CROSS-REFERENCE SHEET
Explanatory Note: The Registrant is a "series" company. This
Registration Statement relates to all eight series of the
Registrant's shares: Starwood Strategic Fund, Aggressive Growth
Fund, Laidlaw Fund (formerly Fiduciary Value Fund), Asset
Allocation Fund, Taxable Fixed Income Fund, First Lexington
Balanced Fund (formerly Municipal Fixed Income Fund), Taxable
Money Market Fund and Tax-Free Money Market Fund. All of the
Funds' shares are offered pursuant to a combined Prospectus (the
"Combined Prospectus") and a combined Statement of Additional
Information. In addition, the shares of The Taxable Money Market
Fund and The Tax-Free Money Market Fund are offered pursuant to
a separate Prospectus for those Funds only (the "Money Market
Fund Prospectus"). Both the Combined Prospectus and the Money
Market Fund Prospectus are included in Part A of this
Post-Effective Amendment. The Prospectus headings below refer to
the headings in the Combined Prospectus; the Prospectus headings
in the Money Market Fund Prospectus are substantially identical.
PART A. INFORMATION REQUIRED IN THE PROSPECTUS.
Item in Form N-1A Prospectus Heading
Item 1. Cover Page . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . .. . . . . Summary of Fund Expenses;
Highlights
Item 3. Condensed Financial Information . . Financial Highlights;
Performance Information
Item 4. General Description of Registrant . Highlights; Investment
Objectives and Policies;
Investment Policies and
Techniques and Risk Factors;
General Information
Item 5. Management of the Fund . . . . . . . The Trust and Its
Management
Item 5A. Management's Discussion of Fund . . .Not Applicable
Performance
Item 6. Capital Stock and Other Securities . General Information;
Dividends and Distributions;
Taxes
Item 7. Purchase of Securities Being. . . . How to Buy Shares;
Offered Shareholder Services; Net
Asset Value; The Trust and
its Management
Item 8. Redemption or Repurchase . . . . . . How to Redeem Shares;
Exchange Privilege
Item 9. Pending Legal Proceedings . . . . . .Not Applicable
Item 13. Investment Objectives and Policies. .Investment Objectives and
Policies; Investment Policies
and Techniques and Risk
Factors
Item 16. Investment Advisory and Other
Services. . . . . . . . . . . . . .The Trust and Its Management
PART B. INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONALINFORMATION.
Item in Form N-1A Statement Heading
Item 10. Cover Page . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . .Table of Contents
Item 12. General Information and History . . . . . . .None
Item 13. Investment Objectives and Policies . . . . . Types of Investments
and Investment
Techniques;
Investment Limitations
Item 14. Management of the Fund . . . . . . . . . . . Management of the Trust
Item 15. Control Persons and Principal Holders
of Securities . . . . . . . . .. . . . . . . . . . . Management of the Trust
Item 16. Investment Advisory and Other Services . . . Investment Advisory
Arrangements;
Distribution
Arrangements;
Administrative
Services Arrangements;
Custodian, Transfer
Agent, Fund Accounting
Agent, and
Independent Accountants
Item 17. Brokerage Allocation and Other Practices . . Brokerage
Transactions
Item 18. Capital Stock and Other Securities . . . . . Information About the
Trust
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . .Purchase and
Redemption;
Determination of Net
Asset Value
Item 20. Tax Status . . . . . . . . . . . . . . . . . Tax Status
Item 21. Underwriters . . . . . . . . . . . . . . . Not Applicable
Item 22. Calculation of Performance Data . . . . . . .Performance
Information
Item 23. Financial Statements . . . . . . . . . . . Financial Statements
PART C. OTHER INFORMATION
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C of this
Registration Statement.
<PAGE>
THE VINTAGE FUNDS
Prospectus dated February 1, 1997
The Vintage Funds is a family of mutual funds with eight
separate portfolios:
The Starwood Strategic Fund seeks growth of capital. The
Fund pursues this objective by investing principally in a
diversified portfolio of equity securities of seasoned,
financially strong growth companies.
The Aggressive Growth Fund seeks growth of capital. The Fund
pursues this objective by investing primarily in a diversified
portfolio of other no-load mutual funds that invest principally
in large capitalization stocks, and secondarily in other no-load
mutual funds that invest principally in small capitalization and
emerging growth company securities.
The Laidlaw Fund seeks growth of capital, current income and
growth of income. The Fund pursues this objective by investing
principally in a diversified portfolio of common stocks,
preferred stocks and securities convertible into common stock of
socially conscious companies that offer the prospect for growth
of earnings while paying current dividends.
The Asset Allocation Fund seeks preservation of capital,
capital appreciation and income. The Fund pursues this objective
through a flexible policy of investing principally in a
diversified portfolio of other no-load index and sector mutual
funds, including domestic and international stock and bond index
and sector funds, as well as money market funds.
The Taxable Fixed Income Fund seeks a high level of current
income consistent with the preservation of capital. The Fund
pursues this objective by investing principally in a diversified
portfolio of U.S. government securities and investment grade
corporate debt obligations and asset-backed securities.
The First Lexington Balanced Fund seeks long term growth of
capital and current income. The Fund pursues this objective by
investing principally in a diversified portfolio of other no-load
mutual funds selected from six major financial asset classes.
The Taxable Money Market Fund seeks a high level of current
income consistent with the preservation of capital and
maintenance of liquidity. The Fund pursues this objective by
investing principally in a diversified portfolio of short-term
money market instruments.
The Tax-Free Money Market Fund seeks a high level of current
income that is exempt from federal income tax consistent with the
preservation of capital and maintenance of liquidity. The Fund
pursues this objective by investing principally in a diversified
portfolio of high quality, short-term municipal securities.
The shares offered hereby are not deposits or obligations of
any financial institution and are not insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any
other government agency. Investment in the shares involves
investment risks including the possible loss of principal. There
can be no assurance that the money market Funds will be able to
maintain a stable net asset value of $1.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus contains information that you should know
before investing in any of the Funds and it should be retained
for future reference. A Statement of Additional Information (the
"SAI"), dated February 1, 1997 has been filed with the SEC and is
incorporated herein by reference. The SAI is available upon
request and without charge by calling 1-800-408-4682
(1-800-40-VINTAGE). The SEC maintains a Web Site
(http://www.sec.gov) that contains the SAI, material incorporated
by reference, and other information regarding registrants that
file electronically with the SEC.
[END OF COVER PAGE]
<PAGE>
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . 2
FINANCIAL HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . 4
HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
INVESTMENT OBJECTIVES AND POLICIES. . . . . . . . . . . . . . . . . . 9
The Starwood Strategic Fund. . . . . . . . . . . . . . . . . . . 9
The Aggressive Growth Fund . . . . . . . . . . . . . . . . . . .10
The Laidlaw Fund . . . . . . . . . . . . . . . . . . . . . . . .11
The Asset Allocation Fund. . . . . . . . . . . . . . . . . . . .11
The Taxable Fixed Income Fund. . . . . . . . . . . . . . . . . .12
The First Lexington Balanced Fund. . . . . . . . . . . . . . . .13
The Taxable Money Market Fund. . . . . . . . . . . . . . . . . .13
The Tax-Free Money Market Fund . . . . . . . . . . . . . . . . .14
INVESTMENT POLICIES AND TECHNIQUES AND RISK FACTORS . . . . . . . . .14
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . .23
HOW TO BUY SHARES . . . . . . . . . . . . . . . . . . . . . . . . . .24
Minimum Investment . . . . . . . . . . . . . . . . . . . . . . .24
Opening an Account . . . . . . . . . . . . . . . . . . . . . . .24
By Mail . . . . . . . . . . . . . . . . . . . . . . . . . .24
By Wire . . . . . . . . . . . . . . . . . . . . . . . . . .24
Subsequent Investments . . . . . . . . . . . . . . . . . . . . .25
By Automated Clearing House (ACH) . . . . . . . . . . . . .25
By Telephone Order. . . . . . . . . . . . . . . . . . . . .26
DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . .26
Timing of Certain Money Market Fund Transactions . . . . . . . .26
EXCHANGE PRIVILEGE. . . . . . . . . . . . . . . . . . . . . . . . . .26
By Telephone . . . . . . . . . . . . . . . . . . . . . . . . . .27
By Mail or Telecopy. . . . . . . . . . . . . . . . . . . . . . .27
HOW TO REDEEM SHARES. . . . . . . . . . . . . . . . . . . . . . . . .27
By Mail. . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Signatures. . . . . . . . . . . . . . . . . . . . . . . . .28
By Telephone . . . . . . . . . . . . . . . . . . . . . . . . . .28
Receiving Payment. . . . . . . . . . . . . . . . . . . . . . . .28
Check Writing (Money Market Funds Only). . . . . . . . . . . . .28
Minimum Account Balance. . . . . . . . . . . . . . . . . . . . .29
SHAREHOLDER SERVICES. . . . . . . . . . . . . . . . . . . . . . . . .29
THE TRUST AND ITS MANAGEMENT. . . . . . . . . . . . . . . . . . . . .29
Investment Advisory Arrangements . . . . . . . . . . . . . . . .30
Investment Adviser. . . . . . . . . . . . . . . . . . . . .30
Sub-Advisers. . . . . . . . . . . . . . . . . . . . . . . .30
Portfolio Managers' Backgrounds. . . . . . . . . . . . . . . . .31
Advisory Fees. . . . . . . . . . . . . . . . . . . . . . . . . .31
Distribution Services. . . . . . . . . . . . . . . . . . . . . .32
Distributor . . . . . . . . . . . . . . . . . . . . . . . .32
Distribution Plan . . . . . . . . . . . . . . . . . . . . .32
Administration of the Trust. . . . . . . . . . . . . . . . . . .32
Administrator . . . . . . . . . . . . . . . . . . . . . . .32
Shareholder Services Plan . . . . . . . . . . . . . . . . .32
Other Arrangements. . . . . . . . . . . . . . . . . . . . .33
Transfer Agent, Fund Accounting Agent
and Custodian . . . . . . . . . . . . . . . . . . . . . . . .33
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . .33
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
THE "V.O.I.C.E." PROGRAM. . . . . . . . . . . . . . . . . . . . . . .34
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
The Tax-Free Fund. . . . . . . . . . . . . . . . . . . . . . . .35
Backup Withholding . . . . . . . . . . . . . . . . . . . . . . .36
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . .36
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .37
No person has been authorized to give any information or to
make any representations other than those contained in this
Prospectus and in the Fund's official sales literature in
connection with the offer of the Fund's shares, and, if given or
made, such other information or representation must not be relied
upon as having been authorized by the Fund. This Prospectus
does not constitute an offer in any State in which, or to any
person to whom, such offering may not lawfully be made.
SUMMARY OF FUND EXPENSES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . . . . . . . . . . . . . . . . . None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . . None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable) . . . . . . . . . None
Redemption Fee (as a percentage of amount redeemed, if applicable) . . . None
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
<TABLE>
Annual Fund Operating Expenses
(As a percentage of average net assets)
<CAPTION>
Management 12b-1 Servicing Other Total(1)
Fund Name Fees Fees Fees Expenses Expenses
(after (after
reimbursement) reimbursement)
<S> <C> <C> <C> <C> <C>
Starwood Strategic(4) 0.75% 0.10% 0.15% 0.50%(2) 1.50%
Laidlaw(4) 0.75% 0.10% 0.15% 0.50%(2) 1.50%
Asset Allocation(4) 0.75% 0.10% 0.15% 0.50%(2) 1.50%
Aggressive Growth(4) 0.75% 0.10% 0.15% 0.50%(2) 1.50%
Taxable Fixed Income(4) 0.50% 0.10% 0.15% 0.50%(2) 1.25%
First Lexington Balanced(5) 0.50% 0.10% 0.15% 0.25%(3) 1.00%
Taxable Money Market(4) 0.50% 0.10% 0.15% 0.25%(3) 1.00%
Tax-Free Money Market(4) 0.50% 0.10% 0.15% 0.25%(3) 1.00%
<FN>
(1) The Adviser has voluntarily agreed to waive its
management fees and/or reimburse expenses to the extent necessary
to cause Total Expenses of each Fund to be as indicated.
Although the Adviser has no current intention to abandon this
voluntary arrangement, the Adviser may terminate the arrangement
at any time at its sole discretion.
(2) Absent the voluntary fee waiver/expense reimbursement
arrangement, Other Expenses are not expected to exceed 0.75%.
(3) Absent the voluntary fee waiver/expense reimbursement
arrangement, Other Expenses are not expected to exceed 0.50%.
(4) Expenses are restated to reflect the fees that would
have been applicable had the voluntary fee waiver/expense
reimbursement arrangement been in effect for the fiscal year
ended September 30, 1996. Absent reimbursement of expenses and
waiver of fees, the total expenses of the Funds for the fiscal
year ended September 30, 1996 would have been as follows:
Starwood Strategic Fund 15.99%; Laidlaw Fund 160.78%; Asset
Allocation Fund 9.61%; Aggressive Growth Fund 9.74%; Taxable
Fixed Income Fund 181.72%; Taxable Money Market Fund 1.25%;
Tax-Free Money Market Fund 1.82%.
(5) Expenses are estimated based on average expenses
expected to be incurred during the year ending September 30,
1997. During the course of the period, expenses may be more or
less than the average amounts shown.
</FN>
</TABLE>
Initial investments of less than the required minimum by
persons exempt from the minimum investment requirement are
subject to a one-time $4.50 administrative charge. See "How to
Buy Shares." Wire-transferred redemptions are subject to a
$15.00 charge and certain checking transactions may be subject to
additional charges. See "How to Redeem Shares."
The purpose of this table is to assist the investor in
understanding the various costs and expenses that a shareholder
of a Fund will bear, either directly or indirectly. The expense
information is based upon the operating expenses incurred during
the fiscal year ended September 30, 1996, and is restated to
reflect the voluntary fee waiver/expense reimbursement
arrangement (see footnote one to the table). Long-term
shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the
National Association of Securities Dealers, Inc. For a further
description of the various costs and expenses incurred by the
Funds, see "The Trust and its Management."
<TABLE>
Example:
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at
the end of each time period:
<CAPTION>
Fund Name 1 Year 3 Years 5 Year 10 Years
<S> <C> <C> <C> <C>
Starwood Strategic Fund $15 $47 $82 $179
Aggressive Growth Fund 15 47 82 179
Laidlaw Fund 15 47 82 179
Asset Allocation Fund 15 47 82 179
Taxable Fixed Income Fund 13 40 69 151
First Lexington Balanced Fund 10 32 -- ---
Taxable Money Market Fund 10 32 55 122
Tax-Free Money Market Fund 10 32 55 122
<FN>
The amounts listed in the example should not be considered as
representative of future expenses and actual expenses may be
greater or less than those indicated. Moreover, while the
example assumes a 5% annual return, a Fund's performance will
vary and may result in an actual return greater or less than 5%.
</FN>
</TABLE>
The Aggressive Growth Fund, the Asset Allocation Fund and the
First Lexington Balanced Fund intend to, and the Taxable Fixed
Income Fund may, invest principally in other mutual funds. The
other Funds may invest incidentally in other mutual funds. To
the extent that a Fund invests in other mutual funds, the Fund
will indirectly bear its proportionate share of any fees and
expenses paid by such other funds, in addition to the fees
and expenses payable directly by the Fund. Therefore, to the
extent that the Fund invests in other mutual funds, the Fund will
incur higher expenses, many of which may be duplicative. These
expenses will be borne by the Fund, and are not included in the
expenses reflected in the table or example above. See
"Investment Objectives and Policies -- Investments in Other
Mutual Funds."
FINANCIAL HIGHLIGHTS
The financial highlights of the Funds' operations for the
periods presented are derived from the audited financial
statements of The Vintage Funds and have been audited by McCurdy
and Associates CPA's Inc., independent public accountants. The
financial highlights of the Laidlaw Fund are the financial
highlights of the Laidlaw Covenant Fund, which was acquired by
the Laidlaw Fund on December 20, 1996. This information should
be read in conjunction with the financial statements and notes
thereto included in the Funds' Statement of Additional
Information (for the Laidlaw Fund) and in the Annual
Report to Shareholders (for the other Funds). Both the
Statement of Additional Information and the Annual Report are
available without charge by calling the Funds at
1-800-408-4682.
<TABLE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share
outstanding throughout each fiscal year or period and other
performance information derived from the financial statements.
Starwood Starwood Aggressive Aggressive
Strategic Strategic Growth Growth
Fund Fund Fund Fund
1996(a) 1995(b) 1996(a) 1995(b)
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning $10.00 $10.00 $10.00 $10.00
Income from investment
Operations:
Net investment income (3.23) 0.00 (0.24) 0.00
Net realized and unrealized
gain (loss) on investments 0.92 0.00 0.04 0.00
Total from investment income (2.31) 0.00 (0.20) 0.00
Less distributions:
Dividends from net
investment income 0.00 0.00 0.00 0.00
Total from distributions 0.00 0.00 0.00 0.00
Net asset value at end of period $ 7.69 $10.00 $9.80 $10.00
TOTAL ANNUALIZED
RETURN (%)(e) (3.97)(f) (c) (2.72)(d) (c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period 483,458 2,705 573,522 340
Ratio of expenses to
average net assets 15.99% 0.00% 9.74% 0.00%
Ratio of expenses (after
reimbursement) to
average net assets 15.25% 0.00% 9.01% 0.00%
Ratio of net investment
Income to average net assets (14.42%) 0.00% (8.07%) 0.00%
Ratio of net investment
income (after reimbursement)
to average net assets (13.68%) 0.00% (7.33%) 0.00%
Portfolio turnover 169.83% 0.00% 51.44% 0.00%
Average commission rate paid $ 0.06 $ --- $0.00 $ ----
<FN>
(a) For the Year-Ended September 30, 1996.
(b) For the Period June 2, 1995 (commencement of operations) to
September 30, 1995.
(c) Investment in accordance with objective had not commenced at
this time.
(d) For the period March 13, 1996 (commencement of investment in
accordance with objective) to September 30, 1996.
(e) Total return would have been lower had certain expenses not
been reduced during the periods shown (see Note 3).
(f) For the period April 4, 1996 (commencement of investment in
accordance with objective) to September 30, 1996.
</FN>
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each fiscal year or period and other performance
information derived from the financial statements.
The Laidlaw Fund
<CAPTION>
For the nine
months ended Year Ended Year Ended Year Ended March 3, 1992
September 30, December 31, December 31, December 31, December 31,
1996 1995 1994 1993 1992(a)
<S> <C>
Selected Per Share Data
Net Asset Value
Beginning of Period $14.96 $12.91 $12.92 $12.56 $11.94
Investment Activities
Net investment income (loss) 0.03 0.00 0.01 0.02 0.08
Net realized and unrealized
gains (losses) on
investments 0.66 3.82 0.35 0.49 1.03
Total from Investment Activities 0.69 3.82 0.36 0.51 1.11
Distributions
Net investment income 0.00 0.00 (0.01) (0.02) (0.08)
Net realized gains (0.70) (1.77) (0.36) (0.13) (0.41)
Total Distributions (0.70) (1.77) (0.37) (0.15) (0.49)
Net Asset Value, End of Period $14.95 $14.96 $12.91 $12.92 $12.56
Total Return (excluding sales
charges) 6.19%(b) 29.59% 2.86% 4.06% 11.20%(b)
Ratios/Supplementary Data
Net Assets at end of period(000) 3,313 4,497 4,381 4,996 4,284
Ratio of expenses to average
net assets 2.44% 2.50% 2.50% 2.50% 2.50%
Ratio of net investment income
(loss) to average net assets 0.28% 0.02% 0.11% 0.16% 0.69%
Ratio of expenses to average
net assets* 4.81% 4.57% 5.20% 5.80% 7.09%
Ratio of net investment income
(loss) to average net assets* (2.09%) (2.10%) (2.57%) (3.16%) (3.90%)
Portfolio turnover 0% 61% 73% 107% 128%
Average commission rate paid $0.01 $0.00(c) $0.00(c) $0.00(c) $0.00(c)
<FN>
* During the period the investment advisory and administration
fees were waived and reimbursed. If such voluntary fee reductions
had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Commission rate was not required on financial statements
during the periods 1992-1995.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share
outstanding throughout each fiscal year or period and other
performance information derived from the financial statements.
Taxable Taxable Tax-Free Tax-Free
Asset Asset Money Money Money Money
Allocation Allocation Market Market Market Market
Fund Fund Fund Fund Fund Fund
1996(a) 1995(b) 1996(a) 1995(b) 1996(a) 1995(b)
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning $10.00 $10.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
Operations:
Net investment income (0.93) 0.00 0.04 0.002 0.02 0.00
Net realized and unrealized
gain (loss) on investments 0.20 0.00 0.00 0.000 0.00 0.00
Total from investment income (0.73) 0.00 0.04 0.002 0.02 0.00
Less distributions:
Dividends from net investment income 0.00 0.00 (0.04) (0.002) (0.02) 0.00
Total from distributions 0.00 0.00 (0.04) (0.002) (0.02) 0.00
Net asset value at end of period $9.27 $10.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL ANNUALIZED RETURN (%)(e) (1.16)(d) (c) 4.13 0.20 1.96 (c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period 567,519 100 50,544,511 1,230,385 7,334,110 100
Ratio of expenses to average net
assets 9.61% 0.00% 1.25% 12.82% 1.82% 0.00%
Ratio of expenses (after reimbursement)
to average net assets 8.87% 0.00 1.16% 0.47% 1.62% 0.00%
Ratio of net investment
income to average net assets (8.36%) 0.00% 4.12% (11.94%) 2.09% 0.00%
Ratio of net investment
income (after reimbursement)
to average net assets (7.61%) 0.00% 4.21% 0.65% 2.29% 0.00%
Portfolio turnover 123.14% 0.00% 0.00% 0.00% 0.00% 0.00%
Average commission rate paid $0.00 $ --- $ 0.00 $ --- $0.00 $ ---
<FN>
(a) For the Year-Ended September 30, 1996.
(b) For the Period June 2, 1995 (commencement of operations) to
September 30, 1995.
(c) Investment in accordance with objective had not commenced at
this time.
(d) For the Period March 13, 1996 (commencement of investment in
accordance with objective) to September 30, 1996.
(e) Total return would have been lower had certain expenses not
been reduced during the periods shown (see Note 3).
</FN>
</TABLE>
Financial highlights for the First Lexington Balanced Fund
(formerly the Municipal Fixed Income Fund) and the Taxable Fixed
Income Fund are not included because those Funds had not
commenced investment in accordance with their respective
investment objectives prior to September 30, 1996.
HIGHLIGHTS
Investment Objectives and Investment Risks
The Vintage Funds (the "Trust") is a family of mutual funds
with eight separate portfolios (the "Funds"), each having its own
investment objective and policies. An investment in the Funds
involves investment risks including the possible loss of
principal. See "Investment Objectives and Policies" and
"Investment Policies and Techniques and Risk Factors."
Liquidity
Each Fund continuously offers and redeems its shares at the
Fund's prevailing net asset value per share. See "How to Buy
Shares," "How to Redeem Shares" and "Net Asset Value." The
Taxable Money Market Fund and the Tax-Free Money Market Fund each
intends to maintain a constant net asset value of $1.00 per
share, although there is no assurance that it will be able to do
so.
No Sales or Redemption Charges
There are no commissions, fees or charges by the Trust for
the purchase or redemption of shares. Initial investments below
the stated minimum, wire-transferred redemptions and certain
checking transactions may be subject to additional charges. See
"Summary of Fund Expenses," "How to Buy Shares" and "How to
Redeem Shares."
Minimum Investment
A minimum investment of $1,000 is required to open an
account, except an IRA account for which the minimum is $500.
Former shareholders of the Unified family of funds, or the Quest
funds which acquired the Unified family of funds, may open an
account with less than the required minimum. The minimum
investment may also be waived for certain other types of
retirement accounts and direct deposit accounts. Subsequent
investments must be at least $100, or $50 for an IRA. See "How
to Buy Shares."
Investment Advisers
Vintage Advisers, Inc. is the Funds' investment adviser (the
"Adviser"). The Adviser was organized in December 1994 and the
Funds commenced operations at various times after May 1995. The
Adviser has no prior operating history and does not act as the
investment adviser to any other investment companies.
The Adviser has engaged Starwood Corporation to serve as
sub-adviser to the Starwood Strategic Fund, Fiduciary Counsel,
Inc. to serve as sub-adviser to the Laidlaw Fund, the Taxable
Money Market Fund and the Tax-Free Money Market Fund, and Health
Financial, Inc. to serve as sub-adviser to the First Lexington
Balanced Fund (the "Sub-Advisers"). The Sub-Advisers manage the
investment portfolios of the applicable Funds, subject to
the Adviser's overall management. The Adviser directly manages
the investment portfolios of the Asset Allocation Fund, the
Aggressive Growth Fund and the Taxable Fixed Income Fund. See
"The Trust and its Management."
Retirement Plans and Other Shareholder Services
The Trust offers retirement plans including a prototype
Profit Sharing Plan, Money Purchase Pension Plan, Salary Savings
Plan - 401(k) and IRA accounts, as well as a number of special
shareholder services. For information regarding these plans or
services, call the Transfer Agent at 1-800-408-4682. See
"Shareholder Services."
V.O.I.C.E. (Vision for Ongoing Investment in Charity and
Education)
The Adviser administers The Vintage Funds University and
Philanthropic Program pursuant to which the Adviser will make
contributions to the general scholarship funds or endowments of
certain accredited colleges and universities designated by
qualified shareholders of any of the Funds. For
information regarding this Program, call the Adviser at
1-800-408-4682. Also see "The V.O.I.C.E. Program" below.
INVESTMENT OBJECTIVES AND POLICIES
The Trust offers eight separate Funds, each with its own
investment objective and policies. The Funds' investment
objectives cannot be changed without shareholder approval. While
there is no assurance that any Fund will achieve its investment
objective, it endeavors to do so by following the investment
policies described in this Prospectus. Unless otherwise
indicated, the Funds' investment policies may be changed by the
Trust's Board of Trustees without shareholder approval.
Shareholders will be notified before any material change in
investment policies becomes effective.
The following sections are concise descriptions of the Funds
and their investment objectives and policies. More information
about certain types of investments, investment techniques and
risk factors is provided below under "Investment Policies and
Techniques and Risk Factors" and in the Statement of Additional
Information.
The Starwood Strategic Fund
The Starwood Strategic Fund seeks growth of capital. The
Fund pursues this objective by investing principally in a
diversified portfolio of equity securities of seasoned,
financially strong growth companies. Although current income is
an incidental consideration, many of the Fund's investments
should provide regular dividends which may grow over time.
Under normal circumstances, the Fund's assets will consist
primarily of common stocks, preferred stocks, and preferred
stocks or corporate debt securities convertible into common
stocks, that are issued by companies which, in the opinion of the
Fund's sub-adviser, have the following characteristics:
Above-average growth rates over an extended period with
prospects for maintaining greater than average rates of
growth in earnings, cash flow or assets in the future;
A strong financial position with high credit standings
and profitability;
Important business franchises, leading products or
dominant marketing and distribution systems;
At least five years' operating history, annual revenues
of at least $200 million and market capitalization of at
least $300 million; and
Attractive share prices relative to potential growth in
earnings, cash flow or assets.
The Fund's investments are selected by its sub-adviser,
Starwood Corporation, ("Starwood") which uses a combination of
research techniques to identify companies having these
characteristics. Fundamental research is used to evaluate
various aspects of corporate performance, with a particular
emphasis on consistency of results, long-term growth prospects
and financial strength. Quantitative valuation methods are used
to determine which growth companies offer superior values at a
given point in time. When assessing growth rates, Starwood
generally considers a company to be "above average" if its growth
in earnings, cash flow or assets exceed the average growth rates
of companies included in the S&P 500 index, as published by
Standard & Poor's Corporation ("S&P"). When assessing financial
quality, Starwood evaluates five criteria: the strength of the
company's balance sheet; the volatility of the company's earnings
over time; the company's accounting practices; ranking (if any,
at the time of purchase) given the company's common stock by the
S&P; and the vulnerability of earnings to changes in external
factors, such as the general economy, the competitive
environment, governmental action and technological change.
The Fund may also invest to a lesser extent in equity
securities that do not meet the criteria listed above, as well as
in investment grade corporate debt obligations. The types of
equity securities in which the Fund may invest are described
below under "Investment Policies and Techniques and Risk Factors
- -- Corporate Equity Securities." The corporate debt obligations
in which the Fund may invest are described below under "The
Taxable Fixed Income Fund" and "Investment Policies and
Techniques and Risk Factors -- Corporate Debt Securities." Also,
the Fund may invest temporarily in money market instruments of
the types described below under "The Taxable Money Market Fund."
It is expected that the Fund will invest principally in
securities of U.S. companies. However, the Fund's investment
policies permit the Fund to invest in foreign securities under
normal circumstances.
The Fund allocates its investments among different industries
and companies, and changes its portfolio securities based on
long-term investment considerations as opposed to short-term
trading. However, the Fund may take advantage of opportunities
for short-term profits as they arise.
The Aggressive Growth Fund
The Aggressive Growth Fund seeks growth of capital. The Fund
pursues this objective by investing primarily in a diversified
portfolio of other no-load mutual funds that invest principally
in large capitalization stocks, and secondarily in other no-load
mutual funds that invest principally in small capitalization and
emerging growth company equity securities. For a description of
factors related to the Fund's investment in other mutual funds,
see "Investments in Other Mutual Funds" below.
The Fund's investment policies define "large capitalization"
stocks as equity securities of companies that rank in the top
one-third of the equity securities listed on the New York Stock
Exchange ("NYSE"), based upon their equity capitalization.
"Small capitalization" stocks are the equity securities of
companies that rank in the middle one-third of the equity
securities listed on the NYSE, based upon their equity
capitalization. Small capitalization stocks typically would
rank near or slightly below the average capitalization of all
equity securities listed on the NYSE. "Emerging growth company
securities" are defined as the equity securities of little-known
companies. These equity securities may consist of securities
of the types described below under "Investment Policies and
Techniques and Risk Factors -- Corporate Equity Securities."
Under normal circumstances, the Fund invests primarily in
no-load mutual funds that invest principally in large
capitalization stocks. However, depending on market
circumstances, at times, the Fund may invest more heavily in
no-load mutual funds emphasizing small capitalization stocks and
emerging growth company securities. Additionally, at times, the
Fund may invest in sector funds (which concentrate their
investments in a particular industry) or international funds.
However, at no time will the Fund invest more than 25% of its
assets in any mutual fund concentrated in any one industry. In
addition, from time to time the Fund may invest in individual
equity securities of the types described below under "Investment
Policies and Techniques and Risk Factors -- Corporate Equity
Securities."
Small capitalization stocks and emerging growth company
securities involve a higher degree of risk because most are not
as broadly traded as large capitalization stocks and their prices
may fluctuate more widely and abruptly. These securities are
also less researched and often overlooked in the market, and may
have less market liquidity than large capitalization stocks.
The Laidlaw Fund
The Laidlaw Fund seeks growth of capital, current income and
growth of income. The Fund pursues this objective by investing
principally in a diversified portfolio of common stocks,
preferred stocks and preferred stocks or corporate debt
securities convertible into common stocks of companies which
offer the prospect of growth of earnings while paying current
dividends. The Fund may also purchase securities that do not pay
current dividends but which offer prospects for growth of capital
and future income. Over time, the sub-adviser believes continued
growth of earnings will lead to higher dividends and enhancement
of capital value.
The Fund's portfolio is managed by its sub-adviser, Fiduciary
Counsel, Inc. In evaluating investments for the Fund, Fiduciary
Counsel seeks to identify companies that have demonstrated their
ability to grow and whose markets, profit margins and rates of
return on investments indicate the likelihood of future growth,
in addition to a likelihood for future dividend growth. It is
the sub-adviser's intention to follow a socially responsible
investment policy. For this purpose, the sub-adviser will retain,
at no expense to the Fund, Laidlaw Holdings Asset Management,
Inc. to maintain a list of approximately 200 preferred companies
selected from the 1,000 largest corporations based on corporate
behavior related to customer, community, employee, competitor,
supplier and shareholder relations, environmental and social
issues. While the Sub-Adviser intends to select securities for
the Fund from the list, it is not obligated to do so, and will
only do so to the extent the Sub-Adviser believes such selection
is consistent with the Fund's investment strategy described above.
The Fund allocates its investments among different industries and
companies, and changes its portfolio securities based on
long-term investment considerations and not for short-term
trading purposes. However, the Fund may take advantage of
opportunities for short-term profits as they arise.
Under normal circumstances, the Fund's assets will consist
primarily of equity securities of the types described below under
"Investment Policies and Techniques and Risk Factors -- Corporate
Equity Securities." However, the Fund also may invest to a lesser
extent in investment grade corporate debt obligations of the
types described below under "The Taxable Fixed Income Fund."
Also, the Fund may invest temporarily in money market instruments
of the types described below under "The Taxable Money Market
Fund."
The Asset Allocation Fund
The Asset Allocation Fund seeks preservation of capital,
capital appreciation and current income. There is no priority
among these objectives. Rather, the Fund pursues its objectives
through a flexible policy of investing principally in a
diversified portfolio of other no-load index and sector
mutual funds, including domestic and international stock and
investment grade bond index funds, as well as other fixed income
and money market funds. A mutual fund in which the Fund invests
will not necessarily own all of the securities comprising the
relevant index, although it is expected that it will own
a sufficient number of the securities to be representative of the
index. For a description of factors related to the Fund's
investment in other mutual funds, see "Investments in Other
Mutual Funds" below.
