[CHASE INVESTMENT COUNSEL CORPORATION LOGO]
CHASE GROWTH FUND
PROSPECTUS
JANUARY 18, 2000
<PAGE>
[CHASE INVESTMENT COUNSEL CORPORATION LOGO]
CHASE GROWTH FUND
300 PRESTON AVENUE, SUITE 403
CHARLOTTESVILLE, VA 22902-5091
INVESTMENT ADVISOR:
(804) 293-9104
SHAREHOLDER SERVICES:
(TOLL FREE) (888) 861-7556
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Risk/Return Summary................................................ 2
Fees and Expenses of the Fund...................................... 4
Management of the Fund............................................. 5
Account Information................................................ 7
How to Invest...................................................... 7
Earnings and Taxes................................................. 11
Financial Highlights............................................... 12
For More Information............................................... Back Cover
More detailed information on all subjects covered in this prospectus is
contained in the Fund's STATEMENT OF ADDITIONAL INFORMATION ("SAI"). Investors
seeking more in-depth explanations of the contents of this prospectus should
request the SAI and review it before purchasing shares.
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RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund seeks growth of capital as its investment objective. The objective of
the Fund may be changed only with shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its investment objective by investing primarily in common
stocks of domestic companies with large market capitalizations of $10 billion
and above.
The Advisor screens a universe of approximately 5,000 companies generally
seeking stocks with average annual growth rates of earnings per shares exceeding
10% and increases in earnings per share in seven or more of the past ten years.
From this group of securities and others, the Advisor selects securities
appropriate for the Fund's portfolio using quantitative, fundamental and
technical analysis. The fundamental factors considered include a security's
growth of earnings per share and return on equity, the debt to equity ratio,
reinvestment rate and price/earnings ratio. Technical factors considered include
relative strength, unusual volume, price momentum and volatility, and insider
transactions. Analysts employed by the Advisor rely on both internal and
external research sources and on contact with management of companies being
considered.
In buying and selling portfolio securities, the Advisor sets its initial price
targets. The Advisor continuously reviews prices and adjusts its targets in
response to changes in fundamental and technical factors. The existence of
alternative securities that the Advisor considers to be more attractive is an
added consideration in deciding whether to sell portfolio securities.
TYPES OF SECURITIES
The Fund invests primarily in the following securities:
* Common Stock;
* Convertible Securities;
* American, European and Global Depositary Receipts
Please review the SAI for further descriptions of these securities.
PRINCIPAL RISKS OF INVESTING
You may lose money by investing in the Fund. Other principal risks you should
consider include:
MARKET DECLINE - A company's stock price or the overall stock market may
experience a sudden decline.
DEFENSIVE INVESTMENTS - At the discretion of the Advisor, the Fund may invest up
to 100% of its assets in cash, cash equivalents, and high-quality, short-term
debt securities and money market instruments for temporary defensive purposes.
During such a period, the Fund may not reach its investment objective. For
example, should the market advance during this period, the Fund may not
participate as much as it would have if it had been more fully invested.
2
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YEAR 2000 - As the year 2000 began, the Fund did not experience any notable
problems arising from the inability of computer systems used by the Manager and
other service providers to properly process and calculate information related to
dates beginning January 1, 2000. This is commonly known as the "Year 2000
Issue." There can be no assurance that some computer systems will not
malfunction in the future as a result of the Year 2000 Issue. Although the
Manager does not anticipate that its services or the services of the Fund's
other service providers will be adversely affected as a result of the Year 2000
Issue, it will continue to monitor the situation. If malfunctions related to the
Year 2000 Issue do arise, the Fund and its investments could be adversely
affected, as well as companies in which the Fund invests.
WHO MAY WANT TO INVEST
The Fund is intended for investors who:
* Are willing to hold their shares for a long period of time (E.G., in
preparation for retirement);
* Are diversifying their investment portfolio by investing in a mutual
fund that invests in large cap companies; and/or
* Are willing to accept higher short-term risk in exchange for a higher
potential for long-term total return.
FUND PERFORMANCE
The following performance information indicates some of the risks and returns of
investing in the Fund. The bar chart shows how the Fund's total return has
varied from year to year. The table shows the Fund's average returns over time
compared with a broad-based market index. Past performance is no guarantee of
future results
CALENDAR YEAR TOTAL RETURNS
During the period of time displayed in the bar chart, the Fund's best quarter
was Q4, 1999, up 23.69% and its worst quarter was Q3, 1999, down 7.85%.
1998 1999
---- ----
29.64% 26.65%
3
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AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1999
1 Year Since Inception*
------ ----------------
Chase Growth Fund............................. 26.65% 28.14%
S&P 500 Composite Stock Price Index**......... 21.02% 23.70%
* The inception date of the Fund was December 2, 1997
** The S&P 500 Composite Stock Price Index is an unmanaged
capitalization-weighted index of 500 stocks designed to represent the broad
domestic economy.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)............ None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Investment Advisory Fees.............................................. 1.00%
Other Expenses........................................................ 1.37%
------
TOTAL ANNUAL FUND OPERATING EXPENSES ................................. 2.37%
------
Fee Waiver and/or Expense Reimbursement#.............................. (0.89)%
------
NET EXPENSES.......................................................... 1.48%
======
# The Advisor has contractually agreed to waive its fees and/or absorb expenses
of the Fund to ensure that Total Annual Operating Expenses do not exceed 1.48%.
This contract's term is indefinite and may be terminated only by the Board of
Trustees. If the Advisor waives any of its fees or pays Fund expenses, the Fund
may reimburse the Advisor in future years.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$150 $467 $806 $1,762
4
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MANAGEMENT OF THE FUND
THE INVESTMENT ADVISOR
The registered investment advisor of the Fund is Chase Investment Counsel Corp.,
300 Preston Avenue, Suite 403, Charlottesville, VA 22902-5091. The Advisor, and
a predecessor proprietorship, have provided asset management services to
individual and institutional investors since 1957. As of December 31, 1999, the
Advisor managed approximately $987 million in assets.
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. For the fiscal year ended September 30, 1999, the Advisor received
advisory fees of 0.11% of the Fund's average daily net assets, net of waiver.
THE PORTFOLIO MANAGERS
Mr. Derwood S. Chase, Jr. and Mr. David B. Scott are principally responsible for
the portfolio management of the Fund. Mr. Chase, who controls the Advisor, has
been President of the Advisor since its founding and has been active in the
investment field professionally for more than forty years. Mr. Scott, who has
been Senior Vice President of the Advisor since February 1997, has been active
professionally in the investment field for more than nineteen years. Mr. Scott
joined the Advisor as a Vice President in March 1994. Prior Performance of the
Advisor, Chase Investment Counsel Corp.
The following table sets forth composite performance data relating to the
historical performance of private institutional accounts managed by the Advisor
for the periods indicated, that have investment objectives, policies, strategies
and risks substantially similar to those of the Fund. The data is provided to
illustrate the past performance of the Advisor in managing substantially similar
accounts as measured against a market index and does not represent the
performance of the Fund. You should not consider this performance data as an
indication of future performance of the Fund or of the Advisor. A complete list
and description of the Advisor's composites is available by request to the
Advisor.
The composite performance data shown below 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, including accrued dividends and accrued
interest on money market funds and realized and unrealized gains and losses. All
* 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.
