-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HLEuO6tr+dQcbg/ox4iQQ645pIuvDzYWugAGTv4BgWn2w83GhtvCsrVoFu0liN5O JRwaS4STgQPkuYGOe5BA+A== 0000950147-00-000336.txt : 20000307 0000950147-00-000336.hdr.sgml : 20000307 ACCESSION NUMBER: 0000950147-00-000336 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVISORS SERIES TRUST CENTRAL INDEX KEY: 0001027596 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07959 FILM NUMBER: 560310 BUSINESS ADDRESS: STREET 1: 2020 E FINANCIAL WAY SUITE 100 CITY: GLENDORA STATE: CA ZIP: 91741 BUSINESS PHONE: 8188521033 MAIL ADDRESS: STREET 1: 2020 E FINANCIAL WAY STREET 2: SUITE 100 CITY: GLENDORA STATE: CA ZIP: 91741 N-30D 1 SEMI-ANNUAL REPORT DATED 11/30/1999 [LOGO] THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND SEMI-ANNUAL REPORT NOVEMBER 30, 1999 THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND Dear Shareholders: The Heritage West Preferred Securities Income Fund has seen its holdings undergo extreme volatility during the half year of operation ending November 30, 1999. The Fund's total return declined 7.32% inclusive of dividends and excluding sales charges. Rising interest rates were primarily responsible for the decline. While most traditional fixed income funds experienced poor or negative total returns for the period, the less volatile nature of preferred securities in general, helped to offset the sharp rise in interest rates. Virtually every security in the Fund experienced a sharp drop in share price during the June through November period. The most extreme share price declines were attributed to the highest quality issues. Higher quality, lower yielding securities tend to be more sensitive to changes in interest rates due to competition for capital. Investors tend to sell their lowest yielding instruments more readily to seek out higher yields. Volatile common stock share prices may have also contributed to increased uncertainty about the general direction of the economy causing declines in share prices throughout the quality spectrum. Since declining preferred share prices affected the entire quality spectrum, the Advisor has focused its recent purchases on those securities that are most undervalued relative to their quality peer group regardless of the specific quality rating. This has led to the purchase of several moderate quality issues (B and BB, as rated by S&P) with yields in excess of 14.00%. It is the Advisor's belief that these issues will not only provide a high level of income to the Fund, but also represent an opportunity for capital appreciation so long as the general economy neither melts down (detrimental to real estate issues) nor overheats, precipitating higher interest rates (detrimental to higher quality issues). The Advisor feels that the interest rate environment will remain relatively stable for the next several quarters since the market has anticipated one or two rate hikes on the part of the Federal Reserve and the Fed has a tendency to avoid election season adjustments. This should begin to ease the volatile swings in preferred share prices and allow the Advisor to continue its basic strategy of dividend captures. Since the current economic climate is generally considered a favorable one for common stock share prices, the Advisor will seek to add a few additional convertible preferred securities to the Fund's portfolio. Thank you for your continued support of the Fund. Sincerely, /s/ Craig O. Jolly Craig O. Jolly Portfolio Manager THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND INVESTMENT PORTFOLIO AT NOVEMBER 30, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- Shares PREFERRED STOCKS: 98.04% Market Value - -------------------------------------------------------------------------------- AUTOMOTIVE - DIVERSIFIED: 0.85% 2,000 Ford Motor Company Series B Cumulative Depositary Shares................................................ $ 54,750 ----------- BANKING - DIVERSIFIED: 9.11% 5,000 California Federal Preferred Capital Corporation Class A............................................... 114,375 5,000 Nationsbank Capital Trust - 7.84% Preferred Securities due 12/31/26.......................................... 117,808 7,000 The Bank of New York Company, Inc. Capital Trust III - 7.05% Preferred Securities due 3/1/28........... 146,562 7,600 The Chase Manhattan Corporation Preferred Securities.... 209,475 ----------- 588,220 ----------- BANKING - SPECIALTY - INTERNATIONAL FINANCIAL SERVICES: 4.04% 10,000 Barclays Bank PLC, Series D American Depositary Receipt............................................... 260,625 ----------- ENTERTAINMENT - SPECIALTY -TV & RADIO PROGRAMMING: 1.67% 3,000 Sinclair Broadcast Group, Incorporated - 6.00% Convertible Perpetual Preferred....................... 108,000 ----------- ENTERTAINMENT - SPECIALTY -TV PRODUCTION, PROGRAMMING, BROADCASTING: 1.05% 3,000 Carlton Communications PLC - 8.00% Preferred Securities............................................ 