DOBSON COVERED CALL FUND
Prospectus
December 1, 2000
INVESTMENT OBJECTIVE:
Total return over the long term.
1422 S. Van Ness Street
Santa Ana, California 92707
877-2-DOBSON (877-236-2766)
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
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RISK/RETURN SUMMARY.........................................................3
FEES AND EXPENSES OF INVESTING IN THE FUND..................................5
HOW TO BUY SHARES...........................................................6
HOW TO REDEEM SHARES........................................................8
THE PRICE OF SHARES........................................................10
DIVIDENDS, DISTRIBUTIONS AND TAXES.........................................10
MANAGEMENT OF THE FUND.....................................................11
FINANCIAL HIGHLIGHTS.......................................................11
FOR MORE INFORMATION...............................................Back Cover
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RISK/RETURN SUMMARY
Investment Objective
The investment objective of the Dobson Covered Call Fund is total return
over the long term.
Principal Strategies
The Fund invests primarily in dividend paying common stocks of U.S.
issuers represented in the S&P 500 Index, maintaining industry weightings
similar to those of the Index. The principal strategy of the Fund's adviser is
to create a broadly diversified portfolio of common stock, and to reduce the
volatility of the Fund's portfolio by selling covered call options. In seeking
to achieve total return, the adviser anticipates that income will be derived
from dividends on the common stock in the Fund's portfolio and premiums from
selling covered call options, and that capital appreciation will be derived from
appreciation of the Fund's common stock portfolio, if any.
The Fund's option strategy is commonly referred to as "hedging." The Fund
has no maximum or minimum level that will be hedged, but anticipates being fully
hedged with the exception of the utility industry, for which option premiums
have historically been low. Under normal circumstances, at least 65% of the
Fund's portfolio will be hedged using covered call options. When selecting the
appropriate option for a stock in the portfolio, the adviser bases its decision
on the current dividend for the stock, the historical volatility of the stock
and the current option premium. The adviser will engage in active trading of the
Fund's portfolio securities as a result of its option strategy.
When the Fund sells a covered call option, the purchaser of the option has
the right to buy that stock at a predetermined price (exercise price) during the
life of the option. If the purchaser exercises the option, the Fund must sell
the stock to the purchaser at the exercise price. The option is "covered"
because the Fund owns the stock at the time it sells the option. As the seller
of the option, the Fund receives a premium from the purchaser of the call
option, which may provide additional income to the Fund. The selling of covered
call options may tend to reduce volatility of the Fund because the premiums
received from selling the options will reduce any losses on the underlying
securities, but only by the amount of the premiums. However, selling the options
will also limit the Fund's gain, if any, on the underlying securities.
The adviser believes that in a flat or falling market, a covered call
strategy on a broadly diversified portfolio will generally outperform the same
portfolio without the options because of the premiums received from writing call
options. The adviser believes that in a modestly rising market (where the income
from premiums exceeds the aggregate appreciation of the underlying securities
over their exercise prices) such a portfolio will also generally outperform the
same portfolio without the options. In a rapidly rising market (where the
aggregate appreciation of the underlying securities over their exercise prices
exceeds the income from premiums), a covered call strategy on a broadly
diversified portfolio will underperform the same portfolio without the options.
To the extent the Fund receives premiums from expired options and profits from
closing purchase transactions, any return from dividends and appreciation will
be enhanced.
Principal Risks of Investing in the Fund
o Option Writing Risk. When the Fund sells covered call options, it receives
cash but limits its opportunity to profit from an increase in the market
value of the stock beyond the exercise price (plus the premium received).
In a rapidly rising market, the Fund could significantly underperform the
market. The gain on the underlying stock will be equal to the difference
between the exercise price and the original purchase price of the
underlying security, plus the premium received. The gain may be less than
if the Fund had not sold an option on the underlying security. If a call
expires unexercised, the Fund realizes a gain in the amount of the premium
received, although there may have been a decline (unrealized loss) in the
market value of the underlying securities during the option period which
may exceed such gain. If the underlying securities should decline by more
than the option premium the Fund received, there will be a loss on the
overall position.
o Management Risk. The adviser's strategy may fail to produce the intended
results.
o Company Risk. The value of the Fund may decrease in response to the
activities and financial prospects of an individual company in the Fund's
portfolio.
o Market Risk. Overall stock market risks may also affect the value of the
Fund. Factors such as domestic economic growth and market conditions,
interest rate levels and political events affect the securities markets.
o Volatility Risk. Common stocks tend to be more volatile than other
investment choices and the Fund's hedging strategy can not eliminate stock
volatility. The value of an individual company can be more volatile than
the market as a whole. This volatility affects the value of the Fund's
shares. The Fund's option strategy cannot prevent losses on the stocks in
the portfolio.
o Portfolio Turnover Risk. The Fund may have a high portfolio turnover rate.
A high portfolio turnover rate can result in increased brokerage commission
costs and may expose taxable shareholders to higher current realization of
capital gains and a potentially larger current tax liability. These factors
negatively affect performance.
o The Fund is not a complete investment program.
o As with any mutual fund investment, the Fund's returns will vary and you
could lose money.
o An investment in the Fund is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Additional Information About the Fund
o The investment objective of the Fund may be changed without shareholder
approval.
o The premium the Fund receives for writing an option will reflect, among
other things, the current market price of the underlying security, the
relationship of the exercise price to such market price, the historical
price volatility of the underlying security, the option period, supply and
demand and interest rates. The exercise price of an option may be below,
equal to or above the current market value of the underlying security at
the time the option is written. Options written by the Fund will normally
have expiration dates between one and nine months from the date written.
From time to time, for tax and other reasons, the Fund may purchase an
underlying security for delivery in accordance with an exercise notice
assigned to it, rather than delivering such security from its portfolio.
o From time to time, the Fund may take temporary defensive positions that are
inconsistent with the Fund's principal investment strategies in attempting
to respond to adverse market, economic, political or other conditions. For
example, the Fund may hold all or a portion of its assets in money market
instruments, securities of other no-load mutual funds or repurchase
agreements. If the Fund invests in shares of another mutual fund, the
shareholders of the Fund will indirectly pay additional management fees. As
a result of engaging in these temporary measures, the Fund may not achieve
its investment objective. The Fund may also invest in such instruments at
any time to maintain liquidity or pending selection of investments in
accordance with its policies.
How the Fund has Performed
Although past performance of a fund is no guarantee of how it will perform
in the future, historical performance may give you some indication of the risk
of investing in the fund because it demonstrates how its returns have varied
over time. The Bar Chart and Performance Table that would otherwise appear in
this prospectus have been omitted because the Fund is recently organized and has
a limited performance history.
