A MESSAGE FROM THE UNIFIED FUNDS
Dear Shareholders,
As we move into the final quarter of 1998, we remain impressed by the
remarkable resilience of the financial markets. Recent efforts by the United
States to help support the Japanese Yen have inspired hope that the fallout of
the Asian economic crisis can be contained. In general, in spite of the recent
market dive, the U.S. and world markets have continued to build wealth for
investors at a virtually unprecedented pace.
The Unified Funds are pleased to help our shareholders participate in the
potential rewards of today's markets, but we also recognize that this rate of
growth, as was evidenced by the recent significant third quarter reductions in
the U.S. markets, cannot last forever. Since no one can predict exactly when the
next correction or bear market might occur, we think it is prudent to
continually identify, evaluate and manage the risks that may affect our fund
shareholders.
Investors have experienced a remarkably strong stock market for more than
three years now. Occasionally, as was evidenced recently, the market is likely
to consolidate its gains. We don't make market predictions, but it's safe to say
that we do not believe the market will produce returns of 30% or more every
year. Your portfolio managers believe that one of the leading risks facing
investors today is the simultaneous condition of stock valuations at the high
end of their historical range and the slowing of U.S. corporate earnings growth.
Given these facts, we believe it is unlikely that stocks will sustain the growth
rate of the past three years. Stock prices could continue trading near current
levels until earnings "catch up", or, there could be another market correction.
However, we believe that either scenario would be only a temporary pause on the
way to potentially greater, but more realistic and historical, long-term gains.
We have attempted to structure our portfolios so that they can participate in
most of the gains in rising markets, but avoid some of the volatility in
declining markets. In our view, this prudent approach to investing should serve
our shareholders well in the months ahead.
Recent Market Behavior
Through mid-July, optimism prevailed in U.S. financial markets as the
domestic economy grew at a robust pace, while simultaneously, inflation and
interest rates remained stable at relatively low levels. Lower commodity prices
and the dollar's gains against a number of currencies reduced the costs of
imported goods and encouraged market enthusiasm. The excitement surrounding the
stock market's continued ascent to new record highs overshadowed the favorable
economic environment that existed for bonds (low inflation and declining
interest rates), and, along with other positive factors, caused investors to bid
up stock prices to unsustainable levels by early July. Markets in the United
States seemed, at the time, somewhat insulated from severe economic problems in
Asia, Russia, and several emerging markets.
However, since mid-July, the stock market declined substantially, as
investors became concerned that the political instability in Washington and
growing worldwide economic problems might result in a recession in the United
States. The stock market sell-off in the most recent three months resulted in
many investors across the U.S. giving back most of the gains of the prior nine
months.
Stocks declined sharply amid heightened volatility, partially because the
financial crises in Asia and Russia negatively affected the earnings of some
large U.S. corporations and contributed to a slow-down in U.S. economic growth.
Although slower economic growth was negative for stocks, the bond market was not
adversely impacted and remained poised to benefit from the fact that slower
economic growth generally means fewer inflationary pressures and less likelihood
that interest rates will rise.
REITs and Small U.S. Company stocks declined the most in price. After large
gains during the previous 24 months, share prices of real estate investment
trusts (REITs) fell during the year.
REITs were hurt by concerns about overbuilding in some areas and about
higher property prices paid by some REITs. Some investors sold REIT shares after
the Federal Reserve Board, in a June letter to about 1,000 banks it supervises,
noted that bank lending to REITs had risen sharply; and that this might indicate
lax lending standards. In addition, supply outpaced demand somewhat as existing
REITs issued additional shares and several trusts made initial public offerings
of shares. In spite of the "perceived" problems, most REITs raised their
dividends during the year.
<PAGE>
Small Company U.S. stocks declined as investors moved capital towards
larger, more liquid, company names. Bonds continued to perform well during the
entire year, as interest rates declined. The yield on the 30-year U.S. Treasury
bond was 5.63% on June 30, down 29 basis points (0.29 percentage points) from
its yield at the start of the year. By September 30, 1998 the yield had fallen
to below 5.0% and set a 30-year record. In the final three months, bonds were
the best performing asset by a wide margin as investors sought the safety of
U.S. Treasury securities as they exited the stock market.
What To Do Next
Provided that you have well defined, long-term financial goals and an
investment strategy designed to achieve them, we encourage you to "stay the
course" and remain invested for the long haul. However; if you feel your
financial plan is out-of-date or incomplete, now is the time to make
improvements. The best way to cope with short-term volatility is to adhere to a
long-term plan that contains proven strategies, such as diversification and
asset allocation among various financial markets, geographic regions, investment
styles and individual securities. A long-term plan will give you the focus and
perspective you need to put short-term volatility in its proper context.
As longstanding advocates of financial planning, we have been encouraged by
our shareholders' rational responses to the latest market events. Many of you
tell us that you have a long-term strategy in place, which includes diversifying
your investment portfolio among a number of different asset classes in
accordance with your tolerance for risk. At the Unified Funds, our portfolio
management teams include seasoned professionals who have encountered extreme
market volatility in the past, giving the the perspective required to address
risks and take advantage of opportunities in turbulent markets. In our view,
having a well-defined set of financial goals, a disciplined long-term strategy
and the help of experienced investment professionals are all fundamental parts
of the correct way to invest.
Using asset allocation strategies to achieve long-term investment goals
seems particularly important in light of the recent market volatility and the
impact it may have had on those who did not utilize asset allocation strategies.
Do not allow the recent short-term stock and bond market fluctuations to change
your investment strategy. Use a well-established asset allocation strategy to
help you to stay disciplined and patient through ill market cycles (i.e.,
through both market declines and advances). A key goal of (and benefit from)
asset allocation is to establish a "comfortable" blend of investments that can
help you stay invested long-term. Historically, staying invested long-term has
produced impressive results in most asset classes. Consequently, it is important
for you to work closely with your financial advisor to establish a personalized
asset allocation strategy that is designed specifically for your individual
investment objective, time horizon, risk tolerance and investment preferences.
According to the Financial Analysts Journal, asset allocation is one of the
most important investment decisions that you can make. In fact, the Journal
reported that over 91% of the variation in investment returns is due to asset
allocation. The Unified Funds have been established to work hand-in-hand with
each investor's asset allocation strategy. Once your asset allocation strategy
has been determined, it is critically important that it be properly implemented.
Our portfolio managers are well respected for their consistency of
management style, adherence to investment philosophy, and national reputations
in their specialized investment disciplines. These benefits enable investors
using the Unified Funds portfolios to create a balanced and diversified
investment portfolio using the same approach as many large institutional
investors. Your financial advisor can assist you in establishing and monitoring
a sensible asset allocation strategy that can hel you meet your long-term
investment goals.
Summary
The Federal Reserve continues to indicate by its actions and through its
publications that when the economy slows to around a 1% annual rate, the Fed
will initiate stimulative action, and when the economy nears a 4% annual rate,
the Fed will implement restraints. This "soft landing" engineered by the Fed is
maintaining the economy's gradual, non-inflationary growth with modest
productivity gains. The long-term perspective anticipates that the economy will
continue to grow at a healthy, low- inflationary rate in a 1-4% band for several
years to come, provided that the existing Fed key personnel and its present
philosophy should continue. The "steady-as-she-goes" policy at the Fed should
continue to provide support for this market in the very near term, and should be
an excellent foundation and fertile soil for long-term investments in equity
markets.
<PAGE>
We expect slower growth and no acceleration in inflation as the economy
moves into the fourth quarter. Slower growth and stable inflation will make the
Fed cautious in raising rates. While this approach is likely to please the
markets, it will eventually put the Fed behind in its fight against higher
prices.
The economy continues to plod along at a controlled rate in what is proving
to be an historically extensive period of economic expansion. Attention in
coming months will be directed at the unemployment and wage reports and the
economic and political conditions at home and abroad as giving clues to future
inflation.
While a recession is more probable than rapid growth in our opinion, what
we think has the highest probability of occurring, however, is slow, sustainable
real GDP growth in the 2-3% range or the so called soft landing scenario. In
that scenario, inflation should remain relatively low, causing capital spending
to continue to expand. Our funds remain well positioned to respond to this type
of market environment.
Six months ago, we cautioned in the semi-annual report that financial
markets are not one-way streets and that investors should prepare for the
occasional rough patch by maintaining a balanced portfolio of stock funds, bond
funds, and money market funds. We believe that our earlier caution remains valid
today.
In summary, we believe the United States has been favored by a long term,
post-cold war economic expansion and bull market. However, the recent high
volatility of stocks has been, to a large degree, due to currency fluctuations
and economic turmoil which has developed in a number of countries, mostly thus
far, due to the first phase of economic dislocations in Southeast Asia. Other
countries, however, are also beginning to experience severe financial
difficulties or prolonged recessions.
