N-30D 1 taff-a.txt (AL FRANK LOGO) THE AL FRANK FUND ANNUAL REPORT DECEMBER 31, 2002 THE AL FRANK FUND P.O. BOX 1438 LAGUNA BEACH, CA 92652 SHAREHOLDER SERVICES (888) 263-6443 OR (888) 878-3944 WWW.ALFRANK.COM AL FRANK ASSET MANAGEMENT, INC. P.O. Box 1438, Laguna Beach, CA 92652 www.alfrank.com February 2003 As I review the 2002 performance of the Al Frank Fund (VALUX) statements, about the only good thing I can say is that the year is over. Unfortunately, our long- held investment approach of buying undervalued and out-of-favor stocks faired poorly as the economy did not pick up as quickly as we would have liked, credit standards were tightened for our more heavily-leveraged companies, investors became disenchanted with equities, in part due to accounting scandals and concerns over corporate governance, and the threat of war in Iraq was omnipresent. It is little consolation that the major market averages also suffered substantial declines, especially for our newer shareholders who were not with us in 2000 and 2001 when we were able to deliver positive returns in an otherwise weak overall environment for equities. Still, it may be of some comfort to state that in our 26 years of publishing The Prudent Speculator investment newsletter, we have endured similar periods of poor performance (1987, 1990 & 1998). Obviously, past performance is no guarantee of future performance, but each of those downturns was followed by a period of excellent returns. While we are not pleased with the one-year number, we continue to be proud of the long-term performance record of the Al Frank Fund as displayed in the following table. Keep in mind that the Fund commenced operations on January 2, 1998 and the multi-year returns are average annualized total returns. RUSSELL VALUX S&P 500 2000 ----- ------- ------- Periods Ended 12/31/02 5 years 8.37% -0.59% -1.36% 4 years 13.30% -6.78% -1.06% 3 years 0.90% -14.55% -7.54% 2 years -2.01% -17.15% -9.73% 1 year -25.99% -22.10% -20.48% Considering the dismal total returns of the market averages last year (the Dow Jones Industrial Average dropped -15.01%, the S&P 500 shed -22.10%, the Nasdaq Composite lost -31.26%, the Wilshire 5000 sank -20.86% and the Russell 2000 fell -20.48%), it is not surprising that many investors are questioning their faith in equities. Perhaps it is appropriate for a little long-term perspective, courtesy of Ibbotson Associates' Stocks, Bonds, Bills, and Inflation 2002 Yearbook. Though not exactly a bargain in price, this annual publication is full of facts and figures detailing market results since 1926. The equity numbers will be somewhat weaker once 2002 data is incorporated, but stocks have clearly been the leaders in return over the last 75 years! ANNUALIZED TOTAL RETURNS 1926-2001 ---------------------------------- Large-Company Stocks 10.7% Small-Company Stocks 12.5% Long-Term Corporate Bonds 5.8% Long-Term Government 5.3% Intermediate-Term Government 5.3% U.S. Treasury Bills 3.8% Inflation 3.1% Ibbotson has also calculated total returns of growth and value stocks since 1928, with book value the determining factor between the two categories. ANNUALIZED RETURNS FROM 1928-2001 --------------------------------- VALUE GROWTH ----- ------ Small-Cap 14.5% 9.3% Large-Cap 12.2% 9.6% All-Stocks 13.0% 9.4% With this historical backdrop, it should be easy to see why our mutual fund generally contains smaller-capitalization stocks trading for low fundamental valuations. There are never any certainties in investing, but it is my opinion that 2003 will be a positive year for equities in general. Some of the reasons to be optimistic include record low interest rates, improving corporate profits, more reasonable valuations, sensational worker productivity, three down years in a row for the major market averages, the third year of the Presidential cycle and a more-investor-friendly Washington. Of course, Iraq remains the major wild card as this issue could be headed toward a not-so-peaceful resolution. The uncertainty of war is hanging over stocks and the economy like a black cloud and January's early rally quickly evaporated. Although I understand that forcing a regime change in Iraq is by no means an easy undertaking and we all hope for a non-violent solution, I do believe that we may see a significant pickup in economic activity and a stock market rally ensue should a war actually commence. This may sound counter-intuitive as it is difficult to believe that war and all of its horrors can be a positive for stocks, but we can look back to the first Gulf War in 1991 for historical precedent as the following performance figures from Ibbotson Associates can attest: ANNUAL TOTAL RETURNS -------------------- LARGE-COMPANY SMALL-COMPANY ------------- ------------- 1991 30.55% 44.63% 1992 7.67% 23.35% 1993 9.99% 20.98% Though these examples detail only two time periods and may not be indicative of future events, it is also interesting to note that stocks enjoyed stellar returns once the U.S. became involved in World War II. Ibbotson Associates reports the following annual total return figures for 1942-1945. LARGE-COMPANY SMALL-COMPANY ------------- ------------- 1942 20.34% 44.51% 1943 25.90% 88.37% 1944 19.75% 53.72% 1945 36.44% 73.61% While we certainly do not want to significantly alter our successful long-term investment strategy, we have redoubled our efforts to improve our