<PAGE> 1
THE FAIRMONT FUND
CROSS REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM NO. SECTION IN PROSPECTUS
- -------- ---------------------
<S> <C>
1 Cover Page
2 Fund Expenses
3 Financial Highlights, Performance Information
4 Operation of The Trust, Investment Objective,
Strategy and Risk Factors, Investment Techniques
5 Operation of The Trust, Financial Highlights
5A Operation of The Trust
6 Investment Techniques, How to Withdraw (Redeem)
an Investment, Cover Page, Dividends, Distributions
and Taxes
7 How to Invest in The Fund, Determination of Net
Asset Value, Operation of The Trust
8 How to Withdraw (Redeem) an Investment
9 None
ITEM NO. SECTION IN STATEMENT OF ADDITIONAL INFORMATION
- -------- ----------------------------------------------
10 Cover Page
11 Table of Contents
12 None
13 Investment Policies, Other Restrictions, U.S.
Government Obligations
14 The Trustees and Executive Officers
15 Description of The Trust
16 Investment Advisory Agreement, Custodian,
Auditors, Transfer Agent, The Trustees and
Executive Officers
17 Portfolio Transactions and Brokerage
18 Description of The Trust
19 Determination of Net Asset Value
20 Taxes
21 None
22 Performance Information
23 Independent Auditors Report, Financial Statements
</TABLE>
<PAGE> 2
THE FAIRMONT FUND
1346 South Third Street
Louisville, Kentucky 40208
(502) 636-5633
(800) 262-9936
PROSPECTUS
October 11, 1996
The Fairmont Fund (The Fund) is a no-load, diversified series of The
Fairmont Fund Trust (The Trust), an open-end investment company seeking
capital appreciation by investing in equity securities that the Adviser of The
Trust believes are undervalued.
This prospectus sets forth concisely the information about The Fund that
you ought to know before investing. Please retain this prospectus for future
reference. A Statement of Additional Information dated October 11, 1996 has
been filed with the Securities and Exchange Commission (SEC) and is hereby
incorporated by reference in its entirety. A copy of the Statement can be
obtained at no charge by calling the number listed above. 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.
For information or assistance, write to The Fund at the address listed
above or call The Fund at the number listed above.
You should read and retain this prospectus for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE 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> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND EXPENSES.......................................... 3
FINANCIAL HIGHLIGHTS................................... 3
PERFORMANCE INFORMATION................................ 4
PORTFOLIO.............................................. 7
INVESTMENT OBJECTIVE, STRATEGY AND RISK FACTORS........ 9
HOW TO INVEST IN THE FUND.............................. 9
Investments by Mail.............................. 9
Investments by Wire.............................. 10
Exchange Privilege............................... 10
Other Purchase Information....................... 11
Tax Sheltered Retirement Plans................... 11
HOW TO WITHDRAW (REDEEM) AN INVESTMENT................. 11
OPERATION OF THE TRUST................................. 12
DETERMINATION OF NET ASSET VALUE....................... 13
DIVIDENDS, DISTRIBUTIONS AND TAXES..................... 13
Dividends and Distributions...................... 13
Taxes............................................ 14
INVESTMENT TECHNIQUES.................................. 14
Foreign Securities............................... 14
Repurchase Agreements............................ 15
Portfolio Turnover............................... 15
General.......................................... 15
</TABLE>
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<PAGE> 4
FUND EXPENSES
The following table illustrates all expenses and fees that a
shareholder of The Fund will incur. The operating expense information is
based upon operating expenses for the fiscal year ended December 31, 1995,
expressed as a percentage of average daily net assets.
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Sales Load Imposed on Purchases...................... None
Sales Load Imposed on Reinvested Dividends........... None
Redemption Fees...................................... None
Annual Fund Operating Expenses
Management Fees...................................... 1.70%
12b-1 Fees........................................... None
Other Expenses....................................... None
Total Fund Operating Expenses........................ 1.70%
</TABLE>
Example
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the
following expenses on
a $1,000 investment,
assuming (1) 5% annual
return and (2) redemp-
tion at the end of
each time period: $17 $53 $92 $200
</TABLE>
The purpose of the table above is to assist shareholders in
understanding the costs and expenses that shareholders in The Fund will bear
directly or indirectly. The Fund's Adviser pays all of the operating expenses
of The Fund. For a more complete description of The Fund's expenses and its
management fee structure, see "Operation of The Trust." The Example should
not be considered a representation of past or future expenses and actual
expenses may be greater or lesser than those shown.
Shareholders should note that The Fund is a no-load fund and has no
distribution expense plan. Accordingly, a shareholder does not pay any sales
charge or commission upon purchase or redemption of shares of The Fund and
does not pay any expenses with respect to the distribution of the shares of
The Fund.
FINANCIAL HIGHLIGHTS
The following condensed financial information for The Fairmont Fund is
derived from The Fund's financial statements. The financial statements for the
years ended December 31, 1995, 1994, 1993 and 1992 have been audited by McCurdy
& Associates CPA's, Inc., independent auditors. The financial statements for
the remaining periods have been audited by other independent auditors whose
reports for those years were unqualified. The financial statements of The
Fund for the
- 3 -
<PAGE> 5
year ended December 31, 1995 and the independent auditors' report thereon are
included in the Statement of Additional Information.
<TABLE>
<CAPTION>
Years Ended Ten
Months
Ended
Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec
31 31 31 31 31 31 31 31 31 31
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $24.06 22.43 19.41 17.02 12.17 16.02 15.19 14.96 16.50 17.88
Income From Investment
Operations
Net Investment Income ( .08) ( .16) ( .14) ( .17) .09 .30 .21 .24 .17 .11
Net Gains or Losses on
Securities (both realized
and unrealized) 6.80 1.79 3.16 2.56 4.85 (3.85) .83 .23 (1.47) .69
Total From Investmen
Operations 6.72 1.63 3.02 2.39 4.94 (3.55) 1.04 .47 (1.30) .80
Less Distributions
Dividends (from net
investment income) .00 .00 .00 .00 .09 .30 .21 .24 .17 .11
Distributions (from
capital gains) 3.76 .00 .00 .00 .00 .00 .00 .00 .07 2.07
Returns of Capital .00 .00 .00 .00 .00 .00 .00 .00 .00 .00
Total Distributions 3.76 .00 .00 .00 .09 .30 .21 .24 .24 2.18
Net Asset Value, End
of Period $27.02 24.06 22.43 19.41 17.02 12.17 16.02 15.19 14.96 16.50
Total Return 27.92 7.27 15.56 14.04 40.56 (22.13) 6.84 3.12 (7.77) 3.87(a)
Ratios/Supplemental Data
Net Assets, End of
Period (in 000s) $28,191 22,195 18,884 16,788 17,385 15,859 42,511 64,145 79,008 79,636
Ratio of Expenses to
Average Net Assets 1.70% 1.74% 1.78% 1.79% 1.79% 1.68% 1.37% 1.25% 1.18% 1.26%(a)
Ratio of Net Income to
Average Net Assets ( .55)% ( .79)% ( .66)% ( .85)% .51% 1.53% 1.01% 1.30% .91% .71%(a)
Portfolio Turnover Rate 2.47 2.75 1.55 1.32 1.15 1.28% .90% 1.58% 1.45% 1.24%(a)
<FN>
(a) Computed on an annualized basis
(b) All per share amounts have been restated to reflect a
three-for-one share split which became effective February 15,
1990, and all per share amounts prior to November 30, 1986,
have been restated to reflect a four-for-one share split which
became effective at that date.
(c) Per share information for periods prior to 1988 has been
calculated based on the weighted average number of shares
outstanding.
(d) The Adviser has reimbursed certain operating expenses of The
Fund in order to comply with state limitations. Had the
Adviser not undertaken such action, the ratios indicated above
would be as follows:
</TABLE>
<TABLE>
<CAPTION>
Years Ended Ten
Months
Ended
Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec
31 31 31 31 31 31 31 31 31 31
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Expenses to
Average Net Assets(d) 1.70% 1.74% 1.78% 1.79% 1.79% 1.68% 1.37% 1.25% 1.22% 1.28%(a)
Ratio of Net Income to
Average Net Assets(d) ( .55)% (0.79)% ( .66)% ( .85)% .51% 1.53% 1.01% 1.30% .87% .70%(a)
</TABLE>
PERFORMANCE INFORMATION
Average Annual Total Return. From time to time, The Fund advertises
its "average annual total return" for one, five and ten year periods, and for
the period since inception (September 2, 1981). Average annual total return
figures are based on historical performance and are not intended to indicate
future performance. The "total return" of The Fund refers to the dividends and
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<PAGE> 6
distributions generated by an investment in The Fund plus the change in the
value of the investment from the beginning of the period to the end of the
period. The "average annual total return" of The Fund refers to the rate of
total return for each year of the period which, when compounded over the
period, would be equivalent to the cumulative total return for the period. The
dividends and distributions earned on the investment are assumed to be
reinvested. The dividends and distributions and the principal value of an
investment in The Fund will fluctuate so that a shareholder's shares, when
redeemed, may be worth more or less than the shareholder's original investment.
