0000950147-01-501666.txt : 20011009
0000950147-01-501666.hdr.sgml : 20011009
ACCESSION NUMBER: 0000950147-01-501666
CONFORMED SUBMISSION TYPE: 497
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20011001
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: 497
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-17391
FILM NUMBER: 1749312
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
497
1
e-7447.txt
PROSPECTUS & SAI DATED 8-28-01
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
PROSPECTUS
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
August 28, 2001
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
National Asset Management Core Equity Fund is a core equity fund designed for
individual and institutional investors. The Fund seeks to provide investors with
high total investment return. INVESCO-National Asset Management is the
investment advisor to the Fund.
TABLE OF CONTENTS
An Overview of the Fund.............................................. 3
Performance.......................................................... 4
Fees and Expenses.................................................... 5
Investment Objective and Principal Investment Strategies............. 6
Principal Risks of Investing in the Fund............................. 7
Investment Advisor................................................... 8
Shareholder Information.............................................. 8
Pricing of Fund Shares............................................... 11
Dividends and Distributions.......................................... 11
Tax Consequences..................................................... 12
Financial Highlights................................................. 13
Privacy Policy............................................... Inside back cover
2
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
AN OVERVIEW OF THE FUND
THE FUND'S INVESTMENT GOAL
The goal of the Fund is to earn high total investment return. This consists of
capital appreciation and current income.
THE FUND'S PRINCIPAL INVESTMENT STRATEGIES
The Fund primarily invests in common stocks of large and medium capitalization
U. S. companies ("core" companies). The Advisor seeks a blend of growth and
value securities using a multiple attribute philosophy and process. The
Advisor's multiple attribute philosophy and process involves investing in
different styles of stocks. The Advisor tries to structure the portfolio to be
in sync with equity trends in various economic environments.
PRINCIPAL RISKS OF INVESTING IN THE FUND
There is the risk that you could lose money on your investment in the Fund. This
could happen if any of the following events happen:
* The stock market goes down
* Interest rates go up which can result in a decline in the equity market
* Large and medium capitalization stocks fall out of favor with the stock
market
* Stocks in the Fund's portfolio do not increase their earnings at the rate
anticipated
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for investors who:
* Are pursuing a long-term goal such as retirement
* Want to diversify their investment portfolio by investing in a mutual fund
that emphasizes investments in core companies
* Want to reduce the volatility of a pure growth or value style of investing
* Are willing to accept higher short-term risk along with higher potential
for long-term total return
The Fund may not be appropriate for investors who:
* Are pursuing a short-term goal or investing emergency reserves
* Wish to have the equity portion of their portfolio invested in stocks other
than core U. S. companies
3
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
PERFORMANCE
The following performance information indicates some of the risks of investing
in the Fund. The bar chart shows the Fund's total for the last calendar year.
The table shows the Fund's average return compared with a broad-based market
index. This past performance will not necessary continue in the future.
CALENDAR YEAR TOTAL RETURN*
2000
----
0.89%
* The Fund's year-to-date return as of 6/30/01 was -11.18%.
During the period shown in the bar chart, the Fund's highest quarterly return
was 4.63% for the quarter ended September 30, 2000 and the lowest quarterly
return was -3.02% for the quarter ended June 30, 2000.
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 2000
Since Inception
One Year (6/2/99)
-------- --------
National Asset Management Core Equity Fund 0.89% 9.09%
S&P 500 Index* -9.10% 2.60%
----------
* The S&P 500 Index is an unmanaged index generally representative of the
market for stocks of large sized U.S. companies.
4
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
FEES AND EXPENSES
The table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)................................. None
Maximum deferred sales charge (load)
(as a percentage of the lower of original purchase price
or redemption proceeds)............................................. None
ANNUAL FUND OPERATING EXPENSES*
(expenses that are deducted from Fund assets)
Management Fees....................................................... 0.50%
Distribution and Service (12b-1) Fees................................. None
Other Expenses ....................................................... 0.77%
-----
Total Annual Fund Operating Expenses.................................. 1.27%
Fee Reduction and/or Expense Reimbursement............................ (0.32%)
-----
Net Expenses.......................................................... 0.95%
=====
----------
* The Advisor has contractually agreed to reduce its fees and/ or pay
expenses of the Fund to ensure that Total Annual Fund Operating Expenses
will not exceed 0.95%. This contract's term is indefinite and may be
terminated only by the Board of Trustees. If the Advisor does waive any of
its fees or pay Fund expenses, the Fund may reimburse the Advisor in future
years.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year, that
dividends and distributions are reinvested and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
under the assumptions, your costs would be:
One Year................................ $ 97
Three Years............................. $ 303
Five Years.............................. $ 525
Ten Years............................... $1,166
5
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment goal is to provide investors with high total investment
return. The Fund seeks to achieve its investment goal by using a combination of
different equity styles to diversify its portfolio. The Advisor calls this
approach to investing in different types of stocks multiple attribute
diversification. High total investment return consists of capital appreciation
and current income.
Under normal market conditions, the Fund will invest at least 65% of its assets
in the equity securities generally considered to be core holdings. A company's
market capitalization is the total market value of its outstanding common stock.
The Fund considers core holdings to be large and medium size companies with a
market capitalization of over $1 billion.
The Advisor examines both growth and value attributes in the selection of
securities so that the portfolio may benefit from the current economic
environment. To determine which style of investing to focus on, the Advisor
utilizes the following indicators:
* Fundamental indicators, which focus on economic momentum, S&P 500 Index
earnings and interest rates
* Valuation indicators, which include comparisons of value versus growth
stocks, focusing on price-to-sales ratios and price-to-earnings trends
* Technical indicators which include an analysis of the relative strength
between value versus growth and high versus low quality trends
The Fund will normally invest in the following three types of equity securities:
* GROWTH SECURITIES. Common stocks that meet the Advisor's criteria for
five-year annual earnings-per-share growth rates. These securities must
also exhibit no decline in the normalized annual earnings-per-share rate
during the last five years.
* SECURITIES WITH LOW PRICE-TO-EARNINGS RATIOS. The Advisor defines these
securities as those common stocks with price-to-earnings ratios below the
average of the companies included in the S&P 500 Index.
* SECURITIES THAT PAY HIGH DIVIDENDS. Common stocks that pay dividends at a
rate above the average of the companies included in the S&P 500 Index.
The Advisor utilizes a systematic, disciplined investment process when selecting
individual securities. This includes:
* Screening a database for capitalization and the criteria listed above
* Scoring each issue emphasizing fundamental, valuation and technical
indicators
* Security analysis that further evaluates the company and the stock. This
includes an analysis of company fundamentals such as earnings,
profitability and management; valuation such as price/earnings, price/ book
and yield; and technical analysis emphasizing individual stock price
trends.
6
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
The Advisor continuously monitors the securities in the Fund's portfolio from
fundamental, valuation and technical perspectives. Stocks which are viewed as
negative in any one area may be sold in favor of more attractive candidates.
Stocks that are viewed as negative from two perspectives are automatically sold.
Under normal market conditions, the Fund will stay fully invested in stocks.
However, the Fund may temporarily depart from its principal investment
strategies by making short-term investments in cash equivalents in response to
adverse market, economic or political conditions or when the Fund experiences
periods of heavy cash inflows from shareholders purchasing Fund shares. This may
result in the Fund not achieving its investment objective.
In keeping with its investment approach, the Advisor does not anticipate
frequent buying and selling of securities. This means that the Fund should have
a low rate of portfolio turnover and the potential to be a tax efficient
investment. This should result in the realization and distribution to
shareholders of lower capital gains, which would be considered tax efficient.
The anticipated lack of frequent trading also leads to lower transaction costs,
which could help to improve performance.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The principal risks of investing in the Fund that may adversely affect the
Fund's net asset value or total return have been previously summarized under "An
Overview of the Fund." These risks are discussed in more detail below.
MANAGEMENT RISK. Management risk means that your investment in the Fund varies
with the success or failure of the Advisor's investment strategies and the
Advisor's research, analysis and determination of portfolio securities. If the
Advisor's investment strategies do not produce the expected results, your
investment could be diminished or even lost.
MARKET RISK. Market risk means that the price of common stock may move up or
down (sometimes rapidly and unpredictably) in response to general market and
economic conditions, investor perception and anticipated events, as well as the
activities of the particular issuer. Market risk may affect a single issuer,
section of the economy or the market as a whole. Since the Fund invests in
equity securities, its share price will change daily in response to stock market
movements.
MEDIUM-SIZED COMPANY RISK. The risk of investing in securities of medium-sized
companies may involve greater risk than investing in larger companies because
they can be subject to more abrupt or erratic share price changes than larger
companies. Such companies may have limited product lines, markets or financial
resources and their securities may have limited market liquidity.
7
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
INVESTMENT ADVISOR
INVESCO-National Asset Management is the investment advisor to the Fund. The
investment advisor's address is 400 West Market Street, Suite 2500, Louisville,
KY 40202. As of August 31, 2001, the investment advisor manages over $17 billion
in assets for institutional investors and other mutual funds. The investment
advisor provides advice on buying and selling securities for the Fund. The
investment advisor also furnishes the Fund with office space and certain
administrative services and provides most of the personnel needed by the Fund.
