N-CSR 1 taaeaf-ncsra.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-07959 ADVISORS SERIES TRUST --------------------- (Exact name of registrant as specified in charter) 615 EAST MICHIGAN ST. MILWAUKEE, WI 53202 ------------------- (Address of principal executive offices) (Zip code) ERIC M. BANHAZL ADVISORS SERIES TRUST 2020 EAST FINANCIAL WAY, SUITE 100 GLENDORA, CA 91741 ------------------ (Name and address of agent for service) (414) 765-5340 --------------- Registrant's telephone number, including area code Date of fiscal year end: DECEMBER 31, 2003 ----------------- Date of reporting period: DECEMBER 31, 2003 ----------------- ITEM 1. REPORT TO STOCKHOLDERS. ------------------------------ THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND Annual Report For the Year Ended December 31, 2003 TABLE OF CONTENTS THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND Management's Discussion and Analysis Letter 3 Performance Graph 7 Schedule of Investments 8 Statement of Assets and Liabilities 11 Statement of Operations 12 Statements of Changes in Net Assets 13 Financial Highlights 14 Notes to Financial Statements 15 Report of Independent Accountants 21 Information about Trustees and Officers 22 February 2, 2004 Dear Shareholder, I would like to take this opportunity to report on the progress of the Avatar Advantage Equity Allocation Fund for the periods ending December 31, 2003. EQUITY FUND AVERAGE S&P 500 NASDAQ PERIOD ANNUALIZED RETURNS INDEX INDEX ------ ------------------ ------- ------ Q1 2003 -2.59% -3.15% 0.58% Q2 2003 9.29% 15.40% 21.11% Q3 2003 1.89% 2.64% 10.22% Q4 2003 8.21% 12.18% 12.29% One-year 17.38% 28.69% 50.77% Three-year -8.82% -4.05% -6.33% Five-Year -3.55% -0.57% -1.43% Since Inception (12/3/97) 0.85% 2.80% 3.89% 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. If the maximum sales charge (4.50%) was reflected, the Fund's returns for the 1-yr, 3-yr, 5-yr and since inception periods would have been 12.10%, -10.19%, -4.44% and 0.09% respectively. Please see the prospectus for fees and expenses that do apply to a continued investment in the fund. The past year saw a mostly normal snap-back from depressed economic and financial conditions, and we should all feel good about the first up year for the stock market in four. The economy registered some good growth on a percentage basis, but it was hardly a barn-burner considering the low levels from which it sprang. Unfortunately, the fact that the third quarter of the year grew at 8.2%, while impressive, is a very poor forecast of growth in the ensuing quarters. What counts most are the underlying processes of growth. Here the story, while encouraging, is not all positive. 2003 - SECOND SIX MONTHS IN REVIEW: ----------------------------------- We started the second half above our neutral equity asset allocation and ended the quarter at a neutral allocation due to the increasing weakness in the dollar, a strong rise in commodity prices and the leap in the price of gold. We started the fourth quarter with a neutral allocation. As there was steady deterioration in our monetary model, we lowered equity exposure to below neutral in mid-November. As in the third quarter, the sharp decline in the dollar caused a number of our fundamental indicators to decline. In late-November, we lowered exposure a bit more as some of the small capitalization stocks began correcting from spectacular runs. Toward the end of December, we raised equity exposure just under neutral due to substantial mutual fund inflows. While ultimately we feel these flows will represent a problem, typically a contrarian indicator, for now they are carrying the market higher, despite less favorable other fundamentals. Equities posted solid increases in the last half of the year, including a strong sprint to the finish. Investor optimism stemmed from continued favorable economic data, a low interest rate outlook, and robust growth in corporate profits. Performance by sector varied. In the third quarter, economically sensitive stocks generally performed well above average while defensive groups mostly lagged. Technology was the quarter's star performer, benefiting from firming demand in semiconductors and portions of the computer hardware industry. Portfolio holdings were increased during the quarter in agricultural equipment stocks and package delivery stocks. The only significant change in consumer discretionary and basic materials was to increase holdings in retail stocks. Telecom also provided an important contribution to performance. In the fourth quarter, cyclical groups advanced strongly while the defensive areas took a back seat. Performance of the basic materials sector (chemicals