67,688 ----------- FINANCIAL SERVICES - DIVERSIFIED: 6.77% 10,000 American Express Company Capital Trust I - 7.00% Quarterly Income Preferred Securities due 7/16/28..... 213,125 5,000 Citicorp - 8.40% Cumulative Preferred Securities........ 132,813 1,000 Hartford Capital Trust II - 8.35% Quarterly Income Preferred Securities due 10/30/26..................... 24,250 3,000 ITT Hartford Group, Incorporated Capital Trust I - 7.70% Quarterly Income Preferred Securities due 2/28/16..... 66,562 ----------- 436,750 ----------- 2 THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND INVESTMENT PORTFOLIO AT NOVEMBER 30, 1999 (UNAUDITED), CONTINUED - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- FINANCIAL SERVICES - SPECIALTY - SECURITIES BROKERAGE: 9.16% 5,000 Merrill Lynch & Company, Incorporated Capital Trust IV - 7.12% Trust Originated Preferred Securities........... $ 107,500 5,000 Morgan Stanley Dean Witter & Company France PLC - 9.00% Preferred Securities due 2/28/15...................... 125,313 7,000 Morgan Stanley Dean Witter Capital Trust - 7.10% Preferred Securities due 2/28/38...................... 147,438 3,900 National Rural Utilities Cooperative Finance Corporation - 7.65% Quarterly Income Capital Securities due 9/15/46................................ 90,675 5,000 National Rural Utilities Cooperative Finance Corporation - 8.00% Quarterly Income Capital Securities due 12/31/45............................... 120,313 ----------- 591,239 ----------- FOOD - DIVERSIFIED: 7.05% 10,600 ConAgra Capital LC - Series B Cumulative Preferred Securities due 6/30/43................................ 193,450 10,000 Grand Metropolitan PLC - 9.42% Preferred Securities..... 261,875 ----------- 455,325 ----------- FOOD - SPECIALTY - BEVERAGE: 1.71% 4,500 Cadbury Schweppes PLC - 8.63% Cumulative Preferred Securities............................................ 110,531 ----------- FOOD - SPECIALTY - FAST FOOD: 1.87% 5,000 McDonalds Corporation - 7.50% Subordinated Deferrable Interest Debentures due 1/2/37........................ 120,938 ----------- INSURANCE - DIVERSIFIED: 5.88% 12,000 Acceptance Insurance Company, Inc. Capital Trust - 9.00% Preferred Securities due 9/30/27...................... 131,250 10,000 Allstate Finacial Corp. - 7.95% Series A Quarterly Income Preferred Securities due 12/31/26.............. 233,750 600 Travelers Aetna Property Casualty Capital Trust II - 8.00% Preferred Securities due 5/15/36................ 14,438 ----------- 379,438 ----------- INSURANCE - SPECIALTY - LONG TERM DISABILITY: 1.81% 5,000 UNUM Corporation - 8.80% Series A Monthly Income Debt Securities............................................ 116,875 ----------- 3 THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND INVESTMENT PORTFOLIO AT NOVEMBER 30, 1999 (UNAUDITED), CONTINUED - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- INSURANCE - SPECIALTY - MUNICIPAL BOND: 8.37% 10,000 Ambac Financial Group, Inc. - 7.08% Debentures due 3/31/98............................................... $ 214,375 14,500 Financial Security Assurance - 7.38% Preferred Securities due 9/30/97................................ 326,250 ----------- 540,625 ----------- REAL ESTATE - DIVERSIFIED: 0.58% 2,000 Colonial Properties Trust - 8.75% Preferred Securities.. 37,500 ----------- REAL ESTATE - SPECIALTY - APARTMENTS: 0.78% 2,700 United Dominion Realty Trust, Inc - 8.60% Series B Cumulative Redeemable Preferred Securities............ 50,625 ----------- REAL ESTATE - SPECIALTY - HEALTH CARE: 3.87% 15,100 G&L Realty Corporation - 10.25% Series A Preferred Securities............................................ 247,263 200 Omega Healthcare Investors, Incorporated - Series A Preferred Securities.................................. 2,750 ----------- 250,013 ----------- REAL ESTATE - SPECIALTY - INDUSTRIAL, OFFICE: 1.57% 5,000 Liberty Property Trust - Series A Cumulative Preferred Securities............................................ 101,250 ----------- REAL ESTATE - SPECIALTY - MOTEL: 6.06% 6,500 Cendant Corporation - 7.50% Convertible Preferred Income PRIDES................................................ 173,875 13,950 Equity Inns, Inc. - 9.50% Series A Cumulative Preferred Securities............................................ 217,097 ----------- 390,972 ----------- REAL ESTATE - DIVERSIFIED: 3.37% 13,000 Associates Estates Realty Corp. - 9.75% Depositary Shares................................................ 217,750 ----------- RETAIL - GENERAL MERCHANDISE: 1.37% 5,000 Dillards Capital Trust I - 7.50% Preferred Securities due 8/1/38............................................ 88,125 ----------- TELECOMMUNICATIONS - DIVERSIFIED: 0.64% 1,800 Pacific Telesis Financing I - 7.56% Trust Originated Preferred Securities.................................. 