Average Annual Total Return:
<TABLE>
<S> <C>
For the one year period ended December 31, 1995................ 27.92%
For the five year period ended December 31, 1995............... 20.51%
For the ten year period ended December 31, 1995................ 8.66%
For the period since inception as of December 31, 1995......... 13.84%
</TABLE>
Other Performance Information. From time to time The Fund also
advertises its rates of total return for specified periods, including the period
from September 2, 1981 (date of initial public offering of shares), through a
specified month end. It also advertises the value of a $10,000 investment made
on September 2, 1981, as of a specified month end.
<TABLE>
<CAPTION>
Year End Value of
Net Asset Dividends $10,000 Total Return
Year Ended Value( Paid (a) Investment (b) One Year Since Inception (c)
- ---------- --------- --------- -------------- -------- --------------------
<S> <C> <C> <C> <C> <C>
12/31/81(c) $ 8.74 $ .00 $10,484 4.84%(c) 4.84%
12/31/82 11.02 .60 14,072 34.23% 40.72%
12/31/83 14.07 .74 19,093 35.68% 90.93%
12/31/84 14.76 .74 21,148 10.76% 111.48%
12/31/85 18.08 1.18 27,940 32.12% 179.40%
12/31/86 16.50 4.05 31,865 14.05% 218.65%
12/31/87 14.96 .26 29,388 -7.77% 193.88%
12/31/88 15.19 .24 30,306 3.12% 203.06%
12/31/89 16.02 .21 32,379 6.84% 223.79%
12/31/90 12.17 .30 25,212 -22.13% 152.12%
12/31/91 17.02 .09 35,439 40.56% 254.39%
12/31/92 19.41 .00 40,415 14.04% 304.15%
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C> <C>
12/31/93 22.43 .00 46,704 15.56% 367.04%
12/31/94 24.06 .00 50,098 7.27% 400.98%
12/31/95 27.02 3.76 64,085 27.92% 540.85%
<FN>
(a) Per share data has been restated to reflect a three-for-one share
split on February 15, 1990 and a four-for-one share split on November
30, 1986.
(b) Value at end of calendar year of $10,000 investment made on September
2, 1981.
(c) Not annualized and from the date of the initial offering of shares
(September 2, 1981).
</TABLE>
The Fund's advertised rates of total return for specified periods and
the value of a $10,000 investment at the end of a specified period are based on
historical performance and are not intended to indicate future performance.
The rates of total return are calculated as indicated above for "total return"
and represent the cumulative total return for the specified period. For
example, for the one and two year periods, and for the period since inception,
the cumulative total returns through December 31, 1995 were, respectively:
27.92%, 37.22% and 540.85%. The dividends and distributions and the principal
value of an investment in The Fund will fluctuate so that a shareholder's
shares, when redeemed, may be worth more or less than the shareholder's
original investment.
The Fund's Annual Report contains additional performance information
and will be made available upon request and without charge.
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., Money, Investor's
Business Daily, Barron's, Fortune or Business Week). 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.
- 6 -
<PAGE> 8
PORTFOLIO
The Fund's portfolio of investments as of December 31, 1995 is set forth
below:
<TABLE>
<CAPTION>
Investments in Securities
Common Stocks (Shares) Value Percent
<S> <C> <C>
Automobile Insurance
50,000 Integon Corporation $ 1,031,250 3.66%
Banking
55,000 Center Financial Corporation 962,500
20,000 Imperial Bancorp (a) 480,000
70,000 North Fork Bancorporation, Inc. 1,767,500
75,000 Riggs National Corporation (a) 975,000
75,000 UST Corporation 1,087,500
5,272,500 18.70
Business Services
125,000 Butler International, Inc. (a) 671,875
100,000 Employee Solutions, Inc. (a) 3,400,000
30,000 Kelly Services, Inc. Class A 832,500
4,904,375 17.40
Casualty Insurance
65,000 USF&G Company 1,096,875 3.89
Computer and Computer Equipment Manufacturers
110,000 Gandalf Technologies, Inc. (a) 1,870,000
10,000 Silicon Graphics, Inc. (a) 275,000
100,000 Tandem Computers, Inc. (a) 1,062,500
3,207,500 11.38
Dental Products
50,000 Sullivan Dental Products, Inc. 475,000 1.69
Electrical Apparatus
65,000 American Power Conversion Corp(a) 617,500 2.19
Electromedical Apparatus
250,000 Imatron, Inc. (a) 500,000 1.77
Grain Mill Products
10,000 International Multifoods
Corporation 201,250 0.71
Health Care Management
100,000 Staff Builders, Inc. (a) 293,750 1.04
Life Insurance
65,000 John Alden Financial Corporation 1,356,875
10,000 Life Re Corporation 250,000
55,000 Pioneer Financial Services, Inc. 1,017,500
2,624,375 9.31
</TABLE>
- 7 -
<PAGE> 9
<TABLE>
<S> <C> <C>
Oil and Gas Exploration
40,000 Oryx Energy Company (a) 535,000 1.90
Paper Products
10,000 Tambrands, Inc. 477,500 1.69
Pharmaceuticals
250,000 Pharmos Corporation (a) 367,188
18,750 Pharmos Corp Warrants Exp.
9/15/00(a)(b) 5,273
30,000 Sandoz Ltd. ADR 1,376,250
1,748,711 6.20
Savings Institutions
25,000 Interwest Bancorp, Inc. 509,375
45,000 St. Paul Bancorp, Inc. 1,147,500
1,656,875 5.88
Shoes
55,000 Timberland Company (a) 1,093,125 3.88
Transportation
200,000 Greyhound Lines Inc. (a) 862,500 3.06
Wholesale Groceries
50,000 International Dairy Queen,
Cl A (a) 1,137,500 4.04
Total Common Stocks (Cost $23,492,129) 27,735,586 98.39
Bank Repurchase Agreement
With Star Bank NA of Cincinnati, issued 12/29/95
due 1/2/96, fully collateralized by Government
National Mortgage Association, 6.00% due 5/22/22
(Cost $674,000) 674,000 2.39
Total Investments (Cost $24,166,129) 28,409,586 100.78
Other Assets Less Liabilities (218,585) (0.78)
Net Assets $ 28,191,001 100.00%
<FN>
(a) Common stocks which did not declare a dividend in 1995.
(b) There are restrictions on these warrants which will limit TheFund's
ability to convert them to stock until September 14, 1996.
</TABLE>
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<PAGE> 10
INVESTMENT OBJECTIVE, STRATEGY AND RISK FACTORS
The investment objective of The Fund is capital appreciation. The
investment objective of The Fund may be changed by the Board of Trustees
without shareholder approval.
The Fund seeks to achieve its objective by investing in equity
securities that its Adviser believes are undervalued and therefore represent
basic investment value. The Adviser believes that this objective may be
realized by using a strategy of investing in carefully selected, reasonably
priced securities rather than in securities whose prices reflect a premium
attributable to their current market popularity. The Fund seeks special
opportunities for capital appreciation in securities that are selling at a
discount from historical prices and/or at below average price-earnings ratios.
The investment strategy of The Fund is based upon the belief that favorable
changes in market prices for specific securities are more likely to begin once
securities are out of favor, price-earnings ratios are relatively low,
investment expectations are limited, and there is little investor interest in
the particular security or industry involved.
Fund investments primarily will be in equity securities of seasoned,
established companies which appear to have appreciation potential. Emphasis
will be placed on issues listed on national exchanges. As all investments are
subject to inherent market risks and fluctuations in value due to earnings,
economic conditions and other factors, The Fund cannot give assurance that its
investment objective will be achieved. Income will not be a factor in the
selection of The Fund's portfolio. For a more detailed discussion of The
Fund's investment practices, see "Investment Techniques."
HOW TO INVEST IN THE FUND
Shares of The Fund may be purchased directly from The Fund. The
minimum initial investment is $1,000. Investments by related parties may be
aggregated for purposes of meeting minimum investment requirements. Contact
The Fund for additional information. Additional purchases may be made by a
shareholder in any amount. No commission or sales fee is charged in
connection with purchases of The Fund's shares made directly from The Fund.
Investments by Mail. An investor may purchase shares of The Fund by
mailing the attached application, with a check made payable to The Fairmont
Fund in the amount of the purchase price, to the following address:
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<PAGE> 11
The Fairmont Fund Trust
1346 South Third Street
Louisville, KY 40208
Investments in Fund shares will be credited to a shareholder's account at
the net asset value next determined after receipt by The Fund of the
shareholder's check (in U.S. dollars) and completed application.
Investments by Wire. An investor may purchase shares of The Fund by
wiring federal funds directly to The Fund's custodian. Prior to an
investment by wire, the investor should telephone The Fund (502-636-5633)
to advise it of the investment and to obtain an account number and
instructions. The investor is required to mail a completed application to
The Fund in order to make a wire purchase. There is presently no fee for
receipt of wired funds, but the right to charge shareholders for this
service is reserved by the custodian and The Fund.
