's foreign source income (including any foreign income taxes paid by the
Fund), and (ii) entitled either to deduct their share of such foreign taxes in
computing their taxable income or to claim a credit for such taxes against their
U.S. income tax, subject to certain limitations under the Code, including
certain holding period requirements. In this case, shareholders will be informed
in writing by the Fund at the end of each calendar year regarding the
availability of any credits on and the amount of foreign source income
(including or excluding foreign income taxes paid by the Fund) to be included in
their income tax returns. If not more than 50% in value of the Fund's total
assets at the end of its fiscal year is invested in stock or securities of
foreign corporations, the Fund will not be entitled under the Code to pass
through to its shareholders their pro rata share of the foreign taxes paid by
the Fund. In this case, these taxes will be taken as a deduction by the Fund.

The Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.

B-21
<PAGE>
The use of hedging strategies, such as entering into futures contracts
and forward contracts and purchasing options, involves complex rules that will
determine the character and timing of recognition of the income received in
connection therewith by the Fund. Income from foreign currencies (except certain
gains therefrom that may be excluded by future regulations) and income from
transactions in options, futures contracts and forward contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.

For accounting purposes, when the Fund purchases an option, the premium
paid by the Fund is recorded as an asset and is subsequently adjusted to the
current market value of the option. Any gain or loss realized by the Fund upon
the expiration or sale of such options held by the Fund generally will be
capital gain or loss.

Any security, option, or other position entered into or held by the
Fund that substantially diminishes the Fund's risk of loss from any other
position held by the Fund may constitute a "straddle" for federal income tax
purposes. In general, straddles are subject to certain rules that may affect the
amount, character and timing of the Fund's gains and losses with respect to
straddle positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that the Fund's holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Fund that may mitigate the effects of the straddle rules.

Certain options, futures contracts and forward contracts that are
subject to Section 1256 of the Code ("Section 1256 Contracts") and that are held
by the Fund at the end of its taxable year generally will be required to be
"marked to market" for federal income tax purposes, that is, deemed to have been
sold at market value. Sixty percent of any net gain or loss recognized on these
deemed sales and 60% of any net gain or loss realized from any actual sales of
Section 1256 Contracts will be treated as long-term capital gain or loss, and
the balance will be treated as short-term capital gain or loss.

Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions that may affect the amount, timing and
character of income, gain or loss recognized by the Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign
currency-denominated debt instruments, foreign currency forward contracts,
foreign currency denominated payables and receivables and foreign currency
options and futures contracts (other than options and futures contracts that are
governed by the mark-to-market and 60/40 rules of Section 1256 of the Code and
for which no election is made) is treated as ordinary income or loss. Some part
of the Fund's gain or loss on the sale or other disposition of shares of a
foreign corporation may, because of changes in foreign currency exchange rates,
be treated as ordinary income or loss under Section 988 of the Code rather than
as capital gain or loss.

A shareholder who purchases shares of the Fund by tendering payment for
the shares in the form of other securities may be required to recognize gain or
loss for income tax purposes on the difference, if any, between the adjusted
basis of the securities tendered to the fund and the purchase price of the
Fund's shares acquired by the shareholder.

Section 475 of the Code requires that a "dealer" in securities must
generally "mark to market" at the end of its taxable year all securities which
it owns. The resulting gain or loss is treated as ordinary (and not capital)
gain or loss, except to the extent allocable to periods during which the dealer
held the security for investment. The "mark to market" rules do not apply,
however, to a security held for investment which is clearly identified in the
dealer's records as being held for investment before the end of the day in which
the security was acquired. The IRS has issued guidance under Section 475 that
provides that, for example, a bank that regularly originates and sells loans is
a dealer in securities, and subject to the "mark to market" rules. Shares of the
Fund held by a dealer in securities will be subject to the "mark to market"
rules unless they are held by the dealer for investment and the dealer property
identifies the shares as held for investment.

B-22
<PAGE>
Redemptions and exchanges of shares of the Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends during such six-month period. All or a portion
of a loss realized upon the redemption of shares may be disallowed to the extent
shares are purchased (including shares acquired by means of reinvested
dividends) within 30 days before or after such redemption.

Distributions and redemptions may be subject to state and local income
taxes, and the treatment thereof may differ from the federal income tax
treatment. Foreign taxes may apply to non-U.S. investors.

The above discussion and the related discussion in the prospectuses are
not intended to be complete discussions of all applicable federal tax
consequences of an investment in the Fund. The law firm of Paul, Hastings,
Janofsky & Walker LLP has expressed no opinion in respect thereof. Nonresident
aliens and foreign persons are subject to different tax rules, and may be
subject to withholding of up to 30% on certain payments received from the Fund.
Shareholders are advised to consult with their own tax advisers concerning the
application of foreign, federal, state and local taxes to an investment in the
Fund.

DIVIDENDS AND DISTRIBUTIONS

The Fund will receive income in the form of dividends and interest
earned on its investments in securities. This income, less the expenses incurred
in its operations, is the Fund's net investment income, substantially all of
which will be declared as dividends to the Fund's shareholders.

The amount of income dividend payments by the Fund is dependent upon
the amount of net investment income received by the Fund from its portfolio
holdings, is not guaranteed and is subject to the discretion of the Board. The
Fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.

The Fund also may derive capital gains or losses in connection with
sales or other dispositions of its portfolio securities. Any net gain the Fund
may realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held more than the period
required for long-term capital gain or loss recognition or otherwise producing
long-term capital gains and losses, the Fund will have a net long-term capital
gain. After deduction of the amount of any net short-term capital loss, the
balance (to the extent not offset by any capital losses carried over from the
eight previous taxable years) will be distributed and treated as long-term
capital gains in the hands of the shareholders regardless of the length of time
the Fund's shares may have been held by the shareholders. For more information
concerning applicable capital gains tax rates, see your tax advisor.

Any dividend or distribution paid by the Fund reduces the Fund's net
asset value per share on the date paid by the amount of the dividend or
distribution per share. Accordingly, a dividend or distribution paid shortly
after a purchase of shares by a shareholder would represent, in substance, a
partial return of capital (to the extent it is paid on the shares so purchased),
even though it would be subject to income taxes.

Dividends and other distributions will be made in the form of
additional shares of the Fund unless the shareholder has otherwise indicated.
Investors have the right to change their elections with respect to the
reinvestment of dividends 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.

B-23
<PAGE>
PERFORMANCE INFORMATION

TOTAL RETURN

Average annual total return quotations used in the Fund's advertising
and promotional materials are calculated according to the following formula:

n
P(1 + T) = ERV

where "P" equals a hypothetical initial payment of $1000; "T" equals average
annual total return; "n" equals the number of years; and "ERV" equals the ending
redeemable value at the end of the period of a hypothetical $1000 payment made
at the beginning of the period.

Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication.
Average annual total return, or "T" in the above formula, is computed by finding
the average annual compounded rates of return over the period that would equate
the initial amount invested to the ending redeemable value. Average annual total
return assumes the reinvestment of all dividends and distributions.

For the year ended December 31, 1999, the Fund's total return was
20.85%.

OTHER INFORMATION

Performance data of the Fund quoted in advertising and other
promotional materials represents past performance and is not intended to predict
or guarantee future results. The return and principal value of an investment in
the Fund will fluctuate, and an investor's redemption proceeds may be more or
less than the original investment amount. In advertising and promotional
materials the Fund may compare its performance with data published by Lipper
Analytical Services, Inc. ("Lipper") or CDA Investment Technologies, Inc.
("CDA"). The Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper or CDA. Advertising and promotional materials also may refer
to discussions of the Fund and comparative mutual fund data and ratings reported
in independent periodicals including, but not limited to, THE WALL STREET
JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD and BARRON'S.

GENERAL INFORMATION

Advisors Series Trust is an open-end management investment company
organized as a Delaware business trust under the laws of the State of Delaware
on October 3, 1996. The Trust currently consists of 23 effective series of
shares of beneficial interest, par value of 0.01 per share. The Trust has no
business history prior to the offering of the first of its series of shares. The
Declaration of Trust permits the Trustees to issue an unlimited number of full
and fractional shares of beneficial interest and to divide or combine the shares
into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in the Fund. Each share represents an interest
in the Fund proportionately equal to the interest of each other share. Upon the
Fund's liquidation, all shareholders would share pro rata in the net assets of
the Fund available for distribution to shareholders.

The Declaration of Trust does not require the issuance of stock
certificates. If stock certificates are issued, they must be returned by the
registered owners prior to the transfer or redemption of shares represented by
such certificates.

If they deem it advisable and in the best interest of shareholders, the
Board of Trustees may create additional series of shares which differ from each
other only as to dividends. The Board of Trustees has created two series of
shares, and may create additional series in the future, which have separate
assets and liabilities. Income and operating expenses not specifically
attributable to a particular Fund are be allocated fairly among the Funds by the
Trustees, generally on the basis of the relative net assets of each Fund.

B-24
<PAGE>
The Fund intends to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions that make payment in cash unwise, the Fund may
make payment partly in its portfolio securities with a current amortized cost or
market value, as appropriate, equal to the redemption price. Although the Fund
does not anticipate that it will make any part of a redemption payment in
securities, if such payment were made, an investor may incur brokerage costs in
converting such securities to cash. The Trust has elected to be governed by the
provisions of Rule 18f-1 under the Investment Company Act, which require that
the Fund pay in cash all requests for redemption by any shareholder of record
limited in amount, however, during any 90-day period to the lesser of $250,000
or 1% of the value of the Fund's net assets at the beginning of such period.

Rule 18f-2 under the 1940 Act provides that as to any investment
company which has two or more series outstanding and as to any matter required
to be submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.

The Fund's principal underwriter is First Fund Distributors, Inc. 4455
E. Camelback Rd., Suite 261E, Phoenix, AZ 85018.

The Fund's custodian, Firstar Bank, 425 Walnut Street, Cincinnati, Ohio
45202 is responsible for holding the Fund's assets. ICA Fund Services Corp.,
4455 E. Camelback Road, Suite 261E, Phoenix, AZ 85018 acts as the Fund's
transfer agent and accounting services agent. The Fund's independent
accountants, PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York,
NY 10036, assist in the preparation of certain reports to the Securities and
Exchange Commission and the Fund's tax returns.

The Boards of the Trust, the Advisor and the Distributor have adopted
Codes of ethics under Rule 17j- 1 of the 1940 Act. These Codes permit, subject
to certain conditions, personnel of the Advisor and Distributor to invest in
securities that may be purchased or held by the Funds.

B-25
<PAGE>
APPENDIX

DESCRIPTION OF RATINGS

MOODY'S INVESTORS SERVICE, INC.: CORPORATE BOND RATINGS

Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa
and Aa rating classifications. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.

A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great period of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

STANDARD & POOR'S CORPORATION: CORPORATE BOND RATINGS

AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.

AA--Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.

A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.

COMMERCIAL PAPER RATINGS

Moody's commercial paper ratings are assessments of the issuer's
ability to repay punctually promissory obligations. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1--highest quality; Prime
2--higher quality; Prime 3--high quality.

B-26
<PAGE>
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.

Issues assigned the highest rating, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation "A-3" have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.

B-27
<PAGE>
THE AVATAR ADVANTAGE
EQUITY ALLOCATION FUND
AND
THE AVATAR ADVANTAGE
BALANCED FUND

Statement of Additional Information

Dated April 28, 2000

This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the prospectus dated April 28, 2000, as may
be revised from time to time, of The Avatar Advantage Equity Allocation Fund
(the "Equity Fund") and The Avatar Advantage Balanced Fund (the "Balanced
Fund"), each a series of Advisors Series Trust (the "Trust"). The Equity Fund
and the Balanced Fund are referred to herein collectively as "the Funds". Avatar
Associates (the "Advisor") is the Advisor to the Funds. A copy of the prospectus
may be obtained from the Funds by writing 900 Third Avenue, New York, NY 10022
or by calling the Trust at (888) 263-6452.

TABLE OF CONTENTS

THE TRUST................................................................. B-2

MANAGEMENT OF THE FUNDS................................................... B-15

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES....................... B-16

INVESTMENT ADVISORY AND OTHER SERVICES.................................... B-16

DISTRIBUTION ARRANGEMENTS................................................. B-18

PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... B-18

NET ASSET VALUE........................................................... B-19

TAXATION ................................................................. B-20

DIVIDENDS AND DISTRIBUTIONS............................................... B-23

PERFORMANCE INFORMATION................................................... B-24

OTHER INFORMATION......................................................... B-24

GENERAL INFORMATION....................................................... B-24

APPENDIX ................................................................. B-26

B-1
<PAGE>
THE TRUST

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 Funds. The Prospectus of the Funds and this SAI omit certain of
the information contained in the Registration Statement filed with the SEC.
Copies of such information may be obtained from the SEC upon payment of a
duplication fee.

INVESTMENT OBJECTIVES AND POLICIES

Each Fund's investment objective is long-term capital appreciation. In
addition, the Balanced Fund seeks to protect capital during high risk periods.
There are no assurance that the Funds will achieve their investment objectives.
The discussion below supplements information contained in the prospectus as to
investment policies of the Funds.

INVESTMENT STRATEGIES AND RISKS

CONVERTIBLE SECURITIES AND WARRANTS

The Funds may invest in convertible securities and warrants. A
convertible security is a fixed income security (a debt instrument or a
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
gives an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the issuing company depending upon a
market price advance in the convertible security's underlying common stock.

