-----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, METDqQ0a2GGzC3l0O+dkEwNabNsRWoIHSKqRtdopecIsCY0mQqWdUrMyA8Bt3DAN DbmcKjVhfSCtCm51Ijwzlg== 0000950147-99-000250.txt : 19990325 0000950147-99-000250.hdr.sgml : 19990325 ACCESSION NUMBER: 0000950147-99-000250 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990323 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: 99570215 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 ANNUAL REPORT FOR PERIOD ENDING 12/31/98 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND Annual Report For the year ended December 31, 1998 January 1999 Dear Shareholder, We are pleased to report on the progress of the Avatar Advantage Equity Allocation Fund for the year ended December 31, 1998. During the year, the Avatar asset allocation philosophy of participating in rising markets while attempting to limit losses during market downturns, was put to the test. We are pleased to report that the Fund passed with flying colors, realizing a return of 25.8% for the year. The primary market indices for the same period were as follows: S & P 500 +28.6% Dow Jones Industrials +18.1% NASDAQ +40.5% Russell 2000 -2.5% For most of the year, the Fund maintained a significant equity position. Our exposure generally ranged from between 75% and 90% invested in stocks, the remainder in cash. However, during the volatile period of late summer and early fall, the exposure in stocks fell to the 50% range while our cash exposure was increased. 1998--THE SECOND SIX MONTHS IN REVIEW Wall Street was hit hard by several big crises: the Asian dilemma, the Long-Term Capital bailout, and the not unexpected lower corporate profits. The ensuing market turbulence resulted in a flight away from equities and into safer investments, most notably U.S. Government securities. The 30-year Treasury bond rates fell to the lowest level in its history while its price went skyward. Our models indicated a pullback from equities was warranted and, as a result, we lowered our equity allocation while increasing our cash position. The third quarter achieved distinction as the first down quarter for the domestic stock market since 1990. The fourth quarter witnessed another variation of the stock market's wild roller coaster ride: it ended with the market's biggest gains since the first quarter of 1987. The Federal Reserve reduced interest rates three times between September and October and the market took off. Large-capitalization stocks, in which we were 90% invested, won handily against mid- and small-cap stocks. They were the market leaders for the fourth consecutive year. This out-performance by large-cap stocks is now reaching historic proportions. We increased our stock allocation and benefited from the leadership of the large-caps. We ended the year 80% invested in stocks, in line with our indicators. 1999 MARKET OUTLOOK What might we expect for 1999? The U.S. economy remains strong although most economists expect some sort of slow-down in the later quarters of the year. Our models are moderately positive at this time so the upward trend of the market would appear to continue, although we are hoping for less volatility along the way. We question whether large-caps can continue their historic upward journey into a fifth year. On the negative side, Japan still has not figured a way out of its economic downturn. Latin America, Brazil in particular, remains an area of concern. Both situations could have unforeseen consequences on many industries. Consideration also centers around what, if any, effect President Clinton's impeachment trial will have on the various markets. Finally, the escalating ethnic conflicts around the world also give us pause and temper our enthusiasm. Our goal at Avatar is to evaluate current investment risk and alter the portfolio mix to reflect the current environment. We believe this goal was achieved in the Fund's first year of existence. Our plan for the new year is to continue this strategy and to continue to meet the various investment challenges. /s/ Elizabeth S. Sonders /s/ Charles M. White Elizabeth S. Sonders Charles M. White Co-Portfolio Manager Co-Portfolio Manager THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND Comparison of the change in value of a $10,000 investment in The Avatar Advantage Equity Allocation Fund versus the S&P 500 Composite Stock Price Index Average Annual Total Return Period ended December 31, 1998 1 Year................25.81% Since inception (12/3/97):26.09% The Avatar Advantage Equity Allocation Fund S&P 500 Composite Stock Price Index ---------------------- ----------------------------------- 3-Dec-97 $10,000 $10,000 31-Dec-97 $10,022 $ 9,947 31-Mar-98 $11,252 $11,333 30-Jun-98 $11,472 $11,707 30-Sep-98 $10,765 $10,542 31-Dec-98 $12,609 $12,791 Past performance is not predictive of future performance. The S&P 500 Stock Index is a broad market capitalization-weighted index of 500 stocks designed to represent the broad domestic economy. 4 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 - -------------------------------------------------------------------------------- Shares COMMON STOCKS: 80.05% Market Value - -------------------------------------------------------------------------------- AEROSPACE / DEFENSE EQUIPMENT: 0.89% 1,200 United Technologies Corporation................. $ 130,500 ---------- AUTOMOBILES: 1.40% 3,500 Ford Motor Company.............................. 205,406 ---------- BANKS: 7.41% 9,800 The Bank of New York Company, Inc............... 394,450 4,100 The Chase Manhattan Corporation................. 279,056 1,200 Mellon Bank Corporation......................... 82,500 2,700 SouthTrust Corporation.......................... 99,647 2,500 Firstar Corporation............................. 233,125 ---------- 1,088,778 ---------- BEVERAGES - NON-ALCOHOLIC: 1.59% 5,700 PepsiCo, Inc.................................... 233,344 ---------- CHEMICALS - SPECIALTY: 0.97% 1,700 Air Products and Chemicals, Inc................. 68,000 3,600 Crompton & Knowles Corporation.................. 74,475 ---------- 142,475 ---------- COMPUTER SOFTWARE: 5.78% 2,500 Compuware Corporation*.......................... 195,234 2,200 Microsoft Corporation*.......................... 304,769 2,400 Networks Associates, Inc.*...................... 159,225 4,400 Oracle Corporation*............................. 189,888 ---------- 849,116 ---------- COMPUTERS - MICRO: 3.59% 6,400 Compaq Computer Corporation..................... 268,400 1,400 International Business Machines Corporation................................... 258,650 ---------- 527,050 ---------- COSMETICS AND TOILETRIES: 1.77% 2,800 Colgate-Palmolive Company....................... 260,050 ---------- See accompanying Notes to Financial Statements. 5 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING: 3.87% 4,100 General Electric Company........................ $ 418,456 5,200 Masco Corporation............................... 149,500 ---------- 567,956 ---------- DIVERSIFIED OPERATIONS: 0.47% 900 Textron Inc..................................... 68,344 ---------- ELECTRONIC COMPONENTS - SEMICONDUCTOR: 2.97% 4,800 Advanced Micro Devices, Inc.*................... 138,900 2,500 Intel Corporation............................... 296,328 ---------- 435,228 ---------- FINANCE - MORTGAGE LOAN / BANKER: 2.83% 1,200 Ambac Financial Group, Inc...................... 72,225 3,800 Federal National Mortgage Association........... 281,200 1,400 H&R Block, Inc.................................. 63,000 ---------- 416,425 ---------- FINANCIAL - MISCELLANEOUS: 0.95% 3,600 Paine Webber Group Inc.......................... 139,050 ---------- FOOD - MISCELLANEOUS / DIVERSIFIED: 2.29% 7,000 Sara Lee Corporation............................ 197,313 6,400 Wendy's International, Inc...................... 139,600 ---------- 336,913 ---------- FOOD - RETAIL: 1.95% 4,700 Safeway Inc.*................................... 286,406 ---------- INSURANCE: 2.28% 3,632 TheAllstate Corporation......................... 140,286 2,400 SunAmerica, Inc................................. 194,700 ---------- 334,986 ---------- MANUFACTURING - MISCELLANEOUS: 4.72% 3,200 Danaher Corporation............................. 173,800 4,100 Maytag Corporation.............................. 255,225 3,500 Tyco International Ltd.......................... 264,031 ---------- 693,056 ---------- See accompanying Notes to Financial Statements. 6 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED - -------------------------------------------------------------------------------- Shares Market Value - ------------------------------------------------------------------ MEDICAL - BIOMEDICAL / GENETICS: 0.52% 1,700 Centocor, Inc.