CROSS-REFERENCE SHEET
Explanatory Note: The Registrant is a "series" company. This Registration
Statement relates to all four series of the Registrant's shares: Starwood
Strategic Fund, Laidlaw Fund (formerly Fiduciary Value Fund), First Lexington
Balanced Fund (formerly Municipal Fixed Income Fund), and Taxable 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 are offered pursuant to
a separate Prospectus for that Fund only (the "Money Market Fund Prospectus").
Both the Combined Prospectus and the Money Market Fund Prospectus are included
in Part A of this Post-Effective Amendment. The Prospectus headings below refer
to the headings in the Combined Prospectus; the Prospectus headings in the Money
Market Fund Prospectus are substantially identical.
PART A. INFORMATION REQUIRED IN THE PROSPECTUS.
Item in Form N-1A Prospectus Heading
Item 1. Cover Page . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . .. . . . . Summary of Fund Expenses;
Highlights
Item 3. Condensed Financial Information . . Financial Highlights;
Performance Information
Item 4. General Description of Registrant . Highlights; Investment
Objectives and Policies;
Investment Policies and
Techniques and Risk Factors;
General Information
Item 5. Management of the Fund . . . . . . . The Trust and Its
Management
Item 5A. Management's Discussion of Fund . . .Not Applicable
Performance
Item 6. Capital Stock and Other Securities . General Information;
Dividends and Distributions;
Taxes
Item 7. Purchase of Securities Being. . . . How to Buy Shares;
Offered Shareholder Services; Net
Asset Value; The Trust and
its Management
Item 8. Redemption or Repurchase . . . . . . How to Redeem Shares;
Exchange Privilege
Item 9. Pending Legal Proceedings . . . . . .Not Applicable
Item 13. Investment Objectives and Policies. .Investment Objectives and
Policies; Investment Policies
and Techniques and Risk
Factors
Item 16. Investment Advisory and Other
Services. . . . . . . . . . . . . .The Trust and Its Management
PART B. INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION.
Item in Form N-1A Statement Heading
Item 10. Cover Page . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . .Table of Contents
<PAGE>
Item 12. General Information and History . . . . . . .None
Item 13. Investment Objectives and Policies . . . . . Types of Investments
and Investment
Techniques;
Investment Limitations
Item 14. Management of the Fund . . . . . . . . . . . Management of the Trust
Item 15. Control Persons and Principal Holders
of Securities . . . . . . . . .. . . . . . . . . . . Management of the Trust
Item 16. Investment Advisory and Other Services . . . Investment Advisory
Arrangements;
Distribution
Arrangements;
Administrative
Services Arrangements;
Custodian, Transfer
Agent, Fund Accounting
Agent, and
Independent Accountants
Item 17. Brokerage Allocation and Other Practices . . Brokerage
Transactions
Item 18. Capital Stock and Other Securities . . . . . Information About the
Trust
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . .Purchase and
Redemption;
Determination of Net
Asset Value
Item 20. Tax Status . . . . . . . . . . . . . . . . . Tax Status
Item 21. Underwriters . . . . . . . . . . . . . . . Not Applicable
Item 22. Calculation of Performance Data . . . . . . .Performance
Information
Item 23. Financial Statements . . . . . . . . . . . Financial Statements
PART C. OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
<PAGE>
THE UNIFIED FUNDS
Prospectus dated February 1, 1999
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 stocks, preferred stocks and securities
convertible into common stock of socially conscious companies that offer the
prospect for growth of earnings while paying current dividends.
The First Lexington Balanced Fund seeks long term growth of capital and
current income. The Fund pursues this objective by investing principally in a
diversified portfolio of other no-load mutual funds selected from six major
financial asset classes.
The Taxable Money Market Fund seeks a high level of current income
consistent with the preservation of capital and maintenance of liquidity. The
Fund pursues this objective by investing principally in a diversified portfolio
of short-term money market instruments.
The shares offered hereby are not deposits or obligations of any
financial institution and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
Investment in the shares involves investment risks including the possible loss
of principal. There can be no assurance that the Taxable Money Market Fund will
be able to maintain a stable net asset value of $1.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus contains information that you should know before
investing in any of the Funds and it should be retained for future reference. A
Statement of Additional Information, dated February 1, 1999 has been filed with
the Securities and Exchange Commission (the "SEC") and is incorporated herein by
reference. The Statement of Additional Information is available upon request and
without charge by calling 1-800-408-4682. The SEC maintains a Web Site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding registrants
that file electronically with the SEC.
TABLE OF CONTENTS
<PAGE>
SUMMARY OF FUND EXPENSES........................
FINANCIAL HIGHLIGHTS............................
HIGHLIGHTS......................................
INVESTMENT OBJECTIVES AND POLICIES.............
The Starwood Strategic Fund...............
The Laidlaw Fund..........................
The First Lexington Balanced Fund.........
The Taxable Money Market Fund.............
INVESTMENT POLICIES AND TECHNIQUES
AND RISK FACTORS...........................
NET ASSET VALUE................................
HOW TO BUY SHARES..............................
Minimum Investment........................
Opening an Account........................
By Mail..............................
By Wire..............................
Subsequent Investments....................
By Automated Clearing House (ACH)....
By Telephone Order .................
DIVIDENDS AND DISTRIBUTIONS....................
Timing of Certain Money Market Fund
Transactions.........................
EXCHANGE PRIVILEGE.............................
By Telephone..............................
By Mail or Telecopy.......................
HOW TO REDEEM SHARES...........................
By Mail...................................
Signatures...........................
By Telephone..............................
Receiving Payment.........................
Check Writing (Taxable Money Market
Fund Only)...........................
Minimum Account Balance...................
SHAREHOLDER SERVICES...........................
THE TRUST AND ITS MANAGEMENT...................
Investment Advisory Arrangements..........
Investment Adviser...................
Sub-Adviser..........................
Portfolio Managers' Backgrounds...........
Advisory Fees.............................
Distribution Services.....................
Distributor..........................
Distribution Plan....................
Administration of the Trust...............
Administrator........................
Shareholder Services Plan............
Other Arrangements...................
Transfer Agent, Fund Accounting Agent
and Custodian..........................
Portfolio Transactions....................
THE "V.O.I.C.E."sm PROGRAM.....................
TAXES..........................................
Backup Withholding........................
PERFORMANCE INFORMATION........................
GENERAL INFORMATION............................
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Funds'
official sales literature in connection with the offer of the Funds' shares,
and, if given or made, such other information or representation must not be
relied upon as having been authorized by the Funds. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made.
<PAGE>
SUMMARY OF FUND EXPENSES
Shareholders should be aware that the Funds are no-load funds and,
accordingly, a shareholder does not pay any sales charge or commission upon
purchase or redemption of shares of the Funds. Unlike most other mutual funds,
the Funds do not pay directly for transfer agency, pricing, custodial, auditing
or legal services, nor do the Funds pay directly any general administrative or
other significant operating expenses (except for 12b-1 and Shareholder Servicing
fees). The Adviser pays all of the operating expenses of the Fund except 12b-1
and Shareholder Servicing fees, brokerage, taxes, interest and extraordinary
expenses.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..............................None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)..............................None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable) ...........None
Redemption Fee (as a percentage of amount redeemed if applicable)..........None
Exchange Fee...............................................................None
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(As a percentage of average net assets)
<S> <C> <C> <C> <C> <C>
Management 12b-1 Servicing Other Total
Fund Name Fees Fees Fees Expenses Expenses
Starwood Strategic 1.25% 0.10% 0.15% None 1.50%
Laidlaw 1.25% 0.10% 0.15% None 1.50%
First Lexington Balanced 0.75% 0.10% 0.15% None 1.00%
Taxable Money Market 0.90% 0.10% 0.15% None 1.15%
</TABLE>
Initial investments of less than the required minimum by persons exempt from
the minimum investment requirement are subject to a one-time $4.50
administrative charge. See "How to Buy Shares." Wire-transferred redemptions are
subject to a $15.00 charge and certain checking transactions may be subject to
additional charges. See "How to Redeem Shares."
The purpose of this table is to assist the investor in understanding the
various costs and expenses that a shareholder of a Fund will bear, either
directly or indirectly. The expense information has been restated to reflect
current fees. Long-term shareholders may pay more than the economic equivalent
of the maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc. For a further description of the various
costs and expenses incurred by the Funds, see "The Trust and its Management."
Example:
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
Fund Name 1 Year 3 Years 5 Years 10 Years
- --------- ------ ------- ------- --------
Starwood Strategic Fund $15 $47 $82 $179
Laidlaw Fund 15 47 82 179
First Lexington Balanced Fund 10 32 55 122
Taxable Money Market Fund 12 37 64 140
The amounts listed in the example should not be considered as representative
of future expenses and actual expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
performance will vary and may result in an actual return greater or less than
5%.
The First Lexington Balanced Fund intends to invest principally in other
mutual funds. The other Funds may invest incidentally in other mutual funds. To
the extent that a Fund invests in other mutual funds, the Fund will indirectly
bear its proportionate share of any fees and expenses paid by such other funds,
in addition to the fees and expenses payable directly by the Fund. Therefore, to
the extent that the Fund invests in other mutual funds, the Fund will incur
higher expenses, many of which may be duplicative. These expenses will be borne
by the Fund, and are not included in the expenses reflected in the table or
example above. See "Investment Objectives and Policies -- Investments in Other
Mutual Funds."
FINANCIAL HIGHLIGHTS
The financial highlights of the Funds' operations for the periods presented
are derived from the audited financial statements of The Unified Funds (formerly
The Vintage Funds) and have been audited by McCurdy and Associates CPA's, Inc.,
independent public accountants. The financial highlights of the Laidlaw Fund
include the financial highlights of the Laidlaw Covenant Fund for periods prior
to December 20, 1996, when it was acquired by the Laidlaw Fund. This information
should be read in conjunction with the financial statements and notes thereto
included in the Annual Report to Shareholders. The Annual Report is available
without charge by calling the Funds at 1-800-408-4682.
<PAGE>
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>
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>
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>
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>
HIGHLIGHTS
Investment Objectives and Investment Risks
The Unified Funds (the "Trust") is a family of mutual funds with several
separate portfolios. This Prospectus is for four separate portfolios (the
"Funds"), each having its own investment objective and policies. An investment
in the Funds involves investment risks including the possible loss of principal.
See "Investment Objectives and Policies" and "Investment Policies and Techniques
and Risk Factors."
Liquidity
Each Fund continuously offers and redeems its shares at the Fund's
prevailing net asset value per share. See "How to Buy Shares," "How to Redeem
Shares" and "Net Asset Value." The Taxable Money Market Fund intends to maintain
a constant net asset value of $1.00 per share, although there is no assurance
that it will be able to do so.
No Sales or Redemption Charges
There are no commissions, fees or charges by the Trust for the purchase or
redemption of shares. Initial investments below the stated minimum,
wire-transferred redemptions and certain checking transactions may be subject to
additional charges. See "Summary of Fund Expenses," "How to Buy Shares" and "How
to Redeem Shares."
Minimum Investment
A minimum investment of $1,000 is required to open an account, except an IRA
account for which the minimum is $500. Former shareholders of the Unified family
of funds, or the Quest funds which acquired the Unified family of funds, may
open an account with less than the required minimum. The minimum investment may
also be waived for certain other types of retirement accounts and direct deposit
accounts. Subsequent investments must be at least $100, or $50 for an IRA. See
"How to Buy Shares."
Investment Adviser
Unified Investment Advisers, Inc. is the Funds' investment adviser (the
"Adviser"). The Adviser has engaged Health Financial, Inc. to serve as
sub-adviser to the First Lexington Balanced Fund (the "Sub-Adviser"). Health
Financial, Inc. manages the investment portfolio of the Fund, subject to the
Adviser's overall management. The Adviser directly manages the investment
portfolios of the other Funds. See "The Trust and its Management."
<PAGE>
Retirement Plans and Other Shareholder Services
The Trust offers retirement plans including a prototype Profit Sharing
Plan, Money Purchase Pension Plan, Salary Savings Plan - 401(k) and IRA
accounts, as well as a number of special shareholder services. For information
regarding these plans or services, call the Transfer Agent at 1-800-408-4682.
See "Shareholder Services."
[V.O.I.C.E. Logo]
The Adviser administers The Unified Funds University and Philanthropic
Program pursuant to which the Adviser will make contributions to the general
scholarship funds or endowments of certain accredited colleges and universities
designated by qualified shareholders of any of the Funds. For information
regarding this Program, call the Adviser at 1-800-408-4682. See "The
V.O.I.C.E.sm Program" below.
INVESTMENT OBJECTIVES AND POLICIES
The Trust offers several separate portfolios (or funds). This Prospectus is
for four Funds, each with its own investment objective and policies. The Funds'
investment objectives cannot be changed without shareholder approval. While
there is no assurance that any Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
Prospectus. Unless otherwise indicated, the Funds' investment policies may be
changed by the Trust's Board of Trustees without shareholder approval.
Shareholders will be notified before any material change in investment policies
becomes effective.
The following sections are concise descriptions of the Funds and their
investment objectives and policies. More information about certain types of
investments, investment techniques and risk factors is provided below under
"Investment Policies and Techniques and Risk Factors" and in the Statement of
Additional Information.
The Starwood Strategic Fund
The Starwood Strategic Fund seeks growth of capital. The Fund pursues this
objective by investing principally in a diversified portfolio of equity
securities of seasoned, financially strong growth companies. Although current
income is an incidental consideration, many of the Fund's investments should
provide regular dividends which may grow over time.
Under normal circumstances, the Fund's assets will consist primarily of
common stocks, preferred stocks, and preferred stocks or corporate debt
securities convertible into common stocks, that are issued by companies which,
in the opinion of the Adviser, have the following characteristics:
o Above-average growth rates over an extended period with prospects for
maintaining greater than average rates of growth in earnings, cash flow or
assets in the future;
o A strong financial position with high credit standings and profitability;
o Important business franchises, leading products or dominant marketing and
distribution systems;
o At least five years' operating history, annual revenues of at least $200
million and market capitalization of at least $300 million; and
o Attractive share prices relative to potential growth in earnings, cash flow
or assets.
The Fund's investments are selected by the Adviser, which uses a combination
of research techniques to identify companies having these characteristics.
Fundamental research is used to evaluate various aspects of corporate
performance, with a particular emphasis on consistency of results, long-term
growth prospects and financial strength. Quantitative valuation methods are used
to determine which growth companies offer superior values at a given point in
time. When assessing growth rates, the Adviser generally considers a company to
be "above average" if its growth in earnings, cash flow or assets exceed the
average growth rates of companies included in the S&P 500 index, as published by
Standard & Poor's Corporation ("S&P"). When assessing financial quality, the
Adviser evaluates five criteria: the strength of the company's balance sheet;
the volatility of the company's earnings over time; the company's accounting
practices; ranking (if any, at the time of purchase) given the company's common
stock by the S&P; and the vulnerability of earnings to changes in external
factors, such as the general economy, the competitive environment, governmental
action and technological change.
The Fund may also invest to a lesser extent in equity securities that do not
meet the criteria listed above, as well as in investment grade corporate debt
obligations. The types of equity securities in which the Fund may invest are
described below under "Investment Policies and Techniques and Risk Factors --
Corporate Equity Securities." The corporate debt obligations in which the Fund
may invest are described below under "Investment Policies and Techniques and
Risk Factors -- Corporate Debt Obligations." Also, the Fund may invest
temporarily in money market instruments of the types described below under "The
Taxable Money Market Fund." It is expected that the Fund will invest principally
in securities of U.S. companies. However, the Fund's investment policies permit
the Fund to invest in foreign securities under normal circumstances.
The Fund allocates its investments among different industries and companies,
and changes its portfolio securities based on long-term investment
considerations as opposed to short-term trading. However, the Fund may take
advantage of opportunities for short-term profits as they arise.
The Laidlaw Fund
The Laidlaw Fund seeks growth of capital, current income and growth of
income. The Fund pursues this objective by investing principally in a
diversified portfolio of common stocks, preferred stocks and preferred stocks or
corporate debt securities convertible into common stocks of companies which
offer the prospect of growth of earnings while paying current dividends. The
Fund may also purchase securities that do not pay current dividends but which
offer prospects for growth of capital and future income. Over time, the Adviser
believes continued growth of earnings will lead to higher dividends and
enhancement of capital value.