Exchange Privilege. The Fund has made arrangements to enable a
shareholder, if his investment objectives change, to exchange shares of
The Fund without sales charge for shares of the Kentucky Tax-free Income
Series or the Kentucky Tax-Free Short to Medium Series of Dupree Mutual
Funds. Shares of the above series of Dupree Mutual Funds may also be
exchanged without sales charge for The Fund. Exchanges may be made only
by Kentucky residents. Exchanges may be made by sending a written request
to The Sachs Company, which acts as agent for shareholders making these
exchanges. Subsequent exchanges involving Dupree Mutual Funds may be made
by telephone. Contact The Sachs Company for additional information and
instructions for exchanges with the Dupree Mutual Funds.
The Fund has also made arrangements to enable a shareholder to exchange
shares of The Fund without sales charge for shares of the Fixed Income Fund
f Bartlett Capital Trust or the Bartlett Cash Reserves Fund of Bartlett
Management Trust. Shares of Bartlett Fixed Income Fund and Bartlett Cash
Reserves Fund may also be exchanged without sales charge for shares of The
Fairmont Fund. Exchanges may be made only for shares of funds registered for
sale in the shareholder's state of residence and are subject to the
applicable minimum initial investment requirement. Exchanges may be made by
sending a written request to The Fund. The exchange will be effected at the
net asset value next determined after receipt of the request.
A shareholder is required to obtain the appropriate prospectus and
complete the appropriate application to exchange shares. Contact The Fund
for additional information. Use of the exchange privilege is generally a
taxable event, and shareholders should consult their tax advisers about the
tax effect of an exchange.
- 10 -
<PAGE> 12
Other Purchase Information. The Fund's shares are offered for sale on
a continuous basis at the net asset value next determined after the receipt of
a shareholder's check (in U.S. dollars) and application in proper form.
Purchase requests not in proper form will be returned to the investor within
seven business days. The Fund will accept requests to purchase its shares on
any day that the New York Stock Exchange is open for trading. The Fund
reserves the right in its sole and absolute discretion to reject any purchase
request in whole or in part. Requests received subsequent to the close of
trading on the New York Stock Exchange on any day will be treated as if
received on the next business day. No request will be binding until accepted.
Any request may be withdrawn by an investor until accepted by The Fund. The
Fund does not issue share certificates unless requested, but will mail each
shareholder a statement after each transaction and a statement quarterly.
Tax Sheltered Retirement Plans. Since The Fund seeks capital
appreciation, shares of The Fund may be an appropriate investment medium for
tax sheltered retirement plans, including: (a) Keogh (HR-10) Plans (for
self-employed individuals); (b) qualified corporate pension and profit sharing
plans (for employees); (c) individual retirement accounts (IRAs); and (d) tax
deferred investment plans (for employees of public school systems and certain
types of charitable organizations). Consultation with an attorney or tax
adviser regarding these plans is advisable. Contact The Fund for information
on the procedure to open an IRA. Custodial fees for an IRA will be paid by
redemption of sufficient shares of The Fund from the IRA unless the fees are
paid directly to the IRA custodian.
HOW TO WITHDRAW (REDEEM) AN INVESTMENT
The Fund will redeem for cash all full and fractional shares of The Fund
upon receipt of a written request in proper form. Although requests for
redemption usually must be in writing, you may make arrangements for
redemption by telephone under certain circumstances. Contact The Fund for
additional information. The redemption price is the next determined net asset
value. The net asset value received by a shareholder upon the redemption of
his shares of The Fund may be more or less than the price paid by such
shareholder for his shares depending upon the market value of the securities
owned by The Fund at the time of the redemption.
Shareholders have the right to request a redemption on any day on which
the New York Stock Exchange is open for trading and also on any other day in
which there is significant trading in The Fund's portfolio securities which
might cause a material change in its net asset value. All requests for
redemption must be accompanied by certificates, if issued, for the shares to
be redeemed. A written request must contain the signatures of all persons in
whose names the shares are registered, signed as their names appear on the
- 11 -
<PAGE> 13
original application or on the certificate, as the case may be. In certain
instances, The Fund may require additional documents to insure proper
authorization. Contact The Fund for additional information and additional
documents required to redeem tax sheltered retirement plans.
The Fund will make payment within seven days (normally five business
days) after a request is received in the form described above, except under
unusual circumstances as determined by the Securities and Exchange Commission.
However, redemption proceeds will not be mailed to an investor until the
check used for investment has cleared the investor's bank for payment, which
normally takes place within seven days of the date of purchase.
Because The Fund incurs certain fixed costs in maintaining shareholder
accounts, The Fund reserves the right to acquire any shareholder to redeem all
of his shares after sixty days notice, if redemptions cause the value of his
account to fall below $500 (or such other minimum amount as The Fund may
determine from time to time). A shareholder will be given an opportunity to
increase the value of his shares to the minimum amount within that sixty day
period in order to avoid a mandatory redemption of his shares. Each share of
The Fund is also subject to redemption at any time if the Board of Trustees
determines in its sole discretion that failure to so redeem may have
materially adverse consequences to all or any of the shareholders of The Fund.
OPERATION OF THE TRUST
The Fund is a no-load, diversified series of The Fairmont Fund Trust,
an open-end management investment company established as a business trust
under Kentucky law on December 29, 1980. The Board of Trustees supervises
the business activities of The Trust. The Trust retains The Sachs Company,
1346 South Third Street, Louisville, Kentucky (the Adviser) to manage The
Trust's investments and its business affairs. The Adviser is an investment
manager which has provided investment advice to individuals, corporations,
pension and profit sharing plans, and trust accounts since 1974. Morton H.
Sachs, Trustee, Chairman of the Board and Chief Executive Officer of The Fund,
and President, sole Director and Shareholder of the Adviser, is responsible
for the day-to-day management of The Fund's portfolio and has been since The
Fund's inception. The Trust acts as its own transfer agent and dividend
paying agent.
For the year ended December 31, 1995, The Fund paid the Adviser a fee
equal to 1.70% of its average daily net assets. All of The Fund's operating
expenses (except brokerage fees and commissions, taxes, interest and
extraordinary expenses) are paid by the Adviser. The Adviser is also a
registered broker-dealer and, in that capacity, receives brokerage commissions
from The Trust.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to its objective of seeking best
qualitative execution of portfolio transactions, the Adviser may give
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<PAGE> 14
consideration to sale of shares of The Trust as a factor in the selection of
brokers and dealers to execute portfolio transactions for each series of The
Trust.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of The Fund is determined as of 4:00
p.m. Eastern time on each day The Fund is open for business. The Fund is
open for business on any day that the New York Stock Exchange is open for
trading. The net asset value per share is computed by dividing the sum of the
value of the securities held by The Fund plus any cash or other assets
(including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time, rounded to the nearest cent. The management fee
payable to the Adviser is accrued daily.
Portfolio securities which are traded on stock exchanges or in
over-the-counter markets are valued at the last sale price as of 4:00 p.m.
Eastern time on the day the securities are being valued or, lacking any sales,
at the mean between closing bid and asked prices. Portfolio securities which
are traded both on the over-the-counter market and on a stock exchange or on
more than one stock exchange are valued according to the broadest and most
representative market. Fixed income securities are valued by using market
quotations, or independent pricing services which use prices provided by
market makers or estimates of market values obtained from yield data relating
to instruments or securities with similar characteristics. Securities and
other assets for which market quotations are not readily available are valued
at fair value as determined in good faith by or under the direction of the
Board of Trustees.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. It is The Fund's intention to distribute
substantially all of its net investment income, if any, in the form of
dividends to The Fund's shareholders. It is contemplated that net
investment income and net realized long or short term capital gains, if any,
reduced by any capital loss carryovers, will be distributed to The Fund's
shareholders annually. Such distributions from investment income and capital
gains are automatically reinvested, unless otherwise instructed by the
shareholder, in additional Fund shares at the net asset value next determined
after the distributions are paid. Shareholders may obtain such distributions
in cash by requesting cash distributions on the application accompanying this
prospectus or by sending a written request to The Fund.
Taxes. Dividends paid by The Fund from its ordinary income and
distributions of The Fund's net realized short term capital gains are taxable
- 13 -
<PAGE> 15
to shareholders as ordinary income. However, dividends paid by The Fund may
be eligible in part for the dividends received deduction for corporations.
Any distributions of The Fund's net realized long term capital gains are
taxable to shareholders as long term capital gains regardless of the holding
period of such shareholder.
The Fund will mail to each shareholder a statement setting forth the
federal income tax status of all distributions made during the year.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes and the tax effect of
distributions, exchanges and redemptions from The Fund. The tax consequences
described in this section apply whether distributions are taken in cash or
reinvested in additional shares.
INVESTMENT TECHNIQUES
Subjective judgment will be exercised in selecting securities for
investment, and it is the intention of The Fund's management to use economic
projections, technical analysis and earnings projections for market timing
purposes and for individual stock selection. In seeking The Fund's objective
of capital appreciation, reliance will be placed primarily upon common stocks.
For temporary defensive purposes, or when investment opportunities are
limited, The Fund may at times hold all or a portion of its assets in cash,
n securities of other investment companies or in obligations of the U.S.
overnment or its agencies or instrumentalities, and may enter into repurchase
agreements fully collateralized as to principal and interest by such
obligations.
