<PAGE> 1
THE FAIRMONT FUND
1346 South Third Street
Louisville, Kentucky 40208
(502) 636-5633
(800) 262-9936
PROSPECTUS
May 1, 1997
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 May 1, 1997 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> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
FUND EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . 10
Investments by Wire . . . . . . . . . . . . . . . . . . . . . . . 10
Other Purchase Information . . . . . . . . . . . . . . . . . . . 10
Tax Sheltered Retirement Plans . . . . . . . . . . . . . . . . . 10
HOW TO WITHDRAW (REDEEM) AN INVESTMENT . . . . . . . . . . . . . . 11
OPERATION OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . 12
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . 12
DIVIDENDS, DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . 13
Dividends and Distributions . . . . . . . . . . . . . . . . . . . 13
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
INVESTMENT TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . 14
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . 14
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . 14
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . 15
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
THE TRUSTEES AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . 16
</TABLE>
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<PAGE> 3
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, 1996, 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...................................... 1.66%
12b-1 Fees........................................... None
Other Expenses....................................... None
Total Fund Operating Expenses........................ 1.66%
Example
- -------
You would pay the 1 year 3 years 5 years 10 years
------ ------- ------- --------
following expenses on
a $1,000 investment,
assuming (1) 5% annual
return and (2) redemp-
tion at the end of
each time period: $17 $52 $90 $197
</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 and information
below for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 have been
audited by McCurdy & Associates CPA's, Inc., independent auditors. The
financial
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<PAGE> 4
statements for the remaining periods have been audited by other
independent auditors whose reports for those years were unqualified.
The financial staements of The Fund for the year ended December 31, 1996
and the independent auditors' report thereon are included in the
Statement of Additional Information. The Fund's Annual Report contains
additional performance information and will be made available upon
request and without charge.
<TABLE>
<CAPTION>
Years Ended
Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec
31 31 31 31 31 31 31 31 31 31
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $27.02 $ 24.06 22.43 19.41 17.02 12.17 16.02 15.19 14.96 16.50
Income From Investment
Operations
Net Investment Income (.10) (.08) (.16) (.14) (.17) .09 .30 .21 .24 .17
Net Gains or Losses on
Securities (both realized
and unrealized) 2.67 6.80 1.79 3.16 2.56 4.85 (3.85) .83 .23 (1.47)
Total From Investment
Operations 2.57 6.72 1.63 3.02 2.39 4.94 (3.55) 1.04 .47 (1.30)
Less Distributions
Dividends (from net
investment income) .00 .00 .00 .00 .00 .09 .30 .21 .24 .17
Distributions (from
capital gains) 3.14 3.76 .00 .00 .00 .00 .00 .00 .00 .07
Returns of Capital .00 .00 .00 .00 .00 .00 .00 .00 .00 .00
Total Distributions 3.14 3.76 .00 .00 .00 .09 .30 .21 .24 .24
Net Asset Value, End
of Period $26.45 $ 27.02 24.06 22.43 19.41 17.02 12.17 16.02 15.19 14.96
Total Return 9.52 27.92 7.27 15.56 14.04 40.56 (22.13) 6.84 3.12 (7.77)
Ratios/Supplemental Data
Net Assets, End of
Period (in 000s) $30,731 $28,191 22,195 18,884 16,788 17,385 15,859 42,511 64,145 79,008
Ratio of Expenses to
Average Net Assets(c) 1.66% 1.70% 1.74% 1.78% 1.79% 1.79% 1.68% 1.37% 1.25% 1.18%
Ratio of Net Income to
Average Net Assets(c) (.59)% (.55)% (.79)% (.66)% (.85)% .51% 1.53% 1.01% 1.30% .91%
Portfolio Turnover Rate 2.37 2.47 2.75 1.55 1.32 1.15 1.28% .90% 1.58% 1.45%
Average Commission .057
</TABLE>
(a) All per share amounts have been restated to reflect a three-for-one share
split which became effective February 15, 1990.
(b) Per share information for periods prior to 1988 has been calculated based
on the weighted average number of shares outstanding.