SHORT-TERM INVESTMENTS

The Funds may invest in any of the following securities and
instruments:

INVESTMENT COMPANY SECURITIES. The Funds may invest in shares of other
investment companies. The Funds may invest in money market mutual funds in
connection with its management of daily cash positions. In addition to the
advisory and operational fees the Funds bear directly in connection with its own
operation, the Funds would also bear its pro rata portions of each other
investment company's advisory and operational expenses.

BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS.
The Funds may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Funds will be

B-2
<PAGE>
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
principal amount of such bank obligations are fully insured by the U.S.
Government. If the Funds hold instruments of foreign banks or financial
institutions, it may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. See "Foreign Investments" below. Such
risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.

In addition to purchasing certificates of deposit and bankers'
acceptances, to the extent permitted under its investment objectives and
policies stated above and in its prospectus, the Funds may make interest-bearing
time or other interest-bearing deposits in commercial or savings banks. Time
deposits are non-negotiable deposits maintained at a banking institution for a
specified period of time at a specified interest rate.

COMMERCIAL PAPER, SHORT-TERM NOTES AND OTHER CORPORATE OBLIGATIONS. The
Funds may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term notes will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.

Corporate obligations include bonds and notes issued by corporations to
finance longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, the Funds may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated "AA" or higher by S&P or "Aa"
or higher by Moody's.

GOVERNMENT OBLIGATIONS

The Funds may make short-term investments in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association.

B-3

<PAGE>
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.

The Funds may invest in sovereign debt obligations of foreign
countries. A sovereign debtor's willingness or ability to repay principal and
interest in a timely manner may be affected by a number of factors, including
its cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which it
may be subject. Emerging market governments could default on their sovereign
debt. Such sovereign debtors also may be dependent on expected disbursements
from foreign governments, multilateral agencies and other entities abroad to
reduce principal and interest arrearages on their debt. The commitments on the
part of these governments, agencies and others to make such disbursements may be
conditioned on a sovereign debtor's implementation of economic reforms and/or
economic performance and the timely service of such debtor's obligations.
Failure to meet such conditions could result in the cancellation of such third
parties' commitments to lend funds to the sovereign debtor, which may further
impair such debtor's ability or willingness to service its debt in a timely
manner.

MORTGAGE-RELATED SECURITIES

The Funds may invest in mortgage-related securities. Mortgage-related
securities are derivative interests in pools of mortgage loans made to U.S.
residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. The Funds may also invest in debt
securities which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of U.S. mortgage-related securities.

B-4
<PAGE>
stockholders. FHLMC issues participation certificates which represent interests
in conventional mortgages from FHLMC's national portfolio. Pass-through
securities issued by FNMA and participation certificates issued by FHLMC are
guaranteed as to timely payment of principal and interest by FNMA and FHLMC,
respectively, but are not backed by the full faith and credit of the United
States Government.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A domestic or foreign CMO
in which the Funds may invest is a hybrid between a mortgage-backed bond and a
mortgage pass-through security. Like a bond, interest is paid, in most cases,
semiannually. CMOs may be collateralized by whole mortgage loans, but are more
typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, FNMA or equivalent foreign entities.

FOREIGN INVESTMENTS AND CURRENCIES

The Funds may invest in securities of foreign issuers, provided that
they are publicly traded in the United States.

DEPOSITARY RECEIPTS. Depositary Receipts ("DRs") include American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other forms of depositary receipts. DRs are
receipts typically issued in connection with a U.S. or foreign bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation.

RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign
securities involve certain inherent risks, including the following:

CURRENCY FLUCTUATIONS. The Funds may invest in securities denominated
in foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Funds' assets denominated in that currency. Such changes will also

B-5
<PAGE>
affect the Funds' income. The value of the Funds' assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.

TAXES. The interest and dividends payable on certain of the Funds'
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Funds'
shareholders.

OPTIONS ON SECURITIES

PURCHASING PUT AND CALL OPTIONS. The Funds may purchase covered "put"
and "call" options with respect to securities which are otherwise eligible for
purchase by the Funds subject to certain restrictions. The Funds will engage in
trading of such derivative securities exclusively for hedging purposes.

If the Funds purchase a put option, the Funds acquire the right to sell
the underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when the Advisor perceives significant short-term risk but
substantial long-term appreciation for the underlying security. The put option
acts as an insurance policy, as it protects against significant downward price
movement while it allows full participation in any upward movement. If the Funds
are holding a security which it feels has strong fundamentals, but for some
reason may be weak in the near term, the Funds may purchase a put option on such
security, thereby giving itself the right to sell such security at a certain
strike price throughout the term of the option. Consequently, the Funds will
exercise the put only if the price of such security falls below the strike price
of the put. The difference between the put's strike price and the market price
of the underlying security on the date the Funds exercise the put, less
transaction costs, will be the amount by which the Funds will be able to hedge
against a decline in the underlying security. If during the period of the option
the market price for the underlying security remains at or above the put's
strike price, the put will expire worthless, representing a loss of the price
the Funds paid for the put, plus transaction costs. If the price of the
underlying security increases, the profit the Funds realize on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put may be sold.

If the Funds purchase a call option, it acquires the right to purchase
the underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the Funds have a short position in the
underlying security and the security thereafter increases in price. The Funds
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If the call option has been
purchased to hedge a short position of the Funds in the underlying security and
the price of the underlying security thereafter falls, the profit the Funds
realize on the cover of the short position in the security will be reduced by
the premium paid for the call option less any amount for which such option may
be sold.

Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. The Funds generally will purchase only those options for which the
Advisor believes there is an active secondary market to facilitate closing
transactions.

WRITING CALL OPTIONS. The Funds may write covered call options. A call
option is "covered" if the Funds own the security underlying the call or has an
absolute right to acquire the security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount as are held in a segregated account by the Custodian). The writer of
a call option receives a premium and gives the purchaser the right to buy the
security underlying the option at the exercise price. The writer has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. If the writer of
an exchange-traded option wishes to terminate his obligation, he may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. A writer may not effect a closing
purchase transaction after it has been notified of the exercise of an option.

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Effecting a closing transaction in the case of a written call option
will permit the Funds to write another call option on the underlying security
with either a different exercise price, expiration date or both. Also, effecting
a closing transaction will permit the cash or proceeds from the concurrent sale
of any securities subject to the option to be used for other investments of the
Funds. If the Funds desire to sell a particular security from its portfolio on
which it has written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.

The Funds will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option or if the proceeds from the closing transaction are more than the premium
paid to purchase the option. The Funds will realize a loss from a closing
transaction if the cost of the closing transaction is more than the premium
received from writing the option or if the proceeds from the closing transaction
are less than the premium paid to purchase the option. However, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss to the Funds resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the Funds.

A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events. The
extent to which the Funds may enter into options transactions may be limited by
the Internal Revenue Code of 1986 (the "Code") requirements for qualification of
the Funds as a regulated investment company. See "Dividends and Distributions"
and "Taxation."

DEALER OPTIONS. The Funds will engage in transactions involving dealer
options as well as exchange- traded options. Certain additional risks are
specific to dealer options. While the Funds might look to a clearing corporation
to exercise exchange-traded options, if the Funds were to purchase a dealer
option it would need to rely on the dealer from which it purchased the option to
perform if the option were exercised. Failure by the dealer to do so would
result in the loss of the premium paid by the Funds as well as loss of the
expected benefit of the transaction.

Exchange-traded options generally have a continuous liquid market while
dealer options may not. Consequently, the Funds may generally be able to realize
the value of a dealer option it has purchased only by exercising or reselling
the option to the dealer who issued it. Similarly, when the Funds write a dealer
option, the Funds may generally be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to whom the Funds originally wrote the option. While the Funds will seek to
enter into dealer options only with dealers who will agree to and which are
expected to be capable of entering into closing transactions with the Funds,

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there can be no assurance that the Funds will at any time be able to liquidate a
dealer option at a favorable price at any time prior to expiration. Unless the
Funds, as a covered dealer call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used as cover until the option expires or is exercised. In the event of
insolvency of the other party, the Funds may be unable to liquidate a dealer
option. With respect to options written by the Funds, the inability to enter
into a closing transaction may result in material losses to the Funds. For
example, because the Funds must maintain a secured position with respect to any
call option on a security it writes, the Funds may not sell the assets which it
has segregated to secure the position while it is obligated under the option.
This requirement may impair the Funds' ability to sell portfolio securities at a
time when such sale might be advantageous.

The Staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased dealer options are illiquid securities.
The Funds may treat the cover used for written dealer options as liquid if the
dealer agrees that the Funds may repurchase the dealer option it has written for
a maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
Accordingly, the Funds will treat dealer options as subject to the Funds'
limitation on illiquid securities. If the Commission changes its position on the
liquidity of dealer options, the Funds will change its treatment of such
instruments accordingly.

SPREAD TRANSACTIONS.

The Funds may purchase covered spread options from securities dealers.
These covered spread options are not presently exchange-listed or
exchange-traded. The purchase of a spread option gives the Funds the right to
put securities that it owns at a fixed dollar spread or fixed yield spread in
relationship to another security that the Funds do not own, but which is used as
a benchmark. The risk to the Funds, in addition to the risks of dealer options
described above, is the cost of the premium paid as well as any transaction
costs. The purchase of spread options will be used to protect the Funds against
adverse changes in prevailing credit quality spreads, I.E., the yield spread
between high quality and lower quality securities. This protection is provided
only during the life of the spread options.

FUTURES CONTRACTS AND RELATED OPTIONS

The Funds may invest in futures contracts and options on futures
contracts as a hedge against changes in market conditions or interest rates. The
Funds will trade in such derivative securities for bona fide hedging purposes
and otherwise in accordance with the rules of the Commodity Futures Trading
Commission ("CFTC"). The Funds will segregate liquid assets in a separate
account with its Custodian when required to do so by CFTC guidelines in order to
cover its obligation in connection with futures and options transactions.

No price is paid or received by the Funds upon the purchase or sale of
a futures contract. When it enters into a domestic futures contract, the Funds
will be required to deposit in a segregated account with its Custodian an amount
of cash or U.S. Treasury bills equal to approximately 5% of the contract amount.
This amount is known as initial margin. The margin requirements for foreign
futures contracts may be different.

The nature of initial margin in futures transactions is different from
that of margin in securities transactions. Futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Funds upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments (called variation margin) to and from the broker will be
made on a daily basis as the price of the underlying stock index fluctuates, to
reflect movements in the price of the contract making the long and short
positions in the futures contract more or less valuable. For example, when the
Funds have purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased in value and
the Funds will receive from the broker a variation margin payment equal to that
increase in value. Conversely, when the Funds have purchased a stock index
futures contract and the price of the underlying stock index has declined, the
position will be less valuable and the Funds will be required to make a
variation margin payment to the broker.

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At any time prior to expiration of a futures contract, the Funds may
elect to close the position by taking an opposite position, which will operate
to terminate the Funds' position in the futures contract. A final determination
of variation margin is made on closing the position. Additional cash is paid by
or released to the Funds, that realizes a loss or a gain.

In addition to amounts segregated or paid as initial and variation
margin, the Funds must segregate liquid assets with its custodian equal to the
market value of the futures contracts, in order to comply with Commission
requirements intended to ensure that the Funds' use of futures is unleveraged.
The requirements for margin payments and segregated accounts apply to both
domestic and foreign futures contracts.

STOCK INDEX FUTURES CONTRACTS. The Funds may invest in futures
contracts on stock indices. Currently, stock index futures contracts can be
purchased or sold with respect to, among others, the S&P 500 Stock Price Index
on the Chicago Mercantile Exchange, the Major Market Index on the Chicago Board
of Trade, the New York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Stock Index on the Kansas City Board of Trade.

INTEREST RATE OR FINANCIAL FUTURES CONTRACTS. The Funds may invest in
interest rate or financial futures contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, a contract is made to purchase or sell a bond in the future for
a set price on a certain date. Historically, the prices for bonds established in
the futures markets have generally tended to move in the aggregate in concert
with cash market prices, and the prices have maintained fairly predictable
relationships.

The sale of an interest rate or financial futures contract by the Funds
would create an obligation by the Funds, as seller, to deliver the specific type
of financial instrument called for in the contract at a specific future time for
a specified price. A futures contract purchased by the Funds would create an
obligation by the Funds, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.

Although interest rate or financial futures contracts by their terms
call for actual delivery or acceptance of securities, in most cases the
contracts are closed out before the settlement date without delivery of
securities. Closing out of a futures contract sale is effected by the Funds'
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Funds are paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Funds pay the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Funds' entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Funds realize a gain, and if the purchase price exceeds the
offsetting sale price, the Funds realize a loss.

The Funds will deal only in standardized contracts on recognized
exchanges. Each exchange guarantees performance under contract provisions
through a clearing corporation, a nonprofit organization managed by the exchange
membership. Domestic interest rate futures contracts are traded in an auction
environment on the floors of several exchanges - principally, the Chicago Board
of Trade and the Chicago Mercantile Exchange. A public market now exists in
domestic futures contracts covering various financial instruments including
long- term United States Treasury bonds and notes; GNMA modified pass-through
mortgage-backed securities; three- month United States Treasury bills; and
90-day commercial paper. The Funds may trade in any futures contract for which
there exists a public market, including, without limitation, the foregoing
instruments.