stock selection methodology. As evidence of our commitment to enhancing our research capabilities, we have decided to add Standard & Poor's Compustat database and Research Insight software to our research arsenal. NEW FREE EMAIL UPDATE AND NEWSLETTER PROGRAM -------------------------------------------- We are working hard to improve our shareholder communications and are launching some very exciting email newsletters and updates. Please visit www.alfrank.com/ar for additional information and to sign up for this free service. I thank you for your continued patronage and I am happy to report that I have just added to my personal VALUX holdings, taking advantage of February's downturn in the Net Asset Value. Sincerely, /s/John Buckingham John Buckingham Disclosures: Ibbotson Data Series: Large Company Stocks: S&P Composite with dividends reinvested. (S&P 500, 1957-Present; S&P 90, 1926-1956). Small Company Stocks: Fifth capitalization quintile of stocks on the New York Stock Exchange for 1926-1981. Performance of the Dimensional Fund Advisors (DFA) Small Company Fund 1982- March 2001. Performance of the DFA Micro Cap Fund April 2001-Present. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Mutual fund investing involves risk; loss of principal is possible. Small capitalization companies tend to have limited liquidity and greater price volatility than large capitalization companies. Growth stocks typically are more volatile than value stocks; however, value stocks have a lower expected growth rate in earnings and sales. Opinions expressed are those of John Buckingham which are subject to change and are not intended to be a forecast of future events, a guarantee of future results, nor investment advice. The S&P 500, Russell 2000, Nasdaq Composite, Dow Jones Industrial Average and Wilshire 5000 Indices are unmanaged indices commonly used to measure performance of U.S. stocks. You cannot invest directly in an index. The 90 day T-Bill is a negotiable debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of 90 days from the expiration date. The T-Bill's principal and interest payments are guaranteed while the Fund offers no such guarantee. 03/03 THE AL FRANK FUND Comparison of the change in value of a hypothetical $10,000 investment in The Al Frank Fund versus the Russell 2000 Index, the Wilshire 5000 Equity Index and the S&P/Barra Value Index. The Al Wilshire 5000 Russell S&P/Barra Date Frank Fund Equity Index 2000 Index Value Index ---- ---------- ------------ ---------- ----------- 1/2/98 $10,000 $10,000 $10,000 $10,000 3/31/98 $11,190 $11,326 $11,006 $11,155 6/30/98 $9,830 $11,547 $10,493 $11,213 9/30/98 $7,620 $10,158 $8,379 $9,765 12/31/98 $9,070 $12,343 $9,745 $11,468 3/31/99 $8,450 $12,808 $9,217 $11,794 6/30/99 $11,350 $13,807 $10,650 $13,068 9/30/99 $11,260 $12,894 $9,977 $11,862 12/31/99 $14,550 $15,250 $11,817 $12,926 3/31/00 $17,440 $15,833 $12,654 $12,956 6/30/00 $16,160 $15,122 $12,175 $12,399 9/30/00 $16,580 $15,148 $12,311 $13,491 12/31/00 $15,566 $13,589 $11,460 $13,711 3/31/01 $16,644 $11,912 $10,714 $12,815 6/30/01 $19,130 $12,803 $12,245 $13,381 9/30/01 $15,886 $10,767 $9,699 $11,213 12/31/01 $20,195 $12,099 $11,745 $12,106 3/31/02 $21,787 $12,215 $12,212 $12,267 6/30/02 $18,968 $10,675 $11,192 $10,960 9/30/02 $13,696 $8,881 $8,797 $8,718 12/31/02 $14,945 $9,575 $9,339 $9,581 AVERAGE ANNUAL TOTAL RETURN1 Al Frank S&P/Barra Russell 2000 Wilshire 5000 Fund Value Index Index Equity Index -------- ----------- ------------ ------------- 1 Year -25.99% -20.85% -20.48% -20.86% 3 Year 0.90% -9.50% -7.54% -14.37% Since inception (1/2/98) 8.37% -0.85% -1.36% -0.87% Past performance is no guarantee of future results. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions, or redemption of Fund shares. Share value will fluctuate, so that an investors shares, when redeemed, may be worth more or less than the original investment. Indices do not incur expenses and are not available for investment. 1 Average Annual Total Return represents the average change in account value over the periods indicated. The Wilshire 5000 Equity Index tracks the performance of all equity securities issued by the U.S. head-quartered companies regardless of exchange. As of 12/00, the index was comprised of 6,590 companies. The Russell 2000 Index is a widely regarded small cap index of the 2,000 smallest securities of the Russell 3000 Index which is comprised of the 3,000 largest U.S. securities as determined by total market capitalization. The S&P/Barra Value Index is an unmanaged capitalization-weighted index that contains approximately 50% of the stocks in the S&P 500 with lower price-to-book ratios. The valuation calculation for the S&P/Barra Value Index, Russell 2000 Index and Wilshire 5000 Equity Index is for the period December 31, 1997 through December 31, 2002. SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2002 Shares Common Stocks: 99.70% Market Value ------ --------------------- ------------ ADVANCED INDUSTRIAL EQUIPMENT: 0.71% 4,002 MTS Systems Corp. $ 40,100 11,600 Stratasys, Inc.* 110,780 60,000 The Lamson & Sessions Co.* 193,200 ----------- 344,080 ----------- ADVANCED MEDICAL DEVICES: 1.66% 273,300 Equidyne Corp.* 84,723 2,700 Guidant Corp.* 83,295 26,550 Laserscope* 119,475 15,074 Utah Medical Products, Inc.* 287,913 153,100 Vascular Solutions, Inc.* 154,631 8,000 VISX, Inc.