In evaluating investments for the Fund, the Adviser seeks to identify
companies that have demonstrated their ability to grow and whose markets, profit
margins and rates of return on investments indicate the likelihood of future
growth, in addition to a likelihood for future dividend growth. It is the
Adviser's intention to follow a socially responsible investment policy. For this
purpose, the Adviser will retain, at no expense to the Fund, Laidlaw Holdings
Asset Management, Inc. to maintain a list of approximately 200 preferred
companies selected from the 1,000 largest corporations based on corporate
behavior related to customer, community, employee, competitor, supplier and
shareholder relations, environmental and social issues. While the Adviser
intends to select securities for the Fund from the list, it is not obligated to
do so, and will only do so to the extent the Adviser believes such selection is
consistent with the Fund's investment strategy described above. The Fund
allocates its investments among different industries and companies, and changes
its portfolio securities based on long-term investment considerations and not
for short-term trading purposes. However, the Fund may take advantage of
opportunities for short-term profits as they arise.
Under normal circumstances, the Fund's assets will consist primarily of
equity securities of the types described below under "Investment Policies and
Techniques and Risk Factors -- Corporate Equity Securities." However, the Fund
also may invest to a lesser extent in investment grade corporate debt
obligations of the types described below under "Investment Policies and
Techniques and Risk Factors -- Corporate Debt Obligations." Also, the Fund may
invest temporarily in money market instruments of the types described below
under "The Taxable Money Market Fund."
The First Lexington Balanced Fund
The First Lexington Balanced Fund seeks long term growth of capital and
current income. The Fund pursues this objective by investing primarily in a
diversified portfolio of other no-load mutual funds that invest in one of the
following six financial asset classes: (1) S&P 500 common stocks, (2) smaller
capitalized stocks as represented by the Wilshire 4500 Index, (3) international
stocks as represented by the Morgan Stanley EAFE Index, (4) real estate
investment trusts as represented by the Morgan Stanley REIT Index, (5) cash
equivalents, and (6) long-term investment rated corporate and government bonds
as represented by the Sheerson-Lehman Government/Corporate Bond Index. A mutual
fund in which the Fund invests will not necessarily own all of the securities
comprising the relevant index, although it is expected that it will own a
sufficient number of the securities to be representative of the index.
The Fund's sub-adviser, Health Financial, Inc. (the "Sub-Adviser") utilizes
an "active asset allocation" strategy based on the modern portfolio theory that
93% of investment return is attributable to the "asset class" of an investment,
not the individual security. In other words, if a stock performed well, it is
probably because the asset class of the stock performed well, not because the
investor was successful at choosing a particular stock. The Fund's Sub-Adviser
allocates the Fund's portfolio among the asset classes and actively monitors and
adjusts the allocation. The sub-adviser seeks to enhance return by increasing
the Fund's participation in asset classes that are, in the Sub-Adviser's
opinion, undervalued. The Sub-Adviser believes that diversification across these
asset classes should reduce risk because, in most years, at least one or more
asset classes have a positive return.
Under normal circumstances, the Fund's assets will consist primarily of
other no load mutual funds. At least 25% of the Fund's assets will consist of
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 "Investment in Other Mutual
Funds" below.
The Taxable Money Market Fund
The Taxable Money Market Fund seeks a high level of current income
consistent with the preservation of capital and maintenance of liquidity. The
Fund pursues this objective by investing principally in a diversified portfolio
of high quality, short-term money market instruments. The Fund intends to
maintain a constant net asset value of $1.00 per share, although there is no
assurance that it will be able to do so.
The Fund's investments principally include:
o direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds; notes, bonds, and discount notes of U.S. government
agencies or instrumentalities;
o short-term corporate debt instruments (including commercial paper and
variable rate demand notes) which mature in 270 days or less;
o domestic and foreign issues of corporate debt obligations having floating
or fixed rates of interest and having remaining maturities of less than 13
months;
o bank instruments described below under "Bank Instruments";
o other short-term investments of a type which the Adviser determines
presents minimal credit risks and which are of "high quality" as determined
by a nationally recognized statistical rating organization, or, in the case
of an instrument that is not rated, of comparable quality in the judgment
of the Adviser;
o repurchase agreements collateralized by eligible investments; and
o money market funds.
The Fund may invest only in securities that, at the time of purchase, have a
remaining maturity of less than 13 months and that are "eligible securities" as
defined by regulations of the Securities and Exchange Commission. "Eligible
securities" generally include securities rated in one of the two highest
categories by at least two nationally recognized statistical rating
organizations (or by one such rating agency if only one has issued a rating) or,
if unrated, are determined to be of comparable quality by the Adviser pursuant
to policies approved by the Board of Trustees. If the Fund purchases an eligible
security and its rating is subsequently downgraded so that the security is no
longer of high quality, the Fund will consider and take appropriate action,
which may include divesting the security. The Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less.
INVESTMENT POLICIES AND TECHNIQUES AND RISK FACTORS
This section describes certain types of investments, investment techniques
and investment policies and limitations of the Funds. This section also includes
information about the risk factors associated with the investments and
investment techniques. The risks of each Fund depend upon many factors. For the
Funds that invest principally in equity securities, these factors include, among
others, the Fund's investment objective, the types of equity securities held and
the financial position of the issuers of these securities. For the Funds that
invest principally in debt securities, these factors include, among others, the
Fund's investment objective, the average duration of the Fund's portfolio,
credit quality of the securities held and interest rate movements. For further
information, see the Statement of Additional Information.
Corporate Equity Securities
The Starwood Strategic Fund, the Laidlaw Fund, and the First Lexington
Balanced Fund may invest in equity securities, including common stocks,
preferred stocks, convertible securities, warrants and rights issued by
corporations in any industry (industrial, financial or utility) which may be
denominated in U.S. dollars or in foreign currencies. Equity securities
fluctuate in value, often based on factors unrelated to the performance of the
issuer of the securities and fluctuations can be pronounced. Small
capitalization issues and emerging growth company securities, in particular, may
be subject to wider price fluctuations than the stock market as measured by
popular indices.
Preferred Stocks. Preferred stock, unlike common stock, offers a stated
dividend rate payable from the issuer's earnings. Preferred stock dividends may
be cumulative or non-cumulative, participating, or auction rate. If interest
rates rise, the fixed dividend on preferred stocks may be less attractive,
causing the price of preferred stocks to decline. Preferred stock may have
mandatory sinking fund provisions, as well as call/redemption provisions prior
to maturity, a negative feature when interest rates decline.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
several unique investment characteristics, such as (a) higher yields than common
stocks, but lower yields than comparable nonconvertible securities, (b) a lesser
degree of fluctuation in value than the underlying stock since they have fixed
income characteristics, and (c) the potential for capital appreciation if the
market price of the underlying common stock increases. A convertible security
might be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. If a convertible
security held by the Fund is called for redemption, the Fund may be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
Warrants and Rights. Each Fund named above may invest up to 5% of its total
assets in warrants and rights, including but not limited to warrants or rights
(i) acquired as part of a unit or attached to other securities purchased by the
Fund, or (ii) acquired as part of a distribution from the issuer.
Fixed Rate Corporate Debt Obligations
All of the Funds may invest to varying extents in fixed rate corporate debt
obligations. Also, all of the Funds may invest in short-term fixed rate
corporate debt obligations that qualify as money market instruments. Fixed rate
securities tend to exhibit more price volatility during times of rising or
falling interest rates than securities with floating rates of interest. This is
because floating rate securities, as described below, behave like short-term
instruments in that the rate of interest they pay is subject to periodic
adjustments based on a designated interest rate index. Fixed rate securities pay
a fixed rate of interest and are more sensitive to fluctuating interest rates.
In periods of rising interest rates the value of a fixed rate security is likely
to fall. Fixed rate securities with short-term characteristics are not subject
to the same price volatility as fixed rate securities without such
characteristics. Therefore, they behave more like floating rate securities with
respect to price volatility.
Many corporate debt obligations permit the issuers to call the security and
thereby redeem their obligations earlier than the stated maturity dates. Issuers
are more likely to call bonds during periods of declining interest rates. In
these cases, if a Fund owns a bond which is called, the Fund will receive its
return of principal earlier than expected and would likely be required to
reinvest the proceeds at lower interest rates, thus reducing income to the Fund.
Other Corporate Debt Obligations
The Funds may also invest to varying extents in other corporate debt
obligations, including those described below. Also, all of the Funds may invest
in short-term corporate debt obligations that qualify as money market
instruments.
Floating Rate Obligations. Floating rate securities are generally offered at
an initial interest rate which is at or above prevailing market rates. The
interest rate paid on these securities is then reset periodically (commonly
every 90 days) to an increment over some predetermined interest rate index.
Commonly utilized indices include the three-month Treasury bill rate, the
180-day Treasury bill rate, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a bank, the commercial paper rates, or
the longer-term rates on U.S. Treasury securities.
Variable Rate Demand Notes. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals (ranging from daily
to annually), and is normally based on an interest index or a stated percentage
of a prime rate or another published rate. Many variable rate demand notes allow
the Fund to demand the repurchase of the security on not more than seven days
prior notice. Other notes only permit the Fund to tender the security at the
time of each interest rate adjustment or at other fixed intervals.
Investments in Other Mutual Funds
All of the Funds may invest to some extent in the securities of other
open-end registered investment companies ("mutual funds"), including money
market funds. The First Lexington Balanced Fund intends to invest principally in
other mutual funds, and may invest up to 25% of its assets in any one mutual
fund, and up to 100% of its assets in other mutual funds in general. Each of the
other Funds intends to invest incidentally in other mutual funds and may not
invest more than 5% of its total assets in any one mutual fund, or more than 10%
of its total assets in mutual funds in general. The Funds, considered together
with all of the other funds of the Trust, may not invest in more than 3% of the
total outstanding voting securities of any one mutual fund. The foregoing
limitations are not applicable to investment company securities acquired as part
of a merger, consolidation, reorganization or other acquisition.
The Trust believes that investing in other mutual funds will provide the
Funds with opportunities to achieve greater diversification of portfolio
securities and investment techniques than the Funds could achieve by investing
in individual securities. The Funds will invest only in other mutual funds that
do not impose up-front sales loads or deferred sales loads or redemption fees.
However, the Fund may invest in Funds that have 12b-1 plans or shareholder
services plans which permit the funds to pay certain distribution and other
expenses from fund assets. To the extent that a Fund invests in other mutual
funds, the Fund will indirectly bear its proportionate share of any fees and
expenses paid by such funds in addition to the fees and expenses payable
directly by the Fund. Therefore, to the extent that a Fund invests in other
mutual funds, the Fund will incur higher expenses, many of which may be
duplicative. (For example, the First Lexington Balanced Fund pays the Adviser a
fee of 0.75% of its average net assets to manage its investment portfolio of
other mutual funds, each of which pays its own investment adviser a fee to
manage its own portfolio securities.) In addition, to the extent that a Fund
invests in other mutual funds, the Fund's shareholders may receive capital gains
distributions to a greater extent than if the shareholder owned the underlying
mutual funds directly.
Each Fund will invest only in other mutual funds that have an investment
objective similar to the Fund's, or that otherwise is a permitted investment
under the Fund's investment policies described herein. Nevertheless, the mutual
funds purchased by the Funds likely will have certain investment policies, and
use certain investment practices that are different from those of the Funds and
not described herein. These other policies and practices may subject the other
funds' assets to varying or greater degrees of risk. The Funds are independent
from any of the other mutual funds in which they invest and have little voice in
or control over the investment practices, policies or decisions of those funds.
If a Fund disagrees with those practices, policies or decisions, it may have no
choice other than to liquidate its investment in that fund, which can entail
further losses. However, a mutual fund is not required to redeem any of its
shares owned by another mutual fund in an amount exceeding 1% of the underlying
fund's shares during any period of less than 30 days. As a result, to the extent
that a Fund owns more than 1% of another mutual fund's shares, the Fund may not
be able to liquidate those shares in the event of adverse market conditions or
other considerations.
Also, the investment advisers of the mutual funds in which a Fund invests
may simultaneously pursue inconsistent or contradictory courses of action. For
example, one fund may be purchasing securities of the same issuer whose
securities are being sold by another fund, with the result that the Fund would
incur an indirect expense without any corresponding investment or economic
benefit.
Asset-Backed Securities
The Taxable 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, in other asset-backed securities.
Asset-backed securities are created by the grouping of certain governmental,
government related and private loans, receivables and other lender assets into
pools. Interests in these pools are sold as individual securities. Payments from
the asset pools may be divided into several different tranches of debt
securities, with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive regular installments
of interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and accrued
interest at maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities can be subject to higher prepayment
risks than most other types of debt instruments. Prepayments may result in a
capital loss to the Fund to the extent that the prepaid mortgage securities were
purchased at a market premium over their stated amount. Conversely, the
prepayment of mortgage securities purchased at a market discount from their
stated principal amount will accelerate the recognition of interest income by
the Fund, which would be taxed as ordinary income when distributed to the
shareholders.
The credit characteristics of asset-backed securities also differ in a
number of respects from those of traditional debt securities. The credit quality
of most asset-backed securities depends primarily upon the credit quality of the
assets underlying such securities, how well the entity issuing the securities is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.
Foreign Securities
Each Fund may invest in foreign securities, including foreign securities not
publicly traded in the United States. The Taxable Money Market Fund may only
invest in foreign securities that are denominated in U.S. dollars. The
percentage of a Fund's assets that will be allocated to foreign securities will
vary depending on the relative yields of foreign and U.S. securities, the
economies of foreign countries, the condition of such countries' financial
markets, the interest rate climate of such countries and the relationship of
such countries' currency to the U.S. dollar. These factors are judged on the
basis of fundamental economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments status, and economic
policies) as well as technical and political data.
Investments in foreign securities involve special risks that differ from
those associated with investments in domestic securities. The risks associated
with investments in foreign securities apply to securities issued by foreign
corporations and sovereign governments. These risks relate to political and
economic developments abroad, as well as those that result from the differences
between the regulation of domestic securities and issuers and foreign securities
and issuers. These risks may include, but are not limited to, expropriation and
nationalization, confiscatory taxation, reduced levels of government regulation
of securities markets, currency fluctuations and restrictions on, and costs
associated with, the exchange of currencies, withholding taxes on interest,
limitations on the use or transfer of assets, political or social instability
and adverse diplomatic developments. It may also be more difficult to enforce
contractual obligations or obtain court judgments abroad than would be the case
in the United States because of differences in the legal systems. If the issuer
of the debt or the governmental authorities that control the repayment of the
debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, the Fund may have limited legal recourse
in the event of a default. Moreover, individual foreign economies may differ
favorably or unfavorably from the domestic economy in such respects as growth of
gross national product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include: less publicly available
information about foreign issuers; credit risks associated with certain foreign
governments; the lack of uniform financial accounting standards applicable to
foreign issuers; less readily available market quotations on foreign issues; the
likelihood that securities of foreign issuers may be less liquid or more
volatile; generally higher foreign brokerage commissions; and unreliable mail
service between countries.
To the extent that debt securities purchased by a Fund are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Fund's net asset value; the value of interest earned;
gains and losses realized on the sale of securities; and net investment income
and capital gain, if any, to be distributed to shareholders by the Fund. If the
value of a foreign currency rises against the U.S. dollar, the value of the
Fund's assets denominated in that currency will increase; correspondingly, if
the value of a foreign currency declines against the U.S. dollar, the value of
the Fund's assets denominated in the currency will decrease.
Foreign Currency Transactions. The Funds (except the Taxable Money Market
Fund) may enter into foreign currency transactions to obtain the necessary
currencies to settle securities transactions. Currency transactions may be
conducted either on a spot or cash basis at prevailing rates or through forward
foreign currency exchange contracts.
The Funds may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency transactions may be used by the Fund to protect against a
decline in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.
U.S. Government Securities
All of the Funds may invest in U.S. government securities. These securities
are either issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The government securities in which the Funds may invest are
backed in a variety of ways by the U.S. government or its agencies or
instrumentalities. Some of these securities, such as Government National
Mortgage Association ("GNMA") mortgage-backed securities, are backed by the full
faith and credit of the U.S. government. Other securities, such as obligations
of the Federal National Mortgage Association ("FNMA") or Federal Home Loan
Mortgage Corporation ("FHLMC"), are backed by the credit of the agency or
instrumentality issuing the obligations but not the full faith and credit of the
U.S. government. No assurances can be given that the U.S. government will
provide financial support to these other agencies or instrumentalities, because
it is not obligated to do so.
Bank Instruments
All of the Funds may invest in time deposits (including savings deposits and
certificates of deposit), deposit notes and bankers acceptances in commercial
banks or savings associations whose accounts are insured by the Federal Deposit
Insurance Corporation ("FDIC"), including certificates of deposit issued by and
other time deposits in foreign branches of FDIC insured financial institutions
or who have at least $100 million in capital. These instruments may also include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee Cds") and Eurodollar Time Deposits ("ETDs"). The banks issuing these
instruments are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan requirements, loan
limitations, examinations, accounting, auditing, and record keeping and the
public availability of information.