Up until this recent downturn, the United States economy was prospering
with unemployment so low that the Federal Reserve was concerned that inflation
would reaccelerate. The Federal Reserve had been leaning toward raising interest
rates to prevent inflation. However, toward the end of the third quarter, it
became evident that economic turmoil was increasing elsewhere.
We are hopeful that the U.S. economy will continue to prosper in the months
ahead, and that the Federal Reserve will lower interest rates sufficiently and
in a timely fashion, to allay concerns of investors about adverse developments
abroad. We will try to steer a course between defensiveness to preserve capital
from the erosion of market declines, and yet make headway by investing in stocks
likely to be favored by investors when risks are reduced so as to make progress
for the stockholders over the long term.
Our Money Market Strategy
Unless unanticipated changes occur in the very near term, we expect
inflation to remain subdued and interest rates to remain relatively low for the
next few years, especially if the Federal Reserve in cooperation with the
central banks of seven major industrial nations, can continue to be successful
in maintaining slow, non-inflationary growth in their respective economies. In
the near term, we believe that the greatest influence on interest rates will
continue to be the rate of inflation.
For some time now, our portfolio managers have been taking steps to assure
high-grade, low-risk portfolios for the Unified Taxable Money Market Fund. They
continue to stress quality by investing exclusively in the highest rating
categories tier one securities. Our priorities are safety first, along with
liquidity, quality and responsive services, and then yield. Our money market
fund remains committed to professional responsiveness to the changing financial
markets, ensuring that the Fund's portfolio continues to seek the highest
possible safety, liquidity, services and returns consistent with your needs and
the Fund's fundamental objectives and investment policies. In the meantime, as
we all anxiously anticipate and monitor the economy, your Fund continues to
provide high quality, conservative, investments with excellent service.
<PAGE>
Our V.O.I.C.E.(sm) Program
The Unified Funds are proud of its innovative program, V.O.I.C.E. (Vision
for Ongoing Investment in Charity and Education)(sm) by which individual and
institutional customers of the Unified Funds can cause contributions to be made
to educational, charitable, religious and other philanthropic not-for-profit
organizations at no cost to the shareholder or the Funds.
One of the primary focuses of the V.O.I.C.E. (sm) program is to support and
supplement education in America by funding those not-for-profit organizations
which assist our universities and colleges, especially endowments, foundations
and general scholarship funds. The Program is just one of many ways that we can
all give "a little bit of ourselves" back to our communities, schools, colleges,
universities, churches and other not-for-profit organizations. This unique
fundraising program was designed and invented by Unified Investment Advisers,
Inc. to assist not-for-profit organizations in their funding efforts, and we
hope that you will continue to participate in the Program and direct us to
contribute on your behalf to the not-for-profit of your choosing. Numerous
university/college endowments, foundations, general scholarship funds and
not-for-profit organizations across the country are presently benefiting from
the Program.
In closing, we want to thank you for the opportunity to continue to serve
your investment and philanthropic interests. Your business and personal
relationship is sincerely appreciated here, and we look forward to providing the
highest quality of service to you for many years to come.
Respectfully Submitted,
Timothy L. Ashburn
President
<PAGE>
THE STARWOOD STRATEGIC FUND
- ---------------------------
Managed by : Andrew E. Beer
Performance and Investment Summary
Total Returns show how the value of the Fund's shares changed over a set
period---in this case, since the inception of the Fund on April 4, 1996---and
assume that you held the shares through the entire period and reinvested all
distributions into the Fund. These Total Return figures are compared to the
benchmark performance of the S&P 500---a widely recognized, unmanaged index of
common stocks. Please note that indices do not take into account fees and
expenses of investing in the individual securities that they track, and that
individuals cannot invest directly in any index.
Average Annual Total Starwood
Return for the Period Strategic S & P 500
Ended September 30,1998 Fund Index
- ----------------------- ---- -----
Since Inception (4/4/96) 7.90% 19.26%
10/1/97 - 9/30/98 .43% 7.36%
* Past performance is not predictive of future performance.
Performance
There are several ways to evaluate a fund's historical performance: total
perecentage change in value, the average annual percentage change, or the growth
of a hypothetical $10,000 investment. A fund's Total Return includes changes in
share price, plus reinvestment of any dividends (income) and capital gains ( the
profits the fund earns when it sells securities that have grown in value).
- --------------------------------------------------------------------------------
(A line graph comparing the Growth of a $10,000 investment from April 4, 1996 to
September 30, 1998 in the Starwood Strategic Fund to the change in the S&P 500.)
- --------------------------------------------------------------------------------
Top Ten Holdings as of September 30, 1998
Percent of Fund's Total Investments
Bell Atlantic 4.2%
Genentech Inc. 4.2%
Texas Utilities Co. 4.1%
Bristol Myers Squibb 4.1%
Johnson & Johnson 4.0%
International Business Machines 3.9%
Phillip Morris Inc. 3.9%
AT&T Corp. 3.8%
Eli Lilly Co. 3.8%
MCI Worldcom Inc. 3.8%
<PAGE>
Investment Review
- -----------------
Q: Who should consider the Starwood Strategic Fund?
A: The Starwood Strategic Fund invests principally in a diversified portfolio of
equity securities of seasoned, financially strong growth companies. Current
income is an incidental consideration and many of the Fund's investments should
provide regular dividends which may grow over time. From time to time, when
market conditions appear vulnerable to a substantial decline, stocks may be sold
to attempt to avoid such a decline and the proceeds of sale invested in
obligations such as U.S. Government securities to protect against a general
decline which might otherwise cause most equity securities to decline. When the
uncertainties which appear to worry investors abate, the Starwood Strategic Fund
will again invest in a diversified portfolio of mostly quality growth stocks.
Hence, it is appropriate for investors who have a long term view and seek
primarily appreciation.
Q: What are your views on the economic factors that have affected the market
during the past six months?
A: We believe the United States has been favored by a long term, post-cold war
economic expansion and bull market. However, currency fluctuations and economic
turmoil have developed in a number of countries, mostly thus far, in Asia.
Others are experiencing severe financial difficulties or prolonged recessions.
Up until recently the United States economy was prospering, with unemployment so
low that the Federal Reserve was concerned that inflation would reaccelerate.
The Federal Reserve had been leaning toward raising interest rates to prevent
inflation. However, toward the end of the fiscal year for the Starwood Strategic
Fund, it began to be evident that economic turmoil was increasing elsewhere. As
the stock market began to decline significantly during the summer, the Fund sold
most of the equity securities to preserve the capital of the Fund. Then, just
before year end, in anticipation that the Federal Reserve would begin to lower
interest rates to continue the economic growth of the United States, a number of
securities were purchased which were selected to be resistant to a market
decline, some which are likely to benefit if interest rates decline further, and
others appeared to growing rapidly in industries that are not vulnerable to the
economic difficulties in foreign countries. Hence, these stocks may be able to
weather a period of consolidation, or a general market decline that is not
steep, and could appreciate substantially when the stock market rallies.
However, should uncertainties grow and the general market appear vulnerable to
further substantial decline, the Fund would again sell the equity securities and
keep the proceeds invested in defensive securities until the post-cold war bull
market resumes or a different and better economic climate fosters a new bull
market.
Q: What factors contributed to the Fund's below-market performance?
A: The Fund's performance was affected by the volatility of the market during
the past year, and by the attempt to take protective action. The Fund performed
comparatively well during the first part of its fiscal year. The high volatility
of stocks in general during the Fall of last year was due to the collapse of
currencies and economies in the first phase of economic dislocations in
Southeast Asia. Despite further problems in additional countries, the Fund
performed quite well until a majority of stocks began to decline significantly
during the summer of 1998. Then the Fund sold most of its portfolio of equities
and maintained a very defensive position for a short time. As a rally developed
the Fund invested its capital in stocks of companies likely to prosper even if
economic problems in foreign countries began to affect the United States
economy, while maintaining substantial reserves. The cost of transactions and
the stock market decline toward the end of the year reduced the performance. Yet
taking defensive actions from time to time may guard against severe stock market
declines and contribute to better performance in the long term.
Q: How have you positioned the Fund's portfolio to improve performance?
A: By taking defensive action to sell stocks when uncertainties increase
greatly, yet by investing in some of the best stocks having potential to grow
over the long term the Fund will strive to protect against substantial declines
and benefit stockholder with appreciation when market conditions are favorable.
The portfolio is well diversified and balanced with an emphasis on stocks of
companies which can grow despite the problems looming for countries in other
parts of the world and their effect on the U.S. economy.