** The S&P 500 Composite Stock Price Index is an unmanaged
capitalization-weighted index of 500 stocks designed to represented the broad
domestic economy.
5
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returns are presented after the deduction of investment advisory fees, brokerage
commissions and execution costs paid by private institutional accounts of the
Advisor without provision for federal or state income taxes. Custodial fees, if
any, were generally not included in the calculation. The Advisor's composite
includes all actual, fee-paying, discretionary private institutional accounts
managed by the Advisor that have investment objectives, policies, strategies and
risks substantially similar to those of the Fund. Securities transactions are
accounted for on the trade date and accrual accounting is used. Cash and
equivalents are included in performance returns. The monthly returns of the
Advisor's composite combined the individual accounts' returns (calculated on a
time-weighted rate of return that is revalued whenever cash flows exceed 10% of
an account's current value) by asset-weighting each individual account's asset
value as of the beginning of the month. Quarterly and yearly returns are
calculated by geometrically linking the monthly and quarterly returns,
respectively.
The private institutional accounts that are included in the Advisor's composite
are not subject to the same types of expenses to which the Fund is subject nor
to the diversification requirements, specific tax restrictions and investment
limitations imposed on the Fund by the Investment Company Act or the Internal
Revenue Code. Consequently the performance results for the Advisor's composite
could have been adversely affected if the private institutional accounts
included in the composite had been regulated as investment companies. In
addition, the operating expenses incurred by the private institutional accounts
were lower than the anticipated operating expenses of the Fund, and,
accordingly, the performance results of the composite are greater than what Fund
performance would have been.
The methodology used to calculate performance conforming to AIMR standards is
different from that used by mutual funds. Investors should also be aware that
the use of a methodology different from that used below to calculate performance
could result in different performance data.
6
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TOTAL RETURNS: YEARS ENDED, DECEMBER 31
<TABLE>
<CAPTION>
Jan. 1, 1999
To
Annualized Cumulative Sep. 30, 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
---------- ---------- ------------- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advisors Equity 18.70% 531.98% 4.63% 37.00% 38.18% 23.01% 28.47% -8.60% 15.85% 3.31% 39.84% 11.10%
Composite
S&P 500** 17.02% 463.07% 5.31% 28.59% 33.36% 22.92% 37.50% 1.33% 10.09% 7.52% 30.64% -3.18%
Number of Portfolios 15 15 14 13 11 11 7 7 3 1
End of Period
Composite Assets 412.5 434.5 320.8 239.4 205.7 151.9 127.2 154.0 84.7 28.1
End of Period (Millions)
Percentage of Total Assets 51% 53% 51% 49% 48% 40% 28% 34% 22% 12%
Represented by the Composite***
Standard Deviation of Returns NA 2.25% 1.54% 1.06% 2.05% 0.62% 3.32% 2.63% 2.65% NA
</TABLE>
- ----------
*** The figures shown represent assets that were managed by the Advisor using
similar investment techniques as those used to manage the Fund's portfolio.
ACCOUNT INFORMATION
HOW THE FUND'S SHARES ARE PURCHASED
Shares are priced at net asset value ("NAV"). The NAV is calculated by adding
the values of all securities and other assets of the Fund, subtracting the
liabilities and dividing the net amount by the number of outstanding shares. In
calculating the NAV, the Fund's securities are valued using current market
values, if available. Securities for which market quotations are not readily
available are valued at their fair market value determined in good faith by or
under the supervision of the Board of Trustees of the Advisors Series Trust.
WHEN THE FUND'S SHARES ARE PRICED
The NAV is calculated after the closing of trading on the New York Stock
Exchange ("NYSE"), every day that the NYSE is open. The NAV is not calculated on
days that the NYSE is closed for trading. If the Fund receives your order by the
close of trading on the NYSE, you can purchase shares at the price calculated
for that day. The NYSE usually closes at 4 p.m., Eastern time, on weekdays,
except for holidays. If your order and payment are received after the NYSE has
closed, your shares will be priced at the next NAV calculated after receipt of
your order. For further information, please see the section, "HOW TO INVEST" and
the SAI.
HOW TO INVEST
OPENING A NEW ACCOUNT
You may purchase shares of the Fund by mail, by wire or through your investment
broker. An Application Form accompanies this Prospectus. Please use the
Application Form when purchasing by mail or wire. If you have any questions or
need further information about how to purchase shares, you may call an account
representative of the Fund at (toll-free) (888) 861-7556.
7
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PURCHASING SHARES BY MAIL
Please complete the attached Application Form and mail it with a personal check,
payable to the CHASE GROWTH FUND to the Fund's Shareholder Servicing Agent,
American Data Services, Inc. at the following address:
Chase Growth Fund
P.O. Box 640947
Hauppauge, NY 11788-0132
You may not send Application Forms via overnight delivery to a United States
Postal Services post office box. If you wish to use an overnight delivery
service, send your Application Form and check to the Fund's Custodian at the
following address:
Chase Growth Fund
c/o Firstar Bank, N.A.
Mutual Fund Custody Department
425 Walnut Street, M.L. 6118, Sixth Floor
Cincinnati, OH 45202
PURCHASING SHARES BY WIRE
To order by wire, you must have a wire account number. Please call the Fund at
(toll-free) (888) 861-7556 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 this account number.
If you send your purchase by wire without the account number, your order will be
delayed. You will be asked to fax your Application Form.
Once you have the account number, your bank or other financial institution may
send the wire to the Fund's Custodian with the following instructions:
Firstar Bank, N.A. Cinti/Trust
ABA # 0420-0001-3
For credit to: Chase Growth Fund
DDA # 488840240
for further credit to [your name and account number]
Your bank or financial institution may charge a fee for sending the wire to the
Fund.
PURCHASING THROUGH AN INVESTMENT BROKER
You may buy and sell shares through the Fund's approved brokers and their agents
(together "Brokers"). An order placed with 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 Broker will hold your shares in a pooled account in
the Broker's name. The Fund may pay the Broker to maintain your individual
ownership information, for maintaining other required records, and for providing
other shareholder services. The Broker may charge you a fee to handle your
order. The Broker is responsible for processing your order correctly and
promptly, keeping you advised of the status of your account, confirming your
transactions and ensuring that you receive copies of the Fund's prospectus.
Please contact your broker to see if they are an approved broker of the Fund for
additional information.
MINIMUM INVESTMENTS
Your initial purchase must be at least $2,000. Exceptions may be made at the
Fund's discretion.
8
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ADDITIONAL INVESTMENTS
Additional purchases may be made for $250 or more. Exceptions may be made at the
Fund's discretion. You may purchase additional shares of the Fund by sending a
check, with the stub from your account statement, to the Fund at the addresses
listed above. Please ensure that you include your account number on the check.
If you do not have the stub from your account statement, include your name,
address and account number on a separate statement.
You may also make additional purchases by wire or through a Broker. Please
follow the procedures described above under the headings "PURCHASING SHARES BY
WIRE" or "PURCHASING SHARES THROUGH AN INVESTMENT BROKER."
MINIMUM ACCOUNT BALANCE
Due to the relatively high cost of managing small accounts, if the value of your
account falls below $500, the Fund may redeem your shares. However, the Fund
will give you 30 days' written notice to give you time to add to your account
and avoid involuntary redemption of your shares. The Board of Trustees of the
Fund believes this policy to be in the best interests of all shareholders.