FEES AND EXPENSES OF INVESTING IN THE FUND
The tables describe the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment) NONE
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)1
Management Fees2...........................................................0.00%
Distribution (12b-1) Fees..................................................0.00%
Other Expenses.............................................................5.47%
Total Annual Fund Operating Expenses.......................................5.47%
Expense Reimbursement3.....................................................3.97%
Net Expenses4..............................................................1.50%
1 Annual Fund Operating Expenses have been restated to reflect current fees.
2 As compensation for its management services, the Fund is obligated to pay the
Advisor a fee computed and accrued daily and paid monthly at an annual rate of
0.80% of the average daily net assets of the Fund, less the amount by which
total operating expenses, including the management fee, exceed 1.50%.
3 Based on estimated amounts for the current fiscal year.
4 The adviser is contractually required to maintain total operating expenses at
1.50% for the duration of the management agreement. The initial term of the
management agreement expires on March 15, 2001, and can be renewed annually
thereafter.
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Example:
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated, reinvest dividends and distributions, and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year 3 years 5 years 10 years
$154 $477 $843 $1,841
HOW TO BUY SHARES
The minimum initial investment in the Fund is $2,500 and there is no
minimum on subsequent investments. There is no minimum on initial or subsequent
investments by tax deferred retirement plans (including IRA, SEP-IRA, Profit
Sharing and Money Purchase Plans) or uniform gifts to minor accounts. These
minimums may be waived by the advisor for accounts participating in an automatic
investment program. If your investment is aggregated into an omnibus account
established by an investment advisor, broker or other intermediary, the account
minimums apply to the omnibus account, not to your individual investment. If you
purchase or redeem shares through a broker/dealer or another intermediary, you
may be charged a fee by that intermediary.
Initial Purchase
By Mail- To be in proper form, your initial purchase request must include:
o a completed and signed investment application form (which accompanies this
Prospectus); and o a check (subject to the minimum amounts) made payable to the
Fund.
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U.S. Mail: Dobson Covered Call Fund Overnight: Dobson Covered Call Fund
c/o Unified Fund Services, Inc. c/o Unified Fund Services, Inc.
P.O. Box 6110 431 North Pennsylvania Street
Indianapolis, Indiana 46206-6110 Indianapolis, Indiana 46204
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By Wire- You may also purchase shares of the Fund by wiring federal funds
from your bank, which may charge you a fee for doing so. To wire money, you must
call Unified Fund Services, Inc., the Fund's transfer agent, at 877-2-DOBSON to
set up your account and obtain an account number. You should be prepared at that
time to provide the information on the application. Then, provide your bank with
the following information for purposes of wiring your investment:
UMB Bank, N.A.
ABA #101000695
Attn: Dobson Covered Call Fund
D.D.A.# 9870983672
Account Name _________________(write in shareholder name)
For the Account # ______________(write in account number)
You must mail a signed application to UMB Bank, N.A, the Fund's custodian,
at the above address in order to complete your initial wire purchase. Wire
orders will be accepted only on a day on which the Fund, custodian and transfer
agent are open for business. A wire purchase will not be considered made until
the wired money is received and the purchase is accepted by the Fund. Any delays
which may occur in wiring money, including delays which may occur in processing
by the banks, are not the responsibility of the Fund or the transfer agent.
There is presently no fee for the receipt of wired funds, but the Fund may
charge shareholders for this service in the future.
Additional Investments
You may purchase additional shares of the Fund at any time by mail, wire
or automatic investment. Each additional mail purchase request must contain:
-your name -the name of your account(s)
-your account number(s) -a check made payable to Dobson Covered Call
Fund
Checks should be sent to the Dobson Covered Call Fund at the address listed
above. A bank wire should be sent as outlined above.
Automatic Investment Plan
You may make regular investments in the Fund with an Automatic Investment
Plan by completing the appropriate section of the account application and
attaching a voided personal check. Investments may be made monthly to allow
dollar-cost averaging by automatically deducting $100 or more from your bank
checking account. You may change the amount of your monthly purchase at any
time.
Tax Sheltered Retirement Plans
Since the Fund is oriented to longer-term investors, the Fund may be an
appropriate investment for tax-sheltered retirement plans, including: individual
retirement plans (IRAs); simplified employee pensions (SEPs); SIMPLE Plans;
401(k) plans; qualified corporate pension and profit-sharing plans (for
employees); tax deferred investment plans (for employees of public school
systems and certain types of charitable organizations); and other qualified
retirement plans. You should contact the Fund's transfer agent for the procedure
to open an IRA or SEP plan, as well as more specific information regarding these
retirement plan options. Please consult with an attorney or tax advisor
regarding these plans. You must pay custodial fees for your IRA by redemption of
sufficient shares of the Fund from the IRA unless you pay the fees directly to
the IRA custodian. Call the Fund's transfer agent about the IRA custodial fees.
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Other Purchase Information
You may exchange securities that you own for shares of the Fund, provided
the securities meet the Fund's investment criteria and the Fund's advisor deems
them to be a desirable investment for the Fund. Any exchange will be a taxable
event and you may incur certain transaction costs relating to the exchange. You
may contact the Fund's transfer agent at 877-2-DOBSON for more information.
Please consult your tax advisor for information about the tax effects of such an
exchange.
The Fund may limit the amount of purchases and to refuse to sell to any
person. If your check or wire does not clear, you will be responsible for any
loss incurred by the Fund. If you are already a shareholder, the Fund can redeem
shares from any identically registered account in the Fund as reimbursement for
any loss incurred. You may be prohibited or restricted from making future
purchases in the Fund.
Distribution Plan
The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "Plan"), which permits the Fund to pay directly, or
reimburse the Fund's advisor and distributor, for certain distribution and
promotion expenses related to marketing its shares, in an amount not to exceed
0.25% of the average daily net assets of the Fund. The Fund is not currently
incurring expenses under the Plan. Expenditures pursuant to the Plan and related
agreements may reduce current yield after expenses. Because these fees are paid
out of the Fund's assets on an on-going basis, over time these fees would
increase the cost of your investment and may cost you more than paying other
types of sales charges.
HOW TO REDEEM SHARES
You may receive redemption payments by check or federal wire transfer. The
proceeds may be more or less than the purchase price of your shares, depending
on the market value of the Fund's securities at the time of your redemption.
Presently there is no charge for wire redemptions; however, the Fund may charge
for this service in the future. Any charges for wire redemptions will be
deducted from your Fund account by redemption of shares. If you redeem your
shares through a broker/dealer or other institution, you may be charged a fee by
that institution.