For its services, the Fund pays the investment advisor a monthly management fee
based upon its average daily net assets. For the fiscal year ended April 30,
2001, the Advisor received advisory fees of 0.18% of the Fund's average daily
net assets, net of waiver.
The Advisors's Investment Management Group, a committee of experienced
investment professionals, each of whom has the Chartered Financial Analyst
designation, are responsible for the day-to-day management of the Fund.
SHAREHOLDER INFORMATION
HOW TO BUY SHARES
You may open a Fund account with $500,000 and add to your account at any time
with $5,000 or more. The minimum investment requirements may be waived from time
to time by the Fund.
You may purchase shares of the Fund by check or wire. Shares are purchased at
the net asset value next determined after the Transfer Agent receives your order
in proper form as discussed in this Prospectus. All purchases by check must be
in U.S. dollars. Third party checks and cash will not be accepted. A charge may
be imposed if your check does not clear. The Fund is not required to issue share
certificates. The Fund reserves the right to reject any purchase in whole or in
part.
BY MAIL. You may send checks to the Fund by mail. Third party checks and cash
will not be accepted. If you wish to invest by mail, simply complete the Account
Application and mail it with a check (made payable to the National Asset
Management Core Equity Fund) to the Fund at the following address:
National Asset Management Core Equity Fund
c/o ICA Fund Services Corp.
4455 East Camelback Rd., Ste. 261E
Phoenix, AZ 85018
If you are making a subsequent purchase, detach the stub that is attached to the
account statement you will receive after each transaction and mail it together
with a check made payable to "National Asset Management Core Equity Fund" to the
Fund in the envelope provided with your statement or to the address noted above.
8
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
You should write your account number on the check. If you do not have the stub
from your account statement, include your name, address and account number on a
separate piece of paper.
BY WIRE. If you are making your first investment in the Fund, before you wire
funds, the Transfer Agent must have a completed Account Application. You can
mail or overnight deliver your Account Application to the Transfer Agent at the
above address. You may also fax the Account Application to the Transfer Agent at
1-602-522-8172. Upon receipt of your completed Account Application, the Transfer
Agent will establish an account for you. Once you have faxed your new Account
Application, you may instruct your bank to send the wire. Your bank must include
both the name of the Fund you are purchasing and your name so that monies can be
correctly applied. Your bank should transmit immediately available funds by wire
to:
Firstar Bank, N. A. Cinti/Trust
ABA #0420-001-3
DDA #821-601-689
Attn: National Asset Management Core Equity Fund
Account name (shareholder name)
Shareholder account number
If you are making a subsequent purchase, your bank should wire funds as
indicated above. Before each wire purchase, you should be sure to notify the
Transfer Agent. IT IS ESSENTIAL THAT YOUR BANK INCLUDE COMPLETE INFORMATION
ABOUT YOUR ACCOUNT IN ALL WIRE INSTRUCTIONS. If you have questions about how to
invest by wire, you may call the Transfer Agent. Your bank may charge you a fee
for sending a wire to the Fund.
THROUGH FINANCIAL ADVISORS. You may buy and sell shares of the Fund through
certain brokers (and their agents, together "brokers") that have made
arrangements with the Fund. An order placed with such a broker is treated as if
it were placed directly with the Fund, and will be executed at the next share
price calculated by the Fund. Your shares will be held in a pooled account in
the broker's name, and the broker will maintain your individual ownership
information. The Advisor may pay the broker for maintaining these records as
well as providing other shareholder services. In addition, the broker may charge
you a fee for handling your order. The broker is responsible for processing your
order correctly and promptly, keeping you advised of the status of your
individual account, confirming your transactions and ensuring that you receive
copies of the Fund's prospectus.
HOW TO SELL SHARES
You may sell (redeem) your Fund shares on any day the New York Stock Exchange
("NYSE") is open for business either directly to the Fund or through your
investment representative.
9
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
REDEMPTIONS BY MAIL. You may redeem your shares by simply sending a written
request to the Fund. You should give your account number and state whether you
want all or some of your shares redeemed. The letter should be signed by all of
the shareholders whose names appear on the account registration. Certain
redemptions require a signature guarantee. Call the Transfer Agent for details.
You should send your redemption request to:
National Asset Management Core Equity Fund
c/o ICA Fund Services Corp.
4455 East Camelback Rd., Ste. 261E
Phoenix, AZ 85018
REDEMPTIONS BY TELEPHONE. If you complete the Redemption by Telephone portion of
the Account Application, you may redeem all or some of your shares by calling
the Transfer Agent at (800) 576-8229 before the close of regular trading on the
NYSE. This is normally 4:00 p.m., Eastern time. Redemption proceeds will be
mailed on the next business day to the address that appears on the Transfer
Agent's records. If you request, redemption proceeds will be wired on the next
business day to the bank account you designated on the Account Application. The
minimum amount that may be wired is $1,000. Wire charges, if any, will be
deducted from your redemption proceeds. Telephone redemptions cannot be made if
you notify the Transfer Agent of a change of address within 30 days before the
redemption request. If you have a retirement account, you may not redeem shares
by telephone.
When you establish telephone privileges, you are authorizing the Fund and its
Transfer Agent to act upon the telephone instructions of the person or persons
you have designated in your Account Application. Redemption proceeds will be
transferred to the bank account you have designated on your Account Application.
Before executing an instruction received by telephone, the Fund and the Transfer
Agent may use reasonable procedures to confirm that the telephone instructions
are genuine. These procedures will include recording the telephone call and
asking the caller for a form of personal identification. If the Fund and the
Transfer Agent follow these procedures, they will not be liable for any loss,
expense, or cost arising out of any telephone redemption request that is
reasonably believed to be genuine. This includes any fraudulent or unauthorized
request. The Fund may change, modify or terminate these privileges at any time
upon at least 60 days' notice to shareholders.
You may request telephone redemption privileges after your account is opened by
calling the Transfer Agent at (800) 576-8229 for instructions.
You may have difficulties in making a telephone redemption during periods of
abnormal market activity. If this occurs, you may make your redemption request
in writing.
10
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
Payment of your redemption proceeds will be made promptly, but not later than
seven days after the receipt of your written request in proper form as discussed
in this Prospectus. If you made your initial investment by wire, payment of your
redemption proceeds for those shares will not be made until one business day
after your completed Account Application is received by the Fund. If you did not
purchase your shares with a certified check or wire, the Fund may delay payment
of your redemption proceeds for up to 15 days from date of purchase or until
your check has cleared, whichever occurs first.
OTHER REDEMPTION INFORMATION. The Fund may redeem the shares in your account if
the value of your account is less than $5,000 as a result of redemptions you
have made. This does not apply to retirement plan or Uniform Gifts or Transfers
to Minors Act accounts. You will be notified that the value of your account is
less than $5,000 before the Fund makes an involuntary redemption. You will then
have 30 days in which to make an additional investment to bring the value of
your account to at least $5,000 before the Fund takes any action.
The Fund has the right to pay redemption proceeds in whole or in part by a
distribution of securities from the Fund's portfolio. It is not expected that
the Fund would do so except in unusual circumstances.
PRICING OF FUND SHARES
The price of Fund shares is based on the Fund's net asset value. The net asset
value of the Fund's shares is determined by dividing the Fund's assets, minus
its liabilities, by the number of shares outstanding. The Fund's assets are the
market value of securities held in its portfolio, plus any cash and other
assets. The Fund's liabilities are fees and expenses it owes. The number of Fund
shares outstanding is the amount of shares which have been issued to
shareholders. The price you will pay to buy Fund shares or the amount you will
receive when you sell your Fund shares is based on the net asset value next
calculated after your order is received and accepted.
The net asset value of the Fund's shares is determined as of the close of
regular trading on the NYSE. This is normally 4: 00 p. m., Eastern time. Fund
shares will not be priced on days that the NYSE is closed for trading (including
certain U. S. holidays).
DIVIDENDS AND DISTRIBUTIONS
The Fund will make distributions of dividends and capital gains, if any,
annually, usually after the end of the year. Because of its investment
strategies, the Fund expects that its distributions will consist of both capital
gains and dividends.
All distributions will be reinvested in Fund shares unless you choose one of the
following options: (1) receive dividends in cash while reinvesting capital gain
11
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
distributions in additional Fund shares; or (2) receive all distributions in
cash. If you wish to change your distribution option, write the Transfer Agent
before the payment of the distribution. You will receive a statement confirming
reinvestment of distributions in additional Fund shares promptly following the
quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within a specified
period, the Transfer Agent will notify you that you have the option of
requesting another check or reinvesting the distribution in the Fund. If the
Transfer Agent does not receive your election, the distribution will be
reinvested in the Fund. Similarly, if the Fund or the Transfer Agent sends you
correspondence returned as "undeliverable," distributions will automatically be
reinvested in the Fund.