* 76,640 ----------- 806,677 ----------- AEROSPACE & DEFENSE: 3.75% 24,100 AAR Corp. 124,115 13,400 Allied Research Corp.* 247,900 25,000 BE Aerospace, Inc.* 91,000 14,000 Ducommun, Inc.* 221,900 3,000 Kaman Corp. - Class A 33,000 35,000 LMI Aerospace, Inc.* 75,600 1,700 Lockheed Martin Corp. 98,175 13,000 Pemco Aviation Group, Inc.* 303,550 5,000 Precision Castparts Corp. 121,250 1,500 Raytheon Co. 46,125 5,000 Rockwell Collins, Inc. 116,300 44,000 SIFCO Industries, Inc.* 110,000 7,000 The Boeing Co. 230,930 ----------- 1,819,845 ----------- AIR FREIGHT/COURIERS: 0.01% 99 FedEx Corp. 5,368 ----------- AIRLINES: 0.85% 11,500 Delta Air Lines, Inc. 139,150 20,000 Koninklijke Luchtvaart Maatschappij # 194,000 15,000 Midwest Express Holdings, Inc.* 80,250 ----------- 413,400 ----------- ALUMINUM: 0.16% 3,500 Alcoa, Inc. 79,730 ----------- AUTOMOBILE MANUFACTURERS: 0.92% 4,000 DaimlerChrysler AG # 122,600 19,000 Ford Motor Co. 176,700 4,000 General Motors Corp. 147,440 ----------- 446,740 ----------- AUTOMOBILE PARTS & EQUIPMENT: 1.15% 2,500 ArvinMeritor, Inc. 41,675 6,000 Cooper Tire & Rubber Co. 92,040 11,999 Dura Automotive Systems, Inc.* 120,470 275,000 Federal-Mogul Corp.* 60,500 13,000 The Goodyear Tire & Rubber Co. 88,530 22,000 Visteon Corp. 153,120 ----------- 556,335 ----------- AUTOMOBILE REPAIR CENTERS: 0.21% 16,000 Midas, Inc. 102,880 ----------- BANKS: 3.23% 36,500 BFC Financial Corp. - Class A* 211,700 2,000 Bank of America Corp. 139,140 5,000 Bank of Hawaii Corp. 151,950 2,500 Bank One Corp. 91,375 20,000 BankAtlantic Bancorp, Inc. - Class A 189,000 13,000 Capstead Mortgage Corp. 320,450 4,000 Citigroup, Inc. 140,760 10,000 Sovereign Bancorp, Inc. 140,500 5,010 Wachovia Corp. 182,564 ----------- 1,567,439 ----------- BIOTECHNOLOGY: 0.34% 170,100 Zonagen, Inc.* 166,698 ----------- BUILDING MATERIALS: 1.72% 2,000 Hughes Supply, Inc. 54,640 10,000 International Aluminum Corp. 172,900 12,000 JLG Industries, Inc. 90,360 5,000 NCI Building Systems, Inc.* 109,100 20,000 Omnova Solutions, Inc.* 80,600 180,500 Smith-Midland Corp.* 214,795 4,000 The Sherwin-Williams Co. 113,000 ----------- 835,395 ----------- BUSINESS SERVICES: 4.27% 55,600 Analysts International Corp.* 110,088 65,000 Computer Horizons Corp.* 212,550 223,200 HealthStream, Inc.* 314,712 7,000 IKON Office Solutions, Inc. 50,050 19,000 InFocus Corp.* 117,040 45,000 MasTec, Inc.* 132,750 173,600 Pinnacor Inc.* 211,792 49,630 Quotesmith.com, Inc.* 207,453 5,061 Right Management Consultants, Inc.* 67,058 132,900 SOS Staffing Services, Inc.* 66,450 98,823 ValueClick, Inc.* 275,716 85,000 Vicon Industries, Inc.* 306,000 ----------- 2,071,659 ----------- CASINOS: 0.74% 5,000 MGM MIRAGE* 164,850 11,000 Station Casinos, Inc.* 194,700 ----------- 359,550 ----------- CHEMICALS - COMMODITY: 0.75% 12,000 Olin Corp. 186,600 6,000 The Dow Chemical Co. 178,200 ----------- 364,800 ----------- CHEMICALS - SPECIALTY: 1.95% 14,000 Crompton Corp. 83,300 8,000 Great Lakes Chemical Corp. 191,040 8,000 IMC Global, Inc. 85,360 9,000 Octel Corp. # 142,200 20,000 OM Group, Inc.* 137,600 5,000 Spartech Corp. 103,150 15,000 Wellman, Inc. 202,350 ----------- 945,000 ----------- CLOTHING/FABRICS: 2.54% 20,000 Goody's Family Clothing, Inc.* 88,800 17,000 Haggar Corp. 214,030 30,000 Hartmarx Corp.* 73,200 5,075 Kellwood Co. 131,950 5,000 Oxford Industries, Inc. 128,250 10,000 Phillips-Van Heusen Corp. 115,600 14,000 Quaker Fabric Corp.* 97,300 7,000 Quiksilver, Inc.* 186,620 10,000 Tommy Hilfiger Corp.*# 69,500 5,350 Tropical Sportswear International Corp.* 47,989 15,000 Unifi, Inc.* 78,750 ----------- 1,231,989 ----------- COMMUNICATIONS TECHNOLOGY: 4.96% 55,000 3Com Corp.* 254,650 98,000 Avanex Corp.* 102,704 28,700 Avici Systems, Inc.* 102,746 105,000 Blonder Tongue Laboratories, Inc.* 168,000 16,000 Communications Systems, Inc.* 127,520 13,000 Comverse Technology, Inc.* 130,260 36,870 Cosine Communications, Inc.* 222,695 256,800 deltathree, Inc.* 121,980 61,000 Digi International, Inc.* 177,510 85,000 Forgent Networks, Inc.* 141,950 30,500 Net2Phone, Inc.* 123,525 10,110 Netro Corp.* 27,600 60,000 Network Equipment Technologies, Inc.* 235,200 46,346 Novell, Inc.* 154,796 15,000 Polycom, Inc.* 142,800 27,609 Symmetricom, Inc.* 116,510 98,900 TII Network Technologies, Inc.* 53,406 ----------- 2,403,852 ----------- COMPUTERS: 2.06% 30,000 Adaptec, Inc.* 169,500 11,000 Apple Computer, Inc.* 157,630 306,400 Applied Graphics Technologies, Inc.* 147,072 15,000 Computer Network Technology Corp.* 106,500 6,912 SanDisk Corp.* 140,314 180,000 SONICblue Inc.* 81,000 4,000 Storage Technology Corp.* 85,680 35,000 Sun Microsystems, Inc.* 108,850 ----------- 996,546 ----------- CONSUMER SERVICES: 1.03% 195,200 FairMarket, Inc.* 320,128 27,400 SINA.com* # 178,100 ----------- 498,228 ----------- CONTAINERS & PACKAGING: 0.69% 24,000 American Biltrite, Inc. 225,600 55,000 Applied Extrusion Technologies, Inc.* 110,000 ----------- 335,600 ----------- COSMETICS/PERSONAL CARE: 0.41% 30,000 Allou Health & Beauty Care, Inc. - Class A* 80,100 10,000 Helen of Troy Ltd.* # 116,400 ----------- 196,500 ----------- DISTILLERS & BREWERS: 0.32% 5,000 The Robert Mondavi Corp. - Class A* 155,000 ----------- ELECTRIC & GAS: 0.75% 20,000 Aquila, Inc. 35,400 35,000 Calpine Corp.* 114,100 70,000 Mirant Corp.* 132,300 7,500 Xcel Energy, Inc. 82,500 ----------- 364,300 ----------- ELECTRICAL COMPONENTS & EQUIPMENT: 4.14% 114,900 Aetrium, Inc.