By Mail - You may redeem any part of your account in the Fund at no charge
by mail. Your request should be addressed as follows:
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U.S. Mail: Dobson Covered Call Fund Overnight: Dobson Covered Call Fund
c/o Unified Fund Services, Inc. c/o Unified Fund Services, Inc.
P.O. Box 6110 431 North Pennsylvania Street
Indianapolis, Indiana 46206-6110 Indianapolis, Indiana 46204
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Requests to sell shares are processed at the net asset value next
calculated after we receive your order in proper form. To be in proper form,
your request for a redemption must include your letter of instruction, including
the Fund name, account number, account name(s), the address and the dollar
amount or number of shares you wish to redeem. This request must be signed by
all registered share owner(s) in the exact name(s) and any special capacity in
which they are registered. The Fund may require that signatures be guaranteed by
a bank or member firm of a national securities exchange. Signature guarantees
are for the protection of shareholders. At the discretion of the Fund or the
Fund's transfer agent, a shareholder, prior to redemption, may be required to
furnish additional legal documents to insure proper authorization.
By Telephone - You may redeem any part of your account in the Fund by
calling the Fund's transfer agent at 877-2-DOBSON. You must first complete the
Optional Telephone Redemption and Exchange section of the investment application
to institute this option. The Fund, the transfer agent and the custodian are not
liable for following redemption or exchange instructions communicated by
telephone that they reasonably believe to be genuine. However, if they do not
employ reasonable procedures to confirm that telephone instructions are genuine,
they may be liable for any losses due to unauthorized or fraudulent
instructions. Procedures employed may include recording telephone instructions
and requiring a form of personal identification from the caller.
The Fund or the transfer agent may terminate the telephone redemption
procedures at any time. During periods of extreme market activity, it is
possible that shareholders may encounter some difficulty in telephoning the
Fund, although neither the Fund nor the transfer agent has ever experienced
difficulties in receiving and in a timely fashion responding to telephone
requests for redemptions or exchanges. If you are unable to reach the Fund by
telephone, you may request a redemption or exchange by mail.
Additional Information - If you are not certain of the requirements for a
redemption please call the Fund's transfer agent at 877-2-DOBSON. Redemptions
specifying a certain date or share price cannot be accepted and will be
returned. You will be mailed the proceeds on or before the fifth business day
following the redemption. However, payment for redemption made against shares
purchased by check will be made only after the check has been collected, which
normally may take up to fifteen calendar days. Also, when the New York Stock
Exchange is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closing, or under any emergency circumstances (as
determined by the Securities and Exchange Commission) the Fund may suspend
redemptions or postpone payment dates.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund may require you to redeem all of your shares in the Fund on
30 days' written notice if the value of your shares in the Fund is less than
$2,500 due to redemption, or such other minimum amount as the Fund may determine
from time to time. An involuntary redemption constitutes a sale. You should
consult your tax advisor concerning the tax consequences of involuntary
redemptions. You may increase the value of your shares in the Fund to the
minimum amount within the 30-day period. Your shares are subject to redemption
at any time if the Board of Trustees determines in its sole discretion that
failure to so redeem may have materially adverse consequences to all or any of
the shareholders of the Fund.
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THE PRICE OF SHARES
The price you pay for your shares is based on the Fund's net asset value
per share (NAV). The NAV is calculated at the close of trading (normally 4:00
p.m. Eastern time) on each day the New York Stock Exchange is open for business
(the Stock Exchange is closed on weekends, Federal holidays and Good Friday).
The NAV is calculated by dividing the value of the Fund's total assets
(including interest and dividends accrued but not yet received) minus
liabilities (including accrued expenses) by the total number of shares
outstanding.
The Fund's assets are generally valued at their market value. If market
prices are not available, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued by the Fund's
advisor at their fair value, according to procedures approved by the Fund's
board of trustees.
Requests to purchase and sell shares are processed at the NAV next
calculated after we receive your order in proper form.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. The Fund typically distributes substantially
all of its net investment income in the form of dividends and taxable capital
gains to its shareholders on an annual basis. These distributions are
automatically reinvested in the Fund unless you request cash distributions on
your application or through a written request. The Fund expects that its
distributions will consist primarily of short term capital gains from the sale
of options.
Taxes. In general, selling shares of the Fund and receiving distributions
(whether reinvested or taken in cash) are taxable events. Depending on the
purchase price and the sale price, you may have a gain or a loss on any shares
sold. Any tax liabilities generated by your transactions or by receiving
distributions are your responsibility. Because distributions of long term
capital gains are subject to capital gains taxes, regardless of how long you
have owned your shares, you may want to avoid making a substantial investment
when the Fund is about to make a long term capital gains distribution because
you would be responsible for any taxes on the distribution regardless of how
long you have owned your shares.
If the Fund has to sell a security because of the exercise of a call
option, the Fund will realize a gain or loss from the sale of the underlying
security with the proceeds being increased by the amount of the option premium
received.
By permitting its underlying securities to be called away or exercised,
higher portfolio turnover (and increased transaction costs) will result.
Portfolio turnover also results in capital gains for income tax purposes. The
Fund will attempt to minimize portfolio turnover by entering into closing
purchase transactions that it deems appropriate to achieve the Fund's
objectives. A high portfolio turnover rate can result in higher current
realization of capital gains and a potentially larger current tax liability.
Early each year, the Fund will mail to you a statement setting forth the
federal income tax information for all distributions made during the previous
year. If you do not provide your taxpayer identification number, your account
will be subject to backup withholding.
The tax considerations described in this section do not apply to
tax-deferred accounts or other non-taxable entities. Because each investor's tax
circumstances are unique, please consult with your tax advisor about your
investment.
MANAGEMENT OF THE FUND
Dobson Capital Management, Inc., 1422 S. Van Ness Street, Santa Ana,
California serves as investment advisor to the Fund. The advisor determines the
securities to be held or sold by the Fund, and the portion of the Fund's assets
to be held uninvested. Dobson Capital Management, Inc., is a California
corporation established in 1998.
Charles L. Dobson is the President, Director and sole shareholder of the
advisor, and is primarily responsible for the day-to-day management of the
Fund's portfolio. Mr. Dobson was associated with Analytic/TSA Global Asset
Management for nearly twenty years, acting as Executive Vice President and
Portfolio Manager of the Analytic Optioned Equity Fund from March 1992 until May
1998, and Executive Vice President and Secretary of the Analytic Series Fund
from November 1992 until May 1998. Mr. Dobson graduated from the University of
California at Irvine where he received a BA in Economics and an MS in
Administration.