TAX CONSEQUENCES
Dividends are taxable to you as ordinary income. The rate you pay on capital
gain distributions will depend on how long the Fund held the securities that
generated the gains, not on how long you owned your Fund shares. You will be
taxed in the same manner whether you receive your dividends and capital gain
distributions in cash or reinvest them in additional Fund shares.
If you sell your Fund shares, it is considered a taxable event for you.
Depending on the purchase price and the sale price of the shares you sell, you
may have a gain or a loss on the transaction. You are responsible for any tax
liabilities generated by your transaction.
12
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
FINANCIAL HIGHLIGHTS
This table shows the Fund's performance for the periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment in the Fund would have increased or decreased
during each period, assuming you had reinvested all dividends and distributions.
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants. Their report and the Fund's financial statements are included in
the Annual Report, which is available upon request.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
--------------------------------------------------------------------------------
Year June 2, 1999*
ended through
April 30, 2001 April 30, 2000
--------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 11.42 $ 10.00
-------- --------
Income from investment operations:
Net investment income .......................... 0.01 0.01
Net realized and unrealized gain/(loss)
on investments ................................ (0.92) 1.42
-------- --------
Total from investment operations ................. (0.91) 1.43
-------- --------
Less distributions:
From net investment income ..................... (0.01) (0.01)
From net realized gains ........................ (0.11) --
-------- --------
Total distributions .............................. (0.12) (0.01)
-------- --------
Net asset value, end of period ................... $ 10.39 $ 11.42
======== ========
Total return ..................................... (8.13%) 14.26%++
Ratios/supplemental data:
Net assets, end of period (000) .................. $ 24,451 $ 10,606
Ratio of expenses to average net assets:
Before expense reimbursement ................... 1.27% 5.47%+
After expense reimbursement .................... 0.95% 0.95%+
Ratio of net investment income to average net assets:
After expense reimbursement .................... 0.12% 0.14%+
Portfolio turnover rate .......................... 21.88% 20.80%
* Commencement of operations.
+ Annualized.
++ Not Annualized.
13
ADVISOR
INVESCO-National Asset Management Corporation
400 West Market Street, Ste. 2500
Louisville, KY 40202
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
DISTRIBUTOR
First Fund Distributors, Inc.
4455 E. Camelback Rd., Ste. 261-E
Phoenix, AZ 85018
CUSTODIAN
Firstar Institutional Custody Services
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT
ICA Fund Services Corp.
4455 East Camelback Road, Ste. 261-E
Phoenix, AZ 85018
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, CA 94104
PRIVACY NOTICE
The Fund, the Advisor and the Distributor collect non-public information about
you from the following sources:
* Information we receive about you on applications or other forms;
* Information you give us orally; and
* Information about your transactions with us or others.
We do not disclose any non-public personal information about our customers or
former customers without the customer's authorization, except as required by law
or in response to inquiries from governmental authorities. We restrict access to
your personal and account information to those employees who need to know that
information to provide products and services to you. We also may disclose that
information to unaffiliated third parties (such as to brokers or custodians)
only as permitted by law and only as needed for us to provide agreed services to
you. We maintain physical, electronic and procedural safeguards to guard your
non-public personal information.
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND
A SERIES OF ADVISORS SERIES TRUST (THE "TRUST")
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated into this prospectus. You can get
free copies of the SAI, request other information and discuss your questions
about the Fund by contacting the Fund at:
National Asset Management Core Equity Fund
400 West Market Street, Suite 2500
Louisville, KY 40202
1-877-626-3863
www.nationalasset.com
You can review and copy information including the Fund's reports and SAI at the
Public Reference Room of the Securities and Exchange Commission in Washington,
D. C. You can obtain information on the operation of the Public Reference Room
by calling 1-202-942-8090. Reports and other information about the Fund are also
available:
* Free of charge from the Commission's EDGAR database on the Commission's
Internet website at http:// www. sec. gov., or
* For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-0102, or
* For a fee, by electronic request at the following e-mail address:
publicinfo@sec.gov.
(The Trust's SEC Investment Company
Act file number is 811-07959)
NATIONAL ASSET MANAGEMENT CORE EQUITY FUND,
A SERIES OF ADVISORS SERIES TRUST
400 WEST MARKET ST., SUITE 2500
LOUISVILLE, KY 40202
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 28, 2001
This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the Prospectus dated August 28, 2001, as may
be revised, of the National Asset Management Core Equity Fund (the "Fund"), a
series of Advisors Series Trust (the "Trust"). INVESCO-National Asset Management
(the "Advisor") is the advisor to the Fund. A copy of the Fund's Prospectus may
be obtained by contacting the Advisor at the above-listed address; telephone
(877) 626-3863.
TABLE OF CONTENTS
The Trust ................................................................ B-2
Investment Objective and Policies ........................................ B-2
Management ............................................................... B-7
Distribution Agreement ................................................... B-10
Portfolio Transactions and Brokerage ..................................... B-11
Portfolio Turnover ....................................................... B-12
Purchase and Redemption of Fund Shares ................................... B-12
Determination of Net Asset Value ......................................... B-15
Taxation ................................................................. B-15
Dividends and Distributions .............................................. B-17
Performance Information .................................................. B-18
General Information ...................................................... B-19
Financial Statements ..................................................... B-20
Appendix ................................................................. B-21
B-1
THE TRUST
Advisors Series Trust (the "Trust") is an open-end, non-diversified management
investment company organized as a Delaware business trust under the laws of the
State of Delaware on October 3, 1996. The Trust currently consists of seventeen
series of shares of beneficial interest, par value $0.01 per share. This SAI
relates only to the Fund.
The Trust is registered with the SEC as a management investment company. Such a
registration does not involve supervision of the management or policies of the
Fund. The Prospectus of the Fund and this SAI omit certain of the information
contained in the Registration Statement filed with the SEC. Copies of such
information may be obtained from the SEC upon payment of the prescribed fee.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek to provide investors with high
total investment return. The Fund is diversified (see fundamental investment
restriction 7 under "Investment Restrictions.") Under applicable federal laws,
the diversification of a mutual fund's holdings is measured at the time the fund
purchases a security. However, if a fund purchases a security and holds its for
a period of time, the security may become a larger percentage of the fund's
total assets due to movements in the financial markets. If the market affects
several securities held by a fund, the fund may have a greater percentage of its
assets invested in securities of fewer issuers. Then a fund is subject to the
risk that its performance may be hurt disproportionately by the poor performance
of relatively few securities despite the fund qualifying as a diversified fund
under applicable federal laws.
The following discussion supplements the discussion of the Fund's investment
objective and policies as set forth in the Prospectus. There can be no assurance
the objective of the Fund will be achieved.
EQUITY SECURITIES. The equity securities in which the Fund invests generally
consist of common stock and securities convertible into or exchangeable for
common stock. Under normal market conditions, at least 65% of the value of the
Fund's total assets will be invested in the equity securities of U.S. companies
with market capitalization of over $1billion. The securities in which the Fund
invests are expected to be either listed on an exchange or traded in an
over-the-counter market.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities, which are
securities generally offering fixed interest or dividend yields which may be
converted either at a stated price or stated rate for common or preferred stock.
Although to a lesser extent than with fixed-income securities generally, the
market value of convertible securities tends to decline as interest rates
increase, and increase as interest rates decline. Because of the conversion
feature, the market value of convertible securities also tends to vary with
fluctuations in the market value of the underlying common or stock.
FOREIGN SECURITIES. The Fund may invest up to 10% of its total assets in
securities of foreign companies which are traded on a national securities
exchange, including sponsored and unsponsored American Depositary Receipts
("ADRs"). ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities of foreign issuers, and other
forms of depository receipts for securities of foreign issuers. Generally, ADRs,
in registered form, are denominated in U.S. dollars and are designed for use in
the U.S. securities markets. Thus, these securities are not denominated in the
B-2
same currency as the underlying securities they represent. In addition, the
issuers of the securities underlying unsponsored ADRs are not obligated to
disclose material information in the United States and, therefore, there may be
less information available regarding such issuers and there may not be a
correlation between such information and the market value of the ADRs.
Investments in foreign securities involve special risks, costs and opportunities
which are in addition to those inherent in domestic investments. Political,
economic or social instability of the issuer or the country of issue, the
possibility of expropriation or confiscatory taxation, limitations on the
removal of assets or diplomatic developments, and the possibility of adverse
changes in investment or exchange control regulations are among the inherent
risks. Securities of some foreign companies are less liquid, more volatile and
more difficult to value than securities of comparable U.S. companies. Foreign
companies are not subject to the regulatory requirements of U.S. companies and,
as such, there may be less publicly available information about such companies.
Moreover, foreign companies are not subject to uniform accounting, auditing and
financial reporting standards and requirements comparable to those applicable to
U.S. companies. Currency fluctuations will affect the net asset value of the
Fund irrespective of the performance of the underlying investments in foreign
issuers.
