THE AVATAR
ADVANTAGE EQUITY
ALLOCATION FUND
Annual Report
For the year ended
December 31, 1999
<PAGE>
February 2000
Dear Shareholder,
We are pleased to report on the progress of THE AVATAR ADVANTAGE EQUITY
ALLOCATION FUND for the year ended December 31, 1999. For the year, Avatar's
asset allocation philosophy- participating in market gains during market
upswings while protecting those gains against loss during market downturns-
helped the Fund realize a total return of 17.11% (not including the sales
charge). The fully invested S&P 500 Index returned 21.03% for the year. For the
second half of the year, Avatar maintained a significant equity position. Our
exposure ranged between 65% and 90% invested in equities and the remainder in
cash.
1999-- THE SECOND SIX MONTHS IN REVIEW
For a year that began with a presidential impeachment trial, a war in Kosovo and
political characters of all stripes jockeying to succeed Bill Clinton, the last
half of the year was positively dull. The only questions that seemed to occupy
the public were the extent of Y2K problems and which city would have the best
millenium celebration. Even the question of Fed Chairman Alan Greenspan's
reappointment was settled before year-end.
The last half of the year saw the Fund begin with a cautious 65% invested
exposure to equities. This reflected the firm's moderately negative research,
caused primarily by the rising interest rate environment witnessed in late
summer. As the quarter progressed, however, rates eased somewhat and market
momentum improved. Due to these and other positive factors shown by our models,
we increased the Fund's allocation in equities in steps to an 85% position by
mid-November. As a result, the Fund caught the strong year-end rally in stocks.
The technology sector component of the S&P 500 increased an amazing 35% in the
last quarter of 1999 alone. We took advantage of this strength by over-weighting
that sector in the Fund. Exposure within technology was balanced across many of
the faster growing areas including fiber optics, data storage, semiconductors
and telecommunication equipment. Basic industries also performed well, helped by
higher commodity prices and global GDP growth. The healthcare, consumer staples
and utilities sectors were de-emphasized during this period, as was the energy
sector. We ended the year well poised to take advantage of those areas that we
feel will continue to show strength in 2000.
2
<PAGE>
2000 MARKET OUTLOOK
Corporate earnings for the last quarter appear to be poised to surpass analysts'
expectations and will come in at the low double-digit range. The strong growth
in corporate profits and the generally favorable positive flows of funds into
the equity market have added impetus to a favorably developing economic
backdrop. In a resounding manner, consumers have given a collective "thumbs up"
to the U.S. economy. Holiday spending was well ahead of last year and consumer
confidence surveys continue to reach upward. We expect, as a consequence, that
prospective GDP growth will extend the current business cycle into the longest
expansion in economic history. More importantly, this is all happening with only
a modest up-tick in inflation and new signs of a slowdown in the housing sector.
While long-term interest rates have marched higher with all of this good news,
surprisingly it has not adversely impacted the stock market. If inflation fails
to accelerate sharply in the months ahead, a good case can be made that
potential negative scenarios have already been priced into the level of both
long and short term interest rates, helping to restrain the Federal Reserve from
instituting a harsh new round of monetary tightening.
We continue to be concerned about the narrow stock market leadership. Broadening
of the market would be a welcome and healthy development. We begin the new
millenium in a neutral weight in our equity exposure. We expect continued
volatility as the country's political forces share center stage with its
economic forces to shape the coming year. Growth expectations for the remainder
of the year have been revised upward. World markets continue to follow the U.S.
business model of consolidation and cost cutting, which may spur stock
performance worldwide.
Our models show that the U.S. economy should continue to percolate at a good,
sustainable level that will not set off inflation or recession fears. While the
technology sector has emerged as the current market leader, we continue to hope
for a broadening of the markets. Our goal at Avatar is to evaluate current
investment risk and alter the portfolio mix to reflect the current environment.
We achieved this for the second year in a row under very difficult
circumstances.
/s/ Charles White
Charles White
Portfolio Manager
3
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
Comparison of the change in value of a $10,000 investment in
The Avatar Advantage Equity Allocation versus the
S&P 500 Composite Stock Price Index.