Repurchase Agreements
All of the Funds may invest in repurchase agreements related to eligible
securities. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. Under the Investment
Company Act of 1940, a repurchase agreement is deemed to be a loan
collateralized by the underlying securities. To the extent that the original
seller does not repurchase the securities from the Fund, the Fund could receive
less than the repurchase price on any sale of such securities.
Selling Securities Short
The Starwood Strategic Fund may sell securities short. The Fund will effect
short sales when it is believed that the price of a particular security will
decline. A short sale involves the sale of a security which the Fund does not
own in the hope of purchasing the same security at a later date at a lower
price. To make delivery to the buyer, the Fund must borrow the security, and the
Fund is obligated to return the security to the lender, which is accomplished by
a later purchase of the security by the Fund.
When the Fund makes a short sale, it must deposit with the lender or
maintain in a segregated account cash or government securities to collateralize
its obligation to replace the borrowed securities which have been sold. The Fund
may sell securities short only to the extent that would cause the amounts on
deposit or segregated to equal 25% of the value of its total assets.
The Fund will incur a loss as a result of a short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund purchases the security to replace the borrowed security. The Fund will
realize a gain if the security declines in price between those dates. The amount
of any gain will be decreased and the amount of any loss increased by any
premium or interest the Fund may be required to pay in connection with a short
sale.
When-Issued and Delayed Delivery Transactions
The Funds may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which a Fund purchases securities
with payment and delivery scheduled for a future time. Prior to such delivery,
no income on the securities accrues to the Fund. In when-issued and delayed
delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
Demand Features
The Funds that invest in debt securities may acquire securities that are
subject to puts and standby commitments ("demand features") to purchase the
securities at their principal amount (usually with accrued interest) within a
fixed period following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security are treated as a form of credit
enhancement.
Options Transactions
Each of the Funds (except the Taxable Money Market Fund) 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 current income. Each Fund may write covered
call options and secured put options on up to 25% of its net assets and may
purchase put and call options provided that no more than 5% of the fair market
value of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by a Fund is exercised, the Fund forgoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options
in several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the fund
may experience material losses. However, in writing options the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and a wider range of expiration dates
and exercise prices, than are exchange traded options. The Fund intends to treat
OTC options as illiquid securities.
Temporary Investments
All of the Funds may invest temporarily in cash or short-term money market
instruments during times of unusual market conditions for defensive purposes,
without limitation. These temporary investments may include the instruments
described above under "The Taxable Money Market Fund". The Funds may also invest
in these instruments temporarily to maintain liquidity in anticipation of
favorable investment opportunities.
Borrowing
The Starwood Strategic Fund is permitted to borrow money up to one-third of
the value of total assets (including the amount borrowed), and pledge up to 15%
of the value of those assets to secure such borrowings, for the purpose of
investment. The other Funds may borrow to that extent for temporary or emergency
purposes. Borrowing for the purpose of investment is a speculative technique
that increases both investment opportunity and the ability to achieve greater
diversification of the Fund's portfolio. However, it also increases investment
risk. Because the Fund's investments will fluctuate in value, whereas the
interest obligations on borrowed funds may be fixed, during times of borrowing,
the Fund's net asset value may tend to increase more when its investments
increase in value, and decrease more when its investments decrease in value. In
addition, interest costs on borrowings may fluctuate with changing market
interest rates and may partially offset or exceed the return earned on the
borrowed funds. Also, during times of borrowing under adverse market conditions,
the Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales.
<PAGE>
General
In order to generate additional income, each Fund may lend portfolio
securities on a short-term or a long-term basis up to 5% of the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. Each Fund may invest up to 5% of its assets in reverse repurchase
agreements, restricted securities and demand notes and credit facilities.
Portfolio Turnover
Each Fund may trade or dispose of portfolio securities as considered
necessary to meet its investment objective. Each of the Funds intends to make
investments based on long-term investment considerations as opposed to
short-term trading. However, each Fund may take advantage of opportunities for
short-term profits as they arise. Higher portfolio turnover results in increased
Fund expenses, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of securities and on the reinvestment in other
securities, and results in the acceleration of realization of capital gains or
losses for tax purposes. The Funds cannot accurately predict their portfolio
turnover rates, but it is anticipated that each Fund's annual turnover rate
generally will not exceed 100% (excluding the money market Fund, which must
invest in short-term instruments).
NET ASSET VALUE
Net asset value per share (the price at which shares are purchased and
redeemed) is determined as of the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time), on each business day the Exchange
is open for business. Net asset value per share of the Taxable Money Market Fund
is also determined as of 12:00 noon (Eastern time) on such days. Each Fund's net
asset value per share is determined by dividing the sum of the market value of
all securities and all other assets of the applicable Fund, less liabilities of
the Fund, by the number of the Fund's shares outstanding.
The net asset value per share will fluctuate for each Fund other than the
Taxable Money Market Fund. The portfolio securities of the Taxable Money Market
Fund are valued utilizing the amortized cost method of valuation, which normally
approximates market value, and which is intended to result in a constant net
asset value of $1.00 per share. Although every effort is made to maintain the
net asset value of the Taxable Money Market Fund at $1.00 per share, there can
be no assurance that this constant net asset value will be maintained at all
times. For example, in the event of rapid and sharp increases in current
interest rates, a national credit crisis, or a default by one or more of the
issuers of the Fund's portfolio securities, then it is possible that the Fund's
net asset value could decline below $1.00 per share.
<PAGE>
HOW TO BUY SHARES
Shares of the Funds are sold each day the New York Stock Exchange is open
at the applicable Fund's net asset value per share next calculated after receipt
of the purchase order in proper form. The Trust reserves the right to reject any
purchase request. Investors may be charged a fee if they effect transactions
through a broker or agent.
Minimum Investment
The minimum initial investment in each Fund is $l,000, except an IRA for
which the minimum initial investment is $500. Former shareholders of the Unified
family of funds, or the Quest funds which acquired the Unified family of funds,
may open an account with less than the required minimum. However, they are
subject to a one-time $4.50 administrative charge to establish the account. The
minimum investment may also be waived for certain other types of retirement
accounts and direct deposit accounts. Subsequent investments may be made in
amounts of at least $100, except for an IRA, which must be in amounts of at
least $50. Minimum investments for certain other types of retirement accounts
and direct deposit accounts may be different. See "Shareholder Services."
Opening An Account
An account may be opened by mail or bank wire, as follows:
By Mail. To open a new account by mail:
o Complete and sign the account application. (Be sure to specify the name of the
Fund(s) in which an investment is made.)
o Enclose a check payable to each Fund specified in the application.
o Mail the application and the check to the Fund's Transfer Agent,
Unified Fund Services, Inc. (the "Transfer Agent") at the
following address: The Unified Funds, c/o Unified Fund Services, Inc.,
P.O. Box 6110, Indianapolis, Indiana 46206-6110.
By Wire. To open a new account (or to open an additional account in a
different Fund) by wire, call the Transfer Agent at 1-800-408-4682. A
representative will assist you to obtain an account application by telecopy (or
mail), which must be completed, signed and telecopied (or mailed) to the
Transfer Agent before payment by wire may be made. Then, request your financial
institution to wire immediately available funds to:
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Star Bank, N.A.
ABA # 04-20000-13
Attention: Name of Fund (see below)
Number of Fund (see below)
Credit Account # ________ (see below)
The applicable Fund and account numbers are as follows:
Fund Name Fund Number Account Number
Starwood Strategic Fund 20 483616744
Laidlaw Fund 23 483616769
First Lexington Balanced Fund 26 483616793
Taxable Money Market Fund 30 483616819
The order is considered received when Star Bank, N.A., the Trust's custodian
(the "Custodian"), receives payment by wire. However, the completed account
application must be mailed to the Transfer Agent on the same day the wire
payment is made. See "Opening an Account -- By Mail" above. The Trust will not
permit redemptions until the Transfer Agent receives the application in proper
form. Financial institutions may charge a fee for wire transfers.
Subsequent Investments
Once an account is open, additional purchases of Fund shares may be made at
any time in minimum amounts of $100, except for an IRA, which must be in amounts
of at least $50. Additional purchases may be made:
o By sending a check, made payable to the applicable Fund, to The Unified
Funds, [Name of Fund], P.O. Box 640689, Cincinnati, Ohio 45264-0689. The
Trust will charge a $15 fee against a shareholder's account for any check
returned for insufficient funds. The shareholder also will be responsible
for any losses suffered by the Trust as a result.
o By wire to the applicable Fund account as described above under
"Opening an Account -- By Wire". Shareholders should call
the Transfer Agent at 1-800-408-4682 before wiring funds.
o By electronic funds transfer from a financial institution through
the Automated Clearing House ("ACH"), as described below.
o By telephone order, as described below.
By Automated Clearing House (ACH). Once an account is open, shares may be
purchased or redeemed through ACH in minimum amounts of $100. ACH is the
electronic transfer of funds directly between an account with a financial
institution and the applicable Fund. In order to use the ACH service, the ACH
Authorization section of the account application must be completed. For existing
accounts, an ACH Authorization Form may be obtained by calling the Transfer
Agent at 1-800-408-4682. Allow at least two weeks for preparation before using
ACH. To order a purchase or redemption by ACH, call the Transfer Agent at
1-800-408-4682. There are no charges for ACH transactions imposed by the Fund or
the Transfer Agent. ACH transactions are completed approximately two business
days following the placement of the transfer order.
ACH may be used to make direct deposits into a Fund account of part or all
of recurring payments made to a shareholder by his or her employer (corporate,
federal, military, or other) or by the Social Security Administration.
By Telephone Order. Once an account is open, shares may be purchased at a
certain day's price by calling the Transfer Agent at 1-800-408-4682, before the
close of regular trading on the New York Stock Exchange (currently 4:00 p.m.,
Eastern time) on that day. Orders must be for $1,000 or more and may not be for
an amount greater than twice the value of the existing account at the time the
order is placed. Payment by check or wire must be received within three business
days after the order is placed, or the order will be cancelled and the
shareholder will be responsible for any resulting loss to the Fund. Payment of
telephone orders by check may not be mailed to the Transfer Agent's P.O. Box
address herein, but must be mailed to the Transfer Agent at Unified Fund
Services, Inc., 431 North Pennsylvania Street, Indianapolis, Indiana 46204.
Payment must be accompanied by the order number given at the time the order is
placed. A written confirmation with complete purchase information will be sent
to the shareholder of record shortly after payment is received.
DIVIDENDS AND DISTRIBUTIONS
The Starwood Strategic Fund, the Laidlaw Fund and the First Lexington
Balanced Fund declare and pay dividends on a quarterly basis. The Taxable Money
Market Fund declares and pays dividends on a daily basis.
The Funds make distributions of any net realized long-term capital gains at
least once every twelve months. Dividends and distributions are automatically
reinvested in additional shares on payment dates at the ex-dividend net asset
value, unless cash payments are requested on the account application or in
writing to the Transfer Agent. If cash payments are requested with respect to
the Taxable Money Market Fund, daily dividends will accumulate and be paid at
the end of each month, as requested in writing. All shareholders on the record
date are entitled to the dividend.
If an order for shares is received on a business day prior to receipt of
wire payment, shares purchased by wire begin earning dividends on the business
day wire payment is received by the Transfer Agent. If the order for shares and
payment by wire are received on the same day, shares begin earning dividends on
the next business day. Shares purchased by check begin earning dividends on the
business day after the check is converted into federal funds. Shares earn
dividends through the business day that proper written redemption instructions
are received by the Transfer Agent. Certain transactions in the Taxable Money
Market Fund are treated differently, as described below.
<PAGE>
Timing of Certain Money Market Fund Transactions
The Taxable Money Market Fund has two transaction times each day, at 12:00
noon (Eastern time) and the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time). New investments represented by
federal funds or bank wires received by the Custodian prior to 12:00 noon are
paid the full dividend for that day; such investments received after 12:00 noon
do not begin to receive daily dividends until the next day. Redemption orders
received prior to 12:00 noon are effected at 12:00 noon, and the redemption
proceeds are normally available that day. Redemption orders received after 12:00
noon are effected at the close of regular trading on the New York Stock
Exchange, and the redemption proceeds are normally remitted the next business
day. Redemption orders received at any time during a day do not earn that day's
dividend.
EXCHANGE PRIVILEGE
Shares of any fund of the Trust may be exchanged for shares of any other
fund of the Trust at net asset value, without any additional charges. The shares
exchanged must have been registered in the shareholder's name for at least five
days prior to the exchange request, and must have a net asset value which at
least meets the minimum investment required for the fund into which the exchange
is being made.
Exchange requests may be made by telephone or in writing. Exchanges will be
effected at the respective net asset values per share of the funds involved,
next determined after the exchange request is received in proper form. If an
exchange request is received by the Transfer Agent in proper form on a Trust
business day before the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time), the exchange will be effected that day. An
exchange of shares purchased by check will be delayed until the check has been
converted into federal funds and redemption proceeds are available for purchase
of the newly acquired shares, which could take up to 15 days.
By Telephone. Exchange requests may be made by telephone by calling the
Transfer Agent at 1-800-408-4682. Exchange requests made by telephone will be
effected only if (1) the shareholder's existing account has authorized telephone
redemption privileges (see "How to Redeem Shares -- By Telephone" below) and (2)
no account information will change as a result of the exchange. The Transfer
Agent requires personal identification before accepting any exchange request by
telephone, and telephone exchange requests may be recorded.
By Mail or Telecopy. Exchange requests made in writing should be sent to The
Unified Funds c/o Unified Fund Services, Inc., P.O. Box 6110, Indianapolis,
Indiana 46206-6110. A written request to exchange shares having a net asset
value of less than $5,000 may be sent by telecopy, by first calling the Transfer
Agent at 1-800-408-4682. Regardless of whether the request is sent by mail or by
telecopy, the request must be signed exactly as the shareholder's name appears
on the Trust's account records. If the shares to be exchanged have a net asset
value of $5,000 or more, the request must be mailed, and all signatures must be
properly guaranteed as described below under "How to Redeem Shares --
Signatures." If shares are to be exchanged into a new account registered in a
different name, or if any account information will change as a result of the
exchange, a separate account application must be received by the Transfer Agent
by mail before the exchange may be effected.
The exchange privilege is designed to accommodate changes in shareholder
investment objectives. It is not designed for frequent trading in response to
short-term market fluctuations. Accordingly, the Trust reserves the right to
limit a shareholder's use of the exchange privilege. The exchange privilege may
be modified or terminated at any time.
Any exchange involves a redemption of shares of one Fund and an investment
of the redemption proceeds in shares of another Fund. Before requesting an
exchange, a shareholder should read carefully the parts of this Prospectus
describing the Fund into which the exchange will be made. Also, an exchange is
treated for federal income tax purposes as a sale of the shares given in
exchange, and the shareholder may realize a taxable gain or loss on the
exchange.
HOW TO REDEEM SHARES
Shares of each Fund may be redeemed on any day on which the Fund computes it
net asset value. Shares are redeemed at their net asset value next determined
after the Transfer Agent receives the redemption request in proper form.
Redemption requests may be made by mail or by telephone.
By Mail. A shareholder may redeem shares by mailing a written request to
The Unified Funds, c/o Unified Fund Services, Inc., P.O. Box 6110, Indianapolis,
Indiana 46206-6110. Written requests must state the shareholder's name, the name
of the Fund, the account number and the shares or dollar amount to be redeemed
and be signed exactly as the shares are registered.
Signatures. Shareholders requesting a redemption of $5,000 or more, or
a redemption of any amount payable to a person other than the shareholder of
record or to be sent to an address other than that on record with the Trust,
must have all signatures on written redemption requests guaranteed. The
Transfer Agent will accept signatures guaranteed by a financial institution
whose deposits are insured by the FDIC; a member of the New York, American,
Boston, Midwest, or Pacific Stock Exchange; or any other "eligible guarantor
institution," as defined in the Securities Exchange Act of 1934. The
Transfer Agent will not accept signatures guaranteed by a notary public. The
Transfer Agent has adopted standards for accepting signature guarantees from
the above institutions. The Trust may elect in the future to limit eligible
signature guarantors to institutions that are members of a signature
guarantee program. The Trust and its Transfer Agent reserve the right to
amend these standards at any time without notice.
Redemption requests by corporate and fiduciary shareholders must be
accompanied by appropriate documentation establishing the authority of the
person seeking to act on behalf of the account. Forms of resolutions and
other documentation to assist in compliance with the Transfer Agent's
procedures may be obtained by calling the Transfer Agent.