ILLIQUID SECURITIES. The Fund may not invest more than 15% of the value of its
net assets in securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid. The Advisor will monitor the
amount of illiquid securities in the Fund's portfolio, under the supervision of
the Trust's Board of Trustees, to ensure compliance with the Fund's investment
restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to sell restricted or other illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemption requests within
seven days. The Fund might also have to register such restricted securities in
order to sell them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not reflect the actual liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the SEC under the Securities Act,
B-3
the Trust's Board of Trustees may determine that such securities are not
illiquid securities despite their legal or contractual restrictions on resale.
In all other cases, however, securities subject to restrictions on resale will
be deemed illiquid.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. Under such
agreements, the seller of the security agrees to repurchase it at a mutually
agreed upon time and price. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price on repurchase. In either case, the income to the Fund
is unrelated to the interest rate on the U.S. Government security itself. Such
repurchase agreements will be made only with banks with assets of $500 million
or more that are insured by the Federal Deposit Insurance Corporation or with
Government securities dealers recognized by the Federal Reserve Board and
registered as broker-dealers with the Securities and Exchange Commission ("SEC")
or exempt from such registration. The Fund will generally enter into repurchase
agreements of short durations, from overnight to one week, although the
underlying securities generally have longer maturities. The Fund may not enter
into a repurchase agreement with more than seven days to maturity if, as a
result, more than 15% of the value of its net assets would be invested in
illiquid securities including such repurchase agreements.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
U.S. Government security subject to the repurchase agreement. It is not clear
whether a court would consider the U.S. Government security acquired by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the U.S. Government security before its repurchase under a repurchase
agreement, the Fund may encounter delays and incur costs before being able to
sell the security. Delays may involve loss of interest or a decline in price of
the U.S. Government security. If a court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the U.S. Government
security, the Fund may be required to return the security to the seller's estate
and be treated as an unsecured creditor of the seller.
As an unsecured creditor, the Fund would be at the risk of losing some or all of
the principal and income involved in the transaction. As with any unsecured debt
instrument purchased for the Fund, the Advisor seeks to minimize the risk of
loss through repurchase agreements by analyzing the creditworthiness of the
other party, in this case the seller of the U.S. Government security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the security. However, the Fund will
always receive as collateral for any repurchase agreement to which it is a party
securities acceptable to it, the market value of which is equal to at least 100%
of the amount invested by the Fund plus accrued interest, and the Fund will make
payment against such securities only upon physical delivery or evidence of book
entry transfer to the account of its Custodian. If the market value of the U.S.
Government security subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Fund will direct the seller of the
U.S. Government security to deliver additional securities so that the market
value of all securities subject to the repurchase agreement will equal or exceed
the repurchase price. It is possible that the Fund will be unsuccessful in
seeking to impose on the seller a contractual obligation to deliver additional
securities.
B-4
INVESTMENT COMPANY SECURITIES. The Fund may invest in shares of other investment
companies as permitted by the 1940 Act. The Fund may invest in money market
mutual funds in connection with its management of daily cash positions. In
addition to the advisory and operational fees a Fund bears directly in
connection with its own operation, the Fund would also bear its pro rata
portions of each other investment company's advisory and operational expenses.
SHORT-TERM INVESTMENTS
The Fund may invest in any of the following securities and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. The Fund may
hold certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic banks, savings and loan associations
or financial institutions which, at the time of purchase, have capital, surplus
and undivided profits in excess of $100 million (including assets of both
domestic and foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully insured
by the U.S. Government.
In addition to buying certificates of deposit and bankers' acceptances, the Fund
also may make interest-bearing time or other interest-bearing deposits in
commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. The Fund may invest a portion of its
assets in commercial paper and short-term notes. Commercial paper consists of
unsecured promissory notes issued by corporations. Commercial paper and
short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
Commercial paper and short-term notes will consist of issues rated at the time
of purchase "A-2" or higher by Standard & Poor's Ratings Group, "Prime-1" or
"Prime-2" by Moody's Investors Service, Inc., or similarly rated by another
nationally recognized statistical rating organization or, if unrated, will be
determined by the Advisor to be of comparable quality. These rating symbols are
described in the Appendix.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions that may not be
changed without approval by a "majority of the outstanding shares" of the Fund
which, as used in this SAI, means the vote of the lesser of (a) 67% or more of
the shares of the Fund represented at a meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(b) more than 50% of the outstanding shares of the Fund.
The Fund may not:
(1) Make loans to others, except (a) through the purchase of debt securities in
accordance with its investment objective and policies, or (b) to the extent the
entry into a repurchase agreement is deemed to be a loan.
(2) Borrow money, except for temporary or emergency purposes. Any such
borrowings will be made only if immediately thereafter there is an asset
coverage of at least 400% of all borrowings.
B-5
(3) Mortgage, pledge or hypothecate any of its assets except in connection with
any borrowings.
(4) Purchase securities on margin, participate on a joint or joint and several
basis in any securities trading account, or underwrite securities. (Does not
preclude the Fund from obtaining such short-term credit as may be necessary for
the clearance of purchases and sales of its portfolio securities.)
(5) Purchase real estate, commodities or commodity contracts. (As a matter of
operating policy, the Board of Trustees may authorize the Fund in the future to
engage in certain activities regarding futures contracts for bona fide hedging
purposes; any such authorization will be accompanied by appropriate notification
to shareholders.)
(6) Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges or (b) entering into options, futures
or repurchase transactions.
(7) With respect to 75% of its total assets, invest more than 5% of its total
assets in securities of a single issuer or hold more than 10% of the voting
securities of such issuer, except that this restriction does not apply to
investment in the securities of the U.S. Government, its agencies or
instrumentalities.
(8) Invest 25% or more of the market value of its assets in the securities of
companies engaged in any one industry, except that this restriction does not
apply to investment in the securities of the U.S. Government, its agencies or
instrumentalities.
The Fund observes the following policies, which are not deemed fundamental and
which may be changed without shareholder vote. The Fund may not:
(1) Invest in any issuer for purposes of exercising control or management.
(2) Invest in securities of other investment companies except as permitted under
the 1940 Act.
(3) Invest, in the aggregate, more than 15% of its net assets in securities with
legal or contractual restrictions on resale, securities which are not readily
marketable and repurchase agreements with more than seven days to maturity.
Except with respect to borrowing and illiquid securities, if a percentage or
rating restriction on investment or use of assets set forth herein or in the
Prospectus is adhered to at the time a transaction is effected, later changes in
percentage resulting from any cause other than actions by the Fund will not be
considered a violation.
B-6
MANAGEMENT
The overall management of the business and affairs of the Trust is vested with
its Board of Trustees. The Board approves all significant agreements between the
Trust and persons or companies furnishing services to it, including the
agreements with the Advisor, Administrator, Custodian and Transfer Agent. The
day to day operations of the Trust are delegated to its officers, subject to the
Fund's investment objectives and policies and to general supervision by the
Board of Trustees.
The Trustees and officers of the Trust, their birth dates and positions with the
Trust, their business addresses and principal occupations during the past five
years are listed below. Unless noted otherwise, each person has held the
position listed for a minimum of five years.
WALTER E. AUCH (born 1921) Trustee
4455 E. Camelback Rd., Suite 261-E, Phoenix, AZ 85018. Management Consultant;
Director, Nicholas-Applegate Funds, Salomon Smith Barney Funds, Banyan Strategic
Realty Trust, Legend Properties, Pimco Advisors LLP and Senele Group.
ERIC M. BANHAZL* (born 1957) Trustee, President and Treasurer
2020 E. Financial Way, Glendora, CA 91741. Executive Vice President, Investment
Company Administration, LLC; Vice President, First Fund Distributors, Inc.;
Treasurer, Investec Funds.
DONALD E. O'CONNOR (born 1936) Trustee
4455 E. Camelback Rd., Suite 261-E, Phoenix, AZ 85018. Financial Consultant;
formerly Executive Vice President and Chief Operating Officer of ICI Mutual
Insurance Company (until January, 1997); Vice President, Operations, Investment
Company Institute (until June, 1993); Independent Director, The Parnassus Fund,
The Parnassus Income Fund, and The Forward Funds.
GEORGE T. WOFFORD III (born 1939) Trustee
4455 E. Camelback Rd., Suite 261-E, Phoenix, AZ 85018. Senior Vice President,
Information Services, Federal Home Loan Bank of San Francisco.
STEVEN J. PAGGIOLI (born 1950) Vice President
915 Broadway, Suite 1605, New York, NY 10010. Executive Vice President,
Investment Company Administration, LLC; Vice President and Secretary, First Fund
Distributors, Inc.; President and Trustee, Professionally Managed Portfolios;
Trustee, Managers Funds.
ROBERT H. WADSWORTH (born 1940) Vice President
4455 E. Camelback Rd., Suite 261-E, Phoenix, AZ 85018. President, Robert H.
Wadsworth & Associates, Inc., Investment Company Administration, LLC and First
Fund Distributors, Inc.; Vice President, Professionally Managed Portfolios;
President and Trustee, Trust for Investment Managers; Director, Germany Fund,
Inc., New Germany Fund, Inc., Central European Equity Fund, Inc. and Deutsche
Funds, Inc.