The Avatar S&P 500
Advantage Equity Composite Stock
Quarter Allocation Fund Price Index
------- ---------------- ---------------
3-Dec-97 $10,000 $10,000
31-Dec-97 $10,022 $ 9,947
31-Mar-98 $11,252 $11,333
30-Jun-98 $11,472 $11,707
30-Sep-98 $10,765 $10,542
31-Dec-98 $12,609 $12,791
31-Mar-99 $12,779 $13,423
30-Jun-99 $13,407 $14,367
30-Sep-99 $12,726 $13,468
31-Dec-99 $14,102 $15,480
Average Annual Total Return (1)
1 year............................ 11.84%
Since inception (12/3/97)......... 18.00%
- ----------
(1) Average Annual Total Return represents the average change in account value
over the periods indicated and includes sales charges.
The S&P 500 Index is an unmanaged capitalization-weighted index of 500 stocks
designed to represent the broad domestic economy.
Performance figures of the Fund and indexes referenced represent past
performance and are not indicative of future performance of the Fund or the
indexes. Share value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than the original investment. Indexes do not incur
expenses and are not available for investment.
The Fund is distributed by First Fund Distributors, Inc., Phoenix, AZ. Member
NASD.
4
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 89.71% Market Value
- --------------------------------------------------------------------------------
AEROSPACE/DEFENSE EQUIPMENT: 1.38%
3,000 United Technologies Corporation.................. $ 195,000
-----------
AUTOMOBILES: 0.76%
2,000 Ford Motor Company............................... 106,875
-----------
BANKS: 2.63%
4,600 Citigroup Inc.................................... 255,588
1,500 The Chase Manhattan Bank......................... 116,531
-----------
372,119
-----------
BANKS - REGIONAL: 1.42%
2,000 Northern Trust Corporation....................... 106,000
2,400 UnionBanCal Corporation.......................... 94,650
-----------
200,650
-----------
BEVERAGE - ALCOHOL: 1.46%
2,900 Anheuser-Busch Companies, Inc.................... 205,537
-----------
BIOTECHNOLOGY: 1.20%
2,000 Biogen Inc.* .................................... 169,000
-----------
BROADCASTING - TELEVISION, RADIO: 0.63%
1,400 CBS Corporation* ................................ 89,513
-----------
BUILDING MATERIALS CHAINS: 2.62%
5,400 The Home Depot, Inc.............................. 370,238
-----------
CABLE TELEVISION: 0.53%
1,000 Cablevision Systems Corporation* ................ 75,500
-----------
CHEMICALS: 1.12%
2,400 E. I. du Pont de Nemours and Company............. 158,100
-----------
COMPUTER - SOFTWARE: 5.32%
4,100 Microsoft Corporation* .......................... 478,675
6,000 Xilinx, Inc.* .................................. 272,813
-----------
751,488
-----------
See Notes to Financial Statements.
5
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
COMPUTER SERVICES: 4.20%
2,800 America Online, Inc. *........................... $ 211,225
3,500 EMC Corporation *................................ 382,375
-----------
593,600
-----------
COMPUTERS - HARDWARE: 3.62%
3,200 Dell Computer Corporation *...................... 163,200
1,500 International Business Machines
Corporation................................... 162,000
2,400 Sun Microsystems, Inc.* ......................... 185,850
-----------
511,050
-----------
COMPUTERS - PERIPHERALS: 0.58%
900 Lexmark International Group, Inc.* .............. 81,450
-----------
COMPUTERS - SOFTWARE AND SERVICES: 0.36%
600 Electronic Arts Inc.* ........................... 50,400
-----------
COSMETICS AND TOILETRIES: 1.24%
2,700 Colgate-Palmolive Company........................ 175,500
-----------
DIVERSIFIED MANUFACTURING: 2.96%
2,700 General Electric Company......................... 417,825
-----------
ELECTRIC COMPANIES: 0.69%
3,700 Edison International............................. 96,894
-----------
ELECTRICAL EQUIPMENT: 1.31%
3,200 Honeywell International, Inc.* .................. 184,600
-----------
ELECTRONIC COMPONENTS - SEMICONDUCTORS: 3.75%
2,300 Applied Materials, Inc.* ........................ 291,381
2,900 Intel Corporation................................ 238,706
-----------
530,087
-----------
ELECTRONICS: 3.65%
3,200 JDS Uniphase Corporation* ....................... 516,200
-----------
See Notes to Financial Statements.
