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; Supplement
to Prospectus
Item 5. Management of the Fund . . . . . . . The Trust and Its
Management; Supplement to
Prospectus
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; Supplement
to Prospectus
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; Supplement to
Prospectus
Item 16. Investment Advisory and Other
Services. . . . . . . . . . . . . .The Trust and Its Management;
Supplement to Prospectus
PART B. INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION.
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>
September 15, 1997
THE VINTAGE FUNDS
SUPPLEMENT TO PROSPECTUS
DATED FEBRUARY 1, 1997
On June 1, 1997, Unified Holdings, Inc., the parent of Unified
Management Corporation (the Funds' Distributor) and an affiliate of Vintage
Advisers, Inc. (the Funds' Adviser), acquired Health Financial, Inc.,
Sub-Adviser of the First Lexington Balanced Fund. As a result of that
transaction, there was a change in control of Health Financial, Inc., because it
became a subsidiary of Unified Holdings, Inc., and the sub-advisory agreement
between The Vintage Funds and Health Financial, Inc. was terminated. The
Trustees and the shareholders approved a new agreement which is identical in
terms to the prior agreement, effective June 1, 1997.
Timothy L. Ashburn, Chairman of the Board of Trustees, is an affiliated
person of the Distributor and of the Funds. As a result of the transaction,
Health Financial, Inc is now an affiliate of the Distributor; Unified Holdings,
Inc. may be deemed to be controlled by Gregory Kasten and Mr. Ashburn; and thus
Mr. Kasten and Mr. Ashburn may be deemed to control Health Financial, Inc.
In addition to the above information, the Vintage Funds= prospectus is
revised as follows:
The third paragraph under the heading AThe First Lexington Balanced
Fund@, on page 13, is revised to read as follows:
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 fixed income securities,
including repurchase agreements and mutual funds that invest
in fixed income securities. For a description of other factors
related to the Fund=s investment in other mutual funds, see
AInvestment in Other Mutual Funds@ below.
The following information supplements the first paragraph on page 24:
Investors may be charged a fee if they effect transactions
through a broker or agent.
The following information supplements the second paragraph under the
heading "Investment Adviser" on page 30:
<PAGE>
Mr. Orben is no longer a member of the Trust=s Board of
Trustees, effective June 1, 1997.
The following information supplements the first paragraph under the
heading "Sub-Advisers", on page 30:
Associated Family Services is located at 36 W. 44th Street,
Suite 1310, New York, New York.
The first sentence under the heading "First Lexington Balanced Fund",
on page 31, is changed to read as follows:
Dr. Gregory W. Kasten began managing the Funds portfolio in
January, 1997.
Effective August 15, 1997, shares of The Aggressive Growth Fund, The
Asset Allocation Fund, The Taxable Fixed Income Fund, and The Tax-Free Money
Market Fund are no longer available for purchase or exchange.
This Supplement, and the Prospectus dated February 1, 1997, contain
information that you should know before investing in any of the Funds and should
be retained for future reference. Additional information is included in the
Statement of Additional Information dated September 15, 1997, which has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference. It is available upon request and without charge by calling (800)
408-4682 (1-800-40-VINTAGE).
<PAGE>
September 15, 1997
THE VINTAGE FUNDS
SUPPLEMENT TO PROSPECTUS
DATED FEBRUARY 1, 1997
The following information supplements the second paragraph under the
heading "Investment Adviser" on page 18:
Mr. Orben is no longer a member of the Trust's Board of
Trustees, effective June 1, 1997.
The following information supplements the first paragraph under the
heading "Sub-Adviser", on page 18:
Fiduciary Counsel, Inc. is located at 36 W. 44th Street, Suite
1310, New York, New York.
Effective August 15, 1997, shares of The Tax-Free Money Market Fund are no
longer available for purchase or exchange.
This Supplement, and the Prospectus dated February 1, 1997, contain
information that you should know before investing in any of the Funds and should
be retained for future reference. Additional information is included in the
Statement of Additional Information dated September 15, 1997, which has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference. It is available upon request and without charge by calling (800)
408-4682 (1-800-40-VINTAGE).
<PAGE>
THE VINTAGE FUNDS
SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1997
To residents of ARIZONA, CALIFORNIA, CONNECTICUT, IOWA, MASSACHUSETTS, AND NEW
MEXICO:
Shares of The First Lexington Balanced Fund are not offered in your state and
may not be obtained either by original purchase or exchange.
<PAGE>
THE VINTAGE FUNDS
SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1997
To residents of ARKANSAS, RHODE ISLAND, AND VERMONT:
Shares of The Laidlaw Fund and The First Lexington Balanced Fund are not offered
in your state and may not be obtained either by original purchase or exchange.