By Telephone. You may also redeem shares by telephone by calling the
Transfer Agent at 1-800-408-4682. In order to make redemption requests by
telephone, the Telephone Privileges section of the account application must be
completed. For existing accounts, a Telephone Privileges form may be obtained by
calling the Transfer Agent at 1-800-408-4682.
Telephone redemptions may be requested only if the proceeds are to be issued
to the shareholder of record and mailed to the address on record with the Fund.
Upon request, proceeds of $100 or more may be transferred by ACH, and proceeds
of $1,000 or more may be transferred by wire, in either case to the account
stated on the account application. Shareholders will be charged for outgoing
wires.
Telephone privileges and account designations may be changed by sending the
Transfer Agent a written request with all signatures guaranteed as described
above.
The Transfer Agent requires personal identification before accepting any
redemption request by telephone, and telephone redemption instructions may be
recorded. If reasonable procedures are not followed by the Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions. In
the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, redemption by
mail should be considered.
Receiving Payment
The Trust normally will make payment for all shares redeemed within three
business days after receipt by the Transfer Agent of a redemption request in
proper form, except as provided by the rules of the Securities and Exchange
Commission. A requested wire of redemption proceeds normally will be effected
the following business day, but in no event more than three business days, after
receipt of the redemption request in proper form. However, when shares are
purchased by check or through ACH, the proceeds from the redemption of those
shares are not available, and the shares may not be exchanged, until the
purchase check or ACH transfer has been converted to federal funds, which could
take up to 15 days.
Check Writing (Taxable Money Market Fund Only)
Under the Funds' check writing service, shareholders of the Taxable Money
Market Fund may write checks payable to any payee in any amount of $250 or more.
There is no check writing privilege for the non-money market Funds. A
shareholder with check writing privileges may present for payment three checks
per month free of charge; additional checks will result in a charge of $0.30 per
check. Daily dividends will continue to accrue on the shares redeemed by check
until the day the check is presented for payment.
The Check Writing Privileges section of the account application must be
completed in order to initiate check writing privileges. For existing accounts,
check writing privileges may be initiated by sending a written request to the
Transfer Agent with all signatures guaranteed. A book of checks will be sent to
the shareholder of record upon the Transfer Agent's receipt of the request.
A check should not be used to close out an account with the Fund because the
balance of the account will continue to increase by the amount of daily
dividends until the check is presented for payment. The Transfer Agent may
impose a charge for checks returned unpaid for insufficient funds or for
effecting stop-payment instructions.
Minimum Account Balance
Due to the high cost of maintaining accounts with low balances, the Trust
may involuntarily redeem shares in any account, and pay the proceeds to the
shareholder, if the account balance falls below a required minimum value of
$1,000 ($500 for an IRA) due to shareholder redemptions. This requirement does
not apply, however, if the balance falls below the minimum because of changes in
a Fund's net asset value. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
Shares to meet the minimum requirement. The Transfer Agent reserves the right
and may charge shareholders an administrative fee to cover the cost of
maintaining and properly servicing lost accounts and accounts with balances
below the required minimums.
SHAREHOLDER SERVICES
Each time shares are purchased or redeemed, a statement will be mailed
showing the details of the transaction and the number and value of shares owned
after the transaction. Transactions made in brokerage sweep accounts will be
detailed on a monthly brokerage statement. Share certificates are not issued.
Financial reports showing investments, income and expenses of the Funds are
mailed to shareholders semi-annually. After the end of each year, shareholders
receive a statement of all their transactions for the year.
The Trust provides a number of plans and services to meet the special needs
of certain investors, including (1) an automatic investment plan, (2) a payroll
deduction plan, (3) a systematic withdrawal plan to provide monthly payments,
(4) retirement plans such as IRA and 403(b), and (5) corporate pension and
profit sharing plans, including a 401(k) plan. Brochures describing these plans
and related charges and account applications are available from the Transfer
Agent by calling 1-800-408-4682.
THE TRUST AND ITS MANAGEMENT
The Trust is an Ohio business trust authorized to offer separate series and
classes of shares of beneficial interest. The Trust, which was organized on
November 20, 1997, is the successor to the operations of The Vintage Funds. At
the date of this Prospectus, the Trust has established several funds, including
the four Funds described herein, each as a separate series of its shares. The
Trust's offices are at 431 North Pennsylvania Street, Indianapolis, Indiana
46204. The business affairs of the Trust are under the direction of its Board of
Trustees.
Investment Advisory Arrangements
Investment Adviser. Unified Investment Advisers, Inc., 431 North
Pennsylvania Street, Indianapolis, Indiana 46204, serves as the Trust's
investment adviser (the "Adviser"). The Adviser supervises and assists in the
management of the Funds under an Investment Advisory Agreement between the
Adviser and the Trust, subject to the overall authority of the Board of
Trustees. The Adviser also is responsible for monitoring and evaluating the
performance of the Sub-Adviser, as described below.
The Adviser was organized in December 1994 and is a registered investment
adviser. The Adviser is a wholly owned subsidiary of Unified Financial Services,
Inc. Unified Financial Services is also the parent of Unified Management
Corporation (the Funds' Distributor) and Health Financial, Inc. (the Sub-Adviser
of the First Lexington Balanced Fund).
To assist the Adviser in the selection of socially conscious companies in
which the Laidlaw Fund might invest, the Adviser has entered into a consulting
agreement with Laidlaw Holdings Asset Management, Inc. ("Laidlaw"). Laidlaw's
duties include the preparation of a recommended list of socially conscious
companies, investment in which would be consistent with the socially responsible
investment policy of the Laidlaw Fund. Laidlaw does not provide investment
advisory services to the Fund. The consulting fee is paid directly by the
Adviser from its own assets and is not an expense of the Fund.
Sub-Adviser. The Adviser has entered into a Sub-Advisory Agreement with
Health Financial, Inc., 2353 Alexandria Dr., Lexington, KY 40504 to serve as the
sub-adviser of the First Lexington Balanced Fund. Health Financial, Inc.,
founded by Dr. Gregory W. Kasten in 1984, is a registered investment adviser
that primarily serves physicians and private pension plans. The sub-adviser
currently manages approximately $255 million in assets, including the assets
held by First Lexington Trust Company, a regulated trust company that provides
pension trust and charitable gift investment management.
Portfolio Managers' Backgrounds
Starwood Strategic Fund. Andrew E. Beer has been the Fund's portfolio
manager since its inception. Mr. Beer has been the President and Director of
Starwood Corporation, a registered investment adviser that manages approximately
$30 million in assets, since 1984.
Laidlaw Fund and Taxable Money Market Fund. Jack R. Orben is the Funds'
portfolio manager. Mr. Orben has been the Chairman of Fiduciary Counsel, a
registered investment adviser that manages approximately $450 million in assets,
since 1979. Prior to that time, he was President of Orben & Associates, Inc., an
investment consultant to bank trust departments. Since 1979, Mr. Orben has been
a member of Fiduciary Counsel's Investment Policy Committee and Chairman of its
Executive Committee. Mr. Orben graduated from Tufts University in 1960, and has
nearly 25 years of investment experience.
First Lexington Balanced Fund. Dr. Gregory W. Kasten began managing the
Fund's portfolio in January 1997. Dr. Kasten has served as president of Health
Financial, Inc., the Fund's Sub-Adviser, since 1986. Prior to 1994, Dr. Kasten
practiced medicine with Anesthesia Associates, PSC, Lexington, Kentucky. Dr.
Kasten has completed the two year program from the Denver College of Financial
Planning and is a Certified Financial Planner. Dr. Kasten has also completed the
two year program from the American Society of Pension Actuaries, and he received
from that program the Certificate of Pension Consultant designation. In 1990, he
received his M.B.A. in Finance from the University of Kentucky.
<PAGE>
Advisory Fees
Each Fund pays the Adviser an annual advisory fee, payable monthly, based on
its average daily net assets. The fee is equal to 1.25% of the Fund's average
daily net assets for the Starwood Strategic Fund and the Laidlaw Fund. The fee
is equal to 0.75% of the Fund's average daily net assets for the First Lexington
Balanced Fund. The fee is equal to 0.90% of the Fund's average daily net assets
for the Taxable Money Market Fund. The Adviser pays all of the operating
expenses of the Funds except 12b-1 and shareholder servicing fees, brokerage,
taxes, interest and extraordinary expenses.
The Adviser pays Health Financial, Inc. an annual fee for its services in
managing the First Lexington Balanced Fund. These fees are paid directly by the
Adviser from its own assets and are not an expense of the Funds. The Funds
themselves pay no fees to the Sub-Adviser. The annual sub-advisory fee, payable
monthly, is equal to 0.40% of the Fund's net assets up to $250 million; 0.35% of
the next $250 million of net assets; and 0.30% of net assets in excess of $500
million.
Distribution Services
Distributor. Unified Management Corporation (the "Distributor"), 431 North
Pennsylvania Street, Indianapolis, Indiana 46024, acts as each Fund's
distributor pursuant to a Distribution Agreement with the Trust. The distributor
is a subsidiary of Unified Financial Services, Inc.
Distribution Plan. Under a Distribution Plan adopted with respect to each
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Trust
pays the Distributor an annual fee, payable monthly, of up to 0.10% of each
Fund's average daily net assets. The Distributor is entitled to retain all of
this distribution fee to reimburse the Distributor for payments made or expenses
incurred for distribution of Fund shares, including those incurred in connection
with preparing and distributing sales literature and advertising, preparing,
printing and distributing prospectuses and statements of additional information
used for other than regulatory purposes or distribution to existing
shareholders, implementing and operating the Distribution Plan, and compensating
third parties for their distribution services. The Distributor may select
financial institutions such as banks, custodians, investment advisers and
broker/dealers to provide sales support services as agents for their clients or
customers.
The Distribution Plan is a compensation-type plan. Therefore, the amounts
payable to the Distributor during any year may be more or less than actual
expenses incurred by the Distributor during such year. No amount payable or
credit due pursuant to the Distribution Plan for any fiscal year may be carried
over for payment or utilized as a credit, as the case may be, beyond the end of
the year, unless authorized by the Trust's Board of Trustees. However, the
Distributor may be able to recover such amounts or may earn a profit from future
payments made by the Trust under the Distribution Plan.
<PAGE>
Administration of the Trust
Administrator. Unified Fund Services, Inc., 431 North Pennsylvania St.,
Indianapolis, Indiana 46204, serves as the Trust's administrator (the
"Administrator"). Pursuant to a Mutual Fund Services Agreement with the Trust,
the Administrator provides certain administrative personnel and services
(including administration, transfer agency and fund accounting services)
necessary to operate the Funds. For its services, the Administrator receives
from the Adviser an annual fee, payable monthly, based on each Fund's average
daily net assets. The fee is equal to 0.435% of the average daily net assets for
the Starwood Strategic Fund and the Laidlaw Fund, and 0.185% of the average
daily net assets of the First Lexington Balanced Fund and the Taxable Money
Market Fund.
Shareholder Services Plan. The Trust has adopted a Shareholder Services
Plan (the "Service Plan") with respect to each Fund, which is administered by
the Administrator. Under the Service Plan, financial institutions, including
brokers, may enter into shareholder service agreements with the Trust to provide
administrative support services to their clients or customers who from time to
time may be owners of record or beneficial owners of the shares of one or more
of the Funds. In return for providing these support services, a financial
institution may receive payments from the Fund at a rate not exceeding 0.15% of
the average daily net assets of the shares beneficially owned by the financial
institution's clients or customers for whom it is holder of record or with whom
it has a servicing relationship. These administrative services may include, but
are not limited to, the provision of personal services and maintenance of
shareholder accounts.
The Glass-Steagall Act limits the ability of a depository institution (such
as a commercial bank or a savings and loan association) to become an underwriter
or distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Board of Trustees will consider appropriate changes in the services. State
securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
Other Arrangements. The Adviser, the Distributor or the Administrator may
also pay brokers or financial institutions a fee based upon the net asset value
of the Fund shares beneficially owned by the broker's or financial institution's
clients or customers. This fee is in addition to amounts paid under the
Distribution Plan or the Services Plan. These payments will be made directly by
the Adviser, the Distributor or the Administrator from their own assets, will
not be made from the assets of the Funds and are not an additional expense of
the Funds.
From time to time the Distributor will purchase Fund shares on behalf of its
clients and will be entitled to receive 12b-1 fees, shareholder servicing fees
and other administrative fees described herein to the same extent as any other
broker or financial institution.
Transfer Agent, Fund Accounting Agent and Custodian
Unified Fund Services, Inc., P.O. Box 6110, Indianapolis, Indiana
46206-6110, acts as the Trust's transfer agent and fund accounting agent.
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45201, acts as the
Trust's custodian. General correspondence to the Custodian should be addressed
to Star Bank, N.A., P.O. Box 1038, Location 6118, Cincinnati, Ohio 45201. Share
purchase orders mailed directly to the custodian (See "How to Buy Shares --
Subsequent Investments") should be addressed to The Unified Funds, [Name of
Applicable Fund], P.O. Box 640689, Cincinnati, Ohio 45264-0689.
Portfolio Transactions
The Adviser and Sub-Adviser select the firms that effect brokerage
transactions for their respective Funds, subject to the overall direction and
review of the Adviser and the Board of Trustees. The initial criterion that must
be met by the Adviser and Sub-Adviser in selecting brokers and dealers is
whether the firm can obtain the most favorable combination of price and
execution for the transaction. This does not mean that the execution decision
must be based solely on whether the lowest possible commission costs may be
obtained. In seeking the best combination of price and execution, the Adviser
and Sub-Adviser evaluate the execution capability of the firms and the services
they provide, including their general execution capability, reliability and
integrity, willingness to take positions in securities, and general operational
and financial condition.
Subject to this primary objective, the Adviser and Sub-Adviser may select
for brokerage transactions those firms which furnish brokerage and research
services to the Funds, the Adviser or the Sub-Adviser. The Adviser and the
Sub-Adviser may also give consideration to firms that have sold Fund shares. The
Board of Trustees has authorized the Funds to pay brokerage commissions to firms
that are affiliated with the Adviser or the Sub-Adviser, subject to the
foregoing criteria.
<PAGE>
[V.O.I.C.E. Logo]
The Adviser has established The Unified Funds University and Philanthropic
Program (the "Program"), entitled "V.O.I.C.E."sm (Vision for Ongoing Investment
in Charity and Education)sm pursuant to which the Adviser will make donations
from its own income to certain accredited college or university endowments or
general scholarship funds ("Eligible Institutions") designated by qualified
shareholders. Philanthropic institutions outside of the area of education may be
proposed by qualifying shareholders and may, at the sole discretion of the
Adviser, be accepted for inclusion as an Eligible Institution.
All Unified Funds shareholders maintaining an average annualized aggregate
net asset value of $25,000 or more over the period of an entire calendar quarter
("Qualified Shareholders") will be qualified to designate one or more Eligible
Institutions to receive a donation under the Program with respect to that
period. A shareholder making an initial investment of $25,000 or more in Fund
shares may designate one Eligible Institution on the V.O.I.C.E.sm Program
Application. A shareholder making an initial investment of $1,000,000 or more
(or maintaining that amount for an entire quarterly period) may designate one
additional Eligible Institution for each $l,000,000 invested (or maintained for
such period).
The Adviser will donate annually from its own income an amount equal to
0.25% of the average daily aggregate net asset value of the shares owned by the
Qualified Shareholder. This donation will be made on a quarterly basis for so
long as the average daily aggregate net asset value of the shares owned by the
Qualified Shareholder remains above $25,000 for the applicable quarterly period.
Donations will be made by the Adviser in the name of the Qualified Shareholder
to the Eligible Institution(s) designated by the Qualified Shareholder. However,
while the donation will be made in the Qualified Shareholder's name, the
Qualified Shareholder will not be entitled to any tax deductions for such
donation.
All Qualified Shareholders desiring to change their designated Eligible
Institution(s) may do so twice a year, in January and July. If a Qualified
Shareholder was entitled to designate, and did designate, more than one Eligible
Institution, the amount donated will be allocated according to the percentages
designated on the V.O.I.C.E.sm Program Application.
Donations will be made by the Adviser from its own income and, therefore,
will have no impact on the expenses or yield of the Funds. There can be no
assurances that the Adviser will have income from which to make donations.
The preceding information is only a summary of the V.O.I.C.E.sm Program and
is qualified in its entirety by the more complete information available from the
Adviser.
Information about the V.O.I.C.E.sm Program, including applications to
participate in the Program, may be obtained from the Adviser by calling
1-800-408-4682.
TAXES
It is intended that each Fund will qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), as
long as such qualification is in the best interest of the Fund's shareholders.
Such qualification relieves each Fund of liability for federal income tax to the
extent its earnings are distributed in accordance with the Code.