6
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
ENTERTAINMENT: 1.03%
2,000 Time Warner, Inc................................. $ 144,875
-----------
FINANCE - MORTGAGE LOANS: 1.33%
3,000 Fannie Mae....................................... 187,313
-----------
FINANCIAL - DIVERSIFIED: 1.72%
1,700 Morgan Stanley Dean Witter & Co.................. 242,675
-----------
FINANCIAL SERVICES: 1.29%
1,100 American Express Company......................... 182,875
-----------
FOODS: 1.11%
4,400 General Mills, Inc.* ........................... 157,300
-----------
HEALTHCARE - MEDICAL PRODUCTS: 0.67%
2,600 Medtronic, Inc................................... 94,737
-----------
INSURANCE: 1.94%
2,540 American International Group, Inc................ 274,637
-----------
INSURANCE BROKER: 1.15%
1,700 Marsh & McLennan Companies, Inc.................. 162,669
-----------
MANUFACTURING - DIVERSIFIED: 1.37%
1,500 Corning Incorporated............................. 193,406
-----------
MEDICAL - DRUGS: 3.69%
3,400 Bristol-Myers Squibb Company..................... 218,237
3,700 Warner-Lambert Company........................... 303,169
-----------
521,406
-----------
METAL - ALUMINUM: 1.29%
2,200 Alcoa Inc........................................ 182,600
-----------
NETWORKING PRODUCTS: 3.37%
4,450 Cisco Systems, Inc.* ............................ 476,706
-----------
See Notes to Financial Statements.
7
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
OIL - INTEGRATED: 0.88%
2,200 Schlumberger Limited............................. $ 123,750
-----------
OIL & GAS - DRILLING & EQUIPMENT: 0.10%
427 Transocean Sedco Forex, Inc.* ................... 14,378
-----------
PAPER & FOREST PRODUCTS: 2.15%
3,000 Georgia-Pacific Corporation...................... 152,250
2,100 Weyerhaeuser Company............................. 150,806
-----------
303,056
-----------
PETROLEUM-PRODUCING: 0.78%
3,000 Apache Corporation............................... 110,812
-----------
PETROLEUM PRODUCTS: 3.33%
4,100 Enron Corp....................................... 181,938
1,700 Exxon Mobil Corporation.......................... 136,956
2,800 Texaco Inc....................................... 152,075
-----------
470,969
-----------
RETAIL - COMPUTERS AND ELECTRONICS: 0.70%
2,000 Tandy Corporation................................ 98,375
-----------
RETAIL - DEPARTMENT STORES: 0.88%
1,700 Dayton Hudson Corporation........................ 124,844
-----------
RETAIL - GENERAL MERCHANDISE: 1.12%
1,200 Costco Companies, Inc.* ......................... 109,500
700 Wal-Mart Stores, Inc............................. 48,388
-----------
157,888
-----------
RETAIL - SPECIALTY: 0.38%
1,800 Linens `n Things, Inc.* ......................... 53,325
-----------
SERVICES - ADVERTISING / MARKETING: 1.49%
2,100 Omnicom Group Inc.............................. 210,000
-----------
See Notes to Financial Statements.
8
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT: 8.39%
400 Broadcom Corporation, Class A* .................. $ 108,950
4,110 Lucent Technologies Inc.......................... 307,479
1,100 Nokia Corporation, ADR........................... 209,000
900 Nortel Networks Corporation...................... 90,900
1,600 QUALCOMM Incorporated *.......................... 282,000
2,100 Scientific-Atlanta, Inc.......................... 116,813
1,100 Tellabs, Inc. *.................................. 70,606
-----------
1,185,748
-----------
TELECOMMUNICATIONS SERVICES: 2.03%
2,700 GTE Corporation.................................. 190,519
2,000 Metromedia Fiber Network, Inc.* ................. 95,875
-----------
286,394
-----------
TELEPHONE SERVICES: 3.57%
5,000 BellSouth Corporation............................ 234,062
5,100 MCI WorldCom Incorporated* ...................... 270,619
-----------
504,681
-----------
TRANSPORTATION- RAIL: 0.62%
2,000 Union Pacific Corporation........................ 87,250
-----------
UTILITIES: 1.90%
3,600 The AES Corporation* ............................ 269,100
-----------
Total Common Stocks (Cost $9,033,217)............ 12,673,395
-----------
Principal Amount FEDERAL AGENCY OBLIGATIONS: 10.25%
- --------------------------------------------------------------------------------
$1,450,000 Freddie Mac Discount Note, 5.35%,
1/13/2000 (cost $1,447,414)................... 1,447,414
-----------
Principal Amount SHORT-TERM INVESTMENTS: 0.07%
- --------------------------------------------------------------------------------
10,313 Firstar Stellar Treasury Fund (Cost $10,313)..... 10,313
-----------
See Notes to Financial Statements.