The types of stock funds in which the Fund invests may
include domestic and international stock index funds, large cap,
small cap and mid cap stock index funds, and certain sector
funds. Sector funds are those mutual funds that concentrate on
particular geographic sectors or other delineated components of
the overall equity markets. Bond funds may include domestic
and international corporate bond index funds, and municipal and
U.S. government bond index funds. The Fund also may invest in
no-load mutual funds, including money market funds. However, at
no time will the Fund invest more than 25% of its assets in
mutual funds concentrated in any one industry.
Under normal circumstances, the Fund's assets will be
invested in both stock and bond index and sector funds. The
Adviser will purchase stock index and sector funds which, in its
opinion, have the greatest potential for capital appreciation.
The Fund may from time to time invest up to 100% of its assets in
any one of the following if, in the judgment of the Adviser, the
Fund has the opportunity of seeking a high level of capital
appreciation or current income without undue risk to principal:
common stock index or sector funds (including individual equity
securities), bond index funds or money market funds. The
Adviser will monitor and adjust its weighing of investments to
adapt to changing market and economic conditions. Distributable
income will fluctuate as the Fund shifts assets among various
types of investments.
The Fund may also invest directly in equity securities (of the
types described below under "Investment Policies and Techniques
and Risk Factors -- Corporate Equity Securities"), investment
grade corporate and municipal debt obligations, U.S. government
securities, money market instruments, and other no-load mutual
funds.
The Taxable Fixed Income Fund
The Taxable Fixed Income Fund seeks a high level of current
income consistent with the preservation of capital. The Fund
pursues this objective by investing principally in a diversified
portfolio of U.S. government securities and investment grade
corporate debt obligations. Under normal circumstances, at least
65% of the Fund's assets will be invested in domestic and foreign
issues of corporate debt obligations, commercial paper, bank
instruments, securities issued by the U.S. government, its
agencies or instrumentalities, asset-backed securities and
repurchase agreements. The Fund may invest in these securities
directly or by purchasing other mutual funds that invest in these
securities.
The Fund will only invest in corporate debt rated in one of
the three highest categories by a nationally recognized
statistical rating organization (e.g., rated Aaa, Aa or A by
Moody's Investors Service, Inc. ("Moody's") or AAA, AA or A by
Standard & Poor's, Fitch Investors Service, Inc. ("Fitch"), Duff
& Phelps, Inc. ("Duff") or Thompson BankWatch ("BankWatch")).
The Fund may invest in commercial paper which matures in 270 days
or less so long as at least two ratings are high quality ratings
by nationally recognized statistical rating organizations (e.g.,
rated Prime-1 or Prime-2 by Moody's, A-1 or A-2 by Standard &
Poor's, or F-1 or F-2 by Fitch). Asset backed securities must be
rated in one of the three highest categories by a nationally
recognized statistical rating organization. The Fund may also
invest in debt instruments which are of comparable quality in the
judgment of the Adviser. To the extent the Fund invests in other
mutual funds that invest in debt securities, it is the intention
of the Adviser to invest primarily in mutual funds with similar
quality restrictions. If the Fund purchases a rated security
and the rating is subsequently downgraded, the Adviser will
determine whether or not the security continues to be an
acceptable investment. If not, the security will be sold.
The net asset value of the Fund is expected to fluctuate
with changes in interest rates and bond market conditions. The
Adviser will attempt to minimize principal fluctuation through,
among other things, diversification, credit analysis and security
selection, and adjustments of the duration of the dollar-weighted
average maturity of the Fund's portfolio. In periods of
rising interest rates and falling bond prices, The Adviser may
shorten the Fund's average duration to minimize the effect of
declining bond values on the Fund's net asset value. Conversely,
during times of falling interest rates and rising prices a longer
average duration may be sought. The Fund may hold
individual securities of any maturity.
For additional information about the securities in which the
Fund may invest, see "Investment Policies and Techniques and Risk
Factors." From time to time during periods of other than normal
market conditions, the Fund may also invest in short-term
temporary investments of the types described below under "The
Taxable Money Market Fund."
The First Lexington Balanced Fund
The First Lexington Balanced Fund seeks long term growth of
capital and current income. The Fund pursues this objective by
investing primarily in a diversified portfolio of other no-load
mutual funds that invest in one of the following six financial
asset classes: (1) S&P 500 common stocks, (2)smaller capitalized
stocks as represented by the Wilshire 4500 Index, (3)
international stocks as represented by the Morgan Stanley EAFE
Index, (4) real estate investment trusts as represented by the
Morgan Stanley REIT Index, (5) cash equivalents, and (6)
long-term investment rated corporate and government bonds as
represented by the Sheerson-Lehman Government/Corporate Bond
Index. A mutual fund in which the Fund invests will not
necessarily own all of the securities comprising the relevant
index, although it is expected that it will own a sufficient
number of the securities to be representative of the index.
The Fund's sub-adviser utilizes an "active asset allocation"
strategy based on the modern portfolio theory that 93% of
investment return is attributable to the "asset class" of an
investment, not the individual security. In other words, if a
stock performed well, it is probably because the asset class of
the stock performed well, not because the investor was successful
at choosing a particular stock. The Fund's sub-adviser allocates
the Fund's portfolio among the asset classes and actively
monitors and adjusts the allocation. The sub-adviser seeks to
enhance return by increasing the Fund's participation in asset
classes that are, in the sub-adviser's opinion, undervalued. The
Sub-Adviser believes that diversification across these asset
classes should reduce risk because, in most years, at least one
or more asset classes have a positive return.
Under normal circumstances, the Fund's assets will consist
primarily of other no load mutual funds. At least 25% of the
Fund's assets will consist of mutual funds, including money
market funds, that invest in fixed income securities. For a
description of other factors related to the Fund's investment in
other mutual funds, see "Investment in Other Mutual Funds" below.
The Taxable Money Market Fund
The Taxable Money Market Fund seeks a high level of current
income consistent with the preservation of capital and
maintenance of liquidity. The Fund pursues this objective by
investing principally in a diversified portfolio of high quality,
short-term money market instruments. The Fund intends to
maintain a constant net asset value of $1.00 per share, although
there is no assurance that it will be able to do so.
The Fund's investments are selected by its sub-adviser,
Fiduciary Counsel, Inc. These investments principally include:
direct obligations of the U.S. Treasury, such as U.S.
Treasury bills, notes and bonds;
notes, bonds, and discount notes of U.S. government
agencies or instrumentalities;
short-term corporate debt instruments (including
commercial paper and variable rate demand notes) which
mature in 270 days or less;
domestic and foreign issues of corporate debt obligations
having floating or fixed rates of interest and having remaining
maturities of less than 13 months;
bank instruments described below under "Bank
Instruments";
other short-term investments of a type which the adviser
determines presents minimal credit risks and which are of "high
quality" as determined by a nationally recognized statistical
rating organization, or, in the case of an instrument that is
not rated, of comparable quality in the judgment of the adviser;
and
repurchase agreements collateralized by eligible
investments.
The Fund may invest only in securities that, at the time of
purchase, have a remaining maturity of less than 13 months and
that are "eligible securities" as defined by regulations of the
Securities and Exchange Commission. "Eligible securities"
generally include securities rated in one of the two highest
categories by at least two nationally recognized statistical
rating organizations (or by one such rating agency if only one
has issued a rating) or, if unrated, are determined to be of
comparable quality by Fiduciary Counsel pursuant to policies
approved by the Board of Trustees. If the Fund purchases an
eligible security and its rating is subsequently downgraded so
that the security is no longer of high quality, the Fund will
consider and take appropriate action, which may include divesting
the security. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less.
The Tax-Free Money Market Fund
The Tax-Free Money Market Fund seeks a high level of current
income that is exempt from federal income tax consistent with the
preservation of capital and maintenance of liquidity. The Fund
pursues this objective by investing principally in a diversified
portfolio of high quality, short-term municipal securities. The
Fund intends to maintain a constant net asset value of $1.00 per
share, although there is no assurance that it will be able to do
so.
The Fund invests principally in high quality, short-term
municipal securities, the interest from which is exempt from
federal income tax. Municipal securities are described under
"Investment Policies and Techniques and Risk Factors --
Municipal Securities" and in the Statement of Additional
Information. The Fund may invest up to 25% of its assets in
securities of issuers located in the same state.
As a matter of investment policy, which may not be changed
without shareholder approval, under normal circumstances, the
Fund will be invested so that at least 80% of the income from
investments will be exempt from federal income tax or that at
least 80% of its net assets are invested in obligations, the
interest from which is exempt from federal income tax. Interest
income that is exempt from federal income tax retains its federal
tax-free status when distributed to the Fund's shareholders. See
"Taxes -- The Tax-Free Money Market Fund" for additional
information.
From time to time, during periods of other than normal market
conditions, the Fund may invest in instruments that may or may
not be exempt from federal income tax. Although the Fund is
permitted to make taxable, temporary investments, there is no
current intention of generating income subject to federal regular
income tax.
The Fund may invest only in securities that, at the time of
purchase, have a remaining maturity of less than 13 months and
that are "eligible securities" as defined by regulations of the
Securities and Exchange Commission. See "Taxable Money Market
Fund" for additional information about "eligible securities."
INVESTMENT POLICIES AND TECHNIQUES AND RISK FACTORS
This section describes certain types of investments, investment
techniques and investment policies and limitations of the Funds.
This section also includes information about the risk factors
associated with the investments and investment techniques. The
risks of each Fund depend upon many factors. For the Funds that
invest principally in equity securities, these factors
include, among others, the Fund's investment objective, the types
of equity securities held and the financial position of the
issuers of these securities. For the Funds that invest
principally in debt securities, these factors include,
among others, the Fund's investment objective, the average
duration of the Fund's portfolio, credit quality of the
securities held and interest rate movements. For further
information, see the Statement of Additional Information.
Corporate Equity Securities
The Starwood Strategic Fund, the Aggressive Growth Fund, the
Laidlaw Fund, the First Lexington Balanced Fund and the Asset
Allocation Fund may invest in equity securities, including common
stocks, preferred stocks, convertible securities, warrants and
rights issued by corporations in any industry (industrial,
financial or utility) which may be denominated in U.S. dollars
or in foreign currencies. Equity securities fluctuate in value,
often based on factors unrelated to the performance of the issuer
of the securities and fluctuations can be pronounced. Small
capitalization issues and emerging growth company securities, in
particular, may be subject to wider price fluctuations than the
stock market as measured by popular indices.
Preferred Stocks. Preferred stock, unlike common stock,
offers a stated dividend rate payable from the issuer's earnings.
Preferred stock dividends may be cumulative or non-cumulative,
participating, or auction rate. If interest rates rise, the
fixed dividend on preferred stocks may be less attractive,
causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as
call/redemption provisions prior to maturity, a negative feature
when interest rates decline.
Convertible Securities. A convertible security is a bond,
debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common
stock of the same or a different issuer within a particular
period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid
or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or
exchanged. Convertible securities have several unique
investment characteristics, such as (a) higher yields than common
stocks, but lower yields than comparable nonconvertible
securities, (b) a lesser degree of fluctuation in value than the
underlying stock since they have fixed income characteristics,
and (c) the potential for capital appreciation if the market
price of the underlying common stock increases. A convertible
security might be subject to redemption at the option of the
issuer at a price established in the convertible security's
governing instrument. If a convertible security held by the Fund
is called for redemption, the Fund may be required to permit the
issuer to redeem the security, convert it into the underlying
common stock or sell it to a third party.
Warrants and Rights. Each Fund named above may invest up to
5% of its total assets in warrants and rights, including but not
limited to warrants or rights (i) acquired as part of a unit or
attached to other securities purchased by the Fund, or (ii)
acquired as part of a distribution from the issuer.
Fixed Rate Corporate Debt Obligations
All of the Funds may invest to varying extents in fixed rate
corporate debt obligations. Also, all of the Funds may invest in
short-term fixed rate corporate debt obligations that qualify as
money market instruments. Fixed rate securities tend to exhibit
more price volatility during times of rising or falling interest
rates than securities with floating rates of interest. This is
because floating rate securities, as described below, behave like
short-term instruments in that the rate of interest they pay is
subject to periodic adjustments based on a designated interest
rate index. Fixed rate securities pay a fixed rate of interest
and are more sensitive to fluctuating interest rates. In periods
of rising interest rates the value of a fixed rate security is
likely to fall. Fixed rate securities with short-term
characteristics are not subject to the same price volatility as
fixed rate securities without such characteristics. Therefore,
they behave more like floating rate securities with respect to
price volatility.
Many corporate debt obligations permit the issuers to call
the security and thereby redeem their obligations earlier than
the stated maturity dates. Issuers are more likely to call bonds
during periods of declining interest rates. In these cases, if a
Fund owns a bond which is called, the Fund will receive its
return of principal earlier than expected and would likely be
required to reinvest the proceeds at lower interest rates, thus
reducing income to the Fund.
Certain fixed-income obligations may involve equity
characteristics. The Asset Allocation Fund and the Taxable Fixed
Income Fund may, for example, invest in unit offerings that
combine fixed-income securities and common stock equivalents such
as warrants, rights and options. It is anticipated that
the majority of the value attributable to the unit will relate to
its fixed-income component. These Funds have no current
intention of converting any convertible securities it may own
into equity securities or holding them as an equity investment
upon conversion.
Other Corporate Debt Obligations
The Funds may also invest to varying extents in other
corporate debt obligations, including those described below.
Also, all of the Funds may invest in short-term corporate debt
obligations that qualify as money market instruments.
Floating Rate Obligations. Floating rate securities are
generally offered at an initial interest rate which is at or
above prevailing market rates. The interest rate paid on these
securities is then reset periodically (commonly every 90 days) to
an increment over some predetermined interest rate index.
Commonly utilized indices include the three-month Treasury bill
rate, the 180-day Treasury bill rate, the one-month or
three-month London Interbank Offered Rate (LIBOR), the prime rate
of a bank, the commercial paper rates, or the longer-term rates
on U.S. Treasury securities.
Variable Rate Demand Notes. Variable rate demand notes are
long-term corporate debt instruments that have variable or
floating interest rates and provide the Fund with the right to
tender the security for repurchase at its stated principal amount
plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at
par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based
on an interest index or a stated percentage of a prime rate or
another published rate. Many variable rate demand notes allow
the Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit the Fund
to tender the security at the time of each interest rate
adjustment or at other fixed intervals.
Zero Coupon Securities. Corporate zero coupon securities
are: (i) notes or debentures which do not pay current interest
and are issued at substantial discounts from par value, or (ii)
notes or debentures that pay no current interest until a stated
date one or more years into the future, after which the issuer is
obligated to pay interest until maturity, usually at a higher
rate than if interest were payable from the date of issuance.
Investments in Other Mutual Funds
All of the Funds may invest to some extent in the securities
of other open-end registered investment companies ("mutual
funds"). Each of the Aggressive Growth Fund, the Asset
Allocation Fund, and the First Lexington Balanced Fund intends
to, and the Taxable Fixed Income Fund may, invest principally in
other mutual funds, and may invest up to 25% of its assets in any
one mutual fund, and up to 100% of its assets in other mutual
funds in general. Each of the other Funds intends to invest
incidentally in other mutual funds and may not invest more than
5% of its total assets in any one mutual fund, or more than 10%
of its total assets in mutual funds in general. The Funds,
considered together, may not invest in more than 3% of the total
outstanding voting securities of any one mutual fund. The
foregoing limitations are not applicable to investment company
securities acquired as part of a merger, consolidation,
reorganization or other acquisition.
The Trust believes that investing in other mutual funds will
provide the Funds with opportunities to achieve greater
diversification of portfolio securities and investment techniques
than the Funds could achieve by investing in individual
securities. The Funds will invest only in other mutual funds
that do not impose up-front sales loads or deferred sales loads
or redemption fees. However, the Fund may invest in Funds that
have 12b-1 plans or shareholder services plans which permit the
funds to pay certain distribution and other expenses from fund
assets. To the extent that a Fund invests in other mutual funds,
the Fund will indirectly bear its proportionate share of any
fees and expenses paid by such funds in addition to the fees and
expenses payable directly by the Fund. Therefore, to the extent
that a Fund invests in other mutual funds, the Fund will incur
higher expenses, many of which may be duplicative. (For example,
each of the Aggressive Growth Fund and the Asset Allocation Fund
pays the Adviser a fee of 0.75% of its average net assets
to manage its investment portfolio of other mutual funds, each of
which pays its own investment adviser a fee to manage its own
portfolio securities.) In addition, to the extent that a Fund
invests in other mutual funds, the Fund's shareholders may
receive capital gains distributions to a greater extent than if
the shareholder owned the underlying mutual funds directly.
Each Fund will invest only in other mutual funds that have an
investment objective similar to the Fund's, or that otherwise is
a permitted investment under the Fund's investment policies
described herein. Nevertheless, the mutual funds purchased by
the Funds likely will have certain investment policies, and use
certain investment practices that are different from those of
the Funds and not described herein. These other policies and
practices may subject the other funds' assets to varying or
greater degrees of risk. The Funds are independent from any of
the other mutual funds in which they invest and have little
voice in or control over the investment practices, policies or
decisions of those funds. If a Fund disagrees with those
practices, policies or decisions, it may have no choice other
than to liquidate its investment in that fund, which can entail
further losses. However, a mutual fund is not required to
redeem any of its shares owned by another mutual fund in an
amount exceeding 1% of the underlying fund's shares during any
period of less than 30 days. As a result, to the extent that a
Fund owns more than 1% of another mutual fund's shares, the Fund
may not be able to liquidate those shares in the event of adverse
market conditions or other considerations.
Also, the investment advisers of the mutual funds in which a
Fund invests may simultaneously pursue inconsistent or
contradictory courses of action. For example, one fund may be
purchasing securities of the same issuer whose securities are
being sold by another fund, with the result that the Fund
would incur an indirect expense without any corresponding
investment or economic benefit.
Asset-Backed Securities
The money market Funds may invest in mortgage-related
asset-backed securities that are considered U.S. government
securities. The other Funds may invest in these and, to varying
extents, in other asset-backed securities. Asset-backed
securities are created by the grouping of certain
governmental, government related and private loans, receivables
and other lender assets into pools. Interests in these pools are
sold as individual securities. Payments from the asset pools may
be divided into several different tranches of debt securities,
with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive
regular installments of interest, with principal payable at
maturity or upon specified call dates, and other tranches only
entitled to receive payments of principal and accrued interest at
maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be fixed
or floating.
Because the loans held in the asset pool often may be prepaid
without penalty or premium, asset-backed securities can be
subject to higher prepayment risks than most other types of debt
instruments. Prepayments may result in a capital loss to the
Fund to the extent that the prepaid mortgage securities were
purchased at a market premium over their stated amount.
Conversely, the prepayment of mortgage securities purchased at a
market discount from their stated principal amount will
accelerate the recognition of interest income by the Fund, which
would be taxed as ordinary income when distributed to the
shareholders.
The credit characteristics of asset-backed securities also
differ in a number of respects from those of traditional debt
securities. The credit quality of most asset-backed securities
depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the
securities is insulated from the credit risk of the originator or
any other affiliated entities, and the amount and quality of any
credit enhancement to such securities.
Foreign Securities
Each Fund may invest in foreign securities, including foreign
securities not publicly traded in the United States. The money
market Funds may only invest in foreign securities that are
denominated in U.S. dollars. The percentage of a Fund's assets
that will be allocated to foreign securities will vary depending
on the relative yields of foreign and U.S. securities,
the economies of foreign countries, the condition of such
countries' financial markets, the interest rate climate of such
countries and the relationship of such countries' currency to the
U.S. dollar. These factors are judged on the basis of
fundamental economic criteria (e.g., relative inflation levels
and trends, growth rate forecasts, balance of payments status,
and economic policies) as well as technical and political data.
Investments in foreign securities involve special risks that
differ from those associated with investments in domestic
securities. The risks associated with investments in foreign
securities apply to securities issued by foreign corporations
and sovereign governments. These risks relate to political and
economic developments abroad, as well as those that result from
the differences between the regulation of domestic securities and
issuers and foreign securities and issuers. These risks may
include, but are not limited to, expropriation and
nationalization, confiscatory taxation, reduced levels
of government regulation of securities markets, currency
fluctuations and restrictions on, and costs associated with, the
exchange of currencies, withholding taxes on interest,
limitations on the use or transfer of assets, political or social
instability and adverse diplomatic developments. It may also be
more difficult to enforce contractual obligations or obtain court
judgments abroad than would be the case in the United States
because of differences in the legal systems. If the issuer of
the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of
such debt, the Fund may have limited legal recourse in the event
of a default. Moreover, individual foreign economies may differ
favorably or unfavorably from the domestic economy in such
respects as growth of gross national product, the rate of
inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Additional differences exist between investing in foreign and
domestic securities. Examples of such differences include: less
publicly available information about foreign issuers; credit
risks associated with certain foreign governments; the lack of
uniform financial accounting standards applicable to foreign
issuers; less readily available market quotations on foreign
issues; the likelihood that securities of foreign issuers may be
less liquid or more volatile; generally higher foreign brokerage
commissions; and unreliable mail service between countries.
To the extent that debt securities purchased by a Fund are
denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset
value; the value of interest earned; gains and losses realized on
the sale of securities; and net investment income and capital
gain, if any, to be distributed to shareholders by the Fund. If
the value of a foreign currency rises against the U.S. dollar,
the value of the Fund's assets denominated in that currency will
increase; correspondingly, if the value of a foreign currency
declines against the U.S. dollar, the value of the Fund's assets
denominated in the currency will decrease.
Foreign Currency Transactions. The Funds (except the money
market Funds) may enter into foreign currency transactions to
obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a
spot or cash basis at prevailing rates or through forward foreign
currency exchange contracts.
The Funds may also enter into foreign currency transactions
to protect Fund assets against adverse changes in foreign
currency exchange rates or exchange control regulations. Such
changes could unfavorably affect the value of Fund assets which
are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars.
Although foreign currency transactions may be used by the Fund to
protect against a decline in the value of one or more currencies,
such efforts may also limit any potential gain that might result
from a relative increase in the value of such currencies and
might, in certain cases, result in losses to the Fund.
Municipal Securities
The Tax-Free Money Market Fund may invest in short-term
municipal securities that qualify as money market instruments.
Municipal securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals,
mass transportation projects, schools, streets, and water and
sewer works. They are also issued to repay outstanding
obligations, to raise funds for general operating expenses, and
to make loans to other public institutions and facilities.
The two principal classifications of municipal securities are
"general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith and
credit and taxing power for the payment of principal and
interest. Interest on and principal of revenue bonds, however,
are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue.
Revenue bonds do not represent a pledge of credit or create any
debt of or charge against the general revenues of a municipality
or public authority.
Municipal securities may carry fixed or floating rates of
interest. Most municipal securities pay interest in arrears on a
semiannual or more frequent basis. However, certain securities,
typically known as capital appreciation bonds or zero coupon
bonds, do not provide for any interest payments prior
to maturity. Such securities are normally sold at a discount
from their stated value, or provide for periodic increases in
their stated value to reflect a compounded interest rate. The
market value of these securities is also more sensitive to
changes in market interest rates than securities that provide
for current interest payments.
Participation Interests. The Funds may purchase
participation interests from financial institutions such as
commercial banks, savings and loan associations and insurance
companies. These participation interests give the Fund an
undivided interest in one or more underlying municipal
securities. The financial institutions from which the Fund
purchases participation interests frequently provide or obtain
irrevocable letters of credit or guarantees to attempt to assure
that the participation interests are of high quality. These
typically give the Fund the right to demand payment of the
principal amounts of the participation interests plus accrued
interest on short notice (usually within seven days).
Municipal Leases. Municipal leases are obligations issued by
state and local governments or authorities to finance the
acquisition of equipment and facilities. They may take the form
of a lease, an installment purchase contract, a conditional sales
contract or a participation certificate of any of the above.
Industrial Development Bonds. Industrial development bonds
are issued by or on behalf of public authorities to provide
financing aid to acquire sites or construct and equip facilities
for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local
employment. Industrial development bonds do not represent a
pledge of credit or create any debt of municipality or a public
authority, and no taxes may be levied for payment of principal or
interest on these bonds. The principal and interest is payable
solely out of monies generated by the entities using or
purchasing the sites or facilities. These bonds will be
considered municipal securities if the interest paid on them, in
the opinion of bond counsel, is exempt from federal regular
income tax.
Municipal Notes. Municipal securities in the form of notes
generally are used to provide for short-term capital needs, in
anticipation of an issuer's receipt of other revenues or
financing, and typically have maturities of up to three years.
Such instruments may include Tax Anticipation Notes, Revenue
Anticipation Notes, Bond Anticipation Notes, Tax and Revenue
Anticipation Notes and Construction Loan Notes. The obligations
of an issuer of municipal notes are generally secured by the
anticipated revenues from taxes, grants or bond financing. An
investment in such instruments, however, presents a risk that
the anticipated revenues will not be received or that such
revenues will be insufficient to satisfy the issuer's payment
obligations under the notes or that refinancing will be otherwise
unavailable.
Tax-Exempt Commercial Paper. Issues of commercial paper
typically represent short-term, unsecured, negotiable promissory
notes. These obligations are issued by state and local
governments and their agencies to finance working capital needs
of municipalities or to provide interim construction financing
and are paid from general revenues of municipalities or are
refinanced with long-term debt. In most cases, tax-exempt
commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions.
Zero Coupon and Capital Appreciation Bonds. Zero coupon and
capital appreciation bonds are debt securities issued or sold at
a discount from their face value and which do not entitle the
holder to any periodic payment of interest prior to maturity or a
specified redemption date (or cash payment date). The amount of
the discount varies depending on the time remaining
until maturity or cash payment date, prevailing interest rates,
the liquidity of the security and the perceived credit quality of
the issuer. These securities also may take the form of debt
securities that have been stripped of their unmatured interest
coupons, the coupons themselves or receipts or certificates
representing interest in such stripped debt obligations or
coupons. Discount with respect to stripped tax-exempt securities
or their coupons may be taxable. The market prices of capital
appreciation bonds generally are more volatile than the market
prices of interest bearing securities and are likely to respond
to a greater degree to changes in interest rates than interest
bearing securities having similar maturities and credit quality.
U.S. Government Securities
All of the Funds may invest in U.S. government securities.
These securities are either issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The government
securities in which the Fund may invest are backed in a variety
of ways by the U.S. government or its agencies or
instrumentalities. Some of these securities, such as
Government National Mortgage Association ("GNMA") mortgage-backed
securities, are backed by the full faith and credit of the U.S.
government. Other securities, such as obligations of the Federal
National Mortgage Association ("FNMA") or Federal Home Loan
Mortgage Corporation ("FHLMC"), are backed by the credit of the
agency or instrumentality issuing the obligations but not the
full faith and credit of the U.S. government. No assurances can
be given that the U.S. government will provide financial support
to these other agencies or instrumentalities, because it is not
obligated to do so.
Bank Instruments
All of the Funds may invest in time deposits (including
savings deposits and certificates of deposit), deposit notes and
bankers acceptances in commercial banks or savings associations
whose accounts are insured by the Federal Deposit Insurance
Corporation ("FDIC"), including certificates of deposit issued
by and other time deposits in foreign branches of FDIC
insured financial institutions or who have at least $100 million
in capital. These instruments may also include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee Cds") and Eurodollar Time Deposits ("ETDs"). The banks
issuing these instruments are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as
reserve requirements, loan requirements, loan limitations,
examinations, accounting, auditing, and record keeping and the
public availability of information.
Repurchase Agreements
All of the Funds may invest in repurchase agreements related
to eligible securities. Repurchase agreements are arrangements
in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities
to the Fund and agree at the time of sale to repurchase them at
a mutually agreed upon time and price. Under the Investment
Company Act of 1940, a repurchase agreement is deemed to be a
loan collateralized by the underlying securities. To the extent
that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price
on any sale of such securities.
Selling Securities Short
The Starwood Strategic Fund may sell securities short. The
Fund will effect short sales when it is believed that the price
of a particular security will decline. A short sale involves
the sale of a security which the Fund does not own in the hope
of purchasing the same security at a later date at a lower
price. To make delivery to the buyer, the Fund must borrow the
security, and the Fund is obligated to return the security to the
lender, which is accomplished by a later purchase of the security
by the Fund.
When the Fund makes a short sale, it must deposit with the
lender or maintain in a segregated account cash or government
securities to collateralize its obligation to replace the
borrowed securities which have been sold. The Fund may sell
securities short only to the extent that would cause the
amounts on deposit or segregated to equal 25% of the value of its
total assets.
The Fund will incur a loss as a result of a short sale if
the price of the security increases between the date of the short
sale and the date on which the Fund purchases the security to
replace the borrowed security. The Fund will realize a gain if
the security declines in price between those dates. The amount
of any gain will be decreased and the amount of any loss
increased by any premium or interest the Fund may be required to
pay in connection with a short sale.
When-Issued and Delayed Delivery Transactions
The Funds may purchase securities on a when-issued or delayed
delivery basis. These transactions are arrangements in which a
Fund purchases securities with payment and delivery scheduled for
a future time. Prior to such delivery, no income on the
securities accrues to the Fund. In when-issued and delayed
delivery transactions, the Fund relies on the seller to complete
the transaction. The seller's failure to complete the
transaction may cause the Fund to miss a price or yield
considered to be advantageous.
Demand Features
The Funds that invest in debt securities may acquire
securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal
amount (usually with accrued interest) within a fixed period
following a demand by the Fund. The demand feature may be issued
by the issuer of the underlying securities, a dealer in the
securities or by another third party, and may not be transferred
separately from the underlying security. The Fund uses these
arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the
issuer of the demand feature, or a default on the underlying
security or other event that terminates the demand feature
before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even
after a payment default on the underlying security are treated
as a form of credit enhancement.
Options Transactions
Each of the Funds (except the Taxable Money Market Fund and
the Tax-Free Money Market Fund) may attempt to hedge all or a
portion of its portfolio by buying put options on portfolio
securities. These Funds also may also write covered call options
on portfolio securities to attempt to increase current income.
Each Fund may write covered call options and secured put options
on up to 25% of its net assets and may purchase put and
call options provided that no more than 5% of the fair market
value of its net assets may be invested in premiums on such
options.
A call option gives the purchaser the right to buy, and the
writer the obligation to sell, the underlying currency, security
or other asset at the exercise price during the option period.
A put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying currency, security
or other asset at the exercise price during the option period.
The writer of a covered call owns assets that are acceptable for
escrow and the writer of a secured put invests an amount not less
than the exercise price in eligible assets to the extent that it
is obligated as a writer. If a call written by a Fund is
exercised, the Fund forgoes any possible profit from an increase
in the market price of the underlying asset over the exercise
price plus the premium received. In writing puts, there is a
risk that the Fund may be required to take delivery of the
underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange
traded options in several respects. They are transacted directly
with dealers and not with a clearing corporation, and there is a
risk of nonperformance by the dealer as a result of the
insolvency of such dealer or otherwise, in which event the fund
may experience material losses. However, in writing options the
premium is paid in advance by the dealer, OTC options, which may
not be continuously liquid, are available for a greater variety
of assets, and a wider range of expiration dates and exercise
prices, than are exchange traded options. The Fund intends to
treat OTC options as illiquid securities.
Temporary Investments
All of the Funds may invest temporarily in cash or short-term
money market instruments during times of unusual market
conditions for defensive purposes, without limitation. These
temporary investments may include the instruments described above
under "The Taxable Money Market Fund". The Funds may also invest
in these instruments temporarily to maintain liquidity in
anticipation of favorable investment opportunities. Under normal
market conditions, the Funds (other than the money market Funds)
will limit their temporary investments for liquidity purposes to
no more than 20% of the value of their total assets.
Borrowing
The Starwood Strategic Fund is permitted to borrow money up to
one-third of the value of total assets (including the amount
borrowed), and pledge up to 15% of the value of those assets to
secure such borrowings, for the purpose of investment. The
other Funds may borrow to that extent for temporary or emergency
purposes. Borrowing for the purpose of investment is a
speculative technique that increases both investment opportunity
and Starwood's ability to achieve greater diversification of the
Fund's portfolio. However, it also increases investment risk.
Because the Fund's investments will fluctuate in value, whereas
the interest obligations on borrowed funds may be fixed, during
times of borrowing, the Fund's net asset value may tend to
increase more when its investments increase in value, and
decrease more when its investments decrease in value. In
addition, interest costs on borrowings may fluctuate with
changing market interest rates and may partially offset or exceed
the return earned on the borrowed funds. Also, during times of
borrowing under adverse market conditions, the Fund might have
to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations
would not favor such sales.
General
In order to generate additional income, each Fund may lend
portfolio securities on a short-term or a long-term basis up to
5% of the value of its total assets to broker/dealers, banks, or
other institutional borrowers of securities. Each Fund may
invest up to 5% of its assets in reverse repurchase agreements,
restricted securities and demand notes and credit facilities.
Portfolio Turnover
Each Fund may trade or dispose of portfolio securities as
considered necessary to meet its investment objective. Each of
the Funds intends to make investments based on long-term
investment considerations as opposed to short-term trading.