(c) 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>
<CAPTION>
Years Ended
Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec
31 31 31 31 31 31 31 31 31 31
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Expenses to
Average Net Assets(c) 1.66% 1.70% 1.74% 1.78% 1.79% 1.79% 1.68% 1.37% 1.25% 1.22%
Ratio of Net Income to
Average Net Assets(c) (.59)% (.55)% (0.79)% (.66)% (.85)% .51% 1.53% 1.01% 1.30% .87%
</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
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<PAGE> 5
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 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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN:
<S> <C>
For the one year period ended December 31, 1996 . . . . . . . . . . . . . . . 9.52%
For the five year period ended December 31, 1996 . . . . . . . . . . . . . . 14.64%
For the ten year period ended December 31, 1996 . . . . . . . . . . . . . . . 8.22%
For the period since inception as of December 31, 1996 . . . . . . . . . . . 13.55%
</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 One Year
Net Asset Dividends $10,000 Since
Year Ended Value(a) Paid (a) Investment (b) Total Return Inception (c)
---------- -------- --------- -------------- ------------ -------------
<C> <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%
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C> <C> <C> <C> <C>
12/31/92 19.41 .00 40,415 14.04% 304.15%
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%
12/31/96 25.45 3.14 70,183 9.52% 601.83%
</TABLE>
(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).
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, 1996 were, respectively:
9.52%, 40.10% and 601.83%. 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 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.
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<PAGE> 7
PORTFOLIO
The Fund's portfolio of investments as of December 31, 1996 is set forth below:
<TABLE>
<CAPTION>
Investments in Securities
Common Stocks (Shares) Value Percent
----- -------
<S> <C> <C>
Accounting Services
50,000 Medaphis Corporation (a) $ 559,375 1.82%
Agricultural Chemicals
20,000 Alcide Corporation (a) 415,000 1.35
Automobile Insurance
35,000 Integon Corporation 621,250 2.02
Automobile Parts
155,000 TBC Corporation (a) 1,162,500 3.78
Banking
3,000 Bank of Boston Corporation 192,750
15,000 City National Corporation 324,375
47,000 Imperial Bancorp (a) 1,128,000
70,000 North Fork Bancorporation, Inc. 2,493,750
75,000 UST Corporation 1,546,875
---------
5,685,750 18.50
---------
Business Services
150,000 Butler International, Inc. (a) 1,537,500
219,000 Digital Solutions, Inc. (a) 752,813
---------
2,290,313 7.45
---------
Cable Television
30,000 American Telecasting, Inc. (a) 172,500
110,000 CAI Wireless Systems (a) 110,000
25,000 Heartland Wireless Communications(a) 328,125
-------
610,625 1.99
-------
Computer Peripheral Equipment Manufacturers
100,000 Madge N.V. (a) 987,500 3.21
Credit Institution
5,000 First Merchants Acceptance 95,625 0.31
Corporation(a)
Employment Agency
25,000 Employee Solutions, Inc. (a) 512,500 1.67
Hospital and Medical Service Plans
50,000 Maxicare Healthcare Plans, Inc. (a) 1,112,500 3.62
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C> <C>
Life Insurance
55,000 Pioneer Financial Services, Inc. 1,375,000 4.47
Medical Laboratories
500,000 Meris Laboratories, Inc. (a) 250,000 0.81
Multiline Insurance
30,000 USF&G Company 626,250 2.04
Oil and Gas Exploration
100,000 Oryx Energy Company (a) 2,475,000 8.05
Personal Services
10,000 Regis Corporation 162,500 0.53
Pharmaceuticals
30,000 Novartis AG ADR 1,721,250
250,000 Pharmos Corporation (a) 367,188
18,750 Pharmos Corporation Warrants
Exp. 9/15/00 (a) 5,273
---------
2,093,711 6.81
---------
Plastics Products
10,000 APL Ltd 236,250 0.77
Printing
5,000 World Color Press, Inc. (a) 96,250 0.31
Retail Stores
65,000 Strouds, Inc. (a) 211,250 0.69
Savings Institutions
70,000 Dime Financial Corporation 1,207,500
100,000 Mechanics Savings Bank (a) 1,575,000
---------
2,782,500 9.06
---------
Semiconductors
10,000 California Micro Devices
Corporation (a) 56,875 0.19
---------
Shoes
30,000 Timberland Company (a) 1,140,000 3.71
---------
Soft Drinks
7,000 Coca-Cola Bottling Company Consolidated 341,250 1.11
-------
Telephone Apparatus
40,000 Bright Voice Systems, Inc. (a) 595,000 1.94
-------
Water Transportation
50,000 Alexander and Baldwin Company 1,250,000 4.07
---------
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C> <C>
Wholesale Groceries
50,000 Fleming Companies, Inc. 862,500
50,000 International Dairy Queen, Inc.