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<PAGE>
securities which are the subject of the hedge, the hedge will not be fully
effective, but if the price of the securities being hedged has moved in an
unfavorable direction, the Funds would be in a better position than if it had
not hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
future. If the price of the future moves more than the price of the hedged
securities, the Funds will experience either a loss or a gain on the future
which will not be completely offset by movements in the price of the securities
which are subject to the hedge.

To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of the futures contract,
the Funds may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the historical volatility of the
prices of such securities has been greater than the historical volatility over
such time period of the future. Conversely, the Funds may buy or sell fewer
futures contracts if the historical volatility of the price of the securities
being hedged is less than the historical volatility of the futures contract
being used. It is possible that, when the Funds have sold futures to hedge its
portfolio against a decline in the market, the market may advance while the
value of securities held in the Funds' portfolio may decline. If this occurs,
the Funds will lose money on the future and also experience a decline in value
in its portfolio securities. However, the Advisor believes that over time the
value of a diversified portfolio will tend to move in the same direction as the
market indices upon which the futures are based.

Where futures are purchased to hedge against a possible increase in the
price of securities before the Funds are able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead. If the Funds then decides not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, it will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds may
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures position, and in the event of adverse price
movements, the Funds would continue to be required to make daily cash payments
of variation margin. When futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of the
securities will in fact correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.

B-10
<PAGE>
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.

Successful use of futures by the Funds are also subject to the
Advisor's ability to predict correctly movements in the direction of the market.
For example, if the Funds have hedged against the possibility of a decline in
the market adversely affecting stocks held in its portfolio and stock prices
increase instead, the Funds will lose part or all of the benefit of the
increased value of the stocks which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Funds have insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Funds
may have to sell securities at a time when it may be disadvantageous to do so.

In the event of the bankruptcy of a broker through which the Funds
engage in transactions in futures contracts or options, the Funds could
experience delays and losses in liquidating open positions purchased or sold
through the broker, and incur a loss of all or part of its margin deposits with
the broker.

OPTIONS ON FUTURES CONTRACTS. As described above, the Funds may
purchase options on the futures contracts they can purchase or sell. A futures
option gives the holder, in return for the premium paid, the right to buy (call)
from or sell (put) to the writer of the option a futures contract at a specified
price at any time during the period of the option. Upon exercise, the writer of
the option is obligated to pay the difference between the cash value of the
futures contract and the exercise price. Like the buyer or seller of a futures
contract, the holder or writer of an option has the right to terminate its
position prior to the scheduled expiration of the option by selling, or
purchasing an option of the same series, at which time the person entering into
the closing transaction will realize a gain or loss. There is no guarantee that
such closing transactions can be effected.

Investments in futures options involve some of the same considerations
as investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contracts. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is limited to the premium paid for the options (plus
transaction costs).

RESTRICTIONS ON THE USE OR FUTURES CONTRACTS AND RELATED OPTIONS. The
Funds will not engage in transactions in futures contracts or related options
for speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Funds' portfolio or which it
intends to purchase and where the transactions are economically appropriate to
the reduction of risks inherent in the ongoing management of the Funds. The
Funds may not purchase or sell futures or purchase related options if,
immediately thereafter, more than 25% of its net assets would be hedged. The
Funds also may not purchase or sell futures or purchase related options if,
immediately thereafter, the sum of the amount of margin deposits on the Funds'
existing futures positions and premiums paid for such options would exceed 5% of
the market value of the Funds' net assets.

These restrictions, which are derived from current federal regulations
regarding the use of options and futures by mutual funds, are not "fundamental
restrictions" and may be changed by the Trustees of the Trust if applicable law
permits such a change and the change is consistent with the overall investment
objective and policies of the Funds.

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<PAGE>
REPURCHASE AGREEMENTS

The Funds may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, the Funds acquire securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Advisor, subject to the seller's agreement to repurchase and
the Funds' agreement to resell such securities at a mutually agreed upon date
and price. The repurchase price generally equals the price paid by the Funds
plus interest negotiated on the basis of current short-term rates (which may be
more or less than the rate on the underlying portfolio security). Securities
subject to repurchase agreements will be held by the Custodian or in the Federal
Reserve/Treasury Book-Entry System or an equivalent foreign system. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities at not less than 102% of the repurchase price under the
agreement. If the seller defaults on its repurchase obligation, the Funds will
suffer a loss to the extent that the proceeds from a sale of the underlying
securities are less than the repurchase price under the agreement. Bankruptcy or
insolvency of such a defaulting seller may cause the Funds' rights with respect
to such securities to be delayed or limited. Repurchase agreements are
considered to be loans under the 1940 Act.

WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS

The Funds may purchase securities on a "when-issued," forward
commitment or delayed settlement basis. In this event, the Custodian will
segregate liquid assets equal to the amount of the commitment in a separate
account. Normally, the Custodian will set aside portfolio securities to satisfy
a purchase commitment. In such a case, the Funds may be required subsequently to
segregate additional assets in order to assure that the value of the account
remains equal to the amount of the Funds' commitment. It may be expected that
the Funds' net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash.

The Funds do not intend to engage in these transactions for speculative
purposes but only in furtherance of its investment objectives. Because the Funds
will segregate liquid assets to satisfy its purchase commitments in the manner
described, the Funds' liquidity and the ability of the Advisor to manage it may
be affected in the event the Funds' forward commitments, commitments to purchase
when-issued securities and delayed settlements ever exceeded 15% of the value of
its net assets.

The Funds will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however,
the Funds may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to the Funds on the settlement date. In these cases the Funds may
realize a taxable capital gain or loss. When the Funds engage in when-issued,
forward commitment and delayed settlement transactions, it relies on the other
party to consummate the trade. Failure of such party to do so may result in the
Funds' incurring a loss or missing an opportunity to obtain a price credited to
be advantageous.

The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of the Funds starting on the day the Funds agree to
purchase the securities. The Funds do not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.

LENDING PORTFOLIO SECURITIES

The Funds may lend its portfolio securities in an amount not exceeding
one-third of its total assets to financial institutions such as banks and
brokers if the loan is collateralized in accordance with applicable regulations.
Under the present regulatory requirements which govern loans of portfolio
securities, the loan collateral must, on each business day, at least equal the
value of the loaned securities and must consist of cash, letters of credit of
domestic banks or domestic branches of foreign banks, or securities of the U.S.
Government or its agencies. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Funds if the demand meets
the terms of the letter. Such terms and the issuing bank would have to be
satisfactory to the Funds. Any loan might be secured by any one or more of the
three types of collateral. The terms of the Funds' loan must permit the funds to

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reacquire loaned securities on five days' notice or in time to vote on any
serious matter and must meet certain tests under the Code.

SHORT SALES

The Funds are authorized to make short sales of securities. In a short
sale, the Funds sell a security which it does not own, in anticipation of a
decline in the market value of the security. To complete the sale, the Funds
must borrow the security (generally from the broker through which the short sale
is made) in order to make delivery to the buyer. The Funds are then obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. The Funds are said to have a "short position" in the securities
sold until it delivers them to the broker. The period during which the Funds
have a short position can range from one day to more than a year. Until the
security is replaced, the proceeds of the short sale are retained by the broker,
and the Funds are required to pay to the broker a negotiated portion of any
dividends or interest which accrue during the period of the loan. To meet
current margin requirements, the Funds are also required to deposit with the
broker additional cash or securities so that the total deposit with the broker
is maintained daily at 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).

Short sales by the Funds create opportunities to increase the Funds'
return but, at the same time, involve specific risk considerations and may be
considered a speculative technique. Since the Funds in effect profits from a
decline in the price of the securities sold short without the need to invest the
full purchase price of the securities on the date of the short sale, the Funds'
net asset value per share will tend to increase more when the securities it has
sold short decrease in value, and to decrease more when the securities it has
sold short increase in value, than would otherwise be the case if it had not
engaged in such short sales. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of any premium, dividends or
interest the Funds may be required to pay in connection with the short sale.
Furthermore, under adverse market conditions the Funds might have difficulty
purchasing securities to meet its short sale delivery obligations, and might
have to sell portfolio securities to raise the capital necessary to meet its
short sale obligations at a time when fundamental investment considerations
would not favor such sales.

ILLIQUID SECURITIES

The Funds may not invest more than 15% of the value of its net assets
in securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid. The Advisor will monitor the
amount of illiquid securities in the Funds' portfolio, under the supervision of
the Trust's Board of Trustees, to ensure compliance with the Funds' investment
restrictions.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the funds might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemption
requests within seven days. The Funds might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

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<PAGE>
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Trust's Board of Trustees may determine that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid.

FUND POLICIES

The Trust (on behalf of the Funds) have adopted the following
restrictions as fundamental policies, which may not be changed without the
favorable vote of the holders of a "majority," as defined in the 1940 Act, of
the outstanding voting securities of the Funds. Under the 1940 Act, the "vote of
the holders of a majority of the outstanding voting securities" means the vote
of the holders of the lesser of (i) 67% of the shares of the Funds represented
at a meeting at which the holders of more than 50% of its outstanding shares are
represented or (ii) more than 50% of the outstanding shares of the Funds.

As a matter of fundamental policy, the Funds are diversified. The
Funds' investment objective is also fundamental.

In addition, the Funds may not:

1. Issue senior securities, borrow money or pledge its assets, except
that (i) the Funds may borrow from banks in amounts not exceeding one-third of
its total assets (including the amount borrowed) for temporary and emergency
purchases; and (ii) this restriction shall not prohibit the Funds from engaging
in options transactions or short sales;

2. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;

3. Act as underwriter (except to the extent the Funds may be deemed to
be an underwriter in connection with the sale of securities in its investment
portfolio);

4. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);

5. Purchase or sell real estate or interests in real estate or real
estate limited partnerships (although the Funds may purchase and sell securities
which are secured by real estate and securities of companies which invest or
deal in real estate);

6. Purchase or sell commodities or commodity futures contracts, except
that the Funds may purchase and sell foreign currency contracts in accordance
with any rules of the Commodity Futures Trading Commission;

7. Make loans of money (except for purchases of debt securities
consistent with the investment policies of the Funds and except for repurchase
agreements); or

8. Make investments for the purpose of exercising control or
management.

The Funds observe the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal regulatory
authorities:

The Funds may not:

B-14
<PAGE>
MANAGEMENT OF THE FUNDS

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 Funds' investment objectives and policies and to general supervision by the
Board of Trustees.

The Trustees and officers of the Trust, their birth dates and positions
with the Trust, their business addresses and principal occupations during the
past five years are:

WALTER E. AUCH, SR. (born 1921) Trustee
6001 N. 62nd Place, Paradise Valley, AZ 85153. Business Consultant and Director,
Nicholas-Applegate Institutional Mutual Funds, Salomon Smith Barney Trak Funds
and Concert Series, Pimco Advisors L.P., Banyan Strategic Realty Trust, Legend
Properties and Senele Group.

ERIC M. BANHAZL* (born 1957) Trustee, President and Treasurer
2020 E. Financial Way, Glendora, CA 91741. Executive Vice President, Investment
Company Administration, LLC; Vice President, First Fund Distributors, Inc.;
Treasurer, Guinness Flight Investment Funds, Inc.

DONALD E. O'CONNOR (born 1936) Trustee
1700 Taylor Avenue, Fort Washington, MD 20744. Retired; formerly Executive Vice
President and Chief Operating Officer of ICI Mutual Insurance Company (until
January, 1997); Vice President, Operations, Investment Company Institute (until
June, 1993); Independent Director, The Parnassus Fund, The Parnassus Income
Fund, and Allegiance Investment Trust.

GEORGE T. WOFFORD III (born 1939) Trustee
305 Glendora Circle, Danville, CA 94526. Senior Vice President, Information
Services, Federal Home Loan Bank of San Francisco.

STEVEN J. PAGGIOLI (born 1950) Vice President
915 Broadway, Suite 1605, New York, NY 10010. Executive Vice President,
Investment Company Administration, LLC; Vice President, First Fund Distributors,
Inc.; President and Trustee, Professionally Managed Portfolios; Trustee,
Managers Funds Trust.

ROBERT H. WADSWORTH (born 1940) Vice President
4455 E. Camelback Rd. Suite 261-E, Phoenix, AZ 85018. President, Robert H.
Wadsworth & Associates, Inc., Investment Company Administration, LLC and First
Fund Distributors, Inc.; Vice President, Professionally Managed Portfolios;
President, Guiness Flight Investment Funds, Inc.; Director, Germany Fund, Inc.,
New Germany Fund, Inc., Central European Equity Fund, Inc. and Deutsche Funds,
Inc.

CHRIS O. MOSER (born 1949) Secretary
4455 E. Camelback Rd. Suite 261-E, Phoenix, AZ 85018. Employed by Investment
Company Administration, LLC (since July 1996); Formerly employed by Bank One,
N.A. (From August 1995 until July 1996; O'Connor, Cavanagh, Anderson,
Killingsworth and Beshears (law firm) (until August 1995).

- ----------
* denotes Trustee who is an "interested person" of the Trust under the 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

B-15
<PAGE>
* For the calendar-year ended December 31, 1999. The Trust has no pension or
retirement plan. No other entity affiliated with the Trust pays any
compensation to the Trustees.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Shares of the Funds owned by the Trustees and officers as a group were
less than 1% at December 31, 1999.