During the fiscal period ended July 31, 2000, the advisor received no
compensation from the Fund. As compensation for its management services, the
Fund is obligated to pay the Advisor a fee computed and accrued daily and paid
monthly at an annual rate of 0.80% of the average daily net assets of the Fund,
less the amount by which total operating expenses, including the management fee,
exceed 1.50%.
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FINANCIAL HIGHLIGHTS
The following table is intended to help you better understand the
Fund's financial performance since its inception. Certain information reflects
financial results for a single Fund share. The total returns represent the rate
you would have earned (or lost) on an investment in the Fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by McCurdy & Associates CPA's, Inc., whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request.
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For the For the
year ended period ended
July 31, 2000 July 31, 1999 (c)
------------------- -------------------
Selected Per Share Data
Net asset value, beginning of period $ 10.78 $ 10.00
------------------- -------------------
Income from investment operations
Net investment income 0.03 0.01
Net realized and unrealized gain 0.35 0.77
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Total from investment operations 0.38 0.78
------------------- -------------------
Less Distributions
From net investment income (0.01) 0.00
From net realized gain (0.48) 0.00
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Total Distributions (0.49) 0.00
------------------- -------------------
Net asset value, end of period $ 10.67 $ 10.78
=================== ===================
Total Return 3.59% 7.80% (b)
Ratios and Supplemental Data
Net assets, end of period (000) $1,540 $1,375
Ratio of expenses to average net assets 1.50% 1.50% (a)
Ratio of expenses to average net assets
before reimbursement 5.47% 9.77% (a)
Ratio of net investment income to average net assets 0.31% 0.32% (a)
Ratio of net investment income to
average net assets before reimbursement (3.66)% (7.95)% (a)
Portfolio turnover rate 31.75% 47.01% (a)
(a) Annualized
(b) For a period of less than a full year, the total return is not annualized.
(c) March 24, 1999 (commencement of operations) to July 31, 1999
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FOR MORE INFORMATION
Several additional sources of information are available to you. The
Statement of Additional Information (SAI), incorporated into this prospectus by
reference, contains detailed information on Fund policies and operations. Annual
and semi-annual reports contain management's discussion of market conditions,
investment strategies and performance results as of the Fund's latest
semi-annual or annual fiscal year end.
Call the Fund at (877)-236-2766 to request free copies of the SAI and the
Fund's annual and semi-annual reports, to request other information about the
Fund and to make shareholder inquiries.
You may review and copy information about the Fund (including the SAI and
other reports) at the Securities and Exchange Commission (SEC) Public Reference
Room in Washington, D.C. Call the SEC at 1-202-942-8090 for room hours and
operation. You may also obtain reports and other information about the Fund on
the EDGAR Database on the SEC's Internet site at http.//www.sec.gov, and copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: [email protected] or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102.
Investment Company Act #811-9096
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DOBSON COVERED CALL FUND
STATEMENT OF ADDITIONAL INFORMATION
December 1, 2000
This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the Prospectus of Dobson Covered Call Fund
dated December 1, 2000. This SAI incorporates by reference the Trust's Annual
Report to Shareholders for the fiscal year ended July 31, 2000 ("Annual
Report"). A free copy of the Prospectus or Annual Report can be obtained by
writing the Transfer Agent at 431 North Pennsylvania Street, Indianapolis,
Indiana 46204 or by calling 1-877-236-2766.
PAGE
DESCRIPTION OF THE TRUST AND THE FUND.......................................2
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK
CONSIDERATIONS.............................................................3
INVESTMENT LIMITATIONS......................................................5
THE INVESTMENT ADVISOR......................................................7
DISTRIBUTION PLAN...........................................................7
TRUSTEES AND OFFICERS.......................................................9
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................10
DETERMINATION OF SHARE PRICE...............................................11
INVESTMENT PERFORMANCE.....................................................12
CUSTODIAN..................................................................13
FUND SERVICES..............................................................13
ACCOUNTANTS................................................................13
DISTRIBUTOR................................................................14
FINANCIAL STATEMENTS.......................................................14
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DESCRIPTION OF THE TRUST AND FUND
The Dobson Covered Call Fund (the "Fund") was organized as a diversified
series of AmeriPrime Funds (the "Trust") on March 22, 1999. The Trust is an
open-end investment company established under the laws of Ohio by an Agreement
and Declaration of Trust dated August 8, 1995 (the "Trust Agreement"). The Trust
Agreement permits the Trustees to issue an unlimited number of shares of
beneficial interest of separate series without par value. The Fund is one of a
series of funds currently authorized by the Trustees. The Fund commenced
operations on March 24, 1999.
The Fund does not issue share certificates. All shares are held in
non-certificate form registered on the books of the Fund and the transfer agent
for the account of the shareholder. Each share of a series represents an equal
proportionate interest in the assets and liabilities belonging to that series
with each other share of that series and is entitled to such dividends and
distributions out of income belonging to the series as are declared by the
Trustees. The shares do not have cumulative voting rights or any preemptive or
conversion rights, and the Trustees have the authority from time to time to
divide or combine the shares of any series into a greater or lesser number of
shares of that series so long as the proportionate beneficial interest in the
assets belonging to that series and the rights of shares of any other series are
in no way affected. In case of any liquidation of a series, the holders of
shares of the series being liquidated will be entitled to receive as a class a
distribution out of the assets, net of the liabilities, belonging to that
series. Expenses attributable to any series are borne by that series. Any
general expenses of the Trust not readily identifiable as belonging to a
particular series are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. No shareholder
is liable to further calls or to assessment by the Trust without his or her
express consent.
As of November 3, 2000 the following persons may be deemed to have
beneficially owned five percent (5%) or more of the Fund: Charles L. Dobson,
1422 S. Van Ness, Santa Ana, California 92707, 72.68%; National Financial
Services, 200 Liberty Street, 5th Floor, New York, New York, 5.73%; Elias N.
Kassouf, 29 Galileo, Irvine, California 92612, 5.44%; and Alexander G. Kassouf,
29 Galileo, Irvine, California 92612, 5.38%.
As of November 3, 2000, Charles L. Dobson may be deemed to control the
Fund as a result of his beneficial ownership of the shares of the Fund. As the
controlling shareholder, he would control the outcome of any proposal submitted
to the shareholders for approval including changes to the Fund's fundamental
policies or the terms of the management agreement with the Fund's advisor.
As of November 3, 2000, the Officers and Trustees as a group beneficially
owned less than one percent (1%) of the Fund.