*................................. $ 76,606 ---------- MEDICAL - DRUGS: 6.49% 1,700 Bristol-Meyers Squibb Company................... 227,481 2,700 Eli Lilly and Company........................... 239,963 1,600 Pfizer Inc...................................... 200,700 3,800 Warner-Lambert Company.......................... 285,713 ---------- 953,857 ---------- METALS - ALUMINUM: 1.12% 2,200 Aluminum Company of America..................... 164,038 ---------- NETWORKING PRODUCTS: 2.74% 2,000 Ascend Communications, Inc.*.................... 131,562 2,925 Cisco Systems, Inc.*............................ 271,568 ---------- 403,130 ---------- PETROLEUM PRODUCTS: 4.94% 3,400 BJ Services Company*............................ 53,125 1,600 Burlington Resources Inc........................ 57,300 5,500 Conoco Inc.*.................................... 114,813 2,400 Enron Corp...................................... 136,950 3,100 Exxon Corporation............................... 226,687 2,600 Texaco, Inc..................................... 137,475 ---------- 726,350 ---------- RADIO BROADCASTING: 0.95% 5,100 Infinity Broadcasting Corporation*.............. 139,613 ---------- RETAIL - BUILDING PRODUCTS: 1.75% 4,200 The Home Depot, Inc............................. 256,987 ---------- RETAIL - DEPARTMENT STORES: 2.93% 2,500 Dayton Hudson Corporation....................... 135,625 4,050 The Gap, Inc.................................... 227,813 3,100 Jones Apparel Group, Inc.*...................... 68,394 ---------- 431,832 ---------- See accompanying Notes to Financial Statements. 7 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- STEEL PRODUCERS: 0.41% 2,600 USX Corporation................................. $ 59,800 ----------- TELECOMMUNICATION EQUIPMENT: 1.57% 2,100 Lucent Technologies Inc......................... 231,000 ----------- TELECOMMUNICATION SERVICES: 3.53% 1,200 Airtouch Communications, Inc.*.................. 88,550 3,100 GTE Corporation................................. 209,056 3,600 Time Warner Inc................................. 223,425 ----------- 519,031 ----------- TELEPHONE SERVICES: 4.79% 7,200 BellSouth Corporation........................... 359,100 4,800 MCI WorldCom, Inc.*............................. 344,549 ----------- 703,649 ----------- TOBACCO PRODUCTS: 1.53% 4,200 Philip Morris Companies, Inc.................... 224,700 ----------- TRANSPORTATION - RAIL: 0.61% 1,000 FDX Corporation*................................ 89,000 ----------- UTILITIES: 0.44% 1,000 Duke Energy Corportion.......................... 64,062 ----------- TOTAL COMMON STOCKS (COST $8,928,923)........... 11,758,738 ----------- Principal Amount SHORT-TERM INVESTMENTS: 18.80% - -------------------------------------------------------------------------------- $2,762,404 Star Treasury Fund, 4.80% (cost $2,762,404)............................. 2,762,404 ----------- TOTAL INVESTMENTS IN SECURITIES (COST $11,691,327+): 98.85% ................. $14,521,142 OTHER ASSETS LESS LIABILITIES: 1.15%............ 168,669 ----------- TOTAL NET ASSETS: 100.00% $14,689,811 =========== See accompanying Notes to Financial Statements. 8 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- * Non-income producing security. + At December 31, 1998, the cost of securities for Federal tax purposes is $11,696,368. Gross unrealized appreciation and depreciation of securities for tax purposes are as follows: Gross unrealized appreciation................... $ 2,909,494 Gross unrealized depreciation................... (84,720) ----------- Net unrealized appreciation................. $ 2,824,774 =========== See accompanying Notes to Financial Statements. 9 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 ASSETS Investments in securities, at value (identified cost $11,691,327) ........................... $ 14,521,142 Receivables: Dividends and interest .................................. 19,244 Fund shares sold ........................................ 345 Due from broker ......................................... 144,869 Deferred organization costs ................................ 27,462 Prepaid expenses ........................................... 5,220 ------------ Total assets ......................................... 14,718,282 ------------ LIABILITIES Payables: Due to advisor .......................................... 3,534 Administration fee ...................................... 2,630 Distribution fees ....................................... 5,817 Fund shares repurchased ................................. 297 Accrued expenses ........................................... 16,193 ------------ Total liabilities .................................... 28,471 ------------ NET ASSETS .................................................... $ 14,689,811 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE ($14,689,811/1,240,801 shares outstanding; unlimited number of shares authorized without par value) .......... $ 11.84 ============ COMPONENTS OF NET ASSETS Paid-in capital ............................................ $ 11,870,871 Accumulated net realized loss on investments ............... (10,875) Net unrealized appreciation on investments ................. 2,829,815 ------------ Net assets .............................................. $ 14,689,811 ============ See accompanying Notes to Financial Statements. 10 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1998 INVESTMENT INCOME Income Dividends .............................................. $ 137,570 Interest ............................................... 137,674 ----------- Total income ........................................ 275,244 ----------- Expenses Advisory fees (Note 3) ................................. 125,574 Distribution fees (Note 4) ............................. 36,934 Administration fees (Note 3) ........................... 31,719 Custodian and accounting fees .......................... 29,145 Insurance .............................................. 10,396 Audit fees ............................................. 20,522 Transfer agent fees .................................... 13,001 Reports to shareholders ................................ 5,001 Amortization of deferred organization costs ............ 7,001 Legal fees ............................................. 5,696 Trustees' fees ......................................... 4,206 Registration fees ...................................... 6,040 Miscellaneous .......................................... 4,696 ----------- Total expenses ...................................... 299,931 Less: Advisory fee waiver and absorption(Note 3) ............................... (78,331) ----------- Net expenses ........................................ 221,600 ----------- NET INVESTMENT INCOME ............................ 53,644 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain from security transactions ........... 830,832 Net realized loss from futures transactions ............ (60,910) Net change in unrealized appreciation on investments ....................................... 2,757,250 ----------- Net realized and unrealized gain on investments .................................... 3,527,172 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................ $ 3,580,816 =========== See accompanying Notes to Financial Statements. 11 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- Year December 3, 1997* Ended through December 31, 1998 December 31, 1997 - -------------------------------------------------------------------------------- NET INCREASE IN ASSETS FROM OPERATIONS Net investment income ........................ $ 53,644 $ 7,367 Net realized gain (loss) from security transactions .............................. 830,832 (38,313) Net realized loss from futures transactions .. (60,810) -0- Net change in unrealized appreciation of securities ............................. 2,757,250 72,565 ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................... 3,580,816 41,619 ----------- ----------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Net investment income ........................ (59,113) (3,839) Net realized gain on security transactions ... (740,543) -0- Total Return of Capital ...................... (28,412) -0- ----------- ----------- TOTAL DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS .......................... (828,068) (3,839) ----------- ----------- CAPITAL SHARE TRANSACTIONS Net (decrease) increase in net assets derived from net change in outstanding shares (a) ................................ (8,308,922) 20,208,205 ----------- ----------- TOTAL (DECREASE) INCREASE IN NET ASSETS . (5,556,174) 20,245,985 NET ASSETS Beginning of period .......................... 