9
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999, CONTINUED
- --------------------------------------------------------------------------------
Total Investments in Securities
(Cost $10,490,944+): 100.03%................. $14,131,122
Liabilities in excess of
Other Assets: (0.03%)........................ (4,469)
-----------
TOTAL NET ASSETS: 100.00%....................... $14,126,653
===========
* Non-income producing securities.
+ At December 31, 1999 the cost of securities for Federal tax purposes
is $10,495,985. Gross unrealized appreciation and depreciation of
securities is as follows:
Gross unrealized appreciation................... $ 3,830,024
Gross unrealized depreciation................... (194,887)
-----------
Net unrealized appreciation.......... $ 3,635,137
===========
10
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value
(identified cost $10,490,944) ........................... $ 14,131,122
Receivables:
Dividends and interest .................................. 4,959
Deferred organization costs ................................ 20,462
Prepaid expenses ........................................... 1,101
------------
Total assets ......................................... 14,157,644
------------
LIABILITIES
Payables:
Due to Advisor .......................................... 3,845
Distribution fees (Note 4) .............................. 2,897
Accrued expenses ........................................... 24,249
------------
Total liabilities .................................... 30,991
------------
NET ASSETS .................................................... $ 14,126,653
============
NET ASSET VALUE AND REDEMPTION* PRICE PER SHARE
[$14,126,653 / 1,147,535 shares outstanding; unlimited
number of shares (par value $.01) authorized] .............. $ 12.31
============
OFFERING PRICE PER SHARE ($12.31/.9550) ....................... $ 12.89
============
COMPONENTS OF NET ASSETS
Paid-in capital ............................................ $ 10,633,630
Undistributed net investment income ........................ 1,662
Distributions in excess of net realized gain ............... (148,817)
Net unrealized appreciation on investments ................. 3,640,178
------------
Net assets .............................................. $ 14,126,653
============
* Redemption of shares held less than 1 year are subject to a 1% redemption fee
payable to the Fund.
See Notes to Financial Statements.
11
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends .............................................. $ 110,204
Interest ............................................... 111,072
-----------
Total income ........................................ 221,276
-----------
Expenses
Advisory fees (Note 3) ................................. 118,870
Distribution fees (Note 4) ............................. 34,962
Administration fees (Note 3) ........................... 30,023
Audit fees ............................................. 19,415
Fund accounting fees ................................... 18,998
Transfer agent fees .................................... 13,001
Custody fees ........................................... 9,615
Legal fees ............................................. 7,535
Amortization of deferred organization costs ............ 7,001
Reports to shareholders ................................ 6,000
Registration fees ...................................... 4,001
Insurance .............................................. 3,217
Trustees' fees ......................................... 2,835
Miscellaneous .......................................... 2,501
-----------
Total expenses ...................................... 277,974
Less: Advisory fee waiver (Note 3) ................ (68,204)
-----------
Net expenses ........................................ 209,770
-----------
NET INVESTMENT INCOME ............................ 11,506
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions .............. 1,425,102
Net change in unrealized appreciation
on investments ......................................... 810,363
-----------
Net realized and unrealized gain on investments ........ 2,235,465
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................... $ 2,246,971
===========
See Notes to Financial Statements.
12
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ ------------
NET INCREASE/(DECREASE) IN
ASSETS FROM OPERATIONS
Net investment income ......................... $ 11,506 $ 53,644
Net realized gain from security
transactions ................................. 1,425,102 830,832
Net realized loss from futures
transactions ................................. -- (60,910)
Net change in unrealized appreciation
on investments ............................... 810,363 2,757,250
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................... 2,246,971 3,580,816
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ......................... -- (59,113)
Net realized gain on security
transactions ................................. (1,424,086) (740,543)
In excess of net realized gains ............... (148,817) --
Return of Capital ............................. -- (28,412)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS ........................... (1,572,903) (828,068)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets derived from
net change in outstanding shares (a) ......... (1,237,226) (8,308,922)
------------ ------------
TOTAL DECREASE IN NET ASSETS ............... (563,158) (5,556,174)
NET ASSETS
Beginning of year ................................ 14,689,811 20,245,985
------------ ------------
END OF YEAR (including undistributed
net investment income of $1,662
and $0, respectively) ........................... $ 14,126,653 $ 14,689,811
============ ============
(a) A summary of capital shares transactions is as follows:
Year Ended Year Ended
December 31, 1999 Dec. 31, 1998
----------------------- --------------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold ........... 77,232 $ 926,857 194,971 $ 2,180,409
Shares issued in
reinvestment of
distributions ........ 130,857 1,572,903 74,946 828,068
Shares redeemed ....... (301,355) (3,736,986) (1,050,075) (11,317,399)
-------- ----------- ---------- ------------
Net decrease .......... (93,266) $(1,237,226) (780,158) $ (8,308,922)
======== =========== ========== ============
See Notes to Financial Statements.