Q: Based on the market's current environment, what is Starwood's investment
strategy for the months ahead?
A: We are hopeful that the U.S. economy will continue to prosper in the months
ahead, and that the Federal Reserve will lower interest rates sufficiently and
in a timely fashion, to allay concerns of investors about adverse developments
abroad. We will try to steer a course between defensiveness to preserve capital
from the erosion of declines, and yet make headway by investing in stocks likely
to be favored by investors when risks are reduced so as to make progress for the
stockholders over the long term.
The views expressed in this report are those of the Adviser through the end of
the period stated on the cover. The Adviser's views and opinions are based on
economic data, market conditions and other information and are subject to change
at any time.
<PAGE>
THE LAIDLAW FUND
- ----------------
Managed by : Jack R. Orben
Performance and Investment Summary
Total Returns show how the value of the Fund's shares changed over a set
period---in this case, since the inception of the Fund on March 3, 1992---and
assume that you held the shares through the entire period and reinvested all
distributions into the Fund. These Total Return figures are compared to the
benchmark performance of the S&P 500---a widely recognized, unmanaged index of
common stocks. Please note that indices do not take into account fees and
expenses of investing in the individual securities that they track, and that
individuals cannot invest directly in any index.
Average Annual Total
Return for the Period Laidlaw S & P 500
Ended September 30,1998 Fund Index
- ----------------------- ---- -----
Since Inception (3/3/92) 12.53% 15.07%
10/1/97 - 9/30/98 -3.31% 7.36%
10/1/93 - 9/30/98 14.26% 19.46%
* Past performance is not predictive of future performance.
Performance
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the growth
of a hypothetical $10,000 investment. A fund's Total Return includes changes in
share price, plus reinvestment of any dividends (income) and capital gains (the
profits the fund earns when it sells securities that have grown in value).
- --------------------------------------------------------------------------------
(A line graph comparing the growth of a $10,000 investment from March 3, 1992 to
September 30, 1998 in the Laidlaw Fund to the change in the S&P 500)
- --------------------------------------------------------------------------------
Top Ten Holdings as of September 30, 1998
Percent of Fund's Total Investments
Merck & Company 13.4%
Lucent Technologies 13.0%
Pharmacia & Upjohn Company 11.6%
Sun Microsystems 10.3%
H. J. Heinz Company 10.0%
Bank of New York 9.4%
Cigna Corp. 9.0%
A.G. Edwards Inc. 8.6%
Federal Express 8.5%
Sears Roebuck & Company 6.2%
<PAGE>
Investment Review
- -----------------
Q: Who should consider The Laidlaw Fund?
A: The Laidlaw Fund is suitable for investors with long-term investment goals
and who seek growth of capital, current income and growth of income. The Fund
invests principally in a diversified portfolio of common stocks, preferred
stocks and securities convertible into common stock of socially conscious
companies that offer the prospect for growth of earnings while paying current
dividends.
Q: What are your views on the economic factors that have affected the market
during the past six months?
A: During the late summer and early fall, the global economic conditions
deteriorated. Not just one, but several countries experienced significant
economic trauma, and our own domestic market reacted negatively. We anticipate
that our domestic economy will continue its positive growth and that the Federal
Reserve will be accommodative to insure that our economy withstands the global
difficulties.
Q: What factors have contributed to the Fund's performance this year?
A: Our investment strategy of staying fully invested was tested during the late
summer and early fall (August through mid-September. Throughout this period our
strategy was to remain invested in a diversified portfolio of high quality
common stocks that qualified under the terms of our prospectus. As a consequence
of our fully invested posture, the portfolio performance generally followed that
of the market, as measured by the Dow Jones Industrial Average, which was down
1.29% for the period 10/1/97 through 9/30/98. However, the Laidlaw Fund trailed
the broader S&P 500 Index, due to the fact that the S&P 500 is made up of stocks
whose capitalization is generally more modest than the securities that comprise
the Dow Jones Industrial Average and the portfolio of the Laidlaw Fund.
Q: How have you positioned the Fund's portfolio to improve performance?
A: Several issues were pruned from the portfolio during this past fiscal year,
leaving a care portfolio we believe to be well positioned for the coming months.
Today the portfolio has good representation in several diverse sectors of our
economy, including finance, technology, and pharmaceuticals.
The views expressed in this report are those of the Adviser through the end of
the period stated on the cover. The Adviser's views and opinions are based on
economic data, market conditions and other information and are subject to change
at any time.
<PAGE>
THE FIRST LEXINGTON BALANCED FUND
- ---------------------------------
Managed by : Dr. Gregory W. Kasten
Performance and Investment Summary
Total Returns show how the value of the Fund's shares changed over a set
period---in this case, since the inception of the Fund on March 13, 1997---and
assume that you held the shares through the entire period and reinvested all
distributions into the Fund. These Total Return figures are compared to the
benchmark performance of the S&P 500---a widely recognized, unmanaged index of
common stocks. Please note that indices do not take into account fees and
expenses of investing in the individual securities that they track, and that
individuals cannot invest directly in any index.
Average Annual Total First Lexington
Return for the Period Balanced S & P 500
Ended September 30,1998 Fund Index
- ----------------------- ---- -----
Since Inception (3/13/97) 5.98% 17.73%
10/1/97 - 9/30/98 -1.09% 7.36%
* Past performance is not predictive of future performance.
Performance
There are several ways to evaluate a fund's historical performance: total
percentage change in value, the average annual percentage change, or the growth
of a hypothetical $10,000 investment. A fund's Total Return includes changes in
share price, plus reinvestment of any dividends (income) and capital gains (the
profits the fund earns when it sells securities that have grown in value).
- --------------------------------------------------------------------------------
(A line graph comparing the growth of a $10,000 investment from March 13, 1997
to September 30, 1998 in the First Lexington Balanced Fund to the change in the
S&P 500)
- --------------------------------------------------------------------------------
Holdings as of September 30, 1998
Percent of Fund's Total Investments
Vanguard Total Bond Market Index 24.7%
Vanguard Extended Market Index 15.8%
Vanguard Index Trust 500 Portfolio 15.5%
Vanguard Specialized Real Estate Index Fund 15.4%
Vanguard International Growth 15.1%
Vanguard GNMA Portfolio 9.5%
<PAGE>
Investment Review
- -----------------
Q: Who should consider The First Lexington Balanced Fund?
A: The First Lexington Balanced Fund is suitable for investors seeking long term
growth of capital and current income. It is intended for investors desiring a
balanced mix of both stocks and bonds to reduce overall risk. The Fund invests
primarily in a diversified portfolio of other no-load mutual funds that invest
in one of the following six financial assets classes. (1) large company U.S.
stocks, (2) small company U.S. stocks, (3) international stocks, (4) real estate
investment trusts, (5) cash equivalents, and (6) long-term investment rated
corporate and government bonds. The portfolio manager believes this method of
diversification reduces long term risk, which may further appeal to investors
desiring such risk management discipline.
Q: What are your views on the economic factors that affected the market during
the past six months?
A: For the first nine months through June 30, 1998, optimism prevailed in U.S.
financial markets. The domestic economy grew at a robust pace, yet inflation and
interest rates remained stable at relatively low levels, making the United
States seem somewhat insulated from severe economic problems in Asia, Russia,
and several emerging markets. While those problems were strongly felt in reduced
demand and lower prices for a number of commodities--including oil and precious
metals--Asia's storm clouds had a silver lining for U.S. investors. Interest
rates and inflation were held down by lower commodity prices and by the dollar's
gains against a number of currencies, which reduced the costs of imported goods.
These positive factors caused investors to bid up stock prices to unsustainable
levels by early July. In the last three months (July, August, and September) the
stock market declined substantially as investors became concerned about
political instability in Washington and that the world wide economic problems
would result in a recession in the United States.
Q: What factors contributed to the Fund's performance?
A: The Fund did not perform at the level of the S&P 500 due to the fact that the
Fund's investment policies dictate that the portfolio be diversified over six
asset classes. Large company U.S. stocks, as measured by the S&P 500,
outperformed the other five classes during the Fund's fiscal year. The Fund's
exposure to the other five classes, which did not perform as well during the
period, caused the overall performance to be lower.
The first nine months through June 30, 1998 were bountiful for investors in
stocks and bonds--a sharp, but brief, market downturn in late October, 1997
notwithstanding. The stock market's advance was--once again--led by a relatively
narrow segment of blue-chip growth companies. The general upswing reflected a
remarkable mix of strong economic growth, low unemployment, tame inflation, and
declining interest rates. The stock market sell-off in the final three months
resulted in many investors across the US giving back the gains of the prior nine
months.
