N-30D 1 dobn30d.txt DOBSON N30D August 2002 Dear Fellow Shareholders: We are pleased to present the fourth annual report of the Dobson Covered Call Fund (DBCCX). I would like to refer you to the management discussion and analysis below for specific details about the Dobson Covered Call Fund performance. Our overall view of the economy in the next several years is that it will grow but not as rapidly as in the past decade. We continue to believe that competition among firms will keep prices down and therefore the level of inflation will tend to remain low. This should moderate profits and consequently stock prices will not appreciate as much as in the past. We by no means see a collapse in the economy, just slower growth. If our analysis is correct, a covered call strategy should prove a superior investment to the S&P 500 Index. As stated in the prospectus stocks are held close to S&P 500 Industry weights. We welcome your comments and suggestions. Sincerely, Charles L. Dobson Portfolio Manager The prospectus should be read carefully before investing. To request a prospectus for more complete information, including charges and expenses, call toll free 1-877-2-DOBSON OR 1-877-236-2766. Past performance does not guarantee future results. Shares when redeemed may be worth more or less than their original cost. Distributed by Unified Financial Securities, Inc., 431 North Pennsylvania Street Indianapolis, IN 46204 Member NASD, SIPC. Management's Discussion of Fund Performance For the twelve month period ended July 31, 2002 the Fund's total return was -15.82% and from inception its average annual return was -2.30%. This compares with -23.69% and -8.09% respectively for the S&P 500 Index. The Fund achieved these results with a volatility or risk level that was approximately 71% of the S&P 500 Index. We have chosen to compare the Fund's results to the S&P 500 Index because the S&P 500 Index is one of the most widely recognized benchmarks. This comparison is also valuable in explaining how the Fund's results were achieved. DBCCX S&P 500 Index Standard Deviation (volatility level) Comparison (04/01/99) through 07/31/02) 3.48 4.92 6-Month Actual Return For the Period Ended 07/31/02 -14.85% -18.76% Average Annual Total Return For the Period Ended 07/31/02 Since Inception (03/24/99) -2.30% -8.09% One Year Actual Return -15.82% -23.69% For the Period Ended 7/31/02 Volatility DBCCX - 3.48 S&P 500 Index - 4.92 Monthly returns Dobson Covered Call Fund $10,859 S&P 500 Index $9,271 10,000 10,000 Mar-99 10,390 10,195 Apr-99 10,700 10,589 Jul-99 10,780 10,573 Oct-99 11,040 10,879 Jan-00 10,843 11,163 Apr-00 11,355 11,662 Jul-00 11,167 11,521 Oct-00 11,418 11,541 Jan-01 11,301 11,063 Apr-01 10,760 10,149 Jul-01 10,984 9,870 Oct-01 10,043 8,670 Jan-02 10,859 9,271 This graph shows the value of a hypothetical initial investment of $10,000 in the Fund and the S&P 500 Index on March 24, 1999 (inception of the Fund) and held through July 31, 2002. The S&P 500 Index is a widely recognized unmanaged index of common stock prices and is representative of a broader market and range of securities than is found in the Dobson Covered Call Fund. Individuals cannot invest directly in this Index. The Index returns do not reflect expenses, which have been deducted from the Fund's return. Performance figures reflect the change in value of the stocks in the index plus the reinvestment of dividends and are not annualized. The returns shown do not reflect deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. THE FUND'S RETURN REPRESENTS PAST PERFORMANCE AND DOES NOT PREDICT FUTURE RESULTS. Investment returns and principal values will fluctuate so that our shares, when redeemed, may be worth more or less than their original purchase price. For more information on the Dobson Covered Call Fund, please call 1-877-2-Dobson or 1-877-236-2766 to request a prospectus. Investing in the Fund involves certain risks that are discussed in the Fund's prospectus. Please read the prospectus carefully before you invest or send money. The Fund holds stocks to match S&P 500 Industry Weights. For example, if the technology industry is approximately 15% of the S&P 500 Index, approximately 15% of the stocks in the portfolio are in the technology industry. I use the word approximately because we don't rebalance the portfolio daily. This would be costly from a transaction standpoint and not much would be gained. Currently we rebalance every six months if necessary. The Fund writes/sells individual stock options on the securities it owns. This past year the Securities and Exchange Commission required that 80% of a fund's investments must match its name. Consequently at least 80% of our portfolio has options written on it. As a practical matter virtually all of the Fund's securities are covered with the exception of utility stocks and some low priced issues. These past five months of our fiscal year (March 2002 to July 2002) have been one of the strangest periods I have experienced in over twenty-five years in the business. As most of you know, volatility has been extraordinary. Rises and declines of several hundred points within