and papers) experienced the most dramatic rise. Positions in chemicals were trimmed during the period and we ended the year with approximately a market weighting. Industrial stocks were also strong and provided the most value added to overall performance. This sector was over-weighted entering the quarter with a diversity of holdings and we remained overweight at the end of the year. Rising commodity prices and good demand made for an attractive profit outlook in the energy sector. Holdings were raised modestly during the period. Financial stocks performed in-line with the overall index; however, our positions in insurance stocks added value due to an improving fundamental outlook. The portfolio weighting in this sector approximates that of the S&P 500 Index. Telecom services exposure was increased to over-weight and was an area where stock selection added value. The relative performance of technology stocks cooled a bit in the fourth quarter, but the sector as a whole still performed about average. Performance in the consumer discretionary sector was restrained by weakness in retail stocks - a group where exposure was reduced to slightly underweight. Performance of defensive sectors including healthcare, consumer staples, and electric utilities trailed the overall averages. Portfolios are underweight staples and healthcare groups and exposure to the electric utilities sector was reduced slightly in the fourth quarter. Entering 2004, the portfolio is well diversified and is positioned to benefit from the solid economic growth that is expected well into the New Year. 2004 - OUTLOOK: --------------- There are pretty good indications that the economy may be entering a period of somewhat higher employment growth. While that is welcome, some caution must be declared due to the fact that this has been, by far, the weakest recovery in employment for a new economic cycle. Whatever is holding back employment may remain in operation as 2004 rolls on. One area that clearly appears to have turned is capital spending. Some doubt the staying power of this development because so much unutilized capacity still exists. However, the main driving force for capital spending is profitability. In 2003, profits soared from their lowest base in the modern era. While there will inevitably be a slowdown from that pace, profits appear healthy enough to encourage corporations to get on with the business of modernization. Actual innovation has kept up with its normal growth during the past four years, but decisions to employ these advances have been muted. The greatest concern in the outlook that we have is a financial one. The level of interest rates is too low if the economy continues in the process of expansion. The demand for borrowed funds is growing as corporations and the federal government together tap the bond market. Beyond that, there are indications that a process of inflation acceleration is probably under way, which would also tend to boost interest rates. The expectation of some, including the Federal Reserve, is that inflation is well contained because of the high degree of unused labor and manufacturing capacity. As we have argued in the Advisor, inflation is one of the most difficult economic processes to forecast. Evidence shows very low correlation between the change in inflation and the level of unutilized labor and/or manufacturing capacity. In other words, excess capacity does not, as is commonly believed, provide a buffer against inflation. What we do know is that once the inflation process takes hold it stubbornly resists attempts to tame it. In other words, the risks seem to be tilted toward a chance of noticeably higher interest rates. Our monetary models reflect the growing concerns with regard to interest rates and remain no better than neutral. Our stock market momentum models are still supportive of the kind of rally we experienced in second half of 2003. The real danger in the equity market is in the area of valuation and flows of funds, which we call our sentiment model. What gives us pause is that groups that have a poor record of assessing short-term risk in the market are buying stocks. Meanwhile, those groups that have a good record of knowing when the market is attractively valued, such as corporate insiders and corporate financial officers, are selling stocks. The inflows into mutual funds have been enough to mask some of the underlying concerns we have mentioned here. However, it is not a great foundation on which to build a care-free equity environment. Sincerely, /s/Larry Seibert Larry Seibert, CFA Vice Chairman OAM AVATAR, LLC An affiliate of Overture Asset Managers, LLC The S&P 500 and NASDAQ Indices are