-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P7lmR1t7onv6w1a/V+yKN/T64unJ45fzCh+/Z3i4j0uCDzxsztbiw2tFKjp6yntL hADo9KYOfUnaX2f6G+ZhhA== 0000950147-98-000451.txt : 19980604 0000950147-98-000451.hdr.sgml : 19980604 ACCESSION NUMBER: 0000950147-98-000451 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980603 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVISORS SERIES TRUST CENTRAL INDEX KEY: 0001027596 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07959 FILM NUMBER: 98641377 BUSINESS ADDRESS: STREET 1: 2025 E FINANCIAL WAY SUITE 101 CITY: GLENDORA STATE: CA ZIP: 91741 BUSINESS PHONE: 8188521033 MAIL ADDRESS: STREET 1: 2025 E FINANCIAL WAY STREET 2: SUITE 101 CITY: GLENDORA STATE: CA ZIP: 91741 N-30D 1 SEMI ANNUAL REPORT Chase Growth Fund May 13, 1998 Dear fellow Shareholder: I want to begin by extending a warm welcome to all our shareholders. We started the no-load, Chase Growth Fund on December 2, 1997 primarily to serve "family and friends" who did not meet our substantial minimums for separate account management. By the end of April, 84 shareholders had invested over $3,000,000 with us. We appreciate the trust each of you is placing in our management and we will be working very hard to deserve your continued confidence. We just celebrated our 40th anniversary at Chase Investment Counsel Corp. and we are the oldest independent investment counsel firm domiciled in Virginia. We manage $700 million for 65 clients in twenty states and we intend to continue serving a relatively small number of separate accounts of which the Chase Growth Fund is one. We have a number of advantages over many of the larger, better known funds. As a smaller fund we have much more flexibility in buying and selling securities without a significant market impact. The marketability of a stock is not "wagging the investment selection dog." Your fund is managed by our two senior portfolio managers, David Scott and myself who average 30 years experience through good and bad markets. As part of a new fund, shareholders are not buying into a portfolio which already has a substantial capital gain thus subjecting themselves to deferred taxes on gains they did not even enjoy. It seems to us that many of the large mutual fund organizations have de-emphasized professional investment management and become huge asset gathering organizations with little or no opportunity for even their larger investors to talk with an investment professional. We will be striving to serve Chase Growth Fund shareholders better and we welcome your suggestions. From December 2 through March 31 our fund enjoyed a total return including dividends of 14.32% compared with 13.95% for the Standard & Poor's 500 Composite Stock Price Index (S&P "500"). On average we were a little under 80% invested in equities, but by the end of March your fund was 99.3% invested in 42 stocks. Our heaviest industry concentrations were on Computer and Services, Drugs, Financial Services, Insurance and Retail. During the first quarter our best performing stocks were Ethan Allen +54.9%, American Bankers Insurance Group +40.4%, Microsoft +38.5%, Pfizer +33.7%, TJX Cos. +32.5% and Schering Plough +31.6%. We are in a very difficult market environment. Based on all historical norms, stocks are ahead of fundamentals. Valuation measurements such as Price to Earnings, Price to Book Value, and Price to Dividends (low yields) are near record high levels. For a couple of years, this has been a Supply/Demand and momentum driven market. As long as high levels of money flows (buying) continue to exceed selling and new stock offerings, prices should continue higher. While the general market still is in an uptrend, there are signs of topping. Indeed, the market would be healthier if it consolidated the abnormally rapid gains of the last few years and let corporate earnings and dividends catch up. Our investment process combines fundamental, quantitative and technical research. We seek good quality growing companies with above average earnings growth, strong balance sheets, and reasonable prices. Currently we are invested in stocks with relatively low betas (volatility) in our attempt to improve defensive qualities. We believe that the stocks of your fund's companies represent relatively outstanding investment values. In the table below, we compare the characteristics of our fund's stocks to the S&P "500". On average the Chase Growth Fund stocks have enjoyed more consistent, substantially higher 5 year earnings growth rates (22% vs. 15%), are significantly more profitable with a Return on Equity of 30% vs. 22%, and have stronger balance sheets with Debt to Total Capital of 18% vs. 33% for the S&P "500", yet sold at about the same price earnings multiple based on `98 estimated earnings. CHASE GROWTH FUND STOCKS VS. S&P 500 March 31, 1998 Chase Growth Fund Stocks S&P 500 ----------- ------- Last 5 Year Earnings Growth 22% 15% Return on Equity 30% 22% Debt/Total Capital 18% 33% Reinvestment Rate 23% 13% Weighed Avg. Capitalization (Billions) 40.5 64.3 Price/Earnings Estimated '97 27.9 27.7 Price/Earnings Estimated '98 25.0 25.3 Weighed Avg. Beta (Volatility) 0.91 1.00 Source: Chase Investment Counsel. This information is based on certain assumptions and historical data and is not a prediction of future results for the Fund or companies held in the Fund's portfolio. S&P 500 earnings are based on reported figures after writeoffs. * The S&P 500 Index is an unmanaged capitalization-weighted index of 500 stocks designed to represent the broad domestic economy. Although there can be no assurance that we will meet our objective, we believe that a long term (more than 10 years) average annual total return goal of 15% is possible. That goal is based on our many years of experience and the performance of our five largest separately managed portfolios during the last 24 years. Our goal is significantly above the long term market returns of 10 to 11%. An investment return of 15% means doubling in five years, quadrupling in ten, before taxes. We do not believe it is realistic for investors to expect more. The Bank Credit Analyst cited a survey earlier this year which indicated that U.S. mutual fund investors expect annual returns of 34% from stocks over the next several years, a rate more than 3X greater than the average long term return for U.S. equities. Such expectations suggest extreme investor euphoria. As an equity fund we expect to be 80 to 100% invested in equities. We will be working hard to find, analyze and invest in relatively attractive stocks. The officers and employees of Chase Investment Counsel Corp., many of whom are fellow shareholders, appreciate your confidence and we look forward to a long investment relationship together. TOP 10 HOLDINGS 1. Microsoft 6. American International Group 2. Schering Plough 7. Genetech, Inc. 3. TJX Companies 8. Albertsons, Inc. 4. Wal-Mart Stores 9. Carnival Corp. 5. Herman Miller, Inc. 10. BMC Software /s/ Derwood S. Chase Jr. President, Chase Investment Counsel Corporation Chase Growth Fund