and between days in the Dow Jones Industrial Averages have been almost common. It is our opinion that hedge funds and individual short sellers have been responsible for a good deal if not most of this volatility. We recognize that short selling is a legitimate trading strategy but it can also cause a great deal of volatility. Short sellers sell stock that they do not own in the hopes of buying the stock at a lower price. To simplify, their profit/loss is the difference between what they sold the stock for and what they purchase it for. If there is a good deal of short selling in a particular stock or stocks and no buyers, prices can decline rapidly. When the short sellers decide to buy the stock or stocks to `cover' their short positions, prices can rise rapidly especially if there are few sellers. This explanation is an oversimplification but I think you get the idea. Another factor that made this period so strange is the amount of dispersion that has occurred. Dispersion is the scatter of individual stocks around their aggregate return. July 2002 is a good month to demonstrate this. That month the S&P 500 Index declined 7.8% and your Fund declined 6.39%. The most astonishing thing was six of the stocks in the portfolio that were priced at over $30 on June 30 and were more than 2% of the portfolio, declined twice as much as the S&P 500 Index. Those stocks were BellSouth -17.31%, Citigroup -15.53%, Home Depot -18.94%, Wyeth -28.32%, and Royal Dutch -30.01%. (See the accompanying positions in this report). There was also one or more of these sharp declines in three of the previous four months. Normally you may get four or five of these sharp declines in a year, not six in one month, especially with the large cap stocks we deal with. Clearly when stocks decline as much and as rapidly as the ones mentioned above and in such a brief period, the options we sold don't provide as much protection as they would have if the stocks only declined 3% or 4%. However, this does point out a very positive aspect of our strategy. One of the criticisms of a covered call strategy is that it doesn't provide much protection if the market declines. Most criticisms of this nature use only a single stock example. Our belief is that a covered call strategy should be employed using a broadly diversified portfolio weighted according to S&P 500 Industry Weights. Since not all stocks advance or decline at the same rate, our diversification allowed us to absorb the unusual amount of dispersion that occurred these past few months. In fact, we still managed to outperform our benchmark, the S&P 500 Index. I can't emphasize enough the value of diversification with respect to stocks, option strike prices and option time periods. Hopefully we have dispelled those criticisms suggesting a covered call strategy doesn't provide enough protection in difficult markets. Obviously we lost money over the period and we understand investors concerns about remaining in the market. No one can say for certain what the market or the economy will do in the future. That's why investors should take a long-term view and remain diversified. Diversification (that word again) will reduce the volatility of one's overall portfolio and consequently increase the portfolio's return over time. (Please contact me if you would like a technical explanation of why this is so.) Seeing declines like we have the past two years is not unusual when looking at the entire history of the market. Most of us were spoiled by the returns that were generated in the 1990's. It is our belief that returns like that won't be achieved any time in the near future. We believe returns in the single digits can be expected over the next several years. Given the low rate of inflation those returns will be viewed as very good. A question we get frequently is what portion of a portfolio should be invested in a covered call strategy. Each investor is going to have a different level of risks; however, in general an allocation of between 10% and 30% is appropriate. We also suggest you compare our performance with others. If you have access to the Internet you may wish to try www.cbs.marketwatch.com, www.lipperleaders.com and www.morningstar.com. We're proud of our results, especially given our level of risk, and we feel investors will be better informed if they take the time to monitor funds they own or have an interest in. Dobson Covered Call Fund Schedule of Investments July 31, 2002
Common Stocks - 95.4% Shares Value Aircraft - 3.0% Boeing Co. 1,000 $ 41,520 ---------------- Auto Controls for Regulating Residential & Commercial Environment - 2.3% Honeywell International, Inc. 1,000 32,360 ---------------- Beverages - 3.6% Coca-Cola Co. 1,000 49,940 ---------------- Canned, Frozen & Preserved Fruit, Vegetable & Food Specialty - 2.8% H.J. Heinz Co. 1,000 38,450 ---------------- Computer Communication Equipment - 1.9% Cisco Systems, Inc. (a) 2,000 26,380 ---------------- Construction Machinery & Equipment - 3.2% Caterpillar, Inc. 1,000 44,700 ---------------- Cutlery, Handtools & General Hardware - 2.4% The Gillette Co. 1,000 32,880 ---------------- Electric Services - 3.7% Duke Energy, Inc. 2,000 50,980 ---------------- Electromedical & Electrotherapeutic Apparatus - 2.9% Medtronic, Inc. 1,000 40,400 ---------------- Electronic & Other Electrical Equipment (No Computer Equipment) - 2.3% General Electric Co. 1,000 32,200 ---------------- Electronic Computers - 3.6% Dell Computer Corp. (a) 2,000 49,860 ---------------- Fire, Marine, Casualty Insurance - 4.6% American International Group, Inc. 1,000 63,920 ---------------- Motor Vehicles & Passenger Car Bodies - 1.0% Ford Motor Co. 1,000 13,470 ----------------