A shareholder receiving a distribution of ordinary income and/or an excess
of net short-term capital gain over net long-term capital loss ordinarily would
treat it as a receipt of ordinary income in the computation of the shareholder's
gross income, whether such distribution is received in cash or reinvested in
additional shares. Any distribution of the excess of net long-term capital gain
over net short-term capital loss ordinarily is taxable to shareholders as
long-term capital gain regardless of how long the shareholder has held shares.
Dividends and distributions also may be subject to state and local taxes.
Shareholders will receive statements as to the tax status of dividends and
distributions annually, as well as periodic account summaries that will include
information as to any dividends and distributions from securities gains paid
during the year. Shareholders should consult their own tax advisers with
questions regarding federal, state or local taxes.
Backup Withholding
The Trust may be required to withhold federal income tax at a rate of 31%
from dividends and redemption proceeds paid to non-corporate shareholders. This
tax may be withheld from dividends if a shareholder fails to furnish the Trust
with the shareholder's correct taxpayer identification number, the Internal
Revenue Service (the "IRS") notifies the Trust that the shareholder has failed
to report certain income to the IRS, or the shareholder fails to certify that he
or she is not subject to backup withholding when required to do so. Backup
withholding is not an additional tax and the shareholder may credit any amounts
withheld against the shareholder's federal income tax liability.
<PAGE>
PERFORMANCE INFORMATION
From time to time the Trust may publish performance information relative to
the Funds, and may include such information in advertisements, sales literature
or shareholder reports. Each Fund may periodically advertise "average annual
total return." The "average annual total return" of a Fund refers to the average
annual compounded rate of return over the stated period that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions.
Each Fund may also periodically advertise its total return over various
periods in addition to the value of a $10,000 investment (made on the date of
the initial public offering of the Fund's shares) as of the end of a specified
period. The "total return" for a Fund refers to the percentage change in the
value of an account between the beginning and end of the stated period, assuming
no activity in the account other than reinvestment of dividends and capital
gains distributions.
The Taxable Money Market Fund may quote its current yield and effective
yield. The "yield" of the Fund refers to the income generated by an investment
in the Fund over a seven-day period (which period will be stated in the
advertisement). This income is then annualized. That is, the amount of income
generated by investments during the week is assumed to be generated each week
over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment.
The Funds may also include in advertisements data comparing performance with
other mutual funds as reported in non-related investment media, published
editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc., Fortune or
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to well-known indices of market performance including the Standard &
Poor's (S&P) 500 Index or the Dow Jones Industrial Average.
The advertised performance data of each Fund is based on historical
performance and is not intended to indicate future performance. Rates of total
return quoted by a Fund may be higher or lower than past quotations, and there
can be no assurance that any rate of total return will be maintained. The
principal value of an investment in a non-money market Fund will fluctuate so
that a shareholder's shares, when redeemed, may be worth more or less than the
shareholder's original investment.
GENERAL INFORMATION
Any Trustee of the Trust may be removed by vote of the shareholders holding
not less than two-thirds of the outstanding shares of the Trust. The Trust does
not hold an annual meeting of shareholders. When matters are submitted to
shareholders for a vote, each shareholder is entitled to one vote for each whole
share he owns and fractional votes for fractional shares he owns. All shares of
the Fund have equal voting rights and liquidation rights. The Declaration of
Trust can be amended by the Trustees, except that any amendment that adversely
affects the rights of shareholders must be approved by the shareholders
affected.
Each Fund acknowledges that it is solely responsible for the information or
any lack of information about it in this joint Prospectus and in the joint
Statement of Additional Information, and no other Fund is responsible therefor.
There is a possibility that one Fund might be deemed liable for misstatements or
omissions regarding another Fund in this Prospectus or in the joint Statement of
Additional Information; however, the Funds deem this possibility slight.
Shareholder inquiries may be made by writing to The Unified Funds, c/o
Unified Fund Services, Inc., P.O. Box 6110, Indianapolis, Indiana 46206-6110, or
by calling 1-800-408-4682.
<PAGE>
THE UNIFIED FUNDS
The Starwood Strategic Fund
The Laidlaw Fund
The First Lexington Balanced Fund
The Taxable Money Market Fund
PROSPECTUS
February 1, 1999
TRANSFER AGENT
Unified Fund Services, Inc.
431 N. Pennsylvania Street
Indianapolis, Indiana 46204
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45201
<PAGE>
THE UNIFIED FUNDS
Prospectus dated February 1, 1999
The Unified Funds (the "Trust") is an open-end, management investment
company (a mutual fund) having several separate portfolios, each of which has
its own separate investment objective and policies. This Prospectus is for the
Taxable Money Market Fund (the "Fund"), a money market fund.
The Taxable Money Market Fund seeks a high level of current income
consistent with the preservation of capital and maintenance of liquidity. The
Fund pursues this objective by investing principally in a diversified portfolio
of short-term money market instruments. The Fund intends to maintain a constant
net asset value of $1.00 per share, although there is no assurance that it will
be able to do so.
The shares offered hereby are not deposits or obligations of any
financial institution and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
Investment in the shares involves investment risks including the possible loss
of principal. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
This Prospectus contains information that you should know before
investing in the Fund and it should be retained for future reference. A
Statement of Additional Information, dated February 1, 1999 has been filed with
the Securities and Exchange Commission (the "SEC") and is incorporated herein by
reference. The Statement of Additional Information is available upon request and
without charge by calling 1-800-408-4682. The SEC maintains a Web Site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding registrants
that file electronically with the SEC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<PAGE>
SUMMARY OF FUND EXPENSES........................
FINANCIAL HIGHLIGHTS............................
HIGHLIGHTS......................................
INVESTMENT OBJECTIVES AND POLICIES..............
INVESTMENT POLICIES AND TECHNIQUES
AND RISK FACTORS............................
NET ASSET VALUE................................
HOW TO BUY SHARES..............................
Minimum Investment........................
Opening an Account.........................
By Mail..............................
By Wire..............................
Subsequent Investments.....................
By Automated Clearing House (ACH)....
DIVIDENDS AND DISTRIBUTIONS....................
EXCHANGE PRIVILEGE.............................
By Telephone..............................
By Mail or Telecopy........................
HOW TO REDEEM SHARES...........................
By Mail..................................
Signatures...........................
By Telephone..............................
Receiving Payment.........................
Check Writing.............................
Minimum Account Balance...................
SHAREHOLDER SERVICES...........................
THE TRUST AND ITS MANAGEMENT...................
Investment Advisory Arrangements..........
Investment Adviser...................
Portfolio Manager's Background............
Advisory Fees.............................
Distribution Services.....................
Distributor..........................
Distribution Plan....................
Administration of the Trust...............
Administrator........................
Shareholder Services Plan............
Other Arrangements...................
Transfer Agent, Fund Accounting Agent
and Custodian..........................
Portfolio Transactions....................
THE "V.O.I.C.E."sm PROGRAM.....................
TAXES..........................................
Backup Withholding........................
PERFORMANCE INFORMATION........................
GENERAL INFORMATION............................
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representation must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made.
<PAGE>
SUMMARY OF FUND EXPENSES
Shareholders should be aware that the Fund is a no-load fund and,
accordingly, a shareholder does not pay any sales charge or commission upon
purchase or redemption of shares of the Fund. Unlike most other mutual funds,
the Fund does not pay directly for transfer agency, pricing, custodial,
auditing, or legal services, nor does the Fund pay directly any general
administrative or other significant operating expenses (except for 12b-1 and
Shareholder Servicing fees). The Adviser pays all of the operating expenses of
the Fund except 12b-1 and Shareholder Servicing fees, brokerage, taxes,
interest, and extraordinary expenses.
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) ............................................................None
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds,
as applicable)..................................................................................None
Redemption Fee (as a percentage of amount redeemed, if applicable)..............................None
Exchange Fee....................................................................................None
</TABLE>
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management 12b-1 Servicing Other Total
Fees Fees Fees Expenses Expenses
0.90% 0.10% 0.15% None 1.15%
Initial investments of less than the required minimum by persons exempt
from the minimum investment requirement are subject to a one-time $4.50
administrative charge. See "How to Buy Shares." Wire-transferred redemptions are
subject to a $15.00 charge and certain checking transactions may be subject to
additional charges. See "How to Redeem Shares".
The purpose of this table is to assist the investor in understanding
the various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. The expense information has been restated to reflect
current fees. Long-term shareholders may pay more than the economic equivalent
of the maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc. For a further description of the various
costs and expenses incurred by the Fund, see "The Trust and its Management."
<PAGE>
Example:
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$12 $37 $64 $140
The amounts listed in the example should not be considered as
representative of future expenses and actual expenses may be greater or less
than those indicated. Moreover, while the example assumes a 5% annual return,
the Fund's performance will vary and may result in an actual return greater or
less than 5%.
The Fund may invest incidentally in other mutual funds. To the extent
that the Fund invests in other mutual funds, the Fund will indirectly bear its
proportionate share of any fees and expenses paid by such other funds, in
addition to the fees and expenses payable directly by the Fund. Therefore, to
the extent that the Fund invests in other mutual funds, the Fund will incur
higher expenses, many of which may be duplicative. These expenses will be borne
by the Fund, and are not included in the expenses reflected in the table or
example above. See "Investment Policies and Techniques and Risk Factors."
FINANCIAL HIGHLIGHTS
The financial highlights of the Fund's operations for the periods
presented are derived from the audited financial statements of The Unified Funds
(formerly The Vintage Funds) and have been audited by McCurdy and Associates
CPA's, Inc., independent public accountants. This information should be read in
conjunction with the financial statements and notes thereto included in the
Annual Report to Shareholders. The Annual Report also contains additional
performance information and is available without charge by calling the Funds at
1-800-408-4682.
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>
HIGHLIGHTS
Investment Objectives and Investment Risks
An investment in the Fund involves investment risks including the
possible loss of principal. These risks depend upon many factors including,
among others, the Fund's investment objective, the credit quality of the
securities held and interest rate movements. There is no assurance that the Fund
will be able to maintain a stable net asset value of $1.00 per share. See
"Investment Objectives and Policies" and "Investment Policies and Techniques and
Risk Factors."
Liquidity
The Fund continuously offers and redeems its shares at a constant net asset
value of $1.00 per share. See "How to Buy Shares," "How to Redeem Shares" and
"Net Asset Value."
No Sales or Redemption Charges
There are no commissions, fees or charges by the Trust for the purchase or
redemption of shares. Initial investments below the stated minimum,
wire-transferred redemptions and certain checking transactions may be subject to
additional charges. See "Summary of Fund Expenses," "How to Buy Shares" and "How
to Redeem Shares."
Minimum Investment
A minimum investment of $1,000 is required to open an account, except
an IRA account for which the minimum is $500. Former shareholders of the Unified
family of funds, or the Quest funds which acquired the Unified family of funds,
may open an account with less than the required minimum. The minimum investment
may also be waived for certain other types of retirement accounts and direct
deposit accounts. Subsequent investments must be at least $100, or $50 for an
IRA. See "How to Buy Shares."
Investment Adviser
Unified Investment Advisers, Inc. is the Fund's investment adviser (the
"Adviser"). The Adviser was organized in December 1994 and the Fund commenced
operations on June 2, 1995.
Retirement Plans and Other Shareholder Services
The Trust offers retirement plans including a prototype Profit Sharing
Plan, Money Purchase Pension Plan, Salary Savings Plan - 401(k) and IRA
accounts, as well as a number of special shareholder services. For information
regarding these plans or services, call the Transfer Agent at 1-800-408-4682.
See "Shareholder Services."
<PAGE>
[V.O.I.C.E. Logo]
The Adviser administers The Unified Funds University and Philanthropic
Program pursuant to which the Adviser will make contributions to the general
scholarship funds or endowments of certain accredited colleges and universities
designated by qualified shareholders of the Fund. For information regarding this
Program, call the Adviser at 1-800-408-4682. Also see "The V.O.I.C.E.sm Program"
below. INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives cannot be changed without shareholder
approval. While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies described
in this Prospectus. Unless otherwise indicated, the Fund's investment policies
may be changed by the Trust's Board of Trustees without shareholder approval.
Shareholders will be notified before any material change in investment policies
becomes effective.
The following sections are concise descriptions of the Fund and its
investment objectives and policies. More information about certain types of
investments, investment techniques and risk factors is provided below under
"Investment Policies and Techniques and Risk Factors" and in the Statement of
Additional Information.
The Taxable Money Market Fund seeks a high level of current income
consistent with the preservation of capital and maintenance of liquidity. The
Fund pursues this objective by investing principally in a diversified portfolio
of high quality, short-term money market instruments.
The Fund's investments principally include:
! direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes and bonds;
! notes, bonds, and discount notes of U.S. government agencies
or instrumentalities;
! short-term corporate debt instruments (including commercial
paper and variable rate demand notes) which mature in 270 days
or less;
! domestic and foreign issues of corporate debt obligations
having floating or fixed rates of interest and having
remaining maturities of less than 13 months;
! bank instruments described below under "Bank Instruments";
<PAGE>
! other short-term investments of a type which the adviser
determines presents minimal credit risks and which are of
"high quality" as determined by a nationally recognized
statistical rating organization, or, in the case of an
instrument that is not rated, of comparable quality in the
judgment of the adviser;
! repurchase agreements collateralized by eligible investments;
and
! money market funds.
The Fund may invest only in securities that, at the time of purchase,
have a remaining maturity of less than 13 months and that are "eligible
securities" as defined by regulations of the Securities and Exchange Commission.
"Eligible securities" generally include securities rated in one of the two
highest categories by at least two nationally recognized statistical rating
organizations (or by one such rating agency if only one has issued a rating) or,
if unrated, are determined to be of comparable quality by the Adviser pursuant
to policies approved by the Board of Trustees. If the Fund purchases an eligible
security and its rating is subsequently downgraded so that the security is no
longer of high quality, the Fund will consider and take appropriate action,
which may include divesting the security. The Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less.
INVESTMENT POLICIES AND TECHNIQUES AND RISK FACTORS
This section describes certain types of investments, investment
techniques and investment policies and limitations of the Fund. This section
also includes information about the risk factors associated with the investments
and investment techniques. The risks of the Fund depend upon many factors
including, among other things, the Fund's investment objective, the average
duration of the Fund's portfolio, credit quality of the securities held and
interest rate movements. For further information, see the Statement of
Additional Information.
Fixed Rate Corporate Debt Obligations
The Fund may invest in fixed rate corporate debt obligations. Fixed
rate securities tend to exhibit more price volatility during times of rising or
falling interest rates than securities with floating rates of interest. This is
because floating rate securities, as described below, behave like short-term
instruments in that the rate of interest they pay is subject to periodic
adjustments based on a designated interest rate index. Fixed rate securities pay
a fixed rate of interest and are more sensitive to fluctuating interest rates.
In periods of rising interest rates the value of a fixed rate security is likely
to fall. Fixed rate securities with short-term characteristics are not subject
to the same price volatility as fixed rate securities without such
characteristics. Therefore, they behave more like floating rate securities with
respect to price volatility.
Many corporate debt obligations permit the issuers to call the security
and thereby redeem their obligations earlier than the stated maturity dates.
Issuers are more likely to call bonds during periods of declining interest
rates. In these cases, if a Fund owns a bond which is called, the Fund will
receive its return of principal earlier than expected and would likely be
required to reinvest the proceeds at lower interest rates, thus reducing income
to the Fund.
<PAGE>
Other Corporate Debt Obligations
The Fund may also invest in other corporate debt obligations, including
those described below.
Floating Rate Obligations. Floating rate securities are generally
offered at an initial interest rate which is at or above prevailing market
rates. The interest rate paid on these securities is then reset periodically
(commonly every 90 days) to an increment over some predetermined interest rate
index. Commonly utilized indices include the three-month Treasury bill rate, the
180-day Treasury bill rate, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a bank, the commercial paper rates, or
the longer-term rates on U.S. Treasury securities.
Variable Rate Demand Notes. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals (ranging from daily
to annually), and is normally based on an interest index or a stated percentage
of a prime rate or another published rate. Many variable rate demand notes allow
the Fund to demand the repurchase of the security on not more than seven days
prior notice. Other notes only permit the Fund to tender the security at the
time of each interest rate adjustment or at other fixed intervals.
