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Fairport Funds
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Charting A Course You Can Trust
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Investment Adviser:
ROULSTON & COMPANY, INC.
Fairport Funds (the "Trust," formerly The Roulston Family of Funds) provides a
convenient and economical means of investing in professionally managed
portfolios of securities. This Prospectus describes the following portfolios of
the Trust (the "Funds"), each of which is a separate diversified portfolio.
Fairport Midwest Growth Fund
Fairport Growth and Income Fund
Fairport Government Securities Fund
This Prospectus provides the information about the Trust and the Funds that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. Additional information
regarding the Trust and the Funds is included in a Statement of Additional
Information dated March 1, 1996, as supplemented June 7, 1996, which has been
filed with the Securities and Exchange Commission and is incorporated into
this Prospectus by reference. You may obtain free copies of the Statement of
Additional Information by calling 1-800-332-6459 (1-800-3-FAMILY) or by
writing to the Trust at 4000 Chester Avenue, Cleveland, Ohio 44103.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated March 1, 1996
as supplemented June 7, 1996
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Table of Contents
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Page
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Prospectus Highlights .................... 3
Fund Expenses ............................ 4
Financial Highlights ..................... 4
The Trust and Its Funds .................. 6
Investment Objectives and Policies ....... 6
Investment Limitations of the Funds ...... 9
Management of the Trust .................. 10
How Shares Are Valued .................... 11
How to Purchase Shares ................... 12
How to Redeem Shares ..................... 13
Exchanges ................................ 14
Performance of the Funds ................. 15
How the Funds Are Taxed .................. 16
Dividends and Shareholder Taxes .......... 16
General Information ...................... 17
Description of Permitted Investments
and Related Risk Factors ............. 18
</TABLE>
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Prospectus Highlights
The following summary provides basic informa- tion about Fairport Midwest Growth
Fund (the "Midwest Growth Fund"), Fairport Growth and Income Fund (the "Growth
and Income Fund") and Fairport Government Securities Fund (the "Government
Fund"), (each, a "Fund" and, collectively, the "Funds"). However, the following
is only a summary, so please review carefully the remainder of the Prospectus
for more information.
Investment Objectives of THE FUNDS
The MIDWEST GROWTH FUND seeks capital appreciation. The Midwest Growth Fund
seeks to achieve its objective by investing primarily in equity securities of
companies headquartered in the Midwest region of the United States.
The GROWTH AND INCOME FUND seeks capital appreciation and current income. The
Growth and Income Fund seeks to achieve its objective by investing primarily in
common stocks or securities convertible into common stocks.
The GOVERNMENT FUND seeks current income consistent with preservation of
capital. The Government Fund seeks to achieve its objectives by investing
primarily in mid- to intermediate- term fixed income securities in the high end
of the credit spectrum. The Government Fund will invest at least 65% of its
total assets in U.S. Government securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
You should be aware of certain risks and considerations before investing in any
of the Funds. Each Fund invests in securities that fluctuate in value;
therefore you should expect each Fund's net asset value per share to fluctuate.
Values of fixed income securities and, correspondingly, of mutual funds
invested in such securities, such as the Government Fund, generally vary
inversely with interest rates and may be affected by other market and economic
factors as well. There is no assurance that the investment objective of any
Fund will be achieved. In addition, the Funds, to the extent set forth under
"INVESTMENT OBJECTIVES AND POLICIES" and "DESCRIPTION OF PERMITTED INVEST-
MENTS AND RELATED RISK FACTORS," may engage in the following practices: the use
of repurchase agreements, entering into options transactions, purchasing
securities on a when-issued or delayed delivery basis, purchasing noninvestment
grade convertible debt securities, purchasing variable or floating rate
securities and purchasing foreign securities.
THE INVESTMENT ADVISER
Roulston & Company, Inc. ("Roulston") is the Investment Adviser ("Adviser" or
"Investment Adviser") for each Fund.
THE DISTRIBUTOR
Roulston Research Corp., a wholly owned subsidiary of Roulston (the
"Distributor").
PURCHASES AND REDEMPTIONS
Shares of the Funds are sold and redeemed at their net asset value without any
sales load. Each Fund has a minimum initial investment requirement of $250.