REIT's and Small U.S. Company stocks declined the most in price. After large
gains during the previous 24 months, share prices of real estate investment
trusts (REITs) fell during the year. Share prices of REITs were hurt by concerns
about overbuilding in some areas and about higher property prices paid by some
REITs. Some investors sold REIT shares after the Federal Reserve Board, in a
June letter to about 1,000 banks it supervises, noted that bank lending to REITs
had risen sharply and said that this might indicate lax lending standards. In
addition, supply outpaced demand somewhat as existing REITs issued additional
shares and several trusts made initial public offerings of shares. In spite of
the "perceived" problems, most REITs raised their dividends during the year.
Shares of Small Company U.S. stocks declined as investors moved capital towards
larger, more liquid, company names. Bonds performed well the entire year as
interest rates declined. The yield on the 30-year U.S. Treasury bond was 5.63%
on June 30, down 29 basis points (0.29 percentage point) from its yield at the
start of the year. By September 30, 1998 the yield had fallen to below 5.0% and
set a 30 year record. In the final three months bonds were the best performing
asset by a wide margin as investors sought the safety of U.S. Treasury
securities as they exited the stock market.
Q: Based on the market's current environment, what is The First Lexington
Balanced Fund's investment strategy for the months ahead?
A: By the summer of 1998 the Fund's portfolio asset allocation percentages had
been temporarily repositioned more heavily into fixed income securities. The
strategy was intended to help preserve the Fund's assets during what the manager
believed to be a period of high risk for equities, and position the Fund's
assets to take advantage of a possible equity market sell-off. The strategy was
further intended to reduce risk during this period of uncertainy and potentially
extreme volatility. Following the equity sell-off the Fund increased its
position in REITs, Small Company U.S. stocks and Large Company U.S. stocks,
while reducing the fixed income positions. These position changes should reward
investors during 1999 if a rebound occurs in the equity markets and, in
particular, Small Company U.S. stocks begin to out perform Large Company U.S.
stocks.
The views expressed in this report are those of the Adviser through the end of
the period stated on the cover. The Adviser's views and opinions are based on
economic data, market conditions and other information and are subject to change
at any time.
<PAGE>
THE TAXABLE MONEY MARKET FUND
- -----------------------------
Managed by: Jack R. Orben
Performance
To measure a money market fund's performance, you can look at either total
return or yield. Total return reflects both the change in a fund's share price
over a given period, and reinvestment of its dividends (or income). Yield
measures the income paid by a fund. Since a money market fund tries to maintain
a $1 share price, yield is an important measure of performance.
Yield for the Period
Ended September 30,1998
-----------------------
30-day yield 4.30%
7-day effective yield 4.43%
* Past performance is not predictive of future performance.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
Investment Review
- -----------------
Q: Why should investors consider investing in The Unified Taxable Money Market
Fund?
A: A prudent wealth-building strategy includes placing the "cash" portion of an
investor's portfolio into liquid and very conservative investments. Money market
funds are an excellent and suitable investment option for money which is
awaiting near term utilization into more aggressive, higher yielding
investments, or, that you wish to keep readily available to meet emergencies
and/or unanticipated events.
Q: For the previous six-month period, how would you describe the economic
climate that affected the types of instruments in which money market mutual
funds invest?
A: Midway through the previous six-month period, the U.S. markets were impacted
by a series of foreign financial crises which, coupled with less robust earnings
forecasts for American companies (especially those doing significant business
abroad) prompted a "flight to quality." As investors moved from stocks to U.S.
Treasury securities, the yield for the bellwether 30-year Treasury Bond
plummeted to below 5%, a level that had not been seen for 30 years. The Federal
Reserve, convinced that inflation was not a threat, intervened to lower federal
funds rates, reducing the rate by .75% in three increments. Investors responded
by moving funds back into stocks, thereby bidding up the yield on the 30-year
Treasury Bond back above 5%. Throughout this period discount rates for
short-term instruments dropped concomitantly, especially for government agency
discount notes such as FNMA and FHLB issues. In the last few weeks the rates for
these instruments has begun to rise.
Q: How have you responded to these changing conditions?
A: Our response has been to take steps to increase the percentage of the fund
which is invested in high grade commercial paper, thereby increasing yield
without sacrificing safety. Concentrating only on those companies with the
highest short-term ratings, we have begun to add to the fund's yield by
increasing the concentration in higher-yielding commercial issuers. We are
confident that over the ensuing weeks, the fund can continue to add these issues
while still keeping our focus on safety.
Q: How have you positioned the Fund for the future?
A: For some time now we have been taking steps to assure a high-grade, low-risk
portfolio for the Unified Taxable Money Market Fund. Our priorities are safety
first, along with liquidity, and yield second. Our money market fund portfolio
manager remains committed to professional responsiveness to the changing
financial markets, ensuring that the Vintage portfolio continues to seek the
highest possible safety and returns consistent with the fundamental objectives
and investment policies of the portfolio In the meantime, as we anticipate and
monitor the economy, your fund continues to provide high quality, conservative
investments with excellent service. Moving forward, we anticipate a larger
concentration of the portfolio in first tier commercial paper issuers, which we
anticipate will increase the yield of the Fund.
<PAGE>
INVESTMENTS-THE STARWOOD STRATEGIC FUND
- ---------------------------------------
Statement of Net Assets September 30, 1998
Number Market
of Shares Value
--------- -----
Common Stocks - 89.19%
- ----------------------
Broadcasting & Publishing - 3.76%
Warner Lambert 500 $37,750
Computer Software - 3.19%
Oracle Corporation 1,100 32,037
Computer Systems - 20.70%
America On Line* 300 33,375
Cisco Systems, Inc. * 500 30,907
Dell Computer* 500 32,875
EMC Corporation* 650 37,172
International Business Machine 315 40,320
Microsoft Corporation* 300 33,019
Data Telecommunication - 2.98%
Tellabs Inc. * 750 29,860
Diversified Conglomerates - 4.02%
Phillip Morris Inc. 875 40,305
Drugs & Health Care - 16.02%
Bristol Myers Squibb 400 41,550
Lilly Eli & Company 500 39,156
Merck & Company, Inc. 300 38,869
Johnson & Johnson 525 41,081
Office Supplies - 7.07%
Herman Miller 1,700 33,575
Mindsprings Enterprise Inc.* 900 37,350
*Non-income producing securities.
Number Market
of Shares Value
--------- -----
Photographics - 3.66%
Eastman Kodak Co.* 475 $36,724
Retail - 3.54%
Wal Mart Stores Inc. 650 35,506
Telecommunications - 20.07%
AT&T Corporation 675 39,446
Bell Atlantic 900 43,594
Genentech Inc.* 600 43,125
MCI WorldCom Inc. Ga.* 800 39,100
Sprint Corporation 500 36,000
Utilities - 4.18%
Texas Utilities Co. 900 41,907
Total Common Stocks $ 894,603
---------
(cost $ 906,664)
<PAGE>
Repurchase Agreements- 13.26 %
- ---------- ----------- ----- -
Star Bank($135,000 GNMA II 8395,03/20/24) Purchase Date 09/30/98, Maturity Date
10/01/98, Amount payable at maturity $133,018
Total Repurchase Agreements $ 133,000
----------
(Cost $133,000)
Total Investments -102.45%
- --------------------------
(Identified cost $1,039,664) $1,027,603
Other Assets and Liabilities, Net - (2.45)% (24,539)
- ------------------------------------------- --------
Net Assets - 100% $ 1,003,064
===========
<PAGE>
INVESTMENTS-THE LAIDLAW FUND
- ----------------------------
Statement of Net Assets September 30, 1998
Number Market
of Shares Value
--------- -----
Common Stocks - 95.64%
- ----------------------
Banks - 8.98%
Bank of New York 3,648 $99,864
Computer Systems - 9.85%
Sun Microsystems * 2,200 109,589
Data Telecommunication - 12.42%
Lucent Technology 2,000 138,126
Delivery Services - 8.11%
Federal Express * 2,000 90,250
Drugs & Health Care - 12.81%
Merck & Company, Inc. 1,100 142,519
Food & Beverage - 9.65%
H. J. Heinz Company 2,100 107,363
Insurance - 8.56%
CIGNA Corp. 1,440 95,220
Number Market
of Shares Value
--------- -----
Investment Companies - 8.18%
A. G. Edwards Inc. 3,000 $90,939
Pharmaceutical - 11.12%
Pharmacia & Upjohn Company 2,465 123,713
Retail - 5.96%
Sears Roebuck & Company 1,500 66,282
Total Common Stocks
(Cost $454,526) $1,063,865
---------
Total Investments - 95.64%
- --------------------------
(Identified cost $454,526) $1,063,865
Other Assets and Liabilities, Net - 4.36% 48,534
- ----------------------------------------- ------
Net Assets - 100% $1,112,399
==========
*Non-income producing securities.