THOMAS W. MARSCHEL (born 1970) Vice President
4455 E. Camelback Rd., Suite 261-E, Phoenix, AZ 85018. Vice President,
Investment Company Administration, LLC; Treasurer, Trust for Investment
Managers; Assistant Vice President, Investment Company Administration, LLC from
October 1995 to January 2000.
CONNIE HART (born 1939) Secretary
4455 E. Camelback Rd., Suite 261-E, Phoenix, AZ 85018. Employed by Investment
Company Administration, LLC (since May 2001); Secretary, Trust for Investment
Managers; formerly Corporate Paralegal, Viasoft, Inc. from February 1996 to
August 2000; Corporate Paralegal, Allen Systems Group, Inc. from September 2000
to January 2001.
----------
* denotes Trustee who is an "interested person" of the Trust under the 1940
Act.
B-7
Name and Position Aggregate Compensation From the Trust
----------------- -------------------------------------
Walter E. Auch, Trustee $19,500
Donald E. O'Connor, Trustee $19,500
George T. Wofford III, Trustee $19,500
Compensation indicated is for the calendar-year ended December 31, 2000.
Currently, each Independent Trustee receives $18,000 per year in fees, plus $500
for each meeting attended and is reimbursed for expenses. This amount is
allocated among the portfolios of the Trust. The Trust has no pension or
retirement plan. No other entity affiliated with the Trust pays any compensation
to the Trustees.
For the fiscal year ended April 30, 2001, trustees' fees and expenses in the
amount of $4,300 were allocated to the Fund. As of the date of this SAI, the
Trustees and Officers of the Trust as a group did not own more than 1% of the
outstanding shares of the Fund.
THE ADVISOR
INVESCO-National Asset Management acts as investment advisor to the Fund
pursuant to an Investment Advisory Agreement (the "Advisory Agreement"). Prior
to merging with AMVESCAP on April 18, 2001 the Advisor was known as National
Asset Management Corporation. AMVESCAP, which is headquartered in Atlanta and
London, is the largest publicly traded asset management firm in the world. The
Advisor's business is conducted as the National Asset Management division of
INVESCO, Inc. which is one of AMVESCAP's United States-based investment
management subsidiaries.
Subject to such policies as the Board of Trustees may determine, the Advisor is
responsible for investment decisions for the Fund. Pursuant to the terms of the
Advisory Agreement, the Advisor provides the Fund with such investment advice
and supervision as it deems necessary for the proper supervision of the Fund's
investments. The Advisor continuously provides investment programs and determine
from time to time what securities shall be purchased, sold or exchanged and what
portion of the Fund's assets shall be held uninvested. The Advisor furnishes, at
its own expense, all services, facilities and personnel necessary in connection
with managing the investments and effecting portfolio transactions for the Fund.
The Advisory Agreement will continue in effect from year to year only if such
continuance is specifically approved at least annually by the Board of Trustees
or by vote of a majority of the Fund's outstanding voting securities and by a
majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on such Advisory Agreement.
Pursuant to the terms of the Advisory Agreement, the Advisor is permitted to
render services to others. The Advisory Agreement is terminable without penalty
by the Trust on behalf of the Fund on not more than 60 days', nor less than 30
days', written notice when authorized either by a majority vote of the Fund's
shareholders or by a vote of a majority of the Board of Trustees of the Trust,
or by the Advisor on not more than 60 days', nor less than 30 days', written
notice, and will automatically terminate in the event of its "assignment" (as
defined in the 1940 Act). The Advisory Agreement provides that the Advisor under
such agreement shall not be liable for any error of judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in the
execution of portfolio transactions for the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligations and duties thereunder.
B-8
The Fund is responsible for its own operating expenses. The Advisor has
contractually 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 (excluding interest and tax expenses) to the limit set forth
in the Expense Table (the "expense cap"). Any such reductions made by the
Advisor in its fees or payment of expenses which are the Fund's obligation are
subject to reimbursement by the Fund to the Advisor, if so requested by the
Advisor, in subsequent fiscal years if the aggregate amount actually paid by the
Fund toward the operating expenses for such fiscal year (taking into account the
reimbursement) does not exceed the applicable limitation on Fund expenses. The
Advisor is permitted to be reimbursed only for fee reductions and expense
payments made in the previous three fiscal years, but is permitted to look back
five years and four years, respectively, during the initial six years and
seventh year of the Fund's operations. Any such reimbursement is also contingent
upon Board of Trustees' subsequent review and ratification of the reimbursed
amounts. Such reimbursement may not be paid prior to the Fund's payment of
current ordinary operating expenses.
In consideration of the services provided by the Advisor pursuant to the
Advisory Agreement, the Advisor is entitled to receive from the Fund an
investment advisory fee computed daily and paid monthly based on a rate equal to
a percentage of the Fund's average daily net assets specified in the Prospectus.
However, the Advisor may voluntarily agree to waive a portion of the fees
payable to it on a month-to-month basis.
For the fiscal year ended April 30, 2001, the Fund incurred advisory fees of
$72,758, of which $46,984 was waived by the Advisor. For the period June 2, 1999
(commencement of operations) through April 30, 2000, the Fund incurred advisory
fees of $12,077, all of which were waived by the Advisor. During the same
period, the Advisor reimbursed the Fund an additional $98,330 in expenses.
ADMINISTRATOR
Investment Company Administration, LLC (the "Administrator") acts as
administrator for the Fund. The Administrator is a division of Firstar Mutual
Fund Services, LLC ("FMFS"), an affiliate of US Bancorp. FMFS provides one or
more of its core administration, transfer agency, fund accounting, distribution
and custodial services to over 250 mutual fund complexes comprised of 800 fund
portfolios with an aggregate market value of approximately $130 billion. The
Administration Agreement provides that the Administrator will prepare and
coordinate reports and other materials supplied to the Trustees; prepare and/or
supervise the preparation and filing of all securities filings, periodic
financial reports, prospectuses, statements of additional information, marketing
materials, tax returns, shareholder reports and other regulatory reports or
filings required of the Fund; prepare all required filings necessary to maintain
the Fund's ability to sell shares in all states where it currently does, or
intends to do business; coordinate the preparation, printing and mailing of all
materials (e.g., annual reports) required to be sent to shareholders; coordinate
the preparation and payment of Fund related expenses; monitor and oversee the
activities of the Fund's servicing agents (i.e., transfer agent, custodian, fund
accountants, etc.); review and adjust as necessary the Fund's daily expense
accruals; and perform such additional services as may be agreed upon by the Fund
and the Administrator.
Under the Administration Agreement, the Administrator is permitted to render
administrative services to others. The Fund's Administration Agreement will
continue in effect from year to year only if such continuance is specifically
approved at least annually by the Board of Trustees of the Trust or by vote of a
majority of the Fund's outstanding voting securities and, in either case, by a
majority of the Trustees who are not parties to the Administration Agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
Administration Agreement is terminable without penalty by the Trust on behalf of
B-9
the Fund on 60 days' written notice when authorized either by a majority vote of
the Fund's shareholders or by vote of a majority of the Board of Trustees,
including a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust, or by the Advisor on 60 days' written
notice, and will automatically terminate in the event of their "assignment" (as
defined in the 1940 Act). The Administration Agreement also provide that neither
the Administrator or its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the administration of the Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of its or their duties or by reason of reckless disregard of its or their
obligations and duties under the Administration Agreement.
For its services, the Administrator receives a fee monthly at the following
annual rate, subject to a $30,000 minimum:
Fund asset level Fee rate
---------------- --------
First $50 million 0.20% of average daily net assets
Next $50 million 0.15% of average daily net assets
Next $50 million 0.10% of average daily net assets
Next $50 million, and thereafter 0.05% of average daily net assets
For the fiscal year ended April 30, 2001 and the period June 2, 1999 through
April 30, 2000, the Administrator received fees of $33,460 and $27,369,
respectively.
DISTRIBUTION AGREEMENT
The Trust has entered into a Distribution Agreement (the "Distribution
Agreement") with First Fund Distributors, Inc. (the "Distributor"), a
corporation owned and controlled by Messrs. Wadsworth, Banhazl and Paggioli,
with offices at 4455 E. Camelback Rd., Ste. 261-E, Phoenix, AZ 85018. Pursuant
to the Distribution Agreement, the Distributor acts as the Fund's exclusive
underwriter, provides certain administration services and promotes and arranges
for the sale of the Fund's shares. The Distributor is an affiliate of the
Administrator. The Distribution Agreement provides that the Distributor will
bear the expenses of printing, distributing and filing prospectuses and
statements of additional information and reports used for sales purposes, and of
preparing and printing sales literature and advertisements not paid for by the
Distribution Plan. The Trust pays for all of the expenses for qualification of
the Fund's shares for sale in connection with the public offering of such
shares, and all legal expenses in connection therewith. In addition, pursuant to
the Distribution Agreement, the Distributor provides certain sub-administration
services to the Trust, including providing officers, clerical staff and office
space.