Asset-Backed Securities
The Fund may invest in mortgage-related asset-backed securities that
are considered U.S. government securities. Asset-backed securities are created
by the grouping of certain governmental, government related and private loans,
receivables and other lender assets into pools. Interests in these pools are
sold as individual securities. Payments from the asset pools may be divided into
several different tranches of debt securities, with some tranches entitled to
receive regular installments of principal and interest, other tranches entitled
to receive regular installments of interest, with principal payable at maturity
or upon specified call dates, and other tranches only entitled to receive
payments of principal and accrued interest at maturity or upon specified call
dates. Different tranches of securities will bear different interest rates,
which may be fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities can be subject to higher prepayment
risks than most other types of debt instruments. Prepayments may result in a
capital loss to the Fund to the extent that the prepaid mortgage securities were
purchased at a market premium over their stated amount. Conversely, the
prepayment of mortgage securities purchased at a market discount from their
stated principal amount will accelerate the recognition of interest income by
the Fund, which would be taxed as ordinary income when distributed to the
shareholders.
The credit characteristics of asset-backed securities also differ in a
number of respects from those of traditional debt securities. The credit quality
of most asset-backed securities depends primarily upon the credit quality of the
assets underlying such securities, how well the entity issuing the securities is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.
<PAGE>
Foreign Securities
The Fund may invest in U.S. dollar denominated foreign securities,
including foreign securities not publicly traded in the United States. The
percentage of the Fund's assets that will be allocated to foreign securities
will vary depending on the relative yields of foreign and U.S. securities, the
economies of foreign countries, the condition of such countries' financial
markets, the interest rate climate of such countries and the relationship of
such countries' currency to the U.S. dollar. These factors are judged on the
basis of fundamental economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments status, and economic
policies) as well as technical and political data.
Investments in foreign securities involve special risks that differ
from those associated with investments in domestic securities. The risks
associated with investments in foreign securities apply to securities issued by
foreign corporations and sovereign governments. These risks relate to political
and economic developments abroad, as well as those that result from the
differences between the regulation of domestic securities and issuers and
foreign securities and issuers. These risks may include, but are not limited to,
expropriation and nationalization, confiscatory taxation, reduced levels of
government regulation of securities markets, currency fluctuations and
restrictions on, and costs associated with, the exchange of currencies,
withholding taxes on interest, limitations on the use or transfer of assets,
political or social instability and adverse diplomatic developments. It may also
be more difficult to enforce contractual obligations or obtain court judgments
abroad than would be the case in the United States because of differences in the
legal systems. If the issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay principal
or interest when due in accordance with the terms of such debt, the Fund may
have limited legal recourse in the event of a default. Moreover, individual
foreign economies may differ favorably or unfavorably from the domestic economy
in such respects as growth of gross national product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include: less publicly available
information about foreign issuers; credit risks associated with certain foreign
governments; the lack of uniform financial accounting standards applicable to
foreign issuers; less readily available market quotations on foreign issues; the
likelihood that securities of foreign issuers may be less liquid or more
volatile; generally higher foreign brokerage commissions; and unreliable mail
service between countries.
U.S. Government Securities
The Fund may invest in U.S. government securities. These securities are
either issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The government securities in which the Fund may invest are
backed in a variety of ways by the U.S. government or its agencies or
instrumentalities. Some of these securities, such as Government National
Mortgage Association ("GNMA") mortgage-backed securities, are backed by the full
faith and credit of the U.S. government. Other securities, such as obligations
of the Federal National Mortgage Association ("FNMA") or Federal Home Loan
Mortgage Corporation ("FHLMC"), are backed by the credit of the agency or
instrumentality issuing the obligations but not the full faith and credit of the
U.S. government. No assurances can be given that the U.S. government will
provide financial support to these other agencies or instrumentalities, because
it is not obligated to do so.
<PAGE>
Bank Instruments
The Fund may invest in time deposits (including savings deposits and
certificates of deposit) and bankers acceptances in commercial banks or savings
associations whose accounts are insured by the Federal Deposit Insurance
Corporation (the "FDIC"), including certificates of deposit issued by and other
time deposits in foreign branches of FDIC insured financial institutions or who
have at least $100 million in capital. These instruments may also include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDS") and Eurodollar Time Deposits ("ETDs"). The banks issuing these
instruments are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan requirements, loan
limitations, examinations, accounting, auditing, and record keeping and the
public availability of information.
Investments in Other Mutual Funds
The Fund may invest to some extent in the securities of other open-end
registered investment companies ("mutual funds"), including money market funds.
The Fund intends to invest incidentally in other mutual funds and may not invest
more than 5% of its total assets in any one mutual fund, or more than 10% of its
total assets in mutual funds in general. The Fund, considered together with the
other funds of the Trust, may not invest in more than 3% of the total
outstanding voting securities of any one mutual fund. The foregoing limitations
are not applicable to investment company securities acquired as part of a
merger, consolidation, reorganization or other acquisition.
The Fund will invest only in other mutual funds that do not impose
up-front sales loads or deferred sales loads or redemption fees. However, the
Fund may invest in funds that have 12b-1 plans or shareholder services plans
which permit the funds to pay certain distribution and other expenses from fund
assets. To the extent that a Fund invests in other mutual funds, the Fund will
indirectly bear its proportionate share of any fees and expenses paid by such
funds in addition to the fees and expenses payable directly by the Fund.
Therefore, to the extent that a Fund invests in other mutual funds, the Fund
will incur higher expenses, many of which may be duplicative. In addition, to
the extent that a Fund invests in other mutual funds, the Fund's shareholders
may receive capital gains distributions to a greater extent than if the
shareholder owned the underlying mutual funds directly.
Furthermore, although the Fund will invest only in other mutual funds
that have an investment objective similar to the Fund's, or that otherwise is a
permitted investment under the Fund's investment policies described herein, the
mutual funds purchased by the Fund likely will have certain investment policies,
and use certain investment practices that are different from those of the Fund
and not described herein. These other policies and practices may subject the
other funds' assets to varying or greater degrees of risk. The Fund is
independent from any of the other mutual funds in which it invests and has
little voice in or control over the investment practices, policies or decisions
of those funds. If a Fund disagrees with those practices, policies or decisions,
it may have no choice other than to liquidate its investment in that fund, which
can entail further losses. However, a mutual fund is not required to redeem any
of its shares owned by another mutual fund in an amount exceeding 1% of the
underlying fund's shares during any period of less than 30 days. As a result, to
the extent that the Fund owns more than 1% of another mutual fund's shares, the
Fund may not be able to liquidate those shares in the event of adverse market
conditions or other considerations.
Also, the investment advisers of the mutual funds in which the Fund
invests may simultaneously pursue inconsistent or contradictory courses of
action. For example, one fund may be purchasing securities of the same issuer
whose securities are being sold by another fund, with the result that the Fund
would incur an indirect expense without any corresponding investment or economic
benefit.
Repurchase Agreements
The Fund may invest in repurchase agreements related to eligible
securities. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. Under the Investment
Company Act of 1940, a repurchase agreement is deemed to be a loan
collateralized by the underlying securities. To the extent that the original
seller does not repurchase the securities from the Fund, the Fund could receive
less than the repurchase price on any sale of such securities.
When-Issued and Delayed Delivery Transactions
The Fund may purchase securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. Prior to such
delivery, no income on the securities accrues to the Fund. In when-issued and
delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
Demand Features
The Fund may acquire securities that are subject to puts and standby
commitments ("demand features") to purchase the securities at their principal
amount (usually with accrued interest) within a fixed period following a demand
by the Fund. The demand feature may be issued by the issuer of the underlying
securities, a dealer in the securities or by another third party, and may not be
transferred separately from the underlying security. The Fund uses these
arrangements to provide the Fund with liquidity and not to protect against
changes in the market value of the underlying securities. The bankruptcy,
receivership or default by the issuer of the demand feature, or a default on the
underlying security or other event that terminates the demand feature before its
exercise, will adversely affect the liquidity of the underlying security. Demand
features that are exercisable even after a payment default on the underlying
security are treated as a form of credit enhancement.
General
In order to generate additional income, the Fund may lend portfolio
securities on a short-term or a long-term basis up to 5% of the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund may invest up to 5% of its assets in reverse repurchase
agreements, restricted securities and demand notes and credit facilities.
NET ASSET VALUE
Net asset value per share (the price at which shares are purchased and
redeemed) is determined as of 12:00 noon (Eastern time) and as of the close of
regular trading on the New York Stock Exchange (currently 4:00 p.m., Eastern
time), on each business day the Exchange is open for business. The Fund's
portfolio securities are valued utilizing the amortized cost method of
valuation, which normally approximates market value, and which is intended to
result in a constant net asset value of $1.00 per share. Although every effort
is made to maintain the net asset value of the Fund at $1.00 per share, there
can be no assurance that this constant net asset value will be maintained at all
times. For example, in the event of rapid and sharp increases in current
interest rates, a national credit crisis, or a default by one or more of the
issuers of the Fund's portfolio securities, then it is possible that the Fund's
net asset value could decline below $1.00 per share.
HOW TO BUY SHARES
Shares of the Fund are sold each day the New York Stock Exchange is
open at the Fund's net asset value per share next calculated after receipt of
the purchase order in proper form. The Trust reserves the right to reject any
purchase request.
Minimum Investment
The minimum initial investment in the Fund is $l,000, except for an IRA
for which the minimum initial investment is $500. Former shareholders of the
Unified family of funds, or the Quest funds which acquired the Unified family of
funds, may open an account with less than the required minimum. However, they
are subject to a one-time $4.50 administrative charge to establish the account.
The minimum investment may also be waived for certain other types of retirement
accounts and direct deposit accounts. Subsequent investments may be made in
amounts of at least $100, except for an IRA, which must be in amounts of at
least $50. Minimum investments for certain other types of retirement accounts
and direct deposit accounts may be different. See "Shareholder Services."
Opening An Account
An account may be opened by mail or bank wire, as follows:
By Mail. To open a new account by mail:
! Complete and sign the account application.
! Enclose a check payable to the Fund
! Mail the application and the check to the Transfer Agent at
the following address:
The Unified Funds, c/o Unified Fund Services, Inc., P.O.
Box 6110, Indianapolis, Indiana 46206-6110.
By Wire. To open a new account by wire, call the Transfer Agent at
1-800-408-4682. A representative will assist you to obtain an account
application by telecopy (or mail), which must be completed, signed and
telecopied (or mailed) to the Transfer Agent before payment by wire may be made.
Then, request your financial institution to wire immediately available funds to:
Star Bank, N.A.
ABA # 04-20000-13
Attention: Taxable Money Market Fund
Fund Number 30
Credit Account # 483616819
The order is considered received when Star Bank, N.A., the Trust's
custodian, receives payment by wire. However, the completed account application
must be mailed to the Transfer Agent on the same day the wire payment is made.
See "Opening an Account -- By Mail" above. The Trust will not permit redemptions
until the Transfer Agent receives the application in proper form. Financial
institutions may charge a fee for wire transfers.
Subsequent Investments
Once an account is open, additional purchases of Fund shares may be
made at any time in minimum amounts of $100, except for an IRA, which must be in
amounts of at least $50. Additional purchases may be made:
! By sending a check, made payable to the Fund, to The Unified Funds,
Taxable Money Market Fund, P.O. Box 640689, Cincinnati, Ohio
45264-0689. The Trust will charge a $15 fee against a shareholder's
account for any check returned for insufficient funds. The shareholder
also will be responsible for any losses suffered by the Trust as a
result.
! By wire to the Fund account as described above under "Opening an
Account -- By Wire". Shareholders should call the Transfer Agent at
1-800-408-4682 before wiring funds.
! By electronic funds transfer from a financial institution through
the Automated Clearing House ("ACH"), as described below.
By Automated Clearing House (ACH). Once an account is open, shares may
be purchased or redeemed through ACH in minimum amounts of $100. ACH is the
electronic transfer of funds directly between an account with a financial
institution and the applicable Fund. In order to use the ACH service, the ACH
Authorization section of the account application must be completed. For existing
accounts, an ACH Authorization Form may be obtained by calling the Transfer
Agent at 1-800-408-4682. Allow at least two weeks for preparation before using
ACH. To order a purchase or redemption by ACH, call the Transfer Agent at
1-800-408-4682. There are no charges for ACH transactions imposed by the Fund or
the Transfer Agent. ACH transactions are completed approximately two business
days following the placement of the transfer order.
ACH may be used to make direct deposits into a Fund account of part or
all of recurring payments made to a shareholder by his or her employer
(corporate, federal, military, or other) or by the Social Security
Administration.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends on a daily basis. If cash payments
are requested, daily dividends will accumulate and be paid at the end of each
month, as requested in writing.
The Fund has two transaction times each day, at 12:00 noon (Eastern
time) and the close of regular trading on the New York Stock Exchange (currently
4:00 p.m., Eastern time). New investments represented by federal funds or bank
wires received by the Custodian prior to 12:00 noon are paid the full dividend
for that day; such investments received after 12:00 noon do not begin to receive
daily dividends until the next day. Shares purchased by check begin earning
dividends on the business day after the check is converted into federal funds.
Redemption orders received prior to 12:00 noon are effected at 12:00 noon, and
the redemption proceeds are normally available for wire transfer that day.
Redemption orders received after 12:00 noon are effected at the close of regular
trading on the New York Stock Exchange, and the redemption proceeds are normally
remitted the next business day. Redemption orders received at any time during a
day do not earn that day's dividend.
EXCHANGE PRIVILEGE
Shares of any fund of the Trust may be exchanged for shares of any
other fund of the Trust at net asset value, without any additional charges. The
shares exchanged must have been registered in the shareholder's name for at
least five days prior to the exchange request, and must have a net asset value
which at least meets the minimum investment required for the fund into which the
exchange is being made.
Exchange requests may be made by telephone or in writing. Exchanges
will be effected at the respective net asset values per share of the funds
involved, next determined after the exchange request is received in proper form.
If an exchange request is received by the Transfer Agent in proper form on a
Trust business day before the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time), the exchange will be effected that
day. An exchange of shares purchased by check will be delayed until the check
has been converted into federal funds and redemption proceeds are available for
purchase of the newly acquired shares, which could take up to 15 days.
By Telephone. Exchange requests may be made by telephone by calling the
Transfer Agent at 1-800-408-4682. Exchange requests made by telephone will be
effected only if (1) the shareholder's existing account has authorized telephone
redemption privileges (see "How to Redeem Shares -- By Telephone" below) and (2)
no account information will change as a result of the exchange. The Transfer
Agent requires personal identification before accepting any exchange request by
telephone, and telephone exchange requests may be recorded.
By Mail or Telecopy. Exchange requests made in writing should be sent
to The Unified Funds c/o Unified Fund Services, Inc., P.O. Box 6110,
Indianapolis, Indiana 46206-6110. A written request to exchange shares having a
net asset value of less than $5,000 may be sent by telecopy, by first calling
the Transfer Agent at 1-800-408-4682. Regardless of whether the request is sent
by mail or by telecopy, the request must be signed exactly as the shareholder's
name appears on the Trust's account records. If the shares to be exchanged have
a net asset value of $5,000 or more, the request must be mailed, and all
signatures must be properly guaranteed as described below under "How to Redeem
Shares -- Signatures." If shares are to be exchanged into a new account
registered in a different name, or if any account information will change as a
result of the exchange, a separate account application must be received by the
Transfer Agent by mail before the exchange may be effected.
The exchange privilege is designed to accommodate changes in
shareholder investment objectives. It is not designed for frequent trading in
response to short-term market fluctuations. Accordingly, the Trust reserves the
right to limit a shareholder's use of the exchange privilege. The exchange
privilege may be modified or terminated at any time.
Any exchange involves a redemption of shares of one fund and an
investment of the redemption proceeds in shares of another. Before requesting an
exchange, a shareholder must request and should read carefully the Prospectus
describing the fund into which the exchange will be made. Also, an exchange is
treated for federal
<PAGE>
income tax purposes as a sale of the shares given in exchange, and the
shareholder may realize a taxable gain or loss on the exchange.
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed on any day on which the Fund
computes it net asset value. Shares are redeemed at their net asset value next
determined after the Transfer Agent receives the redemption request in proper
form. Redemption requests may be made by mail or by telephone.
By Mail. A shareholder may redeem shares by mailing a written request
to The Unified Funds, c/o Unified Fund Services, Inc., P.O. Box 6110,
Indianapolis, Indiana 46206-6110. Written requests must state the shareholder's
name, the name of the Fund, the account number and the shares or dollar amount
to be redeemed and be signed exactly as the shares are registered.
Signatures. Shareholders requesting a redemption of $5,000 or
more, or a redemption of any amount payable to a person other than the
shareholder of record or to be sent to an address other than that on
record with the Trust, must have all signatures on written redemption
requests guaranteed. The Transfer Agent will accept signatures
guaranteed by a financial institution whose deposits are insured by the
FDIC; a member of the New York, American, Boston, Midwest, or Pacific
Stock Exchange; or any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934. The Transfer Agent will
not accept signatures guaranteed by a notary public. The Transfer Agent
has adopted standards for accepting signature guarantees from the above
institutions. The Trust may elect in the future to limit eligible
signature guarantors to institutions that are members of a signature
guarantee program. The Trust and its Transfer Agent reserve the right
to amend these standards at any time without notice.