Purchases and redemptions may be made on each day the New York Stock Exchange
(the "Exchange") is open for regular business (a "Business Day"). Your purchase
order will be effective as of the Business Day it is received by the Transfer
Agent if the Transfer Agent receives your order and payment by check or by wire
transfer of funds prior to the earlier of 4:00 p.m., Eastern time, or the close
of regular trading on the Exchange (the "Valuation Time") on such Business Day.
Redemption orders received by the Transfer Agent prior to the Valuation Time on
any Business Day will be effective as of that Business Day. The Funds also offer
both a Systematic Investment Plan and a Systematic Withdrawal Plan.
DIVIDENDS AND DISTRIBUTIONS
The Midwest Growth Fund and the Growth and Income Fund intend to declare and pay
dividends of net investment income twice per year. The Government Fund's net
investment income dividends are declared daily and payable monthly. All Funds
will make distributions of capital gains at least annually. You will receive
such dividends and distributions in additional shares unless you otherwise elect
to take those payments in cash.
THE ADMINISTRATOR AND TRANSFER AGENT
Fund/Plan Services, Inc. serves as the Administrator, Transfer Agent and
dividend disbursing agent and provides certain Fund Accounting and Custody
Administrative services for each of the Funds (the "Transfer Agent").
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FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load on Purchases ..... None
Sales Load on Reinvested
Dividends ................ None
Deferred Sales Load ......... None
Redemption Fee .............. None, although a wire
redemption charge,
currently $9, is deducted
from the amount of
a Federal Reserve wire
redemption payment.
Exchange Fee ................ None
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS):
<TABLE>
<CAPTION>
MIDWEST GROWTH AND GOVERNMENT
GROWTH INCOME SECURITIES
FUND FUND FUND
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<S> <C> <C> <C>
Management Fees
after Fee
Waiver .54%(1) .47%(1) .00%(1)
12b-1 Fees .25 .25 .25
Other Expenses after
Reimbursements(1) .59 .78 .65
----- ----- -----
Total Operating
Expenses after
Fee Waivers(1) 1.38% 1.50% 0.90%
----- ----- -----
</TABLE>
(1) The above table reflects a continuation of the agreement Roulston has made
with the Trust to waive its investment advisory fee and to reimburse certain
Other Expenses. Such waivers and reimbursements shall continue at least through
October 31, 1996, to the extent necessary to cause Total Operating Expenses not
to exceed: 1.38% for the Midwest Growth Fund; 1.50% for the Growth and Income
Fund; and 0.90% for the Government Fund. Absent such fee waivers and expense
reimbursements, Management Fees, Other Expenses, and Total Operating Expenses
would be: 0.75%, 0.59%, and 1.59%, respectively, for the Midwest Growth Fund;
0.75%, 0.78%, and 1.78%, respectively, for the Growth and Income Fund; and
0.25%, 1.58%, and 2.08%, respectively, for the Government Securities Fund.
Such expenses are illustrated by the following examples. You would pay the
following expenses on a $1,000 investment (assuming a 5% annual return and
redemption at the end of each period):
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MIDWEST GROWTH AND GOVERNMENT
GROWTH INCOME SECURITIES
FUND FUND FUND
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<S> <C> <C> <C>
One Year $ 14 $ 15 $ 9
Three Years $ 43 $ 47 $ 28
Five Years $ 75 $ 81 $ 49
Ten Years $165 $178 $110
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THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
purpose of these tables is to assist you in understanding the various costs and
expenses that you may bear directly or indirectly when you invest in a Fund. The
above expenses and examples reflect current fees. As the result of the payment
of Rule 12b-1 fees, long-term shareholders may pay more than the maximum
front-end sales charge permitted by the Rules of the National Association of
Securities Dealers, Inc. Additional information may be found under "MANAGEMENT
OF THE TRUST" and "HOW TO PURCHASE SHARES" below.
FINANCIAL HIGHLIGHTS
The Financial Highlights with respect to the fiscal year ended October 31, 1995,
have been audited by Ernst & Young LLP, independent auditors of the Funds. The
report of Ernst & Young LLP, together with certain financial statements, are
contained in Appendix "B" to the Trust's Statement of Additional Information and
may be obtained by shareholders and prospective investors at no cost.
