The American Trust
Allegiance Fund
One Court Street
Lebanon, New Hampshire 03766
ANNUAL REPORT
FEBRUARY 29, 2000
<PAGE>
April, 2000
Dear Fellow Shareholder,
We are pleased to send you the American Trust Allegiance Fund's annual
report for the twelve months ending February 29, 2000. Asset growth of the Fund
has been encouraging with total net assets reaching $36.9 million as of February
29, 2000. The Fund's investment performance continues to be quite competitive,
as it ranked in the top 17% of growth mutual funds over the past twelve months
according to Lipper Analytic Services, Inc. Based on total return, Lipper ranked
the Fund 200 out of 1207 growth funds for the year ending February 29, 2000.
In an effort to provide shareholders with more information on the Fund, we
established our own website on the Internet, located at www.AllegianceFund.com.
Our website is updated each evening with the closing net asset value and on a
quarterly basis, investment performance is updated. Our "ticker" symbol for the
Fund is "ATAFX" which can also be used to obtain current net asset values. And
finally, we remind shareholders that the Fund is now included in many newspapers
around the country, including the WALL STREET JOURNAL, and is listed as
"AMTRALLEGNC", just before the heading for Am Skandia Funds. Our investment
discipline utilizes a "bottom up" approach and our focus continues to be on any
changes in the competitive position or the underlying fundamentals of the
companies we own, rather than timing the stock market or reacting to perceived
valuation levels. Our job is to look through the day to day volatility of the
U.S. stock market and track the operating performance of companies in our
portfolio. We believe that fundamentals for our companies are quite robust and
earnings will be strong overall. However, the extended valuation levels in the
U.S. market have been widely discussed and have been apparent to most investors.
Again, our job is to keep an eye on the long term potential of our companies.
Our research continues to favor predominantly large capitalization,
domestic, high quality companies which possess, on average, growth in earnings
per share faster than that of the general stock market. In the current market
environment, we feel companies that have demonstrated a more predictable,
consistent record of growth in earnings per share are the most attractive.
Despite inherent shorter term volatility, our research continues to favor
companies in the technology sector and consequently, the Fund's portfolio is
overweighted, relative to the S&P 500 Index, in this area.
We thank you for your support and look forward to helping you achieve your
financial goals.
/s/ Jeffrey M. Harris
Jeffrey M. Harris, CFA
/s/ Paul H. Collins
Paul H. Collins
Remember past performance is not a guarantee of future results. Fund share
values and returns fluctuate and investors may have a gain or a loss when shares
are redeemed. During the year ended February 29, 2000, fees were waived and
expenses advanced to the Fund.
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
AMERICAN TRUST ALLEGIANCE FUND
Comparison of the change in value of a $10,000 investment in the American Trust
Allegiance Fund versus the S & P 500 Composite Stock Price Index
American Trust S&P 500 Composite
Allegiance Fund Stock Price Index
--------------- -----------------
11-Mar-97 $10,000 $10,000
31-Mar-97 $9,210 $9,342
31-May-97 $10,630 $10,497
31-Aug-97 $11,450 $11,175
30-Nov-97 $12,200 $11,927
28-Feb-98 $13,480 $13,149
29-May-98 $13,620 $13,718
31-Aug-98 $12,110 $12,086
30-Nov-98 $15,130 $14,750
28-Feb-99 $17,183 $15,742
31-May-99 $17,842 $16,600
31-Aug-99 $17,893 $16,892
30-Nov-99 $20,765 $17,829
29-Feb-00 $25,942 $17,585
Average Annual Total Return(1)
1 Year..............................50.97%
Since Inception (3/11/97)...........37.81%
- ----------
(1) Average Annual Total Return represents the average change in account value
over the periods indicated.
Past performance is not predictive of future performance.
* The S&P 500 Composite Stock Price Index is an unmanaged
capitalization-weighted index of 500 stocks designed to represent the broad
domestic economy.
2
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
TOP 10 HOLDINGS AT FEBRUARY 29, 2000
- --------------------------------------------------------------------------------
Analog Devices, Inc.
Cisco Systems, Inc.
EMC Corporation
Intel Corporation
JDS Uniphase Corporation
Juniper Networks, Inc.
Network Appliance, Inc.
SDL, Inc.
Sun Microsystems, Inc.