41,625 ----------- 4 THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND INVESTMENT PORTFOLIO AT NOVEMBER 30, 1999 (UNAUDITED), CONTINUED - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- UTILITY - DIVERSIFIED: 7.18% 7,000 Baltimore Gas & Electric Capital Trust I - 7.16% Trust Originated Preferred Securities due 6/30/38........... $ 148,750 1,000 Duke Capital Financing Trust II - 7.38% Cumulative Quarterly Income Preferred Securities due 3/31/38..... 21,688 8,000 Duke Energy Capital Trust I - 7.20% Cumulative Quarterly Income Preferred Securities due 9/30/37............... 173,500 5,000 Northern States Power Financial Trust I - 7.88% Trust Originated Preferred Securities due 1/31/37........... 119,375 ----------- 463,313 ----------- UTILITY - SPECIALTY - ELECTRIC: 13.27% 2,900 Alabama Power Co. - 7.00% Senior Notes due 3/31/48...... 58,986 5,500 Alabama Power Co. - 7.00% Series B due 12/31/47......... 116,531 4,700 Consolidated Edison Company of New York - 7.75% Quarterly Income Capital Securities due 3/31/31....... 104,575 4,800 Potomac Electric Power Company - 7.38% Trust Originated Preferred Securities due 6/1/38....................... 105,600 100 Southern California Edison Company - 4.78% Series Cumulative Preferred.................................. 1,688 15,000 Southern Company Capital Trust IV - 7.13% Trust Originated Preferred Securities due 6/30/28........... 318,750 7,000 Virginia Electric and Power Company - 7.15% Series A due 6/30/28........................................... 150,500 ----------- 856,630 ----------- Total Common Stocks (cost $7,167,648): 98.03%........... 6,328,807 Other Assets less Liabilities: 1.97%.................... 127,140 ----------- Total Net Assets: 100%.................................. $ 6,455,947 =========== See Notes to Financial Statements. 5 THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND STATEMENT OF ASSETS AND LIABILITIES AT NOVEMBER 30, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- ASSETS: Investments in securities, at value (Identified cost $7,167,648)................................. $ 6,328,807 Cash........................................................... 94,990 Receivables Due from advisor for expense reimbursement................... 10,738 Dividends and interest....................................... 24,666 Deferred Organization Cost..................................... 24,930 Prepaid expenses .............................................. 14,896 ----------- Total assets............................................... 6,499,027 ----------- LIABILITIES Payables Advisory fees................................................ 11,335 Administration fees.......................................... 2,311 Accrued expenses............................................... 29,434 ----------- Total liabilities.......................................... 43,080 ----------- NET ASSETS....................................................... $ 6,455,947 =========== NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE $6,455,947 / 598,823 shares outstanding; unlimited number of shares (par value $0.01) authorized........ $ 10.78 =========== OFFERING PRICE PER SHARE ($10.78/.955)........................... $ 11.29 =========== COMPONENTS OF NET ASSETS Paid-in capital................................................ $ 7,266,916 Accumulated net realized gain on investments................... 27,872 Net unrealized depreciation on investments .................... (838,841) ----------- Net assets................................................. $ 6,455,947 =========== See Notes to Financial Statements. 6 THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND STATEMENT OF OPERATIONS FOR THE JUNE 1, 1999 THROUGH NOVEMBER 30, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- INVESTMENT INCOME Income Dividends.................................................... $ 276,977 ----------- Total income............................................... 276,977 ----------- Expenses Advisory fees................................................ 33,185 Administration fees.......................................... 15,041 Custodian and fund accounting fees........................... 8,273 Professional fees............................................ 14,262 Transfer agent fees.......................................... 8,023 Registration fees............................................ 5,626 Reports to shareholders...................................... 3,510 Amortization of deferred organization costs.................. 3,510 Trustees' fees............................................... 1,254 Other ....................................................... 2,006 Insurance expense............................................ 894 ----------- Total expenses............................................. 95,584 Less, advisory fee waiver and absorption (Note 3).......... (29,041) ----------- Net expenses............................................... 