See accompanying notes which are an integral part of the financial statements. Dobson Covered Call Fund Schedule of Investments July 31, 2002 - continued
Common Stocks - 95.4% - continued Shares Value National Commercial Banks - 11.6% Bank of America Corp. 1,000 $ 66,500 Citigroup, Inc. 1,333 44,709 Wells Fargo & Co. 1,000 50,860 ---------------- 162,069 ---------------- Oil, Gas, Field Services - 3.1% Schlumberger Ltd. 1,000 42,920 ---------------- Paper Mills - 2.9% International Paper Co. 1,000 39,820 ---------------- Petroleum Refining - 2.6% Exxon Mobil Corp. 1,000 36,760 ---------------- Pharmaceutical Preparations - 11.9% Bristol-Myers Squibb, Inc. 1,000 23,430 Pfizer, Inc. 1,000 32,350 Pharmacia Corp. 1,000 44,740 Schering-Plough, Inc. 1,000 25,500 Wyeth 1,000 39,900 ---------------- 165,920 ---------------- Photographic Equipment & Supplies - 2.2% Eastman Kodak, Inc. 1,000 30,780 ---------------- Radio & TV Broadcasting & Communications Equipment - 2.0% QUALCOMM, Inc. (a) 1,000 27,480 ---------------- Radiotelephone Communications - 0.1% AT&T Wireless Services, Inc. (a) 321 1,505 ---------------- Retail - Eating Places - 1.8% McDonald's Corp. 1,000 24,750 ---------------- Retail - Lumber & Other Building Materials Dealers - 2.2% The Home Depot, Inc. 1,000 30,880 ---------------- Retail - Variety Stores - 3.5% Wal-Mart Stores, Inc. 1,000 49,180 ---------------- Security Brokers, Dealers & Flotation Companies - 0.6% Schwab(Charles) Corp. 1,000 8,950 ----------------
See accompanying notes which are an integral part of the financial statements. Dobson Covered Call Fund Schedule of Investments July 31, 2002 - continued
Common Stocks - 95.4% - continued Semiconductors & Related Devices - 2.7% Shares Value Agere Systems, Inc. - Class A (a) 10 $ 19 Agere Systems, Inc. - Class B (a) 264 515 Intel Corp. 2,000 37,580 ---------------- 38,114 ---------------- Services - Miscellaneous Amusement & Recreation - 1.3% Walt Disney Co. 1,000 17,730 ---------------- Services - Prepackaged Software - 4.9% Microsoft Corp. (a) 1,000 47,950 Oracle Corp. (a) 2,000 20,018 ---------------- 67,968 ---------------- Telephone & Telegraph Apparatus - 0.1% Lucent Technologies, Inc. (a) 1,000 1,750 ---------------- Telephone Communications (No Radiotelephone) - 4.6% AT&T Corp. 1,000 10,180 BellSouth Corp. 1,000 26,850 SBC Communications, Inc. 1,000 27,660 ---------------- 64,690 ---------------- TOTAL COMMON STOCKS (Cost $1,999,903) 1,328,326 ---------------- Money Market Securities - 6.7% Federal Prime Obligations Fund, 1.48%, (Cost $93,385) (b) 93,385 93,385 ---------------- TOTAL INVESTMENTS (Cost $2,093,288) - 102.1% $ 1,421,711 ---------------- Liabilities in excess of cash and other assets - (2.1)% (29,243) ---------------- TOTAL NET ASSETS - 100.0% $ 1,392,468 ================ (a) Non-income producing. (b) Variable rate security; the coupon rate shown represents the rate at July 31, 2002. Options Written July 31, 2002 Shares Subject Common Stocks / Expiration Date @ Exercise Price to Call Value American International Group, Inc. / August 2002 @ 75 1,000 $ 50 Bank of America Corp. / August 2002 @ 80 1,000 50 BellSouth Corp. / August 2002 @ 25 1,000 2,150 Boeing Co. / August 2002 @ 50 1,000 50 Bristol-Myers Squibb Co. / September 2002 @ 30 1,000 100 Caterpillar, Inc. / August 2002 @ 45 1,000 1,400
See accompanying notes which are an integral part of the financial statements. Dobson Covered Call Fund Schedule of Investments July 31, 2002 - continued
Options Written July 31, 2002 - continued Shares Subject Common Stocks / Expiration Date @ Exercise Price to Call Value Cisco Systems, Inc. / August 2002 @ 15 1,000 $ 200 Citigroup Inc. / September 2002 @ 45 1,300 130 Coca-Cola Co. / August 2002 @ 60 1,000 50 Dell Computer Corp. / August 2002 @ 30 1,000 50 Dell Computer Corp. / November 2002 @ 30 1,000 950 Eastman Kodak Co. / October 2002 @ 35 1,000 550 Exxon Mobil / October 2002 @ 37.50 1,000 1,800 Ford Motor Co. / Sept 2002 @17.50 1,000 100 General Electric / September 2002 @ 32.50 1,000 1,600 Gillette Co. / September 2002 @ 40 1,000 50 Heinz / December 2002 @ 40 1,000 1,550 Home Depot, Inc. / August 2002 @ 40 1,000 50 Honeywell International, Inc. / September 2002 @ 40 1,000 150 Intel Corp. / August 2002 @ 20 1,000 400 Intel Corp. / October 2002 @ 22.50 1,000 600 International Paper Co. / October 2002 @ 42.5 1,000 1,100 McDonald's Corp. / September 2002 @ 30 1,000 100 Medtronic Inc. / August 2002 @ 50 1,000 50 Microsoft Corp. / September 2002 @ 55 1,000 800 Pfizer Inc. / August 2002 @ 35 1,000 100 Pharmacia Corp. / October 2002 @ 40 1,000 5,800 Qualcomm / September 2002 @ 35 1,000 350 SBC Communications, Inc. / September 2002 @ 30 1,000 1,050 Schering-Plough Corp. / September 2002 @ 22.50 1,000 3,400 Schlumberger Ltd. / August 2002 @ 60 1,000 100 Wal-Mart Stores, Inc. / September 2002 @ 60 1,000 250 Walt Disney Co. / October 2002 @ 20 1,000 650 Wells Fargo & Co. / October 2002 @ 50 1,000 2,350 Weyth / August 2002 @ 55 1,000 50 ---------------- Total (premiums received $35,712) 35,300 $ 28,180 ================