<PAGE>
THE VINTAGE FUNDS
SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1997
To residents of TENNESSEE:
Shares of The Laidlaw Fund are not offered in your state and may not be obtained
either by original purchase or exchange.
<PAGE>
THE VINTAGE FUNDS
SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 1, 1997
To residents of MICHIGAN:
Shares of The Starwood Strategic Fund and The First Lexington Balanced Fund are
not offered in your state and may not be obtained either by original purchase or
exchange.
<PAGE>
THE VINTAGE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
September 15, 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 . . . . . . . . . . . . . . . . . . 11
Management of the Trust. . . . . . . . . . . . . . . . . . 14
Investment Advisory Arrangements . . . . . . . . . . . . . . 15
Distribution Arrangements . . . . . . . . . . . . . . . . . 16
Administrative Services Arrangements . . . . . . . . . . . . 17
Brokerage Transactions . . . . . . . . . . . . . . . . . . 17
Purchase and Redemption . . . . . . . . . . . . . . . . . 17
Determination of Net Asset Value . . . . . . . . . . . . . . 18
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . 18
Performance Information . . . . . . . . . . . . . . . . . 19
Information About the Trust. . . . . . . . . . . . . . . . 21
Custodian, Transfer Agent, Fund Accounting Agent,
and Independent Accountants . . . . . . . . . . . . . . 21
Financial Statements . . . . . . . . . . . . . . . . . . . 22
<PAGE>
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 Fund) 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 Fund has
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 Fund 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.
<PAGE>
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 Fund) 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 Fund) 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 Fund) 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.
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.
<PAGE>
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) 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) 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) the
First Lexington Balanced Fund may invest without limitation in other investment
companies, and (iii) the Taxable Money Market Fund may invest without limitation
in domestic bank instruments.
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 the First Lexington Balanced 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) 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.
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) 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.
<TABLE>
<CAPTION>
Name, Address and Age Positions with the Trust and Principal Occupation
--------------------- -------------------------------------------------
<S> <C>
* Timothy L. Ashburn (46) Trustee (Chairman of the Board) and President of the Trust; Chairman of the Board and
429 N. Pennsylvania St. President, Vintage Advisers, Inc. (December 1994 to present); Chairman of the Board,
Indianapolis, IN 46204 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).
Daniel J. Condon (46) Trustee of the Trust; Vice President and Officer, International Crankshaft Inc. (1990
101 Carley Court to present); General Manager, Van Leer Containers, Inc. (1988 to 1990).
Georgetown, KY 40324
Philip L. Conover (50) Trustee of the Trust; Adjunct Professor of Finance, University of South Florida
8218 Cypress Hollow Drive (August 1994 to present); Managing Director and Chief Operating Officer, Federal
Sarasota, FL 34238 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 Compensation Benefits, Occidental Petroleum
5005 LBJ Freeway Corporation (May 1993 to present); Vice President of Human Resources, Island Creek
Dallas, TX 76092 Coal Company (A subsidiary of Occidental Petroleum) (June 1990 to April 1993);
Director of Human Resources, Occidental Chemical Corporation (March 1989 to May
1990).
Thomas G. Napurano (55) Treasurer of the Trust; Chief Financial Officer, Vintage Advisers, Inc.(January 1995 to
429 N. Pennsylvania St. Present); Senior Vice President and Chief Financial Officer of Unified Corporation,
Indianapolis, IN 46204 Unified Management Corporation and Unified Advisers, Inc.
Carol J. Highsmith (32) Secretary of the Trust; Secretary of Unified Holdings, Inc. And Vintage Advisers, Inc.
429 N. Pennsylvania St. (October 1996 to present); employed by Unified Advisers, Inc. (November 1994 to
Indianapolis, IN 46204 present).
</TABLE>
<PAGE>
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.
Compensation Table
Name of Trustee Total Compensation
- --------------- ------------------
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
*Mr. Binger and Mr. Orben are no longer Trustees of the Trust.
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 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, as a result of the above described beneficial
ownership, Robert Orben may be deemed to control the Starwood Strategic Fund;
and Vintage Advisers, Inc., a Delaware corporation, may be deemed to control 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; 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. Mr. Ashburn
and Jack R. 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 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. ("HFI") is the sub-adviser to the First
Lexington Balanced Fund. HFI is a wholly owned subsidiary of Unified Holdings,
Inc., and may be deemed to be controlled by Gregory W. Kasten and Timothy L.
Ashburn.
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
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), 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
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 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 return of the Taxable Money Market Fund for
the one year period ended September 30, 1996 was 4.13%. 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%.
YIELD
The yield of a Fund's shares (other than the money market Fund) 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 for the seven-day
period ended September 30, 1996 was 4.04%. The effective yield of the Taxable
Money Market Fund for that seven-day period was 4.13%.
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 fund 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.
<PAGE>
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.
<PAGE>
<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