SELLING YOUR SHARES
You may sell some or all of your Fund shares on days that the NYSE is open for
trading. Your redemption may result in realized gain or loss for tax purposes.
Your shares will be sold at the next net asset value calculated for the Fund
after receiving your order. You may sell your shares by mail, wire or through a
Broker.
SELLING YOUR SHARES BY MAIL
You may redeem your shares by sending a written request to the Fund. You must
give your account number and state the number of shares you wish to sell. You
must sign the written request. If the account is in the name of more than one
person, each shareholder must sign the written request. Send your written
request to the Fund at:
Chase Growth Fund
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
If the dollar amount of your redemption exceeds $100,000, you must obtain a
signature guarantee (NOT A NOTARIZATION), available from many commercial banks,
savings associations, stock brokers and other NASD member firms. In unusual
circumstances, the Fund may temporarily suspend the processing of sell requests,
or postpone payment of proceeds for up to seven days as permitted by federal
securities laws.
SELLING YOUR SHARES BY TELEPHONE
If you completed the "Redemption by Telephone" section of the Fund's Application
Form, you may sell your shares by calling the Shareholder Servicing Agent (toll
free) at (888) 861-7556. Your redemption will be mailed or wired according to
your instructions, on the next business day to the bank account you designated
on your Application Form. The minimum wire amount is $1,000. Your bank or
financial institution may charge a fee for receiving the wire from the Fund.
Telephone redemptions may not be made for IRA accounts.
9
<PAGE>
The Fund will take steps to confirm that a telephone redemption is authentic.
This may include tape recording the telephone instructions, or requiring a form
of personal identification before acting on those instructions. The Fund
reserves the right to refuse telephone instructions if it cannot reasonably
confirm the telephone instructions. The Fund may be liable for losses from
unauthorized or fraudulent telephone transactions only if these reasonable
procedures are not followed.
You may request telephone redemption privileges after your account is opened.
However, the authorization form requires a separate signature guarantee (NOT A
NOTARIZATION). The Fund may modify or terminate your telephone privileges after
giving you 60 days' notice. Please be aware that you may experience delays in
redeeming your shares by telephone during periods of abnormal market activity.
In addition, the Fund may postpone payment of proceeds for up to seven days, as
permitted by federal securities laws.
AUTOMATIC INVESTMENT PLAN
You may make regular monthly investments in the Fund using the Automatic
Investment Plan. You may arrange for your bank or financial institution to
transfer a predetermined amount (but not less than $250). When the Fund receives
the transfer the Fund will invest the amount in additional shares of the Fund at
the next calculated net asset value. You may request an Application for the
Automatic Investment Plan by calling the Fund (toll free) at (888) 861-7556. The
Fund may modify or terminate this Plan at any time. You may terminate your
participation in this Plan by calling the Fund.
AUTOMATIC WITHDRAWAL PLAN
You may request that a predetermined amount be sent to you each month or
quarter. Your account must have a value of at least $10,000 for your to be
eligible to participate in the Automatic Withdrawal Plan. The minimum withdrawal
is $50. You may request an Application for the Automatic Withdrawal Plan by
calling the Fund (toll-free) at (888) 861-7556. The Fund may modify or terminate
this Plan at any time. You may terminate your participation in this Plan by
calling the Fund.
OTHER POLICIES
The Fund may waive the minimum investment requirements for purchases by certain
groups or retirement plans. All investments must be made in U.S. Funds, and
checks must be drawn on U.S. banks. Third party checks are not accepted. The
Fund may charge you if your check is returned for insufficient funds. The Fund
reserves the right to reject any investment, in whole or in part. The IRS
requires that you provide the Fund or your Broker with taxpayer identification
number and other information upon opening an account. You must specify whether
you are subject to backup withholding. Otherwise, you may be subject to backup
withholding at a rate of 31%.
10
<PAGE>
EARNINGS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gain distributions are normally declared and paid
by the Fund to its shareholders in December of each year. The Fund may also make
periodic dividend payments and distributions at other times in its discretion.
Unless you invest through a tax-advantaged account, you will owe taxes on the
dividends and distributions. Dividends and distributions are automatically
reinvested in additional shares of the Fund unless you make a written request to
the Fund that you would like to receive dividends and distributions in cash.
TAXES
The Fund is required by Internal Revenue Service rules to distribute
substantially all of its net investment income, and capital gains, if any, to
shareholders. Capital gains may be taxable at different rates depending upon the
length of time the Fund holds its assets. You will be notified at least annually
about the tax consequences of distributions made each year. The Fund's dividends
and distributions, whether received in cash or reinvested, may be taxable. Any
redemption of Fund shares will be treated as a sale and any gain on the
transaction may be taxable. Additional information about tax issues relating to
the Fund may be found in the SAI. Please consult your tax advisor about the
potential tax consequences of investing in the Fund.
11
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance during the past periods shown. 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 fiscal year
ended September 30, 1999 and by other auditors for the prior period. Their
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
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Year December 2, 1997*
Ended through
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Net asset value, beginning of period.................. $10.68 $10.00
------ ------
Income from investment operations:
Net investment loss................................. (0.05) (0.01)
Net realized and unrealized gain on investments..... 3.03 0.70
------ ------
Total from investment operations...................... 2.98 0.69
------ ------
Less distributions:
From net investment income.......................... -- (0.01)
------ ------
Total from distributions.............................. -- (0.01)
------ ------
Net asset value, end of period........................ $13.66 $10.68
====== ======
TOTAL RETURN ......................................... 27.90% 6.91%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)................. $9,140 $4,010
Ratio of expenses to average net assets
Before expense reimbursement........................ 2.37% 3.98%+
After expense reimbursement......................... 1.48% 1.47%+
Ratio of net investment loss to average net assets
After expense reimbursement......................... (0.59%) (0.17%)+
Portfolio turnover rate............................... 62.49% 54.49%
</TABLE>
* Commencement of operations.
++ Not annualized.
+ Annualized.
12
<PAGE>
ADVISOR
Chase Investment Counsel Corp.
300 Preston Avenue, Suite 403
Charlottesville, Virginia 22902-5091
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Road, Suite 261-E
Phoenix, Arizona 85018
CUSTODIAN
Firstar Bank, N.A.
425 Walnut Street, M/L 6118
Cincinnati, Ohio 45202
TRANSFER AGENT
American Data Services
P.O. Box 5536
Hauppauge, New York 11788-0132
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>
CHASE GROWTH FUND
A SERIES OF ADVISORS SERIES TRUST
For More Information
The Statement of Additional Information (SAI), incorporated by reference in this
prospectus, 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.
To request your free copy of the SAI or shareholder reports, or to request other
information, please call (toll free) (888) 861-7556 or write to the Fund:
Chase Growth Fund
c/o American Data Services, Inc.
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
You may review and copy further information about the Fund, including the SAI
and shareholder reports, at the Securities and Exchange Commission's ("SEC's")
Public Reference Room in Washington, D.C. You can obtain information on the
operation of the Public Reference Room by calling the Commission at
1-202-942-8090.
Reports and other information about the Fund are available free of charge from
the Commission's EDGAR database on the Commissions internet website at
http://www.sec.gov. Copies of this information may be obtained, upon payment of
a duplicating fee, by writing to the SEC's Public Reference Section, Washington,
D.C. 20548-0102 or by electronic request at the following e-mail address:
[email protected].