Redemption requests by corporate and fiduciary shareholders
must be accompanied by appropriate documentation establishing the
authority of the person seeking to act on behalf of the account. Forms
of resolutions and other documentation to assist in compliance with the
Transfer Agent's procedures may be obtained by calling the Transfer
Agent.
By Telephone. You may also redeem shares by telephone by calling the
Transfer Agent at 1-800-408-4682. In order to make redemption requests by
telephone, the Telephone Privileges section of the account application must be
completed. For existing accounts, a Telephone Privileges form may be obtained by
calling the Transfer Agent at 1-800-408-4682.
Telephone redemptions may be requested only if the proceeds are to be
issued to the shareholder of record and mailed to the address on record with the
Fund. Upon request, proceeds of $100 or more may be transferred by ACH, and
proceeds of $1,000 or more may be transferred by wire, in either case to the
account stated on the account application. Shareholders will be charged for
outgoing wires.
Telephone privileges and account designations may be changed by sending
the Transfer Agent a written request with all signatures guaranteed as described
above.
The Transfer Agent requires personal identification before accepting any
redemption request by
<PAGE>
telephone, and telephone redemption instructions may be recorded. If
reasonable procedures are not followed by the Trust, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. In the event of
drastic economic or market changes, a shareholder may experience difficulty in
redeeming by telephone. If such a case should occur, redemption by mail should
be considered.
Receiving Payment
The Trust normally will make payment for all shares redeemed within
three business days after receipt by the Transfer Agent of a redemption request
in proper form, except as provided by the rules of the Securities and Exchange
Commission. A requested wire of redemption proceeds normally will be effected
the following business day, but in no event more than three business days, after
receipt of the redemption request in proper form. However, when shares are
purchased by check or through ACH, the proceeds from the redemption of those
shares are not available, and the shares may not be exchanged, until the
purchase check or ACH transfer has been converted to federal funds, which could
take up to 15 days.
Check Writing
Under the Fund's check writing service, shareholders may write checks
payable to any payee in any amount of $250 or more. A shareholder with check
writing privileges may present for payment three checks per month free of
charge; additional checks will result in a charge of $0.30 per check. Daily
dividends will continue to accrue on the shares redeemed by check until the day
the check is presented for payment.
The Check Writing Privileges section of the account application must be
completed in order to initiate check writing privileges. For existing accounts,
check writing privileges may be initiated by sending a written request to the
Transfer Agent with all signatures guaranteed. A book of checks will be sent to
the shareholder of record upon the Transfer Agent's receipt of the request.
A check should not be used to close out an account with the Fund
because the balance of the account will continue to increase by the amount of
daily dividends until the check is presented for payment. The Transfer Agent may
impose a charge for checks returned unpaid for insufficient funds or for
effecting stop-payment instructions.
Minimum Account Balance
Due to the high cost of maintaining accounts with low balances, the
Trust may involuntarily redeem shares in any account, and pay the proceeds to
the shareholder, if the account balance falls below a required minimum value of
$1,000 ($500 for an IRA) due to shareholder redemptions. This requirement does
not apply, however, if the balance falls below the minimum because of changes in
the Fund's net asset value. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement. The Transfer Agent reserves the right
and may charge shareholders an administrative fee to cover the cost of
maintaining and properly servicing lost accounts with balances below the
required minimums.
<PAGE>
SHAREHOLDER SERVICES
Each time shares are purchased or redeemed, a statement will be mailed
showing the details of the transaction and the number and value of shares owned
after the transaction. Transactions made in brokerage sweep accounts will be
detailed on a monthly brokerage statement. Share certificates are not issued.
Financial reports showing investments, income and expenses of the Funds are
mailed to shareholders semi-annually. After the end of each year, shareholders
receive a statement of all their transactions for the year.
The Trust provides a number of plans and services to meet the special
needs of certain investors, including (1) an automatic investment plan, (2) a
payroll deduction plan, (3) a systematic withdrawal plan to provide monthly
payments, (4) retirement plans such as IRA and 403(b), and (5) corporate pension
and profit sharing plans, including a 401(k) plan. Brochures describing these
plans and related charges and account applications are available from the
Transfer Agent by calling 1-800-408-4682.
THE TRUST AND ITS MANAGEMENT
The Trust is an Ohio business trust authorized to offer separate
classes and sub-classes of shares of beneficial interest. The Trust, which was
organized on November 20, 1997, is the successor to the operations of The
Vintage Funds. At the date of this Prospectus, the Trust has established several
funds, including the Fund described herein, each as a separate class of its
shares. The Trust's offices are at 431 North Pennsylvania Street, Indianapolis,
Indiana 46204. The business affairs of the Trust are under the direction of its
Board of Trustees.
Investment Advisory Arrangements
Investment Adviser. Unified Investment Advisers, Inc., 431 North
Pennsylvania Street, Indianapolis, Indiana 46204, serves as the Trust's
investment adviser (the "Adviser"). The Adviser supervises and assists in the
management of the Fund under an Investment Advisory Agreement between the
Adviser and the Trust, subject to the overall authority of the Board of
Trustees.
The Adviser was organized in December 1994 and is a registered
investment adviser. The Adviser is a wholly owned subsidiary of Unified
Financial Services, Inc. Unified Financial Services is also the parent of
Unified Management Corporation (the Fund's Distributor).
Portfolio Manager's Background
Jack R. Orben is the Fund's portfolio manager. Mr. Orben has been the
Chairman of Fiduciary Counsel, a registered investment adviser that manages
approximately $450 milliion in assets, since 1979. Prior to that time, he was
President of Orben & Associates, Inc., an investment consultant to bank trust
departments. Since 1979, Mr. Orben has been a member of Fiduciary Counsel's
Investment Policy Committee and Chairman of its Executive Committee. Mr. Orben
graduated from Tufts University in 1960, and has nearly 25 years of investment
experience.
<PAGE>
Advisory Fees
The Fund pays the Adviser an annual advisory fee, payable monthly,
equal to 0.90% of the Fund's average daily net assets. The Adviser pays all of
the operating expenses of the Funds except 12b-1 and shareholder servicing fees,
brokerage, taxes, interest and extraordinary expenses.
Distribution Services
Distributor. Unified Management Corporation (the "Distributor"), 431
North Pennsylvania Street, Indianapolis, Indiana 46204, acts as the Fund's
distributor pursuant to a Distribution Agreement with the Trust. The distributor
is a subsidiary of Unified Financial Services, Inc.
Distribution Plan. Under a Distribution Plan adopted with respect to
each Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
Trust pays the Distributor an annual fee, payable monthly, of up to 0.10% of
each Fund's average daily net assets. The Distributor is entitled to retain all
of this distribution fee to reimburse the Distributor for payments made or
expenses incurred for distribution of Fund shares, including those incurred in
connection with preparing and distributing sales literature and advertising,
preparing, printing and distributing prospectuses and statements of additional
information used for other than regulatory purposes or distribution to existing
shareholders, implementing and operating the Distribution Plan, and compensating
third parties for their distribution services. The Distributor may select
financial institutions such as banks, custodians, investment advisers and
broker/dealers to provide sales support services as agents for their clients or
customers.
The Distribution Plan is a compensation-type plan. Therefore, the
amounts payable to the Distributor during any year may be more or less than
actual expenses incurred by the Distributor during such year. No amount payable
or credit due pursuant to the Distribution Plan for any fiscal year may be
carried over for payment or utilized as a credit, as the case may be, beyond the
end of the year, unless authorized by the Trust's Board of Trustees. However,
the Distributor may be able to recover such amounts or may earn a profit from
future payments made by the Trust under the Distribution Plan.
Administration of the Trust
Administrator. Unified Fund Services, Inc., 431 North Pennsylvania St.,
Indianapolis, Indiana 46204, serves as the Trust's administrator (the
"Administrator"). Pursuant to a Mutual Fund Service Agreement with the Trust,
the Administrator provides certain administrative personnel and services
(including administration, transfer agency and fund accounting services)
necessary to operate the Fund. For its services, the Administrator receives from
the Adviser an annual fee, payable monthly, equal to 0.185% of the Fund's
average daily net assets.
Shareholder Services Plan. The Trust has adopted a Shareholder Services
Plan (the "Service Plan") with respect to the Fund, which is administered by the
Administrator. Under the Service Plan, financial institutions, including
brokers, may enter into shareholder service agreements with the Trust to provide
administrative support services to their clients or customers who from time to
time may be owners of record or beneficial owners of the shares of one or more
of the Funds. In return for providing these support services, a financial
institution may receive payments from the Fund at a rate not exceeding 0.15% of
the average daily net assets of the shares beneficially owned by the financial
institution's clients or customers for whom it is holder of record or with whom
it has a servicing relationship. These administrative services may include, but
are not limited to, the provision of personal services and maintenance of
shareholder accounts.
The Glass-Steagall Act limits the ability of a depository institution
(such as a commercial bank or a savings and loan association) to become an
underwriter or distributor of securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the capacities
described above or should Congress relax current restrictions on depository
institutions, the Board of Trustees will consider appropriate changes in the
services. State securities laws governing the ability of depository institutions
to act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to state
law.
Other Arrangements. The Adviser, the Distributor or the Administrator
may also pay brokers or financial institutions a fee based upon the net asset
value of the Fund shares beneficially owned by the broker's or financial
institution's clients or customers. This fee is in addition to amounts paid
under the Distribution Plan or the Services Plan. These payments will be made
directly by the Adviser, the Distributor or the Administrator from their own
assets, will not be made from the assets of the Fund and are not an additional
expense of the Fund.
From time to time the Distributor will purchase Fund shares on behalf
of its clients and will be entitled to receive 12b-1 fees, shareholder servicing
fees and other administrative fees described herein to the same extent as any
other broker or financial institution.
Transfer Agent, Fund Accounting Agent and Custodian
Unified Fund Services, Inc., P.O. Box 6110, Indianapolis, Indiana
46206-6110, acts as the Trust's transfer agent (the "Transfer Agent") and fund
accounting agent.
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45201, acts as the
Trust's custodian. General correspondence to the custodian should be addressed
to Star Bank, N.A., P.O. Box 1038, Location 6118, Cincinnati, Ohio 45201. Share
purchase orders mailed directly to the custodian (See "How to Buy Shares --
Subsequent Investments") should be addressed to The Unified Funds, Taxable Money
Market Fund, P.O. Box 640689, Cincinnati, Ohio 45264-0689.
Portfolio Transactions
The Adviser selects the firms that effect brokerage transactions for
the Fund, subject to the overall direction and review of the Board of Trustees.
The initial criterion that must be met by the Adviser in selecting brokers and
dealers is whether the firm can obtain the most favorable combination of price
and execution for the transaction. This does not mean that the execution
decision must be based solely on whether the lowest possible commission costs
may be obtained. In seeking the best combination of price and execution, the
Adviser evaluates the execution capability of the firms and the services they
provide, including their general execution capability, reliability and
integrity, willingness to take positions in securities, and general operational
and financial condition.
Subject to this primary objective, the Adviser may select for brokerage
transactions those firms which furnish brokerage and research services to the
Fund or the Adviser. The Adviser may also give consideration to firms that have
sold Fund shares. The Board of Trustees has authorized the Fund to pay brokerage
commissions to firms that are affiliated with the Adviser, subject to the
foregoing criteria.
<PAGE>
[V.O.I.C.E. Logo]
The Adviser has established The Unified Funds University and
Philanthropic Program (the "Program"), entitled "V.O.I.C.E."sm (Vision for
Ongoing Investment in Charity and Education)sm pursuant to which the Adviser
will make donations from its own revenue to certain accredited college or
university endowments or general scholarship funds ("Eligible Institutions")
designated by qualified shareholders. Philanthropic institutions outside of the
area of education may be proposed by qualifying shareholders and may, at the
sole discretion of the Adviser, be accepted for inclusion as an Eligible
Institution.
All Unified Funds shareholders maintaining an average annualized
aggregate net asset value of $25,000 or more over the period of an entire
calendar quarter ("Qualified Shareholders") will be qualified to designate one
or more Eligible Institutions to receive a donation under the Program with
respect to that period. A shareholder making an initial investment of $25,000 or
more in Fund shares may designate one Eligible Institution on the V.O.I.C.E.sm
Program Application. A shareholder making an initial investment of $1,000,000 or
more (or maintaining that amount for an entire quarterly period) may designate
one additional Eligible Institution for each $l,000,000 invested (or maintained
for such period).
The Adviser will donate, on a quarterly basis, from its own revenue an
amount equal to 0.25% of the average daily aggregate net asset value of the
shares owned by the Qualified Shareholder for the preceding quarterly period,
for so long as the average daily aggregate net asset value of the shares owned
by the Qualified Shareholder remains above $25,000 for such period. Donations
will be made by the Adviser in the name of the Qualified Shareholder to the
Eligible Institution(s) designated by the Qualified Shareholder. However, while
the donation will be made in the Qualified Shareholder's name, the Qualified
Shareholder will not be entitled to any tax deductions for such donation.
All Qualified Shareholders desiring to change their designated Eligible
Institution(s) may do so twice a year, in January and July. If a Qualified
Shareholder was entitled to designate, and did designate, more than one Eligible
Institution, the amount donated will be allocated according to the percentages
designated on the V.O.I.C.E.sm Program Application.
Donations will be made by the Adviser from its own revenue and,
therefore, will have no impact on the expenses or yield of the Fund. There can
be no assurance that the Adviser will have revenue from which to make donations.
The preceding information is only a summary of the V.O.I.C.E.sm Program
and is qualified in its entirety by the more complete information available from
the Adviser.
<PAGE>
Information about the V.O.I.C.E.sm Program, including applications to
participate in the Program, may be obtained from the Adviser by calling
1-800-408-4682.
TAXES
It is intended that the Fund will qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), as
long as such qualification is in the best interest of the Fund's shareholders.
Such qualification relieves the Fund of liability for federal income tax to the
extent its earnings are distributed in accordance with the Code.
A shareholder receiving a distribution of ordinary income and/or an
excess of net short-term capital gain over net long-term capital loss ordinarily
would treat it as a receipt of ordinary income in the computation of the
shareholder's gross income, whether such distribution is received in cash or
reinvested in additional shares. Any distribution of the excess of net long-term
capital gain over net short-term capital loss ordinarily is taxable to
shareholders as long-term capital gain regardless of how long the shareholder
has held shares. Dividends and distributions also may be subject to state and
local taxes.
Shareholders will receive statements as to the tax status of dividends
and distributions annually, as well as periodic account summaries that will
include information as to any dividends and distributions from securities gains
paid during the year. Shareholders should consult their own tax advisers with
questions regarding federal, state or local taxes.
Backup Withholding
The Trust may be required to withhold federal income tax at a rate of
31% from dividends and redemption proceeds paid to non-corporate shareholders.
This tax may be withheld from dividends if a shareholder fails to furnish the
Trust with the shareholder's correct taxpayer identification number, the
Internal Revenue Service (the "IRS") notifies the Trust that the shareholder has
failed to report certain income to the IRS, or the shareholder fails to certify
that he or she is not subject to backup withholding when required to do so.
Backup withholding is not an additional tax and the shareholder may credit any
amounts withheld against the shareholder's federal income tax liability.
PERFORMANCE INFORMATION
From time to time the Trust may publish performance information
relative to the Fund, and include such information in advertisements, sales
literature or shareholder reports. The Fund may quote its current yield and
effective yield. The "yield" of a money market Fund refers to the income
generated by an investment in the Fund over a seven-day period (which will be
stated in the advertisement). This income is then annualized. That is, the
amount of income generated by investments during the week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
The Fund may also include in advertisements data comparing performance
with other mutual funds as reported in non-related investment media, published
editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc., Fortune or
Barron=s). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration.
The advertised performance data of the Fund is based on historical
performance and is not intended to indicate future performance. Rates of total
return quoted by the Fund may be higher or lower than past quotations, and there
can be no assurance that any rate of total return will be maintained.
GENERAL INFORMATION
Any Trustee of the Trust may be removed by vote of the shareholders
holding not less than two-thirds of the outstanding shares of the Trust. The
Trust does not hold an annual meeting of shareholders. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each whole share he owns and fractional votes for fractional shares he owns.
All shares of the Fund have equal voting rights and liquidation rights. The
Declaration of Trust can be amended by the Trustees, except that any amendment
that adversely affects the rights of shareholders must be approved by the
shareholders affected.