However, each Fund may take advantage of opportunities for
short-term profits as they arise. Higher portfolio turnover
results in increased Fund expenses, including brokerage
commissions, dealer mark-ups and other transaction costs on the
sale of securities and on the reinvestment in other securities,
and results in the acceleration of realization of capital gains
or losses for tax purposes. The Funds cannot accurately predict
their portfolio turnover rates, but it is anticipated that each
Fund's annual turnover rate generally will not exceed 100%
(excluding the money market Funds, which must invest in
short-term instruments). Each Fund intends to comply with the
short-term trading restrictions of Subchapter M of the Internal
Revenue Code of 1986, as amended, which could inhibit a rapid
change in a Fund's investments.
NET ASSET VALUE
Net asset value per share (the price at which shares are
purchased and redeemed) is determined as of the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m.,
Eastern time), on each business day the Exchange is open for
business. Each Fund's net asset value per share is determined by
dividing the sum of the market value of all securities and all
other assets of the applicable Fund, less liabilities of the
Fund, by the number of the Fund's shares outstanding.
The net asset value per share will fluctuate for each Fund
other than the Taxable Money Market Fund and the Tax-Free Money
Market Fund. The portfolio securities of the two money market
Funds are valued utilizing the amortized cost method of
valuation, which normally approximates market value, and which is
intended to result in a constant net asset value of $1.00 per
share. Although every effort is made to maintain the net asset
value of the money market Funds at $1.00 per share, there can be
no assurance that this constant net asset value will be
maintained at all times. For example, in the event of rapid and
sharp increases in current interest rates, a national credit
crisis, or a default by one or more of the issuers of a money
market Fund's portfolio securities, then it is possible that a
money market Fund's net asset value could decline below $1.00
per share.
HOW TO BUY SHARES
Shares of the Funds are sold each day the New York Stock
Exchange is open at the applicable Fund's net asset value per
share next calculated after receipt of the purchase order in
proper form. The Trust reserves the right to reject any
purchase request.
Minimum Investment
The minimum initial investment in each Fund is $l,000, except
an IRA for which the minimum initial investment is $500. Former
shareholders of the Unified family of funds, or the Quest funds
which acquired the Unified family of funds, may open an account
with less than the required minimum. However, they are subject
to a one-time $4.50 administrative charge to establish
the account. The minimum investment may also be waived for
certain other types of retirement accounts and direct deposit
accounts. Subsequent investments may be made in amounts of at
least $100, except for an IRA, which must be in amounts of at
least $50. Minimum investments for certain other types of
retirement accounts and direct deposit accounts may be different.
See "Shareholder Services."
Opening An Account
An account may be opened by mail or bank wire, as follows:
By Mail. To open a new account by mail:
Complete and sign the account application. (Be sure to
specify the name of the Fund(s) in which an investment
is made.)
Enclose a check payable to each Fund specified in the
application.
Mail the application and the check to the Transfer Agent
at the following address: The Vintage Funds, c/o Unified
Advisers, Inc., P.O. Box 6110, Indianapolis, Indiana
46206-6110.
By Wire. To open a new account (or to open an additional
account in a different Fund) by wire, call the Transfer Agent at
1-800-408-4682. A representative will assist you to obtain an
account application by telecopy (or mail), which must be
completed, signed and telecopied (or mailed) to the Transfer
Agent before payment by wire may be made. Then, request
your financial institution to wire immediately available funds
to:
Star Bank, N.A.
ABA # 04-20000-13
Attention: Name of Fund (see below)
Number of Fund (see below)
Credit Account # ________ (see below)
The applicable Fund and account numbers are as follows:
Fund Name Fund Number Account Number
Starwood Strategic Fund 20 483616744
Aggressive Growth Fund 21 483616751
Laidlaw Fund 23 483616769
Asset Allocation Fund 24 483616777
Taxable Fixed Income Fund 25 483616785
First Lexington Balanced Fund 26 483616793
Taxable Money Market Fund 30 483616819
Tax-Free Money Market Fund 31 483616827
The order is considered received when Star Bank, N.A., the
Trust's custodian, receives payment by wire. However, the
completed account application must be mailed to the Transfer
Agent on the same day the wire payment is made. See "Opening an
Account -- By Mail" above. The Trust will not permit redemptions
until the Transfer Agent receives the application in proper form.
Financial institutions may charge a fee for wire transfers.
Subsequent Investments
Once an account is open, additional purchases of Fund shares
may be made at any time in minimum amounts of $100, except for an
IRA, which must be in amounts of at least $50. Additional
purchases may be made:
By sending a check, made payable to the applicable Fund,
to The Vintage Funds, [Name of Fund], P.O. Box 640689,
Cincinnati, Ohio 45264-0689. The Trust will charge a $15
fee against a shareholder's account for any check returned
for insufficient funds. The shareholder also will be
responsible for any losses suffered by the Trust as a result.
By wire to the applicable Fund account as described above
under "Opening an Account -- By Wire". Shareholders should
call the Transfer Agent at 1-800-408-4682 before wiring funds.
By electronic funds transfer from a financial institution
through the Automated Clearing House ("ACH"), as described below.
By telephone order, as described below.
By Automated Clearing House (ACH). Once an account is open,
shares may be purchased or redeemed through ACH in minimum
amounts of $100. ACH is the electronic transfer of funds
directly between an account with a financial institution and the
applicable Fund. In order to use the ACH service, the ACH
Authorization section of the account application must be
completed. For existing accounts, an ACH Authorization Form may
be obtained by calling the Transfer Agent at 1-800-408-4682.
Allow at least two weeks for preparation before using ACH. To
order a purchase or redemption by ACH, call the Transfer Agent at
1-800-408-4682. There are no charges for ACH transactions
imposed by the Fund or the Transfer Agent. ACH transactions
are completed approximately two business days following the
placement of the transfer order.
ACH may be used to make direct deposits into a Fund account
of part or all of recurring payments made to a shareholder by his
or her employer (corporate, federal, military, or other) or by
the Social Security Administration.
By Telephone Order. Once an account is open, shares of a
non-money market Fund may be purchased at a certain day's price
by calling the Transfer Agent at 1-800-408-4682, before the
close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time) on that day. Orders must be
for $1,000 or more and may not be for an amount greater than
twice the value of the existing account at the time the order is
placed. Payment by check or wire must be received within three
business days after the order is placed, or the order will be
cancelled and the shareholder will be responsible for any
resulting loss to the Fund. Payment of telephone orders by check
may not be mailed to the Transfer Agent's P.O. Box address
herein, but must be mailed to the Transfer Agent at Unified
Advisers, Inc., 429 North Pennsylvania Street, Indianapolis,
Indiana 46204. Payment must be accompanied by the order number
given at the time the order is placed. A written confirmation
with complete purchase information will be sent to the
shareholder of record shortly after payment is received.
DIVIDENDS AND DISTRIBUTIONS
The Starwood Strategic Fund, the Aggressive Growth Fund, the
Asset Allocation Fund, the Laidlaw Fund and the First Lexington
Balanced Fund declare and pay dividends on a quarterly basis.
The Taxable Fixed Income Fund declares and pays dividends on a
monthly basis. The Taxable Money Market Fund and The Tax-Free
Money Market Fund declare and pay dividends on a daily basis.
The Funds make distributions of any net realized long-term
capital gains at least once every twelve months. Dividends and
distributions are automatically reinvested in additional shares
on payment dates at the ex-dividend net asset value, unless cash
payments are requested on the account application or in writing
to the Transfer Agent. If cash payments are requested with
respect to either of the money market Funds, daily dividends will
accumulate and be paid at the end of each month, as requested in
writing. All shareholders on the record date are entitled to the
dividend.
If an order for shares is received on a business day prior to
receipt of wire payment, shares purchased by wire begin earning
dividends on the business day wire payment is received by the
Transfer Agent. If the order for shares and payment by wire are
received on the same day, shares begin earning dividends on the
next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted into
federal funds. Shares earn dividends through the business day
that proper written redemption instructions are received by the
Transfer Agent. Certain transactions in the money market Funds
are treated differently, as described below.
Timing of Certain Money Market Fund Transactions
The money market Funds have two transaction times each day,
at 12:00 noon (Eastern time) and the close of regular trading on
the New York Stock Exchange (currently 4:00 p.m., Eastern time).
New investments represented by federal funds or bank wires
received by the Custodian prior to 12:00 noon are paid the full
dividend for that day; such investments received after 12:00
noon do not begin to receive daily dividends until the next day.
Redemption orders received prior to 12:00 noon are effected at
12:00 noon, and the redemption proceeds are normally available
that day. Redemption orders received after 12:00 noon are
effected at the close of regular trading on the New York Stock
Exchange, and the redemption proceeds are normally remitted the
next business day. Redemption orders received at any time during
a day do not earn that day's dividend.
EXCHANGE PRIVILEGE
Shares of any Fund may be exchanged for shares of any other
Fund at net asset value, without any additional charges. The
shares exchanges must have been registered in the shareholder's
name for at least five days prior to the exchange request, and
must have a net asset value which at least meets the minimum
investment required for the Fund into which the exchange is
being made.
Exchange requests may be made by telephone or in writing.
Exchanges will be effected at the respective net asset values per
share of the Funds involved, next determined after the exchange
request is received in proper form. If an exchange request is
received by the Transfer Agent in proper form on a Trust business
day before the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time), the exchange
will be effected that day. An exchange of shares purchased by
check will be delayed until the check has been converted into
federal funds and redemption proceeds are available for purchase
of the newly acquired shares, which could take up to 15 days.
By Telephone. Exchange requests may be made by telephone by
calling the Transfer Agent at 1-800-408-4682. Exchange requests
made by telephone will be effected only if (1) the shareholder's
existing account has authorized telephone redemption privileges
(see "How to Redeem Shares -- By Telephone" below) and (2) no
account information will change as a result of the exchange. The
Transfer Agent requires personal identification before
accepting any exchange request by telephone, and telephone
exchange requests may be recorded.
By Mail or Telecopy. Exchange requests made in writing
should be sent to The Vintage Funds c/o Unified Advisers, Inc.,
P.O. Box 6110, Indianapolis, Indiana 46206-6110. A written
request to exchange shares having a net asset value of less than
$5,000 may be sent by telecopy, by first calling the Transfer
Agent at 1-800-408-4682. Regardless of whether the request is
sent by mail or by telecopy, the request must be signed exactly
as the shareholder's name appears on the Trust's account
records. If the shares to be exchanged have a net asset value
of $5,000 or more, the request must be mailed, and all
signatures must be properly guaranteed as described below under
"How to Redeem Shares -- Signatures." If shares are to be
exchanged into a new account registered in a different name, or
if any account information will change as a result of the
exchange, a separate account application must be received by the
Transfer Agent by mail before the exchange may be effected.
The exchange privilege is designed to accommodate changes in
shareholder investment objectives. It is not designed for
frequent trading in response to short-term market fluctuations.
Accordingly, the Trust reserves the right to limit a
shareholder's use of the exchange privilege. The exchange
privilege may be modified or terminated at any time.
Any exchange involves a redemption of shares of one Fund and
an investment of the redemption proceeds in shares of another
Fund. Before requesting an exchange, a shareholder should read
carefully the parts of this Prospectus describing the Fund into
which the exchange will be made. Also, an exchange is treated
for federal income tax purposes as a sale of the shares given in
exchange, and the shareholder may realize a taxable gain or loss
on the exchange.
HOW TO REDEEM SHARES
Shares of each Fund may be redeemed on any day on which the
Fund computes it net asset value. Shares are redeemed at their
net asset value next determined after the Transfer Agent receives
the redemption request in proper form. Redemption requests may
be may by mail or by telephone.
By Mail. A shareholder may redeem shares by mailing a
written request to The Vintage Funds, c/o Unified Advisers, Inc.,
P.O. Box 6110, Indianapolis, Indiana 46206-6110. Written
requests must state the shareholder's name, the name of the Fund,
the account number and the shares or dollar amount to be redeemed
and be signed exactly as the shares are registered.
Signatures. Shareholders requesting a redemption of
$5,000 or more, or a redemption of any amount payable to a
person other than the shareholder of record or to be sent to an
address other than that on record with the Trust, must have all
signatures on written redemption requests guaranteed. The
Transfer Agent will accept signatures guaranteed by a financial
institution whose deposits are insured by the FDIC; a member of
the New York, American, Boston, Midwest, or Pacific Stock
Exchange; or any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934. The Transfer
Agent will not accept signatures guaranteed by a notary public.
The Transfer Agent has adopted standards for accepting
signature guarantees from the above institutions. The Trust may
elect in the future to limit eligible signature guarantors to
institutions that are members of a signature guarantee program.
The Trust and its Transfer Agent reserve the right to amend
these standards at any time without notice.
Redemption requests by corporate and fiduciary
shareholders must be accompanied by appropriate documentation
establishing the authority of the person seeking to act on behalf
of the account. Forms of resolutions and other documentation to
assist in compliance with the Transfer Agent's procedures may be
obtained by calling the Transfer Agent.
By Telephone. You may also redeem shares by telephone by
calling the Transfer Agent at 1-800-408-4682. In order to make
redemption requests by telephone, the Telephone Privileges
section of the account application must be completed. For
existing accounts, a Telephone Privileges form may be obtained by
calling the Transfer Agent at 1-800-408-4682.
Telephone redemptions may be requested only if the proceeds
are to be issued to the shareholder of record and mailed to the
address on record with the Fund. Upon request, proceeds of $100
or more may be transferred by ACH, and proceeds of $1,000 or more
may be transferred by wire, in either case to the account stated
on the account application. Shareholders will be charged for
outgoing wires.
Telephone privileges and account designations may be changed
by sending the Transfer Agent a written request with all
signatures guaranteed as described above.
The Transfer Agent requires personal identification before
accepting any redemption request by telephone, and telephone
redemption instructions may be recorded. If reasonable
procedures are not followed by the Trust, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder
may experience difficulty in redeeming by telephone. If such a
case should occur, redemption by mail should be considered.
Receiving Payment
The Trust normally will make payment for all shares redeemed
within three business days after receipt by the Transfer Agent of
a redemption request in proper form, except as provided by the
rules of the Securities and Exchange Commission. A requested
wire of redemption proceeds normally will be effected the
following business day, but in no event more than three
business days, after receipt of the redemption request in proper
form. However, when shares are purchased by check or through
ACH, the proceeds from the redemption of those shares are not
available, and the shares may not be exchanged, until the
purchase check or ACH transfer has been converted to federal
funds, which could take up to 15 days.
Check Writing (Money Market Funds Only)
Under the Funds' check writing service, shareholders of the
Taxable Money Market Fund or the Tax-Free Money Market Fund may
write checks payable to any payee in any amount of $250 or more.
There is no check writing privilege for the non-money market
Funds. A shareholder with check writing privileges may present
for payment three checks per month free of charge;
additional checks will result in a charge of $0.30 per check.
Daily dividends will continue to accrue on the shares redeemed
by check until the day the check is presented for payment.
The Check Writing Privileges section of the account
application must be completed in order to initiate check writing
privileges. For existing accounts, check writing privileges may
be initiated by sending a written request to the Transfer Agent
with all signatures guaranteed. A book of checks will be sent
to the shareholder of record upon the Transfer Agent's receipt
of the request.
A check should not be used to close out an account with the
Fund because the balance of the account will continue to increase
by the amount of daily dividends until the check is presented for
payment. The Transfer Agent may impose a charge for checks
returned unpaid for insufficient funds or for effecting
stop-payment instructions.
Minimum Account Balance
Due to the high cost of maintaining accounts with low
balances, the Trust may involuntarily redeem Shares in any
account, and pay the proceeds to the shareholder, if the account
balance falls below a required minimum value of $1,000 ($500 for
an IRA) due to shareholder redemptions. This requirement does
not apply, however, if the balance falls below the minimum
because of changes in a Fund's net asset value. Before shares
are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet
the minimum requirement. The Transfer Agent reserves the right
and may charge shareholders an administrative fee to cover the
cost of maintaining and properly servicing lost accounts and
accounts with balances below the required minimums.
SHAREHOLDER SERVICES
Each time shares are purchased or redeemed, a statement will
be mailed showing the details of the transaction and the number
and value of shares owned after the transaction. Transactions
made in brokerage sweep accounts will be detailed on a monthly
brokerage statement. Share certificates are not issued.
Financial reports showing investments, income and expenses of the
Funds are mailed to shareholders semi-annually. After the end of
each year, shareholders receive a statement of all their
transactions for the year.
The Trust provides a number of plans and services to meet the
special needs of certain investors, including (1) an automatic
investment plan, (2) a payroll deduction plan, (3) a systematic
withdrawal plan to provide monthly payments, (4) retirement plans
such as IRA and 403(b), and (5) corporate pension and profit
sharing plans, including a 401(k) plan. Brochures describing
these plans and related charges and account applications are
available from the Transfer Agent by calling 1-800-408-4682.
THE TRUST AND ITS MANAGEMENT
The Trust is an Indiana business trust authorized to offer
separate classes and sub-classes of shares of beneficial
interest. At the date of this Prospectus, the Trust has
established each of the eight Funds described herein as a
separate class of its shares. The Trust's offices are at 429
North Pennsylvania Street, Indianapolis, Indiana 46204. The
business affairs of the Trust are under the direction of its
Board of Trustees.
Investment Advisory Arrangements
Investment Adviser. Vintage Advisers, Inc., 429 North
Pennsylvania Street, Indianapolis, Indiana 46204, serves as the
Trust's investment adviser (the "Adviser"). The Adviser
supervises and assists in the management of the Funds under an
Investment Advisory Agreement between the Adviser and the Trust,
subject to the overall authority of the Board of Trustees. The
Adviser also is responsible for monitoring and evaluating the
performance of each Sub-Adviser, as described below.
The Adviser was organized in December 1994 and is a
registered investment adviser. It has no prior operating history
and does not act as the investment adviser to any other
investment companies. The Adviser is controlled by Timothy L.
Ashburn and Jack R. Orben. Messrs. Ashburn and Orben are members
of the Trust's Board of Trustees. They, together with the other
directors and officers of the Adviser, have substantial
experience in the investment counsel and mutual fund
industries.
The Adviser has notified the Trust that, in the event of an
initial public offering of the Adviser's voting securities, the
Adviser may offer the first opportunity to purchase such
securities to persons who are then shareholders of the Funds.
However, there can be no assurance that the Adviser will ever
offer its voting securities to the public.
Sub-Advisers. The Adviser has entered into Sub-Advisory
Agreements with Starwood Corporation and Fiduciary Counsel, Inc.
to manage the investment portfolios of certain of the Funds.
Both are controlled by Associated Family Services, Inc. ("AFS"),
and are located at 40 Wall Street, New York, New York. Jack R.
Orben owns 33% of the outstanding voting securities of AFS.
Starwood Corporation is the sub-adviser of the Starwood
Strategic Fund. Originated in 1932, Starwood Corporation is a
registered investment adviser that manages approximately $30
million in assets. It does not act as the investment adviser to
any other investment companies.
Fiduciary Counsel, Inc. is the sub-adviser to each of the
Laidlaw Fund, the Taxable Money Market Fund and the Tax-Free
Money Market Fund. Formed in 1931, Fiduciary Counsel is a
registered investment adviser that manages approximately $450
million in assets. It does not act as the investment adviser to
any other investment companies. To assist Fiduciary Counsel,
Inc. in the selection of socially conscious companies in which
the Laidlaw Fund might invest, Fiduciary Counsel, Inc. has
entered into a consulting agreement with Laidlaw Holdings Asset
Management, Inc. ("Laidlaw"). Laidlaw's duties include the
preparation of a recommended list of socially conscious
companies, investment in which would be consistent with the
socially responsible investment policy of the Laidlaw Fund.
Laidlaw does not provide investment advisory services to the
Fund. The consulting fee is paid directly by the sub-adviser
from its own assets and is not an expense of the Fund.
The Adviser has entered into a Sub-Advisory Agreement with
Health Financial, Inc., 3320 Tates Creek Road, #101, Lexington,
Kentucky 40502 to serve as the sub-adviser of the First Lexington
Balanced Fund. Health Financial, Inc., founded by Dr. Gregory W.
Kasten in 1984, is a registered investment adviser that primarily
serves physicians and private pension plans. Dr. Kasten is the
sole shareholder of Health Financial, Inc. This sub-adviser
currently manages approximately $255 million in assets, including
the assets held by First Lexington Trust Company, a regulated
trust company that provides pension trust and charitable gift
investment management. Health Financial, Inc. does not act as
investment adviser to any other investment companies.
Portfolio Managers' Backgrounds
Starwood Strategic Fund. Andrew E. Beer has been the Fund's
portfolio manager since its inception. Mr. Beer has been the
President and Director of Starwood Corporation since 1984.
Aggressive Growth Fund and Asset Allocation Fund. Timothy
L. Ashburn and Lynn E. Wood have been Funds' portfolio managers
since their inception. Mr. Ashburn is the Chairman of the Board
and Chief Executive Officer of the Adviser. Also, since December
1989, he has been the Chairman of the Board of the Distributor
and the Transfer Agent. From July 1991 to April 1994, he
also was the Trust Division Manager and Senior Trust Officer of
Vine Street Trust Company, Lexington, Kentucky. Mr. Wood is the
Chief Operating Officer and a Director of the Adviser. Since
July 1993, he has been the President and Chief Operating Officer
of the Distributor and the Transfer Agent. Prior to then, he was
Vice President and Managing Director of the Distributor.
Laidlaw Fund, Taxable Money Market Fund and Tax-Free Money
Market Fund. Jack R. Orben is the Funds' portfolio manager. Mr.
Orben has been the Chairman of Fiduciary Counsel since 1979.
Prior to that time, he was President of Orben & Associates,
Inc., an investment consultant to bank trust departments. Since
1979, Mr. Orben has been a member of Fiduciary Counsel's
Investment Policy Committee and Chairman of its
Executive Committee. Mr. Orben graduated from Tufts University
in 1960, and has nearly 25 years of investment experience.
The First Lexington Balanced Fund. Dr. Gregory W. Kasten
began managing the Fund's portfolio in January 1990. Dr. Kasten
has served as president of Health Financial, Inc., the Fund's
sub-Adviser, since 1986. Prior to 1994, Dr. Kasten practiced
medicine with Anesthesia Associates, PSC, Lexington,
Kentucky. Dr. Kasten has completed the two year program from the
Denver College of Financial Planning and is a Certified Financial
Planner. Dr. Kasten has also completed the two year program from
the American Society of Pension Actuaries, and he received from
that program the Certificate of Pension Consultant designation.
In 1990, he received his M.B.A. in Finance from the University
of Kentucky.
Advisory Fees
Each Fund pays the Adviser an annual advisory fee, payable
monthly, based on its average daily net assets. The fee is equal
to 0.75% of the Fund's average daily net assets for the Starwood
Strategic Fund, the Aggressive Growth Fund, the Laidlaw Fund and
the Asset Allocation Fund. The fee is equal to 0.50% of the
Fund's average daily net assets for the Taxable Fixed Income
Fund, the First Lexington Balance Fund, the Taxable Money Market
Fund and the Tax-Free Money Market Fund. These fees are similar
to those for other mutual funds with similar investment
objectives, but may be higher than fees paid by other mutual
funds with different investment objectives. The Adviser has
agreed to voluntarily waive some or all of its fees, but may
terminate this voluntary waiver with respect to any Fund at any
time at its sole discretion. The Adviser has also undertaken to
reimburse each Fund for operating expenses in excess of
limitations established by certain states.
The Adviser pays each Sub-Adviser an annual fee for its
services in managing the portfolios of certain of the Funds.
These fees are paid directly by the Adviser from its own assets
and are not an expense of the Funds. The Funds themselves pay
no fees to the Sub-Advisers. The sub-advisory fees are payable
monthly, with respect to the applicable Fund's average daily net
assets. For the Starwood Strategic Fund and the Laidlaw Fund,
the sub-advisory fee is equal to 0.35% of the Fund's net assets
up to $250 million; 0.30% of the next $250 million of net assets;
and 0.25% of net assets in excess of $500 million. For the
Taxable Fixed Income Fund, the sub-advisory fee is equal to
0.30% of the Fund's net assets up to $500 million; and 0.25% of
net assets in excess of $500 million. For the First Lexington
Balanced Fund, the sub-advisory fee is equal to 0.40% of the
Fund's net assets up to $250 million; 0.35% of the next $250
million of net assets; and 0.30% of net assets in excess of $500
million. For the Taxable Money Market Fund and the Tax-Free
Money Market Fund, the sub-advisory fee is equal to 0.07% of the
Fund's net assets up to $1 billion; and 0.05% of net assets in
excess of $1 billion.
Distribution Services
Distributor. Unified Management Corporation (the
"Distributor"), 429 North Pennsylvania Street, Indianapolis,
Indiana 46024, acts as each Fund's distributor pursuant to a
Distribution Agreement with the Trust. The distributor is a
subsidiary of Unified Holdings, Inc.
Distribution Plan. Under a Distribution Plan adopted with
respect to each Fund pursuant to Rule 12b-1 under the Investment
Company Act of 1940, the Trust pays the Distributor an annual
fee, payable monthly, of up to 0.10% of each Fund's average daily
net assets. The Distributor is entitled to retain all of this
distribution fee to reimburse the Distributor for payments made
or expenses incurred for distribution of Fund shares, including
those incurred in connection with preparing and distributing
sales literature and advertising, preparing, printing and
distributing prospectuses and statements of additional
information used for other than regulatory purposes or
distribution to existing shareholders, implementing and operating
the Distribution Plan, and compensating third parties for their
distribution services. The Distributor may select financial
institutions such as banks, custodians, investment advisers and
broker/dealers to provide sales support services as agents for
their clients or customers.
The Distribution Plan is a compensation-type plan.
Therefore, the amounts payable to the Distributor during any year
may be more or less than actual expenses incurred by the
Distributor during such year. No amount payable or credit due
pursuant to the Distribution Plan for any fiscal year may be
carried over for payment or utilized as a credit, as the case may
be, beyond the end of the year, unless authorized by the Trust's
Board of Trustees. However, the Distributor may be able to
recover such amounts or may earn a profit from future payments
made by the Trust under the Distribution Plan.
Administration of the Trust
Administrator. Unified Advisers, Inc., 429 North
Pennsylvania St., Indianapolis, Indiana 46204, serves as the
Trust's administrator (the "Administrator"). Pursuant to a
Mutual Fund Services Agreement with the Trust, the Administrator
provides certain administrative personnel and services (including
administration, transfer agency and fund accounting
services) necessary to operate the Funds. For its services, the
Administrator receives an annual fee, payable monthly, from each
Fund based on its average daily net assets. The fee is equal to
0.435% of the Fund's average daily net assets for all of the
Funds, other than the First Lexington Balanced Fund, the
Taxable Money Market Fund and the Tax-Free Money Market Fund for
which the fee is equal to 0.185% of the Fund's average daily net
assets.
Shareholder Services Plan. The Trust has adopted a
Shareholder Services Plan (the "Service Plan") with respect to
each Fund, which is administered by the Administrator. Under the
Service Plan, financial institutions, including brokers, may
enter into shareholder service agreements with the Trust
to provide administrative support services to their clients or
customers who from time to time may be owners of record or
beneficial owners of the shares of one or more of the Funds. In
return for providing these support services, a financial
institution may receive payments from the Fund at a rate not
exceeding 0.15% of the average daily net assets of the shares
beneficially owned by the financial institution's clients or
customers for whom it is holder of record or with whom it has a
servicing relationship. These administrative services may
include, but are not limited to, the provision of personal
services and maintenance of shareholder accounts.
The Glass-Steagall Act limits the ability of a depository
institution (such as a commercial bank or a savings and loan
association) to become an underwriter or distributor of
securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities
described above or should Congress relax current restrictions on
depository institutions, the Board of Trustees will consider
appropriate changes in the services. State securities laws
governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore,
banks and financial institutions may be required to register as
dealers pursuant to state law.
Other Arrangements. The Adviser, the Distributor or the
Administrator may, from their respective fees, also pay brokers
or financial institutions a fee based upon the net asset value
of the Fund shares beneficially owned by the broker's or
financial institution's clients or customers. This fee is in
addition to amounts paid under the Distribution Plan or the
Services Plan. These payments will be made directly by the
Adviser, the Distributor or the Administrator from their own
assets, will not be made from the assets of the Funds and are
not an additional expense of the Funds.
From time to time the Distributor will purchase Fund shares
on behalf of its clients and will be entitled to receive 12b-1
fees, shareholder servicing fees and other administrative fees
described herein to the same extent as any other broker or
financial institution.
Transfer Agent, Fund Accounting Agent and Custodian
Unified Advisers, Inc., P.O. Box 6110, Indianapolis, Indiana
46206-6110, acts as the Trust's transfer agent (the "Transfer
Agent") and fund accounting agent.
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45201,
acts as the Trust's custodian. General correspondence to the
custodian should be addressed to Star Bank, N.A., P.O. Box 1038,
Location 6118, Cincinnati, Ohio 45201. Share purchase orders
mailed directly to the custodian (See "How to Buy Shares --
Subsequent Investments") should be addressed to The
Vintage Funds, [Name of Applicable Fund], P.O. Box 640689,
Cincinnati, Ohio 45264-0689.
Portfolio Transactions
The Adviser and Sub-Advisers select the firms that effect
brokerage transactions for their respective Funds, subject to the
overall direction and review of Adviser and the Board of
Trustees. The initial criterion that must be met by the Adviser
and Sub-Advisers in selecting brokers and dealers is whether the
firm can obtain the most favorable combination of price and
execution for the transaction. This does not mean that the
execution decision must be based solely on whether the lowest
possible commission costs may be obtained. In seeking the best
combination of price and execution, the Adviser and Sub-Advisers
evaluate the execution capability of the firms and the services
they provide, including their general execution capability,
reliability and integrity, willingness to take positions in
securities, and general operational and financial condition.
Subject to this primary objective, the Advisers and
Sub-Advisers may select for brokerage transactions those firms
which furnish brokerage and research services to the Funds, the
Adviser or the Sub-Advisers. The Adviser and Sub-Advisers may
also give consideration to firms that have sold Fund shares. The
Board of Trustees has authorized the Funds to pay brokerage
commissions to firms that are affiliated with the Adviser or the
Sub-Advisers, subject to the foregoing criteria.
Expenses
Each Fund pays, except to the extent specifically assumed by
others, all expenses incurred in its operations, and a portion of
the Trust's general administrative expenses are allocated to the
Funds either on the basis of their relative net assets, on the
basis of special needs of any Fund, or equally as is deemed
appropriate. The expenses borne by a Fund include:
organizational costs, taxes, interest, brokerage fees and
commissions, fees of Trustees, state and federal registration
fees, advisory and administrative fees, distribution and
shareholder servicing fees, charges of custodians, transfer and
dividend disbursing agent's fees, certain insurance premiums,
industry association fees, auditing and legal expenses, costs
attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of calculating the net
asset value of the Fund's shares, costs of shareholders' reports
and meetings, costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and
for distribution to existing shareholders, and any extraordinary
expenses.
"V.O.I.C.E."
(VISION FOR ON-GOING INVESTMENTS IN CHARITY AND
EDUCATION)
The Adviser has established The Vintage Funds University and
Philanthropic Program (the "Program"), entitled "V.O.I.C.E."
(Vision for On-going Investments in Charity and Education)
pursuant to which the Adviser will make donations from its own
income to certain accredited college or university endowments
or general scholarship funds ("Eligible Institutions") designated
by qualified shareholders. Philanthropic institutions outside of
the area of education may be proposed by qualifying shareholders
and may, at the sole discretion of the Adviser, be accepted for
inclusion as an Eligible Institution.
All Vintage Funds shareholders maintaining an average
annualized aggregate net asset value of $25,000 or more over the
period of an entire calendar quarter ("Qualified Shareholders")
will be qualified to designate one or more Eligible Institutions
to receive a donation under the Program with respect to that
period. A shareholder making an initial investment of $25,000 or
more in Fund shares may designate one Eligible Institution on
the V.O.I.C.E Program Application. A shareholder making an
initial investment of $1,000,000 or more (or maintaining that
amount for an entire quarterly period) may designate one
additional Eligible Institution for each $l,000,000 invested (or
maintained for such period).
The Adviser will donate, on a quarterly basis, from its own
income an amount equal to 0.25% of the average annualized
aggregate net asset value of the shares owned by the Qualified
Shareholder for the preceding quarterly period, for so long as
the average annualized aggregate net asset value of the shares
owned by the Qualified Shareholder remain above $25,000 for such
period. Donations will be made by the Adviser in the name of the
Qualified Shareholder to the Eligible Institution(s) designated
by the Qualified Shareholder. However, while the donation will
be made in the Qualified Shareholder's name, the Qualified
Shareholder will not be entitled to any tax deductions for such
donation.
All Qualified Shareholders desiring to change their
designated Eligible Institution(s) may do so twice a year, in
January and July. If a Qualified Shareholder was entitled to
designate, and did designate, more than one Eligible
Institution, the amount donated will be allocated according to
the percentages designated on the V.O.I.C.E. Program Application.
Donations will be made by the Adviser from its own income
and, therefore, will have no impact on the expenses or yield of
the Funds. There can be no assurances that the Adviser will have
income from which to make donations.
The preceding information is only a summary of the V.O.I.C.E.
Program and is qualified in its entirety by the more complete
information available from the Adviser.