66,543 ----------- NET INVESTMENT INCOME ................................... 210,434 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain from security transactions................... 2,087 Net change in unrealized depreciation on investments........... (769,365) ----------- Net realized and unrealized loss on investments.............. (767,278) ----------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $ (556,844) =========== See Notes to Financial Statements. 7 THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------------------------------- June 1, 1999 June 24, 1998* through through November 30, 1999** May 31, 1998 - ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income............................................ $ 210,434 $ 299,373 Net realized gain from security transactions..................... 2,087 144,221 Net change in unrealized depreciation on investments............. (769,365) (69,476) ---------- ---------- NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS (556,844) 374,118 ---------- ---------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Net investment income............................................ (280,920) (347,323) ---------- ---------- CAPITAL SHARE TRANSACTIONS Net increase in net assets derived from net change in outstanding shares (a)...................................... 1,043,909 6,223,007 ---------- ---------- TOTAL INCREASE IN NET ASSETS..................................... $ 206,145 $6,249,802 ========== ========== NET ASSETS Beginning of period................................................ 6,249,802 -- ---------- ---------- END OF PERIOD...................................................... $6,455,947 $6,249,802 ========== ========== (a) A summary of capital shares transactions is as follows: June 1, 1999 June 24, 1998* through through November 30, 1999** May 31, 1999 ------------------------ ------------------------ Shares Value Shares Value ---------- ---------- ---------- ---------- Shares sold .................................... 86,836 $1,033,133 509,573 $6,200,974 Shares issued in reinvestment of distributions.. 16,035 186,342 15,635 188,948 Shares redeemed................................. (15,564) (175,566) (13,692) (166,915) ---------- ---------- ---------- ---------- Net increase.................................... 87,307 $1,043,909 511,516 $6,223,007 ========== ========== ========== ==========
* Commencement of Operations. ** Unaudited. See Notes to Financial Statements. 8 THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND
FINANCIAL HIGHLIGHTS FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT EACH PERIOD - ---------------------------------------------------------------------------------------------- June 1, 1999 June 24, 1998* through through November 30, 1999** May 31, 1999 - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period...................... $ 12.22 $ 12.25 ---------- ---------- Income from investment operations: Net investment income................................... 0.49 0.83 Net realized and unrealized (loss) gain on investments.. (1.33) 0.06 ---------- ---------- Total from investment operations.......................... (0.84) 0.89 Less dividends and distributions: From net investment income.............................. (0.60) (0.92) ---------- ---------- Net asset value, end of period............................ $ 10.78 $ 12.22 ========== ========== Total return.............................................. (7.32)%+ 7.63%+ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (thousands)..................... $ 6,456 $ 6,250 Ratio of expenses to average net assets: Before expense reimbursement............................ 2.87%++ 3.82%++ After expense reimbursement............................. 2.00%++ 1.98%++ Ratio of net investment income to average net assets: After expense reimbursement............................. 6.32%++ 7.48%++ Portfolio turnover rate................................... 38.94% 253.59%
* Commencement of operations. ** Unaudited. + Does not include sales load and is not annualized. ++ Annualized. See Notes to Financial Statements. 9 THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND NOTES TO FINANCIAL STATEMENTS AT NOVEMBER 30, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 1 - ORGANIZATION The Heritage West Preferred Securities Income Fund, formerly The Heritage West Dividend Capture Income Fund, (the "Fund") is a series of shares of Advisors Series Trust (the "Trust"), which is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund began operations on June 24, 1998. The objective of the Fund is to achieve a high rate of current income by primarily buying and selling preferred securities. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with generally accepted accounting principles. A. SECURITY VALUATION: The Fund's investments are carried at market 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 on 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 on the NASDAQ National Market System shall be valued at the most recent trade price. Securities for which market quotations are not readily available, if any, are valued following procedures approved by the Board of Trustees. Short-term investments are valued at amortized cost, which approximates market value. B. FEDERAL INCOME TAXES: It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. C. SECURITY TRANSACTIONS, DIVIDENDS AND DISTRIBUTIONS: Security transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Realized gains and losses on securities sold are determined on the basis of identified cost. D. DEFERRED ORGANIZATION COSTS: The Fund has incurred expenses of $35,000 in connection with its organization. These costs have been deferred and are being amortized on a straight-line basis over a period of sixty months from the date the Fund commenced investment operations. E. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets during the reporting period. Actual results could differ from those estimates. 10 THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED - -------------------------------------------------------------------------------- NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES For the period ended November 30, 1999, Heritage West Advisors, 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 1% based upon the average daily net assets of the Fund. For the period ended November 30, 1999, the Fund incurred $33,185 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% of average net assets (the "expense cap"). Any such reductions made by the Advisor in its fees or payment of expenses which are the Fund's obligation are subject to reimbursement by the Fund to the Advisor, if so requested by the Advisor, in subsequent fiscal years if the aggregate amount actually paid by the Fund toward the operating expenses for such fiscal year (taking into account the reimbursement) does not exceed the applicable limitation on Fund expenses. The Advisor is permitted to be reimbursed only for fee reductions and expense payments made in the previous three fiscal years, but is permitted to look back five years and four years, respectively, during the initial sixth 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 period ended November 30, 1999, the Advisor reduced its fees and absorbed Fund expenses in the amount of $29,041; no amounts were reimbursed to the Advisor. Investment Company Administration, LLC (the "Administrator") acts as the Fund's Administrator under an Administration Agreement. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund; prepares reports and materials to be supplied to the trustees; monitors the activities of the Fund's custodian, transfer agent and accountants; coordinates the preparation and payment of the Fund's expenses and reviews the Fund's expense accruals. For its services, the Administrator receives a monthly fee at the annual rate of 0.20% of average daily net assets, subject to a minimum fee of $30,000 annually. Heritage West Securities (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 Advisor. Certain officers of the Fund are also officers and/or directors of the Administrator. NOTE 4 - PURCHASES AND SALES OF SECURITIES For the period ended November 30, 1999, the cost of purchases and the proceeds from sales of securities, excluding short-term securities, were $4,537,325 and $2,347,101, respectively. 11 THE HERITAGE WEST PREFERRED SECURITIES INCOME FUND CHANGE IN INDEPENDENT ACCOUNTANT - -------------------------------------------------------------------------------- On August 27, 1999, McGladrey & Pullen, LLP ("McGladrey") resigned as independent auditors of the Fund pursuant to an agreement by PricewaterhouseCoopers LLP ("PwC") to acquire McGladrey's investment company practice. The McGladrey partners and professionals serving the Fund at the time of the acquisition joined PwC. Since this change occurred during the Funds initial year of operation McGladrey did not report on the Fund's financial statements. The report of McGladrey on the financial statements of the Fund during the last fiscal year contained no adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. On September 10, 1999, the Fund, with the approval of its Board of Trustees and its Audit Committee, engaged PwC as its independent auditors. 12 ADVISOR Heritage West Advisers, LLC 7373 North Scottsdale Road Suite D-201 Scottsdale, Arizona 85253 DISTRIBUTOR Heritage West Securities, Inc. 7373 North Scottsdale Road Suite D-201 Scottsdale, Arizona 85253 TRANSFER AGENT ICA Fund Services Corp. 4455 East Camelback Road, Suite 261E Phoenix, AZ 85018 LEGAL COUNSEL Paul, Hastings, Janofsky & Walker LLP 345 California Street San Francisco, California 94104 -----END PRIVACY-ENHANCED MESSAGE-----