(The Trust's SEC File Number
is 811-07959)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 18, 2000
CHASE GROWTH FUND
A SERIES OF ADVISORS SERIES TRUST
300 PRESTON AVENUE, SUITE 403
CHARLOTTESVILLE, VA 22902-5091
(888) 861-7556
This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the Prospectus dated January 18, 2000, as may
be revised, of the Chase Growth Fund (the "Fund"), a series of Advisors Series
Trust (the "Trust"). Chase Investment Counsel Corp. (the "Advisor") is the
advisor to the Fund. A copy of the Fund's Prospectus may be obtained by
contacting the Fund at the above address or telephone number.
TABLE OF CONTENTS
The Trust................................................... B-2
Investment Objective and Policies........................... B-2
Portfolio Transactions and Brokerage ....................... B-8
Portfolio Turnover ......................................... B-10
Determination of Net Asset Value ........................... B-10
Purchase and Redemption of Fund Shares ..................... B-11
Management ................................................. B-13
Dividends and Distributions ................................ B-16
Tax Matters ................................................ B-16
Performance Information .................................... B-19
General Information ........................................ B-19
Appendix A.................................................. B-21
Appendix B.................................................. B-23
B-1
<PAGE>
THE TRUST
Advisors Series Trust is an open-end, non-diversified management investment
company organized as a Delaware business trust under the laws of the State of
Delaware on October 3, 1996. The Trust currently consists of seventeen series of
shares of beneficial interest, par value $0.01 per share. 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 OBJECTIVE AND POLICIES
The investment objective of the Fund is growth of capital. The Fund primarily
invests in equity securities of companies of any size market capitalization.
There is no assurance that the Fund will achieve its objective. The Fund is
classified as "diversified" under the federal securities laws, which means as to
75% of its total assets (1) no more than 5% may be in the securities of a single
issuer, (2) it may not hold more than 10% of the outstanding voting securities
of a single issuer .
The discussion below supplements information contained in the Fund's Prospectus
as to investment policies of the Fund.
In addition to the risks associated with particular types of securities, which
are discussed below, the Fund is subject to general market risks. The Fund
invests primarily in common stocks. The market risks associated with stocks
include the possibility that the entire market for common stocks could suffer a
decline in price over a short or even an extended period. This could affect the
net asset value of your Fund shares. The U.S. stock market tends to be cyclical,
with periods when stock prices generally rise and periods when stock prices
generally decline.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. A
convertible security is a fixed-income security (a debt instrument or a
preferred stock) which may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
FOREIGN INVESTMENTS. 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 DRs. DRs are are receipts typically issued
in connection with a U.S. or foreign bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign securities
involve certain inherent risks, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the US 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
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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.
EURO CONVERSION. Several European countries adopted a single uniform currency
known as the "euro," effective January 1, 1999. The euro conversion , that will
take place over a several-year period, could have potential adverse effects on
the Fund's ability to value its portfolio holdings in foreign securities, and
could increase the costs associated with the Fund's operations. The Fund and the
Advisor are working with providers of services to the Fund in the areas of
clearance and settlement of trade in an effect to avoid any material impact on
the Fund due to the euro conversion; there can be no assurance, however, that
the steps taken will be sufficient to avoid any adverse impact on the Fund.
MARKET CHARACTERISTICS. Foreign securities in which the Fund invests may 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, they
usually have substantially less volume than U.S. markets, and the Fund's foreign
securities may be less liquid and more volatile than U.S. 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.
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 Fund 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.
In considering whether to invest in the securities of a foreign company, the
Advisor considers such factors as the characteristics of the particular company,
differences between economic trends and the performance of securities markets
within the U.S. and those within other countries, and also factors relating to
the general economic, governmental and social conditions of the country or
countries where the company is located. The extent to which 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 OPTIONS. The Fund may purchase covered "put" options with respect
to securities which the Fund holds. The Fund will engage in trading of such
derivative securities exclusively for hedging purposes.
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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.
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 Adviser 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.
Effecting a closing transaction in the name 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
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 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 fluctuations than an investment in the underlying
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securities themselves. 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; 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.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. Under such
agreements, the seller of the security agrees to repurchase it at a mutually
agreed upon time and price. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price on repurchase. In either case, the income to the Fund
is unrelated to the interest rate on the U.S. Government security itself. Such
repurchase agreements will be made only with banks with assets of $500 million
or more that are insured by the Federal Deposit Insurance Corporation or with
Government securities dealers recognized by the Federal Reserve Board and
registered as broker-dealers with the SEC or exempt from such registration. The
Fund will generally enter into repurchase agreements of short durations, from
overnight to one week, although the underlying securities generally have longer
maturities.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government security subject to the repurchase agreement. It is not clear
whether a court would consider the U.S. Government security acquired by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, the Fund could encounter delays and incur costs before being able to
sell the security. Delays may involve loss of interest or a decline in price of
the U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller. As an unsecured creditor,
the Fund would be at the risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt instrument purchased for
the Fund, the Advisor seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the other party, in this case
the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the security. However, the Fund will
always receive as collateral for any repurchase agreement to which they are a
party securities acceptable to the Advisor, the market value of which is equal
to at least 100% of the amount invested by the Fund plus accrued interest, and
the Fund will make payment against such securities only upon physical delivery
or evidence of book entry transfer to the account of its Custodian. If the
market value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the U.S. Government security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that the
Fund could be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The Fund
may purchase securities on a "when-issued," forward commitment or delayed
settlement basis. In this event, the Custodian will segregate liquid assets
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equal to the amount of the 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 objective. Because the Fund
will segregate 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 incurring a
loss or missing an opportunity to obtain an advantageous price.
The market value of the securities underlying a when-issued purchase, a 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.
SHORT-TERM INVESTMENTS
The Fund may invest in any of the following securities and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Fund may
hold certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic banks, savings and loan associations
or financial institutions which, at the time of purchase, have capital, surplus
and undivided profits in excess of $100 million (including assets of both
domestic and foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully insured
by the U.S. Government.
In addition to buying certificates of deposit and bankers' acceptances, the Fund
also may make interest-bearing time or other interest-bearing deposits in
commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
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 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.
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.
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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 than the date of purchase and which are rated "AA" or higher by S&P or "Aa"
or higher by Moody's.
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.
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 the 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions that may not be
changed without approval by a "majority of the outstanding shares" of the Fund
which, as used in this SAI, means the vote of the lesser of (a) 67% or more of
the shares of the Fund represented at a meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(b) more than 50% of the outstanding shares of the Fund.
The Fund is diversified. This means that as to 75% of its total assets (1) no
more than 5% may be in the securities of a single issuer, (2) it may not hold
more than 10% of the outstanding voting securities of a single issuer.
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).
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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.
7. Make loans of money (except for purchases of debt securities consistent with
the investment policies of the Fund and except for repurchase agreements).
8. Make investments for the purpose of exercising control or management.
The Fund observes the following policies, which are not deemed fundamental and
which may be changed without shareholder vote. 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).
3. Make loans of securities.
4. Notwithstanding fundamental restriction 1 above, borrow money, except from
banks for temporary or emergency purposes, and in amounts not to exceed 5% of
total assets, and subject to the further restriction that no additional
investment in securities will be made while any such loan is outstanding.