20,245,985 -0- ----------- ----------- END OF PERIOD (including undistributed net investment income of $0 and $3,528, respectively) ..................... $14,689,811 $20,245,985 =========== =========== (a) A summary of capital share transactions is as follows: Year December 3, 1997* Ended through December 31, 1998 December 31, 1997 ----------------------- ---------------------- Shares Value Shares Value ------ ----- ------ ----- Shares sold................ 194,971 $2,180,409 2,020,575 $20,204,366 Shares issued in reinvestment of distributions........ 74,946 828,068 384 3,839 Shares redeemed............ (1,050,075) (11,317,399) (0) (0) ---------- ----------- --------- ----------- Net (decrease) increase.... (780,158) $(8,308,922) 2,020,959 $20,208,205 ========== =========== ========= =========== * Commencement of operations. See accompanying Notes to Financial Statements. 12 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND FINANCIAL HIGHLIGHTS FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD - -------------------------------------------------------------------------------- Year December 3, 1997* Ended through December 31, 1998 December 31, 1997 - -------------------------------------------------------------------------------- Net asset value, beginning of period........ $10.02 $10.00 ------ ------ Income from investment operations: Net investment income.................... 0.05 0.01 Net realized and unrealized gain on investments............................ 2.48 0.02 ------ ------ Total from investment operations............ 2.53 0.03 ------ ------ Less distributions: From net investment income............... (0.05) (0.01) From capital gains....................... (0.64) (0.00) Tax return of capital.................... (0.02) (0.00) ------ ------ Total distributions......................... (0.71) (0.01) ------ ------ Net asset value, end of period.............. $11.84 $10.02 ====== ====== Total return................................ 25.81% 0.22%# Ratios/supplemental data: Net assets, end of period (millions)........ $ 14.7 $ 20.2 Ratio of expenses to average net assets: Before expense reimbursement............. 2.03% 1.52%+ After expense reimbursement.............. 1.50% 1.39%+ Ratio of net investment income (loss) to average net assets: Before expense reimbursement............. (0.17%) 0.33%+ After expense reimbursement.............. 0.36% 0.47%+ Portfolio turnover rate..................... 79.95% 2.48%# * Commencement of operations. # Not annualized. + Annualized. See accompanying Notes to Financial Statements. 13 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1998 NOTE 1 - ORGANIZATION The Avatar Advantage Equity Allocation Fund (the "Fund") is a series of shares of beneficial interest of Advisors Series Trust (the "Trust"), which is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund began operations on December 3, 1997. The Fund's objective is to seek long-term capital appreciation. 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 fair 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 Trustees. Short-term investments are valued at amortized cost, which approximates market value. B. FEDERAL INCOME TAXES: It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. C. SECURITY TRANSACTIONS, DIVIDENDS AND DISTRIBUTIONS: Security transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Realized gains and losses on securities sold are determined on the basis of identified cost. D. DEFERRED ORGANIZATION COSTS: The Fund has incurred expenses of $35,000 in connection with their organization. These costs have been deferred and are being amortized on a straight-line basis over a period of sixty months from the date the Fund commenced investment operations. E. FUTURES CONTRACTS: The Fund invests in financial futures contracts for the purpose of hedging its existing portfolio securities, or securities that the Fund intends to purchase, against fluctuations in fair value caused by changes in prevailing market prices. Upon 14 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED entering into a financial futures contract, the Fund is required to pledge to the broker an amount of cash and/or assets equal to a certain percentage of the contract amount ("initial margin deposit"). Subsequent payments, known as "variation margin," are made or received by the Fund each day, depending on the daily fluctuations in the fair value of the underlying security. The Fund recognizes a gain or loss equal to the daily variation margin. Should market conditions move unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts, security prices and the underlying hedged assets. F. 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 year ended December 31, 1998, Avatar Investors Associates Corporation (the "Advisor") provided the Fund with investment management services under an Investment Advisory Agreement. The Advisor furnished all investment advice, office space, facilities, and provides most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee at the annual rate of 0.85% based upon the average daily net assets of the Fund. The Fund is responsible for its own operating expenses. The Advisor has agreed to reduce fees payable to it by the Fund and to pay Fund operating expenses to the extent necessary to limit the Fund's aggregate annual operating expenses to 1.50% of average net assets (the "expense cap"). Any such 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 the Fund toward the operating expenses for such fiscal year (taking into account the reimbursement) does not exceed the applicable limitation on Fund 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 15 THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED 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 not 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 year ended December 31, 1998, the Advisor reduced its fees and absorbed Fund expenses in the amount of $78,331; no amounts were reimbursed. Investment Company Administration, LLC (the "Administrator") acts as the Fund's Administrator under an Administration Agreement. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund; prepares reports and materials to be supplied to the trustees; monitors the activities of the Fund's custodian, transfer agent and accountants; coordinates the preparation and payment of the Fund's expenses and reviews the Fund's expense accruals. For its services, the Administrator receives a monthly fee at the following annual rate: FUND ASSET LEVEL FEE RATE ---------------- -------- Less than $15 million $30,000 $15 million to less than $50 million 0.20% of average daily net assets $50 million to less than $100 million 0.15% of average daily net assets $100 million to less than $150 million 0.10% of average daily net assets more than $150 million 0.05% of average daily net assets 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 - DISTRIBUTION COSTS The Fund has adopted a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the 1940 Act. The Plan provides that the Fund may pay a fee to the Distributor, at an annual rate of up to 0.25% of the average daily net assets of the Fund. The fee is paid to the Distributor as reimbursement for, or in anticipation of, expenses incurred for distribution-related activity. During the period ended December 31, 1998, the Fund paid the Distributor in the amount of $36,934. NOTE 5 - PURCHASES AND SALES OF SECURITIES For the year ended December 31, 1998, the cost of purchases and the proceeds from sales of securities, excluding short-term securities, were $9,415,853 and $19,634,940, respectively. 16 INDEPENDENT AUDITOR'S REPORT THE BOARD OF TRUSTEES AND SHAREHOLDERS THE AVATAR ADVANTAGE EQUITY ALLOCATION FUND We have audited the accompanying statement of assets and liabilities, including the schedule of investments of The Avatar Advantage Equity Allocation Fund, series of Advisors Series Trust, as of December 31, 1998, and the related statement of operations, changes in net assets for each of the two years in the period then ended and the financial highlights for the periods indicated in the accompanying financial statements. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Avatar Advantage Equity Allocation Fund, series of Advisors Series Trust, as of December 31, 1998, the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. /s/ McGladrey & Pullen, LLP McGLADREY & PULLEN, LLP New York, New York January 29, 1999 17 ADVISOR Avatar Investors Associates Corp. 900 Third Avenue New York, New York 10022 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 AUDITOR McGladrey & Pullen, LLP 555 Fifth Avenue, 8th Floor New York, NY 10017-2416 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. THE AVATAR ADVANTAGE BALANCED FUND Annual Report For the period ended December 31, 1998 January 1999 Dear Shareholder, We are pleased to report on the progress of the AVATAR ADVANTAGE BALANCED FUND for the year ended December 31, 1998. Since commencing operations on January 13, 1998, our asset allocation philosophy of participating in rising markets while attempting to limit losses during market downturns, helped the Fund realize a total return of 23.11%. Other market indices (for the full year) were as follows: S & P 500 +28.60% DOW JONES INDUSTRIALS +18.10% NASDAQ +40.50% LEHMAN BROTHERS GOV'T BOND + 9.90% 60 STOCK/40 BOND BENCHMARK +21.10% For most of the year, the Fund maintained significant equity and bond positions. Our exposure generally ranged from between 55% and 65% invested in stocks, 30% to 40% in bonds and the remainder in cash. However, during the volatile period of late summer and early fall, we increased the allocation in bonds and cash while reducing the equity exposure. 1998--THE SECOND SIX MONTHS IN REVIEW Wall Street was hit hard by several big crises: the Asian dilemma, the Long-Term Capital Management bailout, and the not unexpected lower corporate profits. The ensuing market turbulence resulted in a flight away from equities and into safer investments, most notably U.S. Government securities. The 30-year Treasury bond rates fell to the lowest level in its history while its price went skyward. Our models indicated that a pullback from equities was warranted and, as a result, we lowered our equity allocation while increasing our bond and cash positions. The third quarter achieved distinction as the first down quarter for the domestic stock market since 1990. Our investment in bonds and cash helped to soften the blow, but we still finished the third quarter in negative territory. The fourth quarter witnessed another variation of the stock market's wild roller coaster ride: it ended with the market's biggest gains since the first quarter of 1987. The Federal Reserve reduced interest rates three times between September and October and the market took off. Our investment in large-capitalization stocks won handily against mid- and small-cap stocks, as they were the market leaders for the fourth consecutive year. This out-performance by large-cap stocks is now reaching historic proportions. We increased our stock allocation through the last quarter and ended the year with our allocations in the 55% equity and 40% fixed income range. The technology, pharmaceutical and financial sectors produced the biggest gains in the equity portion of the Fund. This group had stable earnings and limited Asian exposure. In the fixed income portion of the Fund, we maintained duration longer than the benchmark. 1999 MARKET OUTLOOK What might we expect in 1999? The U.S. economy remains strong, although most economists expect some sort of slow-down in the later quarters of the year. Our models are moderately positive at this time. This indicates that the upward trend of the market would appear to continue, although we are hoping for less volatility along the way. We question whether large-caps can maintain their historic upward journey into a fifth year. On the negative side, Japan still has not figured a way out of its economic downturn. Latin America, Brazil in particular, remains an area of concern. Both situations could have unforeseen consequences on many industries. Consideration also centers around what, if any, effect President Clinton's impeachment trial will have on the various markets. Finally, the escalating ethnic conflicts around the world also give us pause and temper our enthusiasm. We strongly believe our defensive position in bonds will help to weather any unforeseen storms over the course of the upcoming year. Our goal at Avatar is to evaluate current investment risk and alter the portfolio mix to reflect the current environment. We believe this goal was achieved in the Fund's first year of existence. Our plan for the new year is to carry through this strategy and to continue to meet the various investment challenges. /s/ Elizabeth S. Sonders /s/ Charles M. White Elizabeth S. Sonders Charles M. White Co-Portfolio Manager Co-Portfolio Manager THE AVATAR ADVANTAGE BALANCED FUND Comparison of the change in value of a $10,000 investment in the Avatar Advantage Balanced Fund versus the Blended 60% S&P 500 Stock Index/40% Lehman Corporate Bond Index Average Annual Total Return Period ended December 31, 1998 Since inception (1/13/98):23.11% The Avatar Advantage Blended 60% S&P 500 Stock Index/ Balanced Fund 40% Lehman Corporate Bond Index ------------- ------------------------------- 13-Jan-98 $10,000 $10,000 31-Mar-98 $11,080 $10,871 30-Jun-98 $11,300 $11,176 30-Sep-98 $11,050 $10,642 31-Dec-98 $12,311 $12,010 Past performance is not predictive of future performance. The Blended Index consists of the S&P 500 Stock Index (60%) and the Lehman Corporate Bond Index (40%). The S&P 500 Stock Index is a broad market capitalization-weighted index of 500 stocks designed to represent the broad domestic economy. The Lehman Corporate Bond Index includes all publicly issued, fixed-rate, non-convertible investment grade domestic corporate debt issues and also includes Yankee Bonds. The Blended Index initial value is as of December 31, 1997. The percentage weights which have been applied to the indices are intended to replicate the long-term asset allocation of the Fund. 4 THE AVATAR ADVANTAGE BALANCED FUND SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 - -------------------------------------------------------------------------------- Shares COMMON STOCKS: 57.69% Market Value - -------------------------------------------------------------------------------- AEROSPACE / DEFENSE EQUIPMENT: 0.70% 100 United Technologies Corporation............... $ 10,875 -------- AUTOMOBILES: 1.14% 300 Ford Motor Company............................ 17,606 -------- BANKS: 5.28% 700 The Bank of New York Company, Inc............. 28,175 300 The Chase Manhattan Corporation............... 20,419 100 Mellon Bank Corporation....................... 6,875 200 SouthTrust Corporation........................ 7,387 200 Firstar Corporation........................... 18,650 -------- 81,506 -------- BEVERAGES - NON-ALCOHOLIC: 1.06% 400 PepsiCo, Inc.................................. 16,375 -------- CHEMICALS - SPECIALTY: 0.66% 100 Air Products and Chemicals, Inc............... 4,000 300 Crompton & Knowles Corporation................ 6,206 -------- 10,206 -------- COMPUTER SOFTWARE: 4.51% 200 Compuware Corporation*........................ 15,625 200 Microsoft Corporation*........................ 27,738 200 Networks Associates, Inc.*.................... 13,250 300 Oracle Corporation*........................... 12,937 -------- 69,550 -------- COMPUTERS - MICRO: 2.55% 500 Compaq Computer Corporation................... 20,969 100 International Business Machines Corporation.................................. 18,475 -------- 39,444 -------- COSMETICS AND TOILETRIES: 1.20% 200 Colgate-Palmolive Company..................... 18,575 -------- See accompanying Notes to Financial Statements. 5 THE AVATAR ADVANTAGE BALANCED FUND SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING: 2.73% 300 General Electric Company...................... $ 30,619 400 Masco Corporation............................. 11,500 -------- 42,119 -------- DIVERSIFIED OPERATIONS: 0.49% 100 Textron....................................... 7,594 -------- ELECTRONIC COMPONENTS/SEMICONDUCTORS: 2.29% 400 Advanced Micro Devices, Inc.*................. 11,575 200 Intel Corporation............................. 23,713 -------- 35,288 -------- FINANCE - MORTGAGE LOAN / BANKER: 2.12% 100 Ambac Financial Group, Inc.................... 6,019 300 Federal National Mortgage Association......... 22,200 100 H&R Block, Inc................................ 4,500 -------- 32,719 -------- FINANCIAL - MISCELLANEOUS: 0.75% 300 Paine Webber Group, Inc....................... 11,588 -------- FOOD - MISCELLANEOUS / DIVERSIFIED: 1.80% 600 Sara Lee Corporation.......................... 16,913 500 Wendy's International, Inc.................... 10,906 -------- 27,819 -------- FOOD - RETAIL: 1.58% 400 Safeway Inc.*................................. 24,375 -------- INSURANCE: 1.80% 300 The Allstate Corporation...................... 11,587 200 SunAmerica, Inc............................... 16,225 -------- 27,812 -------- MANUFACTURING - MISCELLANEOUS: 3.38% 200 Danaher Corporation........................... 10,863 300 Maytag Corporation............................ 18,675 300 Tyco International Ltd........................ 22,631 -------- 52,169 -------- See accompanying Notes to Financial Statements. 6 THE AVATAR ADVANTAGE BALANCED FUND SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- MEDICAL - BIOMEDICAL / GENETICS: 0.29% 100 Centocor, Inc.