Foreign Securities. The Fund may invest in foreign securities through
the purchase of American Depositary Receipts. American Depositary Receipts
are certificates of ownership issued by a U.S. bank as a convenience to the
investors in lieu of the underlying shares which it holds in custody. The
Fund will not invest in American Depositary Receipts if, immediately after a
purchase and as a result of the purchase, the total value of foreign
securities owned by The Fund would exceed 25% of the value of the total assets
of The Fund. To the extent that The Fund does invest in foreign securities,
such investments may be subject to special risks, such as changes in
restrictions on foreign currency transactions and rates of exchange, and
changes in the administrations or economic and monetary policies of foreign
governments.
Repurchase Agreements. Repurchase transactions are transactions by
which The Fund purchases a U.S. Government obligation and simultaneously
commits to resell that obligation to the seller at an agreed upon price and
date. The resale price reflects the purchase price plus an agreed upon
- 14 -
<PAGE> 16
market rate of interest which is unrelated to the coupon rate or maturity of
the purchased obligation. A repurchase transaction involves the obligation of
the seller to pay the agreed upon price, which obligation is in effect secured
by the value of the underlying U.S. Government obligation. In the event of a
bankruptcy or other default of the seller of a repurchase agreement, The Fund
could experience both delays in liquidating the underlying U.S. Government
obligation and losses. To minimize these possibilities, The Fund intends to
enter into repurchase agreements only with its custodian, banks having assets
in excess of $1 billion and the largest and most creditworthy (as determined
by the Board of Trustees and the Adviser) securities dealers. In addition, the
repurchase agreements will be fully collateralized by the underlying U.S.
Government obligations. The Fund will not engage in a repurchase transaction
maturing in more than seven days if as a result thereof more than 10% of its
total assets would be invested in such transactions and in other illiquid
investments.
Portfolio Turnover. It is the policy of The Fund not to engage in
trading for short term profits and The Fund intends to limit its portfolio
turnover to the extent practicable. Nevertheless, changes in the portfolio
will be made promptly when determined to be advisable by reason of
developments not foreseen at the time of the investment decision, and usually
without reference to the length of time a security has been held.
Accordingly, portfolio turnover rate will not be considered a limiting factor
in the implementation of investment decisions. The turnover rate may vary
from year to year or during periods within a year. A high rate of portfolio
turnover results in correspondingly greater brokerage commission expenses and
may result in the realization of additional capital gains for tax purposes.
General. Any investment policy, strategy, technique or practice that is
not labelled fundamental in this Prospectus or the Statement of Additional
Information may be changed by the Board of Trustees without the vote of The
Fund's shareholders. For additional information concerning The Fund's
investment practices, including the risks involved in such practices, see
"Investment Techniques" and "Investment Policies" in the Statement of
Additional Information.
Any Trustee 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 annual meetings 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 have equal voting rights and liquidation rights.
- 15 -
<PAGE> 17
THE FAIRMONT FUND
STATEMENT OF ADDITIONAL INFORMATION
October 11, 1996
This Statement of Additional Information is not a Prospectus. It
should be read in conjunction with the Prospectus of The Fairmont Fund dated
October 11, 1996. A copy of the Prospectus can be obtained by writing The
Fund at 1346 South Third Street, Louisville, Kentucky 40208 or by calling
The Fund at (502) 636-5633.
<PAGE> 18
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF THE TRUST.................................. 3
INVESTMENT POLICIES....................................... 3
OTHER RESTRICTIONS........................................ 6
U.S. GOVERNMENT OBLIGATIONS............................... 7
INVESTMENT ADVISORY AGREEMENT............................. 8
THE TRUSTEES AND EXECUTIVE OFFICERS....................... 9
PORTFOLIO TRANSACTIONS AND BROKERAGE...................... 9
DETERMINATION OF NET ASSET VALUE.......................... 12
TAXES..................................................... 12
CUSTODIAN................................................. 12
TRANSFER AGENT............................................ 12
AUDITORS.................................................. 13
PERFORMANCE INFORMATION................................... 13
INDEPENDENT AUDITOR'S REPORT.............................. 14
FINANCIAL STATEMENTS...................................... 15
</TABLE>
- 2 -
<PAGE> 19
DESCRIPTION OF THE TRUST
The Fairmont Fund Trust (The Trust) is an open-end investment company
established as a business trust under Kentucky law by Declaration of Trust
dated December 29, 1980. The Declaration of Trust permits the Trustees to
issue an unlimited number of full and fractional shares of separate series.
This Statement of Additional Information provides information relating to The
Fairmont Fund series (The Fund).
Each share of a series represents an equal proportional interest in the
assets and liabilities belonging to the series. Upon liquidation of a series,
shareholders are entitled to share pro rata in the net assets of the series
available for distribution to shareholders. Shares of each series are fully
paid and have no preemptive or conversion rights. Kentucky law provides that
no assessment shall be made against the interest of any shareholder and no
shareholder shall be personally liable for any debts or liabilities incurred
by the Trustees or by The Trust.
Shareholders are entitled to one (1) vote for each full share held and
fractional votes for fractional shares held and may vote in the election of
Trustees and on other matters submitted to the vote of shareholders. Voting
rights are cumulative, which means that each shareholder has the right to
cumulate the voting power he possesses and to give one (1) nominee for Trustee
as many votes as the number of Trustees to be elected multiplied by the number
of his shares, or to distribute his votes on the same principle among two or
more candidates, as the shareholder desires. Shares are voted in the
aggregate and not by series, except when the matter to be voted upon affects
only the interest of a particular series. For information concerning the
purchase and redemption of shares of The Fund, see "How to Invest in The Fund"
and "How to Withdraw (Redeem) An Investment" in the Prospectus.
As of February 13, 1996, the Trustees and Officers of The Trust as a
group owned of record and beneficially 64,148 shares of The Fund, or 6.0% of
the outstanding shares of The Fund. As of that date, The Courier Journal TIP
Fund, Louisville, Kentucky, owned of record 10.5% of the outstanding shares of
The Fund.
INVESTMENT POLICIES
The Fund has adopted the following investment policies, which may be
changed only with approval of a majority of the outstanding shares of The
Fund. As used in this Statement of Additional Information, the term
"majority" of the outstanding shares of The Fund means the lesser of (1) 67%
or more of the outstanding shares of The Fund present at a meeting, if the
holders of more than 50% of the outstanding shares of The Fund are present or
represented at such meeting; or (2) more than 50% of the outstanding shares
of The Fund.
1. Borrowing Money. The Fund may borrow money, if it borrows money
(a) from a bank, provided that immediately after such borrowing there is an
- 3 -
<PAGE> 20
asset coverage of 300% for all borrowings of The Fund; or (b) from a bank or
other persons for temporary purposes only, provided that such temporary
borrowings are in an amount not exceeding 5% of The Fund's total assets at the
time when the borrowing is made. The Fund may enter into reverse repurchase
transactions and any other transactions which may be deemed to be borrowings,
provided that The Fund has an asset coverage of 300% for all borrowings and
commitments of The Fund pursuant to reverse repurchase and other such
transactions.
2. Pledging. The Fund may mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of The Fund if it
is necessary in connection with borrowings described in policy (1) above. For
purposes of the Statement of Intention below, margin deposits, security
interests, liens and collateral arrangements with respect to permitted
investments and techniques are not deemed to be a mortgage, pledge or
hypothecation of assets.
3. Underwriting. The Fund may act as underwriter of securities
issued by other persons if immediately thereafter the amount of its
outstanding underwriting commitments, plus the value of its investments
in securities of issuers (other than investment companies) of which it
owns more than 10% of the outstanding voting securities, does not exceed
25% of its total assets. This limitation and the Statement of Intention
are not applicable to the extent that, in connection with the disposition
of portfolio securities (including restricted securities), The Fund may be
deemed an underwriter under certain federal securities laws.
4. Real Estate. The Fund may purchase, hold or deal in real
estate, and may invest in securities which are secured by or represent
interests in real estate, mortgage-related securities or directly in
mortgages.
5. Loans. The Fund may make loans to other persons, including
(a) loaning portfolio securities, (b) engaging in repurchase agreements,
(c) purchasing debt securities, and (d) making direct investments in
mortgages. For purposes of the Statement of Intention below, the term
"loans" shall not include the purchase of a portion of an issue of publicly
distributed bonds, debentures or other securities.
6. Margin Purchases. The Fund may not purchase securities or
evidences of interest thereon on "margin." For purposes of this limitation
and the Statement of Intention below, (a) short term credit obtained by The
Fund for the clearance of purchases and sales or redemption of securities and
(b) margin deposits and collateral arrangements with respect to permitted
investments and techniques are not considered to be purchases on "margin."
This limitation is not applicable to activities that may be deemed to involve
purchases on "margin" by The Fund, provided that The Fund's engagement in
such activities is consistent with or permitted by the Investment Company Act
of 1940, the rules and regulations promulgated thereunder or interpretations
- 4 -
<PAGE> 21
of the Securities and Exchange Commission, its staff or other legal authority.
