THE AVATAR ADVANTAGE
INTERNATIONAL 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 INTERNATIONAL
EQUITY ALLOCATION FUND for the year ended December 31, 1999. Avatar's investment
objective of maximizing portfolio returns within prescribed risk limits by
capitalizing on significant global market inefficiencies helped the Fund realize
a return of 20.85% for its first full year of operations. The Fund invests
primarily in World Equity Benchmark Shares (WEBS). Additional information
regarding investing in WEBS, including the prospectus, can be obtained online at
http://www.websontheweb.com.
The Morgan Stanley Capital International (MSCI) EAFE + Canada Index was up 27.9%
for the same period.
1999--THE SECOND SIX MONTHS IN REVIEW
World financial markets began the year facing Brazil's financial turmoil,
President Clinton's impeachment trial and NATO's 3-month military campaign in
Kosovo, resulting in a victory for the Allies. While these events were ongoing,
the Pacific Rim quietly worked its way out of its own financial crisis which
seemed so bleak in 1998, led by resurgent economies in Thailand, Indonesia and
Japan. The euro, introduced in January, fell as the dollar gained strength
against it and all other world currencies. Overall international equities had a
banner year in 1999 but international portfolios were also whipsawed throughout
the year by the volatility of currencies. The last half of the year saw a strong
rally in international markets as growth prospects and market fundamentals
appeared to strengthen, particularly in the last quarter. Our models were
responsible for our gradual increased presence in Japan and Hong Kong, while
reducing our exposure in Europe, particularly in the U.K., Germany and Italy as
the year ended.
2000 MARKET OUTLOOK
Although the U.S. stock market has been the place to be during the past decade,
we believe that international stocks may now take center stage. Falling
currencies abroad should help U.S. companies regain a toehold, particularly in
those Asian markets that evaporated over the past 2 years. The U.S. economy
remains strong led by the American consumer's insatiable appetite for goods and
services backed by the financial wherewithal to purchase them. This bodes well
for foreign companies that can cater to the American consumer. Europe is now in
2
<PAGE>
a different stage of the economic cycle relative to the U.S. European GDP growth
estimates for the year range between 3.8% - 4.0% versus 3.1% for the U.S. Asia's
GDP growth outlook is even more favorable. Domestic spending in both Europe and
Asia is expected to increase in the first half of the year due to a combination
of individual spending and government stimulus (in the form of spending programs
or tax cuts). Japan's economy, in particular, remains positive with significant
cultural changes finally adopted. There's been an overhaul of its banking
system, a decline in corporate cronyism and encouragement of an entrepreneurial
spirit among younger citizens. The government has also stepped in with another
stimulus package to sustain the recovery and prevent a fallback to the
deflationary state Japan found itself in 1998 and the first half to 1999. We are
encouraged by the adoption by European companies of the U.S. industry model of
consolidation and cost cutting, which will help sustain the new growth targets.
Our models currently are positive on Japan, Hong Kong, Germany and Italy. We
have increased equity exposure to 75% to begin the new year, reflecting our
bullish outlook for international stocks. On the negative side, pockets of
unease and uncertainty remain throughout Europe and Asia, with all sides hoping
the recovery will not only continue but strengthen the underlying fundamentals
in the affected countries. There may be some blips along the way. In short, the
world markets still face major challenges to sustain the predicted growth
trends.
Our goal at Avatar is to evaluate current investment risk and alter the
portfolio mix to reflect the current environment. We believe we have
successfully done this. Our plan for the New Year is to continue this strategy
and hopefully to continue achieving higher returns while controlling for total
portfolio risks.
The Fund has designated distributions of $11,222 ($.27 per share) as long-term
capital gain distributions for Federal income tax purposes.
/s/ Theodore M. Theodore
Theodore M. Theodore
Portfolio Manager
<PAGE>
THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND
Comparison of the change in value of a $10,000 investment in
The Avatar Advantage International Equity Allocation Fund
versus the MSCI EAFE plus Canada Index.