*............................... $ 4,513 -------- MEDICAL - DRUGS: 3.81% 100 Bristol-Meyers Squibb Company................. 13,381 200 Eli Lilly and Company......................... 17,775 100 Pfizer Inc.................................... 12,544 200 Warner-Lambert Company........................ 15,037 -------- 58,737 -------- METALS - ALUMINUM: 0.97% 200 Aluminum Company of America................... 14,912 -------- NETWORKING PRODUCTS: 2.36% 200 Ascend Communications, Inc.*.................. 13,150 250 Cisco Systems, Inc.*.......................... 23,203 -------- 36,353 -------- PETROLEUM PRODUCTS: 3.45% 300 BJ Services Company*.......................... 4,687 100 Burlington Resources Inc...................... 3,581 400 Conoco Inc.*.................................. 8,350 200 Enron Corp.................................... 11,413 200 Exxon Corporation............................. 14,625 200 Texaco Inc.................................... 10,575 -------- 53,231 -------- RADIO BROADCASTING: 0.71% 400 Infinity Broadcasting Corporation*............ 10,950 -------- RETAIL - BUILDING PRODUCTS: 1.19% 300 Home Depot, Inc............................... 18,356 -------- RETAIL - DEPARTMENT STORES: 2.09% 200 Dayton Hudson Corporation..................... 10,850 300 The Gap, Inc.................................. 16,875 200 Jones Apparel Group, Inc.*.................... 4,413 -------- 32,138 -------- STEEL PRODUCERS: 0.30% 200 USX Corporation............................... 4,600 -------- See accompanying Notes to Financial Statements. 7 THE AVATAR ADVANTAGE BALANCED FUND SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED - -------------------------------------------------------------------------------- Shares Market Value - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT: 1.43% 200 Lucent Technologies Inc....................... $22,000 -------- TELECOMMUNICATION SERVICES: 2.15% 100 Airtouch Communications, Inc.*................ 7,212 200 GTE Corporation............................... 13,488 200 Time Warner Inc............................... 12,412 -------- 33,112 -------- TELEPHONE SERVICES: 2.87% 600 BellSouth Corporation......................... 29,925 200 MCI WorldCom, Inc.*........................... 14,350 -------- 44,275 -------- TOBACCO PRODUCTS: 1.04% 300 Philip Morris Companies Inc................... 16,050 -------- TRANSPORTATION - RAIL: 0.58% 100 FDX Corporation*.............................. 8,900 -------- UTILITIES: 0.41% 100 Duke Energy Corporation....................... 6,406 -------- TOTAL COMMON STOCKS (COST $691,029)........... 890,153 -------- Principal Amount FEDERAL AGENCY OBLIGATIONS: 16.15% - -------------------------------------------------------------------------------- $145,000 Federal Home Loan Mortgage Corporation 5.75%, due 7/15/03........................... 149,179 100,000 Federal National Mortgage Association 6.11%, due 1/22/03........................... 99,935 -------- TOTAL FEDERAL AGENCY OBLIGATIONS (COST $247,579).............................. 249,114 -------- See accompanying Notes to Financial Statements. 8 THE AVATAR ADVANTAGE BALANCED FUND SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998, CONTINUED - -------------------------------------------------------------------------------- Principle Amount U.S. GOVERNMENT OBLIGATIONS: 23.95% Market Value - -------------------------------------------------------------------------------- $ 140,000 U.S. Treasury Bond, 12.00%, due 8/15/13.................................. $214,069 125,000 U.S. Treasury Bond, 7.50%, due 11/15/16................................. 155,469 -------- TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $362,209).............................. 369,538 -------- SHORT-TERM INVESTMENTS: 1.81% - -------------------------------------------------------------------------------- 27,946 Star Treasury Fund, 4.80% (cost $27,946)...... 27,946 -------- TOTAL INVESTMENTS IN SECURITIES (COST $1,328,763+): 99.60% ................ 1,536,751 OTHER ASSETS LESS LIABILITIES: 0.40%.......... 6,157 ---------- TOTAL NET ASSETS: 100.0% ..................... $1,542,908 ========== * Non-income producing security. + At December 31, 1998, the cost of securities for Federal tax purposes is $1,330,293. Gross unrealized appreciation and depreciation of securities were as follows: Gross unrealized appreciation................. $214,171 Gross unrealized depreciation................. (7,713) -------- Net unrealized appreciation............... $206,458 ======== See accompanying Notes to Financial Statements. 9 THE AVATAR ADVANTAGE BALANCED FUND STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (identified cost $1,328,763) ........................... $1,536,751 Receivables: Due from Advisor (Note 3)............................... 7,446 Dividends and interest.................................. 15,368 Deferred organization costs................................ 10,082 Prepaid expenses........................................... 961 ---------- Total assets ........................................ 1,570,608 ---------- LIABILITIES Payables: Administration fee...................................... 2,548 Distribution fees....................................... 317 Accrued expenses........................................... 24,835 ---------- Total liabilities.................................... 27,700 ---------- NET ASSETS.................................................... $1,542,908 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE ($1,542,908/129,135 shares outstanding; unlimited number of shares (par value $.01) authorized)........... $ 11.95 ========== COMPONENTS OF NET ASSETS Paid-in capital ........................................... $1,330,421 Undistributed net investment income........................ 454 Undistributed net realized gain on investments............. 4,045 Net unrealized appreciation of investments................. 207,988 ---------- Net assets ............................................. $1,542,908 ========== See accompanying Notes to Financial Statements. 10 THE AVATAR ADVANTAGE BALANCED FUND STATEMENT OF OPERATIONS FOR THE PERIOD FROM JANUARY 13, 1998* THROUGH DECEMBER 31, 1998 - -------------------------------------------------------------------------------- INVESTMENT INCOME Income Dividends............................................... $ 7,540 Interest................................................ 34,182 -------- Total income......................................... 41,722 -------- Expenses Administration fees (Note 3)............................ 29,013 Fund accounting fees.................................... 13,652 Professional fees....................................... 15,618 Advisory fees (Note 3).................................. 9,496 Transfer agent fees..................................... 11,574 Custody fees............................................ 5,965 Reports to shareholders................................. 6,771 Trustees' fees.......................................... 5,009 Distribution fees (Note 4).............................. 3,165 Miscellaneous........................................... 3,369 Amortization of deferred organization costs............. 2,418 Insurance............................................... 2,168 Registration fees....................................... 847 -------- Total expenses....................................... 109,065 -------- Less: advisory fee waiver and absorption (Note 3)............................... (91,300) -------- Net expenses......................................... 17,765 -------- NET INVESTMENT INCOME ............................ 23,957 -------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from security transactions............ 23,650 Net change in unrealized appreciation on investments........................................ 207,988 -------- Net realized and unrealized gain on investments..................................... 231,638 -------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................ $255,595 -------- * Commencement of operations. See accompanying Notes to Financial Statements. 11 THE AVATAR ADVANTAGE BALANCED FUND STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- January 13, 1998* through December 31, 1998 ----------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment income......................................... $ 23,957 Net realized gain from security transactions.................. 23,650 Net change in unrealized appreciation on investments.......... 207,988 ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................................... 