7. Senior Securities. The Fund may not issue senior securities.
This limitation is not applicable to activities that may be deemed to involve
the issuance or sale of a senior security by The Fund, provided that The
Fund's engagement in such activities is consistent with or permitted by the
Investment Company Act of 1940, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission, its
staff or other legal authority.
8. Short Sales. The Fund may not effect short sales of securities.
9. Options. The Fund may not purchase or sell put or call options.
10. Commodities. The Fund may not purchase, hold or deal in
commodities or commodities futures contracts.
11. Concentration. The Fund will not invest 25% or more of its
total assets in a particular industry. This limitation is not applicable to
investments in obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities or repurchase agreements with respect thereto.
12. Diversification. As a diversified series of The Trust, The Fund
will not purchase the securities of any issuer if such purchase at the time
thereof would cause less than 75% of the value of the total assets of The Fund
to be invested in cash and cash items (including receivables), securities
issued by the U.S. Government, its agencies or instrumentalities and
repurchase agreements with respect thereto, securities of other investment
companies, and other securities for the purposes of this calculation limited
in respect of any one issuer to an amount not greater in value than 5% of the
value of the total assets of The Fund and to not more than 10% of the
outstanding voting securities of such issuer.
Statement of Intention. It is The Fund's intention (which may be
changed by the Board of Trustees without shareholder approval) that it will
not engage in any of the investment practices permitted by (1)-(7) above in
the coming year, except borrowing for temporary purposes and repurchase
transactions. If the Board of Trustees determines that it would be
appropriate for The Fund to employ any of the other investment practices
permitted by (1)-(7) above, The Fund's Prospectus or Statement of Additional
Information will be amended with appropriate disclosure prior to The Fund
engaging in the practice.
With respect to the percentages adopted by The Fund as maximum
limitations in its investment policies, an excess above the fixed percentage
(except for the percentage limitation relative to the borrowing of money)
shallnot be a violation of the policy or limitation unless the excess results
- 5 -
<PAGE> 22
immediately and directly from the acquisition of any security or the action
taken.
Notwithstanding any of the foregoing policies or limitations, any
investment company, whether organized as a trust, association or corporation,
or a personal holding company, may be merged or consolidated with or acquired
by The Fund, provided that if such merger, consolidation or acquisition
results in an investment in the securities of any issuer prohibited by said
paragraphs, The Fund shall, within ninety days after the consummation of such
merger, consolidation or acquisition, dispose of all of the securities of such
issuer so acquired or such portion thereof as shall bring the total investment
therein within the limitations imposed by said paragraphs above as of the date
of consummation.
OTHER RESTRICTIONS
State Restrictions. To comply with the current regulations of the
states of California, Missouri, Ohio and Texas, The Fund presently intends
to observe the following restrictions, which may be changed by the Board of
Trustees without shareholder approval.
California Restrictions. The Fund will not invest directly in real
estate, will not engage in underwriting and will not invest in other open-end
investment companies without obtaining the prior approval of the California
Department of Corporations to engage in the particular activity. In addition,
The Fund will not engage in margin purchases, unless such transactions are
consistent with applicable requirements of the California Blue Sky
Regulations.
Missouri Restriction. The Fund will not invest in securities of issuers
which, together with any predecessors, have a record of less than three years
continuous operation.
Ohio Restrictions. The Fund will not purchase or retain securities of
any issuer if the Trustees and Officers of The Trust and the Directors and
Officers of the Adviser, who individually own beneficially more than 0.5% of
the outstanding securities of such issuer, together own beneficially more than
5% of such securities. The Fund will not purchase securities issued by other
investment companies except by purchase in the open market where no commission
or profit to a sponsor or dealer results from such purchase other than
customary broker's commission or except when such purchase is part of a plan
of merger, consolidation, reorganization or acquisition. The Fund will not
borrow (other than by entering into reverse repurchase agreements), pledge,
mortgage or hypothecate more than one-third of its total assets. In addition,
The Fund will engage in borrowing (other than reverse repurchase agreements)
only for emergency or extraordinary purposes and not for leverage. The Fund
will not invest more than 10% of its total assets in securities of issuers
which, together with any predecessors, have a record of less than three years
continuous operation or securities of issuers which are restricted as to
disposition.
- 6 -
<PAGE> 23
Texas Restrictions. The Fund will lend portfolio securities only if
collateral values are continuously maintained at no less than 100% by "marking
to market" daily and the practice is fair, just, and equitable, as determined
by a finding that adequate provision has been made for margin calls,
termination of the loan, reasonable servicing fees (including finder's fees),
voting rights, dividend rights, shareholder approval and disclosure. The Fund
will not invest more than 5% of the value of its net assets in warrants,
valued at the lower of cost or market, of which amount not more than 2% of the
value of its net assets may be warrants that are not listed on the New York or
American Stock Exchange. The Fund will not invest in oil, gas, or other
mineral leases, nor will it purchase or sell real property (including limited
partnership interests, but excluding readily marketable interests in real
estate investment trusts or readily marketable securities of companies which
invest in real estate).
Restrictions Due to Regulatory Positions. It is the current position
of the staff of the Securities and Exchange Commission that The Trust may not
invest more than 25% of its total assets in securities as to which The Trust
owns more than 10% of the outstanding voting securities of the issuer. The
Trust has made a commitment, which may be changed by the Board of Trustees
without shareholder approval, to comply with the above restriction.
It is the current position of the staff of the Securities and Exchange
Commission that The Fund may not invest more than 15% of its net assets in
illiquid securities, including restricted securities, real estate, mortgages
and nonpublicly offered debt securities.
U.S. GOVERNMENT OBLIGATIONS
The Fund may invest in "U.S. Government obligations," which term refers
to a variety of securities which are issued or guaranteed by the United
States Treasury, by various agencies of the United States Government, and
by various instrumentalities which have been established or sponsored by the
United States Government. The term is also deemed by The Fund to include
participation interests in U.S. Government obligations. Participation
interests are pro-rata interests in U.S. Government obligations held by
others. Certificates of deposit or safekeeping are documentary receipts for
U.S. Government obligations held in custody by others.
U.S. Treasury securities are backed by the "full faith and credit" of
the United States Government. Other U.S. Government obligations may or may
not be backed by the "full faith and credit" of the United States. In the
case of securities not backed by the "full faith and credit" of the United
States, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Furthermore, there can be no
assurance that the United States Government will provide financial support if
not obligated to do so by law.
- 7 -
<PAGE> 24
Treasury securities include Treasury bills, Treasury notes, and Treasury
bonds. Government agencies which issue or guarantee securities backed by the
"full faith and credit" of the United States include the Government National
Mortgage Association and the Small Business Administration. Government
agencies and instrumentalities which issue or guarantee securities not backed
by the "full faith and credit" of the United States include the Farm Credit
System, the Federal Home Loan Banks, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation. The Fund may invest in
securities issued or guaranteed by any of the entities listed above or by any
other agency or instrumentality established or sponsored by the United States
Government.
INVESTMENT ADVISORY AGREEMENT
The Trust has entered into a Management Agreement (the Agreement)
with The Sachs Company, 1346 South Third Street, Louisville, Kentucky (the
Adviser), under which the Adviser manages The Trust's portfolios of
investments subject to the approval of the Board of Trustees.
The Adviser is an investment manager which has provided investment
advice to individuals, corporations, pension and profit sharing plans and
trust accounts since 1974, when it was formed as a Kentucky proprietorship.
The Adviser was incorporated in Kentucky in 1975, and its principal place of
business is in Louisville, Kentucky. The Adviser is a broker-dealer
registered under the Securities Exchange Act of 1934, and as a broker operates
on a fully-disclosed basis through Legg Mason Wood Walker, Inc. or Conners &
Co., Inc.
Under the terms of the Agreement, The Fund pays the Adviser a fee
computed and accrued daily and paid monthly at an annual rate of 2% of the
average value of the daily net assets of The Fund up to and including
$10,000,000, 1-1/2% of such assets of The Fund from $10,000,000 to and
including $30,000,000 and 1% of such assets of The Fund in excess of
$30,000,000; provided, however, that the total fees paid during the first and
second halves of each fiscal year of The Trust shall not exceed the semiannual
total of the daily fee accruals requested by the Adviser during the applicable
six month period. Pursuant to the Agreement, the Adviser pays all operating
expenses of The Trust except brokerage fees and commissions, taxes, interest,
expenses incurred by The Trust in connection with the organization and
registration of shares of any series of The Trust established after May 7,
1987, and such extraordinary or nonrecurring expenses as may arise, including
litigation to which The Trust may be a party and indemnification of The
Trust's Trustees and Officers with respect to the litigation.
State securities administrators may impose limitations on the annual
expenses of The Trust or The Fund. The most restrictive state expense
limitation applicable to The Trust is presently 2-1/2% of the first $30
million of average net assets of a series, 2% of the next $70 million and
1-1/2% of average net assets of a series in excess of $70 million. Certain
expenses such as brokerage commissions, if any, taxes, interest and
- 8 -
<PAGE> 25
extraordinary items are excluded from the limitation. If the expenses of The
Trust or a series approach the applicable limitation in any state, The Trust
will consider the various actions that are available to it, including
suspension of sales to residents of that state.