* 88,473 10,000 American Power Conversion Corp.* 151,500 4,000 Bel Fuse, Inc. - Class B 80,600 149,200 BMC Industries, Inc.* 234,244 12,500 C&D Technologies, Inc. 220,875 20,000 Flextronics International Ltd.* # 163,800 30,000 Innovex, Inc.* 126,600 10,000 InVision Technologies, Inc.* 263,600 8,289 Nam Tai Electronics, Inc. # 202,666 122,500 Recoton Corp.* 144,550 7,600 RF Industries, Ltd.* 15,960 50,000 Solectron Corp.* 177,500 12,256 Vishay Intertechnology, Inc.* 137,022 ----------- 2,007,390 ----------- FINANCIAL SERVICES, DIVERSIFIED: 0.91% 3,000 Household International, Inc. 83,430 55,000 Providian Financial Corp.* 356,950 ----------- 440,380 ----------- FIXED LINE COMMUNICATIONS: 0.50% 50,000 ADC Telecommunications, Inc.* 104,500 2,400 AT&T Corp. 62,664 78,786 Endwave Corp.* 75,241 ----------- 242,405 ----------- FOOD: 0.57% 25,000 Fleming Companies, Inc. 164,250 5,000 Sara Lee Corp. 112,550 ----------- 276,800 ----------- FOOD RETAILERS: 0.27% 5,850 Albertson's, Inc. 130,221 ----------- FOOTWEAR: 1.82% 57,200 Deckers Outdoor Corp.* 191,048 7,500 Maxwell Shoe Company, Inc. - Class A* 87,150 5,000 R. G. Barry Corp.* 20,500 30,000 Saucony, Inc. - Class B* 279,600 11,000 Steve Madden, Ltd.* 198,770 3,000 The Timberland Co. - Class A* 106,830 ----------- 883,898 ----------- FOREST PRODUCTS: 0.62% 8,000 Georgia-Pacific Corp. 129,280 11,900 Pope & Talbot, Inc. 169,694 ----------- 298,974 ----------- HEALTHCARE PROVIDERS: 2.64% 5,000 Aetna, Inc. 205,600 57,000 American Shared Hospital Services 234,270 130 Five Star Quality Care, Inc.* 178 27,000 HEALTHSOUTH Corp.* 113,400 10,000 Humana, Inc.* 100,000 58,865 LCA-Vision, Inc.* 134,212 90,000 Magellan Health Services, Inc.* 14,400 3,500 Oxford Health Plans, Inc.* 127,575 9,400 PacifiCare Health Systems, Inc.* 264,140 23,400 Res-Care, Inc.* 84,919 ----------- 1,278,694 ----------- HEAVY MACHINERY: 0.25% 1,800 A.O. Smith Corp. 48,618 20,400 Katy Industries, Inc.* 70,176 ----------- 118,794 ----------- HOME CONSTRUCTION: 3.01% 2,000 Beazer Homes USA, Inc.* 121,200 16,000 Cavalier Homes, Inc.* 31,040 2,000 Centex, Corp. 100,400 13,000 D.R. Horton, Inc. 225,550 15,000 Fleetwood Enterprises, Inc.* 117,750 4,500 KB Home 192,825 5,000 Pulte Homes, Inc. 239,350 29,000 Rexhall Industries, Inc.* 101,529 6,000 Standard Pacific Corp. 148,500 9,000 Toll Brothers, Inc.* 181,800 ----------- 1,459,944 ----------- HOME FURNISHINGS: 1.01% 14,000 Applica, Inc.* 70,000 4,000 Chromcraft Revington, Inc.* 52,200 6,000 Craftmade International, Inc. 92,400 45,000 The Dixie Group, Inc.* 171,900 2,000 Whirlpool Corp. 104,440 ----------- 490,940 ----------- HOUSE-DURABLE: 0.53% 20,000 Department 56, Inc.* 258,000 ----------- HOUSE-NON-DURABLE: 0.31% 8,000 Central Garden & Pet Co.* 148,080 ----------- INDUSTRIAL & COMMERCIAL SERVICES: 1.11% 10,000 Avnet, Inc.* 108,300 25,000 Nu Horizons Electronics Corp.* 144,500 27,000 Spectrum Control, Inc.* 141,750 65,000 Trio-Tech International* 145,600 ----------- 540,150 ----------- INDUSTRIAL DIVERSIFIED: 1.05% 8,000 GenCorp, Inc. 63,360 14,100 McRae Industries, Inc. 124,080 48,700 Orbit International Corp.* 221,585 14,400 P & F Industries, Inc. - Class A* 99,576 ----------- 508,601 ----------- INSURANCE, LIFE: 0.43% 1,600 National Western Life Insurance Co. - Class A* 153,600 1,500 Torchmark Corp. 54,795 ----------- 208,395 ----------- INSURANCE, PROPERTY & CASUALTY: 0.85% 800 MGIC Investment Corp. 33,040 4,000 Radian Group, Inc. 148,600 25,000 RTW, Inc.* 42,000 4,000 The Allstate Corp. 147,960 172 Travelers Property Casualty Corp. - Class A* 2,520 355 Travelers Property Casualty Corp. - Class B* 5,201 45,000 Trenwick Group Ltd. # 32,400 ----------- 411,721 ----------- LODGING: 0.45% 20,000 RFS Hotel Investors, Inc. 217,200 ----------- MARINE TRANSPORTATION: 1.05% 70,000 OMI Corp.* # 287,700 20,000 Sea Containers Ltd. - Class A 178,600 6,500 Stolt-Nielsen S.A. - ADR 40,625 ----------- 506,925 ----------- MEDICAL SUPPLIES: 0.28% 10,824 Cantel Medical Corp.* 137,032 ----------- OIL, DRILLING: 1.90% 4,655 GlobalSantaFe Corp. 113,210 6,000 Nabors Industries, Ltd.* # 211,620 7,000 Rowan Companies, Inc. 158,900 40,000 The Wiser Oil Co.* 137,600 5,000 Transocean, Inc. 116,000 10,000 Unit Corp.* 185,500 ----------- 922,830 ----------- OIL, EQUIPMENT & SERVICES: 2.53% 47,400 Giant Industries, Inc.* 139,830 10,000 Holly Corp. 218,500 20,000 Key Energy Services, Inc.* 179,400 20,000 Maverick Tube Corp.* 260,600 5,000 Oceaneering International, Inc.* 123,700 2,700 Offshore Logistics, Inc.* 59,184 3,000 Teekay Shipping Corp. # 122,100 4,000 Tidewater Inc. 124,400 ----------- 1,227,714 ----------- OIL, SECONDARY: 2.05% 2,310 Apache Corp. 131,647 6,000 Ocean Energy, Inc. 119,820 45,000 Tesoro Petroleum Corp.* 203,400 7,500 Valero Energy Corp. 277,050 25,000 Vintage Petroleum, Inc. 263,750 ----------- 995,667 ----------- OTHER NON-FERROUS: 0.74% 10,000 Cleveland-Cliffs, Inc.* 198,500 5,000 Phelps Dodge Corp.* 158,250 ----------- 356,750 ----------- PAPER PRODUCTS: 0.24% 3,275 International Paper Co. 114,527 ----------- PHARMACEUTICALS: 1.64% 10,500 Bristol-Myers Squibb Co. 243,075 5,000 Merck & Co. Inc. 283,050 12,000 Schering-Plough Corp. 266,400 ----------- 792,525 ----------- POLLUTION CONTROL/WASTE MANAGEMENT: 0.56% 121,565 Envirogen, Inc.* 89,958 22,400 IMCO Recycling, Inc.* 182,112 ----------- 272,070 ----------- PRECIOUS METALS: 0.16% 14,000 Stillwater Mining Co.