If a percentage or rating restriction on investment or use of assets set forth
herein or in the Prospectus is adhered to at the time a transaction is effected,
later changes in percentage resulting from any cause other than actions by the
Fund will not be considered a violation. If the value of the Fund's holdings of
illiquid securities at any time exceeds the percentage limitation applicable at
the time of acquisition due to subsequent fluctuations in value or other
reasons, the Board of Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Pursuant to the Investment Advisory Agreement, the Advisor determines which
securities are to be purchased and sold by the Fund and which broker-dealers
will be used to execute the Fund's portfolio transactions. Purchases and sales
of securities in the over-the-counter market will be executed directly with a
"market-maker" unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained by using a broker for the transaction.
Purchases of portfolio securities for the Fund also may be made directly from
issuers or from underwriters. Where possible, purchase and sale transactions
will be made through dealers (including banks) which specialize in the types of
securities which the Fund will be holding, unless better executions are
available elsewhere. Dealers and underwriters usually act as principal for their
own account. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and price offered by more
than one broker, dealer or underwriter are comparable, the order may be
allocated to a broker, dealer or underwriter that has provided research or other
services as discussed below.
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In placing portfolio transactions, the Advisor will use its best efforts to
choose a broker-dealer capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
services available will be considered in making these determinations, such as
the size of the order, the difficulty of execution, the operational facilities
of the firm involved, the firm's risk in positioning a block of securities, and
other factors. In those instances where it is reasonably determined that more
than one broker-dealer can offer the most favorable price and execution
available, consideration may be given to those broker-dealers which furnish or
supply research and statistical information to the Advisor that it may lawfully
and appropriately use in its investment advisory capacities, as well as provide
other services in addition to execution services. The Advisor considers such
information, which is in addition to and not in lieu of the services required to
be performed by it under its Agreement with the Fund, to be useful in varying
degrees, but of indeterminable value. Portfolio transactions may be placed with
broker-dealers who sell shares of the Fund subject to rules adopted by the
National Association of Securities Dealers, Inc.
While it is the Fund's general policy to seek first to obtain the most favorable
price and execution available, in selecting a broker-dealer to execute portfolio
transactions for the Fund, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Advisor, even if the specific services are not directly useful to the Fund and
may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Advisor to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Advisor's overall responsibilities to the
Fund.
Investment decisions for the Fund are made independently from those of other
client accounts or mutual Fund managed or advised by the Advisor. Nevertheless,
it is possible that at times identical securities will be acceptable for both
the Fund and one or more of such client accounts. In such event, the position of
the Fund and such client account(s) in the same issuer may vary and the length
of time that each may choose to hold its investment in the same issuer may
likewise vary. However, to the extent any of these client accounts seeks to
acquire the same security as the Fund at the same time, the Fund may not be able
to acquire as large a portion of such security as it desires, or it may have to
pay a higher price or obtain a lower yield for such security. Similarly, the
Fund may not be able to obtain as high a price for, or as large an execution of,
an order to sell any particular security at the same time. If one or more of
such client accounts simultaneously purchases or sells the same security that
the Fund is purchasing or selling, each day's transactions in such security will
be allocated between the Fund and all such client accounts in a manner deemed
equitable by the Advisor, taking into account the respective sizes of the
accounts and the amount being purchased or sold. It is recognized that in some
cases this system could have a detrimental effect on the price or value of the
security insofar as the Fund is concerned. In other cases, however, it is
believed that the ability of the Fund to participate in volume transactions may
produce better executions for the Fund.
The Fund does not place securities transactions through brokers solely for
selling shares of the Fund, although the Fund may consider the sale of its
shares as a factor in allocating brokerage. However, as stated above,
broker-dealers who execute brokerage transactions may effect purchases of shares
of the Fund for their customers.
For the period December 2, 1997 (commencement of operations) through September
30, 1998, the Fund paid $7,311 in brokerage commissions. For the fiscal year
ended September 30, 1999, the Fund paid $7,761 in brokerage commissions, of
which $1,530 was paid to firms for research, statistical or other services
provided to the Advisor.
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PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading purposes,
portfolio securities may be sold without regard to the length of them they have
been held when, in the opinion of the Advisor, investment considerations warrant
such action. Portfolio turnover rate is calculated by dividing (1) the lesser of
purchases or sales of portfolio securities for the fiscal year by (2) the
monthly average of the value of portfolio securities owned during the fiscal
year. A 100% turnover rate would occur if all the securities in the Fund's
portfolio, with the exception of securities whose maturities at the time of
acquisition were one year or less, were sold and either repurchased or replaced
within one year. A high rate of portfolio turnover (100% or more) generally
leads to higher transaction costs and may result in a greater number of taxable
transactions. For the period December 2, 1997 through September 30, 1998 and the
fiscal year ended September 30, 1999, the Fund had a portfolio turnover rate of
54.49% and 62.49%, respectively.
DETERMINATION OF NET ASSET VALUE
As noted in the Prospectus, the net asset value and offering price of shares of
the Fund will be determined once daily as of the close of public trading on the
New York Stock Exchange ("NYSE") (normally 4:00 p.m. Eastern time) on each day
that the NYSE is open for trading. The Fund does not expect to determine the net
asset value of its shares on any day when the NYSE is not open for trading even
if there is sufficient trading in its portfolio securities on such days to
materially affect the net asset value per share. However, the net asset value of
Fund shares may be determined on days the NYSE is closed or at times other than
4:00 p.m. if the Board of Trustees decides it is necessary.
The Fund's securities, including ADRs, EDRs and GDRs, which are traded on
securities exchanges are valued at the last sale price on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last available bid and asked price. Securities that are traded on more than
one exchange are valued on the exchange determined by the Advisor to be the
primary market. Securities primarily traded in the NASDAQ National Market System
for which market quotations are readily available shall be valued at the last
sale price on the day of valuation, or if there has been no sale on such day, at
the mean between the bid and asked prices. Over-the-counter ("OTC") securities
which are not traded in the NASDAQ National Market System shall be valued at the
most recent trade price. Securities and assets for which market quotations are
not readily available (including restricted securities which are subject to
limitations as to their sale) are valued at fair value as determined in good
faith by or under the direction of the Board.
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.
Corporate debt securities are valued on the basis of valuations provided by
dealers in those instruments, by an independent pricing service, approved by the
Board, or at fair value as determined in good faith by procedures approved by
the Board. Any such pricing service, in determining value, will use information
with respect to transactions in the securities being valued, quotations from
dealers, market transactions in comparable securities, analyses and evaluations
of various relationships between securities and yield to maturity information.
An option that is written by 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.
Any assets or liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the official exchange rate or, alternatively, at
the mean of the current bid and asked prices of such currencies against the U.S.
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dollar last quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks. If neither of these
alternatives is available or both are deemed not to provide a suitable
methodology for converting a foreign currency into U.S. dollars, the Board in
good faith will establish a conversion rate for such currency.
The net asset value per Fund share is calculated as follows: all liabilities
incurred or accrued are deducted from the valuation of total assets which
includes accrued but undistributed income; the resulting net assets are divided
by the number of shares of the Fund outstanding at the time of the valuation and
the result (adjusted to the nearest cent) is the net asset value per share.
As of the date of this SAI, the NYSE is open for trading every weekday except
for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
PURCHASE AND REDEMPTION OF FUND SHARES
The information provided below supplements the information contained in the
Fund's Prospectus regarding the purchase and redemption of Fund shares.