For the fiscal years ended December 31, 1995, 1994, and 1993, the
Adviser received advisory fees of $421,935, $371,862 and $305,708,
respectively.
The Trust pays no direct remuneration to any Officer of The Trust,
although Morton H. Sachs, by reason of his affiliation with the Adviser,
will receive benefits from the advisory fees and brokerage commissions paid
to The Trust's Adviser, The Sachs Company.
THE TRUSTEES AND EXECUTIVE OFFICERS
The Trustees and Executive Officers of The Trust and their principal
occupations during the last five years are set forth below.
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With Trust During Past Five Years
- --------------------- -------------- ----------------------
<S> <C> <C>
*Morton H. Sachs Trustee He is the President and sole
1346 South Third St. Chairman of the Board Director and shareholder of The
Louisville, KY 40208 Chief Executive Officer Sachs Company, The Trust's
Age: 62 Adviser.
*Oscar S. Bryant, Jr. Trustee He is the Executive Vice
1346 South Third St. President President of The Trust's
Louisville, KY 40208 Adviser. Prior to 1981,
Age: 76 he was Executive Vice
President, Secretary to
the Board and member of
the Executive Committee
of Liberty National Bank
and Trust Company of
Louisville.
*Jennifer S. Dobbins Vice President She is a Vice President
1346 South Third St. Assistant Secretary and a Registered
Louisville, KY 40208 Principal of The Trust's
Age: 36 Adviser.
*Inda M. Wangerin Secretary She is a Vice President
1346 South Third St. and Accountant of The
Louisville, KY 40208 Trust's Adviser.
Age: 74
*Louis T. Young Treasurer He is an employee of The
1346 South Third St. Trust's Adviser.
Louisville, KY 40208
Age: 48
O. Grant Bruton Trustee He is an Attorney at Law
2500 Brown & and a Director of
Williamson Tower Porcelain Metals
Louisville, KY 40202 Corporation, a
Age: 65 fabricator of enameled
parts.
</TABLE>
- 9 -
<PAGE> 26
<TABLE>
<S> <C> <C>
Elizabeth H. Moore Trustee None
1705 Sweetbriar Lane
Louisville, KY 40207
Age: 60
Raphael O. Nystrand Trustee Since 1978, he has been
3015 Springcrest Drive a Professor and Dean of
Louisville, KY 40241 the School of Education,
Age: 58 University of Louisville.
He was on leave from this
position to serve as
Secretary of Education and
Humanities for the
Commonwealth of Kentucky
during calendar year 1984.
William M. Schreiber Trustee He is a physician in
4003 Kresge Way private practice and co-
Louisville, KY 40207 medical director of the
Age: 60 Chemical Dependency Unit
of Baptist Hospital East
in Louisville, Kentucky.
He also serves a
director of The
Physicians, Inc, an
independent physicians
association, and
Chairman of Preferred
Health Plan, a preferred
provider association.
</TABLE>
- ---------------------------
*Interested person of The Trust and affiliated person of The Trust and the
Adviser, both as defined by the Investment Company Act of 1940. Mr. Sachs
is a Trustee of The Trust and a controlling person of the Adviser, as such
term is defined by the Securities and Exchange Commission. Mr. Bryant is a
Trustee and Officer of the Trust and an Officer of the Adviser. Ms. Dobbins
is an Officer of both The Trust and the Adviser and a daughter of Morton H.
Sachs. Ms. Wangerin is an Officer of both The Trust and the Adviser. Mr.
Young is an Officer of The Trust and an employee of the Adviser.
The compensation paid to the Trustees of The Trust for the year ended
December 31, 1995 is set forth in the following table:
<TABLE>
<CAPTION>
Total Compensation from
Aggregate Compensation Trust (The Trust is not
Name from Trust** in a fund complex)**
<S> <C> <C>
O. Grant Bruton 3,000 3,000
Oscar S. Bryant, Jr. 0 0
Elizabeth H. Moore 0*** 0***
Raphael O. Nystrand 4,000 4,000
Morton H. Sachs 0 0
William M. Schreiber 0*** 0***
</TABLE>
- 10 -
<PAGE> 27
<TABLE>
<S> <C>
<FN>
** Trustee fees are Trust expenses. However, the Adviser makes the
actual payment because the management agreement obligates the Adviser to pay
(with limited exceptions) all of the operating expenses of the Trust.
*** Mrs. Moore and Mr. Schreiber joined the Board of Trustees after
December 31, 1996 and, therefore, received no fees for that year. They are
receiving trustee fees for the fiscal year ending December 31, 1996.
</TABLE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of The Trust,
the Adviser is responsible for The Fund's portfolio decisions and the placing
of The Fund's portfolio's transactions. In placing portfolio transactions,
the Adviser seeks the best qualitative execution for The Fund, taking into
account such factors as price (including the applicable brokerage commission
or dealer spread), the execution capability, financial responsibility and
responsiveness of the broker or dealer and the brokerage and research services
provided by the broker or dealer. The Adviser generally seeks favorable
prices and commission rates that are reasonable in relation to the benefits
received.
The Adviser is specifically authorized to select brokers or dealers who
also provide brokerage and research services to The Fund and/or the other
accounts over which the Adviser exercises investment discretion and to pay
such brokers or dealers a commission in excess of the commission another
broker or dealer would charge if the Adviser determines in good faith that
the commission is reasonable in relation to the value of the brokerage and
research services provided. The determination may be viewed in terms of a
particular transaction or the Adviser's overall responsibilities with respect
to The Fund and to other accounts over which it exercises investment
discretion.
Research services include supplemental research, securities and
economic analysis, and statistical services and information with respect to
the availability of securities or purchasers or sellers of securities.
Although this information is useful to The Fund and the Adviser, it is not
possible to place a dollar value on it. It is the opinion of the Board of
Trustees and the Adviser that the review and study of this information will
not reduce the overall cost to the Adviser of performing its duties to The
Fund under the Agreement. Research services furnished by brokers or dealers
through whom The Fund effects securities transactions may be used by the
Adviser in servicing all of its accounts and not all such services may be used
by the Adviser in connection with The Fund.
While The Fund does not deem it practicable and in its best interests to
solicit competitive bids for commission rates on each transaction,
consideration is regularly given to posted commission rates as well as other
information concerning the level of commissions charged on comparable
transactions by qualified brokers.
The Fund has no obligation to deal with any broker or dealer in the
execution of its transactions. However, it is contemplated that the Adviser,
in its capacity as a registered broker-dealer, will effect substantially all
- 11 -
<PAGE> 28
securities transactions which are executed on a national securities exchange
and over-the-counter transactions conducted on an agency basis. Such
transactions will be executed at competitive commission rates through Legg
Mason Wood Walker, Inc. or Conners & Co., Inc.
Transactions in the over-the-counter market can be placed directly with
market makers who act as principals for their own account and include mark-ups
in the prices charged for over-the-counter securities. Transactions in the
over-the-counter market can also be placed with broker-dealers who act as
agents and charge brokerage commissions for effecting over-the-counter
transactions. The Fund may place its over-the-counter transactions either
directly with principal market makers, or with broker-dealers if that is
consistent with the Adviser's obligation to obtain best qualitative execution.
Under the Investment Company Act of 1940, persons affiliated with The Fund
such as the Adviser are prohibited from dealing with The Fund as a principal
in the purchase and sale of securities. Therefore, The Sachs Company will not
serve as The Fund's dealer in connection with over-the-counter transactions.
However, The Sachs Company may serve as The Fund's broker in over-the-counter
transactions conducted on an agency basis and will receive brokerage
commissions in connection with such transactions. Such agency transactions
will be executed through Legg Mason Wood Walker, Inc. or Conners & Co., Inc.
The Fund will not effect any brokerage transactions in its portfolio
securities with the Adviser if such transactions would be unfair or
unreasonable to Fund shareholders, and the commissions will be paid solely for
the execution of trades and not for any other services. The Agreement
provides that the Adviser may receive brokerage commissions in connection with
effecting such transactions for The Fund. In determining the commissions to
be paid to The Sachs Company, it is the policy of The Fund that such
commissions will, in the judgment of The Trust's Board of Trustees, be (a) at
least as favorable to The Fund as those which would be charged by other
qualified brokers having comparable execution capability and (b) at least as
favorable to The Fund as commissions contemporaneously charged by The Sachs
Company on comparable transactions for its most favored unaffiliated
customers, except for customers of The Sachs Company considered by a majority
of The Trust's disinterested Trustees not to be comparable to The Fund. The
disinterested Trustees from time to time review, among other things,
information relating to the commissions charged by The Sachs Company to The
Fund and its other customers, and rates and other information concerning the
commissions charged by other qualified brokers.