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Shares COMMON STOCKS: 99.26% Market Value - ------------------------------------------------------------------------------------------------------------------- Apparel: 0.05% 25 Jones Apparel Group, Inc.*.............................................. $ 1,377 ------- Bio-Technology: 3.73% 1,450 Genentech, Inc.*........................................................ 102,134 ------- Building: 4.68% 752 Home Depot, Inc......................................................... 51,230 2,100 Oakwood Homes Corp...................................................... 76,912 ------- 128,142 ------- Computer and Services: 12.79% 1,100 BMC Software, Inc.*..................................................... 92,228 1,400 Computer Associates International....................................... 80,850 1,325 Microsoft Corp.*........................................................ 118,546 1,400 Sun Microsystems, Inc.*................................................. 58,406 ------- 350,030 ------- Conglomerates: 3.78% 1,800 Applied Power Inc. - Class A............................................ 69,300 900 Dover Corp.............................................................. 34,200 ------- 103,500 ------- Containers: 2.87% 1,200 Sealed Air Corp.*....................................................... 78,600 ------- Drugs: 7.38% 650 Bristol-Myers-Squibb Co................................................. 67,803 200 Pfizer, Inc............................................................. 19,937 1,400 Schering-Plough Corp.................................................... 114,363 ------- 202,103 ------- Electrical Equipment: 1.89% 600 General Electric Co..................................................... 51,713 ------- Energy/Oil Service: 2.28% 680 Diamond Offshore Drilling............................................... 30,855 720 Tidewater, Inc.......................................................... 31,545 ------- 62,400 ------- Finance/Banks: 3.60% 725 Northern Trust Corp..................................................... 54,239 650 State Street Corp....................................................... 44,241 ------- 98,480 -------
3 Chase Growth Fund
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued - ------------------------------------------------------------------------------------------------------------------- Shares Market Value - ------------------------------------------------------------------------------------------------------------------- Financial Services: 9.12% 1,100 Federal National Mortgage Association................................... $ 69,575 1,200 SLM Holding Corp........................................................ 52,350 850 SunAmerica, Inc......................................................... 40,694 1,450 Travelers Group, Inc.................................................... 87,000 -------- 249,619 -------- Home Furnishings: 4.73% 1,050 Ethan Allen Interiors Inc............................................... 62,737 1,300 Leggett & Platt, Inc.................................................... 66,869 -------- 129,606 -------- Household Product: 0.71% 230 Proctor & Gamble Co..................................................... 19,406 -------- Insurance - Life/Health: 5.83% 550 Conseco, Inc............................................................ 31,144 1,065 Protective Life Corp.................................................... 77,745 1,100 Reliastar Financial Corp................................................ 50,669 -------- 159,558 -------- Insurance - Property/Casualty: 4.72% 350 American Bankers Insurance Group........................................ 22,575 847 American International Group, Inc....................................... 106,669 -------- 129,244 -------- Leisure Time: 3.44% 1,350 Carnival Corp. - Class A................................................ 94,162 -------- Office Furniture: 3.92% 3,200 Herman Miller, Inc...................................................... 107,300 -------- Retail: 5.96% 1,200 Gap, Inc................................................................ 54,000 2,150 Wal-Mart Stores, Inc.................................................... 109,247 -------- 163,247 -------- Retail (Specialty): 7.85% 2,050 Pier 1 Imports, Inc..................................................... 55,606 1,100 Ross Stores, Inc........................................................ 48,572 2,450 TJX Companies, Inc...................................................... 110,863 -------- 215,041 --------
4 Chase Growth Fund
PORTFOLIO OF INVESTMENTS at March 31, 1998 (Unaudited), Continued - ------------------------------------------------------------------------------------------------------------------- Shares Market Value - ------------------------------------------------------------------------------------------------------------------- Retail Drug Stores: 0.77% 600 Walgreen Co............................................................. $ 21,113 ---------- Retail - Grocers: 6.33% 1,800 Albertson's, Inc........................................................ 94,725 1,700 Kroger Co.*............................................................. 78,519 ---------- 173,244 ---------- Service Companies: 2.83% 1,800 CDI Corp.*.............................................................. 77,512 ---------- Total Common Stocks (cost $2,432,418)................................... 2,717,531 ---------- Principal Amount SHORT-TERM INVESTMENTS: 5.45% - ------------------------------------------------------------------------------------------------------------------- $149,120 Star Treasury Fund, 4.95% (cost $149,120)............................... 149,120 ---------- Total Investments in Securities (cost $2,581,538+): 104.71% ............ 2,866,651 Liabilities in excess of Other Assets: (4.71)%.......................... (128,969) ---------- Total Net Assets: 100.0% ............................................... $2,737,682 ========== *Non-incoming producing security. +At March 31, 1998, the cost of securities for Federal tax purposes was the same as the basis for financial reporting. Unrealized appreciation and depreciation of securities were as follows: Gross unrealized appreciation........................................... $ 310,299 Gross unrealized depreciation........................................... (25,186) ---------- Net unrealized appreciation....................................... $ 285,113 ==========
See Notes to Financial Statements. 5 Chase Growth Fund
STATEMENT OF ASSETS AND LIABILITIES at March 31, 1998 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- ASSETS Investments in securities, at value (identified cost $2,581,538) (Note 2) ............. $ 2,866,651 Receivables: Fund shares sold................................................................. 10,000 Dividends and interest........................................................... 931 Due from Advisor................................................................. 4,615 Prepaid expenses....................................................................... 4,023 ----------- Total assets .............................................................. 2,886,220 ----------- LIABILITIES Payables: Portfolio securities purchased................................................... 137,280 Administration fee............................................................... 2,598 Accrued expenses....................................................................... 8,660 ----------- Total liabilities.......................................................... 148,538 ----------- NET ASSETS................................................................................... $ 2,737,682 =========== Net asset value, offering price and redemption price per share ($2,737,682/239,774 shares outstanding; unlimited number of shares (par value $.01) authorized) ......................... $11.42 ====== SOURCE OF NET ASSETS Paid-in capital ....................................................................... $ 2,459,472 Dividends in excess of net investment income........................................... (329) Accumulated net realized loss on investment transactions............................... (6,574) Net unrealized appreciation of investments............................................. 285,113 ----------- Net assets ...................................................................... $ 2,737,682 ===========
See Notes to Financial Statements. 6 Chase Growth Fund