255,595 ---------- DISTRIBUTIONS TO SHAREHOLDERS Net investment income......................................... (23,503) Net realized gains on security transactions................... (19,605) ---------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS ....................... (43,108) ---------- CAPITAL SHARE TRANSACTIONS Net increase in net assets derived from net change in outstanding shares (a)................................... 1,330,421 ---------- TOTAL INCREASE IN NET ASSETS .............................. 1,542,908 NET ASSETS Beginning of period........................................... -0- ---------- END OF PERIOD ................................................ $1,542,908 ---------- (a) A summary of capital share transactions is as follows: January 13, 1998* through December 31, 1998 Shares Value ------ ----- Shares sold .............................. 125,350 $1,287,313 Shares issued in reinvestment of distributions............................... 3,785 43,108 Shares redeemed.................................. (0) (0) ------- ---------- Net increase..................................... 129,135 $1,330,421 ======= ========== * Commencement of operations. See accompanying Notes to Financial Statements. 12 THE AVATAR ADVANTAGE BALANCED FUND FINANCIAL HIGHLIGHTS FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD - -------------------------------------------------------------------------------- January 13, 1998* through December 31, 1998 ----------------- Net asset value, beginning of period........................ $ 10.00 Income from investment operations: Net investment income.................................... 0.19 Net realized and unrealized gain on investments.......... 2.11 ------- Total from investment operations............................ 2.30 ------- Less distributions: From net investment income............................... (0.19) From net realized gains on security tranactions.......... (0.16) ------- Total distributions......................................... (0.35) ------- Net asset value, end of period.............................. $ 11.95 ======= Total return................................................ 23.11%# Ratios/supplemental data: Net assets, end of period (millions)........................ $ 1.5 Ratio of expenses to average net assets: Before expense reimbursement............................. 8.59%+ After expense reimbursement.............................. 1.40%+ Ratio of net investment income (loss) to average net assets: Before expense reimbursement............................. 5.30%+ After expense reimbursement.............................. 1.89%+ Portfolio turnover rate..................................... 95.00% * Commencement of operations. # Not annualized. + Annualized. See accompanying Notes to Financial Statements. 13 THE AVATAR ADVANTAGE BALANCED FUND NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1998 - -------------------------------------------------------------------------------- NOTE 1 - ORGANIZATION The Avatar Advantage Balanced 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 January 13, 1998. The Fund's objective is to seek long-term capital appreciation. 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 fair 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 Trustees. Short-term investments are valued at amortized cost, which approximates market value. B. FEDERAL INCOME TAXES: It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. C. SECURITY TRANSACTIONS, DIVIDENDS AND DISTRIBUTIONS: Security transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Realized gains and losses on securities sold are determined on the basis of identified cost. Discounts and premiums on securities purchased are amortized over the life of the respective securities. D. DEFERRED ORGANIZATION COSTS: The Fund has incurred expenses of $12,500 in connection with their organization. These costs have been deferred and are being amortized on a straight-line basis over a period of sixty months from the date the Fund commenced investment operations. E. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles 14 THE AVATAR ADVANTAGE BALANCED FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- 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 December 31, 1998, Avatar Investors Associates Corporation (the "Advisor") provided the Fund with investment management services under an Investment Advisory Agreement. The Advisor furnished all investment advice, office space, facilities, and provides most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a monthly fee at the annual rate of 0.75% 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 1.40% 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 the Fund toward the operating expenses for such fiscal year (taking into account the reimbursement) does not exceed the applicable limitation on Fund 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 reimbursement is made. Such reimbursement may not 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 December 31, 1998, the Advisor reduced its fees and absorbed Fund expenses in the amount of $91,300; no amounts were reimbursed. Investment Company Administration LLC (the "Administrator") acts as the Fund's Administrator under an Administration Agreement. The Administrator prepares various federal and state regulatory filings, reports and returns for the Fund; prepares reports and materials to be supplied to 15 THE AVATAR ADVANTAGE BALANCED FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- the trustees; monitors the activities of the Fund's custodian, transfer agent and accountants; coordinates the preparation and payment of the Fund's expenses and reviews the Fund's expense accruals. For its services, the Administrator receives a monthly fee at the annual rate of 0.20% of average 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 - DISTRIBUTION COSTS The Fund has adopted a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the 1940 Act. The Plan provides that the Fund may pay a fee to the Distributor, at an annual rate of up to 0.25% of the average daily net assets of the Fund. The fee is paid to the Distributor as reimbursement for, or in anticipation of, expenses incurred for distribution-related activity. During the period ended December 31, 1998, the Fund paid the Distributor in the amount of $3,165. NOTE 5 - PURCHASES AND SALES OF SECURITIES For the period ended December 31, 1998, the cost of purchases and the proceeds from sales of securities, excluding short-term securities, were $2,298,927 and $1,019,005, respectively. 16 INDEPENDENT AUDITOR'S REPORT THE BOARD OF TRUSTEES AND SHAREHOLDERS THE AVATAR ADVANTAGE BALANCED FUND We have audited the accompanying statement of assets and liabilities, including the schedule of investments of The Avatar Advantage Balanced Fund, series of Advisors Series Trust, as of December 31, 1998, and the related statement of operations for the year then ended, changes in net assets and the financial highlights for the period indicated in the accompanying financial statements. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with the generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Avatar Advantage Balanced Fund, series of Advisors Series Trust, as of December 31, 1998, the results of its operations, the changes in its net assets and the financial highlights for the period indicated, in conformity with generally accepted accounting principles. /s/ Mcgladrey & Pullen, LLP McGLADREY & PULLEN, LLP New York, New York January 29, 1999 ADVISOR Avatar Investors Associates Corp. 900 Third Avenue New York, New York 10022 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 AUDITOR McGladrey & Pullen, LLP 555 Fifth Avenue, 8th Floor New York, NY 10017-2416 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. THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND Annual Report For the period ended December 31, 1998 January 1999 Dear Shareholder, We are pleased to report on the progress of the AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND for the period ended December 31, 1998. Since commencing operations on February 2, 1998, Avatar's asset allocation strategy helped the Fund realize a return of 5.50%. The objective of the strategy is to identify international market inefficiencies in order to maximize portfolio returns within the portfolio's prescribed risk limits. The Morgan Stanley Capital International EAFE + Canada Index was up 18.80% for the full year. 1998--THE SECOND SIX MONTHS IN REVIEW World financial markets were very volatile during 1998. The financial crises in Asia had a severe negative economic impact throughout the region. The cause was the realization that rapid capital spending produced a severe economic imbalance - - too much capacity with too little demand for product. The Japanese economy, saddled with enormous corporate and government debt, searched for a solution. Along the way its unemployment