Texas Instruments, Incorporated
3
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
SCHEDULE OF INVESTMENTS AT FEBRUARY 29, 2000
- --------------------------------------------------------------------------------
Shares COMMON STOCKS: 98.59% Market Value
- --------------------------------------------------------------------------------
AIR FREIGHT: 1.01%
9,900 Expeditors International of Washington, Inc.......... $ 373,725
-----------
ALUMINUM: 1.78%
9,600 Alcoa Inc............................................ 657,600
-----------
BANKS - MAJOR REGIONAL: 1.56%
6,050 Fifth Third Bancorp.................................. 314,978
4,600 Northern Trust Corporation........................... 259,900
-----------
574,878
-----------
BROADCAST MEDIA: 1.55%
13,500 Comcast Corporation - Special Class A............... 573,750
-----------
COMMUNICATIONS EQUIPMENT: 7.24%
9,400 Lucent Technologies Inc.............................. 559,300
3,800 Nokia Corporation, ADR, Class A...................... 753,588
8,100 Nortel Networks Corporation.......................... 903,150
9,500 Tellabs, Inc.*....................................... 456,000
-----------
2,672,038
-----------
COMPUTER HARDWARE: 3.42%
2,500 International Business Machines Corporation.......... 255,000
10,600 Sun Microsystems, Inc.*.............................. 1,009,650
-----------
1,264,650
-----------
COMPUTER SOFTWARE AND SERVICES: 7.71%
9,700 America Online, Inc.*................................ 572,300
7,450 Microsoft Corporation*............................... 665,844
2,800 Oracle Corporation*.................................. 207,900
5,400 Siebel Systems, Inc.*................................ 748,913
3,300 VERITAS Software Corporation*........................ 652,987
-----------
2,847,944
-----------
COMPUTERS - NETWORKING: 8.84%
8,910 Cisco Systems, Inc.*................................. 1,177,791
3,750 Juniper Networks, Inc.*.............................. 1,028,672
5,600 Network Appliance, Inc.*............................. 1,057,000
-----------
3,263,463
-----------
See accompanying Notes to Financial Statements.
4
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
SCHEDULE OF INVESTMENTS AT FEBRUARY 29, 2000, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
COMPUTERS - PERIPHERAL: 2.93%
9,100 EMC Corporation*..................................... $ 1,082,900
-----------
ELECTRICAL EQUIPMENT: 1.98%
7,700 Symbol Technologies, Inc............................. 732,462
-----------
ELECTRONIC COMPONENT: 2.98%
9,300 Flextronics International Ltd.*...................... 566,138
8,150 Solectron Corporation*............................... 533,825
-----------
1,099,963
-----------
ELECTRONICS - SEMICONDUCTOR: 22.98%
6,400 Analog Devices, Inc.*................................ 1,004,800
4,000 Broadcom Corporation - Class A*...................... 789,500
6,700 Conexant Systems, Inc.*.............................. 658,275
9,400 Intel Corporation.................................... 1,062,200
4,700 JDS Uniphase Corporation*............................ 1,239,625
3,300 SDL, Inc.*........................................... 1,353,000
8,300 Taiwan Semiconductor Manufacturing Co., Ltd., ADR*... 496,444
5,700 Texas Instruments, Incorporated...................... 949,050
9,000 Vitesse Semiconductor Corporation*................... 934,314
-----------
8,487,208
-----------
ELECTRONICS - SEMICONDUCTOR EQUIPMENT: 3.77%
4,900 Applied Materials, Inc.*............................. 896,394
5,700 Teradyne, Inc.*...................................... 495,900
-----------
1,392,294
-----------
FINANCIAL - DIVERSIFIED: 1.05%
7,300 Fannie Mae........................................... 386,900
-----------
HOUSEHOLD PRODUCTS: 1.87%
13,250 Colgate-Palmolive Company............................ 691,484
-----------
INSURANCE - BROKERS: 1.42%
6,775 Marsh & McLennan Companies, Inc...................... 524,216
-----------
INSURANCE - MULTILINE: 1.96%
8,178 American International Group, Inc.................... 723,242
-----------
See accompanying Notes to Financial Statements.
5
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
SCHEDULE OF INVESTMENTS AT FEBRUARY 29, 2000, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
MANUFACTURER - DIVERSE: 0.97%
6,900 Illinois Tool Works Inc.............................. $ 356,644
-----------
OIL - INTERNATIONAL: 1.28%
6,300 Exxon Mobil Corporation.............................. 474,469
-----------
OIL AND GAS - DRILL AND EQUIPMENT: 1.92%
9,600 Schlumberger Limited................................. 709,200
-----------
PAPER AND FOREST PRODUCTS: 1.93%
13,900 Weyerhaeuser Company................................. 713,244
-----------
RESTAURANTS: 1.15%
13,500 McDonald's Corporation............................... 426,094
-----------
RETAIL - APPAREL: 2.04%
15,575 The Gap, Inc......................................... 752,467
-----------
RETAIL - BUILDING SUPPLY: 2.09%
13,350 The Home Depot, Inc.................................. 771,797
-----------
RETAIL - DISCOUNTS: 0.90%
15,900 Dollar General Corporation........................... 332,906
-----------
RETAIL - SPECIALTY: 1.31%
17,100 Bed Bath & Beyond Inc.*.............................. 485,212
-----------
SERVICES - DATA PROCESSING: 2.92%
9,400 Automatic Data Processing............................ 409,487
13,350 Paychex, Inc......................................... 668,334
-----------
1,077,821
-----------
STEEL: 1.45%
10,800 Nucor Corporation.................................... 536,625
-----------
TELECOMMUNICATIONS - CELLULAR: 1.63%
4,400 Nextel Communications, Inc.*......................... 599,775
-----------
See accompanying Notes to Financial Statements.