HOW TO BUY SHARES
Fund shares are purchased at the net asset value next determined after the
Transfer Agent receives your order in proper form. In most cases, in order to
receive that day's public offering price, the Transfer Agent must receive your
order in proper form before the close of regular trading on the NYSE, currently
4:00 p.m. Orders are in proper form only after investment money is converted to
U.S. dollars. Orders paid by check and received by 4:00 p.m., Eastern Time, will
generally be available for the purchase of shares the following business day.
If you are considering redeeming or transferring shares to another person
shortly after purchase, you should pay for those shares with a certified check
to avoid any delay in redemption or transfer. Otherwise the Fund may delay
payment until the purchase price of those shares has been collected, which may
take up to 15 calender days. To eliminate the need for safekeeping, the Fund
will not issue certificates for your shares unless you request them.
The Trust reserves the right in its sole discretion (1) to suspend the continued
offering of the Fund's shares, (2) to reject purchase orders in whole or in part
when in the judgment of the Advisor or the Distributor such rejection is in the
best interest of the Fund, and (3) to reduce or waive the minimum for initial
and subsequent investments for certain fiduciary accounts or under circumstances
where certain economies can be achieved in sales of the Fund's shares.
Selected securities brokers, dealers or financial intermediaries may offer
shares of the Fund. Investors should contact these agents directly for
appropriate instructions, as well as information pertaining to accounts and any
service or transaction fees that may be charged by those agents. Purchase orders
through securities brokers, dealers and other financial intermediaries are
effected at the next-determined net asset value after receipt of the order by
such agent before the Fund's daily cutoff time, currently the close of regular
NYSE trading. Orders received after that time will be purchased at the
next-determined net asset value.
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular trading,
either directly to the Fund or through your investment representative. The Fund
will forward redemption proceeds or redeem shares for which it has collected
payment of the purchase price.
Payments to shareholders for Fund shares redeemed directly from the Fund will be
made as promptly as possible but no later than seven days after receipt by the
Fund's Transfer Agent of the written request in proper form, with the
appropriate documentation as stated in the Prospectus, except that the Fund may
suspend the right of redemption or postpone the date of payment during any
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period when (a) trading on the NYSE is restricted as determined by the SEC or
the NYSE is closed for other than weekends and holidays; (b) an emergency exists
as determined by the SEC making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable; or (c) for such other period
as the SEC may permit for the protection of the Fund's shareholders. At various
times, the Fund may be requested to redeem shares for which it has not yet
received confirmation of good payment; in this circumstance, the Fund may delay
the redemption until payment for the purchase of such shares has been collected
and confirmed to the Fund.
SELLING SHARES DIRECTLY TO THE FUND
Send a signed letter of instruction to the Transfer Agent, along with any
certificates that represent shares you want to sell. The price you will receive
is the next net asset value calculated after the Fund receives your request in
proper form.
In order to receive that day's net asset value, the Transfer Agent must receive
your request before the close of regular trading on the NYSE.
SELLING SHARES THROUGH YOUR INVESTMENT REPRESENTATIVE
Your investment representative must receive your request before the close of
regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services.
If you want your redemption proceeds sent to an address other than your address
as it appears on the Transfer Agent's records, a signature guarantee is
required. The Fund may require additional documentation for the sale of shares
by a corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Transfer Agent for details.
Signature guarantees may be obtained from a bank, broker-dealer, credit union
(if authorized under state law), securities exchange or association, clearing
agency or savings institution. A notary public cannot provide a signature
guarantee.
DELIVERY OF PROCEEDS
The Fund generally sends you payment for your shares the business day after your
request is received in proper form, assuming the Fund has collected payment of
the purchase price of your shares. Under unusual circumstances, the Fund may
suspend redemptions, or postpone payment for more than seven days, as permitted
by federal securities law.
TELEPHONE REDEMPTIONS
Upon receipt of any instructions or inquiries by telephone from a shareholder
or, if held in a joint account, from either party, or from any person claiming
to be the shareholder, the Fund or its agent is authorized, without notifying
the shareholder or joint account parties, to carry out the instructions or to
respond to the inquiries, consistent with the service options chosen by the
shareholder or joint shareholders in his or their latest Account Application or
other written request for services, including purchasing or redeeming shares of
the Fund and depositing and withdrawing monies from the bank account specified
in the Bank Account Registration section of the shareholder's latest Account
Application or as otherwise properly specified to the Fund in writing.
The Transfer Agent will employ these and other reasonable procedures to confirm
that instructions communicated by telephone are genuine; if such procedures are
observed, neither the Fund nor their agents will be liable for any loss,
liability, cost or expense arising out of any redemption request, including any
fraudulent or unauthorized request. For information, consult the Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
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REDEMPTIONS-IN-KIND
Subject to compliance with applicable regulations, the Fund has reserved the
right to pay the redemption price of its shares, either totally or partially, by
a distribution in kind of readily marketable portfolio securities (instead of
cash). The securities so distributed would be valued at the same amount as that
assigned to them in calculating the net asset value for the shares being sold.
If a shareholder received a distribution in kind, the shareholder could incur
brokerage or other charges in converting the securities to cash. The Trust has
filed an election under Rule 18f-1 committing to pay in cash all redemptions by
a shareholder of record up to amounts specified by the rule (approximately
$250,000).
MANAGEMENT
The overall management of the business and affairs of the Trust is vested with
its Board of Trustees. The Board approves all significant agreements between the
Trust and persons or companies furnishing services to it, including the
agreements with the Manager, Advisor, Administrator, Custodian and Transfer
Agent. The day to day operations of the Trust are delegated to its officers,
subject to the Fund's investment objective and policies and to general
supervision by the Board of Trustees.
The Trustees and officers of the Trust, their birth dates and positions with the
Trust, their business addresses and principal occupations during the past five
years are:
WALTER E. AUCH, SR. (born 1921) Trustee
6001 N. 62nd Place, Paradise Valley, AZ 85253. Business Consultant and Director,
Nicholas-Applegate Institutional Mutual Fund, Salomon Smith Barney Trak Fund 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 Fund, 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, The
Managers Fund.
ROBERT H. WADSWORTH (born 1940) Vice President
4455 E. Camelback Rd. Suite 261-E, Phoenix, AZ 85018. President, Robert H.
Wadsworth & Associates, Inc., Investment Company Administration, LLC and First
Fund Distributors, Inc.; Vice President, Professionally Managed Portfolios;
President, Guinness Flight Investment Fund, Inc.; Director, Germany Fund, Inc.,
New Germany Fund, Inc., Central European Equity Fund, Inc. and Deutsche Fund,
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.
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NAME AND POSITION AGGREGATE COMPENSATION FROM THE TRUST
- ----------------- -------------------------------------
Walter E. Auch, Sr., Trustee $12,000
Donald E. O'Connor, Trustee $12,000
George T. Wofford III, Trustee $12,000
The Trust has no pension or retirement plan. No other entity affiliated with the
Trust pays any compensation to the Trustees.
For the fiscal year ended September 30, 1999, trustees' fees and expenses in the
amount of $2,139 were allocated to the Fund. As of the date of this SAI, the
Trustees and Officers of the Trust as a group did not own more than 1% of the
outstanding shares of the Fund.