rate reached 4.4%, the highest in 46 years. Conversely, European markets advanced to new highs based on solid economic data such as low inflation, reduced unemployment, and steady corporate growth. Interest rates were cut in advance of the introduction of the Euro. Our models forecast the downturn in Asia and the upswing in Europe. As a result we were underweight in Asia and overweight in Europe, producing solid fourth-quarter results for the Fund. 1999 MARKET OUTLOOK What can we expect for this coming year? The likelihood of worldwide recession has abated. The U.S. economy remains strong although most economists expect some sort of slow-down in the later quarters of 1999. The introduction of the Euro appears to have gone smoothly and we are waiting to see the effects on the European markets and industries. Europe continues to be very positive with declining interests rates throughout those countries in the EMU. Our models favor Europe at this time. On the negative side, Japan still has not figured a way out of its economic downturn. Unease and uncertainty characterize Asian nations' economies for the time being. Latin America, Brazil in particular, remains an area of concern. Both situations could have unforeseen consequences on certain of our domestic industries. Other concerns center around the effect of the impeachment trial in Washington and the various ethnic conflicts around the world, which appear to be increasing. These trends give us pause and temper our enthusiasm. Our goal at Avatar is to evaluate current investment risk and alter the portfolio mix to reflect the current environment. We believe we have done this through the Fund's first months of existence. Our plan for the New Year is to continue this strategy and to hopefully produce results that help you to meet your financial goals. /s/ Theodore M. Theodore Theodore M. Theodore Portfolio Manager THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND Comparison of the change in value of a $10,000 investment in The Avatar International Equity Allocation Fund versus the MSCI EAFE plus Canada Index. Average Annual Total Return Period ended December 31, 1998 Since inception (2/2/98)5.50% The Avatar Advantage International Equity MSCI EAFE plus Allocation Fund Canada Index --------------- ------------ 2-Feb-98 $10,000 $10,000 31-Mar-98 $10,710 $10,985 30-Jun-98 $10,810 $11,078 30-Sep-98 $ 9,430 $ 9,456 31-Dec-98 $10,550 $10,930 Past performance is not predictive of future performance. The Morgan Stanley Capital International (MSCI) EAFE plus Canada Index is a capitalization-weighted index comprised of stocks representing a sampling of companies in a manner that replicates the industry composition of certain foreign markets. Countries included in the Index are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The MSCI EAFE plus Canada Index initial value is as of January 31, 1998. THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1998 - -------------------------------------------------------------------------------- Shares Open-END FUNDS: 96.40% Market Value - -------------------------------------------------------------------------------- 1,400 WEBS - Australia Index Series................. $ 13,300 1,800 WEBS - Canada Index Series.................... 20,813 2,300 WEBS - France Index Series.................... 49,737 2,500 WEBS - Germany Index Series................... 55,625 900 WEBS - Hong Kong Index Series................. 8,438 900 WEBS - Italy Index Series..................... 24,469 3,400 WEBS - Japan Index Series..................... 34,850 1,000 WEBS - Netherlands Index Series............... 25,750 500 WEBS - Spain Index Series..................... 14,937 2,200 WEBS - Switzerland Index Series .............. 37,400 5,500 WEBS - United Kingdom Index Series............ 112,406 -------- Total Open-End Funds (cost $394,894)............................. 397,725 -------- Principal Amount SHORT-TERM INVESTMENTS: 9.11% - -------------------------------------------------------------------------------- $37,611 Star Treasury Fund (cost $37,611)............. 37,611 -------- Total Investments in Securities (cost $432,505+): 105.51% ................. 435,336 Liabilities in excess of other assets: (5.51%) 22,745 -------- TOTAL NET ASSETS: 100.0% ..................... $412,591 ======== +At December 31, 1998, the cost of securities for Federal tax purposes is $435,676. Gross unrealized appreciation and depreciation of securities were as follows: Gross unrealized appreciation................. $4,019 Gross unrealized depreciation................. (4,359) ------ Net unrealized depreciation............... $(340) ====== WEBS (World Equity Benchmark Shares) are each a series of WEBS INDEX FUND, INC., an open-end management investment company. Each Index Series represents a portfolio of ordinary foreign shares and seeks to provide investment results that track the performance of that country's publicly traded equity securities in the aggregate. See Accompanying Notes to Financial Statements. 5 THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1998 ASSETS Investments in securities, at value (identified cost $432,505) ................................ $ 435,336 Receivables: Due from Advisor .......................................... 10,065 Dividends and interest .................................... 2,037 Deferred organization costs .................................. 10,274 Prepaid expenses ............................................. 214 --------- Total assets ........................................... 457,926 --------- LIABILITIES Portfolio securities purchased ............................... 16,479 Accrued expenses ............................................. 28,856 --------- Total liabilities ...................................... 45,335 --------- NET ASSETS ...................................................... $ 412,591 ========= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE ($412,591/41,497 shares outstanding; unlimited number of shares (par value $0.01), authorized) .................... $ 9.94 ========= COMPONENTS OF NET ASSETS Paid-in capital .............................................. $ 412,930 Accumulated net realized loss on investments ................. (3,170) Net unrealized appreciation on investments ................... 2,831 --------- Net assets ................................................ $ 412,591 ========= See Accompanying Notes to Financial Statements. 6 THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND STATEMENT OF OPERATIONS FOR THE PERIOD FROM FEBRUARY 2, 1998* THROUGH DECEMBER 31, 1998 - -------------------------------------------------------------------------------- INVESTMENT INCOME Income Dividends ................................................. $ 10,631 Interest .................................................. 4,210 --------- Total income ........................................... 14,841 --------- Expenses Administration fees (Note 3) .............................. 26,712 Advisory fees (Note 3) .................................... 3,577 Amortization of deferred organization costs ............... 2,226 Custodian and accounting fees ............................. 35,536 Distribution fees (Note 4) ................................ 894 Insurance expense ......................................... 1,022 Other ..................................................... 2,381 Professional fees ......................................... 14,467 Registration fees ......................................... 780 Reports to shareholders ................................... 6,233 Transfer agent fees ....................................... 16,364 Trustees' fees ............................................ 4,076 --------- Total expenses ......................................... 114,268 Less: Advisory fee waiver and absorption (Note 3) ............................... (108,367) --------- Net expenses ........................................... 5,901 --------- NET INVESTMENT INCOME ............................... 8,940 --------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from security transactions .............. 8,724 Net change in unrealized appreciation on investments ............................................. 2,831 --------- Net realized and unrealized gain on investments .......................................... 11,555 --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................... $ 20,495 ========= * Commencement of operations. See Accompanying Notes to Financial Statements. 7 THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- February 2, 1998* through December 31, 1998 ----------------- INCREASE IN NET ASSETS FROM OPERATIONS Net investment income......................................... $8,940 Net realized gain from security transactions.................. 