Information about the V.O.I.C.E. Program, including
applications to participate in the Program, may be obtained from
the Adviser by calling 1-800-408-4682 (1-800-40-VINTAGE).
TAXES
It is intended that each Fund will qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), as long as such qualification is in the
best interest of the Fund's shareholders. Such qualification
relieves each Fund of liability for federal income tax to the
extent its earnings are distributed in accordance with the Code.
A shareholder receiving a distribution of ordinary income
and/or an excess of net short-term capital gain over net
long-term capital loss ordinarily would treat it as a receipt of
ordinary income in the computation of the shareholder's gross
income, whether such distribution is received in cash or
reinvested in additional shares. Any distribution of the excess
of net long-term capital gain over net short-term capital loss
ordinarily is taxable to shareholders as long-term capital gain
regardless of how long the shareholder has held shares.
Dividends and distributions also may be subject to state and
local taxes.
Shareholders will receive statements as to the tax status of
dividends and distributions annually, as well as periodic account
summaries that will include information as to any dividends and
distributions from securities gains paid during the year.
Shareholders should consult their own tax advisers with questions
regarding federal, state or local taxes.
The Tax-Free Money Market Fund
Shareholders of the Tax-Free Money Market Fund are not
required to pay federal regular income tax on any dividends
received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986,
dividends representing net interest earned on some municipal
bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax
for corporations. The alternative minimum tax, imposed at a
maximum rate of 28% of alternative minimum taxable income for
individuals and other non-corporate taxpayers, and 20% for
corporations, applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the
regular taxable income of the taxpayer increased by certain "tax
preference" items not included in regular taxable income and
reduced by only a portion of the deductions allowed in the
calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain
"private activity" bonds issued after August 7, 1986, as a tax
preference item for both individuals and corporations. Unlike
traditional governmental purpose municipal bonds, which finance
roads, schools, libraries, prisons and other public facilities,
private activity bonds provide benefits to private parties. The
Tax-Free Money Market Fund may purchase all types of
municipal bonds, including private activity bonds. Thus, should
the Fund purchase any such bonds, a portion of the Fund's
dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder,
dividends of the Fund which represent interest on municipal
bonds may be subject to the 20% corporate alternative minimum tax
because the dividends are included in a corporation's "adjusted
current earnings." The corporate alternate minimum tax treats
75% of the excess of a taxpayer's pre-tax "adjusted current
earnings" over the taxpayer's alternative minimum taxable income
as a tax preference item. "Adjusted current earnings" is based
upon the concept of a corporation's "earnings and profits."
Since "earnings and profits" generally includes the full amount
of any Fund dividend, and alternative minimum taxable income does
not include the portion of the Fund's dividend attributable to
municipal bonds which are not private activity bonds, the
difference will be included in the calculations of the
corporation's alternative minimum tax.
Dividends of the Tax-Free Money Market Fund representing net
interest income earned on some temporary investments and any
realized net short-term gains are taxed as ordinary income.
Backup Withholding
The Trust may be required to withhold federal income tax at a
rate of 31% from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from
dividends if a shareholder fails to furnish the Trust with the
shareholder's correct taxpayer identification number, the
Internal Revenue Service (the "IRS") notifies the Trust that the
shareholder has failed to report certain income to the IRS, or
the shareholder fails to certify that he or she is not subject
to backup withholding when required to do so. Backup
withholding is not an additional tax and the shareholder may
credit any amounts withheld against the shareholder's federal
income tax liability.
PERFORMANCE INFORMATION
From time to time the Trust may publish performance
information relative to the Funds, and may include such
information in advertisements, sales literature or shareholder
reports. Each Fund may periodically advertise "average annual
total return." The "average annual total return" of a Fund
refers to the average annual compounded rate of return over the
stated period that would equate an initial amount invested at
the beginning of a stated period to the ending redeemable value
of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and
distributions.
Each Fund may also periodically advertise its total return
over various periods in addition to 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
"total return" for a Fund refers to the percentage change in
the value of an account between the beginning and end of the
stated period, assuming no activity in the account other than
reinvestment of dividends and capital gains distributions.
The Taxable Money Market Fund and the Tax-Free Money Market
Fund may quote their current yields and effective yields. The
"yield" of a money market Fund refers to the income generated by
an investment in the Fund over a seven-day period (which period
will be stated in the advertisement). This income is then
annualized. That is, the amount of income generated by
investments during the week is assumed to be generated each week
over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect
of this assumed reinvestment.
The Tax-Free Money Market Fund may also quote its
"tax-equivalent yield", which is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the
Fund's shares would have had to earn to equal the actual yield,
assuming a specific tax rate. A Fund's tax-equivalent yield will
always be higher than its taxable yield.
The Funds may also include in advertisements data comparing
performance with other mutual funds as reported in non-related
investment media, published editorial comments and performance
rankings compiled by independent organizations and publications
that monitor the performance of mutual funds (such as Lipper
Analytical Services, Inc., Morningstar, Inc., Fortune
or Barron's). Performance information may be quoted numerically
or may be presented in a table, graph or other illustration. In
addition, Fund performance may be compared to well-known indices
of market performance including the Standard & Poor's (S&P) 500
Index or the Dow Jones Industrial Average.
The advertised performance data of each Fund is based on
historical performance and is not intended to indicate future
performance. Rates of total return quoted by a Fund may be
higher or lower than past quotations, and there can be no
assurance that any rate of total return will be maintained. The
principal value of an investment in a non-money market Fund will
fluctuate so that a shareholder's shares, when redeemed, may be
worth more or less that the shareholder's original investment.
GENERAL INFORMATION
The Trust, an open-end management investment company, was
organized on February 1, 1995 as an Indiana business trust. The
Trust's Declaration of Trust permits the Trust to offer and sell
an unlimited number of full and fractional shares of beneficial
interest in each of the Funds and to create additional Funds.
Each Fund of the Trust issues its own class of shares of
beneficial interest. The shares of each Fund represent an
interest only in that Fund's assets (and income) and in the event
of liquidation, each share of a particular Fund would have the
same rights to distributions and assets as every other share of
that Fund. Shares have no preemptive or conversion rights, nor
do they have cumulative voting rights. Each full or fractional
share of each Fund has a proportionate vote on each matter
submitted to shareholders of that Fund. All shares of each Fund
have equal voting rights except that in matters affecting only a
particular Fund, only shares of that Fund are entitled to
vote.
Under Indiana law, the Trust is not required to hold annual
meetings of shareholders. The Trust will not hold shareholder
meetings except for extraordinary items requiring shareholder
approval under the Investment Company Act of 1940.
Trustees may be removed by the Board of Trustees or by the
shareholders at a special meeting. A special meeting of
shareholders shall be called by the Board of Trustees upon the
request of shareholders owning at least 10% of the outstanding
shares of all Funds entitled to vote.
As a result of their respective beneficial ownership of
shares as of January 2, 1997, Robert Orben may be deemed to
control the Starwood Strategic Fund; Unified Advisers, Inc. (and
its holding company, Unified Holdings, Inc.) may be deemed to
control the Aggressive Growth Fund and the Asset Allocation Fund;
and Vintage Advisers, Inc., Timothy Ashburn and Jack Orben
(its controlling shareholders) may be deemed to control the
Taxable Fixed Income Fund and the First Lexington Balanced Fund.
Each Fund acknowledges that it is solely responsible for the
information or any lack of information about it in this joint
Prospectus and in the joint Statement of Additional Information,
and no other Fund is responsible therefor. There is a possibility
that one Fund might be deemed liable for misstatements or omissions
regarding another Fund in this Prospectus or in the joint Statement
of Additional Information; however, the Funds deem this possibility \
slight.
Shareholder inquiries may be made by writing to The Vintage
Funds, c/o Unified Advisers, Inc., P.O. Box 6110, Indianapolis,
Indiana 46206-6110, or by calling 1-800-408-4682
(1-800-40-VINTAGE).
[Begin Back Cover Page]
THE VINTAGE FUNDS
The Starwood Strategic Fund
The Aggressive Growth Fund
The Laidlaw Fund
The Asset Allocation Fund
The Taxable Fixed Income Fund
The First Lexington Balanced Fund
The Taxable Money Market Fund
The Tax-Free Money Market Fund
PROSPECTUS
February 1, 1997
TRANSFER AGENT
Unified Advisers, Inc.
429 N. Pennsylvania Street
Indianapolis, Indiana 46204
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45201
INVESTMENT ADVISER
Vintage Advisers, Inc.
429 N. Pennsylvania Street
Indianapolis, Indiana 46204
AUDITORS
McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, Ohio 44145
THE VINTAGE FUNDS
P.O. Box 6110
Indianapolis, Indiana 46206-6110
1-800-40-VINTAGE (1-800-408-4682)
<PAGE>
THE VINTAGE FUNDS
PROSPECTUS Prospectus dated February 1, 1997
The Vintage Funds (the "Trust") is an open-end, management
investment company (a mutual fund) having eight separate
portfolios, each of which has its own separate investment
objective and policies. Two of the portfolios offered by the
Trust are money market funds: the Taxable Money Market Fund and
the Tax-Free Money Market Fund (the "Funds").
The Taxable Money Market Fund seeks a high level of current
income consistent with the preservation of capital and
maintenance of liquidity. The Fund pursues this objective by
investing principally in a diversified portfolio of short-term
money market instruments. The Fund intends to maintain a
constant net asset value of $1.00 per share, although there is no
assurance that it will be able to do so.
The Tax-Free Money Market Fund seeks a high level of current
income that is exempt from federal income tax consistent with the
preservation of capital and maintenance of liquidity. The Fund
pursues this objective by investing principally in a diversified
portfolio of high quality, short-term municipal securities. The
Fund intends to maintain a constant net asset value of $1.00 per
share, although there is no assurance that it will be able to do
so.
The shares offered hereby are not deposits or obligations of
any financial institution and are not insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any
other government agency. Investment in the shares involves
investment risks including the possible loss of principal. There
can be no assurance that the Funds will be able to maintain a
stable net asset value of $1.00 per share.
This Prospectus contains information that you should know
before investing in either of the Funds and it should be retained
for future reference. A Statement of Additional Information,
dated February 1, 1997 has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated herein by
reference. The Statement of Additional Information is available
upon request and without charge by calling 1-800-408-4682
(1-800-40-VINTAGE). The SEC maintains a Web Site
(http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference, and other
information regarding registrants that file electronically with
the SEC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . 2
FINANCIAL HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT OBJECTIVES AND POLICIES. . . . . . . . . . . . . . . . . . . . 6
The Taxable Money Market Fund. . . . . . . . . . . . . . . . . . . . . 6
The Tax-Free Money Market Fund . . . . . . . . . . . . . . . . . . . . 7
INVESTMENT POLICIES AND TECHNIQUES AND RISK FACTORS . . . . . . . . . . . 7
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
HOW TO BUY SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Minimum Investment . . . . . . . . . . . . . . . . . . . . . . . . . .13
Opening an Account . . . . . . . . . . . . . . . . . . . . . . . . . .13
By Mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
By Wire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Subsequent Investments . . . . . . . . . . . . . . . . . . . . . . . .14
By Automated Clearing House (ACH) . . . . . . . . . . . . . . . . .14
DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . .15
EXCHANGE PRIVILEGE. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
By Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
By Mail or Telecopy. . . . . . . . . . . . . . . . . . . . . . . . . .15
HOW TO REDEEM SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .16
By Mail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
By Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Receiving Payment. . . . . . . . . . . . . . . . . . . . . . . . . . .17
Check Writing. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Minimum Account Balance. . . . . . . . . . . . . . . . . . . . . . . .17
SHAREHOLDER SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .17
THE TRUST AND ITS MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . .18
Investment Advisory Arrangements . . . . . . . . . . . . . . . . . . .18
Investment Adviser. . . . . . . . . . . . . . . . . . . . . . . . .18
Sub-Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Portfolio Manager's Background . . . . . . . . . . . . . . . . . . . .18
Advisory Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Distribution Services. . . . . . . . . . . . . . . . . . . . . . . . .19
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . .19
Administration of the Trust. . . . . . . . . . . . . . . . . . . . . .19
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Shareholder Services Plan . . . . . . . . . . . . . . . . . . . . .19
Other Arrangements. . . . . . . . . . . . . . . . . . . . . . . . .20
Transfer Agent, Fund Accounting Agent
and Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . .20
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
THE "V.O.I.C.E." PROGRAM. . . . . . . . . . . . . . . . . . . . . . . . .21
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
The Tax-Free Fund. . . . . . . . . . . . . . . . . . . . . . . . . . .22
Backup Withholding . . . . . . . . . . . . . . . . . . . . . . . . . .23
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .23
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .24
<PAGE>
No person has been authorized to give any information or to make
any representations other than those contained in this Prospectus
and in the Funds' official sales literature in connection with
the offer of the Funds' shares, and, if given or made, such
other information or representation must not be relied upon as
having been authorized by the Funds. This Prospectus does
not constitute an offer in any State in which, or to any person
to whom, such offering may not lawfully be made.
SUMMARY OF FUND EXPENSES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . . . . . . . . . . . . . . . . . None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price). . . . . . . . . . . . . . . . . . . None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable). . . . . . . . . . . . . .. . . . None
Redemption Fee (as a percentage of amount redeemed, if applicable) . . . None
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
<TABLE>
Annual Fund Operating Expenses
(As a percentage of average net assets)
<CAPTION>
Management 12b-1 Servicing Other (2) Total (1)
Fund Name Fees Fees Fees Expenses Expenses
(after (after
reimbursement) reimbursement)
<S> <C> <C> <C> <C> <C>
Taxable Money Market(3) 0.50% 0.10% 0.15% 0.25% 1.00%
Tax-Free Money Market(3) 0.50% 0.10% 0.15% 0.25% 1.00%
(1) The Adviser has voluntarily agreed to waive its
management fees and/or reimburse expenses to the extent necessary
to cause Total Expenses of each Fund to be as indicated.
Although the Adviser has no current intention to abandon this
voluntary arrangement, the Adviser may terminate the arrangement
at any time at its sole discretion.
(2) Absent the voluntary fee waiver/expense reimbursement
arrangement, Other Expenses are not expected to exceed 0.50%.
(3) Expenses are restated to reflect the fees that would
have been applicable had the voluntary fee waiver/expense
reimbursement arrangement been in effect for the fiscal year
ended September 30, 1996. Absent reimbursement of expenses and
waiver of fees, the total expenses of the Funds for the fiscal
year ended September 30, 1996 would have been as follows:
Taxable Money Market Fund 1.25%; Tax-Free Money Market Fund
1.82%.
</TABLE>
Initial investments of less than the required minimum by
persons exempt from the minimum investment requirement are
subject to a one-time $4.50 administrative charge. See "How to
Buy Shares." Wire-transferred redemptions are subject to a
$15.00 charge and certain checking transactions may be subject to
additional charges. See "How to Redeem Shares".
The purpose of this table is to assist the investor in
understanding the various costs and expenses that a shareholder
of a Fund will bear, either directly or indirectly. The expense
information is based upon the operating expenses incurred during
the fiscal year ended September 30, 1996, and is restated to
reflect the voluntary fee waiver/expense reimbursement
arrangement (see footnote one to the table). Long-term
shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the
National Association of Securities Dealers, Inc. For a further
description of the various costs and expenses incurred by the
Funds, see "The Trust and its Management."
<TABLE>
Example:
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at
the end of each time period:
<CAPTION>
Fund Name 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Taxable Money Market Fund $10 $32 $55 $122
Tax-Free Money Market Fund $10 $32 $55 $122
</TABLE>
The amounts listed in the example should not be considered as
representative of future expenses and actual expenses may be
greater or less than those indicated. Moreover, while the
example assumes a 5% annual return, a Fund's performance will
vary and may result in an actual return greater or less than 5%.
The Funds may invest incidentally in other mutual funds. To
the extent that a Fund invests in other mutual funds, the Fund
will indirectly bear its proportionate share of any fees and
expenses paid by such other funds, in addition to the fees and
expenses payable directly by the Fund. Therefore, to the extent
that the Fund invests in other mutual funds, the Fund will
incur higher expenses, many of which may be duplicative. These
expenses will be borne by the Fund, and are not included in the
expenses reflected in the table or example above. See
"Investment Policies and Techniques and Risk Factors."
FINANCIAL HIGHLIGHTS
The financial highlights of the Funds' operations for the
periods presented are derived from the audited financial
statements of The Vintage Funds. The financial highlights for
the fiscal year ended September 30, 1996 have been audited by
McCurdy and Associates CPA's, Inc., independent public
accountants. This information should be read in conjunction with
the financial statements and notes thereto included in the
Annual Report to Shareholders. The Annual Report also contains
additional performance information and is available without
charge by calling the Funds at 1-800-408-4682.
<TABLE>
<CAPTION>
The following table includes selected data for a share
outstanding throughout each fiscal year or period and other
performance information derived from the financial statements.
<S> <C> <C> <C> <C>
Taxable Taxable Tax-Free Tax-Free
Money Money Money Money
Market Market Market Market
Fund Fund Fund Fund
1996(a) 1995(b) 1996(a) 1995(b)
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
Operations:
Net investment income 0.04 0.002 0.02 0.00
Net realized and unrealized
gain (loss) on investments 0.00 0.000 0.00 0.00
Total from investment income 0.04 0.002 0.02 0.00
Less distributions:
Dividends from net investment income (0.04) (0.002) (0.02) 0.00
Total from distributions (0.04) (0.002) (0.02) 0.00
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL ANNUALIZED RETURN (%)(e) 4.13 0.20 1.96 (c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period 50,544,511 1,230,385 7,334,110 100
Ratio of expenses to average net assets 1.25% 12.82% 1.82% 0.00%
Ratio of expenses (after reimbursement)
to average net assets 1.16% 0.47% 1.62% 0.00%
Ratio of net investment
income to average net assets 4.12% (11.94%) 2.09% 0.00%
Ratio of net investment
income (after reimbursement)
to average net assets 4.21% 0.65% 2.29% 0.00%
Portfolio turnover 0.00% 0.00% 0.00% 0.00%
Average commission rate paid $ 0.00 $ --- $0.00 $ ---
<FN>
(a) For the Year-Ended September 30, 1996.
(b) For the Period June 2, 1995 (commencement of operations) to
September 30, 1995.
(c) Investment in accordance with objective had not commenced at
this time.
(d) For the Period March 13, 1996 (commencement of investment in
accordance with objective) to September 30, 1996.
(e) Total return would have been lower had certain expenses not
been reduced during the periods shown (see Note 3).
</FN>
</TABLE>
HIGHLIGHTS
Investment Objectives and Investment Risks
An investment in the Funds involves investment risks
including the possible loss of principal. These risks depend
upon many factors including, among others, the Fund's investment
objective, the credit quality of the securities held and interest
rate movements. There is no assurance that either Fund will be
able to maintain a stable net asset value of $1.00 per share.
See "Investment Objectives and Policies" and "Investment Policies
and Techniques and Risk Factors."
Liquidity
Each Fund continuously offers and redeems its shares at a
constant net asset value of $1.00 per share. See "How to Buy
Shares," "How to Redeem Shares" and "Net Asset Value."
No Sales or Redemption Charges
There are no commissions, fees or charges by the Trust for
the purchase or redemption of shares. Initial investments below
the stated minimum, wire-transferred redemptions and certain
checking transactions may be subject to additional charges. See
"Summary of Fund Expenses," "How to Buy Shares" and "How to
Redeem Shares."
Minimum Investment
A minimum investment of $1,000 is required to open an
account, except an IRA account for which the minimum is $500.
Former shareholders of the Unified family of funds, or the Quest
funds which acquired the Unified family of funds, may open an
account with less than the required minimum. The minimum
investment may also be waived for certain other types of
retirement accounts and direct deposit accounts. Subsequent
investments must be at least $100, or $50 for an IRA. See "How
to Buy Shares."
Investment Advisers
Vintage Advisers, Inc. is the Funds' investment adviser (the
"Adviser"). The Adviser was organized in December 1994 and the
Funds commenced operations at various times after May 1995. The
Adviser has no prior operating history and does not act as the
investment adviser to any other investment companies. The
Adviser has engaged Fiduciary Counsel, Inc. to serve as
sub-adviser. The sub-adviser manages the investment portfolios
of the Funds, subject to the Adviser's overall management. See
"The Trust and its Management."
Retirement Plans and Other Shareholder Services
The Trust offers retirement plans including a prototype
Profit Sharing Plan, Money Purchase Pension Plan, Salary Savings
Plan - 401(k) and IRA accounts, as well as a number of special
shareholder services. For information regarding these plans or
services, call the Transfer Agent at 1-800-408-4682. See
"Shareholder Services."
The "V.O.I.C.E. " Program
(Vision For On-Going Investments In Charity and Education)
The Adviser administers The Vintage Funds University and
Philanthropic Program pursuant to which the Adviser will make
contributions to the general scholarship funds or endowments of
certain accredited colleges and universities designated by
qualified shareholders of any of the Funds. For
information regarding this Program, call the Adviser at
1-800-408-4682. Also see "The V.O.I.C.E. Program" below.
INVESTMENT OBJECTIVES AND POLICIES
The Funds' investment objectives cannot be changed without
shareholder approval. While there is no assurance that either
Fund will achieve its investment objective, it endeavors to do so
by following the investment policies described in this
Prospectus. Unless otherwise indicated, the Funds' investment
policies may be changed by the Trust's Board of Trustees without
shareholder approval. Shareholders will be notified before any
material change in investment policies becomes effective.
The following sections are concise descriptions of the Funds
and their investment objectives and policies. More information
about certain types of investments, investment techniques and
risk factors is provided below under "Investment Policies and
Techniques and Risk Factors" and in the Statement of Additional
Information.
The Taxable Money Market Fund
The Taxable Money Market Fund seeks a high level of current
income consistent with the preservation of capital and
maintenance of liquidity. The Fund pursues this objective by
investing principally in a diversified portfolio of high
quality, short-term money market instruments.
The Fund's investments are selected by its sub-adviser,
Fiduciary Counsel, Inc. These investments principally include:
direct obligations of the U.S. Treasury, such as U.S.
Treasury bills, notes and bonds;
notes, bonds, and discount notes of U.S. government
agencies or instrumentalities;
short-term corporate debt instruments (including
commercial paper and variable rate demand notes)
which mature in 270 days or less;
domestic and foreign issues of corporate debt obligations
having floating or fixed rates of interest and having remaining
maturities of less than 13 months;
bank instruments described below under "Bank Instruments";
other short-term investments of a type which the adviser
determines presents minimal credit risks and which are of "high
quality" as determined by a nationally recognized statistical
rating organization, or, in the case of an instrument that is
not rated, of comparable quality in the judgment of the adviser; and
repurchase agreements collateralized by eligible
investments.
The Fund may invest only in securities that, at the time of
purchase, have a remaining maturity of less than 13 months and
that are "eligible securities" as defined by regulations of the
Securities and Exchange Commission. "Eligible securities"
generally include securities rated in one of the two highest
categories by at least two nationally recognized statistical
rating organizations (or by one such rating agency if only one
has issued a rating) or, if unrated, are determined to be of
comparable quality by Fiduciary Counsel pursuant to policies
approved by the Board of Trustees. If the Fund purchases an
eligible security and its rating is subsequently downgraded so
that the security is no longer of high quality, the Fund will
consider and take appropriate action, which may include divesting
the security. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less.
The Tax-Free Money Market Fund
The Tax-Free Money Market Fund seeks a high level of current
income that is exempt from federal income tax consistent with the
preservation of capital and maintenance of liquidity. The Fund
pursues this objective by investing principally in a diversified
portfolio of high quality, short-term municipal securities.
The Fund invests principally in high quality, short-term
municipal securities, the interest from which is exempt from
federal income tax. Municipal securities are debt obligations
issued by or on behalf of states, territories and possessions of
the United States, including the District of Columbia, and their
political subdivisions, agencies and instrumentalities, the
interest from which is exempt from federal regular income tax.
They are described in more detail below under "Investment
Policies and Techniques and Risk Factors" and in the Statement of
Additional Information. The Fund may invest up to 25% of its
assets in securities of issuers located in the same state.
As a matter of investment policy, which may not be changed
without shareholder approval, under normal circumstances, the
Fund will be invested so that at least 80% of the income from
investments will be exempt from federal income tax or that at
least 80% of its net assets are invested in obligations, the
interest from which is exempt from federal income tax. Interest
income that is exempt from federal income tax retains its federal
tax-free status when distributed to the Fund's shareholders. See
"Taxes -- The Tax-Free Fund" for additional information.
From time to time, during periods of other than normal market
conditions, the Fund may invest in instruments that may or may
not be exempt from federal income tax. Although the Fund is
permitted to make taxable, temporary investments, there is no
current intention of generating income subject to federal regular
income tax.
The Fund may invest only in securities that, at the time of
purchase, have a remaining maturity of less than 13 months and
that are "eligible securities" as defined by regulations of the
Securities and Exchange Commission. See "Taxable Money Market
Fund" for additional information about eligible securities.
INVESTMENT POLICIES AND TECHNIQUES AND RISK FACTORS
This Section describes certain types of investments,
investment techniques and investment policies and limitations of
the Funds. This section also includes information about the risk
factors associated with the investments and investment
techniques. The risks of each Fund depend upon many
factors including, among other things, the Fund's investment
objective, the average duration of the Fund's portfolio, credit
quality of the securities held and interest rate movements. For
further information, see the Statement of Additional Information.
Fixed Rate Corporate Debt Obligations
Both of the Funds may invest in fixed rate corporate debt
obligations. Fixed rate securities tend to exhibit more price
volatility during times of rising or falling interest rates than
securities with floating rates of nterest. This is because
floating rate securities, as described below, behave like
short-term instruments in that the rate of interest they pay is
subject to periodic adjustments based on a designated interest
rate index. Fixed rate securities pay a fixed rate of interest
and are more sensitive to fluctuating interest rates. In
periods of rising interest rates the value of a fixed rate
security is likely to fall. Fixed rate securities with
short-term characteristics are not subject to the same price
volatility as fixed rate securities without such
characteristics. Therefore, they behave more like floating rate
securities with respect to price volatility.
Many corporate debt obligations permit the issuers to call
the security and thereby redeem their obligations earlier than
the stated maturity dates. Issuers are more likely to call
bonds during periods of declining interest rates. In these
cases, if a Fund owns a bond which is called, the Fund will
receive its return of principal earlier than expected and would
likely be required to reinvest the proceeds at lower interest
rates, thus reducing income to the Fund.
Other Corporate Debt Obligations
The Funds may also invest in other corporate debt
obligations, including those described below.
Floating Rate Obligations. Floating rate securities are
generally offered at an initial interest rate which is at or
above prevailing market rates. The interest rate paid on these
securities is then reset periodically (commonly every 90 days)
to an increment over some predetermined interest rate index.
Commonly utilized indices include the three-month Treasury bill
rate, the 180-day Treasury bill rate, the one-month or
three-month London Interbank Offered Rate (LIBOR), the prime
rate of a bank, the commercial paper rates, or the longer-term
rates on U.S. Treasury securities.
Variable Rate Demand Notes. Variable rate demand notes are
long-term corporate debt instruments that have variable or
floating interest rates and provide the Fund with the right to
tender the security for repurchase at its stated principal amount
plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at
par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally
based on an interest index or a stated percentage of a prime
rate or another published rate. Many variable rate demand notes
allow the Fund to demand the repurchase of the security on not
more than seven days prior notice. Other notes only permit the
Fund to tender the security at the time of each interest rate
adjustment or at other fixed intervals.
Zero Coupon Securities. Corporate zero coupon securities
are: (i) notes or debentures which do not pay current interest
and are issued at substantial discounts from par value, or (ii)
notes or debentures that pay no current interest until a stated
date one or more years into the future, after which the issuer
is obligated to pay interest until maturity, usually at a higher
rate than if interest were payable from the date of issuance.
Asset-Backed Securities
The Funds may invest in mortgage-related asset-backed
securities that are considered U.S. government securities.
Asset-backed securities are created by the grouping of certain
governmental, government related and private loans, receivables
and other lender assets into pools. Interests in these pools are
sold as individual securities. Payments from the asset pools may
be divided into several different tranches of debt securities,
with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive
regular installments of interest, with principal payable at
maturity or upon specified call dates, and other tranches only
entitled to receive payments of principal and accrued interest at
maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be
fixed or floating.
Because the loans held in the asset pool often may be prepaid
without penalty or premium, asset-backed securities can be
subject to higher prepayment risks than most other types of debt
instruments. Prepayments may result in a capital loss to the
Fund to the extent that the prepaid mortgage securities were
purchased at a market premium over their stated amount.
Conversely, the prepayment of mortgage securities purchased at a
market discount from their stated principal amount will
accelerate the recognition of interest income by the Fund, which
would be taxed as ordinary income when distributed to the
shareholders.
The credit characteristics of asset-backed securities also
differ in a number of respects from those of traditional debt
securities. The credit quality of most asset-backed securities
depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the
securities is insulated from the credit risk of the originator or
any other affiliated entities, and the amount and quality of any
credit enhancement to such securities.
Foreign Securities
Each Fund may invest in U.S. dollar denominated foreign
securities, including foreign securities not publicly traded in
the United States. The percentage of a Fund's assets that will
be allocated to foreign securities will vary depending on the
relative yields of foreign and U.S. securities, the economies of
foreign countries, the condition of such countries' financial
markets, the interest rate climate of such countries and the
relationship of such countries' currency to the U.S. dollar.
These factors are judged on the basis of fundamental economic
criteria (e.g., relative inflation levels and trends, growth
rate forecasts, balance of payments status, and economic
policies) as well as technical and political data.
Investments in foreign securities involve special risks that
differ from those associated with investments in domestic
securities. The risks associated with investments in foreign
securities apply to securities issued by foreign corporations
and sovereign governments. These risks relate to political and
economic developments abroad, as well as those that result from
the differences between the regulation of domestic securities and
issuers and foreign securities and issuers. These risks may
include, but are not limited to, expropriation and
nationalization, confiscatory taxation, reduced levels
of government regulation of securities markets, currency
fluctuations and restrictions on, and costs associated with, the
exchange of currencies, withholding taxes on interest,
limitations on the use or transfer of assets, political or social
instability and adverse diplomatic developments. It may also be
more difficult to enforce contractual obligations or obtain court
judgments abroad than would be the case in the United States
because of differences in the legal systems. If the issuer of
the debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of
such debt, the Fund may have limited legal recourse in the event
of a default. Moreover, individual foreign economies may differ
favorably or unfavorably from the domestic economy in such
respects as growth of gross national product, the rate of
inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Additional differences exist between investing in foreign and
domestic securities. Examples of such differences include: less
publicly available information about foreign issuers; credit
risks associated with certain foreign governments; the lack of
uniform financial accounting standards applicable to foreign
issuers; less readily available market quotations on foreign
issues; the likelihood that securities of foreign issuers may be
less liquid or more volatile; generally higher foreign brokerage
commissions; and unreliable mail service between countries.
Municipal Securities
The Tax-Free Money Market Fund may invest in short-term
municipal securities that qualify as money market instruments.
Municipal securities are generally issued to finance public
works, such as airports, bridges, highways, housing, hospitals,
mass transportation projects, schools, streets, and water and
sewer works. They are also issued to repay outstanding
obligations, to raise funds for general operating expenses, and
to make loans to other public institutions and facilities.
The two principal classifications of municipal securities are
"general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith and
credit and taxing power for the payment of principal and
interest. Interest on and principal of revenue bonds, however,
are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue.
Revenue bonds do not represent a pledge of credit or create any
debt of or charge against the general revenues of a municipality
or public authority.
Municipal securities may carry fixed or floating rates of
interest. Most municipal securities pay interest in arrears on a
semiannual or more frequent basis. However, certain securities,
typically known as capital appreciation bonds or zero coupon
bonds, do not provide for any interest payments prior
to maturity. Such securities are normally sold at a discount
from their stated value, or provide for periodic increases in
their stated value to reflect a compounded interest rate. The
market value of these securities is also more sensitive to
changes in market interest rates than securities that provide
for current interest payments.
Participation Interests. The Funds may purchase
participation interests from financial institutions such as
commercial banks, savings and loan associations and insurance
companies. These participation interests give the Fund an
undivided interest in one or more underlying municipal
securities. The financial institutions from which the Fund
purchases participation interests frequently provide or obtain
irrevocable letters of credit or guarantees to attempt to assure
that the participation interests are of high quality. These
typically give the Fund the right to demand payment of the
principal amounts of the participation interests plus accrued
interest on short notice (usually within seven days).
Municipal Leases. Municipal leases are obligations issued by
state and local governments or authorities to finance the
acquisition of equipment and facilities. They may take the form
of a lease, an installment purchase contract, a conditional
sales contract or a participation certificate of any of the
above.
Industrial Development Bonds. Industrial development bonds
are issued by or on behalf of public authorities to provide
financing aid to acquire sites or construct and equip facilities
for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local
employment. Industrial development bonds do not represent a
pledge of credit or create any debt of municipality or a public
authority, and no taxes may be levied for payment of principal
or interest on these bonds. The principal and interest is
payable solely out of monies generated by the entities using or
purchasing the sites or facilities. These bonds will be
considered municipal securities if the interest paid on them, in
the opinion of bond counsel, is exempt from federal regular
income tax.