THE ADVISOR
Chase Investment Counsel Corp. acts as investment advisor to the Fund pursuant
to an Investment Advisory Agreement (the "Advisory Agreement"). Subject to such
policies as the Board of Trustees may determine, the Advisor is responsible for
investment decisions for the Fund. Pursuant to the terms of the Advisory
Agreement, the Advisor provides the Fund with such investment advice and
supervision as it deems necessary for the proper supervision of the Fund's
investments. The Advisor continuously provides investment programs and determine
from time to time what securities shall be purchased, sold or exchanged and what
portion of the Fund's assets shall be held uninvested. The Advisor furnishes, at
its own expense, all services, facilities and personnel necessary in connection
with managing the investments and effecting portfolio transactions for the Fund.
The Advisory Agreement will continue in effect from year to year only if such
continuance is specifically approved at least annually by the Board of Trustees
or by vote of a majority of the Fund's outstanding voting securities and by a
majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on such Advisory Agreement.
Pursuant to the terms of the Advisory Agreement, the Advisor is permitted to
render services to others. The Advisory Agreement is terminable without penalty
by the Trust on behalf of the Fund on not more than 60 days', nor less than 30
days', written notice when authorized either by a majority vote of the Fund's
shareholders or by a vote of a majority of the Board of Trustees of the Trust,
or by the Advisor on not more than 60 days', nor less than 30 days', written
notice, and will automatically terminate in the event of its "assignment" (as
defined in the 1940 Act). The Advisory Agreement provides that the Advisor under
such agreement shall not be liable for any error of judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in the
execution of portfolio transactions for the Fund, except for wilful misfeasance,
bad faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties thereunder.
In the event the operating expenses of the Fund, including all investment
advisory and administration fees, but excluding brokerage commissions and fees,
taxes, interest and extraordinary expenses such as litigation, for any fiscal
year exceed the Fund's expense limitation, the Advisor shall reduce its advisory
fee (which fee is described below) to the extent of its share of such excess
expenses. The amount of any such reduction to be borne by the Advisor shall be
deducted from the monthly advisory fee otherwise payable with respect to the
Fund during such fiscal year; and if such amounts should exceed the monthly fee,
the Advisor shall pay to the Fund its share of such excess expenses no later
than the last day of the first month of the next succeeding fiscal year.
In consideration of the services provided by the Advisor pursuant to the
Advisory Agreement, the Advisor is entitled to receive from the Fund an
investment advisory fee computed daily and paid monthly based on a rate equal to
a percentage of the Fund's average daily net assets specified in the Prospectus.
However, the Advisor may voluntarily agree to waive a portion of the fees
payable to it on a month-to-month basis.
The 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
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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.
For the period December 2, 1997 through September 30, 1998, the Advisor earned
$23,959 in advisory fees, all of which were voluntarily waived by the Advisor.
For the same period, the Advisor voluntarily reimbursed the Fund for expenses in
the amount of $36,774. For the fiscal year ended September 30, 1999, the Advisor
received advisory fees of $7,002, net of a waiver of $59,556.
THE ADMINISTRATOR
Pursuant to an Administration Agreement (the "Administration Agreement"),
Investment Company Administration, LLC is the administrator of the Fund (the
"Administrator"). The Administrator provides certain administrative services to
the Fund, including, among other responsibilities, coordinating the negotiation
of contracts and fees with, and the monitoring of performance and billing of,
the Fund's independent contractors and agents; preparation for signature by an
officer of the Trust of all documents required to be filed for compliance by the
Trust and the Fund with applicable laws and regulations excluding those of the
securities laws of various states; arranging for the computation of performance
data, including net asset value and yield; responding to shareholder inquiries;
and arranging for the maintenance of books and records of the Fund, and
providing, at its own expense, office facilities, equipment and personnel
necessary to carry out its duties. In this capacity, the Administrator does not
have any responsibility or authority for the management of the Fund, the
determination of investment policy, or for any matter pertaining to the
distribution of Fund shares.
The Administration Agreement is terminable without penalty by the Trust on
behalf of the Fund or by the Administrator on 60 days' written notice (as
defined in the 1940 Act). The Administration Agreement also provides that
neither the Administrator nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration of
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its or
their obligations and duties under the Administration Agreement.
For its services, the Administrator receives a monthly fee from the Fund at the
following annual rate:
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 period December 2, 1997 through September 30, 1998 and the fiscal year
ended September 30, 1999, the Administrator received fees of $20,444 and
$29,999, respectively.
DISTRIBUTION AGREEMENT
The Trust has entered into a Distribution Agreement (the "Distribution
Agreement") with First Fund Distributors, Inc. (the "Distributor"), pursuant to
which the Distributor acts as the Fund's underwriter, provides certain
administration services and promotes and arranges for the sale of the Fund's
shares. The Distributor is an affiliate of the Administrator.
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The Distribution Agreement will continue in effect only if such continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the Fund's outstanding voting securities and, in either case, by a
majority of the Trustees who are not parties to the Distribution Agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
Distribution Agreement is terminable without penalty by the Trust on behalf of
the Fund on 60 days' written notice when authorized either by a majority vote of
the Fund's shareholders or by vote of a majority of the Board of Trustees of the
Trust, including a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust, or by the Distributor on 60 days' written
notice, and will automatically terminate in the event of its "assignment" (as
defined in the 1940 Act). The Distribution Agreement also provides that neither
the Distributor nor its personnel shall be liable for any act or omission in the
course of, or connected with, rendering services under the Distribution
Agreement, except for willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties.
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 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.
TAX MATTERS
Each series of the Trust is treated as a separate entity for federal income tax
purposes. The Fund has qualified and intends to continue to elect to be treated
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986 (the "Code"), provided it complies with all applicable requirements
regarding the source of its income, diversification of its assets and timing of
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distributions. The Fund's policy is to distribute to its shareholders all of its
investment company taxable income and any net realized long-term 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. To comply with the requirements, the Fund must also
distribute (or be deemed to have distributed) by December 31 of each calendar
year (i) at least 98% of its ordinary income for such year, (ii) at least 98% of
the excess of its realized capital gains over its realized capital losses for
the 12-month period ending on October 31 during such year and (iii) any amounts
from the prior calendar year that were not distributed and on which the Fund
paid no federal income tax.
Net investment income consists of interest and dividend income, less expenses.
Net realized capital gains for a fiscal period are computed by taking into
account any capital loss carryforward of the Fund.
Distributions of net investment income and net short-term capital gains are
taxable to shareholders as ordinary income. In the case of corporate
shareholders, a portion of the distributions may qualify for the intercorporate
dividends-received deduction to the extent the Fund designates the amount
distributed as a qualifying dividend. This designated amount cannot, however,
exceed the aggregate amount of qualifying dividends received by the Fund for its
taxable year. In view of the Fund's investment policies, it is expected that
dividends from domestic corporations will be part of the Fund's gross income and
that, accordingly, part of the distributions by the Fund may be eligible for the
dividends- received deduction for corporate shareholders. However, the portion
of the Fund's gross income attributable to qualifying dividends is largely
dependent on the Fund's investment activities for a particular year and
therefore cannot be predicted with any certainty. The deduction may be reduced
or eliminated if the Fund shares held by a corporate investor are treated as
debt-financed or are held for less than 46 days.
Any long-term capital gain distributions are taxable to shareholders as
long-term capital gains regardless of the length of time shares have been held.