Any Trustee of the Trust may be removed by vote of the shareholders
holding not less than two-thirds of the outstanding shares of the Trust. The
Trust does not hold an annual meeting of shareholders. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each whole share he owns and fractional votes for fractional shares he owns.
All shares of the Fund have equal voting rights and liquidation rights. The
Declaration of Trust can be amended by the Trustees, except that any amendment
that adversely effects the rights of shareholders must be approved by the
shareholders affected. Each share of the Fund is subject to redemption at any
time if the Board of Trustees determines in its sole discretion that failure to
so redeem may have materially adverse consequences to all or any of the Fund's
shareholders.
For information concerning the purchase and redemption of shares of the
Fund, see "How to Buy Shares" and "How to Redeem Shares" in the Fund's
Prospectus. For a description of the methods used to determine the share price
and value of the Fund's assets, see "The Price of Shares" in the Fund's
Prospectus.
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS
This section contains a more detailed discussion of some of the
investments the Fund may make and some of the techniques it may use, as
described in the Prospectus (see "Investment Objectives and Strategies" and
"Investment Policies and Techniques and Risk Considerations").
A. Equity Securities. Equity securities consist of common stock,
convertible preferred stock, rights and warrants. Common stocks, the most
familiar type, represent an equity (ownership) interest in a corporation.
Warrants are options to purchase equity securities at a specified price for a
specific time period. Rights are similar to warrants, but normally have a short
duration and are distributed by the issuer to its shareholders. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and on overall market and
economic conditions.
Investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions and other factors
beyond the control of the Advisor. As a result, the return and net asset value
of a Fund will fluctuate. Securities in a Fund's portfolio may not increase as
much as the market as a whole and some undervalued securities may continue to be
undervalued for long periods of time. Although profits in some Fund holdings may
be realized quickly, it is not expected that most investments will appreciate
rapidly.
B. Options Transactions. The Fund may write (sell) covered call options. A
covered call option on a security is an agreement to sell a particular security
in the Fund's portfolio if the option is exercised at a specified price, or
before a set date. The Fund may also sell exchange listed stock index call
options to hedge against risks of market wide price movements. Options are sold
(written) on securities and market indices. The purchaser of an option on a
security pays the seller (the writer) a premium for the right granted but is not
obligated to buy or sell the underlying security. The purchaser of an option on
a market index pays the seller a premium for the right granted, and in return
the seller of such an option is obligated to make the payment. A writer of an
option may terminate the obligation prior to the expiration of the option by
making an offsetting purchase of an identical option. Options on securities
which the Fund sells (writes) will be covered or secured, which means that it
will own the underlying security (for a call option) or (for an option on a
stock index) will hold a portfolio of securities substantially replicating the
movement of the index (or, to the extent it does not hold such a portfolio, will
maintain a segregated account with the Custodian of high quality liquid debt
obligations equal to the market value of the option, marked to market daily).
When the Fund writes options, it may be required to maintain a margin account,
to pledge the underlying security or to deposit liquid high quality debt
obligations in a separate account with the Custodian. When a Fund writes an
option, the Fund profits from the sale of the option, but gives up the
opportunity to profit from any increase in the price of the stock above the
option price, and may incur a loss if the stock price falls. Risks associated
with writing covered call options include the possible inability to effect
closing transactions at favorable prices and an appreciation limit on the
securities set aside for settlement. When the Fund writes a covered call option,
it will receive a premium, but will assume the risk of loss should the price of
the underlying security fall below the exercise price.
A call option gives the purchaser of the option the right to buy, and the
writer of the option has the obligation to sell, the underlying securities at
the exercise price during the option period. The Fund, as the writer of the
option, receives a premium from the purchaser of the call option. During the
time the Fund is obligated under the option, the Fund may be assigned an
exercise notice by the broker-dealer through whom the call was sold, requiring
the Fund to deliver the underlying security against payment of the exercise
price. The obligation is terminated only upon expiration of the option or at
such earlier time as the Fund purchases the option back (closing purchase
transaction). Once the Fund has been assigned an exercise notice, it will be
unable to enter into a closing purchase transaction. So long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option.
To secure this obligation to deliver the underlying security, the Fund is
required to deposit in escrow the underlying securities or other assets in
accordance with the rules of the clearing corporation and the exchange on which
the call option is traded. To fulfill this obligation at the time an option is
written, the Fund, in compliance with its custodian agreement, directs the
custodian of its investment securities, or a securities depository acting for
the custodian, to act as the Fund's escrow agent by issuing an escrow receipt to
the clearing corporation respecting the option's underlying securities. The
clearing corporation will release the securities from this escrow either upon
the exercise of the option, the expiration of the option without being exercised
or when the Fund enters into a closing purchase transaction. Until such release
the Fund cannot sell the underlying securities.
The Fund will write options on such portion of its portfolio as management
determines is appropriate in seeking to attain the Fund's objective. The Fund
will write options when management believes that a liquid secondary market will
exist on a national securities exchange for options of the same series so that
the Fund can effect a closing purchase transaction if it desires to close out
its position. Consistent with the investment policies of the Fund, a closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding option, to prevent an underlying security from being called or to
permit the sale of the underlying security. Effecting a closing purchase
transaction will permit the Fund to write another option on the underlying
security with either a different exercise price or expiration date or both.
C. Stock Index Options. The Fund may sell exchange listed stock index call
options to hedge against risks of market wide price movements. The need to hedge
against such risks will depend on the extent of diversification of the Fund's
common stock and the sensitivity of its stock investments to factors influencing
the stock market as a whole. A stock index fluctuates with changes in the market
values of the securities included in the index. Options on securities indices
are generally similar to options on stocks except that the delivery requirements
are different. Instead of giving the right to take or make delivery of
securities at a specified price, an option on a stock index gives the holders
the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of the exercise, multiplied by (b) a fixed "index
multiplier." To cover the potential obligations involved in writing stock index
options, the Fund will either (a) hold a portfolio of stocks substantially
replicating the movement of the index, or (b) the Fund will segregate with the
custodian high grade liquid debt obligations equal to the market value of the
stock index option, marked to market daily. The Fund will only write stock index
options when in its opinion the underlying stocks will correlate with the index.
The Fund's ability to hedge effectively all or a portion of its securities
through transactions in stock index options depends on the degree to which price
movements in the underlying securities correlate with price movements in the
relevant index. Inasmuch as such securities will not duplicate the components of
any index, the correlation will not be perfect. Consequently, the Fund bears the
risk that the prices of the underlying securities being hedged will not move in
the same amount as the stock index.
