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November 30th, 2014

Dear Shareholder of the Auer Growth Fund,

Our fiscal 2014 year, which runs the 12 months from December 1st, 2013 through November 30th, 2014, was challenging, as we saw the Fund decline 6.50%.  During this time, the large cap index, (which we only use as comparison because so many funds benchmark to it), the Standard & Poor’s 500 was up 16.86%.  A better benchmark to our process is the Russell 2000 Value, which was up only 3.36% in this same period.  Still, the Fund had an almost 10% underperformance to the Russell 2000.

The Fund share price declined from $8.31 to $7.77, again a loss of 6.5%.  The net assets of the Fund during this period declined from $76.6 million to $66.2 million.  This equated to 13.5% less assets in the Fund, which would be from our market depreciation and about 7% net of our shareholders cashing in the Fund.  This is to be expected as investors shift assets to another strategy that they feel is capturing the market move better than the Auer Growth Fund.  However, in the same 12 month period previous to this period the Fund returned 46.8%.  We appreciate that 93% of our shareholder assets stayed the course during a trying year.  Although no one likes a drop of 6.5% percent, we maintain you can’t swing to get the 46% we got in the previous fiscal reporting period by trying to just buy large companies that aren’t growing as rapidly as our holdings.
What is unique about this year, however, is that the 6.5% decline doesn’t really tell the story.  Through June 2014, the Fund was doing very well (up 9.7%), surpassing the S&P 500 year to date (up 7.14%), our Morningstar category  (Small Cap Blend, up 4.01%) and the Russell 2000 (up 4.20%)by over double. 

But almost as soon as the latter half of the year started, the Fund got hit by a double dose of challenges.  The first was Ebola.  As the general market declined, small stocks did considerably worse, as there was a flight to safety to blue chip type stocks. According to Morningstar, we were 42% micro-cap and another 28% small cap, so a total of 70% are much smaller companies.   Our strategy is not blue chip based, as our discipline dating back to 1987 has been much more rewarded by uncovering smaller faster growing stocks. In fact we only buy stocks we truly feel can DOUBLE, and indeed we sell them if they do double.   As soon as the Ebola scare subsided, the Fund began to recover from a low of $7.53 on October 13th.  The Fund did recover over 8.5% before our overweight in the energy sector, which had been helping us in the first half of the year, reversed almost overnight.  The reversal was a result of artificially low oil prices. OPEC and specifically Saudi Arabia began over-producing oil in an effort to avoid yielding market share to the extremely fast growing US oil exploration and production companies, some of which were major holdings of the Fund.  As the fiscal year drew to a close, we witnessed the Fund drop 4.3% on that day alone. OPEC announced on Thanksgiving, when as US markets were closed for the holiday, that they intended to maintain pumping oil no matter to what level the price declined.  Some of our oil related holdings the day after Thanksgiving dropped 25% .Although it may all seem clear now, I can assure you very few managers predicted that the price of crude oil would decline from over $105 to under $70 in a few weeks (dropping almost 10% in a single day).  As they say on Wall Street, timing can be everything. Had we had to report to you one day sooner, we could be reporting only about a 2% decline, but that last day of our fiscal year really was painful.

It is important that we stress what the strategy of the Fund is, and will always be.  It  is based on a track record that the Auer family developed over 20 years before the Fund even launched.  It is highly disciplined, and does not market time, or try to move capital around to whatever might be the “hot dot” or asset class in favor.  It stays almost 95% invested in stocks that trade in the United States (there can be foreign holdings if they are listed here too).  Three main criteria that the stocks have to come into the portfolio are a 25% increase in quarterly earnings per share versus last year’s quarter, a 20% increase in revenues for the quarter as well, year over year, and a valuation that would put the stock below a value of 12 time earnings (although this can be calculated also using a forward estimate).  Once in the portfolio, the stocks are monitored daily for any new news, but the main news will be the next quarterly report.  If the stocks fail to continue growing at a 25% earnings and 20% sales rate, they are sold, unless the outlook for the next quarter shows them to re-qualify.  If the stock doubles in price, it will also be sold.  The Fund had 14 positions that were harvested as doubles in the fiscal year.

The 14 doubles the Fund realized were:

(ESYS) ElecSys Corp, 13,000 shares sold December 16th at $13.36, bought at $6.68 held 5 months. ESYS makes software and controls for machine to machine communications.

(ASTC) Astrotech Corp, 160,000 shares sold December 16th at $2.36, bought at $1.18 held 2 months.  ASTC is a small $50 million aerospace company.

(HCI) Homeowners Choice, 10,000 shares sold December 23rd at $52.59, bought at $26.14 held 8.5 months.  HCI provides home insurance in Florida.

(HCLP) Hi-Crush Partners, 20,000 shares sold December 23rd at $35.01, bought at $17.50 held 10.5 months.  HCLP provides sand for oil fracking.

(GST) Gastar Exploration, 110,000 shares sold December 26th at $6.58, bought at $3.26 held 4.5 months.  GST is a $400 million value natural gas company.

(WTT) Wireless Telecom Group, 50,000 shares sold February 14th at $3.57, bought at $1.79 held 5 months.  WTT is a $85 million value microwave communications company.

(HTM) US Geothermal Inc, 420,000 shares sold March18th at $0.78, bought at $0.39 held 10 months.  HTM is a $78 million value generator of electricity from hot springs.

(FNHC) Federated National 18,000 shares sold April 14th at $19.15, bought at $9.50 held 6.5 months.  FNHC is a $200 million property and casualty firm.

(ARRS) Arris Group 90,000 shares sold May 30th at $33.09, bought at $16.53 held 9.5 months.  ARRS is a leading maker of cable TV boxes valued at $4.7 billion.