Municipal Notes. Municipal securities in the form of notes
generally are used to provide for short-term capital needs, in
anticipation of an issuer's receipt of other revenues or
financing, and typically have maturities of up to three years.
Such instruments may include Tax Anticipation Notes, Revenue
Anticipation Notes, Bond Anticipation Notes, Tax and Revenue
Anticipation Notes and Construction Loan Notes. The obligations
of an issuer of municipal notes are generally secured by the
anticipated revenues from taxes, grants or bond financing. An
investment in such instruments, however, presents a risk that
the anticipated revenues will not be received or that such
revenues will be insufficient to satisfy the issuer's payment
obligations under the notes or that refinancing will be otherwise
unavailable.
Tax-Exempt Commercial Paper. Issues of commercial paper
typically represent short-term, unsecured, negotiable promissory
notes. These obligations are issued by state and local
governments and their agencies to finance working capital needs
of municipalities or to provide interim construction financing
and are paid from general revenues of municipalities or are
refinanced with long-term debt. In most cases, tax-exempt
commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions.
Zero Coupon and Capital Appreciation Bonds. Zero coupon and
capital appreciation bonds are debt securities issued or sold at
a discount from their face value and which do not entitle the
holder to any periodic payment of interest prior to maturity or a
specified redemption date (or cash payment date). The amount of
the discount varies depending on the time remaining until
maturity or cash payment date, prevailing interest rates, the
liquidity of the security and the perceived credit quality of
the issuer. These securities also may take the form of debt
securities that have been stripped of their unmatured interest
coupons, the coupons themselves or receipts or certificates
representing interest in such stripped debt obligations or
coupons. Discount with respect to stripped tax-exempt securities
or their coupons may be taxable. The market prices of capital
appreciation bonds generally are more volatile than the market
prices of interest bearing securities and are likely to respond
to a greater degree to changes in interest rates than interest
bearing securities having similar maturities and credit quality.
U.S. Government Securities
Each of the Funds may invest in U.S. government securities.
These securities are either issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The government
securities in which the Fund may invest are backed in a variety
of ways by the U.S. government or its agencies or
instrumentalities. Some of these securities, such as
Government National Mortgage Association ("GNMA") mortgage-backed
securities, are backed by the full faith and credit of the U.S.
government. Other securities, such as obligations of the Federal
National Mortgage Association ("FNMA") or Federal Home Loan
Mortgage Corporation ("FHLMC"), are backed by the credit of the
agency or instrumentality issuing the obligations but not the
full faith and credit of the U.S. government. No assurances can
be given that the U.S. government will provide financial support
to these other agencies or instrumentalities, because it is not
obligated to do so.
Bank Instruments
Each of the Funds may invest in time deposits (including
savings deposits and certificates of deposit) and bankers
acceptances in commercial banks or savings associations whose
accounts are insured by the Federal Deposit Insurance
Corporation (the "FDIC"), including certificates of deposit
issued by and other time deposits in foreign branches of FDIC
insured financial institutions or who have at least $100 million
in capital. These instruments may also include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The banks
issuing these instruments are not necessarily subject to the
same regulatory requirements that apply to domestic banks, such
as reserve requirements, loan requirements, loan limitations,
examinations, accounting, auditing, and record keeping and the
public availability of information.
Investments in Other Mutual Funds
Each of the Funds may invest to some extent in the securities
of other open-end registered investment companies ("mutual
funds"). Each of the Funds intends to invest incidentally in
other mutual funds and may not invest more than 5% of its total
assets in any one mutual fund, or more than 10% of its total
assets in mutual funds in general. The Funds, considered
together with the other funds of the trust, may not invest in
more than 3% of the total outstanding voting securities of any
one mutual fund. The foregoing limitations are not applicable
to investment company securities acquired as part of a merger,
consolidation, reorganization or other acquisition.
The Funds will invest only in other mutual funds that do not
impose up-front sales loads or deferred sales loads or
redemption fees. However, the Funds may invest in funds that
have 12b-1 plans or shareholder services plans which permit the
funds to pay certain distribution and other expenses from fund
assets. To the extent that a Fund invests in other mutual funds,
the Fund will indirectly bear its proportionate share of any
fees and expenses paid by such funds in addition to the fees and
expenses payable directly by the Fund. Therefore, to the extent
that a Fund invests in other mutual funds, the Fund will incur
higher expenses, many of which may be duplicative. In addition,
to the extent that a Fund invests in other mutual funds, the
Fund's shareholders may receive capital gains distributions to a
greater extent that if the shareholder owned the underlying
mutual funds directly.
Furthermore, although each Fund will invest only in other
mutual funds that have an investment objective similar to the
Fund's, or that otherwise is a permitted investment under the
Fund's investment policies described herein, the mutual funds
purchased by the Funds likely will have certain investment
policies, and use certain investment practices that are different
from those of the Funds and not described herein. These other
policies and practices may subject the other funds' assets to
varying or greater degrees of risk. The Funds are independent
from any of the other mutual funds in which they invest and have
little voice in or control over the investment practices,
policies or decisions of those funds. If a Fund disagrees with
those practices, policies or decisions, it may have no choice
other than to liquidate its investment in that fund, which can
entail further losses. However, a mutual fund is not required
to redeem any of its shares owned by another mutual fund in an
amount exceeding 1% of the underlying fund's shares during any
period of less than 30 days. As a result, to the extent that a
Fund owns more than 1% of another mutual fund's shares, the Fund
may not be able to liquidate those shares in the event of adverse
market conditions or other considerations.
Also, the investment advisers of the mutual funds in which a
Fund invests may simultaneously pursue inconsistent or
contradictory courses of action. For example, one fund may be
purchasing securities of the same issuer whose securities are
being sold by another fund, with the result that the Fund
would incur an indirect expense without any corresponding
investment or economic benefit.
Repurchase Agreements
Each of the Funds may invest in repurchase agreements related
to eligible securities. Repurchase agreements are arrangements
in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities
to the Fund and agree at the time of sale to repurchase them at
a mutually agreed upon time and price. Under the Investment
Company Act of 1940, a repurchase agreement is deemed to be a
loan collateralized by the underlying securities. To the extent
that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price
on any sale of such securities.
When-Issued and Delayed Delivery Transactions
The Funds may purchase securities on a when-issued or delayed
delivery basis. These transactions are arrangements in which a
Fund purchases securities with payment and delivery scheduled for
a future time. Prior to such delivery, no income on the
securities accrues to the Fund. In when-issued and delayed
delivery transactions, the Fund relies on the seller to complete
the transaction. The seller's failure to complete the
transaction may cause the Fund to miss a price or yield
considered to be advantageous.
Demand Features
The Funds may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the
securities at their principal amount (usually with accrued
interest) within a fixed period following a demand by the Fund.
The demand feature may be issued by the issuer of the
underlying securities, a dealer in the securities or by another
third party, and may not be transferred separately from the
underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the
market value of the underlying securities. The bankruptcy,
receivership or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the
liquidity of the underlying security. Demand features that are
exercisable even after a payment default on the underlying security
are treated as a form of credit enhancement.
General
In order to generate additional income, each Fund may lend
portfolio securities on a short-term basis up to 5% of the value
of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. Each Fund may invest up
to 5% of its assets in reverse repurchase agreements, restricted
securities and demand notes and credit facilities.
NET ASSET VALUE
Net asset value per share (the price at which shares are
purchased and redeemed) is determined as of the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m.,
Eastern time), on each business day the Exchange is open for
business. Each fund's portfolio securities are valued utilizing
the amortized cost method of valuation, which normally
approximates market value, and which is intended to result in a
constant net asset value of $1.00 per share. Although every
effort is made to maintain the net asset value of the Funds at
$1.00 per share, there can be no assurance that this constant net
asset value will be maintained at all times. For example, in the
event of rapid and sharp increases in current interest rates, a
national credit crisis, or a default by one or more of the
issuers of a Fund's portfolio securities, then it is possible
that a Fund's net asset value could decline below $1.00 per
share.
HOW TO BUY SHARES
Shares of the Funds are sold each day the New York Stock
Exchange is open at the applicable Fund's net asset value per
share next calculated after receipt of the purchase order in
proper form. The Trust reserves the right to reject any
purchase request.
Minimum Investment
The minimum initial investment in each Fund is $l,000,
except an IRA for which the minimum initial investment is $500.
Former shareholders of the Unified family of funds, or the Quest
funds which acquired the Unified family of funds, may open an
account with less than the required minimum. However, they are
subject to a one-time $4.50 administrative charge to establish
the account. The minimum investment may also be waived for
certain other types of retirement accounts and direct deposit
accounts. Subsequent investments may be made in amounts of at
least $100, except for an IRA, which must be in amounts of at
least $50. Minimum investments for certain other types of
retirement accounts and direct deposit accounts may be different.
See "Shareholder Services."
Opening An Account
An account may be opened by mail or bank wire, as follows:
By Mail. To open a new account by mail:
Complete and sign the account application. (Be sure to
specify the name of the Fund(s) in which an investment is made.)
Enclose a check payable to each Fund specified in the
application.
Mail the application and the check to the Transfer Agent
at the following address: The Vintage Funds, c/o Unified
Advisers, Inc., P.O. Box 6110, Indianapolis, Indiana 46206-6110.
By Wire. To open a new account (or to open an additional
account in a different Fund) by wire, call the Transfer Agent at
1-800-408-4682. A representative will assist you to obtain an
account application by telecopy (or mail), which must be
completed, signed and telecopied (or mailed) to the Transfer
Agent before payment by wire may be made. Then, request
your financial institution to wire immediately available funds
to:
Star Bank, N.A.
ABA # 04-20000-13
Attention: Name of Fund (see below)
Number of Fund (see below)
Credit Account # ________ (see below)
The applicable Fund and account numbers are listed below:
Fund Name Fund Number Account Number
Taxable Money Market Fund 30 483616819
Tax-Free Money Market Fund 31 483616827
The order is considered received when Star Bank, N.A., the
Trust's custodian, receives payment by wire. However, the
completed account application must be mailed to the Transfer
Agent on the same day the wire payment is made. See "Opening an
Account -- By Mail" above. The Trust will not permit redemptions
until the Transfer Agent receives the application in proper form.
Financial institutions may charge a fee for wire transfers.
Subsequent Investments
Once an account is open, additional purchases of Fund shares
may be made at any time in minimum amounts of $100, except for an
IRA, which must be in amounts of at least $50. Additional
purchases may be made:
By sending a check, made payable to the applicable Fund, to The
Vintage Funds, [Name of Fund], P.O. Box 640689, Cincinnati,
Ohio 45264-0689. The Trust will charge a $15 fee against a
shareholder's account for any check returned for insufficient
funds. The shareholder also will be responsible for any
losses suffered by the Trust as a result.
By wire to the applicable Fund account as described above under
"Opening an Account -- By Wire". Shareholders should call the
Transfer Agent at 1-800-408-4682 before wiring funds.
By electronic funds transfer from a financial institution
through the Automated Clearing House ("ACH"), as described
below.
By Automated Clearing House (ACH). Once an account is open,
shares may be purchased or redeemed through ACH in minimum
amounts of $100. ACH is the electronic transfer of funds
directly between an account with a financial institution and the
applicable Fund. In order to use the ACH service, the ACH
Authorization section of the account application must be
completed. For existing accounts, an ACH Authorization Form may
be obtained by calling the Transfer Agent at 1-800-408-4682.
Allow at least two weeks for preparation before using ACH. To
order a purchase or redemption by ACH, call the Transfer Agent at
1-800-408-4682. There are no charges for ACH transactions
imposed by the Fund or the Transfer Agent. ACH transactions
are completed approximately two business days following the
placement of the transfer order.
ACH may be used to make direct deposits into a Fund account
of part or all of recurring payments made to a shareholder by his
or her employer (corporate, federal, military, or other) or by
the Social Security Administration.
DIVIDENDS AND DISTRIBUTIONS
The Funds declare and pay dividends on a daily basis. If
cash payments are requested, daily dividends will accumulate and
be paid at the end of each month, as requested in writing.
The Funds have two transaction times each day, at 12:00 noon
(Eastern time) and the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time). New
investments represented by federal funds or bank wires received
by the Custodian prior to 12:00 noon are paid the full dividend
for that day; such investments received after 12:00 noon do
not begin to receive daily dividends until the next day. Shares
purchased by check begin earning dividends on the business day
after the check is converted into federal funds. Redemption
orders received prior to 12:00 noon are effected at 12:00 noon,
and the redemption proceeds are normally available for
wire transfer that day. Redemption orders received after 12:00
noon are effected at the close of regular trading on the New York
Stock Exchange, and the redemption proceeds are normally remitted
the next business day. Redemption orders received at any time
during a day do not earn that day's dividend.
EXCHANGE PRIVILEGE
Shares of any Fund may be exchanged for shares of any other
fund of the Trust at net asset value, without any additional
charges. The shares exchanges must have been registered in the
shareholder's name for at least five days prior to the exchange
request, and must have a net asset value which at least meets
the minimum investment required for the fund into which the
exchange is being made.
Exchange requests may be made by telephone or in writing.
Exchanges will be effected at the respective net asset values per
share of the Funds involved, next determined after the exchange
request is received in proper form. If an exchange request is
received by the Transfer Agent in proper form on a Trust business
day before the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time), the exchange will
be effected that day. An exchange of shares purchased by check
will be delayed until the check has been converted into federal
funds and redemption proceeds are available for purchase of the
newly acquired shares, which could take up to 15 days.
By Telephone. Exchange requests may be made by telephone by
calling the Transfer Agent at 1-800-408-4682. Exchange requests
made by telephone will be effected only if (1) the shareholder's
existing account has authorized telephone redemption privileges
(see "How to Redeem Shares -- By Telephone" below) and (2) no
account information will change as a result of the exchange. The
Transfer Agent requires personal identification before
accepting any exchange request by telephone, and telephone
exchange requests may be recorded.
By Mail or Telecopy. Exchange requests made in writing
should be sent to The Vintage Funds c/o Unified Advisers, Inc.,
P.O. Box 6110, Indianapolis, Indiana 46206-6110. A written
request to exchange shares having a net asset value of less than
$5,000 may be sent by telecopy, by first calling the Transfer
Agent at 1-800-408-4682. Regardless of whether the request is
sent by mail or by telecopy, the request must be signed exactly
as the shareholder's name appears on the Trust's account
records. If the shares to be exchanged have a net asset value
of $5,000 or more, the request must be mailed, and all
signatures must be properly guaranteed as described below under
"How to Redeem Shares -- Signatures." If shares are to be
exchanged into a new account registered in a different name, or
if any account information will change as a result of the
exchange, a separate account application must be received by the
Transfer Agent by mail before the exchange may be effected.
The exchange privilege is designed to accommodate changes in
shareholder investment objectives. It is not designed for
frequent trading in response to short-term market fluctuations.
Accordingly, the Trust reserves the right to limit a
shareholder's use of the exchange privilege. The exchange
privilege may be modified or terminated at any time.
Any exchange involves a redemption of shares of one fund and
an investment of the redemption proceeds in shares of another.
Before requesting an exchange, a shareholder must request and
should read carefully the Prospectus describing the fund into
which the exchange will be made. Also, an exchange is treated
for federal income tax purposes as a sale of the shares given in
exchange, and the shareholder may realize a taxable gain or loss
on the exchange.
HOW TO REDEEM SHARES
Shares of each Fund may be redeemed on any day on which the
Fund computes it net asset value. Shares are redeemed at their
net asset value next determined after the Transfer Agent receives
the redemption request in proper form. Redemption requests may
be may by mail or by telephone.
By Mail. A shareholder may redeem shares by mailing a
written request to The Vintage Funds, c/o Unified Advisers, Inc.,
P.O. Box 6110, Indianapolis, Indiana 46206-6110. Written
requests must state the shareholder's name, the name of the Fund,
the account number and the shares or dollar amount to be redeemed
and be signed exactly as the shares are registered.
Signatures. Shareholders requesting a redemption of
$5,000 or more, or a redemption of any amount payable to a
person other than the shareholder of record or to be sent to an
address other than that on record with the Trust, must have all
signatures on written redemption requests guaranteed.
The Transfer Agent will accept signatures guaranteed by a
financial institution whose deposits are insured by the FDIC; a
member of the New York, American, Boston, Midwest, or Pacific
Stock Exchange; or any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934. The Transfer
Agent will not accept signatures guaranteed by a notary public.
The Transfer Agent has adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in
the future to limit eligible signature guarantors to institutions
that are members of a signature guarantee program. The Trust and
its Transfer Agent reserve the right to amend these standards at
any time without notice.
Redemption requests by corporate and fiduciary
shareholders must be accompanied by appropriate documentation
establishing the authority of the person seeking to act on behalf
of the account. Forms of resolutions and other documentation to
assist in compliance with the Transfer Agent's procedures may be
obtained by calling the Transfer Agent.
By Telephone. You may also redeem shares by telephone by
calling the Transfer Agent at 1-800-408-4682. In order to make
redemption requests by telephone, the Telephone Privileges
section of the account application must be completed. For
existing accounts, a Telephone Privileges form may be obtained by
calling the Transfer Agent at 1-800-408-4682.
Telephone redemptions may be requested only if the proceeds
are to be issued to the shareholder of record and mailed to the
address on record with the Fund. Upon request, proceeds of $100
or more may be transferred by ACH, and proceeds of $1,000 or more
may be transferred by wire, in either case to the account stated
on the account application. Shareholders will be charged for
outgoing wires.
Telephone privileges and account designations may be changed
by sending the Transfer Agent a written request with all
signatures guaranteed as described above.
The Transfer Agent requires personal identification before
accepting any redemption request by telephone, and telephone
redemption instructions may be recorded. If reasonable
procedures are not followed by the Trust, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder
may experience difficulty in redeeming by telephone. If such a
case should occur, redemption by mail should be considered.
Receiving Payment
The Trust normally will make payment for all shares redeemed
within three business days after receipt by the Transfer Agent of
a redemption request in proper form, except as provided by the
rules of the Securities and Exchange Commission. A requested
wire of redemption proceeds normally will be effected the
following business day, but in no event more than three business
days, after receipt of the redemption request in proper form.
However, when shares are purchased by check or through ACH, the
proceeds from the redemption of those shares are not available,
and the shares may not be exchanged, until the purchase check or
ACH transfer has been converted to federal funds, which could
take up to 15 days.
Check Writing
Under the Funds' check writing service, shareholders may
write checks payable to any payee in any amount of $250 or more.
A shareholder with check writing privileges may present for
payment three checks per month free of charge; additional checks
will result in a charge of $0.30 per check. Daily dividends will
continue to accrue on the shares redeemed by check until the day
the check is presented for payment.
The Check Writing Privileges section of the account
application must be completed in order to initiate check writing
privileges. For existing accounts, check writing privileges may
be initiated by sending a written request to the Transfer Agent
with all signatures guaranteed. A book of checks will be sent
to the shareholder of record upon the Transfer Agent's receipt
of the request.
A check should not be used to close out an account with the
Fund because the balance of the account will continue to increase
by the amount of daily dividends until the check is presented for
payment. The Transfer Agent may impose a charge for checks
returned unpaid for insufficient funds or for effecting
stop-payment instructions.
Minimum Account Balance
Due to the high cost of maintaining accounts with low
balances, the Trust may involuntarily redeem shares in any
account, and pay the proceeds to the shareholder, if the account
balance falls below a required minimum value of $1,000 ($500 for
an IRA) due to shareholder redemptions. This requirement does
not apply, however, if the balance falls below the minimum
because of changes in a Fund's net asset value. Before shares
are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet
the minimum requirement. The Transfer Agent reserves the right
and may charge shareholders an administrative fee to cover the
cost of maintaining the properly servicing lost accounts with
balances below the required minimums.
SHAREHOLDER SERVICES
Each time shares are purchased or redeemed, a statement will
be mailed showing the details of the transaction and the number
and value of shares owned after the transaction. Transactions
made in brokerage sweep accounts will be detailed on a monthly
brokerage statement. Share certificates are not issued.
Financial reports showing investments, income and expenses of the
Funds are mailed to shareholders semi-annually. After the end of
each year, shareholders receive a statement of all their
transactions for the year.
The Trust provides a number of plans and services to meet the
special needs of certain investors, including (1) an automatic
investment plan, (2) a payroll deduction plan, (3) a systematic
withdrawal plan to provide monthly payments, (4) retirement plans
such as IRA and 403(b), and (5) corporate pension and profit
sharing plans, including a 401(k) plan. Brochures describing
these plans and related charges and account applications are
available from the Transfer Agent by calling 1-800-408-4682.
THE TRUST AND ITS MANAGEMENT
The Trust is an Indiana business trust authorized to offer
separate classes and sub-classes of shares of beneficial
interest. At the date of this Prospectus, the Trust has
established eight funds, including the Funds described herein,
each as a separate class of its shares. The Trust's offices are
at 429 North Pennsylvania Street, Indianapolis, Indiana 46204.
The business affairs of the Trust are under the direction of its
Board of Trustees.
Investment Advisory Arrangements
Investment Adviser. Vintage Advisers, Inc., 429 North
Pennsylvania Street, Indianapolis, Indiana 46204, serves as the
Trust's investment adviser (the "Adviser"). The Adviser
supervises and assists in the management of the Funds under an
Investment Advisory Agreement between the Adviser and the
Trust, subject to the overall authority of the Board of Trustees.
The Adviser also is responsible for monitoring and evaluating the
performance of each Sub-Adviser, as described below.
The Adviser was organized in December 1994 and is a
registered investment adviser. It has no prior operating history
and does not act as the investment adviser to any other
investment companies. The Adviser is controlled by Timothy L.
Ashburn and Jack R. Orben. Messrs. Ashburn and Orben are
members of the Trust's Board of Trustees. They, together with
the other directors and officers of the Adviser, have
substantial experience in the investment counsel and mutual fund
industries.
The Adviser has notified the Trust that, in the event of an
initial public offering of the Adviser's voting securities, the
Adviser may offer the first opportunity to purchase such
securities to persons who are then shareholders of the Funds.
However, there can be no assurance that the Adviser will ever
offer its voting securities to the public.
Sub-Adviser. The Adviser has entered into a Sub-Advisory
Agreement with Fiduciary Counsel, Inc. (the "Sub-Adviser") to
manage the investment portfolios of the Funds. The Sub-Adviser
is located at 40 Wall Street, New York, New York. Formed in 1931,
Fiduciary Counsel is a registered investment adviser that manages
approximately $450 million in assets. It does not act as the
investment adviser to any other investment companies. It is
controlled by Associated Family Services, Inc. ("AFS"). Jack R.
Orben owns 33% of the outstanding voting securities of AFS.
Portfolio Manager's Background
Jack R. Orben is the Funds' portfolio manager. Mr. Orben has
been the Chairman of Fiduciary Counsel since 1979. Prior to
that time, he was President of Orben & Associates, Inc., an
investment consultant to bank trust departments. Since 1979,
Mr. Orben has been a member of Fiduciary Counsel's Investment
Policy Committee and Chairman of its Executive Committee. Mr.
Orben graduated from Tufts University in 1960, and has nearly 25
years of investment experience.
Advisory Fees
Each Fund pays the Adviser an annual advisory fee, payable
monthly, equal to 0.50% of the Fund's average daily net assets.
The Adviser has agreed to voluntarily waive some or all of its
fees, but may terminate this voluntary waiver with respect to
either Fund at any time at its sole discretion. The Adviser has
also undertaken to reimburse each Fund for operating expenses in
excess of limitations established by certain states.
The Adviser pays the Sub-Adviser an annual fee for its
services in managing the portfolios of the Funds. These fees are
paid directly by the Adviser from its own assets and are not an
expense of the Funds. The Funds themselves pay no fees to the
Sub-Adviser. The sub-advisory fees are payable monthly, in an
amount equal to 0.07% of the Fund's average daily net assets up
to $1 billion; and 0.05% of net assets in excess of $1 billion.
Distribution Services
Distributor. Unified Management Corporation (the
"Distributor"), 429 North Pennsylvania Street, Indianapolis,
Indiana 46204, acts as each Fund's distributor pursuant to a
Distribution Agreement with the Trust. The distributor is a
subsidiary of Unified Holdings, Inc.
Distribution Plan. Under a Distribution Plan adopted with
respect to each Fund pursuant to Rule 12b-1 under the Investment
Company Act of 1940, the Trust pays the Distributor an annual
fee, payable monthly, of up to 0.10% of each Fund's average daily
net assets. The Distributor is entitled to retain all of this
distribution fee to reimburse the Distributor for payments made
or expenses incurred for distribution of Fund shares, including
those incurred in connection with preparing and distributing
sales literature and advertising, preparing, printing and
distributing prospectuses and statements of additional
information used for other than regulatory purposes or
distribution to existing shareholders, implementing and operating
the Distribution Plan, and compensating third parties for their
distribution services. The Distributor may select financial
institutions such as banks, custodians, investment advisers and
broker/dealers to provide sales support services as agents for
their clients or customers.
The Distribution Plan is a compensation-type plan.
Therefore, the amounts payable to the Distributor during any year
may be more or less than actual expenses incurred by the
Distributor during such year. No amount payable or credit due
pursuant to the Distribution Plan for any fiscal year may be
carried over for payment or utilized as a credit, as the case may
be, beyond the end of the year, unless authorized by the Trust's
Board of Trustees. However, the Distributor may be able to
recover such amounts or may earn a profit from future payments
made by the Trust under the Distribution Plan.
Administration of the Trust
Administrator. Unified Advisers, Inc., 429 North
Pennsylvania St., Indianapolis, Indiana 46204, serves as the
Trust's administrator (the "Administrator"). Pursuant to a
Mutual Fund Service Agreement with the Trust, the Administrator
provides certain administrative personnel and services (including
administration, transfer agency and fund accounting
services) necessary to operate the Funds. For its services, the
Administrator receives an annual fee, payable monthly, equal to
0.185% of each Fund's average daily net assets.
Shareholder Services Plan. The Trust has adopted a
Shareholder Services Plan (the "Service Plan") with respect to
each Fund, which is administered by the Administrator. Under the
Service Plan, financial institutions, including brokers, may
enter into shareholder service agreements with the Trust
to provide administrative support services to their clients or
customers who from time to time may be owners of record or
beneficial owners of the shares of one or more of the Funds. In
return for providing these support services, a financial
institution may receive payments from the Fund at a rate not
exceeding 0.15% of the average daily net assets of the shares
beneficially owned by the financial institution's clients or
customers for whom it is holder of record or with whom it has a
servicing relationship. These administrative services may
include, but are not limited to, the provision of personal
services and maintenance of shareholder accounts.
The Glass-Steagall Act limits the ability of a depository
institution (such as a commercial bank or a savings and loan
association) to become an underwriter or distributor of
securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities
described above or should Congress relax current restrictions on
depository institutions, the Board of Trustees will consider
appropriate changes in the services. State securities laws
governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore,
banks and financial institutions may be required to register as
dealers pursuant to state law.
Other Arrangements. The Adviser, the Distributor or the
Administrator may, from their respective fees, also pay brokers
or financial institutions a fee based upon the net asset value of
the Fund shares beneficially owned by the broker's or financial
institution's clients or customers. This fee is in addition to
amounts paid under the Distribution Plan or the Services Plan.
These payments will be made directly by the Adviser, the
Distributor or the Administrator from their own assets, will not
be made from the assets of the Funds and are not an additional
expense of the Funds.
From time to time the Distributor will purchase Fund shares
on behalf of its clients and will be entitled to receive 12b-1
fees, shareholder servicing fees and other administrative fees
described herein to the same extent as any other broker or
financial institution.
Transfer Agent, Fund Accounting Agent and Custodian
Unified Advisers, Inc., P.O. Box 6110, Indianapolis, Indiana
46206-6110, acts as the Trust's transfer agent (the "Transfer
Agent") and fund accounting agent.
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45201,
acts as the Trust's custodian. General correspondence to the
custodian should be addressed to Star Bank, N.A., P.O. Box 1038,
Location 6118, Cincinnati, Ohio 45201. Share purchase orders
mailed directly to the custodian (See "How to Buy Shares --
Subsequent Investments") should be addressed to The
Vintage Funds, [Name of Applicable Fund], P.O. Box 640689,
Cincinnati, Ohio 45264-0689.
Portfolio Transactions
The Adviser and Sub-Adviser select the firms that effect
brokerage transactions for their respective Funds, subject to the
overall direction and review of Adviser and the Board of
Trustees. The initial criterion that must be met by the Adviser
and Sub-Advisers in selecting brokers and dealers is whether the
firm can obtain the most favorable combination of price and
execution for the transaction. This does not mean that the
execution decision must be based solely on whether the lowest
possible commission costs may be obtained. In seeking the best
combination of price and execution, the Adviser and Sub-Adviser
evaluate the execution capability of the firms and the services
they provide, including their general execution capability,
reliability and integrity, willingness to take positions in
securities, and general operational and financial condition.
Subject to this primary objective, the Adviser and
Sub-Adviser may select for brokerage transactions those firms
which furnish brokerage and research services to the Funds, the
Adviser or the Sub-Adviser. The Adviser and Sub-Adviser may also
give consideration to firms that have sold Fund shares. The
Board of Trustees has authorized the Funds to pay brokerage
commissions to firms that are affiliated with the Adviser or the
Sub-Adviser, subject to the foregoing criteria.
Expenses
Each Fund pays, except to the extent specifically assumed by
others, all expenses incurred in its operations, and a portion of
the Trust's general administrative expenses are allocated to the
Funds either on the basis of their relative net assets, on the
basis of special needs of any Fund, or equally as is deemed
appropriate. The expenses borne by a Fund include:
organizational costs, taxes, interest, brokerage fees and
commissions, fees of Trustees, state and federal registration
fees, advisory and administrative fees, distribution and
shareholder servicing fees, charges of custodians, transfer and
dividend disbursing agent's fees, certain insurance premiums,
industry association fees, auditing and legal expenses, costs
attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of calculating the net
asset value of the Fund's shares, costs of shareholders' reports
and meetings, costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and
for distribution to existing shareholders, and any extraordinary
expenses.
THE "V.O.I.C.E. " PROGRAM
(Vision For On-Going Investments In Charity and Education)
The Adviser has established The Vintage Funds University and
Philanthropic Program (the "Program"), entitled "V.O.I.C.E. "
(Vision for On-going Investments in Charity and Education)
pursuant to which the Adviser will make donations from its own
revenue to certain accredited college or university endowments or
general scholarship funds ("Eligible Institutions") designated
by qualified shareholders. Philanthropic institutions outside of
the area of education may be proposed by qualifying shareholders
and may, at the sole discretion of the Adviser, be accepted for
inclusion as an Eligible Institution.
All Vintage Funds shareholders maintaining an average
annualized aggregate net asset value of $25,000 or more over the
period of an entire calendar quarter ("Qualified Shareholders")
will be qualified to designate one or more Eligible Institutions
to receive a donation under the Program with respect to that
period. A shareholder making an initial investment of $25,000 or
more in Fund shares may designate one Eligible Institution on
the V.O.I.C.E. Program Application. A shareholder making an
initial investment of $1,000,000 or more (or maintaining that
amount for an entire quarterly period) may designate one
additional Eligible Institution for each $l,000,000 invested (or
maintained for such period).
The Adviser will donate, on a quarterly basis, from its own
revenue an amount equal to 0.25% of the average annualized
aggregate net asset value of the shares owned by the Qualified
Shareholder for the preceding quarterly period, for so long as
the average annualized aggregate net asset value of the shares
owned by the Qualified Shareholder remains above $25,000 for
such period. Donations will be made by the Adviser in the name
of the Qualified Shareholder to the Eligible Institution(s)
designated by the Qualified Shareholder. However, while the
donation will be made in the Qualified Shareholder's name, the
Qualified Shareholder will not be entitled to any tax deductions
for such donation.
All Qualified Shareholders desiring to change their
designated Eligible Institution(s) may do so twice a year, in
January and July. If a Qualified Shareholder was entitled to
designate, and did designate, more than one Eligible
Institution, the amount donated will be allocated according to
the percentages designated on the V.O.I.C.E. Program
Application.
Donations will be made by the Adviser from its own revenue
and, therefore, will have no impact on the expenses or yield of
the Funds. There can be no assurance that the Adviser will have
revenue from which to make donations.
The preceding information is only a summary of the V.O.I.C.E.
Program and is qualified in its entirety by the more complete
information available from the Adviser.
Information about the V.O.I.C.E. Program, including
applications to participate in the Program, may be obtained from
the Adviser by calling 1-800-408-4682 (1-800-40-VINTAGE).
TAXES
It is intended that each Fund will qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), as long as such qualification is in the
best interest of the Fund's shareholders. Such qualification
relieves each Fund of liability for federal income tax to the
extent its earnings are distributed in accordance with the Code.
A shareholder receiving a distribution of ordinary income
and/or an excess of net short-term capital gain over net
long-term capital loss ordinarily would treat it as a receipt of
ordinary income in the computation of the shareholder's gross
income, whether such distribution is received in cash or
reinvested in additional shares. Any distribution of the excess
of net long-term capital gain over net short-term capital loss
ordinarily is taxable to shareholders as long-term capital gain
regardless of how long the shareholder has held shares.
Dividends and distributions also may be subject to state and
local taxes.
Shareholders will receive statements as to the tax status of
dividends and distributions annually, as well as periodic account
summaries that will include information as to any dividends and
distributions from securities gains paid during the year.