The Avatar Advantage
International Equity MSCI EAFE plus
Quarter Allocation Fund Canada Index
------- --------------- ------------
2-Feb-98 $10,000 $10,000
31-Mar-98 $10,710 $10,705
30-Jun-98 $10,810 $10,751
30-Sep-98 $9,430 $9,456
31-Dec-98 $11,550 $11,391
31-Mar-99 $10,518 $12,188
30-Jun-99 $10,911 $11,904
30-Sep-99 $11,070 $12,414
31-Dec-99 $12,749 $14,572
Average Annual Total Return(1)
1 year......................... 20.85%
Since inception (2/2/98) ...... 13.57%
- ----------
(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 Morgan Stanley Capital International (MSCI) EAFE plus Canada Index is a
capitalization-weighted index comprised of stocks representing a sampling of
companies in a manner that replicates the industry composition of certain
foreign markets. Countries included in the Index are Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland and the United Kingdom.
The MSCI EAFE plus Canada Index initial value is as of January 31, 1998.
4
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Shares OPEN-END FUNDS: 100.93% Market Value
- --------------------------------------------------------------------------------
1,400 WEBS - Australia Index Series..................... $ 15,488
1,100 WEBS - Canada Index Series........................ 18,150
2,100 WEBS - France Index Series........................ 58,013
2,200 WEBS - Germany Index Series....................... 58,712
1,100 WEBS - Hong Kong Index Series..................... 15,675
600 WEBS - Italy Index Series......................... 15,000
1,100 WEBS - Switzerland Index Series................... 17,875
400 WEBS - Spain Index Series......................... 11,300
5,400 WEBS - United Kingdom Index Series................ 115,762
1,200 WEBS - Netherland Index Series.................... 30,075
9,600 WEBS - Japan Index Series......................... 156,600
---------
TOTAL OPEN-END FUNDS
(COST $428,257) .................................. 512,650
---------
Principal Amount SHORT-TERM INVESTMENTS: 1.13%
- --------------------------------------------------------------------------------
$5,712 Firstar Stellar Treasury Fund
(Cost $5,712)..................................... 5,712
---------
TOTAL INVESTMENTS IN SECURITIES
(Cost $433,969+): 102.06%......................... 518,362
LIABILITIES IN EXCESS OF
OTHER ASSETS: (2.06%)............................. (10,453)
---------
TOTAL NET ASSETS: 100.00%......................... $ 507,909
=========
+ At December 31, 1999 the cost of securites for Federal tax purposes is
$440,349. Gross unrealized appreciation and depreciation of securities is as
follows:
Gross unrealized appreciation..................... $ 82,423
Gross unrealized depreciation..................... (4,410)
---------
Net unrealized appreciation................ $ 78,013
=========
WEBS (World Equity Benchmark Shares) are each a series of WEBS INDEX FUND, INC.,
an open-end management investment company. Each Index series represents a
portfolio of ordinary foreign shares and seeks to provide investment results
that track the performance of that country's publicly traded equity securities
in the aggregate (see Note 6).
See Notes to Financial Statements.
5
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value
(identified cost $433,969) ................................ $ 518,362
Receivables:
Due from Advisor .......................................... 5,179
Dividends and interest .................................... 4,571
Deferred Organization Cost ................................... 7,774
Prepaid expenses ............................................. 599
---------
Total assets ........................................... 536,485
---------
LIABILITIES
Payables:
Distribution fee ..................................... 102
Accrued expenses ............................................. 28,474
---------
Total liabilities ...................................... 28,576
---------
NET ASSETS ...................................................... $ 507,909
=========
Net asset value, offering and redemption price per share
($507,909 / 43,251 shares outstanding; unlimited
number of shares (par value $0.01) authorized) ............... $ 11.74
=========
COMPONENTS OF NET ASSETS
Paid-in capital .............................................. $ 429,119
Distributions in excess of net realized gains ................ (5,603)
Net unrealized appreciation on investments ................... 84,393
---------
Net assets ................................................ $ 507,909
=========
See Notes to Financial Statements.