6
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
SCHEDULE OF INVESTMENTS AT FEBRUARY 29, 2000, CONTINUED
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS - LONG DISTANCE: 3.01%
14,650 MCI WorldCom Incorporated*........................... $ 653,756
9,900 Qwest Communications International Inc.*............. 459,112
-----------
1,112,868
-----------
TELEPHONE: 1.94%
8,700 BellSouth Corporation................................ 354,525
9,500 SBC Communications Inc............................... 361,000
-----------
715,525
-----------
Total Common Stocks (Cost $23,086,784)+: 98.59%...... 36,413,364
-----------
SHORT-TERM INVESTMENTS: 0.66%
- --------------------------------------------------------------------------------
$242,416 Firstar Stellar Treasury Fund (Cost $242,416)........ 242,416
-----------
Total Investments in Securities (Cost $23,329,200):
99.25%............................................. 36,655,780
Assets in excess of Liabilities: 0.75%............... 276,241
-----------
Total Net Assets: 100.00%............................ $36,932,021
===========
* Non-income producing security.
+ At February 29, 2000, the cost of securities for Federal tax purposes was
$23,332,259. Gross unrealized appreciation and depreciation of securities is as
follows:
Gross unrealized appreciation........................ $14,227,399
Gross unrealized depreciation........................ (903,878)
-----------
Net unrealized appreciation.................. $13,323,521
===========
See accompanying Notes to Financial Statements.
7
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
STATEMENT OF ASSETS AND LIABILITIES AT FEBRUARY 29, 2000
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (identified
cost $23,329,200) ............................................ $36,655,780
Receivables
Fund shares sold ........................................... 178,723
Securities sold ............................................ 302,670
Dividends and interest ..................................... 8,629
Deferred Organization Costs .................................... 7,498
Prepaid expenses ............................................... 9,550
-----------
Total assets ............................................ 37,162,850
-----------
LIABILITIES
Payables
Due to Advisor ............................................. 2,922
Fund shares repurchased .................................... 4,999
Securities purchased ....................................... 205,450
Administration fees ........................................ 5,401
Accrued expenses ............................................... 12,057
-----------
Total liabilities ....................................... 230,829
-----------
NET ASSETS ....................................................... $36,932,021
===========
Net asset value, offering and redemption price per share
[$36,932,021 / 1,444,929 shares outstanding; unlimited number
of shares (par value $0.01) authorized] ........................ $ 25.56
===========
COMPONENTS OF NET ASSETS
Paid-in capital ................................................ $22,606,750
Accumulated net realized gain on investments ................... 998,691
Net unrealized appreciation on investments ..................... 13,326,580
-----------
Net assets ................................................. $36,932,021
===========
See accompanying Notes to Financial Statements.
8
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED FEBRUARY 29, 2000
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends ............................................... $ 114,621
Interest ................................................ 43,313
------------
Total income ...................................... 157,934
------------
Expenses
Advisory fees (Note 3) .................................. 205,744
Administration fees (Note 3) ............................ 43,444
Custodian and accounting fees ........................... 27,872
Transfer agent fees ..................................... 37,644
Audit fees .............................................. 14,503
Registration fees ....................................... 30,575
Miscellaneous ........................................... 2,005
Trustees' fees .......................................... 2,642
Reports to shareholders ................................. 4,011
Legal fees .............................................. 5,987
Insurance ............................................... 2,216
Amortization of deferred organization costs ............. 3,711
------------
Total expenses ..................................... 380,354
Less: advisory fee waiver (Note 3) ................. (64,883)
------------
Net expenses ....................................... 315,471
------------
Net investment loss ............................ (157,537)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions ................ 1,178,889
Net change in unrealized appreciation on investments ........ 9,654,443
------------
Net realized and unrealized gain on investments ......... 10,833,332
------------
Net Increase in Net Assets Resulting from Operations $ 10,675,795
============
See accompanying Notes to Financial Statements.