D. Repurchase Agreements. The Fund may invest in repurchase agreements
fully collateralized by U.S. Government or agency obligations. A repurchase
agreement is a short term investment in which the purchaser (i.e., the Fund)
acquires ownership of a U.S. Government or agency obligation (which may be of
any maturity) and the seller agrees to repurchase the obligation at a future
time at a set price, thereby determining the yield during the purchaser's
holding period (usually not more than seven days from the date of purchase). Any
repurchase transaction in which the Fund engages will require full
collateralization of the seller's obligation during the entire term of the
repurchase agreement. In the event of a bankruptcy or other default of the
seller, the Fund could experience both delays in liquidating the underlying
security and losses in value. However, the Fund intends to enter into repurchase
agreements only with UMB Bank, N.A. (the Fund's custodian), other banks with
assets of $1 billion or more and registered securities dealers determined by the
Fund's advisor (subject to review by the Board of Trustees) to be creditworthy.
The advisor monitors the creditworthiness of the banks and securities dealers
with which the Fund engages in repurchase transactions.
INVESTMENT LIMITATIONS
Fundamental. The investment limitations described below have been adopted
by the Trust with respect to the Fund and are fundamental ("Fundamental"), i.e.,
they may not be changed without the affirmative vote of a majority of the
outstanding shares of the Fund. As used in the Prospectus and this Statement of
Additional Information, the term "majority" of the outstanding shares of the
Fund means the lesser of (1) 67% or more of the outstanding shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented at such meeting; or (2) more than 50% of
the outstanding shares of the Fund. Other investment practices which may be
changed by the Board of Trustees without the approval of shareholders to the
extent permitted by applicable law, regulation or regulatory policy are
considered non-fundamental ("Non-Fundamental").
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is an asset coverage
of 300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
2. Senior Securities. The Fund will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is consistent with or permitted by the Investment
Company Act of 1940, as amended, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission or its
staff.
3. Underwriting. The Fund will not act as underwriter of securities issued
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. Real Estate. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
5. Commodities. The Fund will not purchase or sell commodities unless
acquired as a result of ownership of securities or other investments. This
limitation does not preclude the Fund from purchasing or selling options or
futures contracts, from investing in securities or other instruments backed by
commodities or from investing in companies which are engaged in a commodities
business or have a significant portion of their assets in commodities.
6. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. Concentration. The Fund will not invest 25% or more of its total assets
in a particular industry. This limitation is not applicable to investments in
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities or repurchase agreements with respect thereto.
With respect to the percentages adopted by the Trust as maximum
limitations on its investment policies and limitations, an excess above the
fixed percentage will not be a violation of the policy or limitation unless the
excess results immediately and directly from the acquisition of any security or
the action taken. This paragraph does not apply to the borrowing policy set
forth in paragraph 1 above.
Notwithstanding any of the foregoing limitations, any investment company,
whether organized as a trust, association or corporation, or a personal holding
company, may be merged or consolidated with or acquired by the Trust, provided
that if such merger, consolidation or acquisition results in an investment in
the securities of any issuer prohibited by said paragraphs, the Trust shall,
within ninety days after the consummation of such merger, consolidation or
acquisition, dispose of all of the securities of such issuer so acquired or such
portion thereof as shall bring the total investment therein within the
limitations imposed by said paragraphs above as of the date of consummation.
Non-Fundamental. The following limitations have been adopted by the Trust
with respect to the Fund and are Non-Fundamental (see "Investment Restrictions"
above).
1. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. Borrowing. The Fund will not engage in borrowing.
3. Margin Purchases. The Fund will not purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to short term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques.
4. Short Sales. The Fund will not effect short sales of securities.
5. Options. The Fund will not purchase or sell puts, calls, options or
straddles except as described in the Prospectus or Statement of Additional
Information.
6. Illiquid Investments. The Fund will not invest in securities for which
there are legal or contractual restrictions on resale and other illiquid
securities.
7. Loans of Portfolio Securities. The Fund will not make loans of
portfolio securities.
THE INVESTMENT ADVISOR
The Fund's investment advisor is Dobson Capital Management, Inc. (the
"Advisor"), 1422 S. Van Ness Street, Santa Ana, California 92707. As sole
shareholder of the Advisor, Charles L. Dobson may be deemed to be a controlling
person of the Advisor.
Under the terms of the management agreement (the "Agreement"), the Advisor
manages the Fund's investments subject to approval of the Board of Trustees. As
compensation for its management services, the Fund is obligated to pay the
Advisor a fee computed and accrued daily and paid monthly at an annual rate of
0.80% of the average daily net assets of the Fund, less the amount by which
total operating expenses, including the management fee, exceed 1.50%. For the
fiscal year ended July 31, 2000 and the period March 24, 1999 (commencement of
operations) through July 31, 1999, the Fund paid no advisory fees.
The Advisor retains the right to use the name "Dobson" in connection with
another investment company or business enterprise with which the Advisor is or
may become associated. The Trust's right to use the name "Dobson" automatically
ceases ninety days after termination of the Agreement and may be withdrawn by
the Advisor on ninety days written notice.
The Advisor may make payments to banks or other financial institutions
that provide shareholder services and administer shareholder accounts. Banks may
charge their customers fees for offering these services to the extent permitted
by applicable regulatory authorities, and the overall return to those
shareholders availing themselves of the bank services will be lower than to
those shareholders who do not. The Fund may from time to time purchase
securities issued by banks which provide such services; however, in selecting
investments for the Fund, no preference will be shown for such securities.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act (the "Plan"). The Plan permits the Fund to pay directly, or reimburse
the Advisor and the Fund's distributor, for distribution expenses in amount not
to exceed 0.25% of the average daily net assets of the Fund. Under the Plan, the
Trust may engage in any activities related to the distribution of Fund shares,
including without limitation the following: (a) payments, including incentive
compensation, to securities dealers or other financial intermediaries, financial
institutions, investment advisors and others that are engaged in the sale of
shares, or that may be advising shareholders of the Trust regarding the
purchase, sale or retention of shares, or that hold shares for shareholders in
omnibus accounts or as shareholders of record or provide shareholder support or
administrative services to the Fund and its shareholders; (b) expenses of
maintaining personnel who engage in or support distribution of shares or who
render shareholder support services, including, allocated overhead, office space
and equipment, telephone facilities and expenses, answering routine inquiries
regarding the Trust, processing shareholder transactions, and providing such
other shareholder services as the Trust may reasonably request; (c) costs of
preparing, printing and distributing prospectuses and statements of additional
information and reports of the Fund for recipients other than existing
shareholders of the Fund; (d) costs of formulating and implementing marketing
and promotional activities, including, sales seminars, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising; (e)
costs of preparing, printing and distributing sales literature; (f) costs of
obtaining such information, analyses and reports with respect to marketing and
promotional activities as the Trust may deem advisable; and (g) costs of
implementing and operating the Plan.