unmanaged indices commonly used to measure the performance of U.S. stocks. One cannot invest directly in an index. Sector allocations are subject to change at any time and are not recommendations to buy or sell any securities within a sector. THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND COMPARISON OF THE VALUE OF A $10,000 INVESTMENT IN THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND VERSUS THE S&P 500 STOCK PRICE INDEX The Avatar Advantage S&P 500 Composite Date Equity Allocation Fund Stock Price Index ---- ---------------------- ----------------- 12/3/97 $10,000 $10,000 12/31/97 $9,571 $9,946 3/31/98 $10,746 $11,333 6/30/98 $10,956 $11,707 9/30/98 $10,281 $10,543 12/31/98 $12,041 $12,788 3/31/99 $12,204 $13,425 6/30/99 $12,804 $14,371 9/30/99 $12,153 $13,475 12/31/99 $14,102 $15,480 3/31/00 $15,133 $15,834 6/30/00 $14,767 $15,413 9/30/00 $15,099 $15,264 12/31/00 $13,258 $14,070 3/31/01 $10,874 $12,401 6/30/01 $10,995 $13,127 9/30/01 $9,548 $11,200 12/31/01 $10,480 $12,397 3/31/02 $10,578 $12,430 6/30/02 $9,620 $10,765 9/30/02 $8,477 $8,905 12/31/02 $8,563 $9,656 3/31/03 $8,341 $9,352 6/30/03 $9,116 $10,791 9/30/03 $9,289 $11,077 12/31/03 $10,051 $12,426 Average Annual Total Return1 -------------------------------- 1 Year 12.10% 5 Year (4.43%) Since inception (12/3/97) 0.08% Past performance is no guarantee of future results. 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 S&P 500 Composite Stock Price Index is an unmanaged capitalization-weighted index of 500 stocks designed to represent the broad domestic economy. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions, or redemption on Fund shares. SCHEDULE OF INVESTMENTS at December 31, 2003 SHARES MARKET VALUE ------ ------------ COMMON STOCKS: 80.22% AEROSPACE/DEFENSE: 0.53% 800 Lockheed Martin Corp. $ 41,120 ---------- BANKS: 3.41% 950 Bank of New York 31,464 400 Commerce Bancorp Inc. NJ 21,072 933 Countrywide Financial Corp. 70,768 2,400 Wells Fargo & Co. 141,336 ---------- 264,640 ---------- CHEMICALS: 0.65% 1,100 Du Pont De Nemours & Co. 50,479 ---------- CHEMICALS - SPECIALTY: 0.83% 1,000 PPG Industries, Inc. 64,020 ---------- COMMUNICATIONS: 0.62% 1,700 Nextel Communication, Inc. - Class A* 47,702 ---------- COMPUTER SOFTWARE: 3.20% 9,000 Microsoft Corp. 247,860 ---------- CONSUMER CYCLICAL: 1.97% 1,100 Best Buy Co. Inc. 57,464 1,100 CVS Corporation 39,732 1,000 Lowe's Companies, Inc. 55,390 ---------- 152,586 ---------- CONSUMER STAPLES: 6.09% 3,100 Coca-Cola Co. 157,325 2,100 Kellogg Co. 79,968 1,600 Pepsico Inc. 74,592 1,600 The Procter & Gamble Co. 159,808 ---------- 471,693 ---------- DIVERSIFIED FINANCIAL SERVICES: 4.42% 4,400 Citigroup, Inc. 213,576 800 Charter One Financial Inc. 27,640 500 First Tennessee National Corp. 22,050 1,700 Wachovia Corp 79,203 ---------- 342,469 ---------- DIVERSIFIED MANUFACTURING: 7.19% 900 Danaher Corporation 82,575 500 Eaton Corp. 53,990 6,200 General Electric Co. 192,076 1,300 Illinois Tool Works Inc. 109,083 750 Ingersoll-Rand Co. - Class A # 50,910 800 3M Co. 68,024 ---------- 556,658 ---------- DRUGS & PHARMACEUTICALS: 7.30% 2,100 Abbott Labs 97,860 2,100 Johnson & Johnson 108,486 1,000 Merck & Co. Inc. 46,200 6,325 Pfizer, Inc. 223,462 2,100 Wyeth 89,145 ---------- 565,153 ---------- ELECTRIC - INTEGRATED: 1.40% 1,700 Dominion Resources, Inc. 108,511 ---------- ELECTRIC POWER: 0.90% 1,800 Cinergy Corp. 69,858 ---------- ELECTRONIC COMPONENTS - SEMICONDUCTORS: 2.87% 6,900 Intel Corp. 222,180 ---------- ELECTRONIC COMPONENTS - MILITARY: 0.53% 800 L-3 Communications Holdings* 41,088 ---------- FINANCE - CREDIT CARD: 1.31% 800 Capital One Financial Corp 49,032 2,100 MBNA Corp. 52,185 ---------- 101,217 ---------- FINANCE - INVESTMENTS BANKERS/BROKERS: 2.31% 300 Goldman Sachs Group, Inc. 29,619 400 The Bear Stearns Companies, Inc. 31,980 800 Federated Investors Inc. 23,488 300 Legg Mason Inc. 23,154 1,200 Merrill Lynch & Co. Inc. 70,380 ---------- 178,621 ---------- FINANCE - MORTGAGE LOANS: 0.53% 550 Fannie Mae 41,283 ---------- FOOD - RETAIL: 0.90% 2,800 McDonald's Corp. 69,524 ---------- HEALTHCARE: 0.97% 1,000 Anthem, Inc.* 75,000 ---------- INSURANCE - BROKERS: 1.05% 1,700 Marsh & McLennan Companies, Inc. 81,413 ---------- INSURANCE - MULTILINE: 3.31% 1,400 Ace Ltd. # 57,988 650 AFLAC Corporation 23,517 1,750 American International Group, Inc. 115,990 1,000 Hartford Financial Services 59,030 ---------- 256,525 ---------- MACHINERY FARMING: 1.09% 1,300 Deere & Co. 84,565 ---------- MEDIA: 1.51% 2,158 Comcast Corp - Class A* 70,933 900 Tribune Co. 46,440 ---------- 117,373 ---------- MEDICAL - HMO: 0.60% 800 UnitedHealth Group, Inc. 46,544 ---------- MEDICAL INSTRUMENTS: 0.55% 500 Stryker Corp. 42,505 ---------- MOVIES & ENTERTAINMENT: 1.96% 3,100 The Walt Disney Co. 72,323 1,800 Viacom, Inc. - Class B 79,884 ---------- 152,207 ---------- OIL & GAS - MACHINERY & EQUIPMENT: 1.07% 1,300 Baker Hughes Inc. 41,808 1,000 Smith International, Inc.