As of March 31, 2000, the Balanced Fund was controlled by the Avatar
Associates Money Purchase Pension Plan, DTD January 1, 1983, Richard McBride,
TTEE, 900 Third Avenue, New York, NY 10022, which owned 100% of the outstanding
shares of the Fund.

As of March 31, 2000, the Equity Fund was controlled by Putnam
Fiduciary Trust Co. TTEE, FBO: The Oschner Clinic Thrift Plan, 859 Williard St.
MS E2C, Quincy, MA 02269 which owned 99.76% of the outstanding shares of the
Fund.

The controlling shareholder would be able to control decisions made by
the shareholders with respect to matters affecting only that Fund, such as the
Investment Advisory Agreement.

INVESTMENT ADVISORY AND OTHER SERVICES

Subject to the supervision of the Board of Trustees, investment
management and related services are provided by the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement").

Under the Advisory Agreement, the Advisor agrees to invest the assets
of the Funds in accordance with the investment objectives, policies and
restrictions of the Funds as set forth in the Funds' and Trust's governing
documents, including, without limitation, the Trust's Agreement and Declaration
of Trust and By-Laws; the Funds' prospectus, statement of additional
information, and undertakings; and such other limitations, policies and
procedures as the Trustees of the Trust may impose from time to time in writing
to the Advisor. In providing such services, the Advisor shall at all times
adhere to the provisions and restrictions contained in the federal securities
laws, applicable state securities laws, the Code, and other applicable law.

Without limiting the generality of the foregoing, the Advisor has
agreed to (i) furnish the Funds with advice and recommendations with respect to
the investment of the Funds' assets, (ii) effect the purchase and sale of
portfolio securities; (iii) manage and oversee the investments of the Funds,
subject to the ultimate supervision and direction of the Trust's Board of
Trustees; (iv) vote proxies and take other actions with respect to the Funds'
securities; (v) maintain the books and records required to be maintained with
respect to the securities in the Funds' portfolio; (vi) furnish reports,
statements and other data on securities, economic conditions and other matters
related to the investment of the Funds' assets which the Trustees or the
officers of the Trust may reasonably request; and (vii) render to the Trust's
Board of Trustees such periodic and special reports as the Board may reasonably
request. The Advisor has also agreed, at its own expense, to maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary to the performance of its
obligations under the Advisory Agreement. Personnel of the Advisor may serve as
officers of the Trust provided they do so without compensation from the Trust.
Without limiting the generality of the foregoing, the staff and personnel of the
Advisor shall be deemed to include persons employed or retained by the Advisor
to furnish statistical information, research, and other factual information,
advice regarding economic factors and trends, information with respect to
technical and scientific developments, and such other information, advice and
assistance as the Advisor or the Trust's Board of Trustees may desire and
reasonably request. With respect to the operation of the Funds, the Advisor has
agreed to be responsible for the expenses of printing and distributing extra
copies of the Funds' prospectus, statement of additional information, and sales
and advertising materials (but not the legal, auditing or accounting fees
attendant thereto) to prospective investors (but not to existing shareholders);
and the costs of any special Board of Trustees meetings or shareholder meetings
convened for the primary benefit of the Advisor.

B-16
<PAGE>
During the fiscal years ended December 31, 1999, 1998 and 1997, the
Advisor earned fees pursuant to the Advisory agreements as follows: from the
Balanced Fund, $11,764 and $9,496, respectively; and from Equity Fund, $118,870,
$125,574 and $12,099, respectively. In its undertaking to limit the Funds'
operating expenses during the fiscal years ended December 31, 1999, 1998 and
1997, the Advisor waived its fee of $11,764 and $9,496 in the Balanced Fund,
respectively, and waived its fee of $68,204, $78,331 and $2,080, respectively in
the Equity Fund. In addition to the fees payable to the Advisor and the
Administrator, the Trust is responsible for its operating expenses, including:
fees and expenses incurred in connection with the issuance, registration and
transfer of its shares; brokerage and commission expenses; all expenses of
transfer, receipt, safekeeping, servicing and accounting for the cash,
securities and other property of the Trust for the benefit of the Funds
including all fees and expenses of its custodian, shareholder services agent and
accounting services agent; interest charges on any borrowings; costs and
expenses of pricing and calculating its daily net asset value and of maintaining
its books of account required under the 1940 Act; taxes, if any; a pro rata
portion of expenditures in connection with meetings of the Funds' shareholders
and the Trust's Board of Trustees that are properly payable by the funds;
salaries and expenses of officers and fees and expenses of members of the
Trust's Board of Trustees or members of any advisory board or committee who are
not members of, affiliated with or interested persons of the Advisor or
Administrator; insurance premiums on property or personnel of the Funds which
inure to its benefit, including liability and fidelity bond insurance; the cost
of preparing and printing reports, proxy statements, prospectuses and statements
of additional information of the Funds or other communications for distribution
to existing shareholders; legal, auditing and accounting fees; trade association
dues; fees and expenses (including legal fees) of registering and maintaining
registration of its shares for sale under federal and applicable state and
foreign securities laws; all expenses of maintaining and servicing shareholder
accounts, including all charges for transfer, shareholder recordkeeping,
dividend disbursing, redemption, and other agents for the benefit of the funds,
if any; and all other charges and costs of its operation plus any extraordinary
and non-recurring expenses, except as otherwise prescribed in the Advisory
Agreement.

The Funds are responsible for its own operating expenses. The Advisor
has contractually agreed to reduce fees payable to it by the Funds and to pay
Fund operating expenses to the extent necessary to limit the Funds' aggregate
annual operating expenses (excluding interest and tax expenses) to the limit set
forth in the Expense Table (the "expense cap"). Any such reductions made by the
Advisor in its fees or payment of expenses which are the Funds' obligation are
subject to reimbursement by the Funds to the Advisor, if so requested by the
Advisor, in subsequent fiscal years if the aggregate amount actually paid by the
Funds toward the operating expenses for such fiscal year (taking into account
the reimbursement) does not exceed the applicable limitation on Fund expenses.
The Advisor is permitted to be reimbursed only for fee reductions and expense
payments made in the previous three fiscal years, but is permitted to look back
five years and four years, respectively, during the initial six years and
seventh year of the Funds' operations. Any such reimbursement is also contingent
upon Board of Trustees' subsequent review and ratification of the reimbursed
amounts. Such reimbursement may not be paid prior to the Funds' payment of
current ordinary operating expenses.

Under the Advisory Agreement, the Advisor will not be liable to the
Trust or the Funds or any shareholder for any act or omission in the course of,
or connected with, rendering services or for any loss sustained by the Trust
except in the case of a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages will be limited as
provided in the 1940 Act) or of willful misfeasance, bad faith or gross
negligence, or reckless disregard of its obligations and duties under the
Agreement.

The Advisory Agreement is terminable by vote of the Board of Trustees
or by the holders of a majority of the outstanding voting securities of the
Funds at any time without penalty, on 60 days written notice to the Advisor. The
Advisory Agreement also may be terminated by the Advisor on 60 days written
notice to the Trust. The Advisory Agreement terminates automatically upon its
assignment (as defined in the 1940 Act).

B-17
<PAGE>
THE ADMINISTRATOR. The Administrator has agreed to be responsible for
providing such services as the Trustees may reasonably request, including but
not limited to (i) maintaining the Trust's books and records (other than
financial or accounting books and records maintained by any custodian, transfer
agent or accounting services agent); (ii) overseeing the Trust's insurance
relationships; (iii) preparing for the Trust (or assisting counsel and/or
auditors in the preparation of) all required tax returns, proxy statements and
reports to the Trust's shareholders and Trustees and reports to and other
filings with the Commission and any other governmental agency (the Trust
agreeing to supply or cause to be supplied to the Administrator all necessary
financial and other information in connection with the foregoing); (iv)
preparing such applications and reports as may be necessary to permit the offer
and sale of the shares of the Trust under the securities or "blue sky" laws of
the various states selected by the Trust (the Trust agreeing to pay all filing
fees or other similar fees in connection therewith); (v) responding to all
inquiries or other communications of shareholders, if any, which are directed to
the Administrator, or if any such inquiry or communication is more properly to
be responded to by the Trust's custodian, transfer agent or accounting services
agent, overseeing their response thereto; (vi) overseeing all relationships
between the Trust and any custodian(s), transfer agent(s) and accounting
services agent(s), including the negotiation of agreements and the supervision
of the performance of such agreements; and (vii) authorizing and directing any
of the Administrator's directors, officers and employees who may be elected as
Trustees or officers of the Trust to serve in the capacities in which they are
elected. All services to be furnished by the Administrator under this Agreement
may be furnished through the medium of any such directors, officers or employees
of the Administrator.

For its services, the Administrator receives a fee monthly at the following
annual rate, subject to a $30,000 minimum:

DISTRIBUTION ARRANGEMENTS

The Trust has adopted a Distribution Plan in accordance with Rule 12b-1
(the "Plan") under the 1940 Act. The Plan provides that each Fund will pay a fee
to the Advisor as Distribution Coordinator at an annual rate of up to 0.25% of
the average daily net assets of each Fund. The fee is paid to the Advisor as
reimbursement for, or in anticipation of, expenses incurred for distribution
related activity. During the fiscal year ended December 31, 1999, the
distribution fees paid by the Balanced and Equity Funds totaled $3,921 and
$34,962, respectively. These fees were used to reimburse the Advisor for
payments to dealers.

PORTFOLIO TRANSACTIONS AND BROKERAGE

B-18
<PAGE>
effecting a securities transaction will be execution at the most favorable
price. In selecting a broker-dealer to execute each particular transaction, the
Advisor may take the following into consideration: the best net price available;
the reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Funds on
a continuing basis. The price to the funds in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered.

Subject to such policies as the Advisor and the Board of Trustees of
the Trust may determine, the Advisor shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Funds to pay a broker or dealer that
provides (directly or indirectly) brokerage or research services to the Advisor
an amount of commission for effecting a portfolio transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities with respect to
the Funds. The Advisor is further authorized to allocate the orders placed by it
on behalf of the Funds to such brokers or dealers who also provide research or
statistical material, or other services, to the Trust, the Advisor, or any
affiliate of either. Such allocation shall be in such amounts and proportions as
the Advisor shall determine, and the Advisor shall report on such allocations
regularly to the Advisor and the Trust, indicating the broker-dealers to whom
such allocations have been made and the basis therefore. The Advisor is also
authorized to consider sales of shares of the Funds as a factor in the selection
of brokers or dealers to execute portfolio transactions, subject to the
requirements of best execution, I.E., that such brokers or dealers are able to
execute the order promptly and at the best obtainable securities price.

On occasions when the Advisor deems the purchase or sale of a security
to be in the best interest of the Funds as well as other clients of the Advisor,
the Advisor, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and the most efficient execution.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Advisor in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the funds and to such other clients.

For the fiscal year ended December 31, 1999, the Balanced Fund and
Equity Fund paid $1,962 and $26,626 in brokerage commissions, respectively. For
the fiscal year ended December 31, 1998, the Balanced Fund and Equity Fund paid
$39,311 and $32,778 in brokerage commissions, respectively. For the fiscal year
ended December 31 1997, the Equity Fund paid $1,478 in brokerage commissions.

The portfolio turnover rate for the fiscal year ended December 31, 1999
for the Balanced Fund and Equity Fund were 101.53% and 101.86%, respectively.

NET ASSET VALUE

The net asset value of the Funds' shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange (the
"NYSE") (generally 4:00 p.m. Eastern time) each business day. The NYSE annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that it will not be open on the following days: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However,
the NYSE may close on days not included in that announcement.

The net asset value per share is computed by dividing the value of the
securities held by the Funds plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of shares in the Funds outstanding at such
time.

Generally, the Funds' investments are valued at market value or, in the
absence of a market value, at fair value as determined in good faith by the
Advisor and the Trust's Valuation Committee pursuant to procedures approved by
or under the direction of the Board.

B-19
<PAGE>
The Funds' securities, including ADRs, EDRs and GDRs, which are traded
on securities exchanges are valued at the last sale price on the exchange on
which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last available bid and asked price. Securities that are traded on more than
one exchange are valued on the exchange determined by the Advisor to be the
primary market. Securities primarily traded in the NASDAQ National Market System
for which market quotations are readily available shall be valued at the last
sale price on the day of valuation, or if there has been no sale on such day, at
the mean between the bid and asked prices. Over-the-counter ("OTC") securities
which are not traded in the NASDAQ National Market System shall be valued at the
most recent trade price. Securities and assets for which market quotations are
not readily available (including restricted securities which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the Board.

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 the Funds if
acquired within 60 days of maturity or, if already held by the Funds on the 60th
day, based on the value determined on the 61st day.

An option that is written by the Funds are 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 the Funds are generally valued at the last sale
price or, in the absence of the last sale price, the last bid price. If an
options exchange closes after the time at which the Funds' net asset value is
calculated, the last sale or last bid and asked prices as of that time will be
used to calculate the net asset value.

All other assets of the Funds are valued in such manner as the Board in
good faith deems appropriate to reflect their fair value.

TAXATION

The Funds intend to continue to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, (the "Code"), for each taxable year by complying with all applicable
requirements regarding the source of its income, the diversification of its
assets, and the timing of its distributions. The Funds' 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 Funds will not be subject to
any federal income or excise taxes based on net income. However, the Board may
elect to pay such excise taxes if it determines that payment is, under the
circumstances, in the best interests of the Funds.