6
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends .................................................. $ 3,457
Interest ................................................... 737
---------
Total income ............................................ 4,194
---------
Expenses
Fund Accounting fees ....................................... 30,000
Administration fees (Note 3) ............................... 30,000
Professional fees .......................................... 29,000
Transfer agent fees ........................................ 13,002
Custody fees ............................................... 5,724
Advisory fees (Note 3) ..................................... 4,350
Trustees' fees ............................................. 2,936
Other ...................................................... 1,067
Amortization of deferred organization costs ................ 2,500
Distribution fees (Note 4) ................................. 1,088
Insurance expense .......................................... 837
Registration fees .......................................... 115
---------
Total expenses .......................................... 120,619
Less: advisory fee waiver and
absorption (Note 3) ................................... (113,441)
---------
Net expenses ............................................ 7,178
---------
NET INVESTMENT LOSS .................................. (2,984)
---------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain from investment transactions ................ (2,902)
Realized gain distributions from investment companies ......... 11,691
Net change in unrealized appreciation
on investments .............................................. 81,562
---------
Net realized and unrealized gain on investments ............ 90,351
---------
Net Increase in net assets resulting
from operations .................................... $ 87,367
=========
See Notes to Financial Statements.
7
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year February 2, 1998*
Ended through
December 31, 1999 December 31, 1998
----------------- -----------------
NET INCREASE/(DECREASE) IN
ASSETS FROM OPERATIONS
Net investment income / (loss) .......... $ (2,984) $ 8,940
Net realized gain from investment
transactions ........................... 8,789 8,724
Net change in unrealized appreciation
on investments ......................... 81,562 2,831
--------- ---------
Net increase in net assets resulting
from operations ..................... 87,367 20,495
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ................... -- (8,200)
Net realized gain ....................... (5,619) (14,799)
In excess of net realized gains ......... (5,603) --
--------- ---------
Total distributions .................. (11,222) (22,999)
--------- ---------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from
net change in outstanding shares (a) ... 19,173 415,095
--------- ---------
Total increase in net assets ......... 95,318 412,591
NET ASSETS
Beginning of period ........................ 412,591 --
--------- ---------
End of period .............................. $ 507,909 $ 412,591
========= =========
(a) A summary of capital shares transactions is as follows:
February 2, 1998*
Year Ended through
December 31, 1999 December 31, 1998
-------------------- --------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold .................. 778 $ 8,000 39,104 $392,147
Shares issued in reinvestment
of distributions ........... 981 11,223 2,398 22,998
Shares redeemed .............. (5) (50) (5) (50)
------ -------- ------ --------
Net increase ................. 1,754 $ 19,173 41,497 $415,095
====== ======== ====== ========
* Commencement of operations.
See Notes to Financial Statements.
8
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
FINANCIAL HIGHLIGHTS - FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
Year Ended February 2, 1998*
December 31, through
1999 December 31, 1998
------------ -----------------
Net asset value, beginning of period.......... $ 9.94 $10.00
------ ------
Income from investment operations:
Net investment income / (loss)............. (0.07) 0.23
Net realized and unrealized gain
on investments........................... 2.14 0.30
------ ------
Total from investment operations.............. 2.07 0.53
------ ------
Less distributions:
From net investment income................. -- (0.21)
From net realized gains.................... (0.14) (0.38)
In excess of net realized gains............ (0.13) -
------ ------
Total distributions paid...................... (0.27) (0.59)
------ ------
Net asset value, end of period................ $11.74 $ 9.94
====== ======
Total return.................................. 20.85% 5.50%++
Ratios/supplemental data:
Net assets, end of period (thousands)......... $ 508 $ 413
Ratio of expenses to average net assets:
Before expense reimbursement............... 27.71% 31.32%+
After expense reimbursement................ 1.65% 1.65%+
Ratio of net investment income/(loss) to
average net assets:
After expense reimbursement................ (0.69%) 2.45%+
Portfolio turnover rate....................... 67.19% 177.43%
* Commencement of operations.
+ Annualized.
++ Not annualized.
See Notes to Financial Statements.
9
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
The Avatar Advantage International 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 February 2,
1998.
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
purposes but not for tax purposes are reported as distributions in
10
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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 $12,500
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 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 1.00% based upon the average daily net assets of the Fund.
For the year ended December 31, 1999, the Fund incurred $4,350 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 1.65% 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
11
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL 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 $113,441; no amounts were reimbursed to the Advisor. Cumulative
expenses subject to recapture pursuant to the aforementioned conditions amounted
to $221,808 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
12
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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 $1,088.