13
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
FINANCIAL HIGHLIGHTS
FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
Year Ended Year Ended December 3, 1997*
December 31, December 31, through
1999 1998 December 31, 1997
------------ ------------ -----------------
Net asset value, beginning
of period ................... $11.84 $10.02 $10.00
------ ------ ------
Income from investment operations:
Net investment income....... 0.01 0.05 0.01
Net realized and unrealized
gain on investments....... 1.98 2.48 0.02
------ ------ ------
Total from investment
operations................... 1.99 2.53 0.03
------ ------ ------
Less distributions:
From net investment
income ................... (0.00) (0.05) (0.01)
From net realized gains..... (1.38) (0.64) (0.00)
In excess of net
realized gains............ (0.14) (0.00) (0.00)
Tax return of capital....... (0.00) (0.02) (0.00)
------ ------ ------
Total distributions............ (1.52) (0.71) (0.01)
------ ------ ------
Net asset value,
end of period................ $12.31 $11.84 $10.02
====== ====== ======
Total return................... 17.11% 25.81% 0.22%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(millions)................... $ 14.1 $ 14.7 $ 20.2
Ratio of expenses to average
net assets:
Before expense
reimbursement............. 1.99% 2.03% 1.52%+
After expense
reimbursement............. 1.50% 1.50% 1.39%+
Ratio of net investment income to
average net assets:
After expense
reimbursement............. 0.08% 0.36% 0.47%+
Portfolio turnover rate........ 101.86% 79.95% 2.48%**
* Commencement of operations.
** Not Annualized.
+ Annualized.
See Notes to Financial Statements.
14
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Avatar Advantage Equity Allocation Fund (the "Fund") is a series of
shares of beneficial interest of Advisors Series Trust (the "Trust"), which is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund began operations on December 3, 1997.
The Fund's objective is to seek long-term capital appreciation by investing in
equity securities.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. SECURITY VALUATION: The Fund's investments are carried at fair value.
Securities that are primarily traded on a national securities exchange
shall be valued at the last sale price on the exchange on which they
are primarily traded on the day of valuation or, if there has been no
sale on such day, at the mean between the bid and asked prices.
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 for which market quotations are not readily available, if
any, are valued following procedures approved by the Board of
Trustees. Short-term investments are valued at amortized cost, which
approximates market value.
B. FEDERAL INCOME TAXES: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no federal income tax
provision is required.
C. SECURITY TRANSACTIONS, DIVIDENDS AND DISTRIBUTIONS: Security
transactions are accounted for on the trade date. Dividend income and
distributions to shareholders, which are determined in accordance with
income tax regulations, are recorded on the ex-dividend date.
Distributions which exceed net realized gains for financial reporting
15
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
purposes but not for tax purposes are reported as distributions in
excess of net realized gains and are primarily due to differing
treatments for wash sales and losses realized subsequent to October 31
on sale of securities. Realized gains and losses on securities sold
are determined on the basis of identified cost. Discounts and premiums
on securities purchased are amortized over the life of the respective
securities.
D. DEFERRED ORGANIZATION COSTS: The Fund has incurred expenses of $35,000
in connection with its organization. These costs have been deferred
and are being amortized on a straight-line basis over a period of
sixty months from the date the Fund commenced investment operations.
E. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net
assets during the reporting period. Actual results could differ from
those estimates.
NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
For the period ended December 31, 1999, Avatar Investors Associates Corp.
(the "Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnished all investment advice,
office space, facilities, and provides most of the personnel needed by the Fund.
As compensation for its services, the Advisor is entitled to a monthly fee at
the annual rate of 0.85% based upon the average daily net assets of the Fund.
For the year ended December 31, 1999, the Fund incurred $118,870 in advisory
fees.