<PAGE>
INVESTMENTS-THE FIRST LEXINGTON BALANCED FUND
- ---------------------------------------------
Statement of Net Assets September 30, 1998
<TABLE>
<S> <C> <C>
Number Market
of Shares Value
--------- -----
Mutual Funds - 95.59%
Vanguard Index Trust 500 Portfolio 10,329 $ 976,662
Vanguard Extended Market Portfolio 36,872 995,902
Vanguard GNMA Fund 56,983 600,595
Vanguard International Growth 58,468 951,282
Vanguard Specialized Real Estate Index Fund 84,007 974,484
Vanguard Total Bond Market Index 149,844 1,562,877
Total Mutual Funds
(Cost $6,384,381) 6,061,802
---------
Repurchase Agreements - 4.01%
- -----------------------------
Star Bank ($260,000 GNMA II 8395, 03/20/24)
Purchase Date 09/30/98, Maturity Date 10/01/98,
Amount Payable at Maturity $254,035
Total Repurchase Agreements
(Cost $254,000) $ 254,000
---------
Total Investments - 99.60%
- --------------------------
(Identified cost $6,638,381) $6,315,802
Other Assets and Liabilities, Net - .40% 25,571
- ---------------------------------------- ----------
Net Assets - 100% $6,341,373
==========
</TABLE>
<PAGE>
INVESTMENTS-THE TAXABLE MONEY MARKET FUND
- -----------------------------------------
Statement of Net Assets September 30, 1998
<TABLE>
<S> <C> <C> <C>
Par Value Value (Note 2)
--------- --------------
Commercial Paper - 25.62%
- -------------------------
Lucent Technology 5.46%, 10/22/1998 3,000,000 $2,990,445
General Motors Credit Corporation 5.46%, 11/19/1998 2,000,000 1,985,136
IBM Credit Corporation 5.625%, 12/03/1998 2,000,000 1,981,100
Disney Walt Company 5.40%, 12/16/1998 2,000,000 1,977,200
United Parcel Service 5.32%, 12/29/1998 2,000,000 1,973,696
Ford Motor Credit Corporation 5.43%, 01/07/1999 2,000,000 1,970,437
Merrill Lynch 5.51%, 01/27/1999 2,000,000 1,964,078
General Electric Capital Corporation 5.50%, 02/23/1999 2,000,000 1,955,695
Total Commercial Paper
( Cost $16,797,787) $16,797,787
----------
U.S. Government Securities - 67.91 %
- ------------------------------------
Federal Farm Credit Bank 5.34%, 01/06/1999 2,000,000 $1,971,223
Federal Farm Credit Bank 5.34%, 01/19/1999 2,000,000 1,967,367
Federal Home Loan Mortgage 5.37%, 10/01/1998 4,000,000 4,000,000
Federal Home Loan Mortgage 5.38%, 11/25/1998 3,000,000 2,975,342
Federal National Mortgage Association 5.36%, 10/08/1998 2,000,000 1,997,916
Federal National Mortgage Association 5.36%, 10/13/1998 2,000,000 1,996,427
Federal National Mortgage Association 5.36%, 10/14/1998 2,000,000 1,996,129
Federal National Mortgage Association 5.37%, 10/21/1998 3,000,000 2,991,050
Federal National Mortgage Association 5.36%, 10/22/1998 2,000,000 1,993,747
Federal National Mortgage Association 5.35%, 11/23/1998 2,000,000 1,984,247
Federal National Mortgage Association 5.38%, 11/25/1998 2,000,000 1,983,561
Federal National Mortgage Association 5.35%, 12/28/1998 2,000,000 1,973,844
Federal National Mortgage Association 5.36%, 01/04/1999 2,000,000 1,969,603
Federal National Mortgage Association 5.34%, 01/06/1999 2,000,000 1,971,224
Federal National Mortgage Association 5.26%, 01/11/1999 3,000,000 2,955,290
Federal National Mortgage Association 5.32%, 01/19/1999 3,000,000 2,951,233
Federal National Mortgage Association 5.14%, 02/18/1999 3,000,000 2,940,033
Federal National Mortgage Association 5.32%, 02/26/1999 2,000,000 1,956,258
Federal National Mortgage Association 5.30%, 03/01/1999 2,000,000 1,955,539
Total U.S. Government Securities
(Cost $61,327,820) $44,530,033
-----------
Repurchase Agreements - 6.25%
- -----------------------------
Star Bank ($4,135,000 GNMA II 8395 03/20/24)
Purchase Date 09/30/98, Maturity Date 10/01/98,
Amount payable at Maturity $4,100,558
Total Repurchase Agreements
(Cost $4,100,000) $ 4,100,000
-----------
Total Investments - 99.78%
- --------------------------
(Amortized cost $65,427,820) $65,427,820
Other Assets and Liabilities, Net -.22 % 147,487
- ---------------------------------------- -------
Net Assets - 100% $65,575,307
===========
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- ------------------------------------
As of September 30, 1998
First Taxable
Starwood Lexington Money
Strategic Laidlaw Balanced Market
Fund Fund Fund Fund
---- ---- ---- -----
ASSETS
Investments, at value (Note 2) ........ $ 1,027,603 $ 1,063,865 $ 6,315,802 $ 65,427,820
Cash ................................. 234 33,614 616 97,656
Dividend receivable ................... 598 2,492 11,137 ---
Interest receivable ................ 18 --- 35 558
Receivable from adviser ............. 11,488 13,840 16,486 110,301
Other receivable....................... --- --- --- 671
Receivable for shares sold............. --- --- 2,296 751
----------- ----------- ---------- ----
Total assets .......................... 1,039,941 1,113,811 6,346,372 65,637,757
LIABILITIES
Payable for Investment purchased....... 35,662 --- --- ---
Accrued expenses (Note 2).............. 1,215 1,412 4,999 62,450
----------- ---------- ----------- ------------
Total liabilities..................... 36,877 1,412 4,999 62,450
----------- ---------- ------------ -----------
NET ASSETS ................................. $ 1,003,064 $ 1,112,399 $ 6,341,373 $ 65,575,307
=========== ========= ========= ==========
Net assets consist of:
Paid-in capital ....................... 834,625 118,162 6,600,365 65,575,307
Undistributed net realized gain
on investments ........................ 180,499 384,898 63,586 ---
Net unrealized appreciation (depreciation) in
value of investments (12,060) 609,339 (322,578) ---
----------- -------- ------------- -----------
Net assets .................................$ 1,003,064 $ 1,112,399 $ 6,341,373 $ 65,575,307
============== ========= ========= ==========
Shares of capital stock
outstanding (no par value,
unlimited shares authorized)........... 107,376 587,372 609,452 65,575,307
Net asset value per share, offering
and redemption price .................. $ 9.34 $ 1.89 $ 10.41 $ 1.00
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
- ------------------------
For the period ended September 30, 1998
First Taxable
Starwood Lexington Money
Strategic Laidlaw Balanced Market
Fund Fund Fund Fund
---- ---- ---- ----
INVESTMENT INCOME:
Interest .............................. $ 4,814 $ 1,069 $ 32,564 $ 2,948,682
Dividends ............................. 7,743 39,235 240,056 ---
Miscellaneous Income .................. --- --- 7 ---
---------- ----------- ------------- -----------
Total net income .................. 12,557 40,304 272,627 2,948,682
---------- ----------- ----------- ---------
EXPENSES:
Investment adviser fees (Note 3) ...... 11,297 26,352 43,637 420,622
Transfer agent fees (Note 3) .......... 256 629 478 4,211
Fund accounting fees .................. 256 629 478 4,211
Printing. ............................ 161 407 1,152 10,763
Administrative service fees ........... 1,135 2,795 2,583 22,742
12B-1 fees (Note 3).................... 1,055 2,481 6,456 54,223
Auditing fees ......................... --- --- 628 1,275
Legal fees ............................ 798 2,069 4,843 37,355
Trustee's fees ........................ 231 1,104 2,533 19,534
Custodian fees......................... 238 585 763 8,281
Registration and filing fees .......... 4,778 4,707 2,506 25,622
Postage ............................... 345 739 1,741 11,910
Shareholder servicing fees (Note 2) ... 1,583 3,721 9,713 81,334
Amortization of organization expenses 2,266 2,266 2,266 2,273
Insurance ............................. 995 878 799 592
Other expenses ........................ 1,877 1,647 --- 1,092
-------- -------- ---------- ----------
Total net expenses .............. 27,271 51,009 80,576 706,040
-------- -------- ---------- --------
Less: Expense reimbursement
from adviser (Note 3) ................. 11,488 13,840 16,486 110,301
-------- -------- ---------- -------
NET INVESTMENT INCOME (LOSS) ............... (3,226) 3,135 208,537 2,352,943
-------- -------- ----------- ---------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments 195,443 954,882 63,573 ---
Net realized gains from other
Investment companies.............. --- --- 85,407 ---
Change in net unrealized
appreciation of investments ...... (198,366) (823,936) (466,122) ---
----------- ---------- ----------- -----------
Net gain (loss) on investments ........ (2,923) 130,946 (317,142) ---
-------- --------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............. $ (6,149) $ 134,081 $ (108,605) $ 2,352,943
========= ======== =========== =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Starwood Strategic Fund Laidlaw Fund
----------------------- ------------
Year Year Year Year