See accompanying notes which are an integral part of the financial statements.
Dobson Covered Call Fund July 31, 2002 Statement of Assets and Liabilities Assets Investments in securities, at value (cost $2,093,288) $ 1,421,711 Cash 1,280 Interest receivable 139 Dividends receivable 1,705 Receivable for investments sold 1,780 Receivable for fund shares sold 100 Receivable from Advisor 13,009 --------------- Total assets 1,439,724 --------------- Liabilities Covered call options written (premiums received $35,712) 28,180 Accrued expenses 19,076 --------------- Total liabilities 47,256 --------------- Net Assets $ 1,392,468 =============== Net Assets consist of: Paid in capital 2,024,613 Accumulated net investment income (loss) (19,775) Accumulated undistributed net realized gain (loss) on investments 51,675 Net unrealized appreciation (depreciation) on investments (664,045) --------------- Net Assets, for 202,292 shares $ 1,392,468 =============== Net Asset Value Offering price and redemption price per share ($1,392,468 / 202,292) $ 6.88 ===============
See accompanying notes which are an integral part of the financial statements. Dobson Covered Call Fund Statement of Operations for the year ended July 31, 2002
Investment Income Dividend income $ 24,942 Interest income 2,112 ------------- Total Income 27,054 ------------- Expenses Investment advisory fee 0 Administration fees [Note 3] 30,000 Transfer agent fees [Note 3] 11,532 Pricing & bookkeeping fees [Note 3] 13,066 Custodian expenses 9,150 Audit expenses 7,200 Legal expenses 6,527 Printing expenses 3,111 Trustee expenses 2,122 Registration expenses 1,791 Miscellaneous expenses 75 ------------- Total Expenses 84,574 Reimbursed expenses (61,510) ------------- Total operating expenses 23,064 ------------- Net Investment Income (Loss) 3,990 ------------- Realized & Unrealized Gain (Loss) Net realized gain (loss) on investment securities (9,035) Net realized gain (loss) on options transactions 131,486 Change in net unrealized appreciation (depreciation) on investment securities (401,685) ------------- Net realized and unrealized gain (loss) on investment securities & option transactions (279,234) ------------- Net increase (decrease) in net assets resulting from operations $(275,244) =============
See accompanying notes which are an integral part of the financial statements. Dobson Covered Call Fund Statement of Changes In Net Assets
For the For the year ended year ended Increase (Decrease) in Net Assets July 31, 2002 July 31, 2001 ---------------- ----------------- Operations Net investment income (loss) $ 3,990 $ 6,809 Net realized gain (loss) on investment securities (9,035) (16,086) Net realized gain (loss) on options transactions 131,486 173,882 Change in net unrealized appreciation (depreciation) (401,685) (185,743) -------------- --------------- Net increase (decrease) in net assets resulting from operations (275,244) (21,138) -------------- --------------- Distributions From net investment income (5,586) (29,199) From net realized gain (178,824) (141,022) -------------- --------------- Total distributions (184,410) (170,221) -------------- --------------- Capital Share Transactions Proceeds from shares sold 236,552 141,335 Reinvestment of distributions 184,410 170,221 Amount paid for shares repurchased (221,333) (7,616) -------------- --------------- Net increase (decrease) in net assets resulting from share transactions 199,629 303,940 -------------- --------------- Total Increase (Decrease) in Net Assets (260,025) 112,581 -------------- --------------- Net Assets Beginning of period 1,652,493 1,539,912 -------------- --------------- End of period $ 1,392,468 $ 1,652,493 ============== =============== Capital Share Transactions Shares sold 28,863 15,446 Shares issued in reinvestment of distributions 23,462 17,909 Shares repurchased (26,939) (791) -------------- --------------- Net increase (decrease) from capital transactions 25,386 32,564 ============== ===============
See accompanying notes which are an integral part of the financial statements. Dobson Covered Call Financial Highlights