* 74,900 ----------- RAILROADS: 0.43% 3,500 CSX Corp. 99,085 1,800 Union Pacific Corp. 107,766 ----------- 206,851 ----------- REAL ESTATE INVESTMENT: 1.13% 30,000 HRPT Properties Trust 247,200 85,000 Jameson Inns, Inc. 192,100 3,000 LNR Property Corp. 106,200 ----------- 545,500 ----------- RECREATIONAL PRODUCTS: 1.88% 7,000 Brunswick Corp. 139,020 10,000 Callaway Golf Co. 132,500 67,700 Coastcast Corp.* 132,015 26,100 Concord Camera Corp.* 141,723 30,000 Huffy Corp.* 179,100 20,000 K2, Inc.* 188,000 ----------- 912,358 ----------- RESTAURANTS: 0.65% 208,500 BRIAZZ, Inc.* 58,380 20,000 CKE Restaurants, Inc.* 86,000 3,500 Landry's Restaurants, Inc. 74,340 6,000 McDonald's Corp. 96,480 ----------- 315,200 ----------- RETAILERS, APPAREL: 1.36% 8,262 American Eagle Outfitters, Inc.* 113,850 6,000 AnnTaylor Stores Corp.* 122,520 10,000 Burlington Coat Factory Warehouse Corp. 179,500 25,000 Gadzooks, Inc.* 117,500 104,907 One Price Clothing Stores, Inc.* 57,699 3,750 Pacific Sunwear of California, Inc.* 66,337 ----------- 657,406 ----------- RETAILERS, BROADLINE: 0.79% 10,000 J. C. Penney Company, Inc. 230,100 5,000 Nordstrom, Inc. 94,850 2,500 Sears, Roebuck and Co. 59,875 ----------- 384,825 ----------- RETAILERS, SPECIALTY: 3.11% 5,000 AutoNation, Inc.* 62,800 3,800 Barnes & Noble, Inc.* 68,666 21,000 Friedman's Inc. - Class A 182,280 12,217 Jo-Ann Stores, Inc. - Class B* 236,277 5,000 Michaels Stores, Inc.* 156,500 50,000 OfficeMax, Inc.* 250,000 6,000 REX Stores Corp.* 61,260 8,000 TBC Corp.* 96,080 4,000 The Home Depot, Inc. 95,840 4,000 The Pep Boys - Manny, Moe & Jack 46,400 18,000 Toys "R" Us, Inc.* 180,000 20,000 Trans World Entertainment Corp.* 72,600 ----------- 1,508,703 ----------- SAVINGS & LOANS: 1.88% 10,000 FirstFed Financial Corp.* 289,500 3,000 Golden West Financial Corp. 215,430 11,687 PVF Capital Corp. 146,672 7,500 Washington Mutual, Inc. 258,975 ----------- 910,577 ----------- SECURITIES BROKERS: 0.22% 1,000 Lehman Brothers Holdings, Inc. 53,290 882 The Bear Stearns Companies, Inc. 52,391 ----------- 105,681 ----------- SEMICONDUCTOR & RELATED: 7.05% 25,000 Advanced Micro Devices, Inc.* 161,500 646 Agere Systems, Inc. - Class A* 930 15,873 Agere Systems, Inc. - Class B* 22,222 8,000 Applied Materials, Inc.* 104,240 40,000 Atmel Corp.* 89,200 5,000 Cohu, Inc. 73,500 15,000 Credence Systems Corp.* 139,950 12,000 Cypress Semiconductor Corp.* 68,640 46,400 Dataram Corp.* 141,984 30,400 Diodes, Inc.* 291,840 30,000 Electroglas, Inc.* 46,200 17,000 ESS Technology, Inc.* 106,930 15,011 Genesis Microchip, Inc.* 195,894 5,000 International Rectifier Corp.* 92,300 30,000 Integrated Silicon Solution, Inc.* 130,800 14,000 KEMET Corp.* 122,360 25,000 Kulicke and Soffa Industries, Inc.* 143,000 12,500 Lam Research Corp.* 135,000 10,000 Lattice Semiconductor Corp.* 87,700 26,000 LSI Logic Corp.* 150,020 37,000 Mattson Technology, Inc.* 105,820 8,000 Micron Technology, Inc.* 77,920 4,375 National Semiconductor Corp.* 65,669 3,000 Novellus Systems, Inc.* 84,240 10,000 NVIDIA Corp.* 115,100 4,449 Siliconix, Inc.* 104,107 40,000 Tower Semiconductor Ltd.* # 128,800 30,000 Trident Microsystems, Inc.* 111,000 213,900 Tvia, Inc.* 149,730 4,500 Varian Semiconductor Equipment Associates, Inc.* 106,925 205,288 Vialta, Inc. - Class A* 62,613 ----------- 3,416,134 ----------- SOFTWARE: 8.96% 89,300 American Software, Inc. - Class A* 245,575 134,100 Apropos Technology, Inc.* 182,376 60,000 Aspect Communications Corp.* 170,400 6,000 Autodesk, Inc. 85,800 10,000 BMC Software, Inc.* 171,100 53,100 CAM Commerce Solutions, Inc.* 187,974 75,000 Captaris, Inc.* 180,000 20,000 Citrix Systems, Inc.* 246,400 40,000 Compuware Corp.* 192,000 15,800 Concerto Software, Inc.* 106,650 251,286 Corio, Inc.* 188,464 110,200 Cysive, Inc.* 297,540 6,000 Electronics for Imaging, Inc.* 97,566 40,000 Keynote Systems, Inc.* 308,800 262,700 Net Perceptions, Inc.* 362,526 4,999 NetManage, Inc.* 8,498 82,700 Peerless Systems Corp.* 114,953 48,100 Previo, Inc.* 115,440 55,000 Rainbow Technologies, Inc.* 394,350 21,398 Roxio, Inc.* 102,068 155,400 SEEC, Inc.* 155,400 225,700 Tanning Technology Corp.* 171,532 3,500 Unisys Corp.* 34,650 328,500 VIA NET.WORKS, Inc.* 223,380 ----------- 4,343,442 ----------- STEEL: 1.02% 20,000 AK Steel Holding Corp.* 160,000 65,500 Rouge Industries, Inc. - Class A* 66,810 11,351 Ryerson Tull, Inc. 69,241 15,000 United States Steel Corp. 196,800 ----------- 492,851 ----------- TOBACCO: 0.55% 2,000 Philip Morris Companies, Inc. 81,060 3,000 R.J. Reynolds Tobacco Holdings, Inc. 126,330 1,700 UST, Inc. 56,831 ----------- 264,221 ----------- TOYS: 0.81% 80,000 Acclaim Entertainment, Inc.* 52,800 6,800 Hasbro, Inc. 78,540 6,000 Mattel, Inc. 114,900 17,000 The Topps Co.* 147,900 ----------- 394,140 ----------- TRANSPORTATION EQUIPMENT: 0.30% 2,225 Cummins, Inc. 62,589 4,300 Trinity Industries, Inc. 81,528 ----------- 144,117 ----------- TRUCKING: 0.74% 4,000 Arkansas Best Corp.* 103,924 3,100 Old Dominion Freight Line, Inc.* 87,885 2,750 SCS Transportation, Inc.* 27,252 5,500 Yellow Corp.* 138,551 ----------- 357,612 ----------- WIRELESS COMMUNICATIONS: 2.02% 75,000 Aether Systems, Inc.* 282,000 32,857 Brightpoint, Inc.* 259,603 60,000 Corning, Inc.* 198,600 93,333 Vyyo, Inc.