Class A (a) 1,000,000
---------
1,862,500 6.06
---------
Total Common Stocks (Cost $26,129,250) 29,607,273 96.34
</TABLE>
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<PAGE> 10
<TABLE>
<S> <C> <C>
Bank Repurchase Agreement
With Star Bank NA of Cincinnati,
issued 12/31/96 due 1/2/97, fully
collateralized by Government National
Mortgage Association, 6.00% due 5/20/22
(Cost $765,000) 765,000 2.49
Total Investments (Cost $26,894,250) 30,372,273 98.83
Other Assets Less Liabilities 358,731 1.17
----------- ------
Net Assets $30,731,004 100.00%
=========== =======
</TABLE>
(a) Common stocks which did not declare a dividend in 1996.
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."
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<PAGE> 11
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:
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 after making an initial
investment by wire. 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.
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.
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<PAGE> 12
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 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,
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<PAGE> 13
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, 1996, The Fund paid the Adviser a fee equal
to 1.66% 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
consideration to sale of shares of The Fund as a factor in the selection of
brokers and dealers to execute portfolio transactions for The Fund.
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)
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<PAGE> 14
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 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
- 14 -
<PAGE> 15
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, in
securities of other investment companies or in obligations of the U.S.
Government 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 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
- 15 -
<PAGE> 16
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 (100% or more) 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.
- 16 -
<PAGE> 17
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: 63 Adviser.
*Oscar S. Bryant, Jr. Trustee He is the Executive Vice
1346 South Third St. President President of The Trust's Adviser.
Louisville, KY 40208 Prior to 1981, he was Executive
Age: 77 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 and a
1346 South Third St. Assistant Secretary Registered Principal of The
Louisville, KY 40208 Trust's Adviser.
Age:37
*Inda M. Wangerin Secretary She is a Vice President and
1346 South Third St. Accountant of The Trust's
Louisville, KY 40208 Adviser.
Age: 75
*Louis T. Young Treasurer He is an employee of The Trust's
1346 South Third St. Adviser.
Louisville, KY 40208
Age: 48
Elizabeth H. Moore Trustee None
1705 Sweetbriar Lane
Louisville, KY 40207
Age: 61
Raphael O. Nystrand Trustee Since 1978, he has been a
3015 Springcrest Drive Professor and Dean of the School
Louisville, KY 40241 of Education, University of
Age: 59 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.
Willam M. Schreiber Trustee He is a physician in private
4003 Kresge Way practice and co-medical director
</TABLE>
- 17 -
<PAGE> 18
<TABLE>
<S> <C> <C>
Louisville, KY 40207 of the Chemical Dependency Unit
Age: 61 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.
- 18 -
<PAGE> 19
THE FAIRMONT FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This Statement of Additional Information is not a Prospectus. It should be
read in conjunction with the Prospectus of The Fairmont Fund dated May 1, 1997.
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> 20
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DESCRIPTION OF THE TRUST . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . . . . 3
OTHER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 6
U.S. GOVERNMENT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT ADVISORY AGREEMENT . . . . . . . . . . . . . . . . . . . 7
TRUSTEE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . 8
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . 8
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . 11
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . 11
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . 11
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
- 2 -
<PAGE> 21
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 7, 1997, the Trustees and Officers of The Trust as a group
owned of record and beneficially 54,752 shares of The Fund, or 4.7% of the
outstanding shares of The Fund. As of that date, The Courier Journal TIP Fund,
Louisville, Kentucky, owned of record 12.0% 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
- 3 -
<PAGE> 22
there is an 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
- 4 -
<PAGE> 23
interpretations 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) shall not be a
violation of the policy or
- 5 -
<PAGE> 24
limitation unless the excess results 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
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.
- 6 -
<PAGE> 25
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.
For the fiscal years ended December 31, 1996, 1995, and 1994, the Adviser
received advisory fees of $503,732, $421,935 and $371,862, respectively.