For the For the For the For the year ended year ended year ended period ended July 31, 2002 July 31, 2001 July 31, 2000 July 31, 1999 (c) ------------------ ------------------ ------------------ ----------------- Selected Per Share Data Net asset value, beginning of period $ 9.34 $ 10.67 $ 10.78 $ 10.00 ------------------ ------------------ ------------------ ----------------- Income from investment operations Net investment income 0.02 0.04 0.03 0.01 Net realized and unrealized gain / (loss) (1.36) (0.22) 0.35 0.77 ------------------ ------------------ ------------------ ----------------- Total from investment operations (1.34) (0.18) 0.38 0.78 ------------------ ------------------ ------------------ ----------------- Less distributions From net investment income (0.03) (0.18) (0.01) 0.00 From net realized gain (1.09) (0.97) (0.48) 0.00 ------------------ ------------------ ------------------ ----------------- Total distributions (1.12) (1.15) (0.49) 0.00 ------------------ ------------------ ------------------ ----------------- Net asset value, end of period $ 6.88 $ 9.34 $ 10.67 $ 10.78 ================== ================== ================== ================= Total Return (15.82)% (1.64)% 3.59% 7.80% (b) Ratios and Supplemental Data Net assets, end of period (000's) $1,392 $1,652 $1,540 $1,375 Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50% (a) Ratio of expenses to average net assets before reimbursement 5.51% 5.19% 5.47% 9.77% (a) Ratio of net investment income to average net assets 0.26% 0.44% 0.31% 0.32% (a) Ratio of net investment income to average net assets before reimbursement (3.75)% (3.25)% (3.66)% (7.95)%(a) Portfolio turnover rate 6.51% 6.62% 31.75% 47.01% (a) (a) Annualized. (b) For a period of less than a full year, the total return is not annualized. (c) March 24, 1999 (commencement of operations) to July 31, 1999.
See accompanying notes which are an integral part of the financial statements. Dobson Covered Call Fund Notes to Financial Statements July 31, 2002 NOTE 1. ORGANIZATION Dobson Covered Call Fund (the "Fund") was organized as a diversified series of the AmeriPrime Funds (the "Trust") on March 22, 1999 and commenced operations on March 24, 1999. The Trust is established under the laws of Ohio by an Agreement and Declaration of Trust dated August 8, 1995 (the "Trust Agreement"). The Trust Agreement permits the Board of Trustees to issue an unlimited number of shares of beneficial interest of separate series without par value. The Fund is one of a series of funds currently authorized by the Board of Trustees. The Fund's investment objective is total return over the long term. The investment advisor to the Fund is Dobson Capital Management, Inc. (the "Advisor"). NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. Securities Valuations - Securities that are traded on any exchange or on the NASDAQ over-the-counter market, are valued at the last quoted sale price. Lacking a last sale price, a security is valued at its last bid price except when, in the opinion of the Fund's Advisor, the last bid price does not accurately reflect the current value of the security. All other securities for which over-the-counter market quotations are readily available are valued at their last bid price. When market quotations are not readily available, when the Advisor determines the last bid price does not accurately reflect the current value or when restricted securities are being valued, such securities are valued as determined in good faith by the Advisor, in conformity with guidelines adopted by and subject to review of the Board of Trustees. Fixed income securities generally are valued by using market quotations, but may be valued on the basis of prices furnished by a pricing service when the Advisor believes such prices accurately reflect the fair market value of such securities. A pricing service utilizes electronic data processing techniques based on yield spreads relating to securities with similar characteristics to determine prices for normal institutional-size trading units of debt securities without regard to sale or bid prices. If the Advisor decides that a price provided by the pricing service does not accurately reflect the fair market value of the securities, when prices are not readily available from a pricing service or when restricted or illiquid securities are being valued, securities are valued at fair value as determined in good faith by the Advisor, in conformity with guidelines adopted by and subject to review of the Board of Trustees. Short term investments in fixed income securities with maturities of less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued by using the amortized cost method of valuation, which the Board of Trustees has determined will represent fair value. Option writing - When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Fund has realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund as writer of an option bears the market risk of an unfavorable change in the price of the security underlying the written option. Federal Income Taxes - The Fund intends to qualify each year as a "regulated investment company" under the Internal Revenue Code of 1986, as amended. By so qualifying, the Fund will not be subject to federal income taxes to the extent that it distributes substantially all of its net investment income and any realized capital gains. Dobson Covered Call Fund Notes to Financial Statements July 31, 2002 - continued NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - continued Dividends and Distributions - The Fund intends to distribute substantially all of its net investment income as dividends to its shareholders on an annual