Any profits from brokerage commissions earned by The Sachs Company as a
result of portfolio transactions for The Fund will accrue to Morton H. Sachs
who is the sole shareholder of The Sachs Company. The Agreement does not
provide for a reduction of the Adviser's fee by the amount of any profits
earned by The Sachs Company from brokerage commissions generated from
portfolio transactions of The Fund. For the fiscal years ended December 31,
1995, 1994 and 1993, the Fund's portfolio transactions generated total
- 12 -
<PAGE> 29
brokerage commissions of $528,313, $510,558 and $272,404, respectively. For
the fiscal year ended December 31, 1995, The Sachs Company was paid $393,234
or 74% of the total brokerage commission for effecting (through Bartlett & Co.
or Conners & Co.) 93% of The Fund's commission transactions. For the fiscal
year ended December 31, 1994, The Sachs Company was paid $371,077 or 73% of
the total brokerage commissions for effecting (through Bartlett & Co. or
Conners & Co.) 92% of The Fund's commission transactions. For the fiscal
year ended December 31, 1993, The Sachs Company was paid $185,660 or 68% of
the total brokerage commissions for effecting (through Bartlett & Co. or
Conners & Co.) 92% of The Fund's commission transactions.
While The Fund contemplates no ongoing arrangements with any other
brokerage firms, brokerage business may be given from time to time to other
firms. The Sachs Company will not receive reciprocal brokerage business as
a result of the brokerage business placed by The Fund with others.
To the extent that The Fund and another of the Adviser's clients seek
to acquire the same security at about the same time, The Fund may not be able
to acquire as large a position in such security as it desires or it may have
to pay a higher price for the security. Similarly, The Fund may not be able
to obtain as large an execution of an order to sell or as high a price for
any particular portfolio security if the other client desires to sell the same
portfolio security at the same time. On the other hand, if the same
securities are bought or sold at the same time by more than one client, the
resulting participation in volume transactions could produce better executions
for The Fund. In the event that more than one client purchases or sells the
same security on a given date, the purchases and sales will normally be made
as nearly as practicable on a pro rata basis in proportion to the amounts
desired to be purchased or sold by each.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of The Fund is determined as of 4:00
p.m. Eastern time on each day The Fund is open for business. The Fund is
open for business on every day except Saturdays, Sundays and the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. For a description
of the methods used to determine the net asset value, see "Determination of
Net Asset Value" in the Prospectus.
TAXES
The Fund has qualified for the last twelve (12) fiscal periods, and
intends to continue to qualify, under Subchapter M of the Internal Revenue
Code. By so qualifying, The Fund will not be liable for federal income taxes
to the extent its taxable net investment income and net realized capital
gains are distributed to shareholders. The Fund is required by federal law
to withhold and remit to the U.S. Treasury a portion (31%) of the dividend
- 13 -
<PAGE> 30
income and capital gains distributions of any account unless the shareholder
provides a taxpayer identification number and certifies that the taxpayer
identification number is correct and that the shareholder is not subject to
backup withholding.
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202 has been
retained to act as Custodian of The Trust's investments. The Custodian acts
as The Trust's depository, safekeeps its portfolio securities and investments,
collects all income and other payments with respect thereto, disburses funds
at The Fund's request and maintains records in connection with its duties.
Certain investments may be held by a depository in the United States.
TRANSFER AGENT
The Trust acts as its own transfer agent and dividend paying agent. To
enable The Trust to perform these functions, the Adviser provides computer
services and personnel to The Trust.
AUDITORS
The firm of McCurdy & Associates CPA's, Inc., 27955 Clemens Road,
Westlake, Ohio 44145 has been selected as independent auditors for The Trust
for the year ending December 31, 1996. McCurdy & Associates CPA's, Inc.
performs an annual audit of The Trust's financial statements and provides
financial, tax and accounting consulting services as requested.
PERFORMANCE INFORMATION
Average annual total return is computed by finding the average annual
compounded rates of return (over one, five and ten year periods, and since
inception) that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
n
P(1+T) =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.
From time to time, in advertisements, sales literature and information
furnished to present or prospective shareholders, the performance of The Fund
- 14 -
<PAGE> 31
may be compared to indices of broad groups of unmanaged securities considered
to be representative of or similar to the portfolio holdings of The Fund or
considered to be representative of the stock market in general. For example,
The Fund's performance may be compared to that of the Standard & Poor's 500
Stock Index and the Dow Jones Industrial Average. The investment performance
figures for The Fund and the indices will include reinvestment of dividends
and capital gains distributions.
In addition, the performance of The Fund may be compared to other groups
of mutual funds tracked by Lipper Analytical Services, Inc., a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives and assets. Performance rankings and ratings reported
periodically in national financial publications such as Barron's may also be
used.
- 15 -
<PAGE> 32
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and
Board of Directors:
Fairmont Fund
We have audited the accompanying statement of assets and liabilities of
Fairmont Fund, including the schedule of investments, as of December 31, 1995,
and the related statements of operations for the year then ended, the
tatement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of materials misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995, by correspondence with the custodian
and brokers and the application of alternative auditing procedures where
confirmations from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fairmont Fund as of December 31, 1995, 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 five years
in the period then ended, in conformity with generally accepted accounting
principles.
/s/
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
January 16, 1996
- 16 -
<PAGE> 33
FINANCIAL STATEMENTS
The Fairmont Fund
Statement of Assets and Liabilities
December 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
INVESTMENTS IN SECURITIES, At Value (Note 2)
Common stocks (Cost $23,492,129) $27,735,586
Bank repurchase agreement 674,000
----------
Total investments in securities $28,409,586
CASH 1,495
RECEIVABLES
Investment securities sold 2,200,449
Dividends 13,900
Interest 298
----------
Total receivables 2,214,647
-----------
Total assets 30,625,728
LIABILITIES
PAYABLES
Investment securities purchased $ 2,250,178
Distributions to shareholders (Note 4) 141,060
Management fee (Note 3) 39,769
Shares redeemed 3,140
Other 580
-----------
Total liabilities 2,434,727
-----------
NET ASSETS $28,191,001
NET ASSETS CONSIST OF
Capital stock (1,043,270 shares outstanding) (Note 8) $24,505,746
Accumulated net realized losses on investments (Note 6) ( 558,202)
Net unrealized appreciation on investments (Note 5) 4,243,457
----------
NET ASSETS $28,191,001
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($28,191,001 divided by 1,043,270 shares) $ 27.02
</TABLE>
- 17 -
<PAGE> 34
The Fairmont Fund
Statement of Operations
Year Ended December 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2)
Dividends $ 220,482
Interest 51,438
Other 13,750
________
Total investment income 285,670
EXPENSES
Management fee (Note 3) 421,935
________
Net investment loss ( 136,265)
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS (Note 2)
Net realized gains from investment transactions 3,460,455
Net change in unrealized appreciation on investments 2,774,041
Net realized and unrealized gains on investments 6,234,496
_________
Net increase in net assets resulting from operations $6,098,231
</TABLE>
- 18 -
<PAGE> 35
The Fairmont Fund
Statement of Changes in Net Assets
Years Ended December 31, 1995 and December 31, 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
FROM OPERATIONS
Net investment loss $ ( 136,265) $ ( 168,798)
Net realized gains on investments 3,460,455 3,196,379
Net change in unrealized
appreciation on investments 2,774,041 ( 1,742,141)
Net increase in net assets
resulting from operations 6,098,231 1,285,440
DISTRIBUTIONS TO SHAREHOLDERS (Note 4)
Distributions from net realized
gains on investments ( 3,458,598) 0
</TABLE>
<TABLE>
<CAPTION>
FROM CAPITAL SHARE
TRANSACTIONS (Note 8) Shares Shares
<S> <C> <C> <C> <C>
Proceeds from sale of
shares 106,454 2,870,723 278,757 6,824,928
Shares issued in reinvest
ment of distributions 122,781 3,317,538 0 0
Payments for shares
redeemed (108,307) (2,831,640) (198,262) (4,799,611)
Net increase or decrease
in net assets from capital
share transactions 120,928 3,356,621 80,495 2,025,317
Net increase in net assets 5,996,254 3,310,757
NET ASSETS
Beginning of year 22,194,747 18,883,990
End of period $ 28,191,001 $ 22,194,747
</TABLE>
- 19 -
<PAGE> 36
Schedule of Investments
December 31, 1995
<TABLE>
<CAPTION>
Investments in Securities
Common Stocks (Shares) Value Percent
<S> <C> <C>
Automobile Insurance
50,000 Integon Corporation $1,031,250 3.66%
Banking
55,000 Center Financial Corporation 962,500
20,000 Imperial Bancorp (a) 480,000
70,000 North Fork Bancorporation, Inc. 1,767,500
75,000 Riggs National Corporation (a) 975,000
75,000 UST Corporation 1,087,500
5,272,500 18.70
Business Services
125,000 Butler International, Inc. (a) 671,875
100,000 Employee Solutions, Inc. (a) 3,400,000
30,000 Kelly Services, Inc. Class A 832,500
4,904,375 17.40
Casualty Insurance
65,000 USF&G Company 1,096,875 3.89
Computer and Computer Equipment Manufacturers
110,000 Gandalf Technologies, Inc. (a) 1,870,000
10,000 Silicon Graphics, Inc. (a) 275,000
100,000 Tandem Computers, Inc. (a) 1,062,500
3,207,500 11.38
Dental Products
50,000 Sullivan Dental Products, Inc. 475,000 1.69
Electrical Apparatus
65,000 American Power Conversion Corp(a) 617,500 2.19
Electromedical Apparatus
250,000 Imatron, Inc. (a) 500,000 1.77
Grain Mill Products
10,000 International Multifoods Corporation 201,250 0.71
Health Care Management
100,000 Staff Builders, Inc. (a) 293,750 1.04
Life Insurance
65,000 John Alden Financial Corporation 1,356,875
10,000 Life Re Corporation 250,000
55,000 Pioneer Financial Services, Inc. 1,017,500
2,624,375 9.31
Oil and Gas Exploration
40,000 Oryx Energy Company (a) 535,000 1.90
Paper Products
</TABLE>
- 20 -
<PAGE> 37
<TABLE>
<S> <C> <C>
10,000 Tambrands, Inc. 477,500 1.69
Pharmaceuticals
250,000 Pharmos Corporation (a) 367,188
18,750 Pharmos Corp Warrants Exp. 9/15/00(a)(b) 5,273
30,000 Sandoz Ltd. ADR 1,376,250
1,748,711 6.20
Savings Institutions
25,000 Interwest Bancorp, Inc. 509,375
45,000 St. Paul Bancorp, Inc. 1,147,500
1,656,875 5.88
Shoes
55,000 Timberland Company (a) 1,093,125 3.88
Transportation
200,000 Greyhound Lines Inc. (a) 862,500 3.06
Wholesale Groceries
50,000 International Dairy Queen, Cl A (a) 1,137,500 4.04
Total Common Stocks (Cost $23,492,129) 27,735,586 98.39
Bank Repurchase Agreement
With Star Bank NA of Cincinnati, issued 12/29/95
due 1/2/96, fully collateralized by Government
National Mortgage Association, 6.00% due 5/22/22
(Cost $674,000) 674,000 2.39
Total Investments (Cost $24,166,129) 28,409,586 100.78
Other Assets Less Liabilities (218,585) (0.78)
Net Assets $ 28,191,001 100.00%
<FN>
(a) Common stocks which did not declare a dividend in 1995.