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1998 1997 1998 1997
---- ---- ---- ----
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) ................... $ (3,226) $ (9,701) $ 3,135 $ 335
Net realized gain (loss) on investments ........ 195,443 6,241 954,882 453,387
Change in net unrealized appreciation of investments (198,366) 166,805 (823,936) 1,433,275
------------ ---------- -------- -----------
Net Increase (Decrease) in net assets resulting from operations (6,149) 173,345 134,081 1,886,997
Dividends and distributions to shareholders from:
Net realized gains ................................ --- (16,240) --- (453,372)
Net investment Income ................... --- --- (3,134) (325)
------ ----
Capital share transactions:
Proceeds from shares sold ...................... 173,696 656,554 98,866 230,238
Value of shares issued to shareholders in
reinvestment of dividends and distributions --- 16,240 2,864 379,474
------------ --------- --------- ----------
173,696 672,794 101,730 609,712
Cost of shares redeemed .......................... (301,469) (176,371) (2,040,620) (2,435,409)
---------- --------- ------------ ----------
Net increase in net assets resulting from
capital share transactions ................ (127,773) 496,423 (1,938,890) (1,825,697)
----------- -------- ---------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (133,922) 653,528 (1,807,943) (392,397)
NET ASSETS:
Beginning of period ............................ 1,136,986 483,458 2,920,342 3,312,739
--------- ------- --------- ---------
End of period (including undistributed
net investment income/net investment loss) $ 1,003,064 $ 1,136,986 $ 1,112,399 $ 2,920,342
============ =========== =========== ===========
Shares of capital stock of the Fund sold and redeemed:
Shares sold .................................... 17,636 78,146 50,129 119,583
Shares issued to shareholders in reinvestment
dividends and distributions .................... --- 1,746 1,469 194,104
----------- -------- ----------- ----------
NET INCREASE (DECREASE) IN NUMBER OF
SHARES OUTSTANDING ............................. (14,844) 59,382 (906,165) ( 416,731)
============= ========= ======== =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<S> <C> <C> <C> <C>
First Lexington Taxable Money
Balanced Fund Market Fund
------------- -----------
Year Year Year Year
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1998 1997 1998 1997
---- ---- ---- ----
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) ................... $ 208,537 $ 8,756 $ 2,352,943 $ 2,075,516
Net realized gain (loss) on investments ........ 148,980 4,095 --- ---
Change in net unrealized appreciation of investment (466,122) 143,544 --- ---
--------- ------- ------------ ------------
Net Increase(Decrease) in net assets resulting from operations (108,605) 156,395 2,352,943 2,075,516
Dividends and distributions to shareholders from
Net realized gains.............................. (85,407) (4,092) --- ---
Net investment income .......................... (208,527) (7,412) (2,352,943) (2,075,516)
--------- --------- ----------- -----------
TOTAL INCREASE (DECREASE)............................ (402,539) 144,891 --- ---
Capital share transactions:
Proceeds from shares sold ...................... 4,552,823 3,006,501 192,713,015 146,134,876
Value of shares issued to shareholders in
reinvestment of dividends and distributions 292,861 11,504 2,176,703 2,224,498
------- ------ --------- ---------
4,845,684 3,018,005 194,889,718 148,359,374
Cost of shares redeemed ............................ (1,166,283) (107,373) (179,934,121) 148,284,175)
----------- ----------- ------------- ------------
Net increase in net assets resulting from
capital share transactions ................ 3,679,401 2,910,632 14,955,597 75,199
----------- ---------- ----------- -------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,276,862 3,055,523 14,955,597 75,199
NET ASSETS:
Beginning of period ............................ 3,064,511 8,988 50,619,710 50,544,511
----------- --------- ---------- -----------
End of period (including undistributed net
investment income/net investment loss) ... $ 6,341,373 $ 3,064,511 $65,575,307 $50,619,710
========== =========== ========== ==========
Shares of capital stock of the Fund sold and redeemed:
Shares sold .................................... 414,909 301,698 192,713,015 146,134,876
Shares issued to shareholders in reinvestment
dividends and distributions ............... 26,891 1,045 2,176,703 2,224,498
----------- --------- ------------ -----------
441,800 302,743 194,889,718 148,359,374
Shares redeemed ................................ (110,676) (32,342) (179,934,121) (148,284,175)
----------- --------- ------------ -------------
NET INCREASE (DECREASE)IN NUMBER OF
SHARES OUTSTANDING ............................. 331,124 270,401 14,955,597 75,199
=========== ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The following table includes selected data for a share outstanding throughout
each fiscal year or period and other performance information derived from the
financial statements.
<TABLE>
<S> <C> <C> <C> <C>
Starwood Starwood Starwood Starwood
Strategic Strategic Strategic Strategic
Fund Fund Fund Fund
---- ---- ---- ----
1998(a) 1997 1996 1995(b)
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning .... $ 9.30 $7.69 $10.00 $ 10.00
Income from investment
Operations:
Net investment income .... (0.03) (0.26) (3.23) 0.00
Net realized and unrealized
gain (loss) on investments 0.07 2.00 0.92 0.00
Total from investment income 0.04 1.74 (2.31) 0.00
----- ----- ----- ------
Less distributions:
Dividends from realized gains 0.00 (0.13) 0.00 0.00
Dividends from net
investment income ........ 0.00 0.00 0.00 0.00
---- ----- ----- ----
Total from distributions ...... 0.00 (0.13) 0.00 0.00
---- ------ ----- ----
Net asset value at end of period $ 9.34 $ 9.30 $7.69 $10.00
===== ===== ==== =====
TOTAL ANNUALIZED
RETURN (%) (e)........... 0.43 20.94 (3.97)(d) (c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period 1,003,064 1,136,986 483,458 2,705
Ratio of expenses to
average net assets .. 2.59% 4.26% 15.99% 0.00%
Ratio of expenses (after
reimbursement) to
average net assets .. 1.50% 2.54% 15.25% 0.00%
Ratio of net investment
Income to average net
assets ......... (1.40)% (2.97)% (14.42)% 0.00%
Ratio of net investment
income (after reimbursement)
to average net assets (0.31)% (1.25)% (13.68)% 0.00%
Portfolio turnover........ 119.97% 76.09% 169.83% 0.00%
</TABLE>
(a) For the Year-Ended September 30, 1998.
(b) For the Period June 2, 1995 (commencement of operations) to September 30,
1995.
(c) Investment in accordance with objective had not commenced at this time.
(d) For the period April 4,1996 (commencement of investment in accordance with
objective) to September 30,1996.
(e) Total return would have been lower had certain expenses not been reduced
during the periods shown (see Note 3).
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The following table includes selected data for a share outstanding throughout
each fiscal year or period and other performance information derived from the
financial statements.
<TABLE>
<S> <C> <C> <C> <C>
First First Municipal Municipal
Lexington Lexington Fixed Fixed
Balanced Balanced Income Income
Fund Fund Fund Fund
---- ---- ---- ----
1998(a) 1997(f) 1996 1995(b)
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning .... $ 11.01 $ 22.60(g) $200.00(g) $200.00(g)
Income from investment
Operations:
Net investment income .... 0.50 (12.54) (177.40) 0.00
Net realized and unrealized
gain (loss) on investments (0.61) .99 0.00 0.00
Total from investment income (0.11) (11.05) (177.40) 0.00
------- ------- -------- --------
Less distributions:
Dividends from realized gains (0.14) (0.01) 0.00 0.00
Dividends from net
investment income ........ (0.35) (0.03) 0.00 0.00
------- ----- --------- --------
Total from distributions ...... (0.49) (0.04) 0.00 0.00
----- ----- --------- --------
Net asset value at end of period $ 10.41 $11.01 $ 22.60 $200.00
====== ===== ======== ======
TOTAL ANNUALIZED
RETURN (%) (e)........... (1.09) 18.54(d) (c) (c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period 6,341,373 3,064,511 8,988 100
Ratio of expenses to
average net assets .. 1.26% 3.06% 181.72% 0.00%
Ratio of expenses (after
reimbursement) to
average net assets .. 1.00% 2.35 181.01% 0.00%
Ratio of net investment
Income to average net assets 3.01% 0.30% (181.58)% 0.00%
Ratio of net investment
income (after reimbursement)
to average net assets 3.27% 1.01% (180.86)% 0.00%
Portfolio turnover........ 17.79% 6.60% 0.00% 0.00%
(a) For the Year-Ended September 30, 1998.