basis. The Fund intends to distribute its net long-term capital gains and its net short term capital gains at least once a year. Other - The Fund follows industry practice and records security transactions on the trade date. The specific identification method is used for determining gains or losses for financial statements and income tax purposes. Dividend income is recorded on the ex-dividend date and interest income is recorded on an accrual basis. Discounts and premiums on securities purchased are amortized over the life of the respective securities. NOTE 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Fund retains Dobson Capital Management, Inc., 1422 S. Van Ness Street, Santa Ana, CA 92707 to serve as investment advisor to the Fund. The Advisor is a California corporation established in September 1998. Charles L. Dobson is the president, director and sole shareholder of the Advisor, and is primarily responsible for the day-to-day management of the Fund's portfolio. Under the terms of the management agreement, (the "Agreement"), the Advisor manages the Fund's investments subject to approval of the Board. As compensation for its management services, the Fund is obligated to pay the Advisor a fee computed and accrued daily and paid monthly at an annual rate of 0.80% of the average daily net assets of the Fund, less the amount by which total operating expenses, including management fees, exceed 1.50% of the average value of its daily net assets. The Advisor has contractually agreed to reimburse the Fund for the operating expenses it incurs, but only to the extent necessary to maintain the Fund's total annual operating expenses at 1.50% of its average daily net assets. For the year ended July 31, 2002, the Advisor received fees of $0 from the Fund. For the year ended July 31, 2002, the Advisor reimbursed Fund expenses of $61,510. At July 31, 2002 there was a net receivable from the Advisor in the amount of $13,009. The Fund retains Unified Fund Services, Inc. ("Unified"), a wholly owned subsidiary of Unified Financial Services, Inc., to manage the Fund's business affairs and provide the Fund with administrative services, including all regulatory reporting and necessary office equipment and personnel. Unified receives a monthly fee from the Fund equal to an annual rate of 0.10% of the Fund's assets over $50 million, 0.075% of the Fund's assets from $50 million to $100 million, and 0.050% of the Fund's assets over $100 million (subject to a minimum fee of $2,500 per month). For the year ended July 31, 2002, the administrator received fees of $30,000 from the Fund for administrative services provided to the Fund. A Trustee and the officers of the Trust are members of management and/or employees of Unified. The Fund also retains Unified to act as the Fund's transfer agent and fund accountant. For its services as transfer agent, Unified receives a monthly fee from the Fund of $1.20 per shareholder (subject to a minimum monthly fee of $750). For the year ended July 31, 2002, Unified received fees of $11,532 from the Fund for transfer agent services provided to the Fund. For its services as fund accountant, Unified receives an annual fee from the Fund equal to 0.0275% of the Fund's assets up to $100 million, 0.0250% of the Fund's assets from $100 million to $300 million, and 0.0200% of the Fund's assets over $300 million (subject to various monthly minimum fees, the maximum being $2,100 per month for assets of $20 million to $100 million). For the year ended July 31, 2002, Unified received fees of $13,066 from the Fund for fund accounting services provided to the Fund. Dobson Covered Call Fund Notes to Financial Statements July 31, 2002 - continued NOTE 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - continued The Fund retains Unified Financial Securities, Inc. (the "Distributor"), a wholly owned subsidiary of Unified Financial Services, Inc., to act as the principal distributor of its shares. There were no payments made to the Distributor during the year ended July 31, 2002. The Fund has adopted a plan, pursuant to Rule 12b-1 under the Investment Company Act of 1940, which permits the Fund to pay directly, or reimburse the Fund's Advisor and Distributor, for certain distribution and promotion expenses related to marketing its shares, in an amount not to exceed 0.25% of the average daily net assets of the Fund. Effective December 10, 1999 the 12b-1 plan was inactivated and as a result there were no 12b-1 payments made to the Distributor for the year ended July 31, 2002. A Trustee and officer of the Trust may be deemed to be an affiliate of Unified Financial Securities, Inc. NOTE 4. INVESTMENTS For the year ended July 31, 2002, purchases and sales of investment securities, other than short-term investments, aggregated $247,700 and $95,517, respectively. As of July 31, 2002, the gross unrealized appreciation for all securities totaled $48,268 and the gross unrealized depreciation for all securities totaled $712,313 for a net unrealized depreciation of $664,045. The aggregate cost of securities for federal income tax purposes at July 31, 2002 was $2,108,664. The