Shareholders should consult their own tax advisers with questions
regarding federal, state or local taxes.
The Tax-Free Fund
Shareholders of the Tax-Free Money Market Fund are not
required to pay federal regular income tax on any dividends
received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986,
dividends representing net interest earned on some municipal
bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax
for corporations. The alternative minimum tax, imposed at a
maximum rate of 28% of alternative minimum taxable income for
individuals and other non-corporate taxpayers, and 20% for
corporations, applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the
regular taxable income of the taxpayer increased by certain "tax
preference" items not included in regular taxable income and
reduced by only a portion of the deductions allowed in the
calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain
"private activity" bonds issued after August 7, 1986, as a tax
preference item for both individuals and corporations. Unlike
traditional governmental purpose municipal bonds, which finance
roads, schools, libraries, prisons and other public facilities,
private activity bonds provide benefits to private parties. The
Tax-Free Money Market Fund may purchase all types of municipal
bonds, including private activity bonds. Thus, should a Fund
purchase any such bonds, a portion of the Fund's dividends may
be treated as a tax preference item.
In addition, in the case of a corporate shareholder,
dividends of the Tax-Free Money Market Fund which represent
interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a
corporation's "adjusted current earnings." The corporate
alternate minimum tax treats 75% of the excess of a taxpayer's
pre-tax "adjusted current earnings" over the taxpayer's
alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits." Since "earnings and
profits" generally includes the full amount of any Fund dividend,
and alternative minimum taxable income does not include the
portion of the Fund's dividend attributable to municipal bonds
which are not private activity bonds, the difference will be
included in the calculations of the corporation's alternative
minimum tax.
Dividends of the Tax-Free Money Market Fund representing net
interest income earned on some temporary investments and any
realized net short-term gains are taxed as ordinary income.
Backup Withholding
The Trust may be required to withhold federal income tax at a
rate of 31% from dividends and redemption proceeds paid to
non-corporate shareholders. This tax may be withheld from
dividends if a shareholder fails to furnish the Trust with the
shareholder's correct taxpayer identification number, the
Internal Revenue Service (the "IRS") notifies the Trust that the
shareholder has failed to report certain income to the IRS, or
the shareholder fails to certify that he or she is not subject
to backup withholding when required to do so. Backup
withholding is not an additional tax and the shareholder may
credit any amounts withheld against the shareholder's federal
income tax liability.
PERFORMANCE INFORMATION
From time to time the Trust may publish performance
information relative to the Funds, and include such information
in advertisements, sales literature or shareholder reports. The
Funds may quote their current yields and effective yields. The
"yield" of a money market Fund refers to the income generated by
an investment in the Fund over a seven-day period (which will
be stated in the advertisement). This income is then annualized.
That is, the amount of income generated by investments during
the week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be
reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed
reinvestment.
The Tax-Free Money Market Fund may also quote its
"tax-equivalent yield", which is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the
Fund's shares would have had to earn to equal the actual yield,
assuming a specific tax rate. A Fund's tax-equivalent yield will
always be higher than its taxable yield.
The Funds may also include in advertisements data comparing
performance with other mutual funds as reported in non-related
investment media, published editorial comments and performance
rankings compiled by independent organizations and publications
that monitor the performance of mutual funds (such as Lipper
Analytical Services, Inc., Morningstar, Inc., Fortune
or Barron's). Performance information may be quoted numerically
or may be presented in a table, graph or other illustration.
The advertised performance data of each Fund is based on
historical performance and is not intended to indicate future
performance. Rates of total return quoted by a Fund may be
higher or lower than past quotations, and there can be no
assurance that any rate of total return will be maintained.
GENERAL INFORMATION
The Trust was organized on February 1, 1995 as an Indiana
business trust. The Trust's Declaration of Trust permits the
Trust to offer and sell an unlimited number of full and
fractional shares of beneficial interest in each of the Funds
and to create additional Funds. Each Fund of the Trust issues
its own class of shares of beneficial interest. The shares of
each Fund represent an interest only in that Fund's assets (and
income) and in the event of liquidation, each share of a
particular Fund would have the same rights to distributions and
assets as every other share of that Fund. Shares have no
preemptive or conversion rights, nor do they have cumulative
voting rights. Each full or fractional share of each Fund has a
proportionate vote on each matter submitted to shareholders of
that Fund. All shares of each fund of the Trust have equal
voting rights except that in matters affecting only a particular
Fund, only shares of that Fund are entitled to vote.
Under Indiana law, the Trust is not required to hold annual
meetings of shareholders. The Trust will not hold shareholder
meetings except for extraordinary items requiring shareholder
approval under the Investment Company Act of 1940.
Trustees may be removed by the Board of Trustees or by the
shareholders at a special meeting. A special meeting of
shareholders shall be called by the Board of Trustees upon the
request of shareholders owning at least 10% of the outstanding
shares of all Funds entitled to vote.
Each Fund acknowledges that it is solely responsible for the
information or any lack of information about it in this joint
Prospectus and in the joint Statement of Additional Information,
and no other Fund is responsible therefor. There is a
possibility that one Fund might be deemed liable for misstatements
or omissions regarding another Fund in this Prospectus or in the
joint Statement of Additional Information; however, the Funds deem
this possibility slight.
Shareholder inquiries may be made by writing to The Vintage
Funds, c/o Unified Advisers, Inc., P.O. Box 6110, Indianapolis,
Indiana 46206-6110, or by calling 1-800-408-4682
(1-800-40-VINTAGE).
<PAGE>
THE VINTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1997
This Statement of Additional Information, which is not a
prospectus, supplements and should be read in conjunction with
the current Prospectus of The Vintage Funds (the "Trust"), dated
February 1, 1997, as may be revised from time to time. To obtain
a copy of the Trust's Prospectus, please write to The Vintage
Funds at P.O. Box 6110, Indianapolis, Indiana 46206-6110, or
call 1-800-408-4682 (1-800-40-VINTAGE).
TABLE OF CONTENTS
Page
Types of Investments and Investment Techniques . . . . . . . . . . 2
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . 14
Management of the Trust. . . . . . . . . . . . . . . . . . . . . . 17
Investment Advisory Arrangements . . . . . . . . . . . . . . . . . 19
Distribution Arrangements. . . . . . . . . . . . . . . . . . . . . 19
Administrative Services Arrangements . . . . . . . . . . . . . . . 20
Brokerage Transactions . . . . . . . . . . . . . . . . . . . . . . 20
Purchase and Redemption . . . . . . . . . . . . . . . . . . . . . 21
Determination of Net Asset Value . . . . . . . . . . . . . . . . . 21
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Performance Information . . . . . . . . . . . . . . . . . . . . . 23
Information About the Trust. . . . . . . . . . . . . . . . . . . . 25
Custodian, Transfer Agent, Fund Accounting Agent,
and Independent Accountants . . . . . . . . . . . . . . . . . . 25
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 25
TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES
Convertible Securities
The Funds may invest in convertible securities. Convertible
securities are fixed income securities that may be exchanged or
converted into a predetermined number of shares of the issuer's
underlying common stock at the option of the holder during a
specified period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination
of the features of several of these securities. The investment
characteristics of each convertible security vary widely, which
allows convertible securities to be employed for a variety of
investment strategies.
The Funds will exchange or convert convertible securities
into shares of underlying common stock when, in the opinion of
the investment adviser, the investment characteristics of the
underlying common shares will assist the Fund in achieving its
investment objective. The Funds may also elect to hold or trade
convertible shares. In selecting convertible securities, a
Fund's investment adviser evaluates the investment
characteristics of the convertible security as a fixed income
instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these
matters with respect to a particular convertible security, the
investment adviser considers numerous factors, including the
economic and political outlook, the value of the security
relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's
management capability and practices.
Warrants
The Funds (other than the money market Funds) may invest in
warrants. Warrants are basically options to purchase common
stock at a specific price (usually at a premium above the market
value of the optioned common stock at issuance) valid for a
specific period of time. Warrants may have a life ranging from
less than one year to twenty years, or they may be perpetual.
However, most warrants have expiration dates after which they are
worthless. In addition, a warrant is worthless if the market
price of the common stock does not exceed the warrant's exercise
price during the life of the warrant. Warrants have no voting
rights, pay no dividends, and have no rights with respect to the
assets of the corporation issuing them. The percentage increase
or decrease in the market price of the warrant may tend to be
greater than the percentage increase or decrease in the market
price of the optioned common stock. No Fund will invest more
than 5% of the value of its total assets in warrants. Warrants
acquired in units or attached to securities may be deemed to be
without value for purposes of this policy.
Corporate Debt Obligations
The Funds may invest in corporate debt obligations, including
corporate bonds, notes, medium term notes, and debentures, which
may have floating or fixed rates of interest.
Ratings. The Funds will not invest in corporate debt
obligations having a rating of less than A by Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P"), Fitch Investors Service ("Fitch"), Duff & Phelps, Inc.
("Duff") or Thompson Bankwatch ("Bankwatch"). (The money market
Funds have higher rating requirements, as described in the
Prospectus.) In certain cases a Fund's investment adviser may
choose bonds which are unrated if it determines that such bonds
are of comparable quality or have similar characteristics to
investment grade bonds. Downgraded securities will be evaluated
on a case-by-case basis by the Fund's investment adviser. The
adviser will determine whether or not the security continues to
be an acceptable investment. If not, the security will be sold.
Medium Term Notes and Deposit Notes. Medium term notes
("MTNs") and Deposit Notes are similar to Variable Rate Demand
Notes as described in the Prospectus. MTNs and Deposit Notes
trade like commercial paper, but may have maturities from 9
months to ten years.
Section 4(2) Commercial Paper. Section 4(2) commercial
paper is commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act
of 1933. Section 4(2) commercial paper is restricted as to
disposition under federal securities law and is generally sold to
institutional investors, such as the Funds, who agree that they
are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors like the Funds
through or with the assistance of the issuer or investment
dealers who make a market in Section 4(2) commercial paper, this
providing liquidity. The Trust believes that the criteria for
liquidity established by the Board of Trustees are quite
liquid. This Funds intend, therefore, to treat the restricted
securities which meet the criteria for liquidity established by
the Trustees, including Section 4(2) commercial paper, as
determined by the Funds' investment advisers, as liquid and not
subject to the investment limitation applicable to
illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Trust intends to not subject such
paper to the limitation applicable to restricted securities.
Variable and Floating Rate Securities.
The interest rates payable on certain securities in which
the Funds may invest are not fixed and may fluctuate based upon
changes in market rates. A variable rate obligation has an
interest rate which is adjusted at predesignated periods.
Interest on a floating rate obligation is adjusted whenever there
is a change in the market rate of interest on which the interest
rate payable is based. Variable or floating rate obligations
generally permit the holders of such obligations to demand
payment of principal from the issuer or a third party at any time
or at stated intervals. Variable and floating rate obligations
are less effective than fixed rate instruments at locking in a
particular yield. Nevertheless, such obligations may
fluctuate in value in response to interest rate changes if there
is a delay between changes in market interest rates and the
interest reset date for an obligation. The Funds will take
demand features into consideration in determining the average
portfolio duration of the Fund and the effective maturity of
individual municipal securities. In addition, the absence of
an unconditional demand feature exercisable within seven days
will, and the failure of the issuer or a third party to honor its
obligations under a demand feature might, require a variable or
floating rate obligation to be treated as illiquid for purposes
of a Funds 15% limitation on illiquid investments.
The Funds may invest in floating rate corporate debt
obligations, including increasing rate securities. Floating rate
securities are generally offered at an initial interest rate
which is at or above prevailing market rates. The interest rate
paid on these securities is then reset periodically (commonly
every 90 days) to an increment over some predetermined interest
rate index. Commonly utilized indices include the three-month
Treasury bill rate, the six-month Treasury bill rate, the
one-month or three-month London Interbank Offered Rate (LIBOR),
the prime rate of a bank, the commercial paper rates, or the
longer-term rates on U.S. Treasury securities.
Some of these floating rate corporate debt obligations
include floating rate corporate debt securities issued by
savings and loans and collateralized by adjustable rate mortgage
loans, also known as collateralized thrift notes. Many of these
collateralized thrift notes have received AAA ratings from
nationally recognized statistical rating organizations.
Collateralized thrift notes differ from traditional "pass
through" certificates in which payments made are linked to
monthly payments made by individual borrowers net of any fees
paid to the issuer or guarantor of such securities.
Collateralized thrift notes pay a floating interest rate which is
tied to a pre-determined index, such as the six-month Treasury
bill rate. Floating rate corporate debt obligations also
include securities issued to fund commercial real estate
construction.
Increasing rate securities, which currently do not make up a
significant share of the market in corporate debt securities,
are generally offered at an initial interest rate which is at or
above prevailing market rates. Interest rates are reset
periodically (most commonly every 90 days) at different levels
on a predetermined scale. These levels of interest are
ordinarily set at progressively higher increments over time.
Some increasing rate securities may, by agreement, revert to a
fixed rate status. These securities may also contain features
which allow the issuer the option to convert the increasing rate
of interest to a fixed rate under such terms, conditions, and
limitations as are described in each issue's prospectus.
Asset-Backed Securities
The money market Funds may invest in mortgage-related
asset-backed securities that are considered U.S. government
securities. The other Funds may invest in these and, to varying
extents as described in the Prospectus, in other asset-backed
securities.
Asset-backed securities are created by the grouping of
certain governmental, government related and private loans,
receivables and other lender assets into pools. Interests in
these pools are sold as individual securities. Payments from
the asset pools may be divided into several different tranches
of debt securities, with some tranches entitled to receive
regular installments of principal and interest, other tranches
entitled to receive regular installments of interest, with
principal payable at maturity or upon specified call dates, and
other tranches only entitled to receive payments of principal
and accrued interest at maturity or upon specified call dates.
Different tranches of securities will bear different interest
rates, which may be fixed or floating.
Because the loans held in the asset pool often may be prepaid
without penalty or premium, asset-backed securities are
generally subject to higher prepayment risks than most other
types of debt instruments. Prepayment risks on mortgage
securities tend to increase during periods of declining mortgage
interest rates, because many borrowers refinance their mortgages
to take advantage of the more favorable rates. Depending upon
market conditions, the yield that a Fund receives from the
reinvestment of such prepayments, or any scheduled principal
payments, may be lower than the yield on the original mortgage
security. As a consequence, mortgage securities may be a less
effective means of "locking in" interest rates than other types
of debt securities having the same stated maturity and may also
have less potential for capital appreciation. For certain types
of asset pools, such as collateralized mortgage obligations,
prepayments may be allocated to one tranche of securities ahead
of other tranches, in order to reduce the risk of prepayment for
the other tranches.
Prepayments may result in a capital loss to the Fund to the
extent that the prepaid mortgage securities were purchased at a
market premium over their stated amount. Conversely, the
prepayment of mortgage securities purchased at a market discount
from their stated principal amount will accelerate
the recognition of interest income by the Fund, which would be
taxed as ordinary income when distributed to the shareholders.
The credit characteristics of asset-backed securities also
differ in a number of respects from those of traditional debt
securities. The credit quality of most asset-backed securities
depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the
securities is insulated from the credit risk of the originator or
any other affiliated entities, and the amount and quality of any
credit enhancement to such securities.
Non-Mortgage Related Asset-Backed Securities. The Funds may
invest in non-mortgage related asset-backed securities including,
but not limited to, interests in pools of receivables, such as
credit card and accounts receivable and motor vehicle and other
installment purchase obligations and leases. These securities
may be in the form of pass-through instruments or asset-backed
obligations. The securities, all of which are issued by
non-governmental entities and carry no direct or indirect
government guarantee, are structurally similar to collateralized
mortgage obligations and mortgage pass-through securities, which
are described below.
Non-mortgage related asset-backed securities present certain
risks that are not presented by mortgage-backed securities.
Primarily, these securities do not have the benefit of the same
security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled
to the protection of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of asset-backed securities backed by
motor vehicle installment purchase obligations permit the
servicer of such receivables to retain possession of the
underlying obligations. If the servicer sells these obligations
to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the
related asset-backed securities. Further, if a vehicle is
registered in one state and is then registered because the owner
and the obligor move to another state, such re-registration
could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of
vehicles involved in a typical issuance and technical
requirements under state laws, the trustee with the holders of
asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing
such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities.
Mortgage-Related Asset-Backed Securities. The Funds may also
invest in various mortgage-related asset-backed securities.
These types of investments may include adjustable rate mortgage
securities, collateralized mortgage obligations, real estate
mortgage investment conduits, or other securities collateralized
by or representing an interest in real estate mortgages
(collectively, "mortgage securities"). Many mortgage securities
are issued or guaranteed by government agencies.
Adjustable Rate Mortgage Securities ("ARMS"). ARMS
are pass-through mortgage securities representing interests in
adjustable rather than fixed interest rate mortgages. The ARMS
in which the Funds invest are issued by the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), and the Federal Home Loan Mortgage
Corporation ("FHLMC") and are actively traded. The
underlying mortgages which collateralize ARMS issued by GNMA are
fully guaranteed by the Federal Housing Administration ("FHA") or
Veterans Administration ("VA"), while those collateralizing ARMS
issued by FHLMC or FNMA are typically conventional residential
mortgages conforming to strict underwriting size and maturity
constraints.
Collateralized Mortgage Obligations ("CMOS"). CMOs are
bonds issued by single-purpose, stand-alone finance subsidiaries
or trusts of financial institutions, government agencies,
investment bankers, or companies related to the construction
industry. CMOs purchased by the Funds may be:
collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the
U.S. government;
collateralized by pools of mortgages in which payment of
principal and interest is guaranteed by the issuer and
such guarantee is collateralized by U.S. government
securities; or
securities in which the proceeds of the issuance are
invested in mortgage securities and payment of the principal
and interest is supported by the credit of an agency or
instrumentality of the U.S. government.
All CMOs purchased by the Funds are investment grade, as
rated by a nationally recognized statistical rating organization.
Real Estate Mortgage Investment Conduits ("REMICS").
REMICs are offerings of multiple class real estate
mortgage-backed securities which qualify and elect treatment as
such under provisions of the Internal Revenue Code. Issuers of
REMICs may take several forms, such as trusts, partnerships,
corporations, associations, or segregated pools of mortgages.
Once REMIC status is elected and obtained, the entity is not subject
to federal income taxation. Instead, income is passed through the
entity and is taxed to the person or persons who hold interests in
the REMIC. A REMIC interest must consist of one or more classes of
"regular interests," some of which may offer adjustable rates of
interest, and a single class of "residual interests." To qualify
as a REMIC, substantially all the assets of the entity must be in
assets directly or indirectly secured principally by real property.
Resets of Interest. The interest rates paid on the ARMS,
CMOs, and REMICs in which the Funds invest generally are
readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities
and those derived from a calculated measure, such as a cost of
funds index or a moving average of mortgage rates. Commonly
utilized indices include the one-year and five-year constant
maturity Treasury Note rates, the three-month Treasury Bill
rate, the 180-day Treasury Bill rate, rates on longer-term
Treasury securities, the National Median Cost of Funds, the
one-month or three-month London Interbank Offered Rate (LIBOR),
the prime rate of a specific bank, or commercial paper rates.
Some indices, such as the one-year constant maturity Treasury
Note rate, closely mirror changes in market interest rate
levels.
To the extent that the adjusted interest rate on the mortgage
security reflects current market rates, the market value of an
adjustable rate mortgage security will tend to be less sensitive
to interest rate changes than a fixed rate debt security of the
same stated maturity. Hence, ARMs which use indices that lag
changes in market rates should experience greater price
volatility than adjustable rate mortgage securities that closely
mirror the market.
Caps and Floors. The underlying mortgages which
collateralize the ARMS, CMOs, and REMICs in which the Funds
invest will frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential borrower
may change up or down: (1) per reset or adjustment interval, and
(2) over the life of the loan. Some residential mortgage loans
restrict periodic adjustments by limiting changes in the
borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in
negative amortization.
The value of mortgage securities in which the Funds invest
may be affected if market interest rates rise or fall faster and
farther than the allowable caps or floors on the underlying
residential mortgage loans. Additionally, even though the
interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby
causing the effective maturities of the mortgage securities in
which the Funds invest to be shorter than the maturities stated
in the underlying mortgages.
Municipal Securities
Investment Risks. Yields on municipal securities depend on
a variety of factors, including: the general conditions of the
municipal note market and of the municipal bond market; the size
of the particular offering; the maturity of the obligations; and
the rating of the issue. The ability of a Fund to achieve its
investment objective also depends on the continuing ability of
the issuers of municipal securities and participation interests,
or the guarantors of either, to meet their obligations for the
payment of interest and principal when due.
Concentration. Governmental issuers of municipal
securities are not considered part of any "industry." However,
municipal securities backed only by the assets and revenues of
nongovernmental users may, for this purpose, be deemed to be
related to the industry in which such nongovernmental users
engage, and the 25% limitation would apply to such obligations.
It is nonetheless possible that the Fund may invest more than
25% of its assets in a broader segment of the municipal
securities market, such as industrial development bonds and
revenue obligations of hospitals and other health care
facilities, housing agency revenue obligations, or airport
revenue obligations. This would be the case only if the Fund
determines that the yields available from obligations in a
particular segment of the market justified the additional risks
associated with a large investment in such segment. Although
such obligations could be supported by the credit of governmental
users or by the credit of nongovernmental users engaged in a
number of industries, economic, business, political and other
developments generally affecting the revenues of such users (for
example, proposed legislation or pending court decisions
affecting the financing of such projects and market factors
affecting the demand for their services or products) may have a
general adverse effect on all municipal securities in such a
market segment.
Municipal Leases. Municipal leases are obligations issued by
state and local governments or authorities to finance the
acquisition of equipment and facilities. They may take the form
of a lease, an installment purchase contract, a conditional
sales contract or a participation certificate of any of the
above.
Also included within the general category of municipal
securities are certain lease obligations or installment purchase
contract obligations and participations therein (hereinafter
collectively called "lease obligations") of municipal
authorities or entities. Although lease obligations do not
constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation.
Interest on lease obligations is tax-exempt to the same extent as
if the municipality had issued debt obligations to finance
the underlying project or purchase. However, certain lease
obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. If the entity
does not appropriate funds for the future lease payments, the
entity cannot be compelled to make such payments. Furthermore,
a lease may provide that the certificate trustee cannot
accelerate lease obligations upon default. The trustee would
only be able to enforce lease payments as they became due. In
the event of a default or failure of appropriation, it is
unlikely that the trustee would be able to obtain an acceptable
substitute source of payment. The Fund does not intend to
invest more than 10% of its total assets in non-puttable lease
obligations that contain "non-appropriation" clauses.
In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet
developed the depth of marketability associated with more
conventional bonds and some lease obligations may be illiquid.
Although "non-appropriation" lease obligations are generally
secured by the leased property, disposition of the property
in the event of foreclosure might prove difficult. In addition,
the tax treatment of such obligations in the event of
non-appropriation is unclear.
Some municipal leases may be considered to be illiquid.
However, some municipal leases may contain put provisions which
grant the Fund the right to sell the securities to the issuer at
a predetermined price and date. Such provisions improve the
marketability and enhance the liquidity of the security. In
determining the liquidity of municipal lease securities, the
Fund's investment adviser will base its determination on the
following factors:
whether the lease can be terminated by the lessee;
the potential recovery, if any, from a sale of the
leased property upon termination of the lease;
the lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics
and prospects);
the likelihood that the lessee will discontinue
appropriating funding for the leased property because
the property is no longer deemed essential to its
operations (e.g., the potential for an
"event of non-appropriation," which the Fund's
investment adviser will continually monitor); and
any credit enhancement or legal recourse provided upon
an event of non-appropriation or other termination of the lease.
Industrial Development Bonds. Industrial development bonds
are generally issued to provide financing aid to acquire sites or
construct and equip facilities for use by privately or publicly
owned corporations. Most state and local governments have the
power to permit the issuance of industrial development bonds to
provide financing for such corporations in order to encourage
the corporations to locate within their communities. Industrial
development bonds do not represent a pledge of credit or create
any debt of municipality or a public authority, and no taxes may
be levied for payment of principal or interest on these bonds.
The principal and interest is payable solely out of monies
generated by the entities using or purchasing the sites or
facilities. These bonds will be considered municipal securities
if the interest paid on them, in the opinion of bond counsel, is
exempt from federal regular income tax.
Municipal Notes. Municipal securities in the form of notes
generally are used to provide for short-term capital needs, in
anticipation of an issuer's receipt of other revenues or
financing, and typically have maturities of up to three years.
Such instruments may include Tax Anticipation Notes, Revenue
Anticipation Notes, Bond Anticipation Notes, Tax and Revenue
Anticipation Notes and Construction Loan Notes. Tax
Anticipation Notes are issued to finance the working capital
needs of governments. Generally, they are issued in
anticipation of various tax revenues, such as income, sales,
property, use and business taxes, and are payable from these
specific future taxes. Revenue Anticipation Notes are issued in
expectation of receipt of other kinds of revenue, such as federal
revenues available under Federal Revenue Sharing programs. Bond
Anticipation Notes are issued to provide interim financing until
long-term bond financing can be arranged. In most cases, the
long-term bonds then provide the funds needed for repayment of
the notes. Tax and Revenue Anticipation Notes combine the
funding sources of both Tax Anticipation Notes and Revenue
Anticipation Notes. Construction Loan Notes are sold to provide
construction financing. These notes are secured by mortgage
notes insured by the Federal Housing Authority; however,
the proceeds from the issuance may be less than the economic
equivalent of the payment of principal and interest on the
mortgage note if there has been a default. The obligations of an
issuer of municipal notes are generally secured by the
anticipated revenues from taxes, grants or bond financing. An
investment in such instruments, however, presents a risk that the
anticipated revenues will not be received or that such revenues
will be insufficient to satisfy the issuer's payment obligations
under the notes or that refinancing will be otherwise
unavailable.
Pre-Refunded Municipal Securities. The Fund may invest in
pre-refunded municipal securities. The principal of and interest
on pre-refunded municipal securities are no longer paid from the
original revenue source for the municipal securities. Instead,
the source of such payments is typically an escrow fund
consisting of obligations issued or guaranteed by the U.S.
Government. The assets in the escrow fund are derived from the
proceeds of refunding bonds issued by the same issuer as the
pre-refunded municipal securities, but usually on more favorable
terms. Issuers of municipal securities use this advance
refunding technique to obtain more favorable terms with respect
to municipal securities that are not yet subject to call or
redemption by the issuer. For example, advance refunding enables
an issuer to refinance debt at lower market interest rates,
restructure debt to improve cash flow or eliminate restrictive
covenants in the indenture or other governing instrument for the
pre-refunded municipal securities. However, except for a change
in the revenue source from which principal and interest payments
are made, the pre-refunded municipal securities remain
outstanding on their original terms until they mature or are
redeemed by the issuer. The effective maturity of pre-refunded
municipal securities will be the redemption date if the issuer
has assumed an obligation or indicated its intention to redeem
such securities on the redemption date. Pre-refunded municipal
securities are usually purchased at a price which represents
a premium over their face value.
Insurance. The Fund may invest in "insured" municipal
securities. Insured municipal securities are those for which
scheduled payments of interest and principal are guaranteed by a
private (nongovernmental) insurance company. The insurance only
entitles the Fund to receive the face or par value of the
securities held by the Fund. The insurance does not guarantee
the market value of the municipal securities or the value of
the shares of the Fund.
The Fund may utilize new issue or secondary market
insurance. A new issue insurance policy is purchased by a bond
issuer who wishes to increase the credit rating of a security.
By paying a premium and meeting the insurer's underwriting
standards, the bond issuer is able to obtain a high credit
rating (usually, Aaa from Moody's or AAA from Standard & Poor's)
for the issued security. Such insurance is likely to increase
the purchase price and resale value of the security. New issue
insurance policies are non-cancellable and continue in force as
long as the bonds are outstanding. A secondary market insurance
policy is purchased by an investor (such as the Fund) subsequent
to a bond's original issuance and generally insures a particular
bond for the remainder of its term. The Fund may purchase bonds
which have already been insured under a secondary market
insurance policy by a prior investor, or the Fund may itself
purchase such a policy from insurers for bonds which
are currently uninsured.
An insured municipal security acquired by a Fund will
typically be covered by only one of the above types of policies.
All of the insurance policies used by the Fund will be obtained
only from insurance companies rated, at the time of purchase,
Aaa by Moody's or AAA by Standard & Poor's.
Participation Interests
The Funds may purchase participation interests from
financial institutions such as commercial banks, savings and loan
associations and insurance companies. These participation
interests give the Fund an undivided interest in one or more
underlying municipal securities. The financial institutions from
which the Fund purchases participation interests frequently
provide or obtain irrevocable letters of credit or guarantees to
attempt to assure that the participation interests are of high
quality. These typically give the Fund the right to demand
payment of the principal amounts of the participation interests
plus accrued interest on short notice (usually within seven
days).
Zero Coupon and Capital Appreciation Bonds
Zero coupon and capital appreciation securities carry the
risk that, unlike securities that periodically pay interest to
maturity, the Fund will realize no cash until a specified future
payment date unless a portion of such securities is sold and, if
the issuer of such securities defaults, the Fund may obtain no
return at all on its investment. In addition, even though such
securities do not pay current interest in cash, the Fund is
nonetheless required to accrue income on such investments and
may be required to distribute such amounts at least annually.
Because no cash is received at the time of the accrual, the Fund
may be required to liquidate other portfolio securities to
satisfy the Fund's distribution obligations.
Foreign Securities
Each Fund may invest in foreign securities, including
foreign securities not publicly traded in the United States. As
described in the Prospectus, investments in foreign securities
involve special risks that differ from those associated with
investments in domestic securities.
Emerging and Developing Countries. The risks described in
the Prospectus often are heightened for investments in emerging
or developing countries. Compared to the United States and other
developed countries, emerging or developing countries may have
relatively unstable governments, economies based on only a few
industries, and securities markets that trade a small number of
securities. Prices on these exchanges tend to be volatile and,
in the past, securities in these countries have offered a
greater potential for gain (as well as loss) than securities of
companies located in developed countries. Further, investment
by foreign investors are subject to a variety of restrictions in
many emerging or developing countries. These restrictions may
take the form of prior governmental approval, limits on the
amount or type of securities held by foreigners, and limits on
the type of companies in which foreigners may invest.
Additional restrictions may be imposed at any time by these and
other countries in which a Fund invests. In addition, the
repatriation of both investment income and capital from several
foreign countries is restricted and controlled under certain
regulations, including in some cases the need for certain
government consents.
Currency Risks. Foreign securities are denominated in
foreign currencies. Therefore, the value in U.S. dollars of a
Fund's assets and income may be affected by changes in exchange
rates and regulations. Although each Fund values its assets
daily in U.S. dollars, it will not convert its holdings of
foreign currencies to U.S. dollars daily. When a Fund converts
its holdings to another currency, it may incur conversion costs.
Foreign exchange dealers realize a profit on the difference
between the prices at which they buy and sell currencies.
A Fund may engage in foreign currency exchange transactions
in connection with its investments in foreign securities. The
Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or through
forward contracts to purchase or sell foreign currencies.
Forward Foreign Currency Exchange Contracts. A forward
foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders
usually large commercial banks) and their customers. When a Fund
enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the
U.S. dollar cost or proceeds, as the case may be. By entering
into a forward contract in U.S. dollars for the purchase or sale
of the amount of foreign currency involved in an underlying
security transaction, the Fund is able to protect itself against
a possible loss between trade and settlement dates resulting
from an adverse change in the relationship between the U.S.
dollar and such foreign currency. However, this tends to limit
potential gains which might result from a positive change in such
currency relationships.
A Fund will not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts where the
Fund would be obligated to deliver an amount of foreign currency
in excess of the value of the Fund's securities or other assets
denominated in that currency or denominated in a currency or
currencies that the adviser believes will reflect a high degree
of correlation with the currency with regard to price movements.
The Fund generally will not enter into forward foreign currency
exchange contracts with a term longer than one year.
Foreign Currency Options. A foreign currency option provides
the option buyer with the right to buy or sell a stated amount of
foreign currency at the exercise price on a specified date or
during the option period. The owner of a call option has the
right, but not the obligation, to buy the currency. Conversely,
the owner of a put option has the right, but not the obligation,
to sell the currency. When the option is exercised, the seller
(i.e., writer) of the option is obligated to fulfill the terms
of the sold option. However, either the seller or the buyer
may, in the secondary market, close its position during the
option period at any time prior to expiration.
A call option on foreign currency generally rises in value if
the underlying currency appreciates in value, and a put option
on foreign currency generally falls in value if the underlying
currency depreciates in value. Although purchasing a foreign
currency option can protect a Fund against an adverse movement
in the value of a foreign currency, the option will not limit
the movement in the value of such currency. For example, if the
Fund was holding securities denominated in a foreign currency
that was appreciating and had purchased a foreign currency put
to hedge against a decline in the value of the currency, the
Fund would not have to exercise their put option. Likewise, if
the Fund were to enter into a contract to purchase a security
denominated in foreign currency and, in conjunction with that
purchase, were to purchase a foreign currency call option to
hedge against a rise in value of the currency, and if the value
of the currency instead depreciated between the date of purchase
and the settlement date, the Fund would not have to exercise its
call. Instead, the Fund could acquire in the spot market the
amount of foreign currency needed for settlement.