STATEMENT OF OPERATIONS For the Period December 2, 1997* through March 31, 1998 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Income: Dividends........................................................................ $ 2,648 Interest......................................................................... 6,735 --------- Total income............................................................... 9,383 --------- Expenses: Custodian and accounting fees.................................................... 6,746 Advisory fees (Note 3)........................................................... 5,506 Administration fee (Note 3)...................................................... 5,404 Professional fees................................................................ 4,850 Transfer agent fees.............................................................. 3,811 Reports to shareholders.......................................................... 1,978 Other ........................................................................... 1,947 Directors' fees.................................................................. 1,892 Registration fees................................................................ 291 --------- Total expenses............................................................. 32,425 Less: Advisory fee waiver and absorption (Note 3).......................... (24,068) --------- Net expenses............................................................... 8,357 --------- Net investment income ............................................... 1,026 --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss on security transactions....................................... (6,574) Net change in unrealized appreciation of investments............................. 285,113 --------- Net realized and unrealized gain on investments............................ 278,539 --------- Net Increase in Net Assets Resulting from Operations ................ $ 279,565 =========
*Commencement of operations. See Notes to Financial Statements. 7 Chase Growth Fund
STATEMENT OF CHANGES IN NET ASSETS (Unaudited) - ------------------------------------------------------------------------------------------------------------------- December 2, 1997* through March 31, 1998 - ------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income...................................................................... $ 1,026 Net realized loss on security transactions................................................. (6,574) Net change in unrealized appreciation of investments....................................... 285,113 ---------- Net increase in net assets resulting from operations ................................ 279,565 ---------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Net investment income...................................................................... (1,355) ---------- CAPITAL SHARE TRANSACTIONS Net increase in net assets derived from capital share transactions (a)..................... 2,434,472 ---------- Total increase in net assets ........................................................ 2,737,682 NET ASSETS Beginning of period........................................................................ 25,000 ---------- End of period (including dividends in excess of net investment income of $329)............. $2,737,682 ==========
(a) A summary of capital shares transactions is as follows:
December 2, 1997* through March 31, 1998 ---------------------------- Shares Value ------- ---------- Shares sold................................................................. 241,530 2,477,117 Shares issued on reinvestments of distributions............................. 134 1,355 Shares redeemed............................................................. (1,890) (19,000) ------- ---------- Net increase................................................................ 239,774 $2,459,472 ======= ==========
*Commencement of operations. See Notes to Financial Statements. 8 Chase Growth Fund
FINANCIAL HIGHLIGHTS Per Share Operating Performance (Unaudited) (For a share outstanding throughout the period) - ------------------------------------------------------------------------------------------------------------------- December 2, 1997* through March 31, 1998 - ------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period....................................................... $10.00 ------ Income from investment operations: Net investment income................................................................ .01 Net realized and unrealized gain on investments...................................... 1.42 ------ Total from investment operations........................................................... 1.43 ------ Less distributions: From net investment income........................................................... (.01) ------ Net asset value, end of period............................................................. $11.42 ====== Total Return .............................................................................. 14.32%** Ratios/supplemental data: Net assets, end of period (thousands)...................................................... $2,738 Ratio of expenses to average net assets: Before expense reimbursement......................................................... 5.71%+ After expense reimbursement.......................................................... 1.48%+ Ratio of net investment (loss) income to average net assets: Before expense reimbursement......................................................... (4.06%)+ After expense reimbursement.......................................................... 0.18%+ Portfolio turnover rate.................................................................... 8.90% Average commission rate paid per share..................................................... $.0839
*Commencement of operations. **Not Annualized. +Annualized. See Notes to Financial Statements. 9 Chase Growth Fund NOTES TO FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 - ORGANIZATION The Chase Growth Fund (the "Fund") is a series of shares of Advisors Series Trust (the "Trust"), which is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund began operations on December 2, 1997. The Fund's objective is growth of capital. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with generally accepted accounting principles. A. Security Valuation: The Fund's investments are carried at market value. Securities listed on an exchange or quoted on a National Market System are valued at the last sale price. Other securities are valued at the mean between the last bid and asked prices. Securities for which market quotations are not readily available, if any, are valued following procedures approved by the Board of Directors. Short-term investments are valued at amortized cost, which approximates market value. B. Federal Income Taxes: It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. C. Security Transactions, Dividends and Distributions: Security transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Realized gains and losses on securities sold are determined under the identified cost basis. D. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets during the reporting period. Actual results could differ from those estimates. NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES For the period ended March 31, 1998, Chase Investment Counsel Corp. (the "Advisor") provided the Fund with investment management services under an Investment Advisory Agreement. The Advisor furnished all investment advice, office space, facilities, and provides most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee at the annual rate of 1.00% based upon the average daily net assets of the Fund. The Fund is responsible for its own operating expenses. The Advisor has agreed to reduce fees payable to it by the Fund and to pay Fund operating expenses to the extent necessary to limit the Fund's aggregate annual operating expenses to 1.48% of average net assets (the "expense cap"). Any such reductions made by the Advisor in its fees or payment of expenses which are the Fund's obligation are subject to reimbursement by the Fund to the Advisor, if so requested by the Advisor, in the first, second or third fiscal year next succeeding the fiscal year of the reduction or absorption if the aggregate amount actually paid by 10 Chase Growth Fund NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued - -------------------------------------------------------------------------------- the Fund toward the operating expenses for such fiscal year (taking into account the reimbursement) does not exceed the applicable limitation on Fund expenses. At this time, the Advisor intends to continue to reduce fees payable to it by the Fund or to pay Fund operating expenses such that the Total Fund Operating Expense Ratio will not rise above 1.48% of average net assets annually. With respect to the reimbursement of a particular fee reduction or expense payment, a reimbursement to the Advisor is permitted only within the three year period following the year in which the Advisor reduced the subject fee or paid the subject expense. Any such reimbursement is also contingent upon Board of Trustees review and approval at the time the reimbursement is made. Such reimbursement may be paid prior to the Fund's payment of current expenses if so requested by the Advisor even if that practice may require the Advisor to waive, reduce or absorb current Fund expenses. For the period ended March 31, 1998, the Advisor reduced its fees and absorbed Fund expenses in the amount of $24,068; no amounts were reimbursed. Investment Company Administration Corporation (the "Administrator") acts as the Fund's Administrator under an Administration Agreement. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund; prepares reports and materials to be supplied to the trustees; monitors the activities of the Fund's custodian, transfer agent and accountants; coordinates the preparation and payment of Fund's expenses and reviews the Fund's expense accruals. For its services, the Administrator receives a monthly fee per portfolio at the annual rate of 0.20% of average daily net assets, subject to a minimum fee of $30,000 annually. First Fund Distributors, Inc. (the "Distributor") acts as the Fund's principal underwriter in a continuous public offering of the Fund's shares. The Distributor is an affiliate of the Administrator. Certain officers of the Fund are also officers and/or directors of the Administrator and the Distributor. NOTE 4 - PURCHASES AND SALES OF SECURITES For the period ended March 31, 1998, the cost of purchases and the proceeds from sales of securities, excluding short-term securities, were $2,567,972 and $129,130, respectively. 11 Advisor Chase Investment Counsel Corp. 300 Preston Avenue, Suite 403 Charlottesville, Virginia 22902-5091 ======== -------- Distributor First Fund Distributors, Inc. 4455 E. Camelback Road, Suite 261-E Phoenix, Arizona 85018 ======== -------- Custodian Star Bank, N.A. 425 Walnut Street, M/L 6118 Cincinnati, Ohio 45202 ======== -------- Transfer Agent American Data Services P.O. Box 5536 Hauppauge, New York 11788-0132 ======== -------- Legal Counsel Paul, Hastings, Janofsky & Walker LLP 345 California Street San Francisco, California 94104 CHASE GROWTH FUND Semi-Annual Report dated March 31, 1998 ----------------- Chase Investment Counsel Corp. 300 Preston Avenue Suite 403 Charlottesville, Virginia 22902-5091 Advisor: 804-293-9104 Shareholder Servicing: 888-861-7556 ROCKHAVEN ASSET MANAGEMENT The Risk Managers THE ROCKHAVEN FUND THE ROCKHAVEN PREMIER DIVIDEND FUND Semi-Annual Report For the period ended March 31, 1998 Dear Investor: This is the first shareholder letter we've written since the Funds' inception in November 1997, so we want to start with a simple thank you. We realize that you have literally thousands of mutual funds from which to choose to invest your hard-earned savings. We appreciate the confidence you have shown in us by becoming fellow shareholders (all of the Rockhaven employees have a significant portion of their net worth invested in the Funds), and we will continue to work hard to justify your confidence. Again, thanks. Our goal is to offer investors total returns which are competitive with the S&P 500 over the long run, with less downside risk, and a yield significantly greater than the S&P 500 yield. Risk control is foremost in our investment process. In order to attempt to achieve our goals, we manage by the following guidelines. - -- No market timing . . . we are always fully invested. - -- No sector betting . . . we are sector neutral to the S&P 500. - -- Focus purely on security selection. Performance - ----------- Period Quarter 11/3/97 - 3/31/98 Inception Date 1/1/98 - 3/31/98 Since Inception Rockhaven Fund 11/3/97 11.33% 14.66% Rockhaven Premier Dividend Fund 11/3/97 10.41% 11.58% Lipper Equity Income Average 8.80% 14.23% S&P 500 Index 13.95% 18.12% Dow Jones Industrial Average 11.74% 15.63% "Beware of he who uses statistics as a drunken man uses lamp posts . . . for support rather than illumination." --Andrew Lang Other than baseball, investment management is one of the few professions where your performance lends itself to daily analysis, praise, and criticism. You have to be humble and have a thick skin to last in either profession. At Rockhaven, we try to use performance analysis for illumination, not just support. Our first rule is KISS - Keep It Simple Stupid. Our second rule is that investors should strive for the highest possible return at the lower level of risk. The magic word is "risk", and the $64,000 question is how should you measure it? Before we address risk, let's first look at the return portion of the equation. From the Funds' inception on November 3, 1997 through March 31, 1998, the Rockhaven Fund was up 14.66% and the Premier Dividend Fund was up 11.58%. On an absolute basis, this looks pretty impressive for only five months. But when compared to the S&P 500's meteoric rise of 18.12%, it is pretty ho-hum. Now let's look at the risk side of the puzzle. Risk is often measured statistically as beta or standard deviation, which are simply measures of volatility. Therefore, beta and standard deviation measure risk on both the upside and downside. While this is not a bad place to start, I have yet to meet the investor who is upset that our upside volatility is greater than the market. What investors are concerned with is downside volatility . . . more commonly known as "loss". In contrast, our view is that the best measure of risk is how we perform versus a risk-free investment, such as a Treasury bill, when the market corrects. In other words, how much downside risk are our Funds taking. The table below highlights every correction in the S&P 500 over the last five months that was greater than 2%. As you can readily see, both our Funds outperformed the S&P 500 during all four corrections, and on average, our Funds had only 75% of the S&P 500's underperformance. We realize that five months is a short time frame, but for these Funds, it's all we have to work with. In summary, we believe we are off to a good start--not a great start--but when factoring in risk, it's a good start. Downside Performance (Corrections 2%) The Rockhaven Fund (RF) & The Rockhaven Premier Dividend Fund (RPDF) Vs. S&P 500 (SPX)
Total Total Total Return Underperf. Return Underperf. Return Underperf. T-Bill RF vs. T-Bill RPDF vs. T-Bill SPX vs. T-Bill Return - -------------------------------------------------------------------------------------------- 11/5/97-11/12/97 -3.23% -3.33% -3.62% -3.72% -3.84% -3.94% 0.095% 12/5/97-12/26/97 -3.25% -3.54% -3.23% -3.52% -4.75% -5.04% 0.287% 1/5/98-1/9/98 -4.24% -4.31% -4.04% -4.11% -5.02% -5.09% 0.066% 1/20/98-1/26/98 -1.17% -1.25% -0.98% -1.06% -2.20% -2.28% 0.084% Total underperf. -12.42% -12.40% -16.34% Total periods 4 4 4 Avg. underperf. -3.11% -3.10% -4.09%