* 237,066 ----------- 977,269 ----------- Total Common Stocks (Cost $58,877,857) $48,326,025 ----------- Short-Term Investments: 1.08% ------------------------------ 523,092 SEI Daily Income Treasury Government - Class B (Cost $523,092) 523,092 ----------- Total Investments in Securities (Cost $59,400,949): 100.78% 48,849,117 Liabilities in Excess of Other Assets: (0.78%) (377,324) ----------- Net Assets: 100.00% $48,471,793 ----------- ----------- * Non-income producing security. # U.S. Security of a foreign issuer. See accompanying Notes to Financial Statements. STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 2002 ASSETS Investments in securities, at value (cost $59,400,949) $48,849,117 Receivables: Fund shares sold 14,635 Dividends 34,796 Deferred organization costs 15 Prepaid expenses 12,811 ----------- Total assets 48,911,374 ----------- LIABILITIES Payables: Fund shares redeemed 315,667 Due to advisor 43,329 Due to custodian 422 Distribution and service fees 20,520 Administration fees 8,666 Accrued expenses 50,977 ----------- Total liabilities 439,581 ----------- NET ASSETS $48,471,793 ----------- ----------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE* [$48,471,793 / 3,513,442 shares outstanding; unlimited number of shares (par value $.01) authorized] $ 13.80 ----------- ----------- COMPONENTS OF NET ASSETS Paid-in capital $62,420,450 Accumulated net realized loss on investments (3,396,825) Net unrealized depreciation on investments (10,551,832) ----------- Net assets $48,471,793 ----------- ----------- * Shares held for less than 60 days are subject to a 2% redemption fee which is retained by the Fund. See accompanying Notes to Financial Statements. STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 INVESTMENT INCOME Income Dividends (Net of foreign tax $1,564) $ 520,300 Interest 36,355 ------------ Total income 556,655 ------------ Expenses Advisory fees (Note 3) 614,614 Distribution fees (Note 4) 153,653 Administration fees (Note 3) 117,133 Transfer agent fees 89,988 Shareholder servicing fees (Note 5) 66,109 Fund accounting fees 50,879 Custody fees 38,317 Professional fees 28,678 Registration expense 26,430 Reports to shareholders 21,687 Trustee fees 7,565 Miscellaneous 7,520 Deferred organization expense 7,001 Insurance expense 3,916 ------------ Total expenses 1,233,490 Add: expenses recouped by advisor (Note 3) 148,208 ------------ Net expenses 1,381,698 ------------ NET INVESTMENT LOSS (825,043) ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss on investments (3,387,477) Net change in unrealized depreciation on investments (18,654,754) ------------ Net realized and unrealized loss on investments (22,042,231) ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(22,867,274) ------------ ------------ See accompanying Notes to Financial Statements. STATEMENTS OF CHANGES IN NET ASSETS Year Ended Year Ended December 31, 2002 December 31, 2001 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment loss $ (825,043) $ (333,514) Net realized (loss) / gain on investments (3,387,477) 575,474 Net change in unrealized (depreciation) / appreciation on investments (18,654,754) 6,942,070 ----------- ----------- NET (DECREASE) / INCREASE IN NET ASSETS RESULTING FROM OPERATIONS (22,867,274) 7,184,030 DISTRIBUTIONS TO SHAREHOLDERS Net realized gain on security transactions (317,963) (360,375) TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Net increase in net assets derived from net change in outstanding shares (a) 24,413,698 20,593,559 ----------- ----------- TOTAL INCREASE IN NET ASSETS 1,228,461 27,417,214 NET ASSETS Beginning of year 47,243,332 19,826,118 ----------- ----------- END OF YEAR $48,471,793 $47,243,332 ----------- ----------- ----------- -----------
(a) A summary of share transactions is as follows: Year Ended Year Ended December 31, 2002 December 31, 2001 ------------------------- ------------------------- Shares Paid in Capital Shares Paid in Capital ------ --------------- ------ --------------- Shares sold 3,515,561 $66,821,346 1,607,359 $28,053,098 Shares issued on reinvestment of distributions 22,541 309,074 19,627 355,076 Shares redeemed* (2,541,192) (42,716,722) (470,186) (7,814,615) ---------- ----------- --------- ----------- Net increase 996,910 $24,413,698 1,156,800 $20,593,559 ---------- ----------- --------- ----------- ---------- ----------- --------- ----------- * Net of redemption fees of: $ 47,421 $ 0 ----------- ----------- ----------- -----------
See accompanying Notes to Financial Statements. FINANCIAL HIGHLIGHTS - FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD January 2, 1998* Year Ended December 31, through ------------------------------------------------- December 31, 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- Net asset value, beginning of period $18.77 $14.58 $14.55 $ 9.07 $10.00 ------ ------ ------ ------ ------ Income from investment operations: Net investment loss (0.23) (0.13) (0.08) (0.21) (0.08) Net realized and unrealized (loss) / gain on investments (4.63) 4.47 1.18 5.69 (0.85) ------ ------ ------ ------ ------ Total from investment operations (4.86) 4.34 1.10 5.48 (0.93) ------ ------ ------ ------ ------ Less distributions: From net realized gain on investments (0.09) (0.15) (1.07) -- -- ------ ------ ------ ------ ------ Redemption fees retained (0.02) -- -- -- -- ------ ------ ------ ------ ------ Net asset value, end of period $13.80 $18.77 $14.58 $14.55 $9.07 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total return (25.99%) 29.83% 6.91% 60.42% (9.30%)+ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (thousands) $48,472 $47,243 $19,826 $7,663 $7,042 Ratio of expenses to average net assets: Before expense reimbursement 2.25% 2.25% 2.25% 3.60% 3.74%** After expense reimbursement 2.25% 2.25% 2.25% 2.20% 2.25%** Ratio of net investment loss to average net assets After expense reimbursement (1.34%) (1.15%) (0.79%) (1.32%) (1.28%)** Portfolio turnover rate 28.14% 18.11% 30.17% 19.00% 5.82%+