The Trust pays no direct remuneration to any Officer of The Trust, although
Morton H. Sachs, by reason of his affiliation with the
- 7 -
<PAGE> 26
Adviser, will receive benefits from the advisory fees and brokerage commissions
paid to The Trust's Adviser, The Sachs Company.
TRUSTEE COMPENSATION
The compensation paid to the Trustees of The Trust for the year ended
December 31, 1996 is set forth in the following table:
<TABLE>
<CAPTION>
Total Compensation from
Trust (The Trust is not
Name in a fund complex)**
<S> <C>
Oscar S. Bryant, Jr. 0
Elizabeth H. Moore 2,000
Raphael O. Nystrand 3,000
Morton H. Sachs 0
William M. Schreiber 2,000
</TABLE>
** 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.
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
- 8 -
<PAGE> 27
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
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
- 9 -
<PAGE> 28
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 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, 1996, 1995
and 1994, the Fund's portfolio transactions generated total brokerage
commissions of $548,598, $528,313 and $510,558, respectively. For the fiscal
year ended December 31, 1996, The Sachs Company was paid $487,272 or 89% of the
total brokerage commission for effecting (through Legg Mason or Conners & Co.)
98% of The Fund's commission transactions. For the fiscal year ended December
31, 1995, The Sachs Company was paid $393,234 or 74% of the total brokerage
commissions for effecting (through Legg Mason 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 Legg Mason 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.
When The Fund and another of the Adviser's clients seek to purchase or sell
the same security at or about the same time, the Adviser may execute the
transaction on a combined ("blocked") basis. Blocked transactions can produce
better execution for The Fund because of the increased volume of the
transaction. If the entire order is not filled, 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. In the event that the entire blocked
order is not filled, the purchase or sale will normally be allocated [on a pro
rata basis]. Transactions of advisory clients (including The Fund) may also be
blocked with those of the Adviser or any of its affiliates. The Adviser and
its affiliates will be permitted to participate in a blocked transaction only
after all orders of advisory clients (including The Fund) are filled.
- 10 -
<PAGE> 29
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, 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 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, 1997. 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
- 11 -
<PAGE> 30
invested to the ending redeemable value, according to the following formula:
P(1+T)n=ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the applicable period
of the hypothetical $1,000 investment made at the beginning
of the applicable period
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period.
From time to time, in advertisements, sales literature and information
furnished to present or prospective shareholders, the performance of The Fund
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. or Morningstar, Inc.,
two widely used independent research firms which rank mutual funds by overall
performance, investment objectives and assets. Performance rankings and
ratings reported periodically in national financial publications such as
Barron's, Money, Investor's Business Daily, Fortune or Business Week may also
be used.
FINANCIAL STATEMENTS
- 12 -
<PAGE> 31
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, 1996, and the
related statements of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the 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 material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, 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, 1996, 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.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
January 21, 1997
<PAGE> 32
THE FAIRMONT FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENTS IN SECURITIES
COMMON STOCKS (SHARES) VALUE PERCENT
------------ -------
<S> <C> <C>
ACCOUNTING SERVICES
50,000 Medaphis Corporation (a) . . . . . . . . . . . . . . $ 559,375 1.82%
---------
AGRICULTURAL CHEMICALS
20,000 Alcide Corporation (a) . . . . . . . . . . . . . . . 415,000 1.35
---------
AUTOMOBILE INSURANCE