difference between book cost and tax cost consists of wash sales in the amount of $15,376. NOTE 5. ESTIMATES Preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 6. RELATED PARTY TRANSACTIONS The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of the fund, under Section 2(a)(9) of the Investment Company Act of 1940. As of July 31, 2002, Charles L. Dobson, President of the Advisor, beneficially owned in aggregate more than 66% of the Fund. NOTE 7. CALL OPTIONS WRITTEN As of July 31, 2002, portfolio securities valued at $1,156,732 were held in escrow by the custodian as cover for call options written by the Fund. Transactions in options written during the year ended July 31, 2002 were as follows: Dobson Covered Call Fund Notes to Financial Statements July 31, 2002 - continued NOTE 7. CALL OPTIONS WRITTEN - continued Number of Premiums Contracts Received Options outstanding at July 31, 2001 363 $63,646 Options written 1,672 201,470 Options terminated in closing purchase transactions (340) (45,159) Options expired (1,332) (181,681) Options exercised (10) (2,564) ---------- ---------------- Options outstanding at July 31, 2002 353 $35,712
NOTE 8. ELECTION OF TRUSTEES - (Unaudited) At a special meeting of the shareholders held on May 29, 2002, a vote was held to elect members to serve on the Board of Trustees. The vote tally for each Trustee is as follows: For Withheld Total Gary Hippenstiel 10,516,210.432 648,472.896 11,164,683.328 Mark Muller 10,856,443.432 308,239.896 11,164,683.328 Ken Trumpfheller 10,493,506.432 671,176.896 11,164,683.328 Richard Wright 10,858,138.432 306,544.896 11,164,683.328
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Information Regarding Trustees and Officers The Board of Trustees supervises the business activities of the Trust. Each Trustee serves as a trustee until the termination of the Trust unless the Trustee dies, resigns, retires or is removed. The following table provides information regarding each Trustee who is not an "interested person" of the Trust, as defined in the Investment Company Act of 1940. --------------------------------------------------- ------------------- --------------------- ------------------------ Number of Portfolios Position(s) Held Length of in Fund Complex** Name, Age and Address with Trust Time Served Overseen by Trustee --------------------------------------------------- ------------------- --------------------- ------------------------ Mark W. Muller Trustee Trustee since 1999 35 5016 Cedar River Tr. Fort Worth, Texas 76137 Year of Birth: 1964 ----------------------------------------------------------------------- ---------------------------------------------- Principal Occupations During Past 5 Years Other Directorships Held by Trustee ----------------------------------------------------------------------- ---------------------------------------------- President of JAMAR Resources, Inc., a manufacturers representative None firm, September 2001 to present. Account Manager for SCI, Inc., a custom manufacturer, from April 2000 to September 2001. Account Manager for Clarion Technologies, a manufacturer of automotive, heavy truck, and consumer goods, from 1996 to April 2000. From 1986 to 1996, an engineer for Sicor, a telecommunication hardware company. -------------------------------------------------- ------------------- --------------------- ------------------------ Number of Portfolios Position(s) Held Length of in Fund Complex** Name, Age and Address with Trust Time Served Overseen by Trustee --------------------------------------------------- ------------------- --------------------- ------------------------ Gary E. Hippenstiel Trustee Trustee since 1995 17 600 Jefferson Street Suite 350 Houston, TX 77002 Year of Birth: 1947 ----------------------------------------------------------------------- ---------------------------------------------- Principal Occupations During Past 5 Years Other Directorships Held by Trustee ----------------------------------------------------------------------- ---------------------------------------------- Director, Vice President and Chief Investment Officer of Legacy Trust None Company since 1992; President and Director of Heritage Trust Company from 1994-1996; Vice President and Manager of Investments of Kanaly Trust Company from 1988 to 1992. --------------------------------------------------- ------------------- --------------------- ------------------------ Number of Portfolios Position(s) Held Length of in Fund Complex Name, Age and Address with Trust Time Served Overseen by Trustee --------------------------------------------------- ------------------- --------------------- ------------------------ Richard J. Wright, Jr. Trustee Trustee since 1999 35 13532 N. Central Expressway MS 3800 Dallas, Texas 75243 Year of Birth: 1962 ----------------------------------------------------------------------- ---------------------------------------------- Principal Occupations During Past 5 Years Other Directorships Held by Trustee ----------------------------------------------------------------------- ---------------------------------------------- Various positions