The Trustees expect that the Plan may significantly enhance the Fund's
ability to distribute its shares. The Plan has been approved by the Fund's Board
of Trustees, including a majority of the Trustees who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the Plan or any related agreement, by a vote cast in person. Continuation of the
Plan and the related agreements must be approved by the Trustees annually, in
the same manner, and the Plan or any related agreement may be terminated at any
time without penalty by a majority of such independent Trustees or by a majority
of the outstanding shares of the Fund. Any amendment increasing the maximum
percentage payable under the Plan must be approved by a majority of the
outstanding shares of the Fund, and all other material amendments to the Plan or
any related agreement must be approved by a majority of the independent
Trustees. As an executive officer of the Fund's distributor, Kenneth
Trumpfheller, a Trustee of the Trust, may benefit indirectly from payments
received by the Fund's distributor.
<PAGE>
TRUSTEES AND OFFICERS
The Board of Trustees supervises the business activities of the Trust. The
names of the Trustees and executive officers of the Trust are shown below. Each
Trustee who is an "interested person" of the Trust, as defined in the Investment
Company Act of 1940, is indicated by an asterisk.
<TABLE>
<S> <C> <C>
==================================== ================ ======================================================================
Name, Age and Address Position Principal Occupations During Past 5 Years
------------------------------------ ---------------- ----------------------------------------------------------------------
*Kenneth D. Trumpfheller President, Managing Director of Unified Fund Services, Inc., the Fund's
1793 Kingswood Drive Secretary and transfer agent, fund accountant and administrator, since October
Suite 200 Trustee 2000. President, Treasurer and Secretary of AmeriPrime Financial
Southlake, Texas 76092 Services, Inc., a fund administrator, (which merged with Unified
Year of Birth: 1958 Fund Services, Inc.) from 1994 through October 2000. President,
Treasurer and Secretary of AmeriPrime Financial Securities, Inc., the
Fund's distributor, from 1994 through November 2000; President and
Trustee of AmeriPrime Advisors Trust and AmeriPrime Insurance Trust;
Prior to December, 1994, a senior client executive with SEI
Financial Services.
------------------------------------ ---------------- ----------------------------------------------------------------------
*Robert A. Chopyak Treasurer and Assistant Vice-President of Financial Administration of Unified Fund
1793 Kingswood Drive Chief Services, Inc., the Fund's transfer agent, fund accountant and
Suite 200 Financial administrator, since August 2000. Manager of AmeriPrime Financial
Southlake, Texas 76092 Officer Services, Inc. from February 2000 to August 2000. Self-employed,
Year of Birth: 1968 performing Y2K testing, January 1999 to January 2000. Vice
President of Fund Accounting, American Data Services, Inc., a mutual
fund services company, October 1992 to December 1998.
------------------------------------ ---------------- ----------------------------------------------------------------------
Steve L. Cobb Trustee President of Chandler Engineering Company, L.L.C., oil and gas
2001 N. Indianwood Avenue services company; various positions with Carbo Ceramics, Inc., oil
Broken Arrow, OK 74012 field manufacturing/supply company, from 1984 to 1997, most recently
Year of Birth: 1957 Vice President of Marketing.
------------------------------------ ---------------- ----------------------------------------------------------------------
Gary E. Hippenstiel Trustee Director, Vice President and Chief Investment Officer of Legacy
600 Jefferson Street Trust Company since 1992; President and Director of Heritage Trust
Suite 350 Company from 1994-1996; Vice President and Manager of Investments of
Houston, TX 77002 Kanaly Trust Company from 1988 to 1992.
Year of Birth: 1947
==================================== ================ ======================================================================
</TABLE>
<PAGE>
The compensation paid to the Trustees of the Trust for the Fund's fiscal
year ended July 31, 2000 is set forth in the following table. Trustee fees are
Trust expenses and each series of the Trust pays a portion of the Trustee fees.
<TABLE>
<S> <C> <C>
====================================== ========================== =======================================
Name Aggregate Total Compensation
Compensation from Trust (the Trust is
from Trust not in a Fund Complex)
-------------------------------------- -------------------------- ---------------------------------------
Kenneth D. Trumpfheller 0 0
-------------------------------------- -------------------------- ---------------------------------------
Steve L. Cobb $966 $966
-------------------------------------- -------------------------- ---------------------------------------
Gary E. Hippenstiel $966 $966
====================================== ========================== =======================================
</TABLE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust, the
Advisor is responsible for the Fund's portfolio decisions and the placing of the
Fund's portfolio transactions. In placing portfolio transactions, the Advisor
seeks the best qualitative execution for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Advisor generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received. Consistent with
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and subject to its obligation of seeking best qualitative execution, the
Advisor may give consideration to sales of shares of the Trust as a factor in
the selection of brokers and dealers to execute portfolio transactions.
The Advisor is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Advisor exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Advisor determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Advisor's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
Research services include supplemental research, securities and economic
analyses, statistical services and information with respect to the availability
of securities or purchasers or sellers of securities and analyses of reports
concerning performance of accounts. The research services and other information
furnished by brokers through whom the Fund effects securities transactions may
also be used by the Advisor in servicing all of its accounts. Similarly,
research and information provided by brokers or dealers serving other clients
may be useful to the Advisor in connection with its services to the Fund.
Although research services and other information are useful to the Fund and the
Advisor, it is not possible to place a dollar value on the research and other
information received. It is the opinion of the Board of Trustees and the Advisor
that the review and study of the research and other information will not reduce
the overall cost to the Advisor of performing its duties to the Fund under the
Agreement.
Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers, if the same or a better price,
including commissions and executions, is available. Fixed income securities are
normally purchased directly from the issuer, an underwriter or a market maker.
Purchases include a concession paid by the issuer to the underwriter and the
purchase price paid to a market maker may include the spread between the bid and
asked prices.
When the Fund and another of the Advisor's clients seek to purchase or
sell the same security at or about the same time, the Advisor may execute the
transaction on a combined ("blocked") basis. Blocked transactions can produce
better execution for the Fund because of the increased volume of the
transaction. If the entire blocked order is not filled, the Fund may not be able
to acquire as large a position in such security as it desires or it may have to
pay a higher price for the security. Similarly, the Fund may not be able to
obtain as large an execution of an order to sell or as high a price for any
particular portfolio security if the other client desires to sell the same
portfolio security at the same time. In the event that the entire blocked order
is not filled, the purchase or sale will normally be allocated on a pro rata
basis. The allocation may be adjusted by the Advisor, taking into account such
factors as the size of the individual orders and transaction costs, when the
Advisor believes adjustment is reasonable.