35,000 Integon Corporation . . . . . . . . . . . . . . . . 621,250 2.02
---------
AUTOMOBILE PARTS
155,000 TBC Corporation (a) . . . . . . . . . . . . . . . . . 1,162,500 3.78
---------
BANKING
3,000 Bank of Boston Corporation . . . . . . . . . . . . . 192,750
15,000 City National Corporation . . . . . . . . . . . . . . 324,375
47,000 Imperial Bancorp (a) . . . . . . . . . . . . . . . . 1,128,000
70,000 North Fork Bancorporation, Inc. . . . . . . . . . . . 2,493,750
75,000 UST Corporation . . . . . . . . . . . . . . . . . . . 1,546,875
---------
5,685,750 18.50
---------
BUSINESS SERVICES
150,000 Butler International, Inc. (a) . . . . . . . . . . . 1,537,500
219,000 Digital Solutions, Inc. (a) . . . . . . . . . . . . . 752,813
---------
2,290,313 7.45
---------
CABLE TELEVISION
30,000 American Telecasting Inc. (a) . . . . . . . . . . . . 172,500
110,000 CAI Wireless Systems (a) . . . . . . . . . . . . . . 110,000
25,000 Heartland Wireless Communications (a) . . . . . . . . 328,125
---------
610,625 1.99
---------
COMPUTER PERIPHERAL EQUIPMENT MANUFACTURERS
100,000 Madge N.V. (a) . . . . . . . . . . . . . . . . . . . 987,500 3.21
---------
CREDIT INSTITUTION
5,000 First Merchants Acceptance Corporation (a) . . . . . 95,625 0.31
---------
EMPLOYMENT AGENCY
25,000 Employee Solutions Inc. (a) . . . . . . . . . . . . . 512,500 1.67
---------
HOSPITAL AND MEDICAL SERVICE PLANS
50,000 Maxicare Healthcare Plans, Inc. (a) . . . . . . . . . 1,112,500 3.62
---------
LIFE INSURANCE
55,000 Pioneer Financial Services, Inc. . . . . . . . . . . 1,375,000 4.47
---------
MEDICAL LABORATORIES
500,000 Meris Laboratories, Inc. (a) . . . . . . . . . . . . 250,000 0.81
---------
</TABLE>
<PAGE> 33
THE FAIRMONT FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENTS IN SECURITIES (CONTINUED)
COMMON STOCKS (SHARES) VALUE PERCENT
----------- -------
<S> <C> <C>
MULTILINE INSURANCE
30,000 USF&G Company . . . . . . . . . . . . . . . . . . . . $ 626,250 2.04%
---------
OIL AND GAS EXPLORATION
100,000 Oryx Energy Company (a) . . . . . . . . . . . . . . . 2,475,000 8.05
---------
PERSONAL SERVICES
10,000 Regis Corporation . . . . . . . . . . . . . . . . . . 162,500 0.53
---------
PHARMACEUTICALS
30,000 Novartis AG ADR . . . . . . . . . . . . . . . . . . . 1,721,250
250,000 Pharmos Corporation (a) . . . . . . . . . . . . . . . 367,187
18,750 Pharmos Corporation Warrants Exp. 9/15/00 (a)(b) . . 5,273
---------
2,093,710 6.81
---------
PLASTICS PRODUCTS
10,000 APL Ltd . . . . . . . . . . . . . . . . . . . . . . . 236,250 0.77
---------
PRINTING
5,000 World Color Press, Inc. (a) . . . . . . . . . . . . . 96,250 0.31
---------
RETAIL STORES
65,000 Strouds Inc.(a) . . . . . . . . . . . . . . . . . . . 211,250 0.69
---------
SAVINGS INSTITUTIONS
70,000 Dime Financial Corporation . . . . . . . . . . . . . 1,207,500
100,000 Mechanics Savings Bank (a) . . . . . . . . . . . . . 1,575,000
---------
2,782,500 9.06
---------
SEMICONDUCTORS
10,000 California Micro Devices Corporation (a) . . . . . . 56,875 0.19
---------
SHOES
30,000 Timberland Company (a) . . . . . . . . . . . . . . . 1,140,000 3.71
---------
SOFT DRINKS
7,000 Coca-Cola Bottling Company Consolidated . . . . . . . 341,250 1.11
---------
TELEPHONE APPARATUS
40,000 Bright Voice Systems, Inc. (a) . . . . . . . . . . . 595,000 1.94
---------
WATER TRANSPORTATION
50,000 Alexander and Baldwin Company . . . . . . . . . . . . 1,250,000 4.07
---------
</TABLE>
<PAGE> 34
THE FAIRMONT FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENTS IN SECURITIES (CONTINUED)
COMMON STOCKS (SHARES) VALUE PERCENT
----------- -------
<S> <C> <C>
WHOLESALE GROCERIES
50,000 Fleming Companies, Inc. . . . . . . . . . . . . . . . $ 862,500
50,000 International Dairy Queen, Inc. Class A (a) . . . . . 1,000,000
----------
1,862,500 6.06%
---------- ------
TOTAL COMMON STOCK (Cost $26,129,250) . . . . . . . . . . . . 29,607,273 96.34
BANK REPURCHASE AGREEMENT
With Star Bank NA of Cincinnati, issued 12/31/96 due 1/2/97,
fully collateralized by Government National Mortgage Association,
6.00% due 5/20/22 (Cost $765,000) . . . . . . . . . . . . . . . 765,000 2.49
---------- ------
TOTAL INVESTMENTS (Cost $26,894,250) . . . . . . . . . . . . . 30,372,273 98.83
OTHER ASSETS LESS LIABILITIES . . . . . . . . . . . . . . . . 358,731 1.17
---------- ------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . $ 30,731,004 100.00%
========== ======
</TABLE>
(a) Common stocks which did not declare a dividend in 1996.