* 41,520 ---------- 83,328 ---------- PAPER & PAPER PRODUCTS: 0.73% 900 Temple-Inland, Inc. 56,403 ---------- PETROLEUM DISTRIBUTION: 0.51% 1,650 MDU Resource Group, Inc. 39,287 ---------- PETROLEUM PRODUCTS: 4.22% 500 Apache Corporation 40,550 800 ChevronTexaco Corp. 69,112 5,300 Exxon Mobil Corp. 217,300 ---------- 326,962 ---------- RETAIL: 2.37% 500 Kohl's Department Store* 22,470 1,300 Target Corp. 49,920 2,100 Wal-Mart Stores, Inc. 111,405 ---------- 183,795 ---------- RETAIL - OFFICE SUPPLIES: 0.74% 2,100 Staples, Inc.* 57,330 ---------- WIRELESS COMMUNICATIONS: 1.04% 1,500 QUALCOMM, Inc. 80,895 ---------- TECHNOLOGY: 5.99% 3,500 Cisco Systems, Inc.* 85,015 4,000 Dell Computer Corp.* 135,840 1,700 International Business Machines Corp. 157,556 2,900 Texas Instruments, Inc. 85,202 ---------- 463,613 ---------- TECHNOLOGY - COMMERCIAL SERVICES: 0.74% 1,500 Choice Point, Inc.* 57,135 ---------- TECHNOLOGY - DATA PROCESSING: 1.06% 2,000 First Data 82,180 ---------- TELEPHONE: 3.08% 2,900 BellSouth Corp. 82,070 2,300 SBC Communications, Inc. 59,961 2,750 Verizon Communications 96,470 ---------- 238,501 ---------- TRUCKING: 0.67% 700 United Parcel Service - Cl B 52,185 ---------- TOTAL COMMON STOCKS (Cost $5,484,412) 6,214,408 ---------- PRINCIPAL AMOUNT --------- U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS: 18.07% $1,400,000 U.S. Treasury Bill, 0.85%, 01/15/04 1,399,525 ---------- TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (Cost $1,399,525) 1,399,525 ---------- SHORT-TERM INVESTMENTS: 1.76% 136,052 Federated Cash Trust Treasury Money Market Fund 136,052 ---------- TOTAL SHORT-TERM INVESTMENTS (Cost $136,052) 136,052 ---------- Total Investments in Securities (Cost $7,019,989): 100.05% 7,749,985 Liabilities in Excess of Other Assets: (0.05)% (3,749) ---------- Net Assets: 100.00% $7,746,236 ---------- ---------- * Non-income producing security. # U.S. security of foreign issuer. See Accompanying Notes to Financial Statements. STATEMENT OF ASSETS AND LIABILITIES at December 31, 2003 ASSETS Investments in securities, at value (cost $7,019,989) $7,749,985 Receivables: Dividends and interest receivables 6,245 Fund shares sold 3,302 Due from Advisor 17,134 Prepaid expenses 1,137 ---------- Total assets 7,777,803 ---------- LIABILITIES Payables: Administration fees 2,548 Distribution fees 1,612 Fund shares redeemed 240 Fund accounting fees 3,385 Transfer agent fees 2,492 Custody fees 1,411 Other expenses 19,879 ---------- Total liabilities 31,567 ---------- NET ASSETS $7,746,236 ---------- ---------- NET ASSET VALUE AND REDEMPTION PRICE PER SHARE [$7,746,236 / 947,597 shares outstanding; unlimited number of shares (par value $.01) authorized] $8.17 ----- ----- OFFERING PRICE PER SHARE ($8.17 / .9550) $8.55 ----- ----- COMPONENTS OF NET ASSETS Paid-in capital $8,912,374 Undistributed net investment income 4,391 Accumulated net realized loss on investments (1,900,525) Net unrealized appreciation on investments 729,996 ---------- Net assets $7,746,236 ---------- ---------- See Accompanying Notes to Financial Statements. STATEMENT OF OPERATIONS For the Year Ended December 31, 2003 INVESTMENT INCOME Income Dividends $ 105,049 Interest 9,262 ---------- Total income 114,311 ---------- Expenses Advisory fees (Note 3) 62,288 Administration fees (Note 3) 30,123 Professional fees 32,785 Fund accounting fees 21,063 Distribution fees (Note 4) 18,320 Transfer agent fees 14,923 Custody fees 7,778 Reports to shareholders 3,305 Trustee fees 7,294 Registration expense 2,096 Miscellaneous 2,102 Insurance expense 1,136 ---------- Total expenses 203,213 Less: advisory fee waiver (Note 3) (93,293) ---------- Net expenses 109,920 ---------- NET INVESTMENT INCOME 4,391 ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain on investments 80,504 Net realized loss on financial futures (17,944) Net change in unrealized appreciation on investments and financial futures 1,125,297 ---------- Net realized and unrealized gain on investments 1,187,857 ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,192,248 ---------- ---------- See Accompanying Notes to Financial Statements. STATEMENTS OF CHANGES IN NET ASSETS Year Ended Year Ended December 31, 2003 December 31, 2002 ----------------- ----------------- NET INCREASE / (DECREASE) IN NET ASSETS FROM: OPERATIONS Net investment gain / (loss) $ 4,391 $ (9,473) Net realized gain on investments 80,504 (813,679) Net realized (loss) / gain on