(b) For the Period June 2, 1995 (commencement of operations) to September 30,
1995.
(c) Investment in accordance with objective had not commenced at this time.
(d) For the period March 13, 1997 (commencement of investment in accordance
with objective) to September 30, 1997.
(e) Total return would have been lower had certain expenses not been reduced
during the periods shown (see Note 3).
(f) The name of the fund was changed during the period (see note 1). (g)
Beginning balance adjusted for reverse stock split (see Note 1)
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The following table includes selected data for a share outstanding throughout
each fiscal year or period and other performance information derived from the
financial statements.
<TABLE>
<S> <C> <C> <C> <C> <C>
Laidlaw Laidlaw Laidlaw
Laidlaw Laidlaw Covenant Covenant Covenant
Fund Fund Fund Fund Fund
---- ---- ----- ---- ----
1998(a) 1997(b)(e) 1996(e)(c) 1995(e) 1994(e)
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning .... $ 1.96 $ 1.77 $1.78 $1.54 $1.54
Income from investment
Operations:
Net investment income .... 0.00 0.00 0.00 0.00 0.00
Net realized and unrealized
gain (loss) on investments (0.06) 0.68 0.08 0.45 0.04
----- ---- ---- ---- ----
Total from investment income (0.06) 0.68 0.08 0.45 0.04
------- ---- ---- ---- ----
Less distributions:
Dividends from net
investment income ... (0.01) 0.00 0.00 0.00 0.00
Net realized gains........ 0.00 (0.49) (0.09) (0.21) (0.04)
Total from distributions.. (0.01) (0.49) (0.09) (0.21) (0.04)
---- ------ ------ ------ ------
Net asset value at end of period $ 1.89 $1.96 $1.77 $1.78 $1.54
===== ===== ===== ===== =====
TOTAL ANNUALIZED
RETURN (%) (d)............ (3.31) 40.40 6.19 29.59 2.86
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period.. 1,112,399 2,920,342 3,313,000 4,497,000 4,381,000
Ratio of expenses to
average net assets .. 2.15% 3.25% 4.81% 4.57% 5.20%
Ratio of expenses (after
reimbursement) to
average net assets .. 1.50% 1.89% 2.44% 2.50% 2.50%
Ratio of net investment
Income to average net assets (0.45)% (1.35)% (2.09)% (2.10)% (2.57)%
Ratio of net investment
income (after reimbursement)
to average net assets 0.13% 0.01% (0.28)% 0.02% 0.11%
Portfolio turnover ....... 0.00% 58.44% 5.92% 61.00% 73.00%
</TABLE>
(a) For the Year-Ended September 30, 1998.
(b) The name of the fund was changed during the period (see Note 1).
(c) For the Nine Months Ended September 30, 1996.
(d) Total return would have been lower had certain expenses not been reduced
during the periods shown (see Note 3).
(e) Per share data adjusted for share conversion 8.41 to 1.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The following table includes selected data for a share outstanding throughout
each fiscal year or period and other performance information derived from the
financial statements.
<TABLE>
<S> <C> <C> <C> <C>
Taxable Taxable Taxable Taxable
Money Money Money Money
Market Market Market Market
Fund Fund Fund Fund
---- ---- ---- ----
1998(a) 1997 1996 1995(b)
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning .... $1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
Operations:
Net investment income .... 0.04 0.03 0.04 0.002
Net realized and unrealized
gain (loss) on investments 0.00 0.00 0.00 0.000
---- ---- ----- -----
Total from investment income 0.04 0.03 0.04 0.002
Less Distribution :
Dividends from net
investment income ... (0.04) (0.03) (0.04) (0.002)
----- ----- ----- ------
Total from distributions (0.04) (0.03) (0.04) (0.002)
------ ------ ------ -------
Net asset value at end of period $1.00 $1.00 $ 1.00 $ 1.00
====== ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period 65,575,307 50,619,710 50,544,511 1,230,385
Ratio of expenses to
average net assets .. 1.30% 1.44% 1.25% 12.82%
Ratio of expenses (after
reimbursement) to
average net assets .. 1.10% 1.12% 1.16% 0.47%
Ratio of net investment
Income to average net assets 4.12% 3.86% 4.12% (11.94%)
Ratio of net investment
income (after reimbursement)
to average net assets 4.33% 4.19% 4.21% 0.65%
Portfolio turnover ....... 0.00% 0.00% 0.00% 0.00%
(a) For the Year-Ended September 30, 1998.
(b) For the Period June 2, 1995 (commencement of operations) to September 30,
1995.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1 - General
The Unified Funds (the "Trust") is an Ohio business trust authorized to
offer separate classes and sub-classes of beneficial interest. The Trust, which
was organized on November 20, 1997, is the successor to the operations of the
Vintage Funds. The Trust is a series company composed of four no-load funds (the
"Funds") including The Starwood Strategic Fund, The Laidlaw Fund, The First
Lexington Balanced Fund, and The Taxable Money Market Fund.
The Starwood Strategic Fund seeks growth of capital. The Fund pursues this
objective by investing principally in a diversified portfolio of equity
securities of seasoned, financially strong growth companies.
The Laidlaw Fund seeks growth of capital, current income and growth of income.
The Fund pursues this objective by investing principally in a diversified
portfolio of common stock, preferred stocks and securities convertible into
common stock of socially conscious companies that offer the prospect for growth
of earnings while paying current dividends.
The First Lexington Balanced Fund seeks long term growth of capital and current
income. The Fund pursues this objective by investing principally in a
diversified portfolio of other no-load mutual funds selected from six major
financial assets classes.
The Taxable Money Market Fund seeks a high level of current income consistent
with the preservation of capital and maintenance of liquidity. The Fund pursues
this objective by investing principally in a diversified portfolio of short-term
money market instruments.
On December 20, 1996 the Fiduciary Value Fund changed its name to The Laidlaw
Fund and acquired the assets of The Laidlaw Covenant Fund. The acquisition
consisted of the transfer 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.
On February 1, 1997 The Municipal Fixed Income Fund changed its name to The
First Lexington Balanced Fund. In addition to the name change, the Fund changed
its policy and sub-adviser. On March 6, 1997, The First Lexington Balanced Fund
exercised a 1 for 20 reverse stock split.
Note 2 - Significant Accounting Policies
The following is a summary of the significant accounting policies followed by
the Trust in the preparation of its financial statements.
A) Security Valuations
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.
B) Securities Transactions
Securities transactions are recorded on a trade date-plus-one basis. Realized
gains and losses from securities transactions are recorded on the identified
cost basis. For federal income tax purposes, the cost of investments owned on
September 30, 1998 were the same as identified cost. As of September 30, 1998
the composition of unrealized appreciation (the excess of value over tax cost)
and depreciation (the excess of tax cost over value) was as follows:
<PAGE>
<TABLE>
<S> <C> <C> <C>
Net Appreciation
Fund Appreciation Depreciation (Depreciation)
------------ ------------ ------------ --------------
Starwood Strategic $ 15,274 $ (27,334) $ (12,060)
First Lexington Balanced 80,354 (402,933) (322,579)
Laidlaw Fund 609,339 --- 609,339
</TABLE>
C) Dividends and Distributions to Shareholders
Dividends, if any, from net investment income for The Starwood Strategic Fund,
The Laidlaw Fund, and The First Lexington Balanced Fund are paid quarterly.
Dividends, if any, from net investment income for The Taxable Money Market Fund
are paid on a daily basis. Net realized long term capital gains, if any, are
paid at least annually for each Fund. However, to the extent that net realized
gains of any Fund could be reduced by any capital loss carry-overs from the
Fund, such gains will not be distributed Dividend distributions are recorded on
the ex-dividend date.
D) Federal Income Taxes
It is the policy of each Fund to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders.
E) Expenses
Direct expenses of each Fund are charged to the applicable Fund. Any general
expenses of the Trust not readily identifiable as belonging to a particular
series are allocated by or under the direction of the Trustees in such manner as
the Trustees determine to be fair and equitable.