(b) There are restrictions on these warrants which will limit The
Fund's ability to convert them to stock until September 14, 1996.
</TABLE>
- 21 -
<PAGE> 38
The Fairmont Fund
Financial Highlights
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Years Ended
Dec Dec Dec Dec Dec
31 31 31 31 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 24.06 22.43 19.41 17.02 12.17
Income From Investment
Operations
Net Investment Income ( .08) ( .16) ( .14) ( .17) .09
Net Gains or Losses on
Securities (both realized
and unrealized) 6.80 1.79 3.16 2.56 4.85
Total From Investment
Operations 6.72 1.63 3.02 2.39 4.94
Less Distributions
Dividends (from net
investment income) .00 .00 .00 .00 .09
Distributions (from
capital gains) 3.76 .00 .00 .00 .00
Returns of Capital .00 .00 .00 .00 .00
Total Distributions 3.76 .00 .00 .00 .09
Net Asset Value, End
of Period $ 27.02 24.06 22.43 19.41 17.02
Total Return 27.92% 7.27% 15.56% 14.04% 40.56%
Ratios/Supplemental Data
Net Assets, End of
Period (in 000s) $ 28,191 22,195 18,884 16,788 17,385
Ratio of Expenses to
Average Net Assets 1.70% 1.74% 1.78% 1.79% 1.79%
Ratio of Net Income to
Average Net Assets ( .55)% ( .79)% ( .66)% ( .85)% .51%
Portfolio Turnover Rate 2.47 2.75 1.55 1.32 1.15
</TABLE>
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<PAGE> 39
The Fairmont Fund
Notes to Financial Statements
December 31, 1995
(1) Organization
The Fairmont Fund (The Fund) is a no-load, diversified series of The Fairmont
Fund Trust (The Trust), which is a Kentucky Business Trust and an open-end
investment company registered under the Investment Company Act of 1940. The
Fund was established under a declaration of trust dated December 29, 1980 and
began offering its shares publicly on September 2, 1981.
(2) Summary of Significant Accounting Policies
(a) Valuation of Investment Securities - Purchases and sales of securities
are recorded on a trade date basis. Portfolio securities which are traded on
stock exchanges or in the over-the-counter markets are valued at the last sale
price as of 4:00 P.M. Eastern time on the day the securities are being valued
or, lacking any sales, at the mean between the closing bid and asked prices.
Fixed income securities are valued by using market quotations, or independent
pricing services which use prices provided by market makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics. Securities and other assets for which market
quotations are not readily available are valued at fair value as determined
in good faith by or under the direction of the Board of Trustees. Dividend
income is recorded on the ex-dividend date and interest income is recorded on
the accrual basis.
(b) Gains and Losses on Investment Securities - Gains and losses from sales
of investments are calculated on the "identified cost" method. Upon
disposition of a portion of the investment in a particular security, it is
The Fund's general practice to first select for sale those securities which
ualify for long-term capital gain or loss treatment for tax purposes.
(c) Repurchase Agreements - The Fund may acquire repurchase agreements from
banks or security dealers (the Seller) which the Board of Trustees and the
Adviser have determined creditworthy. The Seller of the repurchase agreement
is required to maintain the value of collateral at not less than the
repurchase price, including accrued interest. Securities pledged as
collateral for repurchase agreements are held by The Fund's custodian in the
Federal Reserve/Treasury book-entry system.
(d) Capital Shares - The Fund records purchases of its capital shares at the
daily net asset value next determined after receipt of a shareholder's check
or wire and application in proper form. Redemptions are recorded at the net
asset value next determined following receipt of a shareholder's written
request in proper form.
- 23 -
<PAGE> 40
(3) Investment Advisory Agreement, Commissions and Related Party Transactions
The Investment Advisory Agreement (the Agreement) provides that The Sachs
Company (the Adviser) will pay all of The Trust's operating expenses,
including fees to disinterested trustees, but excluding brokerage fees and
commissions, taxes, interest and extraordinary expenses. The Adviser also
pays The Fund's officers' salaries. Under the terms of the Agreement, The
Fund pays the Adviser a fee at the rate of 2% of the first $10,000,000 of
average daily net assets, 1-1/2% of the next $20,000,000, and 1% of the
average daily net assets over $30,000,000. The management fee is accrued
daily and paid monthly. The Adviser received management fees of $421,935 for
the year ended December 31, 1995.
Morton H. Sachs, a trustee of The Fund, is the president and sole shareholder
of the Adviser. The Adviser, as a registered broker-dealer of securities,
effected substantially all of the investment portfolio transactions for The
Fund. For this service the Adviser received commissions of $393,234 for the
year ended December 31, 1995.
Certain officers and/or Trustees of The Fund are officers of the Adviser.
(4) Distributions to Shareholders
The following is a summary of distributions to shareholders for the year
ended December 31, 1995. No distributions were declared for the year ended
December 31, 1994.
<TABLE>
<CAPTION>
Period Date Paid Per Share
Ended Declared In Cash Reinvested Total Amount
<S> <C> <C> <C> <C> <C>
12/31/95 12/29/95 $141,060 $3,317,538 $3,458,598 $3.76
</TABLE>
(5) Investments
For the year ended December 31, 1995, the cost of purchases and proceeds
from sales of investments, other than temporary cash investments, were
$60,325,933 and $59,103,278, respectively.
Following is information regarding unrealized appreciation (depreciation)
and aggregate cost of securities based upon federal income tax cost at
December 31, 1995:
<TABLE>
<S> <C>
Tax Cost
Aggregate gross unrealized appreciation for
all securities with value in excess of cost $ 4,965,190
Aggregate gross unrealized depreciation for
all securities with cost in excess of value (1,279,935)
</TABLE>
- 24 -
<PAGE> 41
<TABLE>
<S> <C>
Net unrealized appreciation $ 3,685,255
Aggregate cost of securities $ 24,050,331
</TABLE>
(6) Income Taxes
It is The Fund's policy to comply with the special provisions of the Internal
Revenue Code available to investment companies and, in the manner provided
therein, to distribute substantially all of its income to shareholders.
Therefore no tax provision is required. The accumulated net realized loss is
due only to temporary timing differences caused by wash sales and does not
represent a capital loss carryforward for income tax purposes.
(7) There are no reportable financial instruments which have any off-balance
sheet risk as of December 31, 1995.
(8) At December 31, 1995 an indefinite number of capital shares (no par value)
were authorized, and paid-in capital amounted to $24,505,746. Transactions in
capital shares were as follows:
<TABLE>
<S> <C>
Shares sold 229,235
Shares redeemed ( 108,307)
Net increase 120,928
Shares outstanding:
Beginning of period 922,342
Ending of period 1,043,270
</TABLE>
(9) In accordance with SOP 93-2, The Fund has recorded a reclassification in
the capital accounts. As of December 31, 1995, The Fund recorded permanent
book/tax differences of $(136,265) from undistributed net investment income
to paid in capital. This reclassification has no impact on the net asset value
of The Fund and is designed generally to present undistributed income and
realized gains on a tax basis which is considered to be more informative to
the shareholder.
- 25 -