The Fund is responsible for its own operating expenses. The Advisor has
agreed to reduce fees payable to it by the Fund and to pay Fund operating
expenses to the extent necessary to limit the Fund's aggregate annual operating
expenses to 1.50% of average net assets (the "expense cap"). Any such reductions
made by the Advisor in its fees or payment of expenses which are the Fund's
obligation are subject to reimbursement by the Fund to the Advisor, if so
requested by the Advisor, in subsequent fiscal years if the aggregate amount
actually paid by the Fund toward the operating expenses for such fiscal year
(taking into account the reimbursement) does not exceed the applicable
limitation on Fund expenses. The Advisor is permitted to be reimbursed only for
16
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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 review and approval at
the time the reimbursement is made. Such reimbursement may not be paid prior to
the Fund's payment of current ordinary operating expenses. For the year ended
December 31, 1999, the Advisor reduced its fees and absorbed Fund expenses in
the amount of $68,204; no amounts were reimbursed to the Advisor. Cumulative
expenses subject to recapture pursuant to the aforementioned condition amounted
to $148,615 for the Fund at December 31, 1999.
Investment Company Administration, LLC (the "Administrator") acts as the
Fund's Administrator under an Administration Agreement. The Administrator
prepares various federal and state regulatory filings, reports and returns for
the Fund; prepares reports and materials to be supplied to the Trustees;
monitors the activities of the Fund's custodian, transfer agent and accountants;
coordinates the preparation and payment of the Fund's expenses and reviews the
Fund's expense accruals. For its services, the Administrator receives a monthly
fee at the following annual rate:
Fund asset level Fee rate
- ---------------- --------
Less than $15 million $30,000
$15 million to less than $50 million 0.20% of average daily net assets
$50 million to less than $100 million 0.15% of average daily net assets
$100 million to less than $150 million 0.10% of average daily net assets
More than $150 million 0.05% of average daily net assets
First Fund Distributors, Inc. (the "Distributor") acts as the Fund's
principal underwriter in a continuous public offering of the Fund's shares. The
Distributor is an affiliate of the Administrator.
Certain officers of the Fund are also officers and/or directors of the
Administrator and the Distributor.
NOTE 4 - DISTRIBUTION COSTS
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 (the
"Plan"). The Plan permits the Fund to pay for distribution and related expenses
at an annual rate of up to 0.25% of the Fund's average daily net assets
annually. The expenses covered by the Plan may include the cost of preparing and
distributing prospectuses and other sales material, advertising and public
relations expenses, payments to financial intermediaries and compensation of
personnel involved in selling shares of the Fund. Payments made pursuant to the
17
<PAGE>
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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Plan will represent compensation for distribution and service activities, not
reimbursements for specific expenses incurred. Pursuant to a distribution
coordination agreement adopted under the Plan, distribution fees are paid to the
Advisor as "Distribution Coordinator". During the year ended December 31, 1999,
the Fund paid the Distribution Coordinator in the amount of $34,962.
NOTE 5 - PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1999, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$11,736,256 and $13,057,566, respectively.
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INDEPENDENT AUDITOR'S REPORT
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TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Avatar Advantage Equity
Allocation Fund, series of Advisors Series Trust (the "Fund") at December 31,
1999, and the results of its operations, the changes in its net assets and the
financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above. The financial statements for the year ended December 31, 1998
including the financial highlights for the period prior to December 31, 1999
were audited by other independent accountants whose reported dated January 29,
1999 expressed an unqualified opinion on those financial statements.
PricewaterhouseCoopers LLP
New York, New York
February 4, 2000
19
<PAGE>
CHANGE IN INDEPENDENT ACCOUNTANT
- --------------------------------------------------------------------------------
On August 27, 1999, McGladrey & Pullen, LLP ("McGladrey") resigned as
independent auditors of the Fund pursuant to an agreement by
PricewaterhouseCoopers LLP ("PwC") to acquire McGladrey's investment company
practice. The McGladrey partners and professionals serving the Fund at the time
of the acquisition joined PwC.
The reports of McGladrey on the financial statements of the Fund during the past
two fiscal years contained no adverse opinion or disclaimer of opinion, and were
not qualified or modified as to uncertainly, audit scope or accounting
principles.
In connection with its audit for the most recent two fiscal years and through
August 27, 1999, there were no disagreements with McGladrey on any matter of
accounting principle or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
McGladrey would have caused it to make reference to the subject matter of
disagreement in connection with its report.
On September 10, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.
20
<PAGE>
ADVISOR
Avatar Investors Associates Corp.
900 Third Avenue
New York, New York 10022
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East 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, Inc.
150 Motor Parkway, Suite 109
Hauppauge, New York 11788
888-263-6452
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, California 94104
AUDITORS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