with Texas Instruments, a technology company, since None 1985, including the following: Program Manager for Semi-Conductor Business Opportunity Management System, 1998 to present; Development Manager for web-based interface, 1999 to present; Systems Manager for Semi-Conductor Business Opportunity Management System, 1997 to 1998; Development Manager for Acquisition Manager, 1996-1997; Operations Manager for Procurement Systems, 1994-1997. ----------------------------------------------------------------------- ---------------------------------------------- The following table provides information regarding each Trustee who is an "interested person" of the Trust, as defined in the Investment Company Act of 1940, and each officer of the Trust. --------------------------------------------------- ------------------- --------------------- ------------------------ Number of Portfolios Position(s) In Length of in Fund Complex** Name, Age and Address Fund Complex** Time Served Overseen by Trustee --------------------------------------------------- ------------------- --------------------- ------------------------ Kenneth D. Trumpfheller* President, Trustee and 35 1725 E. Southlake Blvd. Secretary and President since 1995 Suite 200 Trustee Secretary since 2000 Southlake, Texas 76092 Year of Birth: 1958 ---------------------------------------------------------------------- ---------------------------------------------- Principal Occupations During Past 5 Years Other Directorships Held by Trustee ----------------------------------------------------------------------- ---------------------------------------------- President and Managing Director of Unified Fund Services, Inc., the None Fund's transfer agent, fund accountant and administrator, since October 2000. President, Treasurer and Secretary of AmeriPrime Financial Services, Inc., a fund administrator, (which merged with Unified Fund Services, Inc.) from 1994 through October 2000. President, Treasurer and Secretary of AmeriPrime Financial Securities, Inc., the Trust's distributor through December 2000, from 1994 through December 2000. --------------------------------------------------- ------------------- --------------------- ------------------------ Number of Portfolios Position(s) in Length of in Fund Complex** Name, Age and Address Fund Complex Time Served Overseen by Trustee ---------------------------------------------- ------------------- --------------------- ------------------------ Robert A. Chopyak Treasurer and Treasurer and CFO N/A 1725 E. Southlake Blvd. Chief Financial since 2000 Suite 200 Officer Southlake, Texas 76092 Year of Birth: 1968 --------------------------------------------------- ------------------- --------------------- ------------------------ ----------------------------------------------------------------------- ---------------------------------------------- Principal Occupations During Past 5 Years Other Directorships Held by Trustee ----------------------------------------------------------------------- ---------------------------------------------- Assistant Vice-President of Financial Administration of Unified Fund None Services, Inc., the Fund's transfer agent, fund accountant and administrator, since August 2000. Manager of AmeriPrime Financial Services, Inc. from February 2000 to August 2000. Self-employed, performing Y2K testing, January 1999 to January 2000. Vice President of Fund Accounting, American Data Services, Inc., a mutual fund services company, October 1992 to December 1998. ----------------------------------------------------------------------- ---------------------------------------------- *Mr. Trumpfheller in an "interested person" of the Trust because he is an officer of the Trust. In addition, he may be deemed to be an "interested person" of the Trust because he is a registered principal of the Trust's distributor. **As of December 31, 2001, the term "Fund Complex" refers to AmeriPrime Funds and AmeriPrime Advisors Trust. The Statement of Additional Information includes additional information about the Trustees and is available without charge upon request, by calling toll free at 1-877-2Dobson or 1-877-236-2776.
INDEPENDENT AUDITOR'S REPORT To The Shareholders and Board of Trustees Dobson Covered Call Fund (a series of the AmeriPrime Funds) We have audited the accompanying statement of assets and liabilities of the Dobson Covered Call Fund, including the schedule of portfolio investments, as of July 31, 2002, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, and for the period of March 24, 1999 (commencement of operations) through July 31, 1999. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments and cash held as of July 31, 2002 by correspondence with the custodian and broker. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Dobson Covered Call Fund as of July 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended and for the period of March 24, 1999 (commencement of operations) through July 31, 1999, in conformity with accounting principles generally accepted in the United States. McCurdy & Associates CPA's, Inc. Westlake, Ohio 44145 August 16, 2002