Buyers and sellers of foreign currency options are subject to
the same risks that apply to options generally. In addition,
there are certain additional risks associated with foreign
currency options. The markets in foreign currency options are
relatively new, and a Fund's ability to establish and close out
positions on such options is subject to the maintenance of a
liquid secondary market. Although a Fund will not purchase or
write such options unless and until, in the opinion of the Fund's
investment adviser, the market for them has developed
sufficiently to ensure that the risks in connection with such
options are not greater than the risks in connection with the
underlying currency, there can be no assurance that a liquid
secondary market will exist for a particular option at any
specific time. In addition, options on foreign currencies are
affected by all of those factors that influence foreign exchange
rates and investments generally. Foreign currency options that
are considered to be illiquid are subject to each Fund's 15%
limitation on illiquid securities.
The value of a foreign currency option depends upon the value
of the underlying currency relative to the U.S. dollar. As a
result, the price of the option position may vary with changes in
the value of either or both currencies and may have no
relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market
(generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less
favorable than for round lots.
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirement that quotations
available through dealers or other market sources be firm or
revised on a timely basis. Available quotation information is
generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a
global, around-the-clock market. To the extent that the U.S.
option markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in
the options markets until they reopen.
Foreign Bank Instruments
Each Fund may invest in foreign bank instruments, including
Eurodollar Certificates of Deposit ("ECDs"), Eurodollar Time
Deposits ("ETDs"), Yankee Certificates of Deposit ("Yankee Cds"),
and Europaper. These instruments are subject to somewhat
different risks than domestic obligations of domestic issuers.
Examples of these risks include international, economic and
political developments, foreign governmental restrictions that
may adversely affect the payment of principal or interest,
foreign withholdings or other taxes on interest income,
difficulties in obtaining or enforcing a judgment against the
issuing bank, and the possible impact of interruptions of the
flow of international currency transactions. Different risks
may also exist for ECDs, ETDs, and Yankee Cds because the banks
issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve
requirements, loan requirements, loan limitations, examinations,
accounting, auditing, and recording keeping and the public
availability of information. These factors will be carefully
considered by a Fund's adviser in selecting investments for the
Fund.
U.S. Government Securities
Each Fund may invest in obligations issued or guaranteed by
the U.S. government and its agencies, authorities or
instrumentalities. Some U.S. government securities, such as
Treasury bills, notes and bonds, which differ only in their
interest rates, maturities and times of issuance, are supported
by the full faith and credit of the United States of America.
Others, such as obligations issued or guaranteed by U.S.
government agencies, authorities or instrumentalities, are
supported either by (a) the full faith and credit of the U.S.
government (such as securities of the Small Business
Administration), (b) the right of the issuer to borrow from the
Treasury (such as securities of Federal Home Loan Banks), (c)
the discretionary authority of the U.S. government to purchase
the agency's obligations (such as securities of the Federal
National Mortgage Association), or (d) only the credit of the
issuer (such as securities of the Financing Corporation). The
U.S. government is under no legal obligation to purchase the
obligations of its agencies, authorities and instrumentalities.
Securities guaranteed as to principal and interest by the U.S.
government and its agencies, authorities or instrumentalities
are deemed to include (i) securities for which the payment of
principal and interest is based by a guaranty of the U.S.
government or its agencies, authorities or instrumentalities, and
(ii) participations in loans made to foreign governments or their
agencies that are so guaranteed. The secondary market for
certain of these participations is limited. Such participations
may therefore be regarded as illiquid.
Options
Each Fund (other than the money market Funds) may attempt to
hedge all or a portion of its portfolio by buying put options on
portfolio securities. These Funds may also write covered call
options on portfolio securities to attempt to increase their
current income. Each Fund currently does not intend to invest
more than 5% of its net assets in premiums on options
transactions.
Purchasing Put Options on Portfolio Securities. A Fund may
purchase put options on portfolio securities to protect against
price movements in particular securities in its portfolio. A
put option gives the Fund, in return for a premium, the right to
sell the underlying security to the writer (seller) at a
specified price during the term of the option.
Writing Covered Call Options on Portfolio Securities. A Fund
may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon
exercise of the option during the option period to deliver the
underlying security upon payment of the exercise price. The
Fund may only sell call options either on securities held in its
portfolio or on securities which it has the right to obtain
without payment of further consideration (or has segregated cash
in the amount of any additional consideration).
Purchasing and Writing Over-The-Counter Options. A Fund may
purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers
of the options for those options on portfolio securities held by
the Fund and not traded on an exchange. Over-the-counter options
are two party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third
party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation.
Exchange-traded options have a continuous liquid market while
over-the-counter options may not.
Financial Futures and Options on Financial Futures
Each Fund (other than the money market Funds) may purchase
and sell financial futures contracts to hedge all or a portion of
its portfolio against changes in interest rates. However, none
of the Funds intends to do so during the current fiscal year.
Financial futures contracts call for the delivery of particular
debt instruments at a certain time in the future. The seller
of the contract agrees to make delivery of the type of instrument
called for in the contract and the buyer agrees to take delivery
of the instrument at the specified future time.
Each Fund (other than the money market Funds) may also write
call options and purchase put options on financial futures
contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. However, none of the
Funds intends to do so during the current fiscal year. When a
Fund writes a call option on a futures contract, it is
undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option
is exercised. Conversely, as purchaser of a put option on a
futures contract, the Fund is entitled (but not obligated) to
sell a futures contract at the fixed price during the life of the
option.
No Fund may purchase or sell futures contracts or related
options if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions and premiums
paid for related options would exceed 5% of the market value of
the Fund's total assets. When a Fund purchases a futures
contract, an amount of cash and cash equivalents, equal to
the underlying commodity value of the futures contract (less any
related margin deposits), will be deposited in a segregated
account with the Fund's custodian (or the broker, if legally
permitted) to collateralize the position and thereby insure that
the use of such futures contract is unleveraged.
Risks. When a Fund uses financial futures and options on
financial futures as hedging devices, there is a risk that the
prices of the securities subject to the futures contracts may
not correlate perfectly with the prices of the securities in the
Fund's portfolio. This may cause the futures contracts and any
related options to react differently than the portfolio
securities to market changes. In addition, the Fund's investment
adviser could be incorrect in its expectations about the
direction or extent of market factors such as interest rate
movements. In these events, the Fund may lose money on the
futures contracts or options. It is not certain that a secondary
market for positions in futures contracts or for options will
exist at all times. Although the investment adviser will
consider liquidity before entering into options transactions,
there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures
contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends
on this secondary market.
Weighted Average Portfolio Duration
The Taxable Fixed Income Fund will seek to limit, to the
extent consistent with the Fund's investment objective of current
income, the magnitude of fluctuations in the Fund's net asset
value by limiting the dollar-weighted average duration of the
Fund's portfolio as set forth in the Prospectus. Duration is a
commonly used measure of the potential volatility of the price
of a debt security, or the aggregate market value of a portfolio
of debt securities, prior to maturity. Securities with shorter
durations generally have less volatile prices than securities of
comparable quality with longer durations. A Fund should be
expected to maintain a higher average duration during periods of
lower expected market volatility, and a lower average duration
during periods of higher expected market volatility.
Duration measures the magnitude of the change in the price of
a debt security relative to a given change in the market rate of
interest. The duration of a debt security depends upon three
primary variables: the security's coupon rate, maturity date
and the level of market interest rates for similar debt
securities. Generally, debt securities with lower coupons or
longer maturities will have a longer duration than securities
with higher coupons or shorter maturities.
Duration is calculated by dividing the sum of the
time-weighted values of cash flows of a security or portfolio of
securities, including principal and interest payments, by the sum
of the present values of the cash flows. Certain debt
securities, such as asset-backed securities, may be subject to
prepayment at irregular intervals. The duration of these
instruments will be calculated based upon assumptions
established by the investment adviser as to the probable amount
and sequence of principal prepayments.
Credit Enhancement
Certain of the Funds' investments may have been credit
enhanced by a guaranty, letter of credit or insurance. The Funds
typically evaluate the credit quality and ratings of credit
enhanced securities based upon the financial condition and
ratings of the party providing the credit enhancement (the
"credit enhancer"), rather than the issuer. Generally, a Fund
will not treat credit enhanced securities as having been issued
by the credit enhancer for diversification purposes. However,
under certain circumstances applicable regulations may require
the Fund to treat the securities as having been issued by both
the issuer and the credit enhancer. The bankruptcy, receivership
or default of the credit enhancer will adversely affect the
quality and marketability of the underlying security.
Demand Notes
All of the Funds may invest in demand notes. These are
borrowing arrangements between a corporation and an institutional
lender (such as the Fund) payable upon demand by either party.
The notice period for demand typically ranges from one to seven
days, and the party may demand full or partial payment. Demand
notes usually provide for floating or variable rates of interest,
and are subject to the considerations described above with regard
to foreign securities.
Demand Features
The Funds may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the
securities at their principal amount (usually with accrued
interest) within a fixed period following a demand by the Fund.
The demand feature may be issued by the issuer of the
underlying securities, a dealer in the securities or by another
third party, and may not be transferred separately from the
underlying security. A Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in
the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event
that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security.
Demand features that are exercisable even after a payment default
on the underlying security are treated as a form of credit
enhancement.
When-Issued and Delayed Delivery Transactions
These transactions are arrangements in which a Fund purchases
securities with payment and delivery scheduled for a future time.
The Fund engages in when-issued and delayed delivery transactions
only for the purpose of acquiring portfolio securities consistent
with the Fund's investment objective and policies, and not for
investment leverage.
These transactions are made to secure what is considered to
be an advantageous price and yield for the Fund. Settlement
dates may be a month or more after entering into these
transactions, and the market values of the securities purchased
may vary from the purchase prices.
No fees or other expenses, other than normal transaction
costs, are incurred. However, liquid assets of the Fund
sufficient to make payment for the securities to be purchased
are segregated at the trade date. These securities are marked
to market daily and are maintained until the transaction is
settled. Each Fund may engage in these transactions to an extent
that would cause the segregation of an amount up to 25% of the
value of its net assets.
Lending of Portfolio Securities
A Fund will only enter into loan arrangements with
broker/dealers, banks, or other institutions which its investment
adviser has determined are creditworthy under guidelines
established by the Board of Trustees. In these loan
arrangements, the Fund will receive collateral in the form of
cash or U.S. government securities equal to at least 100% of the
value of the securities loaned. The Fund continues to be
entitled to payments in amounts equal to the interest, dividends
and other distributions on the loaned security and
receives interest on the amount of the loan. The collateral
received when a Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the
borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination at the option of
the Fund or the borrower. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash
or equivalent collateral to the borrower or placing broker.
Selling Securities Short
The Starwood Strategic Fund may sell securities short. When
the Fund makes a short sale, it must leave the proceeds from the
short sale with the broker and it must also deposit with the
broker a certain amount of cash or government securities to
collateralize its obligation to replace the borrowed securities
which have been sold. In addition, the Fund must put in
a segregated account (not with the broker) an amount of cash or
U.S. government securities equal to the difference between the
market value of the securities sold short at the time they were
sold short and any cash or government securities deposited as
collateral with the broker in connection with the short sale (not
including the proceeds from the short sale). In addition, until
the Fund replaces the borrowed security, it will daily maintain
the segregated account at a level so that the amount deposited in
the account plus the amount deposited with the broker (not
including the proceeds from the short sale) will equal the
greater of (a) the current market value of the securities sold
short and (b) the market value of the securities at the time
they were sold short. As a result of these requirements, the
Fund will not gain any leverage merely by selling short, except
to the extent that it earns interest on the immobilized cash or
government securities while also being subject to the possibility
of gain or loss from the securities sold short. The Fund may
sell securities short to the extent that would cause the amounts
on deposits or segregated to equal 25% of the value of its net
assets.
Restricted and Illiquid Securities
Restricted securities are any securities in which a Fund may
otherwise invest pursuant to its investment objective and
policies, but which are subject to restriction on resale under
federal securities law. Each Fund will limit investments in
illiquid securities, including certain restricted securities
not determined by the Board of Trustees to be liquid,
non-negotiable time deposits, and repurchase agreements providing
for settlement in more than seven days after notice, to 15% of
the value of its net assets (10% in the case of the money market
Funds). The ability of the Trustees to determine the liquidity
of certain restricted securities is permitted under the
Securities and Exchange Commission ("SEC") Staff position set
forth in the adopting release for Rule 144A under the Securities
Act of 1933 (the "Rule"). The Rule is a non-exclusive safe
harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal
securities laws. The Rule provides an exemption from
registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to
further enhance the liquidity of the secondary market for
securities eligible for resale under Rule 144A. The Trust
believes that the Staff of the SEC has left the question of
determining the liquidity of all restricted securities eligible
for resale under Rule 144A to the Trustees. The Trustees
consider the following criteria in determining the liquidity of
certain restricted securities:
the frequency of trades and quotes for the security;
the number of dealers willing to purchase or sell the
security and the number of other potential buyers;
dealer undertakings to make a market in the security; and
the nature of the security and the nature of the
marketplace trades.
Repurchase Agreements
The Funds require the Custodian to take possession of the
securities subject to repurchase agreements, and these
securities are marked to market daily. To the extent that the
original seller does not repurchase the securities from a Fund,
the Fund could receive less than the repurchase price on any
sale of such securities. In the event that a defaulting seller
files for bankruptcy or becomes insolvent, disposition of
securities by the Fund might be delayed pending court action.
The Funds believe that under the regular procedures normally in
effect for custody of the Funds' portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would
rule in favor of the Fund and allow retention or disposition of
such securities. A Fund will only enter into repurchase
agreements with banks and other recognized financial institutions
such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the
Directors.
Reverse Repurchase Agreements
A reverse repurchase transaction is similar to borrowing
cash. In a reverse repurchase agreement a Fund transfers
possession of a portfolio instrument to another person, such as
a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees
that on a stipulated date in the future, the Fund will repurchase
the portfolio instrument by remitting the original consideration
plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase
agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time. When
effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date.
These securities are marked to market daily and are maintained
until the transaction is settled.
Portfolio Turnover
The Funds will not attempt to set or meet a portfolio
turnover rate since any turnover would be incidental to
transactions undertaken in an attempt to achieve a Fund's
investment objective, without regard to the length of time
a particular security may have been held. The Adviser does not
anticipate that portfolio turnover will result in adverse tax
consequences.
INVESTMENT LIMITATIONS
Fundamental Investment Limitations
The following investment limitations cannot be changed
without shareholder approval. These limitations are considered
at the time of purchase; a sale of securities is not required in
the event of a subsequent change in circumstances.
Selling Short and Buying on Margin
The Funds will not sell securities short or purchase
securities on margin, except that (a) the Starwood Strategic Fund
may sell securities short to the extent that would cause amounts
on deposits or segregated as a result thereof to equal 25% of the
value of its net assets, (b) the Funds (other than the Taxable
Money Market Fund and the Tax-Free Money Market Fund may purchase
securities on margin in connection with the purchase and sale
of options, financial futures and options on financial futures,
and (c) all Funds may obtain such short-term credits as are
necessary for clearance of transactions.
Issuing Senior Securities and Borrowing Money
The Funds will not issue senior securities except as required
by forward commitments to purchase securities or currencies and
except that each Fund may borrow money and engage in reverse
repurchase agreements in amounts up to one-third of the value of
its total assets, including the amounts borrowed. The Funds
(other than the Starwood Strategic Fund) will not borrow money
or engage in reverse repurchase agreements for investment
leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient
or disadvantageous. Each Fund (other than the Starwood Strategic
Fund) will not purchase any securities while borrowings in excess
of 5% of its total assets are outstanding. During the period
any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse
repurchase agreements, the Funds will restrict the purchase of
portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements.
Pledging Assets
The Funds will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. In those cases, a
Fund may pledge assets having a market value not exceeding the
lesser of the dollar amounts borrowed or 15% of the value of
total assets at the time of the borrowing. Margin deposits
for the purchase and sale of options, financial futures contracts
and related options are not deemed to be a pledge.
Diversification of Investments
With respect to securities comprising 75% of the value of its
total assets (100% in the case of the Taxable Money Market Fund),
each Fund will not purchase securities of any one issuer (other
than cash, cash items, securities issued or guaranteed by the
government of the United States or its agencies
or instrumentalities and repurchase agreements collateralized by
U.S. government securities, and securities of other investment
companies) if as a result more than 5% of the value of its total
assets would be invested in the securities of that issuer or the
Fund would own more than 10% of the outstanding voting securities
of that issuer.
Investing in Real Estate
The Funds will not buy or sell real estate, including limited
partnership interests in real estate, although it may invest in
securities of companies whose business involves the purchase or
sale of real estate or in securities which are secured by real
estate or interests in real estate.
Investing in Commodities
The Funds will not purchase or sell commodities, except that
the Funds (other than the Taxable Money Market Fund and the
Tax-Free Money Market Fund) may purchase and sell financial
futures contracts and related options. Further, the Funds may
engage in transactions in foreign currencies and may purchase and
sell options on foreign currencies and indices for
hedging purposes.
Underwriting
The Funds will not underwrite any issue of securities, except
as it may be deemed to be an underwriter under the Securities Act
of 1933 in connection with the sale of restricted securities
which a Fund may purchase pursuant to its investment objective,
policies, and limitations.
Lending Cash or Securities
Each Fund will not lend any of its assets, except portfolio
securities up to one-third of the value of its total assets.
This shall not prevent a Fund from purchasing or holding U.S.
government obligations, money market instruments, variable rate
demand notes, bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into repurchase
agreements, or engaging in other transactions where permitted by
the Fund's investment objective, policies and limitations.
Concentration of Investments
Each Fund will not invest 25% or more of the value of its
total assets in any one industry or in government securities of
any one foreign country, except that (i) each Fund may invest
without limitation in securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, (ii) each of
the Aggressive Growth Fund,the Asset Allocation Fund, the
First Lexington Balanced Fund and the Taxable Fixed Income Fund
may invest without limitation in other investment companies and
(iii) each of the Taxable Money Market Fund and the Tax-Free
Money Market Fund may invest without limitation in domestic bank
instruments. Governmental issuers of municipal securities are
not considered part of any "industry." The Tax-Free Money Market
Fund may invest more than 25% of the value of its total assets in
a broader segment of the municipal securities market, such as
revenue obligations of hospitals and other health care
facilities, housing agency revenue obligations, or airport
revenue obligations.
Investing in Securities of Other Investment Companies
Each Fund will limit its investments in other investment
companies to no more than 3% of the total outstanding voting
securities of any one investment company, will invest no more
than 5% of its total assets in any one investment company, and
will invest no more than 10% of its total assets in
investment companies in general, except that each of the
Aggressive Growth Fund, the Asset Allocation Fund, the First
Lexington Balanced Fund and the Taxable Fixed Income Fund may
invest of up to 25% of its total assets in any one
investment company and up to 100% of its total assets in
investment companies in general, subject to the other limitations
described herein. The foregoing limitations are not applicable
to investment company securities acquired as part of a merger,
consolidation, reorganization or other acquisition.
Dealing in Puts and Calls
The Funds will not deal in puts and calls, except that each
Fund (other than the Taxable Money Market Fund and the Tax-Free
Money Market Fund) may write covered call options and secured
put options on up to 25% of its net assets and may purchase put
and call options, provided that no more than 5% of the fair
market value of its net assets may be invested in premiums on
such options.
Non-Fundamental Investment Limitations
The following limitations may be changed by the Board of
Trustees without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes
effective.
Investing in Restricted Securities
Each Fund will not invest more than 10% of the value of its
total assets in securities subject to restrictions on resale
under the Securities Act of 1933, except for commercial paper
issued under Section 4(2) of the Securities Act of 1933 and
certain other restricted securities which meet the criteria for
liquidity as established by the Trustees.
Investing in Illiquid Securities
Each Fund will not invest more than 15% of the value of its
net assets (10% in the case of the money market Funds) in
illiquid securities, including repurchase agreements providing
for settlement in more than seven days after notice,
over-the-counter options, certain foreign currency options, and
certain securities not determined by the Trustees to be liquid.
Investing in New Issuers
Each Fund will not invest more than 5% of the value of its
total assets in securities of companies, including their
predecessors, that have been in operation for less than three
years. With respect to asset-backed securities, the Funds will
treat the originator of the asset pool as the company issuing
the security for purposes of determining compliance with this
limitation. The Tax-Free Money Market Fund will not invest more
than 5% of the value of its total assets in industrial
development bonds where the principal and interest are the
responsibility of companies (or guarantors, where applicable)
with less than three years of continuous operations, including
the operations of any predecessor.
Investing in Issuers whose Securities are Owned by Officers
and Trustees
Each Fund will not purchase or retain the securities of any
issuer if the officers and Trustees of the Trust or its
investment adviser owning individually more than 1/2 of 1% of
the issuer's securities together own more than 5% of the
issuer's securities.
Investing in Minerals
The Funds will not purchase or sell oil, gas, or other
mineral exploration or development programs or leases, although
they may purchase the securities of issuers which invest in or
sponsor such programs.
Investing in Warrants
Each Fund (other than the Taxable Money Market Fund and the
Tax-Free Money Fund) may invest up to 5% of its total assets in
warrants, including those acquired in units or attached to other
securities. To comply with certain state restrictions, each
Fund will limit its investments in such warrants not listed on
the New York or American Stock Exchanges to 2% of its net
assets. (If state restrictions change, this latter restriction
may be revised without notice to shareholder.) For purposes of
this investment restriction, warrants will be valued at the
lower of cost or market, except that warrants acquired by a Fund
in units with or attached to securities may be deemed to be
without value.
MANAGEMENT OF THE TRUST
Trustees and Officers of the Trust
Trustees and officers of the Trust, together with
information as to their principal business occupations during at
least the last five years, 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. The officers
of the Trust listed below are affiliated persons of the Trust and
the Adviser.
Positions with the Trust
Name, Address and Age and Principal Occupation
* Timothy L. Ashburn (46) Trustee (Chairman of the Board) and
429 N. Pennsylvania St. President of the Trust; Chairman
Indianapolis, IN 46204 of the Board and President, Vintage
Advisers, Inc.(December 1994 to present);
Chairman of the Board, Unified
Corporation, Unified Management
Corporation and Unified Advisers, Inc.
(December 1989 to present); Trust Division
Manager and Senior Trust Officer, Vine
Street Trust Company (July 1991 to April
1994).
Charles H. Binger (40) Trustee of the Trust; Partner, Thompson
One Merchantile Center Coburn (1987 to present).
Suite 3300
St. Louis, MO 63101
Daniel J. Condon (46) Trustee of the Trust; Vice President and
101 Carley Court Officer, International Crankshaft Inc.
Georgetown, KY 40324 (1990 to present); General Manager, Van
Leer Containers, Inc. (1988 to 1990).
Philip L. Conover (50) Trustee of the Trust; Adjunct Professor of
8218 Cypress Hollow Drive Finance, University of South Florida
Sarasota, FL 34238 (August 1994 to present); Managing
Director and Chief Operating Officer,
Federal Housing Finance Board (November
1990 to April 1994); President and
CEO, Trustcorp Bank (February 1989 to
November 1990).
David E. LaBelle (47) Trustee of the Trust; Vice President of
5005 LBJ Freeway Compensation Benefits, Occidental
Dallas, TX 76092 Petroleum Corporation (May 1993 to
present); Vice President of Human
Resources, Island Creek Coal Company
(A subsidiary of Occidental Petroleum)
(June, 1990 to April, 1993); Director
of Human Resources, Occidental Chemical
Corporation (March, 1989 to May, 1990).
* Jack R. Orben (58) Trustee of the Trust; Chairman and CEO,
40 Wall St. Associated Family Services (January 1980
New York, NY 10005 to present); Chairman and CEO, Starwood
Corporation (March 1984 to present);
Chairman, Fiduciary Counsel, Inc. (April
1979 to present); Chairman Estate
Management Company (January 1978 present).
Thomas G. Napurano (55) Treasurer of the Trust; Chief Financial
429 N. Pennsylvania St. Officer, Vintage Advisers, Inc. (January
Indianapolis, IN 46204 1995 to present; Senior Vice President and
Chief Financial Officer of Unified
Corporation, Unified Management
Corporation and Unified Advisers, Inc.
Carol J. Highsmith (32) Secretary of the Trust; Secretary of
429 N. Pennsylvania St. Unified Holdings, Inc. and Vintage
Indianapolis, IN 46204 Advisers, Inc. (October 1996 to present);
employed by Unified Advisers, Inc.
(November 1994 to present).
The Board of Trustees has appointed an Executive Committee
composed of Trustees Ashburn, Conover and Orben. The Executive
Committee has all of the authority of the Board of Trustees
except that, without further authorization by resolution of the
Board of Trustees, the Executive Committee does not have the
authority to (i) authorize dividends or other distributions,
(ii) approve or propose to shareholders any action required to be
approved by shareholders under the Trust's Declaration of Trust,
By-Laws or applicable law, (iii) fill vacancies on the Board of
Trustees or on any of its committees, (iv) amend the Trust's
Declaration of Trust or By-Laws, (v) approve any plan of merger
involving, or any sale of substantially all the assets of, any
fund of the Trust, whether or not requiring shareholder
approval or (vi) authorize or approve the issuance or sale or a
contract for sale of shares of the Trust.
No executive officer of the Trust receives annual aggregate
compensation from the Trust in excess of $60,000, and no Trustee
or executive officer of the Trust receives any pension or
retirement benefits from the Trust. The table sets forth the
total compensation paid by the Trust during the fiscal year
ended September 30, 1996, to each of its Trustees, all of which
consists of meeting fees.
<TABLE>
Compensation Table
<CAPTION>
Name of Trustee Total Compensation
<S> <C>
Timothy L. Ashburn $0
Charles H. Binger $10,000
Daniel J. Condon $10,000
Philip L. Conover $10,000
David E. LaBelle $4,800
Jack R. Orben $0
</TABLE>
Fund Ownership
As of January 2, 1997, the following persons may be deemed
to beneficially own five percent (5%) or more of the Starwood
Strategic Fund: Robert A. Orben, 1080 Pintail Ct., Columbus, IN
- -- 32.78%; Christine M. Clemson, 1 Bowdoin St., Shrewsbury, MA
- -- 6.94%; Judith C. Ristow, 7206 Whitehall Dr., Indianapolis, IN
- -- 6.27%; David A. Powless, 161 Sagebrush Dr., Corrales, NM --
6.35%; Rosa C. Raveneau, 2 Tudor City Pl., Apt 1CN, New York, NY
- -- 13.53%.
As of January 2, 1997, the following persons may be deemed
to beneficially own five percent (5%) or more of the Aggressive
Growth Fund: Martin Rhys Farlow, 5049 Potters Pike,
Indianapolis, IN -- 6.40%; Wade Rademacher, 12732 Clay Center
Rd., Carmel, IN -- 8.43%; Charles F. Anastoff, 128 Diplomat Ct.,
Apt. 8, Beech Grove, IN -- 7.15%; Unified Advisers, Inc., 429 N.
Pennsylvania St., Indianapolis, IN 29.96%.
As of January 2, 1997, the following persons may be deemed
to beneficially own five percent (5%) or more of the Asset
Allocation Fund: Vintage Advisers, Inc., -- 5.22%; Unified
Advisers, Inc., -- 46.26%; Unified Holdings, Inc., 429 N.
Pennsylvania St., Indianapolis, IN -- 13.61%; Jon S. Michael
Profit Sharing Plan, Jon S. Michael Employer Contribution, 2221
Carberry Dr., West Lafayette, IN -- 9.06%.
As of January 2, 1997, the following persons may be deemed
to beneficially own five percent (5%) or more of the Taxable
Fixed Income Fund: Vintage Advisers, Inc., -- 85.33%; Unified
Advisers, Inc., -- 14.67%.
As of January 2, 1997, the following persons may be deemed
to beneficially own five percent (5%) or more of the First
Lexington Balanced Fund (formerly the Municipal Fixed Income
Fund): Vintage Advisers, Inc., -- 80.94%; Unified Advisers,
Inc., -- 19.06%.
As of January 2, 1997, the following persons may be deemed
to beneficially own five percent (5%) or more of the Taxable
Money Market Fund: Unified Advisers, Inc., -- 11.13%.
As of January 2, 1997, the following persons may be deemed
to beneficially own five percent (5%) or more of the Tax-Free
Money Market Fund: Atomic Energy Industrial Labs of SW, Inc.,
9261 Kirby Dr., Houston, TX -- 6.09%
As of January 2, 1997, as a result of the above described
beneficial ownership, Robert Orben may be deemed to control the
Starwood Strategic Fund; Unified Advisers, Inc., an Indiana
corporation, may be deemed to control the Aggressive Growth Fund
and the Asset Allocation Fund; and Vintage Advisers, Inc., a
Delaware corporation, may be deemed to control the Taxable Fixed
Income Fund and the First Lexington Balanced Fund (formerly the
Municipal Fixed Income Fund). Jack Orben and Timothy Ashburn
may be deemed to control Vintage Advisers, Inc. and, therefore,
may be deemed to control the Funds controlled by Vintage
Advisers, Inc. Unified Advisers, Inc. is a wholly owned
subsidiary of Unified Holdings, Inc.
In addition to the beneficial ownership described above, the
officers and Trustees as a group beneficially owned as of January
2, 1997, 1.23% of the Starwood Strategic Fund; 2.40% of the
Aggressive Growth Fund; 4.17% of the Asset Allocation Fund; less
than 1% of the Taxable Money Market Fund; and 0% of the other
Funds.
INVESTMENT ADVISORY ARRANGEMENTS
Investment Adviser
The Trust's investment adviser is Vintage Advisers, Inc.
(the "Adviser"). Timothy L. Ashburn, Chairman of the Board and
President of the Trust, is the Chairman of the Board and
President of the Adviser. Jack R. Orben, Trustee of the Trust,
is a director of the Adviser. Messrs. Ashburn and Orben each may
be deemed to control the Adviser. They own 34.875% and 24.875%
of its voting securities, respectively from a combination of
common stock, stock grants, and stock options from the company's
Management and Employee Retention Plan ("MERP") and Non-Qualified
Restricted Stock Option Plan ("NQRSOP"). Messrs. Ashburn and
Orben control the voting of the shares of the MERP and the
NQRSOP. Thomas G. Napurano, Treasurer of the Trust, is the
Executive Vice President and Chief Financial Officer of the
Adviser. Carol J. Highsmith, Secretary of the Trust, is
Secretary of the Adviser.
Sub-Advisers
Fiduciary Counsel, Inc. ("Fiduciary Counsel") is the
sub-adviser to each of the Laidlaw Fund, the Taxable Money Market
Fund, and the Tax-Free Money Market Fund. Starwood Corporation,
is the sub-adviser of the Starwood Strategic Fund. Each of
Fiduciary Counsel and Starwood Corporation (the "Sub-Advisers")
are controlled by Associated Family Services, Inc. ("AFS"). Jack
R. Orben, Trustee of the Trust, is Chairman and CEO of each of
Fiduciary Counsel, Starwood Corporation and AFS. Mr. Orben owns
33% of the outstanding voting securities of AFS.
Health Financial, Inc. is the sub-adviser to the First
Lexington Balanced Fund. Dr. Gregory W. Kasten is the sole
shareholder of Health Financial, Inc.
Advisory Fees
For their advisory services, the Adviser and each
Sub-Adviser receives an annual investment advisory fee as
described in the Prospectus. For the fiscal year ended September
30, 1996, the Taxable Money Market Fund and the Tax-Free Money
Market Fund paid advisory fees of $194,953 and $28,468,
respectively, and the Adviser waived its entire advisory fee with
respect to the other Funds. Fiduciary Counsel, Inc.,
Sub-Adviser to the Money Market Funds, received $24,166 and
$3,525 from the Adviser for advisory services provided to the
Taxable Money Market Fund and the Tax-Free Money Market Fund,
respectively. During the period from June 2, 1995 (commencement
of operations) through September 30, 1995, the Adviser waived
its entire advisory fee with respect to each Fund. The
Sub-Advisers were not paid any sub-advisory fees during that
period.
The Adviser has undertaken to comply with the expense
limitation established by certain states for investment companies
whose shares are registered for sale in those states. If a
Fund's operating expenses exceed this expense limitation, the
investment advisory fee will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be waived by the Adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fee.
DISTRIBUTION ARRANGEMENTS
Rule 12b-1 under the Investment Company Act of 1940 describes
the circumstances under which an investment company such as the
Trust may, directly or indirectly, bear the expenses of
distributing its shares. The Rule defines such distribution
expenses to include the cost of any activity which is primarily
intended to result in the sale of Trust shares.
The Trust has adopted a Distribution Plan with respect to
each of the eight Funds. Pursuant to this Plan, the Funds are
authorized to incur distribution expenses including those
incurred in connection with preparing and distributing sales
literature and advertising, preparing, printing and distributing
prospectuses and statements of additional information used for
other than regulatory purposes or distribution to existing
shareholders, implementing and operating the Plan, and
compensating third parties for their distribution services.
Distribution expenses attributable to a particular Fund are borne
by that Fund. Distribution expenses which are not readily
identifiable as attributable to a particular Fund are allocated
among the Funds based on the relative size of their average net
assets.
Each Fund may expend annually up to 0.10% of the Fund's
average daily net assets pursuant to the Plan. A report of the
amounts so expended by each Fund and the purpose of the
expenditures must be made to and reviewed by the Board of
Trustees at least quarterly. In addition, the Plan may not be
amended to increase materially the costs which any Fund may bear
for distribution pursuant to the Plan without approval of the
amendment by the shareholders of the affected Fund.