The performance data represents past performance and is not indicative of future results. Investment returns and principal values will fluctuate so that investors' shares, when redeemed, may be worth more or less than original cost. Market Commentary - ----------------- "When everyone is insane, `tis folly to be wise." --Shakespeare In Graham & Dodd's 1934 edition of Security Analysis, they had the following comments on the "new era" thinking that was prevalent in 1929: "Under New Era thinking, the investment process to consist of merely finding prominent companies with a rising trend of earnings, and then buying the shares regardless of price. Hence the sound policy was to buy only what everyone else was buying - a select list of highly popular and exceedingly expensive issues - the blue chips. The original idea of searching for undervalued and neglected issues has dropped out of sight. Investment trusts can boast that their portfolios consist exclusively of the most popular and highly priced stocks. And with but slight exaggeration, it might be asserted that under this convenient technique of investment, the affairs of funds can be administered by the intelligence training, and labors of a single $30-a-week clerk." We continue to be amazed at the sheer strength of this bull market, and we continue to be fully invested and scared to death. During the first quarter, the consumer seemed to be the main driver. Given rising real disposable personal income, a lower debt burden, and high levels of confidence stemming from full employment and the wealth effect (both stocks and real estate) the consumer is king. Our best performing stocks in the quarter reflect that theme: Sears, BancOne, Ford, McDonalds, and J.C. Penney. On the other hand, the slow down in Asia has sapped many a tech stock and the entire energy industry. Giving us our list of biggest losers in the quarter: Adaptec, Motorola, Philip Morris, Diamond Offshore, and Parker Drilling. The market continues to be supported by low inflation and interest rates, stable earnings, and massive liquidity. The weakest leg in this trio is earnings. While the Asian contagion has caused analysts to significantly lower their estimates for the first quarter, many of them believe that earnings growth will bounce back strongly in the second half. This is clearly the market's weakest link. If earnings don't bounce back, we could be in for a tough fall, but until then, the biggest risk is not participating. /s/ Chris Wiles Chris Wiles President, Rockhaven Asset Management The Rockhaven Rund SCHEDULE OF INVESTMENTS at March 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS & Shares CONVERTIBLE SECURITIES: 92.64% Market Value - -------------------------------------------------------------------------------- Aerospace: 1.06% 350 B.F. Goodrich Co.............................. $ 17,872 -------- Basic Materials: 4.03% 800 Allegheny Teledyne Inc........................ 22,250 550 IMC Global, CONV PRD 6.25%.................... 20,900 800 Royal Group Technologies, CONV PRD 6.875%............................... 24,800 -------- 67,950 -------- Classified Goods/Diversified: 7.55% 500 Emerson Electric Co........................... 32,594 700 Fluor Corp.................................... 34,825 300 General Electric Co........................... 25,856 500 PPG Industries, Inc........................... 33,969 -------- 127,244 -------- Consumer Cyclical: 4.09% 550 Ford Motor Co................................. 35,647 1,250 Tupperware Corp............................... 33,281 -------- 68,928 -------- Energy: 7.56% 250 British Petroleum Co. plc, ADR................ 21,515 20,000 Diamond Offshore Drilling Inc., CONV BOND 3.75%, due 2/15/2007................ 25,350 350 Exxon Corp.................................... 23,669 700 Shell Transport & Trading, ADR................ 30,975 425 Tosco Corp., CONV PRD 5.75%................... 25,925 -------- 127,434 -------- Finance: 15.32% 730 Banc One Corp................................. 46,173 300 Bankers Trust NY Corp......................... 36,094 250 J.P. Morgan & Co., Inc........................ 33,578 900 National Australia Bank Ltd., CONV PRD 7.875%............................... 26,100 300 NationsBank (JP), CONV PRD 7.25%.............. 37,688 6 The Rockhaven Rund SCHEDULE OF INVESTMENTS at March 31, 1998 (Unaudited), Continued - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- Finance, continued 1,900 Pacific Century Financial Corp................ $ 45,243 500 Wilmington Trust Corp......................... 33,281 -------- 258,157 -------- Health Care: 10.69% 400 American Home Products........................ 38,150 700 Baxter International Inc...................... 38,588 375 Johnson & Johnson............................. 27,491 250 Merck & Co., Inc.............................. 32,094 1,000 Pharmacia & Upjohn, Inc....................... 43,750 -------- 180,073 -------- Retailing: 5.09% 450 J.C. Penney Company, Inc...................... 34,059 900 Sears, Roebuck & Co........................... 51,694 -------- 85,753 -------- Services: 5.77% 550 McDonald's Corporation........................ 33,000 1,550 Readers Digest, CONV PRD 8.25%................ 41,172 900 Sysco Corporation............................. 23,063 -------- 97,234 -------- Staples: 8.23% 900 DIMON Inc., CONV PRD 8.50%.................... 15,750 900 DIMON Inc..................................... 15,019 700 Dole Food Co., Inc. CONV PRD 7.00%............ 31,675 300 General Mills, Inc............................ 22,800 450 H.J. Heinz Company............................ 26,269 650 Philip Morris Companies....................... 27,097 -------- 138,610 -------- Technology: 15.76% 23,000 Adaptec Inc., CONV BOND 4.75%, due 2/1/2004.................................. 19,148 700 Adaptec, Inc.*................................ 13,759 650 AMP Incorporated.............................. 28,478 350 Hewlett-Packard Company....................... 22,181 7 The Rockhaven Rund SCHEDULE OF INVESTMENTS at March 31, 1998 (Unaudited), Continued - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- Technology, continued 30,000 Kent Electronics Corp., CONV BOND 4.50%, due 9/1/2004................. $ 25,087 600 Kent Electronics Corp.*....................... 12,638 650 Microsoft Corporation, CONV PRD $2.196............................... 60,166 600 Motorola, Inc................................. 36,375 450 Pitney Bowes, Inc............................. 22,584 25,000 Xilinx Inc., CONV BOND 5.25%, due 11/1/2202................................. 25,063 ---------- 265,479 ---------- Transportation: 1.00% 300 Union Pacific Corp............................ 16,856 ---------- Utility: 6.48% 650 MCN Energy Group, Inc., CONV PRD 8.75%................................ 21,206 750 Pacific Enterprises........................... 30,609 450 Cincinnati Bell CONV PRD 6.25%................ 30,038 500 U.S. West Communications...................... 27,375 ---------- 109,228 ---------- Total Common Stocks and Convertible Securities (cost $1,465,833).................. 1,560,818 ---------- Principal Amount SHORT-TERM INVESTMENTS: 9.84% - -------------------------------------------------------------------------------- $165,709 Star Treasury Fund, 4.99%..................... 165,709 ---------- Total Investments in Securities (cost $1,631,542+):102.48% ................ 1,726,527 Liabilities less Other Assets: (2.48%)........ (41,746) ---------- Total Net Assets: 100.0% ..................... $1,684,781 ========== *Non-income producing security. 8 The Rockhaven Rund SCHEDULE OF INVESTMENTS at March 31, 1998 (Unaudited), Continued - -------------------------------------------------------------------------------- Market Value - -------------------------------------------------------------------------------- +At March 31, 1998, the cost of securities for Federal tax purposes was the same as the basis for financial reporting. Unrealized appreciation and depreciation of securities were as follows: Gross unrealized appreciation................. $ 103,881 Gross unrealized depreciation................. (8,896) --------- Net unrealized appreciation............... $ 94,985 ========= See Notes to Financial Statements. 9 The Rockhaven Rund STATEMENT OF ASSETS AND LIABILITIES at March 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (identified cost $1,631,542) ........................... $1,726,527 Receivables: Fund shares sold........................................ 11,363 Dividends and interest.................................. 3,199 Due from Advisor........................................ 8,061 Subscriptions........................................... 100,000 Prepaid expenses........................................... 13,946 ---------- Total assets ........................................ 1,863,096 ---------- LIABILITIES Payables: Administration fee...................................... 2,548 Dividends............................................... 1,032 Securities purchased.................................... 162,445 Accrued expenses........................................... 