The Distribution Agreement will continue in effect with respect to the Fund only
if such continuance is specifically approved at least annually by the Board of
Trustees or by vote of a majority of the Fund's outstanding voting securities
and, in either case, by a majority of the Trustees who are not parties to the
Distribution Agreement or "interested persons" (as defined in the 1940 Act) of
any such party. The Distribution Agreement is terminable without penalty by the
Trust on behalf of the Fund on 60 days' written notice when authorized either by
a majority vote of the Fund's shareholders or by vote of a majority of the Board
of Trustees of the Trust, including a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust, or by the
Distributor on 60 days' written notice, and will automatically terminate in the
event of its "assignment" (as defined in the 1940 Act). The Distribution
Agreement also provides that neither the Distributor nor its personnel shall be
liable for any act or omission in the course of, or connected with, rendering
services under the Distribution Agreement, except for willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations or duties.
The Advisor may compensate persons for referrals to the Fund through the payment
of cash referral fees. All referral or cash solicitation arrangements are based
on a written agreement and fully disclosed to prospective shareholders in
compliance with the Investment Advisors Act of 1940. National Asset Management
currently has such an arrangement with the Kentucky Baptist Foundation.
B-10
PORTFOLIO TRANSACTIONS AND BROKERAGE
Pursuant to the Investment Advisory Agreement, the Advisor determines which
securities are to be purchased and sold by the Fund and which broker-dealers
will be used to execute the Fund's portfolio transactions. Purchases and sales
of securities in the over-the-counter market will be executed directly with a
"market-maker" unless, in the opinion of the Advisor, a better price and
execution can otherwise be obtained by using a broker for the transaction.
Purchases of portfolio securities for the Fund also may be made directly from
issuers or from underwriters. Where possible, purchase and sale transactions
will be made through dealers (including banks) which specialize in the types of
securities which the Fund will be holding, unless better executions are
available elsewhere. Dealers and underwriters usually act as principal for their
own account. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and price offered by more
than one broker, dealer or underwriter are comparable, the order may be
allocated to a broker, dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, the Advisor will use its best efforts to
choose a broker-dealer capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
services available will be considered in making these determinations, such as
the size of the order, the difficulty of execution, the operational facilities
of the firm involved, the firm's risk in positioning a block of securities, and
other factors. In those instances where it is reasonably determined that more
than one broker-dealer can offer the most favorable price and execution
available, consideration may be given to those broker-dealers which furnish or
supply research and statistical information to the Advisor that it may lawfully
and appropriately use in its investment advisory capacities, as well as provide
other services in addition to execution services. The Advisor considers such
information, which is in addition to and not in lieu of the services required to
be performed by it under its Agreement with the Fund, to be useful in varying
degrees, but of indeterminable value. Portfolio transactions may be placed with
broker-dealers who sell shares of the Fund subject to rules adopted by the
National Association of Securities Dealers, Inc.
While it is the Fund's general policy to seek first to obtain the most favorable
price and execution available, in selecting a broker-dealer to execute portfolio
transactions for the Fund, weight is also given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Advisor, even if the specific services are not directly useful to the Fund and
may be useful to the Advisor in advising other clients. In negotiating
commissions with a broker or evaluating the spread to be paid to a dealer, the
Fund may therefore pay a higher commission or spread than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission or spread has been determined in good faith
by the Advisor to be reasonable in relation to the value of the brokerage and/or
research services provided by such broker-dealer. The standard of reasonableness
is to be measured in light of the Advisor's overall responsibilities to the
Fund.
Investment decisions for the Fund are made independently from those of other
client accounts or mutual funds managed or advised by the Advisor. Nevertheless,
it is possible that at times identical securities will be acceptable for both
the Fund and one or more of such client accounts. In such event, the position of
the Fund and such client account(s) in the same issuer may vary and the length
of time that each may choose to hold its investment in the same issuer may
likewise vary. However, to the extent any of these client accounts seeks to
acquire the same security as the Fund at the same time, the Fund may not be able
to acquire as large a portion of such security as it desires, or it may have to
pay a higher price or obtain a lower yield for such security. Similarly, the
Fund may not be able to obtain as high a price for, or as large an execution of,
an order to sell any particular security at the same time. If one or more of
such client accounts simultaneously purchases or sells the same security that
B-11
the Fund is purchasing or selling, each day's transactions in such security will
be allocated between the Fund and all such client accounts in a manner deemed
equitable by the Advisor, taking into account the respective sizes of the
accounts and the amount being purchased or sold. It is recognized that in some
cases this system could have a detrimental effect on the price or value of the
security insofar as the Fund is concerned. In other cases, however, it is
believed that the ability of the Fund to participate in volume transactions may
produce better executions for the Fund.
The Fund does not place securities transactions through brokers solely for
selling shares of the Fund, although the Fund may consider the sale of shares as
a factor in allocating brokerage. However, as stated above, broker-dealers who
execute brokerage transactions may effect purchases of shares of the Fund for
their customers.
For the fiscal year ended April 30, 2001, the Fund paid $17,136 in brokerage
commissions. For the period June 2, 1999 through April 30, 2000, the Fund paid
$74,590 in brokerage commissions, of which $425 was paid to firms for research,
statistical or other services provided to the Advisor.
PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading purposes,
portfolio securities may be sold without regard to the length of them they have
been held when, in the opinion of the Advisor, investment considerations warrant
such action. Portfolio turnover rate is calculated by dividing (1) the lesser of
purchases or sales of portfolio securities for the fiscal year by (2) the
monthly average of the value of portfolio securities owned during the fiscal
year. A 100% turnover rate would occur if all the securities in the Fund's
portfolio, with the exception of securities whose maturities at the time of
acquisition were one year or less, were sold and either repurchased or replaced
within one year. A high rate of portfolio turnover (100% or more) generally
leads to higher transaction costs and may result in a greater number of taxable
transactions. For the fiscal year ended April 30, 2001 and the period June 2,
1999 through April 30, 2000, the Fund had a portfolio turnover rate of 21.88%
and 20.80%, respectively.
PURCHASE AND REDEMPTION OF FUND SHARES
The information provided below supplements the information contained in the
Fund's Prospectus regarding the purchase and redemption of Fund shares.
HOW TO BUY SHARES
Fund shares are purchased at the net asset value next determined after the
Transfer Agent receives your order in proper form. In most cases, in order to
receive that day's public offering price, the Transfer Agent must receive your
order in proper form before the close of regular trading on the NYSE, currently
4:00 p.m. Orders are in proper form only after investment money is converted to
U.S. dollars. Orders paid by check and received by 4:00 p.m., Eastern Time, will
generally be available for the purchase of shares the following business day.
If you are considering redeeming or transferring shares to another person
shortly after purchase, you should pay for those shares with a certified check
to avoid any delay in redemption or transfer. Otherwise the Fund may delay
payment until the purchase price of those shares has been collected, which may
take up to 15 calender days. To eliminate the need for safekeeping, the Fund
will not issue certificates for your shares unless you request them.
The Trust reserves the right in its sole discretion (1) to suspend the continued
offering of the Fund's shares, (2) to reject purchase orders in whole or in part
when in the judgment of the Advisor or the Distributor such rejection is in the
best interest of the Fund, and (3) to reduce or waive the minimum for initial
and subsequent investments for certain fiduciary accounts or under circumstances
where certain economies can be achieved in sales of the Fund's shares.
B-12
Selected securities brokers, dealers or financial intermediaries may offer
shares of the Fund. Investors should contact these agents directly for
appropriate instructions, as well as information pertaining to accounts and any
service or transaction fees that may be charged by those agents. Purchase orders
through securities brokers, dealers and other financial intermediaries are
effected at the next-determined net asset value after receipt of the order by
such agent before the Fund's daily cutoff time, currently the close of regular
NYSE trading. Orders received after that time will be purchased at the
next-determined net asset value.
HOW TO SELL SHARES
You can sell your Fund shares any day the NYSE is open for regular trading,
either directly to the Fund or through your investment representative. The Fund
will forward redemption proceeds or redeem shares for which it has collected
payment of the purchase price.
Payments to shareholders for Fund shares redeemed directly from the Fund will be
made as promptly as possible but no later than seven days after receipt by the
Fund's Transfer Agent of the written request in proper form, with the
appropriate documentation as stated in the Prospectus, except that the Fund may
suspend the right of redemption or postpone the date of payment during any
period when (a) trading on the NYSE is restricted as determined by the SEC or
the NYSE is closed for other than weekends and holidays; (b) an emergency exists
as determined by the SEC making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable; or (c) for such other period
as the SEC may permit for the protection of the Fund's shareholders. At various
times, the Fund may be requested to redeem shares for which it has not yet
received confirmation of good payment; in this circumstance, the Fund may delay
the payment of the redemption proceeds until payment for the purchase of such
shares has been collected and confirmed to the Fund.
SELLING SHARES DIRECTLY TO THE FUND
Send a signed letter of instruction to the Transfer Agent, along with any
certificates that represent shares you want to sell. The price you will receive
is the next net asset value calculated after the Fund receives your request in
proper form. In order to receive that day's net asset value, the Transfer Agent
must receive your request before the close of regular trading on the NYSE.