(b) Restricted stock acquired on 9/11/95 and carried at $0.2812 per share with
a cost of $0.00.
See accompanying notes.
<PAGE> 35
THE FAIRMONT FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C> <C>
INVESTMENTS IN SECURITIES, At Value (Note 2)
Common stocks (Cost $26,129,250) . . . . . . . . . . . . . . . $ 29,607,273
Bank repurchase agreement . . . . . . . . . . . . . . . . . . . 765,000
----------
Total investments in securities . . . . . . . . . . . . . . . . . . . . . . . . $ 30,372,273
CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,704
RECEIVABLES
Investment securities sold . . . . . . . . . . . . . . . . . . 498,784
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 10,125
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
----------
Total receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509,015
----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,902,992
LIABILITIES
PAYABLES
Distributions to shareholders (Note 4) . . . . . . . . . . . . $ 110,169
Management fee (Note 3) . . . . . . . . . . . . . . . . . . . 37,963
Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . 23,284
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 572
----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,988
----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,731,004
==========
NET ASSETS CONSIST OF
Capital stock (1,161,678 shares outstanding) (Note 8) . . . . . . . . . . . . . . . $ 27,626,619
Accumulated net realized losses on investments (Note 6) . . . . . . . . . . . . . . (373,638)
Net unrealized appreciation on investments (Note 5) . . . . . . . . . . . . . . . . 3,478,023
----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,731,004
==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($30,731,004 divided by 1,161,678 shares) . . . . . . . . . . . . . . . . . . . . . $ 26.45
==========
</TABLE>
See accompanying notes.
<PAGE> 36
THE FAIRMONT FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME (Note 2)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201,043
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,777
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
---------
Total investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,820
EXPENSES
Management fee (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503,732
---------
Net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (178,912)
---------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS (Note 2)
Net realized gains from investment transactions . . . . . . . . . . . . . . . . . . . . 3,637,050
Net change in unrealized appreciation on investments . . . . . . . . . . . . . . . . . . (765,433)
---------
Net realized and unrealized gains on investments . . . . . . . . . . . . . . . . . . 2,871,617
---------
Net increase in net assets resulting from operations . . . . . . . . . . . . . $ 2,692,705
=========
</TABLE>
See accompanying notes.
<PAGE> 37
THE FAIRMONT FUND
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
FROM OPERATIONS
<S> <C> <C>
Net investment loss . . . . . . . . . . . . . . . . . . . . $ (178,912) $ (136,265)
Net realized gains on investments . . . . . . . . . . . . . 3,637,050 3,460,455
Net change in unrealized appreciation
on investments . . . . . . . . . . . . . . . . . . . . . (765,433) 2,774,041
------------ ------------
Net increase in net assets
resulting from operations . . . . . . . . . . . . . . . 2,692,705 6,098,231
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (Note 4)
Distributions from net realized gains on investments . . . . (3,273,575) (3,458,598)
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FROM CAPITAL SHARE TRANSACTIONS (Note 8) Shares Shares
----------- ----------
<S> <C> <C> <C> <C>
Proceeds from sale of shares . . . . . . . . 90,818 2,591,421 106,454 2,870,723
Shares issued in reinvestment
of distributions . . . . . . . . . . . . 119,600 3,163,405 122,781 3,317,538
Payments for shares redeemed . . . . . . . . (92,010) (2,633,953) (108,307) (2,831,640)
----------- ---------- ---------- ------------
Net increase or decrease in net assets
from capital share transactions . . . . 118,408 3,120,873 120,928 3,356,621
=========== ----------- ========== ------------
Net increase in net assets . . . . . . . . . . . . . . . 2,540,003 5,996,254
NET ASSETS
Beginning of year . . . . . . . . . . . . . . . . . . . . . 28,191,001 22,194,747
------------ ------------
End of period . . . . . . . . . . . . . . . . . . . . . . . $ 30,731,004 $ 28,191,001
============ ==========
</TABLE>
See accompanying notes.