(ESTE) Earthstone Energy 10,000 shares sold June 17th at $33.53, bought at $16.46 held 9 months.  ESTE is a small oil company worth $57 million at 15 employees.

(SN) Sanchez Energy Corp, 75,000 shares sold June 23rd at $38.05, bought at $18.97 held 15.3 months.  SN is a $2 billion value oil company operating in Eagle Ford area.

(MU) Micron Technology Corp, 180,000 shares sold July 1st at $34.09, bought at $16.74 held 7.6 months.  MU is one of the largest memory chip makers in the world.

(CTP) CT Partners Executive Search, 10,000 shares sold September 9th at $19.70, bought at $9.84 held 3.8 months.  CTP is an executive staffing company founded in 1980, worth $140 million.

(RIOM) Rio Alto Mining Ltd, 125,000 shares sold September 16th at $3.00, bought at $1.49 held 9.7 months.  RIOM is a $1 billion value gold company.

Those are 14 stocks we all should have bought in hindsight, and what we really want our shareholders to know is going forward we are very positive about how the portfolio is positioned.  The latest analysis date we had from Morningstar, which crunches the different valuation measures of how our stocks stack up, offers very compelling information.   By the nature of our discipline we are in lower price to earnings ratio companies.  The p/e or price to earnings is the ratio of share price in relation to their net profit per share.  In general, the lower the better.  Would you rather pay 10 times annual profits, or 20 times, to get ownership in a company?  A fantastic p/e would for example be 1 times!  That means in 1 year the company’s profits would pay off the value of your investment if the company chose to divert the profits all to the shareholders. 

Consider that the S&P 500, which is hitting new all-time historical highs as the year closes out as of  November 30th , the most recent data we had from Morningstar as we write this), has a calculated p/e of 16.97.  The Fund’s holdings were a very reasonable 10.16 p/e.  That is a significant discount to the market.  However, more impressive is the analysts projected earnings growth rate long term on our companies.  It was registering 15.19% future estimated growth, while the S&P 500 was at 10.16% future earnings growth.  Usually, when you buy stocks with much lower p/e than the market you are stuck with companies Wall Street feels may grow slowly, or not at all.  In the case of our average holding, we are invested in them at much less valuation but with much better estimated growth!  These are future growth numbers and are just estimates though, but they are estimates all taken from the same database comparing the S&P 500 to our Fund holdings.

If you want to talk about things more factual than estimates, you can talk about the book value of a company. This is calculated by adding up all its assets, less its debts, leaving you with what the company’s accountants believe is the equity the company is worth.  It is very difficult (unless we are in deep recession) to buy good growing companies and pay just their book value.  In fact, as of October 31st, Morningstar shows the S&P 500 on average is trading at 2.34 times its book value.  The holdings in the Auer Growth Fund are at only 1.27 times book value, which is again a very significant discount to what the big stocks in the S&P 500 are trading at.  Another metric which is extremely favorable to the Fund is that our price to sales ratio is at 0.79 times, versus the S&P 500 at 1.66 times sales.  In other words, our investors have to pay 79 cents, but our cash register rings up $1.00 of goods.  The big S&P 500 shareholders are coughing up $1.66 to get $1.00 in business.  That is double what we are paying.

Another factual metric is cash flow.  Cash flow is what is left after you pay everything and you can direct it to buy back shares, pay dividends or build the company bigger, or just save it on your balance sheet.  Typically the market trades about 8 times cash flow.  The S&P 500 has good cash flow now and is at 7.32 times.  The average holding in the Fund is at an almost insanely cheap 4.2 times cash flow!  Technically, at that level our companies could buy themselves out in 4.2 years with no growth from here and no outside financing if they could acquire the shares at these prices.

I have been investing for clients for over 25 years.  These valuations are extremely favorable, but that in itself does not mean other investors will run to our stocks to drive them higher.  The Federal Reserve has indicated  that the very unnatural easy money policy of the past 6 years most likely ends in 2015.  When the Fund started in 2008, money market funds still yielded over 4%.  Many money market funds today pay 1/100th of 1%, which means it would take almost 100 years to make 1%, and there are almost a TRILLION dollars sitting in them earning nothing.  I feel the general market itself is a fair value still for investors, but that the real value is in the exact kinds of smaller fast growing companies we are buying at low price to earnings ratios.  Although not a rewarding strategy in the past 12 months, we have stayed with this strategy since 1987 in our personal accounts and in the Fund since 2008, and we hope you will continue with your trust in our investment style.

Robert C. Auer
Senior Portfolio Manager
Auer Growth Fund (AUERX)

November 30, 2014, Indianapolis Indiana

The Fund's past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 1-888-711-2837.

* P/E (price/earnings) is computed by taking the price of the stock divided by the current earnings-per-share. Companies with high P/E ratios are more likely to be considered "risky" investments.

**The S&P 500 Index is a widely recognized unmanaged index of equity prices and are representative of a broader market and range of securities than is found in the Fund's portfolio. The Index returns do not reflect the deduction of expenses, which have been deducted from the Fund's returns. The Index return assumes reinvestment of all distributions and does not reflect the deduction of taxes and fees.  

Russell 2000 Value Index measures the performance of small-cap value segment of the U.S. equity
universe. It includes those Russell 2000 Index companies with lower price-to-book ratios and lower
forecasted growth values.

See current performance.

Click for current holdings.


You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses
of the Fund before investing. The Fund's prospectus contains this and other information about the Fund, and should be
read carefully before investing. You may obtain a current copy of the Fund's prospectus by calling 1-888-711-2837 or
download a prospectus here.