SELLING SHARES THROUGH YOUR INVESTMENT REPRESENTATIVE
Your investment representative must receive your request before the close of
regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services.
If you want your redemption proceeds sent to an address other than your address
as it appears on the Transfer Agent's records, a signature guarantee is
required. The Fund may require additional documentation for the sale of shares
by a corporation, partnership, agent or fiduciary, or a surviving joint owner.
Contact the Transfer Agent for details.
DELIVERY OF PROCEEDS
The Fund generally sends you payment for your shares the business day after your
request is received in proper form, assuming the Fund has collected payment of
the purchase price of your shares. Under unusual circumstances, the Fund may
suspend redemptions, or postpone payment for more than seven days, as permitted
by federal securities law.
B-13
TELEPHONE REDEMPTIONS
Upon receipt of any instructions or inquiries by telephone from a shareholder
or, if held in a joint account, from either party, or from any person claiming
to be the shareholder, the Fund or its agent is authorized, without notifying
the shareholder or joint account parties, to carry out the instructions or to
respond to the inquiries, consistent with the service options chosen by the
shareholder or joint shareholders in his or their latest Account Application or
other written request for services, including purchasing or redeeming shares of
the Fund and depositing and withdrawing monies from the bank account specified
in the Bank Account Registration section of the shareholder's latest Account
Application or as otherwise properly specified to the Fund in writing.
The Transfer Agent will employ these and other reasonable procedures to confirm
that instructions communicated by telephone are genuine; if such procedures are
observed, neither the Fund nor their agents will be liable for any loss,
liability, cost or expense arising out of any redemption request, including any
fraudulent or unauthorized request. For information, consult the Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
SIGNATURE GUARANTEES
To protect the Fund and its shareholders, a signature guarantee is required for
all written redemption requests over $100,000. Signature(s) on the redemption
request must be guaranteed by an "eligible guarantor institution." These include
banks, broker-dealers, credit unions and savings institutions. A broker-dealer
guaranteeing signatures must be a member of clearing corporation or maintain net
capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. A
notary public cannot provide a signature guarantee. Certain other transactions
also require a signature guarantee.
REDEMPTIONS-IN-KIND
Subject to compliance with applicable regulations, the Fund has reserved the
right to pay the redemption price of its shares, either totally or partially, by
a distribution in kind of readily marketable portfolio securities (instead of
cash). The securities so distributed would be valued at the same amount as that
assigned to them in calculating the net asset value for the shares being sold.
If a shareholder received a distribution in kind, the shareholder could incur
brokerage or other charges in converting the securities to cash. The Trust has
filed an election under Rule 18f-1 committing to pay in cash all redemptions by
a shareholder of record up to amounts specified by the rule (approximately
$250,000).
B-14
DETERMINATION OF NET ASSET VALUE
As noted in the Prospectus, the net asset value and offering price of shares of
the Fund will be determined once daily as of the close of public trading on the
New York Stock Exchange ("NYSE") (normally 4:00 p.m. Eastern time) on each day
that the NYSE is open for trading. The Fund does not expect to determine the net
asset value of its shares on any day when the NYSE is not open for trading even
if there is sufficient trading in its portfolio securities on such days to
materially affect the net asset value per share. However, the net asset value of
Fund shares may be determined on days the NYSE is closed or at times other than
4:00 p.m. if the Board of Trustees decides it is necessary.
The Fund's securities, including ADRs, which are traded on securities exchanges
are valued at the last sale price on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any reported sales, at the mean between the last available bid and
asked price. Securities that are traded on more than one exchange are valued on
the exchange determined by the Advisor to be the primary market. 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 and assets for which market quotations are not readily
available (including restricted securities which are subject to limitations as
to their sale) are valued at fair value as determined in good faith by or under
the direction of the Board.
Short-term debt obligations with remaining maturities in excess of 60 days are
valued at current market prices, as discussed above. Short-term securities with
60 days or less remaining to maturity are, unless conditions indicate otherwise,
amortized to maturity based on their cost to the Fund if acquired within 60 days
of maturity or, if already held by the Fund on the 60th day, based on the value
determined on the 61st day.
The net asset value per Fund share is calculated as follows: all liabilities
incurred or accrued are deducted from the valuation of total assets which
includes accrued but undistributed income; the resulting net assets are divided
by the number of shares of the Fund outstanding at the time of the valuation and
the result (adjusted to the nearest cent) is the net asset value per share.
As of the date of this SAI, the NYSE is open for trading every weekday except
for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
TAXATION
The Fund intends to continue to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, (the
"Code"), for each taxable year by complying with all applicable requirements
regarding the source of its income, the diversification of its assets, and the
timing of its distributions. The Fund's policy is to distribute to its
shareholders all of its investment company taxable income and any net realized
capital gains for each fiscal year in a manner that complies with the
distribution requirements of the Code, so that the Fund will not be subject to
any federal income or excise taxes based on net income. However, the Board may
elect to pay such excise taxes if it determines that payment is, under the
circumstances, in the best interests of the Fund.
In order to qualify as a regulated investment company, the Fund must, among
other things, (a) derive at least 90% of its gross income each year from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock or securities or foreign
currency gains related to investments in stock or securities, or other income
(generally including gains from options, futures or forward contracts) derived
with respect to the business of investing in stock, securities or currency, and
(b) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of its assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies
B-15
and other securities limited, for purposes of this calculation, in the case of
other securities of any one issuer to an amount not greater than 5% of the
Fund's assets or 10% of the voting securities of the issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities or securities of other regulated
investment companies). As such, and by complying with the applicable provisions
of the Code, the Fund will not be subject to federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders in
accordance with the timing requirements of the Code. If the Fund is unable to
meet certain requirements of the Code, it may be subject to taxation as a
corporation.
Distributions of net investment income and net realized capital gains by the
Fund will be taxable to shareholders whether made in cash or reinvested by the
Fund in shares. In determining amounts of net realized capital gains to be
distributed, any capital loss carry-overs from the eight prior taxable years
will be applied against capital gains. Shareholders receiving a distribution
from the Fund in the form of additional shares will have a cost basis for
federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date. Fund distributions also
will be included in individual and corporate shareholders' income on which the
alternative minimum tax may be imposed.
The Fund or the securities dealer effecting a redemption of the Fund's shares by
a shareholder will be required to file information reports with the Internal
Revenue Service ("IRS") with respect to distributions and payments made to the
shareholder. In addition, the Fund will be required to withhold federal income
tax on taxable dividends, redemptions and other payments made to accounts of
individual or other non-exempt shareholders who have not furnished their correct
taxpayer identification numbers and certain required certifications on the New
Account application or with respect to which the Fund or the securities dealer
has been notified by the IRS that the number furnished is incorrect or that the
account is otherwise subject to withholding.
The Fund intends to declare and pay dividends and other distributions, as stated
in the prospectuses. In order to avoid the payment of any federal excise tax
based on net income, the Fund must declare on or before December 31 of each
year, and pay on or before January 31 of the following year, distributions at
least equal to 98% of its ordinary income for that calendar year and at least
98% of the excess of any capital gains over any capital losses realized in the
one-year period ending October 31 of that year, together with any undistributed
amounts of ordinary income and capital gains (in excess of capital losses) from
the previous calendar year.
The Fund may receive dividend distributions from U.S. corporations. To the
extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.
The Fund may be subject to foreign withholding taxes on dividends and interest
earned with respect to securities of foreign corporations.
Section 475 of the Code requires that a "dealer" in securities must generally
"mark to market" at the end of its taxable year all securities which it owns.
The resulting gain or loss is treated as ordinary (and not capital) gain or
loss, except to the extent allocable to periods during which the dealer held the
security for investment. The "mark to market" rules do not apply, however, to a
security held for investment which is clearly identified in the dealer's records
as being held for investment before the end of the day in which the security was
acquired. The IRS has issued guidance under Section 475 that provides that, for
B-16
example, a bank that regularly originates and sells loans is a dealer in
securities, and subject to the "mark to market" rules. Shares of the Fund held
by a dealer in securities will be subject to the "mark to market" rules unless
they are held by the dealer for investment and the dealer property identifies
the shares as held for investment.
Redemptions of shares of the Fund will result in gains or losses for tax
purposes to the extent of the difference between the proceeds and the
shareholder's adjusted tax basis for the shares. Any loss realized upon the
redemption of shares within six months from their date of purchase will be
treated as a long-term capital loss to the extent of distributions of long-term
capital gain dividends during such six-month period. All or a portion of a loss
realized upon the redemption of shares may be disallowed to the extent shares
are purchased (including shares acquired by means of reinvested dividends)
within 30 days before or after such redemption.
Distributions and redemptions may be subject to state and local income taxes,
and the treatment thereof may differ from the federal income tax treatment.
Foreign taxes may apply to non-U.S. investors.