12,290 ---------- Total liabilities.................................... 178,315 ---------- NET ASSETS.................................................... $1,684,781 ========== Net asset value, offering and redemption price per share ($1,684,781/147,693 shares outstanding; unlimited number of shares (par value $.01) authorized)............................ $11.41 ====== COMPONENTS OF NET ASSETS Paid-in capital ........................................... $1,590,365 Dividends in excess of net investment income............... (38) Accumulated net realized loss on investments............... (531) Net unrealized appreciation on investments................. 94,985 ---------- Net assets ............................................. $1,684,781 ========== See Notes to Financial Statements. 10 The Rockhaven Rund STATEMENT OF OPERATIONS For the Period from November 3, 1997* through March 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME Income Dividends............................................... $ 7,660 Interest................................................ 1,562 -------- Total income......................................... 9,222 -------- Expenses Advisory fees (Note 3).................................. 2,048 Administration fee (Note 3)............................. 12,082 12b-1 expense........................................... 683 Custodian and accounting fees........................... 8,539 Transfer agent fees..................................... 5,236 Professionals' fees..................................... 6,042 Trustees' fees.......................................... 2,396 Registration fees....................................... 2,865 Reports to shareholders................................. 2,820 Other expenses.......................................... 2,115 -------- Total expenses....................................... 44,826 Less, Advisory fee waiver and absorption (Note 3).................................. (40,730) Net expenses......................................... 4,096 -------- Net investment income ............................ 5,126 -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss from security transactions............ (531) Net change in unrealized appreciation on investments........................................ 94,985 -------- Net realized and unrealized gain on investments..................................... 94,454 -------- Net Increase in Net Assets Resulting from Operations ................................ $ 99,580 ======== *Commencement of operations. See Notes to Financial Statements. 11 The Rockhaven Rund STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- November 3, 1997* through March 31, 1998 - -------------------------------------------------------------------------------- NET INCREASE IN ASSETS FROM OPERATIONS Net investment income......................................... $ 5,126 Net realized loss from security transactions.................. (531) Net change in unrealized appreciation of securities........... 94,985 ---------- Net increase in net assets resulting from operations ......................................... 99,580 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Net investment income......................................... (5,163) CAPITAL SHARE TRANSACTIONS Net increase in net assets derived from net change in outstanding shares (a)................................... 1,590,364 ---------- Total increase in net assets .............................. 1,684,781 NET ASSETS Beginning of period........................................... -0- ---------- End of period (including dividends in excess of net investment income of $38)................................... $1,684,781 ========== (a) A summary of capital share transactions is as follows: November 3, 1997* through March 31, 1998 ---------------------- Shares Value ---------------------- Shares sold................................ 147,296 $1,586,032 Shares issued in reinvestment of distributions......................... 397 4,332 Shares redeemed............................ (0) (0) ---------------------- Net increase............................... 147,693 $1,590,364 ====================== *Commencement of operations. See Notes to Financial Statements. 12 The Rockhaven Rund FINANCIAL HIGHLIGHTS For a capital share outstanding throughout the period - -------------------------------------------------------------------------------- November 3, 1997* through March 31, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of period........................ $ 10.00 Income from investment operations: Net investment income.................................... 0.08 Net realized and unrealized gain on investments.......... 1.38 ------- Total from investment operations............................ 1.46 ------- Less distributions: Dividends from net investment income..................... (0.05) ------- Net asset value, end of period.............................. $ 11.41 ======= Total return ............................................... 14.66%+ Ratios/supplemental data: Net assets, end of period (thousands)....................... $ 1,864 Ratio of expenses to average net assets: Before expense reimbursement............................. 16.03%++ After expense reimbursement.............................. 1.47%++ Ratio of net investment income (loss) to average net assets: Before expense reimbursement............................. (12.73%)++ After expense reimbursement.............................. 1.83%++ Portfolio turnover rate..................................... 26.17% Average commission rate paid per share...................... $0.0600 *Commencement of operations. +Not annualized. ++Annualized. See Notes to Financial Statements. 13 The Rockhaven Premier Dividend Rund SCHEDULE OF INVESTMENTS at March 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS & Shares CONVERTIBLE SECURITIES: 98.35% Market Value - -------------------------------------------------------------------------------- Aerospace: 1.63% 300 B.F. Goodrich Co.............................. $ 15,319 -------- Basic Materials: 4.55% 550 IMC Global, CONV PRD 6.25%.................... 20,900 700 Royal Group Technologies, CONV PRD 6.875%............................... 21,700 -------- 42,600 -------- Classified Goods/Diversified: 8.51% 550 Fluor Corp.................................... 27,362 1,000 Ingersoll-Rand Company, CONV PRD 6.75%................................ 25,188 400 PPG Industries, Inc........................... 27,175 -------- 79,725 -------- Consumer Cyclical: 4.41% 350 Ford Motor Co................................. 22,684 700 Tupperware Corp............................... 18,638 -------- 41,322 -------- Energy: 8.28% 200 British Petroleum Co. plc, ADR................ 17,212 600 Shell Transport & Trading, ADR................ 26,550 250 Tosco Corp., CONV PRD 5.75%................... 15,250 350 Unocal Corporation, CONV PRD 6.25%............ 18,594 -------- 77,606 -------- Finance: 16.01% 225 Bankers Trust NY Corp......................... 27,070 300 Frontier Insurance Group, CONV PRD 6.25%................................ 19,313 900 National Australia Bank Ltd., CONV PRD 7.875%............................... 26,100 200 NationsBank (JP), CONV PRD 7.25%.............. 25,125 1,200 Pacific Century Financial Corp................ 28,575 850 TrustCo Bank Corp. N.Y........................ 23,853 -------- 150,036 -------- 14 The Rockhaven Premier Dividend Rund SCHEDULE OF INVESTMENTS at March 31, 1998 (Unaudited), Continued - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- Health Care: 12.10% 20,000 ALZA Corporation, CONV BOND 5.00%, due 5/1/2006........................... $ 26,225 300 American Home Products........................ 28,613 200 Merck & Co., Inc.............................. 25,675 750 Pharmacia & Upjohn, Inc....................... 32,812 -------- 113,325 -------- Retailing: 5.18% 300 J.C. Penney Company, Inc...................... 22,706 450 Sears, Roebuck & Co........................... 25,847 -------- 48,553 -------- Services: 5.92% 1,100 Readers Digest, CONV PRD 8.25%................ 29,219 500 Wendy's International, CONV PRD 5.00%................................ 