* Commencement of operations. ** Annualized. + Not Annualized. See accompanying Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 2002 NOTE 1 - ORGANIZATION The Al Frank 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 operation on January 2, 1998. The investment objective of the Fund is to seek growth of capital. The Fund seeks to achieve its objective by investing in out of favor and undervalued 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 accounting principles generally accepted in the United States of America. 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. Realized gains and losses on securities sold are determined on the basis of identified cost. Dividend income and distributions to shareholders are recorded on the ex-dividend date. The amount of dividends and distributions to shareholders from net investment income and net realized capital gains is determined in accordance with Federal income tax regulations which differs from accounting principles generally accepted in the United States of America. To the extent these book/tax differences are permanent such amounts are reclassified within the capital accounts based on their Federal tax treatment. 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 of the Fund commenced investment operations. E. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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, 2002, Al Frank Asset Management (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, 2002, the Fund incurred $614,614 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 2.25% of average net assets (the "expense cap"). Any such reduction 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 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, 2002, the Advisor recouped $148,208 of such expenses it previously reimbursed to the Fund. There were no expenses subject to recapture pursuant to the aforementioned conditions at December 31, 2002. U.S. Bancorp Fund Services, 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 Quasar Distributors, LLC (the "Distributor") acts as the Fund's principal underwriter in a continuous public offering of the Fund's shares. Certain officers of the Fund are also officers of the Administrator and 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 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". For the year ended December 31, 2002, the Fund paid the Distribution Coordinator $153,653. NOTE 5 - SHAREHOLDER SERVICING FEE The Fund had entered into a Shareholder Servicing Agreement with Al Frank Asset Management (the "Advisor"), under which the Fund paid servicing fees at an annual rate of 0.15% of the average daily net assets of the Fund. Payments to the Advisor under the Shareholder Servicing Agreement reimbursed the Advisor for payments it makes to selected brokers, dealers and administrators which have entered into Service Agreements with the Advisor for services provided to shareholders of the Fund. The services provided by such intermediaries were primarily designed to assist shareholders of the Fund and include the furnishing of office space and equipment, telephone facilities, personnel and assistance to the Fund in servicing such shareholders. Services provided by such intermediaries also include the provision of support services to the Fund and included establishing and maintaining shareholders' accounts and record processing, purchase and redemption transactions, answering routine client inquiries regarding the Fund, and providing such other personal services to shareholders as the Fund may reasonably request. For the period March 15, 2002, through November 18, 2002, the Fund incurred shareholder servicing fees of $66,109 under the agreement. Effective November 18, 2002, the Fund terminated the shareholder servicing agreement. NOTE 6 - PURCHASES AND SALES OF SECURITIES For the year ended December 31, 2002, the cost of purchases and the proceeds from sales of securities, excluding short-term securities, were $44,728,419 and $15,701,582 respectively. NOTE 7 - DISTRIBUTIONS TO SHAREHOLDERS Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. The tax character of distributions paid during year ended December 31, 2002: 2002 2001 ---- ---- Long-term capital gain $317,963 $360,375 -------- -------- At December 31, 2002, the components of net assets (excluding paid in capital) on a tax basis were as follows: Undistributed ordinary income $ 0 ----------- ----------- Tax basis capital loss carryforward expiring 2010 $(2,903,325) Post October capital loss (260,008) ----------- Accumulated capital loss (3,163,333) ----------- ----------- The Fund had post October capital losses which it elected to treat as arising on January 1, 2003. Tax basis unrealized appreciation $ 6,881,571 Tax basis unrealized depreciation (17,618,056) ------------ Net tax basis unrealized depreciation $(10,736,485) ------------ ------------ The difference between book and tax unrealized depreciation is primarily attributable to wash sales and a Real Estate Investment Trust return of capital. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Trustees and Shareholders of The Al Frank 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 Al Frank Fund, a series of Advisor Series Trust, (the "Fund") at December 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. 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 audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, 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 audits, which included confirmation of securities at December 31, 2002 by correspondence with the custodian, provide a reasonable basis for our opinion. The financial highlights for the period from January 2, 1998 (commencement of operations) to December 31, 1998 were audited by other independent accountants, whose report dated January 29, 1999 expressed an unqualified opinion on the financial highlights. PricewaterhouseCoopers LLP New York, New York February 21, 2003 INFORMATION ABOUT TRUSTEES AND OFFICERS (UNAUDITED) The business and affairs of the Fund are managed under the direction of the Fund's Board of Trustees. Information pertaining to the Trustees and Officers of the Fund is set forth below. Unless noted otherwise, each person has held the position listed for a minimum of five years. The SAI includes additional information about the Fund's officers and trustees and is available, without charge, upon request by calling the advisor. INDEPENDENT TRUSTEES -------------------- # of Funds Position Term of Office in complex Other Held with and Length of Principal Occupation overseen Directorships Name, Age and Address the Trust Time Served During Past Five Years by Trustee Held by Trustee --------------------- --------- -------------- ---------------------- ---------- --------------- Walter E. Auch Trustee Indefinite Term Management Consultant Sixteen Nicholas-Applegate (Born 1921) Funds, Salomon Smith 2020 E. Financial Way Since 1997 Barney Funds, Bayan Glendora, CA 91741 Strategic Realty Trust, Legend Properties, Pimco Advisors LLP, and Senele Group James Clayburn Trustee Indefinite Term Dean Emeritus, John E. Anderson Sixteen The Payden & Rygel LaForce Graduate School of Management, Investment Group, (Born 1927) Since University of California, Los Angeles PIC Investment Trust, 2020 E. Financial Way March 2002 PIC Small Cap Glendora, CA 91741 Portfolio, PIC Balanced Portfolio, PIC Growth Portfolio, PIC Mid Cap Portfolio, Provident Investment Counsel Institutional Money Market Fund, Black Rock Funds, Jacobs Engineering, Timken Co., Concervex Donald E. O'Connor Trustee Indefinite Term Financial Consultant; formerly Sixteen The Parnassus Fund; (Born 1936) Executive Vice President and Chief The Parnassus Income 2020 E. Financial Way Since 1997 Operating officer of ICI Mutual Fund; The Forward Glendora, CA 91741 Insurance Company (until January, 1997); Funds Vice President, Operations, Investment Company Institute (until July , 1993). George J. Rebhan Trustee Indefinite Term Retired; formerly President, Hotchkis Sixteen E*Trade Funds (Born 1934) and Wiley Funds (mutual funds) 2020 E. Financial Way Since from 1985 to 1993. Glendora, CA 91741 March 2002 George T. Wofford III Trustee Indefinite Term Senior Vice President, Information Sixteen Not Applicable (Born 1939) Services, Federal Home Loan Bank 2020 E. Financial Way Since 1997 of San Francisco. Glendora, CA 91741
INTERESTED TRUSTEES AND OFFICERS -------------------------------- # of Funds in complex Other Position Term of Office overseen by Directorships Held with and Length of Trustee or Held by Trustee Name, Age and Address the Trust Time Served Principal Occupation During Past Five Years Officer or Officer --------------------- --------- -------------- ------------------------------------------- ----------- --------------- Eric M. Banhazl Trustee & Indefinite Term Senior Vice President, U.S. Bancorp Fund Sixteen None (Born 1957) President Services, LLC, the Fund's administrator 2020 E. Financial Way Since 1997 (since July, 2001); Treasurer, Investec Funds; Glendora, CA 91741 formerly, Executive Vice President, Investment Company Administration, LLC ("ICA") (The Fund's former administrator). John S. Wagner Treasurer Indefinite Term Assistant Vice President Compliance and Sixteen None (Born 1965) Administration, U.S. Bancorp Fund Services, 615 E. Michigan Street Since September LLC, since June 1999. Milwaukee, WI 53202 2002 Chad E. Fickett Secretary Indefinite Term Compliance Administrator, U.S. Bancorp Sixteen None (Born 1973) Fund Services, LLC since July 2000. 615 E. Michigan Street Since March Milwaukee, WI 53202 2002
ADVISOR Al Frank Asset Management, Inc. P.O. Box 1438 Laguna Beach, CA 92652 www.alfrank.com DISTRIBUTOR Quasar Distributors, LLC 615 East Michigan Street Milwaukee, WI 53202 TRANSFER AGENT U.S. Bancorp Fund Services, LLC 615 East Michigan Street Milwaukee, WI 53202 (888) 263-6443 CUSTODIAN U.S. Bank, N.A. 425 Walnut Street M/L 6118, 6th Floor Cincinnati, OH 45202 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 LEGAL COUNSEL Paul, Hastings, Janofsky & Walker, LLP 55 Second Street, 24th Floor San Francisco, CA 94105 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. For a current prospectus please call 1-888-263-6443. 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.