9
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
Year Year
Ended Ended
February 29, 2000 February 28, 1999
----------------- -----------------
<S> <C> <C>
INCREASE / (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment loss........................................ $ (157,537) $ (52,858)
Net realized gain (loss) from security transactions ....... 1,178,889 (94,763)
Net change in unrealized appreciation on investments....... 9,654,443 2,552,998
----------- -----------
Net increase in net assets resulting from operations... 10,675,795 2,405,377
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on security transactions ................ -- (147,358)
----------- -----------
Total dividends and distributions to shareholders....... -- (147,358)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from net change
in outstanding shares (a)............................... 12,926,816 4,711,269
----------- -----------
Total increase in net assets............................... 23,602,611 6,969,288
NET ASSETS
Beginning of year............................................... 13,329,410 6,360,122
----------- -----------
End of year .................................................. $36,932,021 $13,329,410
=========== ===========
</TABLE>
(a) A summary of capital shares transactions is as follows:
Year Year
Ended Ended
February 29, 2000 February 28, 1999
---------------------- ---------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold .................. 743,011 $14,552,043 384,345 $5,725,856
Shares issued in reinvestment
of distributions.............. -- -- 9,895 144,009
Shares redeemed................. (85,249) (1,625,227) (79,048) (1,158,596)
------- ----------- ------- ----------
Net increase .................. 657,762 $12,926,816 315,192 $4,711,269
======= =========== ======= ==========
See accompanying Notes to Financial Statements.
10
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------------------
Year Year March 11, 1997*
Ended Ended through
Feb. 29, 2000 Feb. 28, 1999 Feb. 28, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period.................... $16.93 $13.48 $10.00
------ ------ ------
Income from investment operations:
Net investment loss................................ (0.11) (0.07) (0.03)
Net realized and unrealized gain on investments.... 8.74 3.74 3.51
------ ------ ------
Total from investment operations........................ 8.63 3.67 3.48
------ ------ ------
Less distributions:
From net realized gain............................. 0.00 (0.22) 0.00
------ ------ ------
Total distributions..................................... 0.00 (0.22) 0.00
------ ------ ------
Net asset value, end of period.......................... $25.56 $16.93 $13.48
====== ====== ======
Total return .......................................... 50.97% 27.47% 34.80%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)................... $36,932 $13,329 $6,360
Ratio of expenses to average net assets:
Before expense reimbursement....................... 1.75% 2.30% 4.04%**
After expense reimbursement........................ 1.45% 1.45% 1.45%**
Ratio of net investment loss to average net assets
After expense reimbursement........................ (0.73)% (0.57)% (0.42)%**
Portfolio turnover rate................................. 39.81% 40.99% 27.65%
</TABLE>
*Commencement of operations.
**Annualized.
+ Not Annualized.
See accompanying Notes to Financial Statements.
11
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 2000
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The American Trust Allegiance 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 investment objective of the Fund is to seek capital
appreciation. The Fund began operations on March 11, 1997.
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. 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 $18,500
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 year ended February 29, 2000, American Trust Company (the
"Advisor") provided the Fund with investment management services under an
Investment Advisory Agreement. The Advisor furnished all investment advice,
12
<PAGE>
AMERICAN TRUST ALLEGIANCE FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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 0.95% based upon the average daily net assets of the Fund.
For the year ended February 29, 2000, the Fund incurred $205,744 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 1.45% 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
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 reimbursed is made. Such reimbursement may not be paid prior to the
Fund's payment of current ordinary operating expenses. For the year ended
February 29, 2000 the Advisor reduced its fees and absorbed Fund expenses in the
amount of $64,883; no amounts were reimbursed to the Advisor. Cumulative
expenses subject to recapture pursuant to the aforementioned conditions amounted
to $239,848 for the Fund at February, 29, 2000.
Investment Company Administration, L.L.C. (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 - PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 2000, the cost of purchases and the
proceeds from sales of securities, excluding short-term securities, were
$21,049,941 and $8,288,323, respectively.
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders
American Trust Allegiance 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 American Trust Allegiance Fund,
series of Advisor Series Trust (the "Fund") at February 29, 2000, 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 February 29, 2000 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above. The financial statements for the year ended
February 28, 1999, including the financial highlights for the periods prior to
February 29, 2000, were audited by other independent accountants whose report
dated March 26, 1999 expressed an unqualified opinion on those financial
statements.
PricewaterhouseCoopers LLP
New York, New York
April 7, 2000
14
<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.
15
<PAGE>
ADVISOR
American Trust Company
One Court Street
Lebanon, NH 03766
1-800-788-8806
DISTRIBUTOR
First Fund Distributors, Inc.
4455 East Camelback Road, Suite 261E
Phoenix, AZ 85018
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT
American Data Service, Inc.
150 Motor Parkway, Suite 109
Hauppauge, NY 11788
1-800-385-7003
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th Floor
San Francisco, CA 94104
AUDITOR
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 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.