Shareholder inquiries may be made by writing to The Unified Funds, c/o
Unified Fund Services, Inc., P.O. Box 6110, Indianapolis, Indiana 46206-6110, or
by calling 1-800-408-4682.
<PAGE>
TRANSFER AGENT
Unified Fund Services, Inc.
431 North Pennsylvania Street
Indianapolis, Indiana 46204
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45201
INVESTMENT ADVISER
Unified Investment Advisers, Inc.
431 North Pennsylvania Street
Indianapolis, Indiana 46204
AUDITORS
McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, Ohio 44145
THE UNIFIED FUNDS
P.O. Box 6110
Indianapolis, Indiana 46206-6110
1-800-408-4682
INVESTMENT ADVISER
Unified Investment Advisers, Inc.
431 N. Pennsylvania Street
Indianapolis, Indiana 46204
AUDITORS
McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, Ohio 44145
THE UNIFIED FUNDS
P.O. Box 6110
Indianapolis, Indiana 46206-6110
1-800-408-4682
<PAGE>
THE UNIFIED FUNDS
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of The
Unified Funds (the "Trust"), dated February 1, 1999, as may be revised from time
to time. To obtain a copy of the Trust's Prospectus, please write to The Unified
Funds at P.O. Box 6110, Indianapolis, Indiana 46206-6110, or call
1-800-408-4682.
TABLE OF CONTENTS
Page
Description of the Trust...........................................
Types of Investments and Investment Techniques.....................
Investment Limitations.............................................
Management of the Trust............................................
Investment Advisory Arrangements...................................
Distribution Arrangements..........................................
Administrative Services Arrangements...............................
Brokerage Transactions.............................................
Purchase and Redemption............................................
Determination of Net Asset Value...................................
Tax Status.........................................................
Performance Information............................................
Custodian, Transfer Agent, Fund Accounting Agent,
and Independent Accountants.....................................
Financial Statements...............................................
<PAGE>
DESCRIPTION OF THE TRUST
The Unified Funds (the "Trust") is an open-end investment company
established under the laws of Ohio by an Agreement and Declaration of Trust
dated November 19, 1997 (the "Trust Agreement"). The Trust is the successor
entity to The Vintage Funds. The Trust Agreement permits the Trustees to issue
an unlimited number of shares of beneficial interest of separate series without
par value. There are twelve series currently authorized by the Trustees (the
"Funds"). This Statement of Additional Information relates to the Starwood
Strategic Fund, the Laidlaw Fund, the First Lexington Balanced Fund, and the
Taxable Money Market Fund.
Each share of a series represents an equal proportionate interest in
the assets and liabilities belonging to that series with each other share of
that series and is entitled to such dividends and distributions out of income
belonging to the series as are declared by the Trustees. The Shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
any series into a greater or lesser number of shares of that series so long as
the proportionate beneficial interest in the assets belonging to that series and
rights of shares of any other series are in no way affected. In case of any
liquidation of a series, the holders of shares of the series being liquidated
will be entitled to receive as a class a distribution out of the assets, net of
the liabilities, belonging to that series. Expenses attributable to any series
are borne by that series. Any general expenses of the Trust not readily
identifiable as belonging to a particular series are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. No shareholder is liable to further calls or to assessment by the
Trust without his or her express consent.
For other information concerning the purchase and redemption of shares
of the Funds, see "How to Buy Shares" and "How to Redeem Shares" in the Funds'
Prospectus. For a description of the methods used to determine the share price
and value of each Fund's assets, see "Net Asset Value" in the Funds' Prospectus.
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 Taxable 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 Taxable 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. The 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 Taxable 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:
o 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;
o 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
o 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.
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 Taxable 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 Taxable 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 Taxable 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 Taxable
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:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and
the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o 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.
<PAGE>
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 Taxable 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. 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>
<S> <C>
Name, Address and Age Positions with the Trust and Principal Occupation
* Timothy L. Ashburn (48) Trustee (Chairman of the Board) and President of the Trust and
431 N Pennsylvania St. of the Star Select Funds; Chairman of the Board and President,
Indianapolis, IN 46204 Unified Investment Advisers, Inc.(December 1994 to present);
Chairman of the Board, UnifiedCorporation, Unified Management
Corporation and Unified FundServices, Inc. (December 1989 to
present); Trust DivisionManager and Senior Trust Officer, Vine
Street Trust Company(July 1991 to April 1994).
David Bottoms (59) Trustee of the Trust; President and Chief Executive Officer,
30 Wall Street Fiduciary Management Corporation (August 1997 to present); President
New York, NY 10005 and Chief Executive Officer, Financial Assets Corporation (August 1997
to present); Vice President,CFA Asset Management (August 1997 to present);
President, Laidlaw Holdings Asset Management (1992 through August 1997);
Chief Executive Officer and Chief Investment Officer, Howe
Rustling (a broker/dealer) (January 1996 to November 1996).
Daniel J. Condon (48) Trustee of the Trust and of the Star Select Funds; Vice President and Officer,
101 Carley Court International Crankshaft, Inc. (1990 to present); General Manager,
Georgetown, KY 40324 Van Leer Containers, Inc. (1988 to 1990).
Philip L. Conover (52) Trustee of the Trust and of the Star Select Funds; Private Investor and Financial
8218 Cypress Hollow Consultant; Adjunct Professor of Finance, University of South Florida (August 1994 to
Sarasota, FL 34238 present); Managing Director and Chief Operating Officer,
Federal Housing Finance Board (November 1990 to April 1994); President and CEO,
Trustcorp Bank (February 1989 to November 1990).
John Hinkel (44) Trustee of the Trust; Partner, Fowler Measle & Bell (1986 to present).
300 W. Vine St.
Lexington, KY 40507
David E. LaBelle (49) Trustee of the Trust and of the Star Select Funds; Vice President of
5005 LBJ Freeway Compensation Benefits, Occidental Chemical Corporation (May 1993 to present); Vice
Dallas, TX 76092 President of Human Resources, Island Creek Coal Company (A subsidiary of
Occidental Petroleum) June 1990 to April 1993); Director of Human Resources,
Occidental Chemical Corporation (March 1989 to May 1990).
<PAGE>
Thomas G. Napurano (57) Treasurer of the Trust and of the Star Select Funds; Chief Financial Officer,
431 N. Pennsylvania St. Unified Investment Advisers, Inc. (January 1995 to Present); Senior
Indianapolis, IN 46204 Vice President and Chief Financial Officer of Unified Financial Services,
Unified Management Corporation and Unified Fund Services, Inc.
Carol J. Highsmith (34) Secretary of the Trust and of the Star Select Funds; Secretary of Unified Financial
431 N. Pennsylvania St. Services, Inc. and Unified Investment Advisers, Inc. (October 1996 to present);
Indianapolis, IN 46204 employed by Unified Fund Services, Inc. (November 1994 to present).
</TABLE>
No executive officer of the Trust receives compensation from the Trust,
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
received by each Trustee during the fiscal year ended September 30, 1998, all of
which consists of meeting fees. During the period from October 1, 1997 through
February 2, 1998, the compensation was paid by The Vintage Funds (the
predecessor entity to the Trust), During the remainder of the fiscal year, the
Adviser paid the Trustees' compensation.
Name of Trustee Total Compensation
Timothy L. Ashburn $0
David Bottoms $7,200
Daniel J. Condon $10,000
Philip L. Conover $10,000
John Hinkel $9,600
David E. LaBelle $10,000
Fund Ownership
As of November 15, 1998, the following persons may be deemed to
beneficially own five percent (5%) or more of the Starwood Strategic Fund: John
V. Rowan, Jr., 14 Sutton Pl. S., New York, NY - 12.33%; Rosa C. Raveneau, 2
Tudor City Pl., Apt 1CN, New York, NY - 10.28%; Josephine B. Smith, 1346
Barrowdale Rd., Rydal, PA - 9.43%; Dr. Richard Stevenson, Jr., 51 Mohegan Rd.,
Larchmont, NY - 6.22%; Judith Ristow, 7206 Whitehall Dr., Indianapolis, IN -
5.17%.
As of November 15, 1998, the following persons may be deemed to
beneficially own five percent (5%) or more of the Laidlaw Fund: Madame Fouad
Filali, c/o Laidlaw Holdings, Inc., 100 Park Ave., New York, NY - 18.82%; Bart
Zeller and Barbara Zeller, 1730 Overland Trl., Deerfield, IL - 6.26%; Steven J.
Sprecher, Trustee FBO Roland O. Sprecher Trust, 13855 S.W. Hart Rd., Beaverton,
OR - 5.71%.
As of November 15, 1998, the following persons may be deemed to
beneficially own five percent (5%) or more of the First Lexington Balanced Fund:
Osco Employees Retirement Trust, 7180 N. Center St., Mentor, OH - 11.81%; Lake
County Nursery, Inc., 401(k) Retirement Plan, 2353 Alexandria Dr., Suite 100,
Lexington, KY - 5.27%.
As of November 15, 1998, the following persons may be deemed to
beneficially own five percent (5) or more of the Taxable Money Market Fund:
Judith Rushmore, 22 Shepherd Ln., Roslyn Heights, NY - 14.56%; Unified Financial
Services, Inc., 431 N. Pennsylvania St., Indianapolis, IN - 9.23%.
In addition to the beneficial ownership described above, the officers
and Trustees as a group beneficially owned as of November 15, 1998, 1.10% of the
Starwood Strategic Fund, 1.56% of the Laidlaw Fund, 1.86% of the First Lexington
Balanced Fund, and less than 1% of the Taxable Money Market Fund.
<PAGE>
INVESTMENT ADVISORY ARRANGEMENTS
Investment Adviser
The Trust's investment adviser is Unified Investment Advisers, Inc.
(the "Adviser"). Timothy L. Ashburn, Chairman of the Board and President of the
Trust, is the Chairman of the Board and Chief Executive Officer of the Adviser.
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.
Under the terms of the advisory agreement (the "Agreement"), the
Adviser retains the right to use the names "Unified" and "Starwood," in
connection with another investment company or business enterprise with which the
Adviser is or may become associated. The Trust's right to use the name "Unified"
automatically ceases ninety days after termination of the Agreement and may be
withdrawn by the Adviser on ninety days written notice.
The Adviser may make payments to banks or other financial institutions
that provide shareholder services and administer shareholder accounts. The
Glass-Steagall Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of this
prohibition under the Glass-Steagall Act has not been clearly defined by the
courts or appropriate regulatory agencies, management of the Funds believes that
the Glass-Steagall Act should not preclude a bank from providing such services.
However, state securities laws on this issue may differ from the interpretations
of federal law expressed herein and banks and financial institutions may be
required to register a dealers pursuant to state law. If a bank were prohibited
from continuing to perform all or a part of such services, management of the
Funds believes that there would be no material impact on the Funds or its
shareholders. Banks may charge their customers fees for offering these services
to the extent permitted by applicable regulatory authorities, and the overall
return to those shareholders availing themselves of the bank services will be
lower than to those shareholders who do not. The Funds may from time to time
purchase securities issued by banks which provide such services; however, in
selecting investments for the Funds, no preference will be shown for such
securities.
Sub-Adviser
Health Financial, Inc. ("HFI") is the sub-adviser to the First
Lexington Balanced Fund. HFI is a wholly owned subsidiary of Unified Financial
Services, Inc. Under the terms of the sub-advisory agreement, the sub-adviser
retains the right to use the name "First Lexington" in connection with another
investment company or business enterprise with which the sub-adviser is or may
become associated. The Trust's right to use the name "First Lexington"
automatically ceases ninety days after termination of the Agreement and may be
withdrawn by the sub-adviser on ninety days written notice.
Advisory Fees
For their advisory services, the Adviser and Sub-Adviser receive an
annual investment advisory fee as described in the Prospectus. Prior to February
1, 1998, the Adviser and Sub-Advisers were compensated under different
arrangements. For the fiscal year ended September 30, 1998, the Starwood
Strategic Fund, the Laidlaw Fund, the First Lexington Balanced Fund, and the
Taxable Money Market Fund paid advisory fees of $11,297; $26,352; $43,637; and
$420,622 respectively. For the fiscal year ended September 30, 1997, the Funds
paid advisory fees of $5,778; $18,634; $4,426; and $245,999 respectively. For
the fiscal year ended September 30, 1996, the Taxable Money Market Fund paid
advisory fees of $194,953; and the Adviser waived its entire advisory fee with
respect to the other Funds. Fiduciary Counsel, Inc., which acted as Sub-Adviser
to the Taxable Money Market Fund, received $24,166 from the Adviser for advisory
services provided to the Fund.
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 fiscal year ended September 30, 1998, Unified Management
Corporation, the Trust's distributor, spend $113,630 under the Distribution
Plan. Of this amount, approximately $16,905 was spend on printing and mailing
marketing materials; $50,400 was spent on sales and marketing payroll; $17,400
was spent on sales related travel and entertainment expenses, and $28,925 was
spent to compensate broker-dealers. The Trust's total reimbursement of the
distributor was .10% of each Fund's average daily net assets, or $62,709.
ADMINISTRATIVE SERVICES ARRANGEMENTS
The Trust has adopted a Shareholder 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, 1998, the Trust's Administrator, Unified Fund
Services, Inc., received the following payments pursuant to the Services Plan:
Starwood Strategic Fund, $1583; Laidlaw Fund, $3721; First Lexington Balanced
Fund, $9713; and Taxable Money Market Fund, $81,344. For the fiscal year ended
September 30, 1997, the Administrator received the following payments: Starwood
Strategic Fund, $1,158; Aggressive Growth Fund, $550; Laidlaw Fund, $3,716;
Asset Allocation Fund, $622; First Lexington Balanced Fund, $2,337; Taxable
Money Market Fund, $74,009, and Tax-Free Money Market Fund, $10,916. For the
fiscal year ended September 30, 1996, the Administrator received the following
payments: 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.
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 Sub-Adviser make decisions on portfolio
transactions and select brokers and dealers subject to review by the Board of
Trustees.
The Adviser and Sub-Adviser 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-Adviser 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-Adviser 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-Adviser
might otherwise have paid, it would tend to reduce their expenses. During the
fiscal year ended September 30, 1997, the Adviser did not direct any brokerage
transactions to brokers because of research services provided.
For the fiscal year ended September 30, 1998, the Starwood Strategic
Fund and the Laidlaw Fund paid $4,103 and $2,364, respectively, to Unified
Management Corporation, the Trust's Distributor, for effecting 100% of each
Fund's commission transactions. For the fiscal year ended September 30, 1997,
the Starwood Strategic Fund and the Laidlaw Fund paid $1825 and $2,300,
respectively, to the Trust's Distributor for effecting 100% of each Fund's
commission transactions. For the fiscal year ended September 30, 1996, the
Starwood Strategic Fund paid brokerage commissions of $2,317 to the Trust's
Distributor for effecting 100% of that Fund's commission transactions.
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.
Brokers
The Trust has authorized one or more brokers to accept purchase and
redemption orders on behalf of the Funds. Authorized brokers are permitted to
designate other intermediaries to accept purchase and redemption orders on the
Funds' behalf. A Fund will be deemed to have received a purchase or redemption
order when an authorized broker or, if applicable, an authorized broker's
designee, accepts the order. Orders will be priced at the Fund's net asset value
next computed after the order is accepted by an authorized broker or the
authorized broker's designee.
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.
<PAGE>
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:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
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 Funds for the one year period
ended September 30, 1998 was as follows: Starwood Strategic, .43%; Laidlaw,
- -3.31%; First Lexington Balanced, -1.09%; Taxable Money Market, 4.53%. The
average annual total return of the Funds for the period from the inception of
each Fund through September 30, 1998 was as follows: Starwood Strategic, 7.90%;
Laidlaw, 12.53%; First Lexington Balanced, 5.98%; Taxable Money Market, 4.07%.
Yield
The yield of a Fund's shares (other than the Taxable 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, 1998 was 4.30%. The effective yield of the Taxable
Money Market Fund for that seven-day period was 4.43%.
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.
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 Unified Funds, [name of
specific Fund in which you are purchasing shares], P.O. Box 640689, Cincinnati,
Ohio, 45264-0689.
Unified Fund Services, 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 Financial Services, Inc.
Neither the Custodian nor Unified Fund Services, Inc., has any part in
determining the investment policies of the Trust or any of the Funds or which
securities are to be purchased or sold by the Funds, and neither can provide
protection to shareholders against possible depreciation of assets.
McCurdy & Associates CPA's Inc., 27955 Clemens Road, Westlake, OH
44145, independent accountants, have been selected as the Trust's auditors.
FINANCIAL STATEMENTS
The 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, 1998. The Trust will provide the Annual Report without charge upon
request by calling the Trust at 1-800-408-4682.