In order to qualify as a regulated investment company, the Funds must,
among other things, (a) derive at least 90% of its gross income each year from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock or securities or foreign
currency gains related to investments in stock or securities, or other income
(generally including gains from options, futures or forward contracts) derived
with respect to the business of investing in stock, securities or currency, and
(b) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of its assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies
and other securities limited, for purposes of this calculation, in the case of
other securities of any one issuer to an amount not greater than 5% of the
Funds' 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, the Funds will not be subject to federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders in
accordance with the timing requirements of the Code. If the Funds are unable to
meet certain requirements of the Code, it may be subject to taxation as a
corporation.

Distributions of net investment income and net realized capital gains
by the Funds will be taxable to shareholders whether made in cash or reinvested
by the Funds in shares. In determining amounts of net realized capital gains to
be distributed, any capital loss carry-overs from the eight prior taxable years
will be applied against capital gains. Shareholders receiving a distribution
from the Funds in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share of the Funds on the reinvestment date. Fund distributions also
will be included in individual and corporate shareholders' income on which the
alternative minimum tax may be imposed.

B-20
<PAGE>
The Funds or the securities dealer effecting a redemption of the Funds'
shares by a shareholder will be required to file information reports with the
Internal Revenue Service ("IRS") with respect to distributions and payments made
to the shareholder. In addition, the Funds will be required to withhold federal
income tax at the rate of 31% on taxable dividends, redemptions and other
payments made to accounts of individual or other non-exempt shareholders who
have not furnished their correct taxpayer identification numbers and certain
required certifications on the New Account application or with respect to which
the Funds or the securities dealer has been notified by the IRS that the number
furnished is incorrect or that the account is otherwise subject to withholding.

The Funds intend to declare and pay dividends and other distributions,
as stated in the prospectuses. In order to avoid the payment of any federal
excise tax based on net income, the Funds must declare on or before December 31
of each year, and pay on or before January 31 of the following year,
distributions at least equal to 98% of its ordinary income for that calendar
year and at least 98% of the excess of any capital gains over any capital losses
realized in the one-year period ending October 31 of that year, together with
any undistributed amounts of ordinary income and capital gains (in excess of
capital losses) from the previous calendar year.

The Funds may receive dividend distributions from U.S. corporations. To
the extent that the Funds receive such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Funds may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.

If more than 50% in value of the total assets of the Funds at the end
of its fiscal year is invested in stock or securities of foreign corporations,
the Funds may elect to pass through to its shareholders the pro rata share of
all foreign income taxes paid by the Funds. If this election is made,
shareholders will be (i) required to include in their gross income their pro
rata share of the Funds' foreign source income (including any foreign income
taxes paid by the Funds), and (ii) entitled either to deduct their share of such
foreign taxes in computing their taxable income or to claim a credit for such
taxes against their U.S. income tax, subject to certain limitations under the
Code, including certain holding period requirements. In this case, shareholders
will be informed in writing by the Funds at the end of each calendar year
regarding the availability of any credits on and the amount of foreign source
income (including or excluding foreign income taxes paid by the Funds) to be
included in their income tax returns. If not more than 50% in value of the
Funds' total assets at the end of its fiscal year is invested in stock or
securities of foreign corporations, the Funds will not be entitled under the
Code to pass through to its shareholders their pro rata share of the foreign
taxes paid by the Funds. In this case, these taxes will be taken as a deduction
by the Funds.

The Funds may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.

The use of hedging strategies, such as entering into futures contracts
and forward contracts and purchasing options, involves complex rules that will
determine the character and timing of recognition of the income received in
connection therewith by the Funds. Income from foreign currencies (except
certain gains therefrom that may be excluded by future regulations) and income
from transactions in options, futures contracts and forward contracts derived by
the Funds with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.

For accounting purposes, when the Funds purchase an option, the premium
paid by the Funds are recorded as an asset and is subsequently adjusted to the
current market value of the option. Any gain or loss realized by the Funds upon
the expiration or sale of such options held by the Funds generally will be
capital gain or loss.

Any security, option, or other position entered into or held by the
Funds that substantially diminishes the Funds' risk of loss from any other
position held by the Funds may constitute a "straddle" for federal income tax
purposes. In general, straddles are subject to certain rules that may affect the
amount, character and timing of the Funds' gains and losses with respect to
straddle positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that the Funds' holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Funds that may mitigate the effects of the straddle rules.

B-21
<PAGE>
Certain options, futures contracts and forward contracts that are
subject to Section 1256 of the Code ("Section 1256 Contracts") and that are held
by the Funds at the end of its taxable year generally will be required to be
"marked to market" for federal income tax purposes, that is, deemed to have been
sold at market value. Sixty percent of any net gain or loss recognized on these
deemed sales and 60% of any net gain or loss realized from any actual sales of
Section 1256 Contracts will be treated as long-term capital gain or loss, and
the balance will be treated as short-term capital gain or loss.

Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions that may affect the amount, timing and
character of income, gain or loss recognized by the Funds. Under these rules,
foreign exchange gain or loss realized with respect to foreign
currency-denominated debt instruments, foreign currency forward contracts,
foreign currency denominated payables and receivables and foreign currency
options and futures contracts (other than options and futures contracts that are
governed by the mark-to-market and 60/40 rules of Section 1256 of the Code and
for which no election is made) is treated as ordinary income or loss. Some part
of the Funds' gain or loss on the sale or other disposition of shares of a
foreign corporation may, because of changes in foreign currency exchange rates,
be treated as ordinary income or loss under Section 988 of the Code rather than
as capital gain or loss.

A shareholder who purchases shares of the Funds by tendering payment
for the shares in the form of other securities may be required to recognize gain
or loss for income tax purposes on the difference, if any, between the adjusted
basis of the securities tendered to the Funds and the purchase price of the
Funds' shares acquired by the shareholder.

Section 475 of the Code requires that a "dealer" in securities must
generally "mark to market" at the end of its taxable year all securities which
it owns. The resulting gain or loss is treated as ordinary (and not capital)
gain or loss, except to the extent allocable to periods during which the dealer
held the security for investment. The "mark to market" rules do not apply,
however, to a security held for investment which is clearly identified in the
dealer's records as being held for investment before the end of the day in which
the security was acquired. The IRS has issued guidance under Section 475 that
provides that, for example, a bank that regularly originates and sells loans is
a dealer in securities, and subject to the "mark to market" rules. Shares of the
Funds held by a dealer in securities will be subject to the "mark to market"
rules unless they are held by the dealer for investment and the dealer property
identifies the shares as held for investment.

Redemptions and exchanges of shares of the Funds will result in gains
or losses for tax purposes to the extent of the difference between the proceeds
and the shareholder's adjusted tax basis for the shares. Any loss realized upon
the redemption or exchange of shares within six months from their date of
purchase will be treated as a long-term capital loss to the extent of
distributions of long-term capital gain dividends during such six-month period.
All or a portion of a loss realized upon the redemption of shares may be
disallowed to the extent shares are purchased (including shares acquired by
means of reinvested dividends) within 30 days before or after such redemption.

The above discussion and the related discussion in the prospectuses are
not intended to be complete discussions of all applicable federal tax
consequences of an investment in the Funds. The law firm of Paul, Hastings,
Janofsky & Walker LLP has expressed no opinion in respect thereof. Nonresident
aliens and foreign persons are subject to different tax rules, and may be
subject to withholding of up to 30% on certain payments received from the Funds.
Shareholders are advised to consult with their own tax advisers concerning the
application of foreign, federal, state and local taxes to an investment in the
Funds.

B-22
<PAGE>
DIVIDENDS AND DISTRIBUTIONS

The Funds will receive income in the form of dividends and interest
earned on its investments in securities. This income, less the expenses incurred
in its operations, is the Funds' net investment income, substantially all of
which will be declared as dividends to the Funds' shareholders.

The amount of income dividend payments by the Funds is dependent upon
the amount of net investment income received by the Funds from its portfolio
holdings, is not guaranteed and is subject to the discretion of the Board. The
Funds do not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.

The Funds also may derive capital gains or losses in connection with
sales or other dispositions of its portfolio securities. Any net gain the Funds
may realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Funds realize a
net gain on transactions involving investments held more than the period
required for long-term capital gain or loss recognition or otherwise producing
long-term capital gains and losses, the Funds will have a net long-term capital
gain. After deduction of the amount of any net short-term capital loss, the
balance (to the extent not offset by any capital losses carried over from the
eight previous taxable years) will be distributed and treated as long-term
capital gains in the hands of the shareholders regardless of the length of time
the Funds' shares may have been held by the shareholders. For more information
concerning applicable capital gains tax rates, see your tax advisor.

Any dividend or distribution paid by the Funds reduce the Funds' net
asset value per share on the date paid by the amount of the dividend or
distribution per share. Accordingly, a dividend or distribution paid shortly
after a purchase of shares by a shareholder would represent, in substance, a
partial return of capital (to the extent it is paid on the shares so purchased),
even though it would be subject to income taxes.

Dividends and other distributions will be made in the form of
additional shares of the Funds 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.

B-23
<PAGE>
PERFORMANCE INFORMATION

TOTAL RETURN

Average annual total return quotations used in the Fund's advertising
and promotional materials are calculated according to the following formula:

n
P(1 + T) = ERV

Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication. Average
annual total return, or "T" in the above formula, is computed by finding the
average annual compounded rates of return over the period that would equate the
initial amount invested to the ending redeemable value. Average annual total
return assumes the reinvestment of all dividends and distributions.

Average Annual Total Return, as of December 31, 1999:

One Year Since Inception*
-------- ----------------
Equity Fund 11.84% 18.00%

Balanced Fund 6.79% 14.94%

- ----------
* The inception dates for the Funds are as follows: Balanced Fund January 13,
1998 and Equity Fund December 3, 1997.

OTHER INFORMATION

Performance data of the Funds quoted in advertising and other
promotional materials represents past performance and is not intended to predict
or guarantee future results. The return and principal value of an investment in
the Funds will fluctuate, and an investor's redemption proceeds may be more or
less than the original investment amount. In advertising and promotional
materials the Funds may compare its performance with data published by Lipper
Analytical Services, Inc. ("Lipper") or CDA Investment Technologies, Inc.
("CDA"). The Funds also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper or CDA. Advertising and promotional materials also may refer
to discussions of the Funds and comparative mutual fund data and ratings
reported in independent periodicals including, but not limited to, THE WALL
STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD and
BARRON'S.

GENERAL INFORMATION

The Trust was organized as a Delaware business trust on October 3,
1996. The Trust has no business history prior to the offering of the first of
its series of shares. The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest and to
divide or combine the shares into a greater or lesser number of shares without

B-24
<PAGE>
thereby changing the proportionate beneficial interest in the Funds. Each share
represents an interest in the Funds proportionately equal to the interest of
each other share. Upon the Funds' liquidation, all shareholders would share pro
rata in the net assets of the Funds available for distribution to shareholders.

If they deem it advisable and in the best interest of shareholders, the
Board of Trustees may create additional series of shares. The Board of Trustees
has created numerous series of shares, and may create additional series in the
future, which have separate assets and liabilities. Income and operating
expenses not specifically attributable to a particular Fund are be allocated
fairly among the Funds by the Trustees, generally on the basis of the relative
net assets of each Fund.

The Funds intend to pay cash (U.S. dollars) for all shares redeemed,
but, under abnormal conditions that make payment in cash unwise, the Fund may
make payment partly in its portfolio securities with a current amortized cost or
market value, as appropriate, equal to the redemption price. Although the Funds
do not anticipate that it will make any part of a redemption payment in
securities, if such payment were made, an investor may incur brokerage costs in
converting such securities to cash. The Trust has elected to be governed by the
provisions of Rule 18f-1 under the Investment Company Act, which require that
the Funds pay in cash all requests for redemption by any shareholder of record
limited in amount, however, during any 90-day period to the lesser of $250,000
or 1% of the value of the Funds' net assets at the beginning of such period.

The Funds' principal underwriter is First Fund Distributors, Inc., 4455
E. Camelback Rd., Suite 261E, Phoenix, AZ 85018

The Funds' custodian, Firstar Bank, 425 Walnut Street, Cincinnati, Ohio
45202 is responsible for holding the Funds' assets. American Data Services, P.O.
Box 5536, Hauppauge, NY 11788 acts as the Funds' transfer agent and accounting
services agent. The Funds' independent accountants, Pricewaterhouse Coopers LLP,
1177 Avenue of the Americas, New York, NY 10036, assist in the preparation of
certain reports to the Securities and Exchange Commission and the Funds' tax
returns.

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<PAGE>
APPENDIX

DESCRIPTION OF RATINGS

MOODY'S INVESTORS SERVICE, INC.: CORPORATE BOND RATINGS

STANDARD & POOR'S CORPORATION: CORPORATE BOND RATINGS

AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.

A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

COMMERCIAL PAPER RATINGS

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<PAGE>
THE AL FRANK FUND

STATEMENT OF ADDITIONAL INFORMATION

Dated April 28, 2000

This Statement of Additional Information is not a prospectus, and it should be
read in conjunction with the prospectus dated April 28, 2000, as may be amended
from time to time, of The Al Frank Fund (the "Fund"), a series of Advisors
Series Trust (the "Trust"). Al Frank Asset Management, Inc. (the "Advisor") is
the Advisor to the Fund. A copy of the prospectus may be obtained by writing to
the Fund at 465 Forest Avenue, Suite I, Laguna Beach, CA 92651; or by calling
888-263-6443.