Capital gains distributions are not eligible for the dividends-received
deduction referred to in the previous paragraph. Distributions of any net
investment income and net realized capital gains will be taxable as described
above, whether received in shares or in cash. Shareholders who choose to receive
distributions 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 on the reinvestment date. Distributions are generally taxable
when received. However, distributions declared in October, November or December
to shareholders of record on a date in such a month and paid the following
January are taxable as if received on December 31. Distributions are includable
in alternative minimum taxable income in computing a shareholder's liability for
the alternative minimum tax.
A redemption of Fund shares may result in recognition of a taxable gain or loss.
Any loss realized upon a redemption of shares within six months from the date of
their purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gains during such
six-month period. Any loss realized upon a redemption may be disallowed under
certain wash sale rules to the extent shares of the same Fund are purchased
(through reinvestment of distributions or otherwise) within 30 days before or
after the redemption.
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 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 transactions in
options derived by the Fund with respect to its business of investing in
securities 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 a capital
gain or loss.
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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 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 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, 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.
Under the Code, the Fund will be required to report to the Internal Revenue
Service ("IRS") all distributions of taxable income and capital gains as well as
gross proceeds from the redemption of Fund shares, except in the case of exempt
shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Fund shares may be subject to
withholding of federal income tax at the rate of 31 percent in the case of
non-exempt shareholders who fail to furnish the Fund with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law. If the withholding provisions are applicable,
any such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Corporate and other exempt shareholders should provide the Fund with their
taxpayer identification numbers or certify their exempt status in order to avoid
possible erroneous application of backup withholding. The Fund reserves the
right to refuse to open an account for any person failing to provide a certified
taxpayer identification number.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts and estates. Each shareholder who is not a
U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30 percent (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income.
This discussion and the related discussion in the Prospectus have been prepared
by Fund management, and counsel to the Fund has expressed no opinion in respect
thereof.
B-18
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in advertisements and
investor communications. Total return may be stated for any relevant period as
specified in the advertisement or communication. Any statements of total return
will be accompanied by information on the Fund's average annual compounded rate
of return over the most recent four calendar quarters and the period from the
Fund's inception of operations. The Fund may also advertise aggregate and
average total return information over different periods of time.
The Fund's total return may be compared to any relevant indices, such as the
Standard & Poor's 500 Composite Stock Index and indices published by Lipper
Analytical Services, Inc. From time to time, evaluations of a Fund's performance
by independent sources may also be used in advertisements and in information
furnished to present or prospective investors in the Fund.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's total return for any period should
not be considered as a representation of what an investment may earn or what an
investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by reference
to a hypothetical $1,000 investment that includes capital appreciation and
depreciation for the stated period, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial purchase order of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized.
The Fund's average annual total return for the period December 2, 1997
(commencement of operations) through September 30, 1998 and for the fiscal year
ended September 30, 1999 was 18.68% and 27.90%, respectively. During this period
certain fees and expenses of the Fund were either waived or reimbursed.
Accordingly, total return is higher than it would have been had these fees and
expenses not been waived or reimbursed.
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through periodic
reports. Financial statements certified by independent public accountants will
be submitted to shareholders at least annually.
Firstar Bank, 425 Walnut St., Cincinnati, OH 45202 acts as Custodian of the
securities and other assets of the Fund. The Custodian does not participate in
decisions relating to the purchase and sale of securities by the Fund. American
Data Services, Inc., 150 Motor Parkway, Hauppauge, NY 11788-0132 acts as the
Fund's transfer and shareholder service agent.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY 10036, are
the independent auditors for the Fund.
Paul, Hastings, Janofsky & Walker, LLP ,345 California St., San Francisco, CA
94104 is counsel to the Fund.
On December 31, 1999, the following persons owned of record more that 5% of the
Fund's outstanding voting securities:
Derwood S. Chase, Jr., Charlottesville, VA - 9.67%
Chase Foundation of Virginia, Charlottesville, VA - 9.62%
Ralph Stow, IRA, Alexandria, VA - 7.26%
Charlottesville Community Foundation, Charlottesville, VA - 6.37%
B-19
<PAGE>
With respect to certain funds, the Trust may offer more than one class of
shares. The Trust has reserved the right to create and issue additional series
or classes. Each share of a series or class represents an equal proportionate
interest in that series or class with each other share of that series or class.
Currently, the Fund has only one class of shares.
The shares of each series or class participate equally in the earnings,
dividends and assets of the particular series or class. Expenses of the Trust
which are not attributable to a specific series or class are allocated amount
all the series in a manner believed by management of the Trust to be fair and
equitable. Shares have no pre-emptive or conversion rights. Shares when issued
are fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held. Shares of each series or class
generally vote together, except when required under federal securities laws to
vote separately on matters that only affect a particular class, such as the
approval of distribution plans for a particular class.
The Trust is not required to hold annual meetings of shareholders but will hold
special meetings of shareholders of a series or class when, in the judgment of
the Trustees, it is necessary or desirable to submit matters for a shareholder
vote. Shareholders have, under certain circumstances, the right to communicate
with other shareholders in connection with requesting a meeting of shareholders
for the purpose of removing one or more Trustees. Shareholders also have, in
certain circumstances, the right to remove one or more Trustees without a
meeting. No material amendment may be made to the Trust's Declaration of Trust
without the affirmative vote of the holders of a majority of the outstanding
shares of each portfolio affected by the amendment. The Trust's Declaration of
Trust provides that, at any meeting of shareholders of the Trust or of any
series or class, a Shareholder Servicing Agent may vote any shares as to which
such Shareholder Servicing Agent is the agent of record and which are not
represented in person or by proxy at the meeting, proportionately in accordance
with the votes cast by holders of all shares of that portfolio otherwise
represented at the meeting in person or by proxy as to which such Shareholder
Servicing Agent is the agent of record. Any shares so voted by a Shareholder
Servicing Agent will be deemed represented at the meeting for purposes of quorum
requirements. Shares have no preemptive or conversion rights. Shares, when
issued, are fully paid and non-assessable, except as set forth below. Any series
or class may be terminated (i) upon the merger or consolidation with, or the
sale or disposition of all or substantially all of its assets to, another
entity, if approved by the vote of the holders of two-thirds of its outstanding
shares, except that if the Board of Trustees recommends such merger,
consolidation or sale or disposition of assets, the approval by vote of the
holders of a majority of the series' or class' outstanding shares will be
sufficient, or (ii) by the vote of the holders of a majority of its outstanding
shares, or (iii) by the Board of Trustees by written notice to the series' or
class' shareholders. Unless each series and class is so terminated, the Trust
will continue indefinitely.
The Trust's Declaration of Trust also provides that the Trust shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
B-20
<PAGE>
APPENDIX A
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations or protective elements
may be of greater amplitude or there may be other elements present which make
long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospectus of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modified 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS GROUP
AAA: Bonds rated AAA are highest grade debt obligations. This rating indicates
an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
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<PAGE>
A: Bonds rated A have a strong capacity to pay principal and interest, although
they are more susceptible to the adverse effects of changes in circumstances and
economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.
BB: Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Bonds rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Bonds rated CCC have a currently identifiable vulnerability to default and
are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Bonds rated D are in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
additional of a plus or minus sign to show relative standing with the major
categories.
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APPENDIX B
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have a
superior ability for repayment of senior short-term debt obligations. "Prime-1"
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on Fund employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
B-23