26,281 -------- 55,500 -------- Staples: 9.83% 1,650 DIMON Inc., CONV PRD 8.50%.................... 28,875 550 Dole Food Co., Inc. CONV PRD 7.00%............ 24,887 300 H.J. Heinz Company............................ 17,513 500 Philip Morris Companies....................... 20,844 -------- 92,119 -------- Technology: 14.33% 350 Adaptec, Inc.*................................ 6,880 1,200 Adaptec Inc., CONV BOND 4.75%, due 2/1/2004.................................. 9,990 20,000 Data General Corporation, CONV BOND 6.00%, due 5/15/2004................ 19,550 30,000 Kent Electronics Corp., CONV BOND 4.50%, due 9/1/2004................. 25,088 325 Microsoft Corporation, CONV PRD............... 30,083 450 Pitney Bowes, Inc............................. 22,584 20,000 Xilinx Inc., CONV BOND 5.25%, due 11/1/2202................................. 20,050 -------- 134,225 -------- 15 The Rockhaven Premier Dividend Rund SCHEDULE OF INVESTMENTS at March 31, 1998 (Unaudited), Continued - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- Transportation: 1.20% 200 Union Pacific Corp............................ $ 11,238 --------- Utility: 6.39% 550 MCN Energy Group, Inc., CONV PRD 8.75%................................ 17,943 300 Cincinnati Bell CONV PRD 6.25%................ 20,025 400 U.S. West Communications...................... 21,900 --------- 59,868 --------- Total Common Stocks and Convertible Securities (cost $846,480+)................... 921,436 --------- Principal Amount SHORT-TERM INVESTMENTS: 0.41% - -------------------------------------------------------------------------------- $3,842 Star Treasury Fund, 4.99%..................... 3,842 --------- Total Investments in Securities (cost $850,323):98.76% .................... 925,278 Other Assets less Liabilities: 1.24%.......... 11,664 --------- Total Net Assets: 100.0% ..................... $ 936,942 ========= *Non-income producing security. +At March 31, 1998, the cost of securities for Federal tax purposes was the same as the basis for financial reporting. Unrealized appreciation and depreciation of securities were as follows: Gross unrealized appreciation................. $ 89,469 Gross unrealized depreciation................. (14,514) --------- Net unrealized appreciation............... $ 74,955 ========= See Notes to Financial Statements. 16 The Rockhaven Premier Dividend Rund STATEMENT OF ASSETS AND LIABILITIES at March 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (identified cost $850,323) ............................. $ 925,278 Receivables: Fund shares sold........................................ 11,363 Dividends and interest.................................. 4,112 Due from Advisor........................................ 8,149 Suspense .................................................. (494) Prepaid expenses........................................... 14,091 ---------- Total assets ........................................ 962,499 ---------- LIABILITIES Payables: Administration fee...................................... 2,548 Securities purchased.................................... 10,887 Accrued expenses........................................... 12,122 ---------- Total liabilities.................................... 25,557 ---------- NET ASSETS.................................................... $ 936,942 ========== Net asset value, offering and redemption price per share ($936,942/84,744 shares outstanding; unlimited number of shares (par value $.01) authorized)............................ $11.06 ========== COMPONENTS OF NET ASSETS Paid-in capital ........................................... $ 856,583 Dividends in excess of net investment income............... (40) Accumulated net realized gain on investments............... 5,444 Net unrealized appreciation on investments................. 74,955 ---------- Net assets ............................................. $ 936,942 ========== See Notes to Financial Statements. 17 The Rockhaven Premier Dividend Rund STATEMENT OF OPERATIONS For the Period from November 3, 1997* through March 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME Income Dividends............................................... $ 9,982 Interest................................................ 2,060 -------- Total income......................................... 12,042 -------- Expenses Advisory fees (Note 3).................................. 2,243 Administration fee (Note 3)............................. 12,082 12b-1 expense........................................... 748 Custodian and accounting fees........................... 8,539 Transfer agent fees..................................... 5,236 Professionals' fees..................................... 6,042 Trustees' fees.......................................... 2,396 Registration fees....................................... 2,865 Reports to shareholders................................. 2,819 Other expenses.......................................... 2,165 -------- Total expenses....................................... 45,135 Less, Advisory fee waiver and absorption (Note 3).................................. (40,649) -------- Net expenses......................................... 4,486 -------- Net investment income ............................ 7,556 -------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from security transactions............ 5,444 Net change in unrealized appreciation on investments........................................ 74,955 -------- Net realized and unrealized gain on investments..................................... 80,399 -------- Net Increase in Net Assets Resulting from Operations ................................ $ 87,955 ======== *Commencement of operations. See Notes to Financial Statements. 18 The Rockhaven Premier Dividend Rund STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- November 3, 1997* through March 31, 1998 - -------------------------------------------------------------------------------- NET INCREASE IN ASSETS FROM OPERATIONS Net investment income......................................... $ 7,556 Net realized gain from security transactions.................. 5,444 Net change in unrealized appreciation of securities........... 74,955 --------- Net increase in net assets resulting from operations ......................................... 87,955 --------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Net investment income......................................... (7,596) --------- CAPITAL SHARE TRANSACTIONS Net increase in net assets derived from net change in outstanding shares (a)................................... 856,583 --------- Total increase in net assets .............................. 936,942 NET ASSETS Beginning of period........................................... -0- --------- End of period (including dividends in excess of net investment income of $40).................................. $ 936,942 ========= (a) A summary of capital share transactions is as follows: November 3, 1997* through March 31, 1998 ----------------------- Shares Value ----------------------- Shares sold................................ 84,038 $ 849,048 Shares issued in reinvestment of distributions......................... 712 7,596 Shares redeemed............................ (6) (61) ----------------------- Net increase............................... 84,744 $ 856,583 ======================= *Commencement of operations. See Notes to Financial Statements. 19 The Rockhaven Premier Dividend Rund FINANCIAL HIGHLIGHTS For a capital share outstanding throughout the period - -------------------------------------------------------------------------------- November 3, 1997* through March 31, 1998 - -------------------------------------------------------------------------------- Net asset value, beginning of period........................ $ 10.00 Income from investment operations: Net investment income.................................... 0.11 Net realized and unrealized gain on investments.......... 1.04 ------- Total from investment operations............................ 