TABLE OF CONTENTS

The Trust....................................................................B-2

Investment Policies..........................................................B-2

Management..................................................................B-10

Distribution Arrangements...................................................B-13

Portfolio Transactions and Brokerage........................................B-14

Net Asset Value.............................................................B-14

Taxation....................................................................B-15

Dividends and Distributions.................................................B-18

Performance Information.....................................................B-19

General Information.........................................................B-19

B-1
<PAGE>
THE TRUST

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.

INVESTMENT POLICIES

This discussion below supplements information contained in the prospectus
as to investment policies of the Fund.

CONVERTIBLE SECURITIES AND WARRANTS

The Fund may invest in convertible securities and warrants. A convertible
security is a fixed-income security (a debt instrument or a preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stocks in an issuer's capital
structure, but are usually subordinated to similar non-convertible securities.
While providing a fixed-income stream (generally higher in yield than the income
derivable from common stock but lower than that afforded by a similar
nonconvertible security), a convertible security also gives an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation of the issuing company depending upon a market price advance in the
convertible security's underlying common stock.

SHORT-TERM INVESTMENTS

The Fund may invest in any of the following securities and instruments:

BANK CERTIFICATES OR DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The
Fund may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
monies deposited in a commercial bank for a definite period of time and earning
a specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
principal amount of such bank obligations are fully insured by the U.S.
Government. If the Fund holds instruments of foreign banks or financial
institutions, it may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only in
debt obligations of U.S. domestic issuers. See "Foreign Investments" below. Such
risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.

B-2
<PAGE>
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.

As a result of federal and state laws and regulations, domestic banks are,
among other things, required to maintain specified levels of reserves, limited
in the amount which they can loan to a single borrower, and subject to other
regulations designed to promote financial soundness. However, such laws and
regulations do not necessarily apply to foreign bank obligations that the Fund
may acquire.

In addition to purchasing certificates of deposit and bankers' acceptances,
to the extent permitted under its investment objectives and policies stated
above and in its prospectus, the Fund may make interest-bearing time or other
interest-bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.

SAVINGS ASSOCIATION OBLIGATIONS. The Fund may invest in certificates of
deposit (interest-bearing time deposits) issued by savings banks or savings and
loan associations that have capital, surplus and undivided profits in excess of
$100 million, based on latest published reports, or less than $100 million if
the principal amount of such obligations is fully insured by the U.S.
Government.

Commercial paper and short-term notes will consist of issues rated at the
time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's, or
similarly rated by another nationally recognized statistical rating organization
or, if unrated, will be determined by the Advisor to be of comparable quality.
These rating symbols are described in the Appendix.

INVESTMENT COMPANY SECURITIES

The Fund may invest in shares of other investment companies. The Fund may
invest in money market mutual funds in connection with its management of daily
cash positions. In addition to the advisory and operational fees a Fund bears
directly in connection with its own operation, the Fund would also bear its pro
rata portions of each other investment company's advisory and operational
expenses.

GOVERNMENT OBLIGATIONS

The Fund may make short-term investments in U.S. Government obligations.
Such obligations include Treasury bills, certificates of indebtedness, notes and
bonds, and issues of such entities as the Government National Mortgage
Association ("GNMA"), Export-Import Bank of the United States, Tennessee Valley
Authority, Resolution Funding Corporation, Farmers Home Administration, Federal
Home Loan Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Federal Land Banks, Federal Housing Administration, Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation, and the Student
Loan Marketing Association.

Some of these obligations, such as those of the GNMA, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.

B-3
<PAGE>
The Fund may invest in sovereign debt obligations of foreign countries. A
sovereign debtor's willingness or ability to repay principal and interest in a
timely manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to meet
such conditions could result in the cancellation of such third parties'
commitments to lend funds to the sovereign debtor, which may further impair such
debtor's ability or willingness to service its debt in a timely manner.

FOREIGN INVESTMENTS AND CURRENCIES

The Fund may invest in securities of foreign issuers, provided that they
are publicly traded in the United States.

DEPOSITARY RECEIPTS. Depositary Receipts ("DRs") include American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other forms of depositary receipts. DRs are
receipts typically issued in connection with a U.S. or foreign bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation.

RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign securities
involve certain inherent risks, including the following:

TAXES. The interest and dividends payable on certain of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Fund's shareholders.

OPTIONS ON SECURITIES

PURCHASING PUT AND CALL OPTIONS. The Fund may purchase covered "put" and
"call" options with respect to securities which are otherwise eligible for
purchase by the Fund and with respect to various stock indices subject to
certain restrictions, not in excess of 5% of the Fund's total net assets. The
Fund will engage in trading of such derivative securities exclusively for
hedging purposes.

If the Fund purchases a put option, the Fund acquires the right to sell the
underlying security at a specified price at any time during the term of the

B-4
<PAGE>
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when the Advisor perceives significant short-term risk but
substantial long-term appreciation for the underlying security. The put option
acts as an insurance policy, as it protects against significant downward price
movement while it allows full participation in any upward movement. If the Fund
is holding a security which it feels has strong fundamentals, but for some
reason may be weak in the near term, the Fund may purchase a put option on such
security, thereby giving itself the right to sell such security at a certain
strike price throughout the term of the option. Consequently, the Fund will
exercise the put only if the price of such security falls below the strike price
of the put. The difference between the put's strike price and the market price
of the underlying security on the date the Fund exercises the put, less
transaction costs, will be the amount by which the Fund will be able to hedge
against a decline in the underlying security. If during the period of the option
the market price for the underlying security remains at or above the put's
strike price, the put will expire worthless, representing a loss of the price
the Fund paid for the put, plus transaction costs. If the price of the
underlying security increases, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put may be sold.

If the Fund purchases a call option, it acquires the right to purchase the
underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the Fund has a short position in the
underlying security and the security thereafter increases in price. The Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If the call option has been
purchased to hedge a short position of the Fund in the underlying security and
the price of the underlying security thereafter falls, the profit the Fund
realizes on the cover of the short position in the security will be reduced by
the premium paid for the call option less any amount for which such option may
be sold.

Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. Also, effecting a
closing transaction will permit the cash or proceeds from the concurrent sale of
any securities subject to the option to be used for other investments of the
Fund. If the Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.

The Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option or
if the proceeds from the closing transaction are more than the premium paid to
purchase the option. The Fund will realize a loss from a closing transaction if
the cost of the closing transaction is more than the premium received from
writing the option or if the proceeds from the closing transaction are less than
the premium paid to purchase the option. However, because increases in the
market price of a call option will generally reflect increases in the market

B-5
<PAGE>
price of the underlying security, any loss to the Fund resulting from the
repurchase of a call option is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.

STOCK INDEX OPTIONS. The Fund may also purchase put and call options with
respect to the S&P 500 and other stock indices. Such options may be purchased as
a hedge against changes resulting from market conditions in the values of
securities which are held in the Fund's portfolio or which it intends to
purchase or sell, or when they are economically appropriate for the reduction of
risks inherent in the ongoing management of the Fund.

The distinctive characteristics of options on stock indices create certain
risks that are not present with stock options generally. Because the value of an
index option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Fund will realize a gain or loss on the
purchase or sale of an option on an index depends upon movements in the level of
stock prices in the stock market generally rather than movements in the price of
a particular stock. Accordingly, successful use by the Fund of options on a
stock index would be subject to the Advisor's ability to predict correctly
movements in the direction of the stock market generally. This requires
different skills and techniques than predicting changes in the price of
individual stocks.

Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading of index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this were to occur, the Fund would not be able
to close out options which it had purchased, and if restrictions on exercise
were imposed, the Fund might be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the policy of the Fund to
purchase put or call options only with respect to an index which the Advisor
believes includes a sufficient number of stocks to minimize the likelihood of a
trading halt in the index.

RISKS OF INVESTING IN OPTIONS. There are several risks associated with
transactions in options on securities and indices. Options may be more volatile
than the underlying securities and, therefore, on a percentage basis, an
investment in options may be subject to greater fluctuation than an investment
in the underlying securities themselves. There are also significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objective. In addition, a liquid secondary market for particular options may
be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options of underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or clearing corporation may not at all times be adequate to handle
current trading volume; or one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.

A decision as to whether, when and how to use options involves the exercise
of skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events. The extent to
which the Fund may enter into options transactions may be limited by the
Internal Revenue Code of 1986 (the "Code") requirements for qualification of the
Fund as a regulated investment company. See "Dividends and Distributions" and
"Taxation."

DEALER OPTIONS. The Fund may engage in transactions involving dealer
options as well as exchange-traded options. Certain additional risks are
specific to dealer options. While the Fund might look to a clearing corporation
to exercise exchange-traded options, if the Fund were to purchase a dealer
option it would need to rely on the dealer from which it purchased the option to
perform if the option were exercised. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as loss of the
expected benefit of the transaction.

B-6
<PAGE>
the option to the dealer who issued it. Similarly, when the Fund writes a dealer
option, the Fund may generally be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to whom the Fund originally wrote the option. While the Fund will seek to enter
into dealer options only with dealers who will agree to and which are expected
to be capable of entering into closing transactions with the Fund, there can be
no assurance that the Fund will at any time be able to liquidate a dealer option
at a favorable price at any time prior to expiration. Unless the Fund, as a
covered dealer call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
as cover until the option expires or is exercised. In the event of insolvency of
the other party, the Fund may be unable to liquidate a dealer option. With
respect to options written by the Fund, the inability to enter into a closing
transaction may result in material losses to the Fund. For example, because the
Fund must maintain a secured position with respect to any call option on a
security it writes, the Fund may not sell the assets which it has segregated to
secure the position while it is obligated under the option. This requirement may
impair the Fund's ability to sell portfolio securities at a time when such sale
might be advantageous.

The Staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased dealer options are illiquid securities. The
Fund may treat the cover used for written dealer options as liquid if the dealer
agrees that the Fund may repurchase the dealer option it has written for a
maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
Accordingly, the Fund will treat dealer options as subject to the Fund's
limitation on illiquid securities. If the Commission changes its position on the
liquidity of dealer options, the Fund will change its treatment of such
instruments accordingly.

REPURCHASE AGREEMENTS

The Fund may enter into repurchase agreements with respect to its portfolio
securities. Pursuant to such agreements, the Fund acquires securities from
financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Advisor, subject to the seller's agreement to repurchase and
the Fund's agreement to resell such securities at a mutually agreed upon date
and price. The repurchase price generally equals the price paid by the Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the underlying portfolio security). Securities subject
to repurchase agreements will be held by the Custodian or in the Federal
Reserve/Treasury Book-Entry System or an equivalent foreign system. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities at not less than 102% of the repurchase price under the
agreement. If the seller defaults on its repurchase obligation, the Fund will
suffer a loss to the extent that the proceeds from a sale of the underlying
securities are less than the repurchase price under the agreement. Bankruptcy or
insolvency of such a defaulting seller may cause the Fund's rights with respect
to such securities to be delayed or limited. Repurchase agreements are
considered to be loans under the 1940 Act.

WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS

The Fund may purchase securities on a "when-issued," forward commitment or
delayed settlement basis. In this event, the Custodian will segregate liquid
assets equal to the amount of the commitment in a separate account. Normally,
the Custodian will set aside portfolio securities to satisfy a purchase
commitment. In such a case, the Fund may be required subsequently to segregate
additional assets in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash.

The Fund does not intend to engage in these transactions for speculative
purposes but only in furtherance of its investment objectives. Because the Fund

B-7
<PAGE>
will segregate liquid assets to satisfy its purchase commitments in the manner
described, the Fund's liquidity and the ability of the Advisor to manage it may
be affected in the event the Fund's forward commitments, commitments to purchase
when-issued securities and delayed settlements ever exceeded 15% of the value of
its net assets.

The Fund will purchase securities on a when-issued, forward commitment or
delayed settlement basis only with the intention of completing the transaction.
If deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases the Fund may realize a taxable
capital gain or loss. When the Fund engages in when-issued, forward commitment
and delayed settlement transactions, it relies on the other party to consummate
the trade. Failure of such party to do so may result in the Fund's incurring a
loss or missing an opportunity to obtain a price credited to be advantageous.

The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of the Fund starting on the day the Fund agrees to
purchase the securities. The Fund does not earn interest on the securities it
has committed to purchase until they are paid for and delivered on the
settlement date.

LENDING PORTFOLIO SECURITIES

SHORT SALES

The Fund is authorized to make short sales of securities. In a short sale,
the Fund sells a security which it does not own, in anticipation of a decline in
the market value of the security. To complete the sale, the Fund must borrow the
security (generally from the broker through which the short sale is made) in
order to make delivery to the buyer. The Fund is then obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. The Fund is said to have a "short position" in the securities sold
until it delivers them to the broker. The period during which the Fund has a
short position can range from one day to more than a year. Until the security is
replaced, the proceeds of the short sale are retained by the broker, and the
Fund is required to pay to the broker a negotiated portion of any dividends or
interest which accrue during the period of the loan. To meet current margin
requirements, the Fund is also required to deposit with the broker additional
cash or securities so that the total deposit with the broker is maintained daily
at 150% of the current market value of the securities sold short (100% of the
current market value if a security is held in the account that is convertible or
exchangeable into the security sold short within 90 days without restriction
other than the payment of money).