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
$321,080 and $284,816, respectively.
NOTE 6 - INVESTMENT IN WORLD EQUITY BENCHMARK SHARES
The Fund invests in World Equity Benchmarks Shares (WEBS). WEBS Index Fund,
Inc. is an index fund consisting of separate series known as WEBS, each of which
seeks investment results similar to the performance of a single stock market or
all of the stock markets in a geographic region. Individual WEBS are not
redeemable at their net asset value, but trade on the AMEX during the day at
prices that are normally close to, but not the same as, their net asset value.
There is no assurance that an active trading market will be maintained for WEBS
or that market prices of WEBS of any WEBS Index Series will be close to their
net asset values in the future. Each WEBS Index Series issues and redeems WEBS
on a continuous basis at net asset value only in large specified numbers of WEBS
called "Creation Units", usually in exchange for a basket of portfolio
securities and an amount of cash. Except when aggregated in Creation Units, WEBS
are not redeemable securities.
The principal risks of investing in WEBS are as follows:
Market Risk - The net asset value of a WEBS Index Series will change with
changes in the market value of the stocks it holds.
Foreign Security Risk - Each WEBS Index Series (except for the USA WEBS Index
Series) invests entirely within the equity markets of a single country or
region. These markets are subject to special risks associated with foreign
investment including, but not limited to: generally less liquid and less
efficient securities markets; generally greater price volatility; exchange rate
fluctuations and exchange controls; less publicly available information about
issuers; the imposition of taxes; exchange controls; higher transaction and
custody costs; settlement delays and risk of loss; difficulties in enforcing
13
<PAGE>
THE AVATAR ADVANTAGE
INTERNATIONAL EQUITY ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
contracts; less liquidity and smaller market capitalizations; lesser regulation
of securities markets; different accounting and disclosure standards;
governmental interference; higher inflation; and social, economic and political
uncertainties and the risk of expropriation of assets.
Management Risk - Because a WEBS Index Series does not fully replicate its
benchmark index and may hold non-index stocks, it is subject to management risk.
This is the risk that the investment advisor's strategy, the implementation of
which is subject to a number of constraints, may not produce the intended
results.
Currency Risk - Because each WEBS Index Series' net asset value is determined on
the basis of U.S. dollars, you may lose money if the local currency of a foreign
market depreciates against the U.S. dollar, even if the local currency value of
a WEBS Index Series' holdings goes up.
Emerging Market Risk - Some foreign markets in which WEBS Index Series invest
are considered to be emerging market countries. Investment in these countries
subjects a WEBS Index Series to a greater risk of loss than investments in a
developed country. This is due to, among other things, greater market
volatility, lower trading volume, political and economic instability, greater
risk of market shut down and more governmental limitations on foreign investment
policy than those typically found in a developed market.
Non-Diversification Risk - Each WEBS Index Series (except for the EMU, Canada,
Japan, United Kingdom, and USA WEBS Index Series) is classified as
"non-diversified." This means that these WEBS Index Series may invest most of
their assets in securities issued by a small number of companies. As a result,
these WEBS Index Series are more susceptible to the risks associated with these
particular companies, or to a single economic, political or regulatory
occurrence.
Trading Risk - While the creation/redemption feature of WEBS is designed to make
it likely that WEBS will trade close to their net asset value, disruptions to
creations and redemptions may result in trading prices that differ significantly
from net asset value. Also, there can be no assurance that an active trading
market will exist for WEBS of each series on the AMEX.
Since WEBS are investment companies they incur certain operating expenses, such
as investment management fees, which would not be incurred by the Fund if it
invested directly in the same underlying securities held by the WEBS.
14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
THE AVATAR ADVANTAGE INTERNATIONAL 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 International
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 period from February 2, 1998
(commencement of operations) to December 31, 1998, including the financial
highlights for the period then ended, were audited by other independent
accountants whose report dated January 29, 1999 expressed an unqualified opinion
on those financial statements.
PricewaterhouseCoopers LLP
New York, New York
February 4, 2000
15
<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
prior fiscal year 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 period from February 2, 1998 (commencement
of operations) through December 31, 1998 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.
16
<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
Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
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.