1.15 ------- Less distributions: Dividends from net investment income..................... (0.09) ------- Net asset value, end of period.............................. $ 11.06 ======= Total return ............................................... 11.58%+ Ratios/supplemental data: Net assets, end of period (thousands)....................... $ 963 Ratio of expenses to average net assets: Before expense reimbursement............................. 14.86%++ After expense reimbursement.............................. 1.48%++ Ratio of net investment income (loss) to average net assets: Before expense reimbursement............................. (10.90%)++ After expense reimbursement.............................. 2.49%++ Portfolio turnover rate..................................... 54.26% Average commission rate paid per share...................... $0.0600 *Commencement of operations. +Not annualized. ++Annualized. See Notes to Financial Statements. 20 The Rockhaven Fund The Rockhaven Premier Dividend Rund NOTES TO FINANCIAL STATEMENTS at March 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 - ORGANIZATION The Rockhaven Fund and Rockhaven Premier Dividend Fund (the "Funds") are a diversified series of shares of beneficial interest of Advisors Series Trust (the "Trust"), which is registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end management investment company. The Rockhaven Fund's primary investment objective is obtaining above average current income together with capital appreciation. The Rockhaven Premier Dividend Fund's primary investment objective is obtaining high current income and its secondary objective is seeking capital appreciation. The Funds' attempt to achieve their objectives by investing in a diversified portfolio of equity securities. The Funds began operations on November 3, 1997. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds. These policies are in conformity with generally accepted accounting principles. A. Security Valuation. Investments in securities traded on a national securities exchange or included in the NASDAQ National Market System are valued at the last reported sale price at the close of regular trading on the last business day of the period; securities traded on an exchange or NASDAQ for which there have been no sales and other over-the-counter securities are valued at the mean between the last bid and ask prices. Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith by the Board of Trustees. Short-term investments are stated at cost, which when combined with accrued interest, approximates market value. B. Federal Income Taxes. The Funds intend to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. C. Security Transactions, Dividends and Distributions. As is common in the industry, security transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest 21 The Rockhaven Fund The Rockhaven Premier Dividend Rund NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued - -------------------------------------------------------------------------------- income is recognized on an accrual basis. Income and capital gains distributions to shareholders are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. D. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. NOTE 3 - COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS For the period ended March 31, 1998, Rockhaven Asset Management, LLC (the "Advisor") provided the Funds with investment management services under an Investment Advisory Agreement. The Advisor furnishes all investment advice, office space and certain administrative services, and provides most of the personnel needed by the Funds. As compensation for its services, the Advisor receives a monthly fee from each Fund at the annual rate of 0.75% based upon the average daily net assets of each Fund. The Funds are responsible for their own operating expenses. The Advisor has agreed to reduce fees payable to it by each Fund and to pay each Fund's operating expenses to the extent necessary to limit each Fund's aggregate annual operating expenses to 1.5% of average net assets (the "expense cap"). Any such reductions made by the Advisor in its fees or payment of expenses which are a Fund's obligation are subject to reimbursement by the Fund to the Advisor, if so requested by the Advisor, in the first, second or third fiscal year next succeeding the fiscal year of the reduction or absorption if the aggregate amount actually paid by a Fund towards the operating expenses for such fiscal year (taking into account the reimbursement) does not exceed the applicable limitation on the Fund's expenses. With respect to the reimbursement of a particular fee reduction or expense payment, a reimbursement to the Advisor is permitted only within the three year period following the year in which the Advisor reduced the subject fee or paid the subject expense. Any such reimbursement is also contingent upon Board of Trustees review and approval at the time the 22 The Rockhaven Fund The Rockhaven Premier Dividend Rund NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued reimbursement is made. Such reimbursement may be paid prior to a Fund's payment of current expenses if so requested by the Advisor even if that practice may require the Advisor to waive, reduce or absorb current Fund expenses. For the period ended March 31, 1998, the Advisor reduced its fees and absorbed Fund expenses in the amount of $40,730 for The Rockhaven Fund and $40,649 for The Rockhaven Premier Dividend Fund; no amounts were reimbursed. Investment Company Administration Corporation (the "Administrator") acts as the Funds' Administrator under an Administration Agreement. The Administrator prepares various federal and state regulatory filings, reports and returns for the Funds; prepares reports and materials to be supplied to the trustees; monitors the activities of the Funds' custodian, transfer agent and accountants; coordinates the preparation and payment of Fund expenses and reviews each Fund's expense accruals. For its services, the Administrator receives a monthly fee at the annual rate of 0.20% of net assets, subject to a $30,000 minimum, from each Fund. First Fund Distributors, Inc. (the "Distributor") acts as the Funds' principal underwriter in a continuous public offering of the Funds' shares. The Distributor is an affiliate of the Administrator. Certain officers and trustees of the Trust are also officers and/or directors of the Administrator and the Distributor. NOTE 4 - DISTRIBUTION COSTS The Funds have adopted a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the 1940 Act. The Plan provides that the Funds may pay a fee to the Advisor, acting as Distribution Coordinator at an annual rate of up to 0.25% of the average daily net assets of each Fund. The fee is paid to the Distribution Coordinator as reimbursement for, or in anticipation of, expenses incurred for distribution-related activity. NOTE 5 - PURCHASES AND SALES OF SECURITIES For the period ended March 31, 1998, the cost of purchases and the proceeds from sales of securities, excluding short-term securities, for The Rockhaven Fund, were $1,640,055 and $173,374, respectively. For the period ended March 31, 1998, the cost of purchases and the proceeds from sales of securities, excluding short-term securities, for The Rockhaven Premier Dividend Fund, were $1,178,574 and $337,377, respectively. 23 Advisor Rockhaven Asset Management, LLC 100 First Avenue, Suite 1050 Pittsburgh, PA 15222 www.rockhaven.com Distributor First Fund Distributors, Inc. 4455 East Camelback Road, Suite 261E Phoenix, AZ 85018 Custodian Star Bank, N.A. 425 Walnut Street Cincinnati, OH 45202 Transfer Agent American Data Services, Inc. 150 Motor Parkway, Suite 109 Hauppauge, NY 11788 888-263-6452 Legal Counsel Paul, Hastings, Janofsky & Walker LLP 345 California Street, 29th Floor San Francisco, CA 94104 This report is intended for shareholders of the Fund and may not be used as sales literature unless preceded or accompanied by a current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Share price and returns will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are dated and are subject to change. -----END PRIVACY-ENHANCED MESSAGE-----