The Board of Trustees expects that the adoption of the Plan
will result in the sale of a sufficient number of shares so as
to allow the Funds to achieve economic viability. It is also
anticipated that an increase in the size of each Fund will
facilitate more efficient portfolio management and assist the
Fund in seeking to achieve its investment objective.
During the period ended September 30, 1996, Unified
Management Corporation, the Trust's distributor, spent $76,800
under the Distribution Plan. Of this amount, approximately
$16,086 was spent on printing and mailing marketing materials;
$47,500 was spent on sales and marketing payroll; $2,283 was
spent on advertising and $10,700 was spent on sales related
travel and entertainment expenses. The Trust's total
reimbursement of the distributor was .10% of each Fund's average
daily net assets, or $45,588.
ADMINISTRATIVE SERVICES ARRANGEMENTS
The Trust has adopted a Shareholders Services Plan (the
"Services Plan") with respect to each Fund. Pursuant to the
Services Plan, the Funds are authorized to incur annual expenses
of up to 0.15% of their average daily net assets for
administrative support services provided their shareholders.
Such expenses may include costs and expense incurred by third
parties for administrative services to the Funds' shareholders,
including answering shareholder inquiries, maintenance of
shareholder accounts, performing sub accounting, obtaining
taxpayer identification number certificates from shareholders,
personnel whose time is attributable to servicing the
shareholders of the Funds, and the provision of personal services
to shareholders. For the fiscal year ended September 30, 1996,
the Trust's Administrator, Unified Advisers, Inc., received the
following payments pursuant to the Services Plan: Starwood
Strategic Fund, $598; Aggressive Growth Fund, $972; Fiduciary
Value Fund (now the Laidlaw Fund), $56; Asset Allocation
Fund, $994; Taxable Fixed Income Fund, $41; Municipal Fixed
Income Fund (now the First Lexington Balanced Fund), $45;
Taxable Money Market Fund, $52,637; Tax-Free Money Market Fund,
$7,686. During the period from June 2, 1995 to September 30,
1995, no amounts were expended under the Services Plan by any
Fund.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and
sale of portfolio instruments, a Fund's investment adviser looks
for prompt execution of the order at a favorable price. In
working with dealers, the adviser will generally use those who
are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained
elsewhere. The Adviser and the respective Sub-Advisers make
decisions on portfolio transactions and selects brokers and
dealers subject to review by the Board of Trustees.
The Adviser and Sub-Advisers may select brokers and dealers
who offer brokerage and research services. These services may be
furnished directly to the Fund or to the Adviser and Sub-Advisers
and may include advice as to the advisability of investing in
securities, security analysis and reports, economic studies,
industry studies, receipt of quotations for portfolio evaluations
and similar services.
Research services provided by brokers may be used by the
Adviser and Sub-Advisers in advising the Fund's and other
clients. To the extent that receipt of these services may
supplant services for which the Adviser or the Sub-Advisers might
otherwise have paid, it would tend to reduce their expenses.
During the period from June 2, 1995 to September 30, 1995,
the Adviser did not direct any brokerage transactions to brokers
because of research services provided.
For the fiscal year ended September 30, 1996, the Starwood
Strategic Fund paid brokerage commissions of $2,317 to Unified
Management Corporation, the Trust's Distributor, for effecting
100% of that Fund's commission transactions. During the period
from June 2, 1995 to September 30, 1995, no Fund paid any
brokerage commissions to the Distributor.
PURCHASE AND REDEMPTION
Terms of Purchase
The Trust reserves the right to reject any purchase order and
to change the amount of the minimum initial and subsequent
investments in the Funds upon notice.
Reopening an Account
A shareholder may reopen a closed account with a minimum
investment of $1,000 without filing a new account application,
during the calendar year the account is closed or during the
following calendar year, provided that the information on the
existing account application remains correct.
Redemption in Kind
The Trust has committed to pay in cash all redemption
requests by a shareholder of record, limited in amount during any
90-day period up to the lesser of $250,000 or 1% of the value of
the particular Fund's net assets at the beginning of such
period. Such commitment is irrevocable without the prior approval
of the Securities and Exchange Commission. In the case
of requests for redemption in excess of such amount, the Board of
Trustees reserves the right to make payments in whole or in part
in securities or other assets of the particular Fund. In this
event, the securities would be valued in the same manner as the
particular Fund's net asset value is determined. If the
recipient sold such securities, brokerage charges would be
incurred.
Suspension of Redemptions
The right of redemption may be suspended or the date of
payment postponed (a) during any period when the New York Stock
Exchange is closed, (b) when trading in the markets the
particular Fund normally uses is restricted, or when an emergency
exists as determined by the Securities and Exchange Commission so
that disposal of the particular Fund's investments or
determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the particular
Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
The methods and days on which net asset value is calculated
by each Fund are described in the Prospectus.
Valuation of Portfolio Securities
Portfolio securities owned by a Fund and listed or traded on
any national securities exchange are valued on the basis of the
last sale on such exchange each day the exchange is open for
business. Securities not listed on an exchange or national
securities market, or securities in which there were
no transactions, are valued at the average of the most recently
reported bid and asked prices. Bid price is used when no asked
price is available. Options are valued at the last sales price
on an exchange. Options for which there were no transactions
are valued at the average of the most recently reported bid and
asked prices. Money market instruments (certificates of deposit,
commercial paper, etc.) are valued at amortized cost if not
materially different from market value. Portfolio securities
for which market quotations are not readily available are to be
valued in good faith as determined by the Board of Trustees.
Other assets, which include cash, prepaid and accrued items and
amounts receivable as income on investment and from the sale of
portfolio securities, are carried at book value, as are all
liabilities.
TAX STATUS
Status of the Funds
The Funds intend to pay no federal income tax because they
expect to meet the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. To
qualify for this treatment, a Fund must, among other
requirements:
derive at least 90% of its gross income from dividends,
interest, and gains from the sale of securities;
derive less than 30% of its gross income from the sale of
securities held less than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net
income earned during the year.
Although the Starwood Strategic Fund, Fiduciary Value Fund
(now the Laidlaw Fund), Taxable Fixed Income Fund and Municipal
Fixed Income Fund (now the First Lexington Balanced Fund) did not
qualify to be taxed as regulated investment companies for the tax
year ended September 30, 1996 because of each Fund's small size
and limited operations, there were no tax consequences and the
Funds were not required to pay any tax. These Funds intend to
qualify as regulated investment companies in subsequent years.
Shareholders' Tax Status
The Taxable Funds. Shareholders are subject to federal
income tax on dividends and capital gains received as cash or
additional shares. Depending on the composition of a Fund's
income, a portion of the dividends from net investment income may
qualify for the dividends received deduction allowable to certain
U.S. corporations. In general, dividend income of a Fund
distributed to certain U.S. corporate shareholders will be
eligible for the corporate dividends received deduction only to
the extent that (i) the Fund's income consists of dividends paid
by certain U.S. corporations and (ii) the Fund would have been
entitled to the dividends received deduction with respect to
such dividend income if the Fund were not a regulated investment
company.
The Tax Free Money Market Fund. Shareholders are not
required to pay the federal regular income tax on any dividends
received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986,
dividends representing net interest earned on some municipal
bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax
for corporations. In addition, the Tax Reform Act of 1986
treats interest on certain "private activity" bonds issued after
August 7, 1986, as a tax preference item for both individuals
and corporations. Thus, should the Fund purchase any such
bonds, a portion of the Fund's dividends may be treated as a tax
preference item.
Dividends of the Fund representing net interest income earned
on some temporary investments and any realized net short-term
gains are taxed as ordinary income.
All Funds. The foregoing tax consequences apply whether
dividends are received in cash or as additional shares. No
portion of any income dividend paid by any Fund is eligible for
the dividends received deduction available to corporations.
Capital Gains
Shareholders will pay federal tax at capital gains rates on
long-term capital gains distributed to them regardless of how
long they have held the Fund shares.
Foreign Taxes
Dividend and interest income received by a Fund from sources
outside the U.S. may be subject to withholding and other taxes
imposed by such foreign jurisdictions. Tax conventions between
certain countries and the U.S. may reduce or eliminate these
foreign taxes, however, and foreign countries generally do not
impose taxes on capital gains respecting investments by foreign
investors.
PERFORMANCE INFORMATION
Quotations of a Fund's performance are based on historical
earnings, show the performance of a hypothetical investment, and
are not intended to indicate future performance of a Fund. An
investor's shares when redeemed may be worth more or less than
their original cost. Performance of a Fund will vary based on
changes in market conditions and the level of the Fund's
expenses.
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 (over the one and five year
periods and the period from initial public offering through the
end of a Fund's most recent fiscal year) 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.
The average annual total returns of the Taxable Money Market
Fund and the Tax-Free Money Market Fund for the one year period
ended September 30, 1996 were 4.13% and 1.96%, respectively. The
average annual total return of the Starwood Strategic Fund for
the period April 4, 1996 (commencement of investment in
accordance with its investment objective) through September
30, 1996 was -3.97%. The average annual total returns of the
Aggressive Growth Fund and the Asset Allocation Fund for the
period March 13, 1996 (commencement of investment in accordance
with their respective investment objectives) through September
30, 1996 were -2.72% and -1.16%, respectively.
Yield
The yield of a Fund's shares (other than the money market
Funds) is determined each day by dividing the net investment
income per share (as defined by the Securities and Exchange
Commission) earned by the Fund over a thirty-day period by the
net asset value per share of the Fund on the last day of the
period. This value is annualized using semi-annual compounding.
This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a
12-month period and is reinvested every six months.
The "yield" of a money market Fund refers to the income
generated by an investment in the Fund over a seven-day period.
This income is then annualized. The amount of income generated
by investments during the week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect
of this assumed reinvestment.
The yield of does not necessarily reflect income actually
earned by the applicable shares because of certain adjustments
required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial
institutions and broker/dealers charge fees in connection with
services provided in conjunction with an investment in the Fund,
performance will be reduced for those shareholders paying those
fees.
The annualized yield of the Taxable Money Market Fund and the
Tax-Free Money Market Fund for the seven-day period ended
September 30, 1996 were 4.04% and 1.93%, respectively. The
effective yield of the Taxable Money Market Fund and the Tax-Free
Money Market Fund for that seven-day period were 4.13% and 1.96%,
respectively.
Tax-Equivalent Yield
The tax-equivalent yield of the Tax-Free Money Market Fund
is calculated similarly to the yield, but is adjusted to reflect
the taxable yield that the shares would have to earn to equal
their actual yield, assuming tax rates of 15%, 28%, 31% and 36%,
and assuming that income is 100% tax-exempt. The tax-equivalent
yield for the Tax-Free Money Market Fund for the seven-day period
ended September 30, 1996, based on the assumed tax rates was 2.30%,
2.73%, 2.85% and 3.09%.
Performance Comparisons
A comparison of the quoted non-standard performance of
various investments is valid only if performance is calculated in
the same manner. Because there are different methods of
calculating performance, investors should consider the effect of
the methods used to calculate performance when comparing
performance of a particular Fund with the performance quoted
with respect to other investment companies or types of
investments.
From time to time, in advertising and marketing literature, a
Fund's performance may be compared to the performance of broad
groups of mutual funds with similar investment goals, as tracked
by independent organizations such as Investment Company Data,
Inc. ("ICD"), Lipper Analytical Services, Inc. ("Lipper"), CDA
Investment Technologies, Inc. ("CDA"), Morningstar, Inc. and
other independent organizations. When these organizations'
tracking results are used, a Fund will be compared to
the appropriate fund category, that is, by fund objective and
portfolio holdings or the appropriate volatility grouping, where
volatility is a measure of a fund's risk. Rankings may be
listed among one or more of the asset-size classes as determined
by the independent ranking organization. Footnotes
in advertisements and other marketing literature will include the
organization issuing the ranking, time period, and asset-size
class, as applicable, for the ranking in question.
In addition, a particular Fund's performance may be compared
to unmanaged indices of securities that are comparable in their
terms and intent to those in which the Fund invests such as the
Dow Jones Industrial Average ("DJIA"), Standard & Poor's 500
Stock Index ("S&P 500"), the Lehman Brothers Government/
Corporate Bond Index and the Consumer Price Index ("CPI"). The
DJIA and S&P 500 are unmanaged indices widely regarded
as representative of the equity market in general. The CPI is a
commonly used measured of inflation.
Marketing and other literature for the Funds may include a
description of the potential risks and rewards associated with
an investment in a particular Fund. The description may include
a comparison of a particular Fund to broad categories of
comparable funds in terms of potential risks and returns.
The description may also compare a particular Fund to bank
products, such as certificates of deposit. Unlike mutual funds,
certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return. Because bank
products guarantee the principal value of an investment and
money market funds seek stability of principal, these investments
are considered to be less risky than investments in either bond
or equity funds, which may involve loss of principal.
The risks and rewards associated with an investment in bond
or equity funds depend upon many factors. For fixed income funds
these factors include, but are not limited to a fund's overall
investment objective, the average portfolio maturity, credit
quality of the securities held, and interest rate movements. For
equity funds, factors include a fund's overall investment
objective, the types of equity securities held and the financial
position of the issuers of the securities. The risks and
rewards associated with an investment in international bond or
equity funds will also depend upon currency exchange rate
fluctuation. Shorter-term bond funds generally are considered
less risky and offer the potential for less return than
longer-term fixed income funds. The same is true of domestic
bond funds relative to international fixed income funds, and
fixed income funds that purchase higher quality securities
relative to bond funds that purchase lower quality securities.
Growth and income equity funds are generally considered to be
less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are
considered more risky than domestic equity fund but generally
offer the potential for greater return.
INFORMATION ABOUT THE TRUST
The Trust was organized on February 1, 1995 as an Indiana
business trust. The By-Laws of the Trust provide that the
Trustees shall promptly call a special meeting of shareholders
for the purpose of voting upon the question of removal of any
Trustee or Trustees upon the written request of shareholders of
the Trust holding at least 10% of all votes entitled to be cast
at an election of Trustees.
CUSTODIAN, TRANSFER AGENT, FUND ACCOUNTING AGENT,
AND INDEPENDENT ACCOUNTANTS
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45201
("Custodian") serves as the custodian for each of the Funds.
General correspondence to the Custodian, such as for IRA
information, etc., should be addressed to: Star Bank, P.O. Box
1038 Location 6118, Cincinnati, Ohio 45201. When Fund purchases
or deposits require delivery directly to the Custodian, those
correspondences should be addressed to: The Vintage Funds, [name
of specific Fund in which you are purchasing shares], P.O. Box
640689, Cincinnati, Ohio, 45264-0689.
Unified Advisers, Inc., P.O. Box 6110, Indianapolis, Indiana
46206-6110, acts as the transfer agent, fund accounting agent and
administrator for the Trust (the "Transfer Agent"). The Transfer
Agent maintains the records of each shareholder's account,
answers shareholders' inquiries concerning their accounts,
processes purchases and redemptions of shares, acts as dividend
and distribution disbursing agent and performs other accounting
and shareholder service functions. The Transfer Agent provides
the Trust with certain monthly reports, record-keeping and other
management-related services. For its services the Transfer
Agent receives a monthly fee at an annual rate of .025% and
.0675% of the net assets of the money market funds and the
non-money market funds, respectively. The Transfer Agent and
Unified Management Corporation are both wholly owned
subsidiaries of Unified Holdings, Inc.
Neither the Custodian nor Unified Advisers, Inc., has any
part in determining the investment policies of the Trust or any
of the Funds or which securities are to be purchased or sold by
the Funds, and neither can provide protection to shareholders
against possible depreciation of assets.
McCurdy & Associates CPA's Inc., 27955 Clemens Road,
Westlake, OH 44145, independent accountants, have been selected
as the Trust's auditors.
FINANCIAL STATEMENTS
The following are the financial statements and independent
auditor's report of The Laidlaw Covenant Fund, which was
acquired by the Laidlaw Fund. The other financial statements and
independent auditor's report required to be included in this
Statement of Additional Information are incorporated herein by
reference to the Trust's Annual Report to Shareholders for the
year ended September 30, 1996. The Trust will provide the
Annual Report without charge upon request by calling the Trust at
1-800-408-4682.
<TABLE>
THE LAIDLAW FUND
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1996
<CAPTION>
<S> <C>
Value
Description Shares (Note 2)
COMMON STOCKS - 96.3%
Chemicals - 7.3%
Air Products & Chemicals 2,500 $ 145,625
Vulcan Materials 1,600 96,000
241,625
Consumer Products - 6.0%
Clorox Co. 1,400 134,225
Rubbermaid, Inc. 2,700 66,150
200,375
Drugs and Health Care - 10.0%
Alza, Inc. (b) 3,000 80,625
Bergen Brunswig Corp. "Class A" 2,205 70,009
Merck & Co., Inc. 1,100 77,412
Pharmacia & Upjohn 2,465 101,681
329,727
Equipment and Electronics - 2.6%
Hubbell, Inc. "Class B" 2,310 85,470
85,470
Financial Services - 14.4%
Allstate Corporation 1,390 68,458
Bank of New York 4,000 117,500
Banc One 2,750 112,750
Cigna Corp. 600 71,925
AG Edwards 2,000 58,250
Transamerica Corp. 700 48,912
477,795
Food and Beverage - 6.1%
CPC International 700 $ 52,413
H.J. Heinz Co. 2,100 70,875
Hershey Foods 1,600 80,400
203,688
Furniture and Home Equipment - 5.6%
Miller Herman 2,500 101,250
Maytag Corp. 4,400 85,800
187,050
Industrial Products and Packaging - 6.3%
Avery Dennison Corp. 1,500 83,250
Bemis Co. "Class A" 1,500 50,813
Cooper Industries, Inc. 1,700 73,525
207,588
Manufacturing - 4.5%
Timken Co. 2,100 82,425
Worthington Industries, Inc. 3,300 66,000
148,425
Office Equipment and Services - 6.9%
Federal Express (b) 1,000 79,250
Kelly Services, Inc. 2,700 76,612
Knight-Ridder 2,000 74,000
229,862
Oil and Gas - 9.0%
Amoco Corp. 2,000 141,000
Apache Corp. 2,300 68,425
Tenneco 1,800 90,225
299,650
Retail - 2.0%
Sears Roebuck & Co. 1,500 $ 67,125
67,125
Transportation - 2.4%
CSX Corp. 1,600 80,800
80,800
Utilities - 13.2%
American Telephone & Telegraph 1,600 83,600
American Water Works, Inc. 5,200 112,450
Public Service Co. of Colorado 2,500 88,750
SBC Communications, Inc. 1,600 77,000
Southern New England Telecomm Corp. 2,000 73,750
435,550
Money Market- 0.5%
Fountain Square Treasure 14,200
14,200
Total Common Stocks/Money Market
(cost $2,341,614) (a) 3,208,930
Other Assets and Liabilities (Net) - 3.2% 103,809
Net Assets $ 3,312,739
<FN>
(a) Cost also represents cost for federal income tax purposes.
(b) Non-income producing securities
</FN>
</TABLE>
<TABLE>
THE LAIDLAW FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
<S> <C>
ASSETS
Investments, at value (cost $2,341,614) $ 3,208,930
Cash 75,344
Receivable from adviser 14,182
Receivable for Fund Shares sold 20
Dividends and receivable 8,236
Prepaid expenses 713
Deferred organization costs 22,834
Total Assets 3,330,259
LIABILITIES
Dividends payable to shareholders 1,131
12b-1 expenses payable 2,690
Accrued expenses 13,699
Total Liabilities 17,520
NET ASSETS $ 3,312,739
Shares outstanding (.001 par value,
unlimited shares authorized) 221,633
CALCULATION OF MAXIMUM OFFERING PRICE:
Net asset value per share $ 14.95
Sales charge - 4.5% of public offering price 0.70
Maximum Offering Price $ 15.65
COMPOSITION OF NET ASSETS:
Shares of beneficial interest, at par $ 209
Additional shares of beneficial interest 2,358,813
Accumulated undistributed net investment income 9,088
Accumulated undistributed net realized gains 77,313
Net unrealized appreciation of investments 867,316
NET ASSETS, SEPTEMBER 30, 1996 $ 3,312,739
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<TABLE>
THE LAIDLAW FUND
STATEMENT OF OPERATIONS
Nine Months Period Ended
Ended 9/30/96 12/30/95
<S> <C>
INVESTMENT INCOME
Dividends $ 70,470 $ 113,271
Interest 9,472 2,665
Other Income 7 0
Total Investment Income 79,949 115,936
EXPENSES
Advisory fees $ 29,133 46,966
Administration fees 2,176 15,001
12b-1 expenses 10,161 16,438
Custodian fees and expenses 1,872 2,310
Fund Accounting fees and expenses 17,302 27,757
Transfer Agent fees and expenses 11,233 15,001
Legal fees 19,713 8,648
Amortization of organization costs 8,634 11,501
Printing 5,165 6,925
Registration fees 7,020 15,787
Audit fees 14,410 25,927
Trustee's fees 7,352 11,832
Pricing fees 4,493 6,000
Insurance expense 26 777
Other expenses 2,620 3,698
141,310 214,567
Less: Fees waived and expenses to be reimbursed
Adviser and Sub-Adviser (69,567) (99,450)
Expenses less reimbursement 71,743 115,117
Net Investment Income 8,206 820
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gains on securities transactions 72,801 690,467
Net change in unrealized appreciation of investments 117,631 511,590
Net Income on Investments 190,432 1,202,057
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 198,638 $ 1,202,877
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<TABLE>
THE LAIDLAW FUND
STATEMENT OF CHANGES IN NET ASSETS
SEPTEMBER 30,1996
<CAPTION>
Nine months ending Year Ended
September 30, 1996 December 31, 1995
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $8,206 $ $820
Net realized gain on securities transactions 72,801 690,467
Net change in unrealized appreciation of
investments 117,631 511,590
Net increase in net assets resulting
from operations 198,638 1,202,877
Dividends to shareholders from net investment income 0 0
Distributions to shareholders from net realized gain (152,958) (533,277)
Portfolio Share Transactions (Note 5)
Net proceeds from shares subscribed 565,090 815,009
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions 130,753 0
Cost of shares redeemed (1,926,239) (1,368,124)
Net increase in net assets from capital share
transactions (1,230,396) (553,115)
Total Increase (Decrease) (1,184,716) 116,485
NET ASSETS
Beginning of period (including undistributed
net investment income of $831 & $12
respectively). 4,497,455 4,380,970
End of period (including undistributed net
investment income of $9,088 and $831
respectively). 3,312,739 4,497,455
<FN>
The accompanying notes are an integral part of these financial mstatements.
</FN>
</TABLE>
THE LAIDLAW FUND
Notes to Financial Statements
Note 1 - General
The Laidlaw Covenant Fund (the
"Fund) was organized as a business trust
under the laws of the State of Indiana on
August 26, 1993, and is registered under
the Investment Company Act of 1940, as
amended (the "Act"), as a diversified,
open-end management investment
company, commonly known as a "mutual
fund" (see note 7).
The Fund issues shares of beneficial
interest relating to an investment portfolio
consisting principally of common stocks,
or securities convertible into or
exchangeable for common stocks, of
companies which, in the opinion of the
Fund's investment adviser, meet certain
standards of corporate responsibility and
ethical business behavior, as well as
traditional investment standards.
Laidlaw Holdings Asset Management, Inc.
("Laidlaw") serves as the Fund's
investment adviser. Covenant Investment
Management, Inc. ("Covenant") serves as
the Fund's sub-adviser.
Laidlaw Equities, Inc. ("Distributor")
serves as the distributor of the Fund's
shares. Laidlaw Equities, Inc. also serves
as the Fund's administrator.
Note 2 - Significant Accounting Policies
The following is a summary of
significant accounting policies followed by
the Fund in the preparation of its financial
statements.
A) Security Valuations
Securities are valued at the last sales
price on the securities exchange on which
such securities are primarily traded or at
the last sales price on the NASDAQ
National Market System. Securities not
listed on an exchange or the National
Market System, or securities for which
there were no transactions, are valued at
the average of the most recent bid and
asked prices. Bid price is used when no
asked price is available. Investment in
Money Market Funds are recorded at net
asset value.
B) Securities Transactions and Investment
Income
Securities transactions for these
financial statements are recorded on a trade
date-plus-one basis. Realized gains and losses from
securities transactions are recorded on the
identified cost basis. Dividend income is
recognized on the ex-dividend date and
interest income on investments is accrued
daily.
C) Dividends and Distributions to
Shareholders
The Fund declares and pays dividends
from net investment income and distributes
net capital gains, if any, at least annually.
However, to the extent that net realized
gains of the Fund can be reduced by any
capital loss carry-overs from the Fund,
such gains will not be distributed.
Dividends and distributions are recorded
on the ex-dividend date.
D) Federal Income Taxes
It is the policy of the Fund to meet the
requirements of the Internal Revenue Code
applicable to regulated investment
companies including the requirement that it
distribute substantially all of its taxable
income to its shareholders. Therefore, no
federal income tax provision is required.
E) Expenses
Organization costs totalling $57,500 have
been deferred and are being amortized by
the Fund on a straight-line basis through
1997.
F) Estimates
Preparation of financial statements in
accordance with generally accepted
accounting principles requires management
to make estimates and assumptions that
affect the reported amounts of assets and
liabilities and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates.
Note 3 - Agreements and Other
Transactions with Affiliates
The Fund has entered into an Investment
Advisory Agreement with Laidlaw. In
turn, Laidlaw has entered into an
Investment Sub-Advisory Agreement with
Covenant. The Fund has entered into an
Administration Agreement with Laidlaw
Equities Inc. and a Distribution Agreement
with the Distributor.
As Investment Adviser, Laidlaw
supervises and assists in the management
of the Fund. Pursuant to the terms of the
Investment Advisory Agreement, Laidlaw
is entitled to annual fees, accrued daily and
payable monthly, at the following rates:
Annual Average
Rate Daily Net Assets
1.00% Less than $250 million
.80% $250 to less than $500 million
.70% $500 million and over
For the period ended September 30,
1996, Laidlaw waived its advisory fee.
The amount of this waiver totalled
$29,133.
As Investment Adviser, Laidlaw
provides day to day management of the
Fund's investments. Pursuant to an
agreement with Covenant, Laidlaw has
agreed to pay Covenant 30% of the net
amount of its investment advisory fee paid
by the Fund. Since Laidlaw waived its
entire advisory fee, Covenant was not
entitled to any sub-advisory fee for the
period ended September 30, 1996.
The Fund has agreed to pay Unified
the following for services:
Transfer Agent - Monthly fee equal to
$1.15 per active stockholder account with a
minimum monthly fee of $1,250.
Fund Accounting Agent - Annual fee
equal to .05% of the Fund's average net
assets, subject to a minimum annual fee of
$20,000, plus reimbursement for certain
expenses and optional services.
The agreements further provide that if, in
any fiscal year, the aggregate expenses of
the Fund (generally including fees payable
to Laidlaw and Unified but excluding
interest, taxes, brokerage commissions and
extraordinary expenses ) exceed the most
restrictive expense limitation of any state
having jurisdiction over the Fund, Laidlaw
will reimburse the Fund for any such
expenses. At September 30, 1996, the
most restrictive limitation limits expenses
to 2.5% of the first $30 million of the
Fund's average daily net assets, plus 2.0%
of the next $70 million of such assets plus
1.5% of such assets in excess of $100
million. At September 30, 1996 Laidlaw
owed the Fund $14,182 pursuant to this
limitation, net of advisory and other fees
due to Laidlaw. Laidlaw reimbursed The
Fund in the amount of $50,000 recorded
on June 6, 1996.
For the period ended September 30,
1996, the Distributor advised the Fund that
it retained $11 from commissions earned
on the sales of the Fund's shares. For the
same period various affiliates of Laidlaw
advised the Fund that they retained $4,673
from commissions earned on the sales of
the Fund's shares. In addition, Laidlaw
retained $360 in commissions from the
sales of investment securities to the Fund.
The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1
under the Act . Pursuant to the Plan, the
Fund is authorized to incur distribution and
shareholder servicing expenses at an
aggregate annual rate of up to .35% of the
Fund's average daily net assets. Pursuant
to the plan, up to .10% of the Fund's
average daily net assets may be retained by
the Distributor and the remainder may be
used to reimburse the Distributor for
payments made for distribution and
servicing provided to Fund shareholders.
For the period ended September 30, 1996,
the Fund incurred expenses of $10,161
pursuant to the Plan. Of that amount,
$8,352 was earned by Laidlaw as
Broker/Dealer/distributor, and non-
affiliated Broker/Dealers earned $1,809.
The Laidlaw Fund offered 100% re-
allowance to all selling agents effective
July 3, 1995.
Certain Trustees and officers of the
Fund are "affiliated persons" (as defined in
the Act) of Laidlaw. Each "non-affiliated"
Trustee is entitled to receive a meeting fee
of $625 per meeting for services relating to
the Fund.
Note 4 - Securities Transactions
For the period ended September 30,
1996, the cost of purchases and the
proceeds from sales of the Fund's
investment securities (excluding short-term
investments) amounted to $0 and
$1,216,869, respectively.
At September 30, 1996, the cost of the
Fund's investment securities for federal
income tax purposes was substantially the
same as for financial reporting purposes.
Accordingly, net unrealized appreciation of
investments amounted to $867,316,
consisting of gross unrealized appreciation
of $857,548 and gross unrealized
depreciation of $9,768.
Note 5 - Capital Share Transactions
Transactions in shares of the Fund are
summarized below (rounded to the nearest
thousand):
Period Ended Year Ended
Sept 30,1996 Dec 31,1995
Shares Sold 20,000 55,000
Shares issued to
shareholders in
reinvestment of
dividends and
distributions 27,000 0
Shares redeemed (126,000) (94,000)
Net Increase
(Decrease) (79,000) (39,000)
Note 6 - Dividend Distribution
For the period November 1,1995 thru
December 31,1996, the Laidlaw Fund had
realized long-term capital gains of $45,801
and short-term capital gains of $107,104.
Dividend distributions in the amount of
$.7029 per share were paid out on
September 23, 1996 to shareholders of
record as of September 16, 1996.
Note 7 - Subsequent Events
On December 20, 1996 The Fiduciary Value
Fund acquired the assets of The Laidlaw
Covenant Fund. The acquisition consisted
of the transference of all the assets and
liabilities of The Laidlaw Covenant Fund in
exchange for shares of the Fiduciary Value
Fund and the distribution of such shares to
the shareholders of the Laidlaw Covenant
Fund in liquidation of The Laidlaw Covenant Fund.
<PAGE>
<TABLE>
THE LAIDLAW FUND
Selected Per Share Data and Ratios
Financial Highlights for a share outstanding for the nine
months ended September 30, 1996
and the years ended December 31, 1995, 1994 and 1993
and for the period from March 3, 1992 through December 31, 1992
<CAPTION>
For the nine
months ended Year Ended Year Ended Year Ended March 3, 1992
September 30, 1996 December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992
(a)
<S> <C>
Selected Per Share Data
Net Asset Value
Beginning of Period $14.96 $12.91 $12.92 $12.56 $11.94
Investment Activities
Net investment income (loss) 0.03 0.00 0.01 0.02 0.08
Net realized and unrealized
gains (losses) on
investments 0.66 3.82 0.35 0.49 1.03
Total from Investment Activities 0.69 3.82 0.36 0.51 1.11
Distributions
Net investment income 0.00 0.00 (0.01) (0.02) (0.08)
Net realized gains (0.70) (1.77) (0.36) (0.13) (0.41)
Total Distributions (0.70) (1.77) (0.37) (0.15) (0.49)
Net Asset Value, End of Period $14.95 $14.96 $12.91 $12.92 $12.56
Total Return (excluding sales
charges) 6.19%(b) 29.59% 2.86% 4.06% 11.20%(b)
Ratios/Supplementary Data
Net Assets at end of period(000) 3,313 4,497 4,381 4,996 4,284
Ratio of expenses to average
net assets 2.44% 2.50% 2.50% 2.50% 2.50%
Ratio of net investment income
(loss) to average net assets 0.28% 0.02% 0.11% 0.16% 0.69%
Ratio of expenses to average
net assets* 4.81% 4.57% 5.20% 5.80% 7.09%
Ratio of net investment income
(loss) to average net assets* (2.09%) (2.10%) (2.57%) (3.16%) (3.90%)
Portfolio turnover 0% 61% 73% 107% 128%
Average commission rate paid $0.01 $0.00(c) $0.00(c) $0.00(c) $0.00(c)
<FN>
* During the period the investment advisory and administration
fees were waived and reimbursed. If such voluntary fee reductions
had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Commission rate was not required on financial statements during
the periods 1992-1995.
</FN>
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Trustees:
The Laidlaw Fund
We have audited the accompanying statement of assets and
liabilities of the Laidlaw Fund, including the schedule
of investments, as of September 30, 1996, and the related
statements of operations for the nine months then ended, the
statement of changes in net assets for the nine month current
period and the prior year, and the financial highlights for each
of the periods indicated. 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 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 September 30, 1996, 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 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 Laidlaw Fund as of September 30, 1996,
the results of its operations for the nine months then ended,
the changes in its net assets for the nine month current period and
the prior year, and the financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake Ohio 44145
December 27, 1996