The above discussion and the related discussion in the prospectuses are not
intended to be complete discussions of all applicable federal tax consequences
of an investment in the Fund. The law firm of Paul, Hastings, Janofsky & Walker
LLP has expressed no opinion in respect thereof. Nonresident aliens and foreign
persons are subject to different tax rules, and may be subject to withholding of
up to 30% on certain payments received from the Fund. Shareholders are advised
to consult with their own tax advisers concerning the application of foreign,
federal, state and local taxes to an investment in the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund will receive income in the form of dividends and interest earned on its
investments in securities. This income, less the expenses incurred in its
operations, is the Fund's net investment income, substantially all of which will
be declared as dividends to the Fund's shareholders.
The amount of income dividend payments by the Fund is dependent upon the amount
of net investment income received by the Fund from its portfolio holdings, is
not guaranteed and is subject to the discretion of the Board. The Fund does not
pay "interest" or guarantee any fixed rate of return on an investment in its
shares.
The Fund also may derive capital gains or losses in connection with sales or
other dispositions of its portfolio securities. Any net gain the Fund may
realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held more than the period
required for long-term capital gain or loss recognition or otherwise producing
long-term capital gains and losses, the Fund will have a net long-term capital
gain. After deduction of the amount of any net short-term capital loss, the
balance (to the extent not offset by any capital losses carried over from the
eight previous taxable years) will be distributed and treated as long-term
capital gains in the hands of the shareholders regardless of the length of time
the Fund's shares may have been held by the shareholders. For more information
concerning applicable capital gains tax rates, see your tax advisor.
B-17
Any dividend or distribution paid by the Fund reduces the Fund's net asset value
per share on the date paid by the amount of the dividend or distribution per
share. Accordingly, a dividend or distribution paid shortly after a purchase of
shares by a shareholder would represent, in substance, a partial return of
capital (to the extent it is paid on the shares so purchased), even though it
would be subject to income taxes.
Dividends and other distributions will be made in the form of additional shares
of the Fund unless the shareholder has otherwise indicated. Investors have the
right to change their elections with respect to the reinvestment of dividends
and distributions by notifying the Transfer Agent in writing, but any such
change will be effective only as to dividends and other distributions for which
the record date is seven or more business days after the Transfer Agent has
received the written request.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in advertisements and
investor communications. Total return may be stated for any relevant period as
specified in the advertisement or communication. Any statements of total return
will be accompanied by information on the Fund's average annual compounded rate
of return over the most recent four calendar quarters and the period from the
Fund's inception of operations. The Fund may also advertise aggregate and
average total return information over different periods of time.
The Fund's total return may be compared to relevant indices, including Standard
& Poor's 500 Composite Stock Index and indices published by Lipper, Inc. From
time to time, evaluations of the Fund's performance by independent sources may
also be used in advertisements and in information furnished to present or
prospective investors in the Fund.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's total return for any period should
not be considered as a representation of what an investment may earn or what an
investor's total return may be in any future period.
The Fund's average annual compounded rate of return is determined by reference
to a hypothetical $1,000 investment that includes capital appreciation and
depreciation for the stated period, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial purchase order of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at the
end of the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized.
The Fund's average annual return for the fiscal year ended April 30, 2001 and
for the period June 2, 1999 (commencement of operations) through April 30, 2001
was -8.13% and 2.57%, respectively. During this period certain fees and expenses
of the Fund were either waived or reimbursed. Accordingly, return figures are
higher than they would have been had these fees and expenses not been waived or
reimbursed.
B-18
GENERAL INFORMATION
Advisors Series Trust is an open-end management investment company organized as
a Delaware business trust under the laws of the State of Delaware on October 3,
1996. The Trust currently consists of 17 effective series of shares of
beneficial interest, par value of $0.01 per share. The Declaration of Trust
permits the Trustees to issue an unlimited number of full and fractional shares
of beneficial interest and to divide or combine the shares into a greater or
lesser number of shares without thereby changing the proportionate beneficial
interest in the Fund. Each share represents an interest in the Fund
proportionately equal to the interest of each other share. Upon the Fund's
liquidation, all shareholders would share pro rata in the net assets of the Fund
available for distribution to shareholders.
With respect to the Fund, the Trust may offer more than one class of shares. The
Trust has reserved the right to create and issue additional series or classes.
Each share of a series or class represents an equal proportionate interest in
that series or class with each other share of that series or class. Currently,
the Fund has only one class of shares.
The shares of each series or class participate equally in the earnings,
dividends and assets of the particular series or class. Expenses of the Trust
which are not attributable to a specific series or class are allocated among all
the series in a manner believed by management of the Trust to be fair and
equitable. Shares have no pre-emptive or conversion rights. Shares when issued
are fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held. Shares of each series or class
generally vote together, except when required under federal securities laws to
vote separately on matters that only affect a particular class, such as the
approval of distribution plans for a particular class.
The Trust is not required to hold annual meetings of shareholders but will hold
special meetings of shareholders of a series or class when, in the judgment of
the Trustees, it is necessary or desirable to submit matters for a shareholder
vote. Shareholders have, under certain circumstances, the right to communicate
with other shareholders in connection with requesting a meeting of shareholders
for the purpose of removing one or more Trustees. Shareholders also have, in
certain circumstances, the right to remove one or more Trustees without a
meeting. No material amendment may be made to the Trust's Declaration of Trust
without the affirmative vote of the holders of a majority of the outstanding
shares of each portfolio affected by the amendment. The Trust's Declaration of
Trust provides that, at any meeting of shareholders of the Trust or of any
series or class, a Shareholder Servicing Agent may vote any shares as to which
such Shareholder Servicing Agent is the agent of record and which are not
represented in person or by proxy at the meeting, proportionately in accordance
with the votes cast by holders of all shares of that portfolio otherwise
represented at the meeting in person or by proxy as to which such Shareholder
Servicing Agent is the agent of record. Any shares so voted by a Shareholder
Servicing Agent will be deemed represented at the meeting for purposes of quorum
requirements. Shares have no preemptive or conversion rights. Shares, when
issued, are fully paid and non-assessable, except as set forth below. Any series
or class may be terminated (i) upon the merger or consolidation with, or the
sale or disposition of all or substantially all of its assets to, another
entity, if approved by the vote of the holders of two-thirds of its outstanding
shares, except that if the Board of Trustees recommends such merger,
consolidation or sale or disposition of assets, the approval by vote of the
holders of a majority of the series' or class' outstanding shares will be
sufficient, or (ii) by the vote of the holders of a majority of its outstanding
shares, or (iii) by the Board of Trustees by written notice to the series' or
class' shareholders. Unless each series and class is so terminated, the Trust
will continue indefinitely.
B-19
The Trust's Declaration of Trust also provides that the Trust shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust does not require the issuance of stock certificates. If
stock certificates are issued, they must be returned by the registered owners
prior to the transfer or redemption of shares represented by such certificates.
Rule 18f-2 under the 1940 Act provides that as to any investment company which
has two or more series outstanding and as to any matter required to be submitted
to shareholder vote, such matter is not deemed to have been effectively acted
upon unless approved by the holders of a "majority" (as defined in the Rule) of
the voting securities of each series affected by the matter. Such separate
voting requirements do not apply to the election of Trustees or the ratification
of the selection of accountants. The Rule contains special provisions for cases
in which an advisory contract is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series.
Investors in the Fund will be informed of the Fund's progress through periodic
reports. Financial statements certified by independent public accountants will
be submitted to shareholders at least annually.
Firstar Institutional Custody Services, 425 Walnut Street, Cincinnati, OH 45201
acts as Custodian of the securities and other assets of the Fund. The Custodian
and Administrator are affiliated companies. The Custodian does not participate
in decisions relating to the purchase and sale of securities by the Fund. ICA
Fund Services Corp, 4455 E. Camelback Rd., Ste. 261-E, Phoenix, AZ 85018 acts as
the Fund's transfer and shareholder service agent.
PricewaterhouseCoopers LLP, are the independent public accountants for the Fund.
Paul, Hastings, Janofsky & Walker, LLP ,345 California St., San Francisco, CA
94104 is counsel to the Fund.
On July 31, 2001, the following owned of record or beneficially more than 5% of
the Fund's outstanding voting securities:
Charles Schwab & Co., Inc., San Francisco, CA 94104 - 27.43% Central Bank &
Trust Co., Lexington, KY 40507 - 7.53% Cleveland Institute of Art, Cleveland, OH
44101 - 14.00% Biggs Bank, Washington, DC 20090 - 5.04%
The Boards of the Trust, the Advisor and the Distributor have adopted Codes of
Ethics under Rule 17j-1 of the 1940 Act. These Codes permit, subject to certain
conditions, personnel of the Advisor and Distributor to invest in securities
that may be purchased or held by the Fund.
FINANCIAL STATEMENTS
The annual report for the Fund for the fiscal year ended April 30, 2001 is a
separate document supplied with this SAI and the financial statements,
accompanying notes and report of independent accountants appearing therein are
incorporated by reference in this SAI.
B-20
APPENDIX
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
PRIME-1--Issuers (or related supporting institutions) rated "Prime-1" have a
superior ability for repayment of senior short-term debt obligations. "Prime-1"
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers (or related supporting institutions) rated "Prime-2" have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
B-21