For the fiscal year ended July 31, 2000 and the period March 24, 1999
(commencement of operations ) through July 31, 1999, the Fund paid brokerage
commissions of $8,200 and $3,400, respectively.
The Trust, the Advisor and the Fund's distributor have each adopted a Code
of Ethics (the "Code") under Rule 17j-1 of the Investment Company Act of 1940.
The personnel subject to the Code are permitted to invest in securities,
including securities that may be purchased or held by the Fund. You may obtain a
copy of the Code from the Securities and Exchange Commission.
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of the Fund is determined as of
4:00 p.m., Eastern time on each day the Trust is open for business and on any
other day on which there is sufficient trading in the Fund's securities to
materially affect the net asset value. The Trust is open for business on every
day except Saturdays, Sundays and the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
Securities which are traded on any exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price. Lacking a last
sale price, a security is valued at its last bid price except when, in the
Advisor's opinion, the last bid price does not accurately reflect the current
value of the security. All other securities for which over-the-counter market
quotations are readily available are valued at their last bid price. When market
quotations are not readily available, when the Advisor determines the last bid
price does not accurately reflect the current value or when restricted
securities are being valued, such securities are valued as determined in good
faith by the Advisor, in conformity with guidelines adopted by and subject to
review of the Board of Trustees of the Trust.
Fixed income securities generally are valued by using market quotations,
but may be valued on the basis of prices furnished by a pricing service when the
Advisor believes such prices accurately reflect the fair market value of such
securities. A pricing service utilizes electronic data processing techniques
based on yield spreads relating to securities with similar characteristics to
determine prices for normal institutional-size trading units of debt securities
without regard to sale or bid prices. When prices are not readily available from
a pricing service, or when restricted or illiquid securities are being valued,
securities are valued at fair value as determined in good faith by the Advisor,
subject to review of the Board of Trustees. Short term investments in fixed
income securities with maturities of less than 60 days when acquired, or which
subsequently are within 60 days of maturity, are valued by using the amortized
cost method of valuation, which the Board has determined will represent fair
value.
INVESTMENT PERFORMANCE
The Fund may periodically advertise "average annual total return."
"Average annual total return," as defined by the Securities and Exchange
Commission, is computed by finding the average annual compounded rates of return
for the period indicated that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(1+T)n=ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end
of the applicable period of the
hypothetical $1,000 investment made
at the beginning of the applicable
period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period.
In addition to providing average annual total return, the Fund may also
provide non-standardized quotations of total return for differing periods and
may provide the value of a $10,000 investment (made on the date of the initial
public offering of the Fund's shares) as of the end of a specified period.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with the Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue. For the fiscal year
ended July 31, 2000 and the period March 24, 1999 (commencement of operations)
through July 31, 2000, the Fund's average annual total return was 3.59% and
7.80%, respectively.
From time to time, in advertisements, sales literature and information
furnished to present or prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Fund or
considered to be representative of the stock market in general. The Fund may use
the Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average.
In addition, the performance of the Fund may be compared to other groups
of mutual funds tracked by any widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, such as
Lipper Analytical Services, Inc. or Morningstar, Inc. The objectives, policies,
limitations and expenses of other mutual funds in a group may not be the same as
those of the Fund. Performance rankings and ratings reported periodically in
national financial publications such as Barron's and Fortune also may be used.
CUSTODIAN
UMB Bank, N.A., 928 Grand Blvd., 10th floor, Kansas City, Missouri 64106,
is Custodian of the Fund's investments. The Custodian acts as the Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Fund's request and
maintains records in connection with its duties.
FUND SERVICES
Unified Fund Services, Inc. ("Unified"), 431 North Pennsylvania Street,
Indianapolis, Indiana 46204, acts as the Fund's transfer agent and, in such
capacity, maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other transfer agent and shareholder service functions.
Unified receives a monthly fee from the Advisor of $1.20 per shareholder
(subject to a minimum monthly fee of $900) for these transfer agency services.
In addition, Unified provides the Fund with fund accounting services,
which includes certain monthly reports, record-keeping and other
management-related services. For its services as fund accountant, Unified
receives an annual fee from the Advisor equal to 0.0275% of the Fund's assets up
to $100 million (subject to various monthly minimum fees, the maximum being
$2,000 per month for assets of $20 to $100 million). For the fiscal year ended
July 31, 2000 and the period March 24, 1999 (commencement of operations) through
July 31, 1999, Unified received $9,152 and $9,919 from the Advisor (not the
Fund) for these accounting services, respectively.
Unified also provides the Fund with administrative services, including all
regulatory reporting and necessary office equipment, personnel and facilities.
Unified receives a monthly fee from the Advisor equal to an annual rate of 0.10%
of the Fund's assets under $50 million, 0.075% of the Fund's assets from $50
million to $100 million, and 0.050% of the Fund's assets over $100 million
(subject to a minimum fee of $2,500 per month). For the fiscal year ended July
31, 2000 and the period March 24, 1999 (commencement of operations) through July
31, 1999, Unified received $30,000 and $10,625 for these administrative
services, respectively.
ACCOUNTANTS
The firm of McCurdy & Associates CPA's, Inc., 27955 Clemens Road,
Westlake, Ohio 44145, has been selected as independent public accountants for
the Fund for the fiscal year ending July 31, 2001. McCurdy & Associates performs
an annual audit of the Fund's financial statements and provides financial, tax
and accounting consulting services as requested.
DISTRIBUTOR
Unified Financial Securities, Inc., 1793 Kingswood Drive, Suite 200,
Southlake, Texas 76092 (the "Distributor"), is the exclusive agent for
distribution of shares of the Fund. Kenneth D. Trumpfheller, a Trustee and
officer of the Trust, is an affiliate of the Distributor. The Distributor is
obligated to sell the shares of the Fund on a best efforts basis only against
purchase orders for the shares. Shares of the Fund are offered to the public on
a continuous basis. The Distributor and Unified are controlled by Unified
Financial Services, Inc.
FINANCIAL STATEMENTS
The financial statements and independent auditor's report required to be
included in the statement of additional information are hereby incorporated by
reference to the Fund's Annual Report to the shareholders for the period ended
July 31, 2000. The Trust will provide the Annual Report without charge by
calling the Fund at (877)-236-2766.