<PAGE> 38
THE FAIRMONT FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------------------
December December December December December
31 31 31 31 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . . . $ 27.02 24.06 22.43 19.41 17.02
Income From Investment Operations
---------------------------------
Net Investment Income . . . . . . . . . . (.10) (.08) (.16) (.14) (.17)
Net Gains or Losses on Securities
(both realized and unrealized) . . . . 2.67 6.80 1.79 3.16 2.56
-------- -------- -------- -------- --------
Total From Investment Operations . . . . 2.57 6.72 1.63 3.02 2.39
Less Distributions
------------------
Dividends (from net investment income) . . .00 .00 .00 .00 .00
Distributions (from capital gains) . . . . 3.14 3.76 .00 .00 .00
Returns of Capital . . . . . . . . . . . . .00 .00 .00 .00 .00
-------- -------- -------- -------- --------
Total Distributions . . . . . . . . . . 3.14 3.76 .00 .00 .00
Net Asset Value, End of Period . . . . . . $ 26.45 27.02 24.06 22.43 19.41
======== ======== ======== ======== ========
Total Return . . . . . . . . . . . . . . . . 9.52% 27.92% 7.27% 15.56% 14.04%
- ------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (in 000s) . . . . . $ 30,731 $ 28,191 $ 22,195 $ 18,884 $ 16,788
Ratio of Expenses to Average Net Assets . . . 1.66% 1.70% 1.74% 1.78% 1.79%
Ratio of Net Income to Average Net Assets . . (.59)% (.55)% (.79)% (.66)% (.85)%
Portfolio Turnover Rate . . . . . . . . . . . 2.37 2.47 2.75 1.55 1.32
Average Commission Rate . . . . . . . . . . . .057
</TABLE>
See accompanying notes.
<PAGE> 39
THE FAIRMONT FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(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 qualify
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.
(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 $503,732 for the year ended December 31,
1996.
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 $487,272
for the year ended December 31, 1996.
Certain officers and/or Trustees of The Fund are officers of the Adviser.
<PAGE> 40
THE FAIRMONT FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(4) Distributions to Shareholders
The following is a summary of distributions to shareholders for the years ended
December 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
Period Paid Per Share
Ended Date Declared In Cash Reinvested Total Amount
----- ------------- ------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
12/31/96 December 31, 1996 $110,169 $3,163,405 $3,273,574 $3.14
12/31/95 December 29, 1995 $141,060 $3,317,538 $3,458,598 $3.76
</TABLE>
(5) Investments
For the year ended December 31, 1996, the cost of purchases and proceeds from
sales of investments, other than temporary cash investments, were $67,596,732
and $68,596,661, respectively.
Following is information regarding unrealized appreciation (depreciation) and
aggregate cost of securities based upon federal income tax cost at December
31, 1996:
<TABLE>
<CAPTION>
Tax Cost
-----------
<S> <C>
Aggregate gross unrealized appreciation for
all securities with value in excess of cost . . . . . . . . . . . . . . $ 5,235,807
Aggregate gross unrealized depreciation for
all securities with cost in excess of value . . . . . . . . . . . . . . (2,131,422)
-----------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . $ 3,104,385
===========
Aggregate cost of securities . . . . . . . . . . . . . . . . . . . . . . . $26,502,888
===========
</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, 1996.
(8) At December 31, 1996 an indefinite number of capital shares (no par value)
were authorized, and paid-in capital amounted to $27,626,619. Transactions in
capital shares were as follows:
<TABLE>
<S> <C>
Shares sold . . . . . . . . . . . . . . . . . 210,418
Shares redeemed . . . . . . . . . . . . . . . (92,010)
----------
Net increase . . . . . . . . . . . . . . . . 118,408
Shares outstanding:
Beginning of period . . . . . . . . . 1,043,270
----------
Ending of period . . . . . . . . . . 1,161,678
==========
</TABLE>