financial futures (17,944) 59,205 Net change in unrealized appreciation / depreciation on investments and financial futures 1,125,297 (872,761) ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,192,248 (1,636,708) ---------- ---------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Net investment income -- (10,041) ---------- ---------- TOTAL DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- (10,041) ---------- ---------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Net decrease in net assets derived from net change in outstanding shares (a) (668,206) (146,186) ---------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS 524,042 (1,792,935) ---------- ---------- NET ASSETS Beginning of year 7,222,194 9,015,129 ---------- ---------- END OF YEAR (including undistributed net investment income of $4,391 and $0, respectively) $7,746,236 $7,222,194 ---------- ---------- ---------- ----------
(a) A summary of share transactions is as follows: Year Ended Year Ended December 31, 2003 December 31, 2002 -------------------- ------------------- Shares Value Shares Value ------ ----- ------ ----- Shares sold 118,861 $ 879,458 64,063 $ 495,567 Shares issued in reinvestment of distributions -- -- 1,447 10,041 Shares redeemed (209,511) (1,547,664) (83,990) (651,794) -------- ----------- ------- --------- Net decrease (90,650) $ (668,206) (18,480) $(146,186) -------- ----------- ------- --------- -------- ----------- ------- --------- See Accompanying Notes to Financial Statements. FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR Year Ended December 31, 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- Net asset value, beginning of year $ 6.96 $ 8.53 $10.90 $12.31 $11.84 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income / (loss) -- (0.01) 0.01 0.01 0.01 Net realized and unrealized gain / (loss) on investments 1.21 (1.55) (2.29) (0.74) 1.98 ------ ------ ------ ------ ------ Total from investment operations 1.21 (1.56) (2.28) (0.73) 1.99 ------ ------ ------ ------ ------ LESS DISTRIBUTIONS: From net investment income -- (0.01) (0.01) -- -- From net capital gains -- -- (0.08) (0.68) (1.52) ------ ------ ------ ------ ------ Total distributions -- (0.01) (0.09) (0.68) (1.52) ------ ------ ------ ------ ------ Net asset value, end of year $ 8.17 $ 6.96 $ 8.53 $10.90 $12.31 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total return 17.38% (18.29%) (20.95%) (5.99%) 17.11% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (millions) $7.7 $7.2 $9.0 $12.5 $14.1 RATIO OF EXPENSES TO AVERAGE NET ASSETS: Before expense reimbursement 2.77% 2.49% 2.31% 2.02% 1.99% After expense reimbursement 1.50% 1.50% 1.50% 1.50% 1.50% RATIO OF NET INVESTMENT (LOSS) / INCOME TO AVERAGE NET ASSETS: After expense reimbursement 0.04% (0.12%) 0.10% 0.05% 0.08% Portfolio turnover rate 78.21% 78.91% 79.48% 67.97% 101.86%
See Accompanying Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS at December 31, 2003 NOTE 1 - ORGANIZATION The Avatar Advantage Equity Allocation Fund (the "Fund") is a series of shares of beneficial interest of Advisors Series Trust (the "Trust"), which is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund's primary investment objective is to seek long-term capital appreciation by investing in equity stocks. The Fund began operations on December 3, 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 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 using the NASDAQ Official Closing Price ("NOCP"). If the NOCP is not available, such securities 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. Financial Futures Contracts: A financial futures contract is an agreement to purchase (long) or sell (short) an agreed amount of securities at a set price for delivery on a future date. Upon entering into a financial futures contract, a Fund is required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount. This amount is known as the "initial margin." Subsequent payments, known as "variation margin, "are made or received by a Fund each day, depending on the daily fluctuations in the value of the underlying security. Such variation margin is recorded for financial statement purposes on a daily basis as unrealized gain or loss. When the contract expires or is closed the gain or loss is realized and is presented in the statement of operations as net realized gain (loss) on the financial futures contracts. The portfolio invests in financial futures contracts in order to hedge existing portfolio securities, or securities the portfolio intends to purchase against fluctuations in value. Under a variety of circumstances, the portfolio may not achieve the anticipated benefits of the financials futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts and the underlying assets. C. 