Organizational costs and initial registration fees represent costs incurred in
connection with the organization, registration and the initial public offering
of the shares of the Trust and its Funds. Organizational costs and initial
registration fees are deferred and will be amortized on a straight-line basis
over five years. In the event that the original shareholder (or any subsequent
transferee) redeems any of its original capital (seed capital) prior to these
organizational costs and initial registration fees being fully amortized, the
redemption proceeds will be reduced by a pro-rata portion of any then
unamortized organizational costs and initial registration fees. Organizational
costs and initial registration fees incurred were allocated accordingly to each
of the four Funds prior to the commencement of operations. On February 2, 1998,
The Adviser assumed the unamortized balance of organizational costs and
registration fees in each Fund.
Prior to February 2, 1998 each Fund paid its own expenses. Effective February 2,
1998, The Adviser and the Unified Funds entered into a Management Agreement
pursuant to which the adviser pays all of the operating expenses of the Unified
Funds except shareholder servicing fees, brokerage fees, taxes, interest, 12b-1
fees, and extraordinary expenses. Each fund pays a management fee to the Adviser
as described in note 3.
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.
G) Repurchase Agreement
Under the terms of a typical repurchase agreement, a Fund writes a financial
contract with a counterparty and takes possession of a government debt
obligation as collateral. The Fund also agrees with the counterparty to allow
the counterparty to repurchase the financial contract at a specific date and
price, thereby determining the yield during the Fund's holding period. This
arrangement will result in a fixed-rate of return not subject to the market's
fluctuation during the holding period indicated in th contract. The value of the
collateral is at least equal to the total amount of the repurchase obligation,
including interest. In the event of default by the counterparty, a Fund has the
right to use the collateral to offset any losses incurred.
H) Investments
Interest income is recorded on the accrual basis and dividend income is recorded
on the ex-dividend date.
<PAGE>
Note 3 - Agreements and Other Transactions with Affiliates
The Trust has entered into a Management Agreement with Unified Investment
Advisers, Inc. (the "Adviser"). The Adviser was formerly known as Vintage
Advisers, Inc. In turn, the Adviser has entered into an Investment Sub-Advisory
Agreement with Health Financial, Inc. The Trust has entered into an
Administration Agreement with Unified Fund Services, Inc. ("Unified") to serve
as transfer agent and shareholder service agent and provide fund accounting
services. The Fund retains Unified Management Corporation (the "Distributor") as
the principal distributor of the Fund's shares.
As investment adviser, the Adviser supervises and assists in the management of
the Trust, pursuant to the terms of the Management Agreement.
Effective February 2, 1998 the Adviser provides investment advisory services and
pays certain Fund expenses (see note 2) for which each fund pays on a monthly
basis, an annual fee as follows:
<TABLE>
<S> <C> <C> <C>
% of Average Net %of Average Net
Fund Assets of the Fund Fund Assets of the Fund
- ---- ------------------ ---- ------------------
Starwood Strategic 1.25% First Lexington Balanced .75%
Laidlaw 1.25% Taxable Money Market .90%
</TABLE>
The Adviser has engaged Health Financial, Inc. (the "Sub-Adviser") to serve as
sub-adviser to the First Lexington Balanced Fund. The Sub-Adviser receives an
annual investment management fee, paid by the Adviser, for its management
services. The fee is payable monthly, at the following rates: 0.40% of net
assets up to $250 million; 0.35% of the next $250 million; and 0.30% of net
assets in excess of $500 million.
Prior to February 2, 1998 the Adviser provided investment advisory services for
which each Fund and was paid on a monthly basis, an annual fee as follows:
<TABLE>
<S> <C> <C> <C>
% of Average Net % of Average Net
Fund Assets of the Fund Fund Assets of the Fund
- ---- ------------------ ---- ------------------
Starwood Strategic .75% First Lexington Balanced .50%
Laidlaw .75% Taxable Money Market .50%
</TABLE>
Until February 2, 1998, the Adviser engaged Health Financial, Inc. to serve as
sub-adviser to the First Lexington Balanced Fund under the same fee arrangement
as described above. Until February 2, 1998 the Adviser engaged Starwood
Corporation to serve as sub-adviser to The Starwood Strategic Fund, and
Fiduciary Counsel, Inc., to serve as sub-adviser to the Laidlaw Fund and The
Taxable Money Market Fund. Each of these sub-advisers was entitled to an annual
fee, paid by the Adviser, for its management services. The fees were payable
monthly, at the following rates for each Fund respectively:
Fund Fee (Percentage of Assets of the Fund)
------- --------------------------------------
Starwood Strategic 0.35% of net assets up to $250 million;
0.30% of next $250 million of net assets;
0.25% of net assets in excess of $500 million
Laidlaw 0.35% of net assets up to $250 million;
0.30% of next $250 million of net assets;
0.25% of net assets in excess of $500 million
Taxable Money Market 0.07% of net assets up to $1 billion;
0.05% of net assets of $1 billion or more
<PAGE>
Unified is an affiliate of the Adviser. Unified, as administrator, receives an
annual fee, payable monthly by each Fund. The fee is equal to 0.435% of the
Fund's average net assets, for The Laidlaw Fund and Starwood Strategic Fund. For
the First Lexington Balanced Fund and The Taxable Money Market Fund, the fee is
equal to 0.185% of the Fund's average net assets. Prior to February 2, 1998 the
Fund paid Unified transfer agent fees, shareholder service fees, fund accounting
fees and administrative fees as follows:
Fund Amount Fund Amount
- ---- ------ ---- ------
Starwood Strategic $ 1,660 First Lexington Balanced $2,978
Laidlaw $ 4,116 Taxable Money Market $30,619
Effective February 2, 1998 these fees are paid by the Adviser.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Acts of 1940. Under the Plan, the Trust pays the
Distributor an annual fee, payable monthly, of up to 0.10% of the respective
Fund's average daily net assets.
The Distributor is a registered broker/dealer and effected substantially all of
the investment portfolio transactions for the funds. For the year-ended
September 30, 1998, brokerage commissions paid to the Distributor by the Funds
are as follows:
Fund Amount Fund Amount
- ---- ------ ---- ------
Starwood Strategic $ 4,103 First Lexington Balanced Fund $-0-
Laidlaw $ 2,364 Taxable Money Market $-0-
The Trust has adopted a Shareholder Services Plan (with respect to each Fund) in
which financial institutions may enter into a shareholder services agreement
with the Trust to provide administrative support services to the Funds. In
return for these services, a financial institution may receive payments from
each Fund at a rate not exceeding 0.15% of the Fund's average net assets owned
beneficially by the institution's clients.
Note 3 - (Continued)
Certain Trustees and officers of the Trust are "interested persons" (as defined
in the Act) of the Trust. Each "non-interested" Trustee is entitled to receive a
quarterly Board of Trustees meeting fee of $2,400 and $400 per additional
meeting attended, plus expenses for services relating to the Trust.
Note 4- Securities Transactions
For the twelve months ending September 30, 1998, purchases and sales of
investment securities, excluding short-term investments were as follows:
Purchases Sales
--------- -----
Starwood Strategic $ 1,107,732 $ 1,036,433
Laidlaw --- 921,568
First Lexington Balanced 4,732,075 946,427
Note 5- Reclassification of Capital Accounts
The Funds have adopted Statement of position 93-2, "Determination, Disclosure,
and Financial Statement presentation of Income, Capital Gain and return of
Capital Distributions by Investment Companies". As a result of this Statement,
the Laidlaw Fund changed the classification of distributions to shareholders to
better disclose the difference between financial statement amounts and
distributions determined in accordance with income tax regulations. Accordingly,
paid-in-capital and undistributed capital gains have been adjusted as of
September 30, 1998 in the following amounts. These restatements did not affect
net investment income, net realized gain (loss) or net assets of The Laidlaw
Fund for the year ended September 30, 1998.
Paid-In Capital Undistributed Net Realized gain
--------------- -------------------------------
$570,000 ($570,000)
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and Board of Trustees
The Unified Funds:
We have audited the statements of assets and liabilities, including the
portfolios of investments, of The Unified Funds (comprising, respectively, of
the Starwood Strategic Fund, the Laidlaw Fund, the First Lexington Balanced Fund
and the Taxable Money Market Fund) as of September 30, 1998, and the related
statements of operations, the statements of changes in net assets, and the
financial statements and financial highlights for each of the periods indicated.
These financial statements and financial highlights are the responsibility of
the Funds' 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, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting The Unified Funds as of September 30,
1998, the results of their operations, the changes in their net assets, and the
financial highlights for the periods indicated in conformity with generally
accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
October 14, 1998