8,724 Net change in unrealized appreciation on investments.......... 2,831 --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................................... 20,495 --------- Distributions to shareholders Net investment income......................................... (8,200) Realized capital gains........................................ (14,799) --------- TOTAL DISTRIBUTIONS........................................ (22,999) CAPITAL SHARE TRANSACTIONS Net increase in net assets derived from net change in outstanding shares (a)....................................... 415,095 --------- TOTAL INCREASE IN NET ASSETS .............................. $ 412,591 ========= NET ASSETS Beginning of period........................................... -- END OF PERIOD ................................................ $ 412,591 ========= (a) A summary of capital shares transactions is as follows: February 2, 1998* through December 31, 1998 -------------------- Shares Value ------ ----- Shares sold ...................................... 39,104 $392,147 Shares issued in reinvestment of distributions.... 2,398 22,998 Shares redeemed................................... (5) (50) ------ -------- Net increase...................................... 41,497 $415,095 ====== ======== * Commencement of operations. See Accompanying Notes to Financial Statements. 8 THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND FINANCIAL HIGHLIGHTS FOR A CAPITAL SHARE OUTSTANDING THROUGHOUT THE PERIOD - -------------------------------------------------------------------------------- February 2, 1998* through December 31, 1998 ----------------- Net asset value, beginning of period........................ $ 10.00 -------- Income from investment operations: Net investment income.................................... 0.23 Net realized and unrealized gain on investments............................................ 0.30 -------- Total from investment operations............................ 0.53 -------- Less distributions: From net investment income............................... (0.21) From realized capital gains.............................. (0.38) -------- Total from investment operations............................ (0.59) -------- Net asset value, end of period.............................. $ 9.94 ======== Total return................................................ 5.50%++ Ratios/supplemental data: Net assets, end of period (thousands)....................... $413 Ratio of expenses to average net assets: Before expense reimbursement............................. 31.32%+ After expense reimbursement.............................. 1.65%+ Ratio of net investment income to average net assets: After expense reimbursement.............................. 2.45%+ Portfolio turnover rate..................................... 177.43% * Commencement of operations. + Annualized. ++ Not annualized. See Accompanying Notes to Financial Statements. 9 THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS AT DECEMBER 31, 1998 NOTE 1 - ORGANIZATION The Avatar Advantage International Equity Allocation 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 February 2, 1998. 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 fair 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 Trustees. Short-term investments are valued at amortized cost, which approximates market value. B. FEDERAL INCOME TAXES: It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. C. SECURITY TRANSACTIONS, DIVIDENDS AND DISTRIBUTIONS: Security transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Realized gains and losses on securities sold are determined on the basis of identified cost. D. DEFERRED ORGANIZATION COSTS: The Fund has incurred expenses of $12,500 in connection with its organization. These costs have been deferred and are being amortized on a straight-line basis over a period of sixty months from the date the Fund commenced investment operations. E. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires 10 THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED 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 December 31, 1998, Avatar Investors Associates 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. For the period ended December 31, 1998, the Fund incurred $3,577 in Advisory Fees. The Fund is responsible for its own operating expenses. The Advisor has agreed to reduce fees payable to it by the Fund and to pay Fund operating expenses to the extent necessary to limit the Fund's aggregate annual operating expenses to 1.65% of average net assets (the "expense cap"). Any such reductions made by the Advisor in its fees or payment of expenses which are the Fund's obligation are subject to reimbursement by the Fund to the Advisor, if so requested by the Advisor, in subsequent fiscal years if the aggregate amount actually paid by the Fund toward the operating expenses for such fiscal year (taking into account the reimbursement) does not exceed the applicable limitation on Fund expenses. The Advisor is permitted to be reimbursed only for fee reductions and expense payments made in the previous three fiscal years, but is permitted to look back five years and four years, respectively, during the initial six years and seventh year of the Fund's operations. Any such reimbursement is also contingent upon Board of Trustees review and approval at the time the reimbursement is made. Such reimbursement may not be paid prior to the Fund's payment of current ordinary operating expenses. For the period ended December 31, 1998, the Advisor reduced its fees and absorbed Fund expenses in the amount of $108,367; no amounts were reimbursed to the Advisor. Investment Company Administration, L.L.C. (the "Administrator") acts as the Fund's Administrator under an Administration Agreement. The Administrator prepares various federal and state regulatory filings, reports and returns for 11 THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED the Fund; prepares reports and materials to be supplied to the trustees; monitors the activities of the Fund's custodian, transfer agent and accountants; coordinates the preparation and payment of the Fund's expenses and reviews the Fund's expense accruals. For its services, the Administrator receives a monthly fee at the annual rate of 0.20% of average daily net assets, subject to a minimum fee of $30,000 annually. 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 - DISTRIBUTION COSTS The Trust has adopted a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the 1940 Act. The Plan provides that the Fund 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 the Fund. The fee is paid to the Distribution Coordinator as reimbursement for, or in anticipation of, expenses incurred for distribution-related activity. For the period ended December 31, 1998, the Fund paid the Distribution Coordinator in the amount of $894. NOTE 5 - PURCHASES AND SALES OF SECURITIES For the period ended December 31, 1998, the cost of purchases and the proceeds from sales of securities, excluding short-term securities, were $867,164 and $480,994, respectively. 12 INDEPENDENT AUDITOR'S REPORT THE BOARD OF TRUSTEES AND SHAREHOLDERS THE AVATAR ADVANTAGE INTERNATIONAL EQUITY ALLOCATION FUND We have audited the accompanying statement of assets and liabilities, including the schedule of investments of The Avatar Advantage International Equity Allocation Fund, series of Advisors Series Trust, as of December 31, 1998, and the related statement of operations, changes in net assets and the financial highlights for the period indicated in the accompanying financial statements. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with the generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Avatar Advantage International Equity Allocation Fund, series of Advisors Series Trust, as of December 31, 1998, the results of its operations, the changes in its net assets and the financial highlights for the period indicated, in conformity with generally accepted accounting principles. /s/ McGladrey & Pullen, LLP New York, New York January 29, 1999 ADVISOR Avatar Investors Associates Corp. 900 Third Avenue New York, New York 10022 DISTRIBUTOR First Fund Distributors, Inc. 4455 East Camelback Road, Suite 261-E Phoenix, Arizona 85018 CUSTODIAN Star Bank, N.A. 425 Walnut Street M/L 6118 Cincinnati, Ohio 45202 TRANSFER AGENT Countrywide Fund Services, Inc. 312 Walnut Street, 21st Floor Cincinnati, Ohio 45202 AUDITOR McGladrey & Pullen, LLP 555 Fifth Avenue, 8th Floor New York, NY 10017-2416 LEGAL COUNSEL Paul, Hastings, Janofsky & Walker LLP 345 California Street, 29th Floor San Francisco, California 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-----