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. D. 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. 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, 2003, OAM Avatar LLC (the "Advisor") provided the Fund with investment management services under an Investment Advisory Agreement. The Advisor furnished all investment advice, office space, facilities, and provides most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee at the annual rate of 0.85% based upon the average daily net assets of the Fund. For the year ended December 31, 2003, the Fund incurred $62,288 in Advisory Fees. The Fund is responsible for its own operating expenses. The Advisor has agreed to reduce fees payable to it by the Fund and to pay Fund operating expenses to the extent necessary to limit the Fund's aggregate annual operating expenses to 1.50% of average net assets (the "expense cap"). Any such 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, 2003, the Advisor reduced its fees and absorbed Fund expenses in the amount of $93,293; no amounts were reimbursed to the Advisor. Cumulative expenses subject to recapture pursuant to the aforementioned conditions amounted to $325,405 at December 31, 2003. Cumulative expenses subject to recapture expire as follows: Year Amount ---- ------ 2004 $ 70,174 2005 81,041 2006 80,897 2007 93,293 -------- $325,405 -------- -------- U.S. Bancorp Fund Services, 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 Quasar Distributors, L.L.C. (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. For the fiscal year ended December 31, 2003, the Distributor did not receive any sales commission from the Funds. Certain officers of the Fund are also officers and/or directors of the Administrator. NOTE 4 - DISTRIBUTION The Avatar Advantage Equity Allocation 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, 2003, The Avatar Advantage Equity Allocation Fund paid the Distribution Coordinator in the amount of $18,320. NOTE 5 - PURCHASES AND SALES OF SECURITIES For the year ended December 31, 2003, the cost of purchases and the proceeds from sales of securities, excluding short-term securities, were $4,884,907 and $5,900,128 respectively. NOTE 6 - INCOME TAXES Net investment income/(loss) and net realized gains/(losses) differ for financial statement and tax purposes due to differing treatments of wash sale losses deferred and losses realized subsequent to October 31 on the sale of securities. The tax character of distributions paid during years ended December 31, 2003 and 2002 were as follows: 2003 2002 ---- ---- Ordinary income -- $10,041 As of December 31, 2003, the components of accumulated earnings/(losses) on a tax basis were as follows: Cost of investments $ 7,020,672 ----------- Gross tax unrealized appreciation 807,464 Gross tax unrealized depreciation (78,151) ----------- Net tax unrealized appreciation $ 729,313 ----------- Undistributed ordinary income $ 4,391 Undistributed long-term capital gain -- ----------- Total distributable earnings $ 4,391 ----------- Other accumulated gains/losses $(1,899,842) ----------- Total accumulated earnings/(losses) $(1,166,138) ----------- ----------- The Fund had a capital loss carryforward of ($1,899,842) which expires as follows: Year Amount ---- ------ 2011 $ (132,542) 2010 (611,184) 2009 (1,156,116) ----------- $(1,899,842) ----------- ----------- NOTE 7 - CHANGE OF AUDITORS On June 13, 2003, PricewaterhouseCoopers LLP ("PwC") resigned as the independent accountants for the Avatar Advantage Equity Allocation Fund (the "Fund"), a series of Advisors Series Trust (the "Company"). On June 13, 2003, the Company retained Tait, Weller & Baker ("Tait") as the independent accountants for the Fund. The retention of Tait as the independent accountants of the Fund has been approved by the Company's Audit Committee and Board of Trustees. The reports of PwC on the financial statements of the Fund for the past two fiscal years contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with its audits for the two most recent fiscal years and through June 13, 2003, there have been no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PwC would have caused them to make reference thereto in their report on the financial statements for such years. NOTE 8 - HOW TO OBTAIN A COPY OF THE FUNDS PROXY VOTING POLICIES A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available (1) without charge upon request by calling 866-205-0294; (2) at avatar-associates.com; and (3) on the U.S. Securities and Exchange Commission's website at sec.gov. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Trustees and Shareholders of Advisors Series Trust Milwaukee, WI We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Avatar Advantage Equity Allocation Fund, a series of Advisors Series Trust, as of December 31, 2003, and the related statement of operations, the statement of changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the year ended December 31, 2002 and the financial highlights for each of the four years in the period then ended have been audited by other auditors, whose report dated February 21, 2003 expressed an unqualified opinion on such financial statement and financial highlights. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2003 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Avatar Advantage Equity Allocation Fund as of December 31, 2003, 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 of America. TAIT, WELLER & BAKER Philadelphia, Pennsylvania February 04, 2004 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 Term of Funds in Other Position Office and complex Directorships Name, Age Held with Length of Principal Occupation overseen Held by and Address the Trust Time Served During Past Five Years by Trustee Trustee ----------- --------- ----------- ---------------------- ---------- ------------- Walter E. Auch Trustee Indefinite Management 1 Nicholas- (Born 1921) Term Consultant Applegate 2020 E. Financial Way Funds, Glendora, CA 91741 Since Salomon 1997 Smith Barney Funds, Bayan Strategic Realty Trust, Legend Properties, Pimco Advisors LLP, and Senele Group James Clayburn Trustee Indefinite Dean Emeritus, John E. 1 The Payden LaForce Term Anderson Graduate & Rygel (Born 1927) School of Management, Investment 2020 E. Financial Way Since University of California, Group, PIC Glendora, CA 91741 March 2002 Los Angeles Investment Trust, PIC Small Cap 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 Financial Consultant; 1 The Parnassus (Born 1936) Term formerly Executive Fund 2020 E. Financial Way Vice President and The Parnassus Glendora, CA 91741 Since Chief Operating officer Income Fund 1997 of ICI Mutual Insurance The Forward Company (until January, Funds 1997); Vice President, Operations, Investment Company Institute (until July, 1993). George J. Rebhan Trustee Indefinite Retired; formerly 1 E*Trade (Born 1934) Term President, Hotchkis Funds 2020 E. Financial Way and Wiley Funds Glendora, CA 91741 Since (mutual funds) March 2002 from 1985 to 1993. George T. Wofford III Trustee Indefinite Senior Vice President, 1 Not (Born 1939) Term Information Services, Applicable 2020 E. Financial Way Federal Home Loan Glendora, CA 91741 Since Bank of San Francisco. 1997
INTERESTED TRUSTEES AND OFFICERS -------------------------------- # of Funds in Other Term of complex Directorships Position Office and overseen Held by Name, Age Held with Length of Principal Occupation by Trustee Trustee and Address the Trust Time Served During Past Five Years or Officer or Officer ----------- --------- ----------- ---------------------- ---------- ------------- Eric M. Banhazl Trustee & Indefinite Senior Vice President, 1 None (Born 1957) President Term U.S. Bancorp Fund 2020 E. Financial Way Services, LLC, the Glendora, CA 91741 Since Fund's administrator 1997 (since July, 2001); Treasurer, Investec Funds; formerly, Executive Vice President, Investment Company Administration, LLC (ICA) (The Fund's former administrator). Douglas G. Hess Treasurer Indefinite Assistant Vice 1 None (Born 1967) Term President Compliance 615 E. Michigan Street and Administration, Milwaukee, WI 53202 Since U.S. Bancorp Fund December Services, LLC since 2003 March 1997. Rodney DeWalt Secretary Indefinite Compliance 1 None (Born 1967) Term Administrator, U.S. 615 E. Michigan Street Bancorp Fund Services, Milwaukee, WI 53202 Since LLC since January 2003. December 2003
ADVISOR OAM Avatar LLC 350 Madison Avenue, 11th Floor New York, New York 10017 www.avatar-associates.com DISTRIBUTOR Quasar Distributors, LLC 615 E. Michigan Street Milwaukee, Wisconsin 53202 CUSTODIAN U.S. Bank, N.A. 425 Walnut Street Cincinnati, Ohio 45202 TRANSFER AGENT U.S. Bancorp Fund Services, LLC 615 E. Michigan Street Milwaukee, Wisconsin 53202 LEGAL COUNSEL Paul, Hastings, Janofsky & Walker, LLP 55 Second Street, 24th Floor San Francisco, California 94105 INDEPENDENT PUBLIC ACCOUNTANTS Tait, Weller & Baker 1818 Market Street, Suite 2400 Philadelphia, PA 19103 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. ITEM 2. CODE OF ETHICS. ----------------------- The registrant has adopted a code of ethics that applies to the registrant's principal executive officer and principal financial officer. The registrant has not made any amendments to its code of ethics during the covered period. The registrant has not granted any waivers from any provisions of the code of ethics during the covered period. A copy of the registrant's Code of Ethics is filed herewith. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. ---------------------------------------- The registrant's board of trustees has determined that it does not have an audit committee financial expert serving on its audit committee. At this time, the registrant believes that the experience provided by each member of the audit committee together offers the registrant adequate oversight for the registrant's level of financial complexity. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. ----------------------------------------------- The registrant has engaged its principal accountant to perform audit services, audit-related services, tax services and other services during the past two fiscal years. "Audit services" refer to performing an audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. "Audit-related services" refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. "Tax services" refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. There were no "other services" provided by the principal accountant were. The following table details the aggregate fees billed for each of the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant. # of Hours spent FYE 12/31/2003 FYE 12/31/2002 in FYE 2003 --------------- --------------- ---------------- Audit Fees $13,000 $17,500 N/a Audit-Related Fees N/a N/a N/a Tax Fees $2,000 $3,800 N/a All Other Fees N/a N/a N/a The audit committee has adopted pre-approval policies and procedures that require the audit committee to pre-approve all audit and non-audit services of the registrant, including services provided to any entity affiliated with the registrant. All of the principal accountant's hours spent on auditing the registrant's financial statements were attributed to work performed by full-time permanent employees of the principal accountant. The following table indicates the non-audit fees billed by the registrant's accountant for services to the registrant and to the registrant's investment adviser (and any other controlling entity, etc.--not sub-adviser) for the last two years. The audit committee of the board of trustees/directors has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser is compatible with maintaining the principal accountant's independence and has concluded that the provision of such non-audit services by the accountant has not compromised the accountant's independence. Non-Audit Related Fees FYE 12/31/2003 FYE 12/31/2002 ---------------------- --------------- --------------- Registrant $750 N/a Registrant's Investment Adviser N/a N/a ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. ---------------------------------------------- Not applicable to open-end investment companies. ITEM 6. [RESERVED] ------------------ ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END ------------------------------------------------------------------------- MANAGEMENT INVESTMENT COMPANIES. -------------------------------- Not applicable to open-end investment companies. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT --------------------------------------------------------------------------- COMPANY AND AFFILIATED PURCHASES. --------------------------------- Not applicable to open-end investment companies. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ------------------------------------------------------------ Not applicable. ITEM 10. CONTROLS AND PROCEDURES. --------------------------------- (a) The Registrant's President/Chief Executive Officer and Treasurer/Chief Financial Officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) are effective as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the Act. (b) There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the Registrant's last fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. ----------------- (a) (1) Any code of ethics or amendment thereto. Filed herewith. (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. (b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Advisors Series Trust ----------------------------------------- By (Signature and Title) /s/ Eric M. Banhazl ------------------- Eric M. Banhazl, President Date 3/2/04 ------ Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ Eric M. Banhazl -------------------------- Eric M. Banhazl, President Date 3/2/04 ------ By (Signature and Title)* /s/ Douglas G. Hess -------------------------- Douglas G. Hess, Treasurer Date 3/3/04 ------ * Print the name and title of each signing officer under his or her signature.