Short sales by the Fund create opportunities to increase the Fund's return
but, at the same time, involve specific risk considerations and may be
considered a speculative technique. Since the Fund in effect profits from a
decline in the price of the securities sold short without the need to invest the
full purchase price of the securities on the date of the short sale, the Fund's
net asset value per share will tend to increase more when the securities it has
sold short decrease in value, and to decrease more when the securities it has
sold short increase in value, than would otherwise be the case if it had not
engaged in such short sales. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of any premium, dividends or
interest the Fund may be required to pay in connection with the short sale.

B-8
<PAGE>
Furthermore, under adverse market conditions the Fund might have difficulty
purchasing securities to meet its short sale delivery obligations, and might
have to sell portfolio securities to raise the capital necessary to meet its
short sale obligations at a time when fundamental investment considerations
would not favor such sales.

INVESTMENT RESTRICTIONS

The Trust (on behalf of the Fund) has adopted the following restrictions as
fundamental policies, which may not be changed without the favorable vote of the
holders of a "majority," as defined in the 1940 Act, of the outstanding voting
securities of the Fund. Under the 1940 Act, the "vote of the holders of a
majority of the outstanding voting securities" means the vote of the holders of
the lesser of (i) 67% of the shares of the Fund represented at a meeting at
which the holders of more than 50% of its outstanding shares are represented or
(ii) more than 50% of the outstanding shares of the Fund.

As a matter of fundamental policy, the Fund is diversified. The Fund's
investment objective is also fundamental.

In addition, the Fund may not:

1. Issue senior securities, borrow money or pledge its assets, except that
(i) the Fund may borrow from banks in amounts not exceeding one-third of its
total assets (including the amount borrowed); and (ii) this restriction shall
not prohibit the Fund from engaging in options transactions or short sales;

2. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions and except that the Fund may borrow
money from banks to purchase securities;

3. Act as underwriter (except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities in its investment
portfolio);

4. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);

5. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although the Fund may purchase and sell securities which
are secured by real estate and securities of companies which invest or deal in
real estate);

6. Purchase or sell commodities or commodity futures contracts, except that
the Fund may purchase and sell foreign currency contracts in accordance with any
rules of the Commodity Futures Trading Commission;

7. Make loans of money (except for purchases of debt securities consistent
with the investment policies of the Fund and except for repurchase agreements);
or

8. Make investments for the purpose of exercising control or management.

The Fund observes the following restrictions as a matter of operating but
not fundamental policy, pursuant to positions taken by federal regulatory
authorities:

The Fund may not:

1. Invest in the securities of other investment companies or purchase any
other investment company's voting securities or make any other investment in
other investment companies except to the extent permitted by federal law;

2. Invest in securities which are restricted as to disposition or otherwise
are illiquid or have no readily available market (except for securities which
are determined by the Board of Trustees to be liquid); or

3. Purchase or sell future contracts.

MANAGEMENT

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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).

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.

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<PAGE>
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 Trust pays
any compensation to the Trustees.

THE ADVISOR

Subject to the supervision of the Board of Trustees, investment management
and related services are provided by the Advisor, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"). The Advisor is controlled by AFAM
Acquisition, Inc..

Under the Advisory Agreement, the Advisor agrees to invest the assets of
the Fund in accordance with the investment objectives, policies and restrictions
of the Fund as set forth in the Fund's and Trust's governing documents,
including, without limitation, the Trust's Agreement and Declaration of Trust
and By-Laws; the Fund's prospectus, Statement of Additional Information, and
undertakings; and such other limitations, policies and procedures as the
Trustees of the Trust may impose from time to time in writing to the Advisor. In
providing such services, the Advisor shall at all times adhere to the provisions
and restrictions contained in the federal securities laws, applicable state
securities laws, the Code, and other applicable law.

Without limiting the generality of the foregoing, the Advisor has agreed to
(i) furnish the Fund with advice and recommendations with respect to the
investment of the Fund's assets, (ii) effect the purchase and sale of portfolio
securities; (iii) manage and oversee the investments of the Fund, subject to the
ultimate supervision and direction of the Trust's Board of Trustees; (iv) vote
proxies and take other actions with respect to the Fund's securities; (v)
maintain the books and records required to be maintained with respect to the
securities in the Fund's portfolio; (vi) furnish reports, statements and other
data on securities, economic conditions and other matters related to the
investment of the Fund's assets which the Trustees or the officers of the Trust
may reasonably request; and (vii) render to the Trust's Board of Trustees such
periodic and special reports as the Board may reasonably request. The Advisor
has also agreed, at its own expense, to maintain such staff and employ or retain
such personnel and consult with such other persons as it shall from time to time
determine to be necessary to the performance of its obligations under the
Advisory Agreement. Personnel of the Advisor may serve as officers of the Trust
provided they do so without compensation from the Trust. Without limiting the
generality of the foregoing, the staff and personnel of the Advisor shall be
deemed to include persons employed or retained by the Advisor to furnish
statistical information, research, and other factual information, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Advisor or the Trust's Board of Trustees may desire and reasonably request.
With respect to the operation of the Fund, the Advisor has agreed to be
responsible for the expenses of printing and distributing extra copies of the
Fund's prospectus, statement of additional information, and sales and
advertising materials (but not the legal, auditing or accounting fees attendant
thereto) to prospective investors (but not to existing shareholders); and the
costs of any special Board of Trustees meetings or shareholder meetings convened
for the primary benefit of the Advisor.

As compensation for the Advisor's services, the Fund pays it an advisory
fee at the rate specified in the prospectus. In addition to the fees payable to
the Advisor and the Administrator, the Fund is responsible for its operating
expenses, including: fees and expenses incurred in connection with the issuance,
registration and transfer of its shares; brokerage and commission expenses; all
expenses of transfer, receipt, safekeeping, servicing and accounting for the
cash, securities and other property of the Trust for the benefit of the Fund
including all fees and expenses of its custodian, shareholder services agent and
accounting services agent; interest charges on any borrowings; costs and

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<PAGE>
expenses of pricing and calculating its daily net asset value and of maintaining
its books of account required under the 1940 Act; taxes, if any; a pro rata
portion of expenditures in connection with meetings of the Fund's shareholders
and the Trust's Board of Trustees that are properly payable by the Fund;
salaries and expenses of officers and fees and expenses of members of the
Trust's Board of Trustees or members of any advisory board or committee who are
not members of, affiliated with or interested persons of the Advisor or
Administrator; insurance premiums on property or personnel of the Fund which
inure to its benefit, including liability and fidelity bond insurance; the cost
of preparing and printing reports, proxy statements, prospectuses and statements
of additional information of the Fund or other communications for distribution
to existing shareholders; legal, auditing and accounting fees; trade association
dues; fees and expenses (including legal fees) of registering and maintaining
registration of its shares for sale under federal and applicable state and
foreign securities laws; all expenses of maintaining and servicing shareholder
accounts, including all charges for transfer, shareholder recordkeeping,
dividend disbursing, redemption, and other agents for the benefit of the Fund,
if any; and all other charges and costs of its operation plus any extraordinary
and non-recurring expenses, except as otherwise prescribed in the Advisory
Agreement.

The Fund is responsible for its own operating expenses. The Advisor has
contractually agreed to reduce fees payable to it by the Fund and to pay Fund
operating expenses to the extent necessary to limit the Fund's aggregate annual
operating expenses (excluding interest and tax expenses) to the limit set forth
in the Expense Table (the "expense cap"). Any such reductions made by the
Advisor in its fees or payment of expenses which are the Fund's obligation are
subject to reimbursement by the Fund to the Advisor, if so requested by the
Advisor, in subsequent fiscal years if the aggregate amount actually paid by the
Fund toward the operating expenses for such fiscal year (taking into account the
reimbursement) does not exceed the applicable limitation on Fund expenses. The
Advisor is permitted to be reimbursed only for fee reductions and expense
payments made in the previous three fiscal years, except that it is permitted to
look back five years and four years, respectively, during the initial six years
and seventh year of the Fund's operations. Any such reimbursement is also
contingent upon the Board of Trustees' subsequent review and ratification of the
reimbursed amounts. Such reimbursement may not be paid prior to the Fund's
payment of current ordinary operating expenses.

During the year ended December 31, 1999, the Advisor earned $65,861 in
advisory fees. The Advisor has contractually agreed to limit total fund
operating expenses to 2.25% of average net assets annually. As a result of that
limitation, during the year ended December 31, 1999, the Advisor waived the full
amount of its fee and paid fund operating expenses in the amount of $26,149.
During the year ended December 31, 1998, the Advisor earned $50,113 in advisory
fees of which, the Advisor waived the full amount of its fee and paid fund
operating expenses in the amount of $25,133.

Under the Advisory Agreement, the Advisor will not be liable to the Trust
or the Fund or any shareholder for any act or omission in the course of, or
connected with, rendering services or for any loss sustained by the Trust except
in the case of a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages will be limited as
provided in the 1940 Act) or of willful misfeasance, bad faith or gross
negligence, or reckless disregard of its obligations and duties under the
Agreement.

The Advisory Agreement will remain in effect for a period not to exceed two
years. Thereafter, if not terminated, the Advisory Agreement will continue
automatically for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a majority vote of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund.

The Advisory Agreement is terminable by vote of the Board of Trustees or by
the holders of a majority of the outstanding voting securities of the Fund at
any time without penalty, on 60 days written notice to the Advisor. The Advisory
Agreement also may be terminated by the Advisor on 60 days written notice to the
Trust. The Advisory Agreement terminates automatically upon its assignment (as
defined in the 1940 Act).

B-12
<PAGE>
relationships; (iii) preparing for the Trust (or assisting counsel and/or
auditors in the preparation of) all required tax returns, proxy statements and
reports to the Trust's shareholders and Trustees and reports to and other
filings with the Commission and any other governmental agency (the Trust
agreeing to supply or cause to be supplied to the Administrator all necessary
financial and other information in connection with the foregoing); (iv)
preparing such applications and reports as may be necessary to permit the offer
and sale of the shares of the Trust under the securities or "blue sky" laws of
the various states selected by the Trust (the Trust agreeing to pay all filing
fees or other similar fees in connection therewith); (v) responding to all
inquiries or other communications of shareholders, if any, which are directed to
the Administrator, or if any such inquiry or communication is more properly to
be responded to by the Trust's custodian, transfer agent or accounting services
agent, overseeing their response thereto; (vi) overseeing all relationships
between the Trust and any custodian(s), transfer agent(s) and accounting
services agent(s), including the negotiation of agreements and the supervision
of the performance of such agreements; and (vii) authorizing and directing any
of the Administrator's directors, officers and employees who may be elected as
Trustees or officers of the Trust to serve in the capacities in which they are
elected. All services to be furnished by the Administrator under this Agreement
may be furnished through the medium of any such directors, officers or employees
of the Administrator.

For its services, the Administrator receives a monthly fee at the following
annual rate, subject to a $30,000 minimum:

Fund asset level Fee rate
- ---------------- --------
First $50 million 0.20% of average daily net assets
Next $50 million 0.15% of average daily net assets
Next $50 million 0.10% of average daily net assets
Next $50 million, and thereafter 0.05% of average daily net assets

DISTRIBUTION ARRANGEMENTS

The Fund has adopted a Distribution Plan in accordance with Rule 12b-1 (the
"Plan") under the 1940 Act. The Plan provides that the Fund will pay a fee to
the Advisor as Distribution Coordinator at an annual rate of up to 0.25% of the
average daily net assets of the Fund. The fee is paid to the Advisor as
reimbursement for, or in anticipation of, expenses incurred for distribution
related activity.

During the fiscal year ended December 31, 1999, the Fund paid $16,465 in
distribution fees, of which $5,537 was paid out as compensation to dealers,
$4,538 was paid out as compensation to sales personnel, $3,667 was for
reimbursement of printing expenses, $1,923 was for reimbursement of advertising
expenses, and $800 was for miscellaneous expenses.

PORTFOLIO TRANSACTIONS AND BROKERAGE

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<PAGE>
price. In selecting a broker-dealer to execute each particular transaction, the
Advisor may take the following into consideration: the best net price available;
the reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on a
continuing basis. The price to the Fund in any transaction may be less favorable
than that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.

Subject to such policies as the Advisor and the Board of Trustees of the
Trust may determine, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Fund to pay a broker or dealer that provides
(directly or indirectly) brokerage or research services to the Advisor an amount
of commission for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Advisor determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities with respect to
the Fund. The Advisor is further authorized to allocate the orders placed by it
on behalf of the Fund to such brokers or dealers who also provide research or
statistical material, or other services, to the Trust, the Advisor, or any
affiliate of either. Such allocation shall be in such amounts and proportions as
the Advisor shall determine, and the Advisor shall report on such allocations
regularly to the Advisor and the Trust, indicating the broker-dealers to whom
such allocations have been made and the basis therefor. The Advisor is also
authorized to consider sales of shares of the Fund as a factor in the selection
of brokers or dealers to execute portfolio transactions, subject to the
requirements of best execution, I.E., that such brokers or dealers are able to
execute the order promptly and at the best obtainable securities price.

On occasions when the Advisor deems the purchase or sale of a security to
be in the best interest of the Fund as well as other clients of the Advisor, the
Advisor, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and the most efficient execution.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Advisor in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.

Brokerage commissions paid by the Fund during the year ended December 31,
1999, totaled $15,972.

Brokerage commissions paid by the Fund during the year ended December 31,
1998, totaled $35,541.

Portfolio turnover for the Fund during the year ended December 31, 1999,
was 19.00%.

NET ASSET VALUE

The net asset value of the Fund's shares will fluctuate and is determined
as of the close of trading on the New York Stock Exchange (the "NYSE")
(generally 4:00 p.m. Eastern time) each business day. The NYSE annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that it will not be open on the following days: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However,
the NYSE may close on days not included in that announcement.

The net asset value per share is computed by dividing the value of the
securities held by the Fund plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of shares in the Fund outstanding at such
time.

B-14
<PAGE>
one exchange are valued on the exchange determined by the Advisor to be the
primary market. Securities primarily traded in the NASDAQ National Market System
for which market quotations are readily available shall be valued at the last
sale price on the day of valuation, or if there has been no sale on such day, at
the mean between the bid and asked prices. Over-the-counter ("OTC") securities
which are not traded in the NASDAQ National Market System shall be valued at the
most recent trade price. Securities and assets for which market quotations are
not readily available (including restricted securities which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the Board.

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 the Fund if acquired
within 60 days of maturity or, if already held by the Fund on the 60th day,
based on the value determined on the 61st day.

An option that is written by the 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 the Fund is generally valued at the last sale price or, in
the absence of the last sale price, the last bid price. If an options exchange
closes after the time at which the Fund's net asset value is calculated, the
last sale or last bid and asked prices as of that time will be used to calculate
the net asset value.

All other assets of the Fund are valued in such manner as the Board in good
faith deems appropriate to reflect their fair value.

TAXATION

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, 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 stock or securities, or other income
(generally including gains from options, futures or forward contracts) derived
with respect to the business of investing in stock, securities or currency, and
(b) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of its assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies
and other securities limited, for purposes of this calculation, in the case of
other securities of any one issuer to an amount not greater than 5% of the
Fund's assets or 10% of the voting securities of the issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities or securities of other regulated
investment companies). As such, and by complying with the applicable provisions
of the Code, the Fund will not be subject to federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders in
accordance with the timing requirements of the Code. If the Fund is unable to
meet certain requirements of the Code, it may be subject to taxation as a
corporation.

Distributions of net investment income and net realized capital gains by
the Fund will be taxable to shareholders whether made in cash or reinvested by
the Fund in shares. In determining amounts of net realized capital gains to be
distributed, any capital loss carry-overs from the eight prior taxable years
will be applied against capital gains. Shareholders receiving a distribution
from the Fund in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date. Fund distributions also
will be included in individual and corporate shareholders' income on which the
alternative minimum tax may be imposed.

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<PAGE>
The Fund or the securities dealer effecting a redemption of the Fund's
shares by a shareholder will be required to file information reports with the
Internal Revenue Service ("IRS") with respect to distributions and payments made
to the shareholder. In addition, the Fund will be required to withhold federal
income tax at the rate of 31% on taxable dividends, redemptions and other
payments made to accounts of individual or other non-exempt shareholders who
have not furnished their correct taxpayer identification numbers and certain
required certifications on the New Account application or with respect to which
the Fund or the securities dealer has been notified by the IRS that the number
furnished is incorrect or that the account is otherwise subject to withholding.

The Fund intends to declare and pay dividends and other distributions, as
stated in the prospectuses. In order to avoid the payment of any federal excise
tax based on net income, the Fund must declare on or before December 31 of each
year, and pay on or before January 31 of the following year, distributions at
least equal to 98% of its ordinary income for that calendar year and at least
98% of the excess of any capital gains over any capital losses realized in the
one-year period ending October 31 of that year, together with any undistributed
amounts of ordinary income and capital gains (in excess of capital losses) from
the previous calendar year.

The Fund may receive dividend distributions from U.S. corporations. To the
extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.

If more than 50% in value of the total assets of the Fund at the end of its
fiscal year is invested in stock or securities of foreign corporations, the Fund
may elect to pass through to its shareholders the pro rata share of all foreign
income taxes paid by the Fund. If this election is made, shareholders will be
(i) required to include in their gross income their pro rata share of the Fund's
foreign source income (including any foreign income taxes paid by the Fund), and
(ii) entitled either to deduct their share of such foreign taxes in computing
their taxable income or to claim a credit for such taxes against their U.S.
income tax, subject to certain limitations under the Code, including certain
holding period requirements. In this case, shareholders will be informed in
writing by the Fund at the end of each calendar year regarding the availability
of any credits on and the amount of foreign source income (including or
excluding foreign income taxes paid by the Fund) to be included in their income
tax returns. If not more than 50% in value of the Fund's total assets at the end
of its fiscal year is invested in stock or securities of foreign corporations,
the Fund will not be entitled under the Code to pass through to its shareholders
their pro rata share of the foreign taxes paid by the Fund. In this case, these
taxes will be taken as a deduction by the Fund.

The Fund may be subject to foreign withholding taxes on dividends and
interest earned with respect to securities of foreign corporations.

The use of hedging strategies, such as entering into futures contracts and
forward contracts and purchasing options, involves complex rules that will
determine the character and timing of recognition of the income received in
connection therewith by the Fund. Income from foreign currencies (except certain
gains therefrom that may be excluded by future regulations) and income from
transactions in options, futures contracts and forward contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies will qualify as permissible income under Subchapter M of the Code.

B-16
<PAGE>
positions by requiring, among other things, that the loss realized on
disposition of one position of a straddle be deferred until gain is realized on
disposition of the offsetting position; that the Fund's holding period in
certain straddle positions not begin until the straddle is terminated (possibly
resulting in the gain being treated as short-term capital gain rather than
long-term capital gain); and that losses recognized with respect to certain
straddle positions, which would otherwise constitute short-term capital losses,
be treated as long-term capital losses. Different elections are available to the
Fund that may mitigate the effects of the straddle rules.

Certain options, futures contracts and forward contracts that are subject
to Section 1256 of the Code ("Section 1256 Contracts") and that are held by the
Fund at the end of its taxable year generally will be required to be "marked to
market" for federal income tax purposes, that is, deemed to have been sold at
market value. Sixty percent of any net gain or loss recognized on these deemed
sales and 60% of any net gain or loss realized from any actual sales of Section
1256 Contracts will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss.

Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions that may affect the amount, timing and character
of income, gain or loss recognized by the Fund. Under these rules, foreign
exchange gain or loss realized with respect to foreign currency-denominated debt
instruments, foreign currency forward contracts, foreign currency denominated
payables and receivables and foreign currency options and futures contracts
(other than options and futures contracts that are governed by the
mark-to-market and 60/40 rules of Section 1256 of the Code and for which no
election is made) is treated as ordinary income or loss. Some part of the Fund's
gain or loss on the sale or other disposition of shares of a foreign corporation
may, because of changes in foreign currency exchange rates, be treated as
ordinary income or loss under Section 988 of the Code rather than as capital
gain or loss.

A shareholder who purchases shares of the Fund by tendering payment for the
shares in the form of other securities may be required to recognize gain or loss
for income tax purposes on the difference, if any, between the adjusted basis of
the securities tendered to the fund and the purchase price of the Fund's shares
acquired by the shareholder.

Redemptions and exchanges of shares of the Fund will result in gains or
losses for tax purposes to the extent of the difference between the proceeds and
the shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption or exchange of shares within six months from their date of purchase
will be treated as a long-term capital loss to the extent of distributions of
long-term capital gain dividends during such six-month period. All or a portion
of a loss realized upon the redemption of shares may be disallowed to the extent
shares are purchased (including shares acquired by means of reinvested
dividends) within 30 days before or after such redemption.

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LLP has expressed no opinion in respect thereof. Nonresident aliens and foreign
persons are subject to different tax rules, and may be subject to withholding of
up to 30% on certain payments received from the Fund. Shareholders are advised
to consult with their own tax advisers concerning the application of foreign,
federal, state and local taxes to an investment in the Fund.

DIVIDENDS AND DISTRIBUTIONS

The Fund will receive income in the form of dividends and interest earned
on its investments in securities. This income, less the expenses incurred in its
operations, is the Fund's net investment income, substantially all of which will
be declared as dividends to the Fund's shareholders.

The amount of income dividend payments by the Fund is dependent upon the
amount of net investment income received by the Fund from its portfolio
holdings, is not guaranteed and is subject to the discretion of the Board. The
Fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.

The Fund also may derive capital gains or losses in connection with sales
or other dispositions of its portfolio securities. Any net gain the Fund may
realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held more than the period
required for long-term capital gain or loss recognition or otherwise producing
long-term capital gains and losses, the Fund will have a net long-term capital
gain. After deduction of the amount of any net short-term capital loss, the
balance (to the extent not offset by any capital losses carried over from the
eight previous taxable years) will be distributed and treated as long-term
capital gains in the hands of the shareholders regardless of the length of time
the Fund's shares may have been held by the shareholders. For more information
concerning applicable capital gains tax rates, see your tax advisor.

Any dividend or distribution paid by the Fund reduces the Fund's net asset
value per share on the date paid by the amount of the dividend or distribution
per share. Accordingly, a dividend or distribution paid shortly after a purchase
of shares by a shareholder would represent, in substance, a partial return of
capital (to the extent it is paid on the shares so purchased), even though it
would be subject to income taxes.

Dividends and other distributions will be made in the form of additional
shares of the Fund unless the shareholder has otherwise indicated. Investors
have the right to change their elections with respect to the reinvestment of
dividends and distributions by notifying the Transfer Agent in writing, but any
such change will be effective only as to dividends and other distributions for
which the record date is seven or more business days after the Transfer Agent
has received the written request.

PERFORMANCE INFORMATION

TOTAL RETURN

Average annual total return quotations used in the Fund's advertising and
promotional materials are calculated according to the following formula:

n
P(1 + T) = ERV

Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent

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quarter prior to submission of the advertising for publication. Average annual
total return, or "T" in the above formula, is computed by finding the average
annual compounded rates of return over the period that would equate the initial
amount invested to the ending redeemable value. Average annual total return
assumes the reinvestment of all dividends and distributions.

For the year ended December 31, 1999, the Fund had a total return of
60.42%. Since the Fund's inception on January 2, 1998, the Fund had a total
return of $20.69%.

OTHER INFORMATION

Performance data of the Fund quoted in advertising and other promotional
materials represents past performance and is not intended to predict or
guarantee future results. The return and principal value of an investment in the
Fund will fluctuate, and an investor's redemption proceeds may be more or less
than the original investment amount. In advertising and promotional materials
the Fund may compare its performance with data published by Lipper Analytical
Services, Inc. ("Lipper") or CDA Investment Technologies, Inc. ("CDA"). The Fund
also may refer in such materials to mutual fund performance rankings and other
data, such as comparative asset, expense and fee levels, published by Lipper or
CDA. Advertising and promotional materials also may refer to discussions of the
Fund and comparative mutual fund data and ratings reported in independent
periodicals including, but not limited to, THE WALL STREET JOURNAL, MONEY
MAGAZINE, FORBES, BUSINESS WEEK, FINANCIAL WORLD and BARRON'S.

GENERAL INFORMATION

Advisors Series Trust is an open-end management investment company
organized as a Delaware business trust under the laws of the State of Delaware
on October 3, 1996. The Trust currently consists of 23 effective series of
shares of beneficial interest, par value of 0.01 per share. The Declaration of
Trust permits the Trustees to issue an unlimited number of full and fractional
shares of beneficial interest and to divide or combine the shares into a greater
or lesser number of shares without thereby changing the proportionate beneficial
interest in the Fund. Each share represents an interest in the Fund
proportionately equal to the interest of each other share. Upon the Fund's
liquidation, all shareholders would share pro rata in the net assets of the Fund
available for distribution to shareholders.

Rule 18f-2 under the 1940 Act provides that as to any investment company
which has two or more series outstanding and as to any matter required to be
submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.

The Fund's principal underwriter is First Fund Distributors, Inc., 4455 E.
Camelback Road, Suite 261E, Phoenix, AZ 85018.

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<PAGE>
The Fund's custodian, Firstar Bank, 425 Walnut Street, Cincinnati, Ohio
45202 is responsible for holding the Fund's assets. American Data Services, P.O.
Box 5536, Hauppauge, NY 11788 acts as the Fund's transfer agent and accounting
services agent. The Fund's independent accountants, PricewaterhouseCoopers, LLP,
555 Fifth Avenue, New York, NY 10017, assist in the preparation of certain
reports to the Securities and Exchange Commission and the Fund's tax returns.

The Boards of the Trust, the Advisor and the Distributor have adopted Codes
of ethics under Rule 17j- 1 of the 1940 Act. These Codes permit, subject to
certain conditions, personnel of the Advisor and Distributor to invest in
securities that may be purchased or held by the Funds.

The Fund is a diversified series of the Trust.

Shares of the Fund owned by the Trustees and officers as a group were less
than 1% at March 31, 2000.

As of March 29, 2000, the following additional persons owned of record
and/or beneficially more than 5% of The Al Frank Fund's outstanding voting
securities:

Charles Schwab, 101 Montgomery St., San Francisco, CA 94104; 40.03% record.

National Investor Services, 55 Water St., New York, NY 10041; 6.54% record.

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