On April 29, 1995, pursuant to an Agreement and Plan of Reorganization and
Liquidation, each of the FAIRPORT MIDWEST GROWTH FUND (formerly the Roulston
Midwest Growth Fund), the FAIRPORT GROWTH AND INCOME FUND (formerly the Roulston
Growth and Income Fund) and the FAIRPORT GOVERNMENT SECURITIES FUND (formerly
the Roulston Government Securities Fund) of the Trust acquired in a tax free
reorganization all of the assets of each of the Roulston Midwest Growth Fund,
the Roulston Growth and Income Fund and the Roulston Government Securities Fund
(collectively, the "Acquired Funds") of The Advisors' Inner Circle Fund, a
Massachusetts business trust, respectively, in exchange for the assumption of
such Acquired Fund's liabilities and a number of full and fractional shares of
the corresponding Fund of the Trust having an aggregate net asset value equal to
such Acquired Fund's net assets (the "Reorganization").
The Financial Highlights with respect to the fiscal year ended October 31, 1994
and the period from July 1, 1993 (commencement of operations) through October
31, 1993, were audited by the independent auditors of the Acquired Funds prior
to the Reorganization.
The following tables should be read in conjunction with the financial statements
and related notes also included as Appendix "B" in the Statement of Additional
Information.
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<TABLE>
<CAPTION>
FAIRPORT
MIDWEST GROWTH FUND
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Year Year Period
Ended Ended Ended
10/31/95 10/31/94 10/31/93(1)
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<S> <C> <C> <C>
Net Asset Value, beginning
of period ................. $ 12.27 $ 11.07 $10.00
------- ------- ------
Income from Investment
Operations:
Net investment income ..... 0.04 0.02 0.01
Net realized and
unrealized gain/loss
on investments .......... 2.04 1.19 1.07
------- ------- ------
Total from investment
operations ............ 2.08 1.21 1.08
------- ------- ------
Less Distributions:
From net investment
income .................. (0.04) (0.01) (0.01)
From realized capital
gains ................... (0.76) 0.00 0.00
------- ------- ------
Total distributions ..... (0.80) (0.01) (0.01)
------- ------- ------
Net Asset Value, end of
period .................... $ 13.55 $ 12.27 $11.07
======= ======= ======
Total Return ................. 18.17% 10.89% 10.90%**
Ratios/Supplemental Data:
Net assets, end of period
(in 000's) .............. $49,408 $29,688 $9,870
Ratio of expenses to
average net assets before
reimbursement of
expenses by Adviser ..... 1.57% 1.54% 2.89%*
Ratio of expenses to
average net assets after
reimbursement of
expenses by Adviser ..... 1.41% 1.45% 1.50%*
Ratio of net investment
income to average
net assets before
reimbursement of
expenses by Adviser ..... 0.14% 0.08% (1.11%)*
Ratio of net investment
income to average
net assets after
reimbursement of
expenses by Adviser ..... 0.29% 0.17% 0.28%*
Portfolio turnover ........ 46.51% 77.57% 0.00%
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<FN>
* Annualized
** Not Annualized
(1) This Fund commenced operations on July 1, 1993.
</TABLE>
<TABLE>
<CAPTION>
FAIRPORT
GROWTH AND INCOME FUND
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Year Year Period
Ended Ended Ended
10/31/95 10/31/94 10/31/93(1)
- ------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, beginning
of period ................. $ 10.68 $ 10.36 $10.00
------- ------- ------
Income from Investment
Operations:
Net investment income ..... 0.15 0.14 0.04
Net realized and
unrealized gain/loss
on investments .......... 1.68 0.35 0.36
------- ------- ------
Total from investment
operations ............ 1.83 0.49 0.40
------- ------- ------
Less Distributions:
From net investment
income .................. (0.12) (0.14) (0.04)
From realized capital
gains ................... (0.10) (0.03) 0.00
------- ------- ------
Total distributions ..... (0.22) (0.17) (0.04)
------- ------- ------
Net Asset Value, end of
period .................... $ 12.29 $ 10.68 $10.36
======= ======= ======
Total Return ................. 17.36% 4.72% 3.98%**
Ratios/Supplemental Data:
Net assets, end of period
(in 000's) .............. $23,082 $18,177 $8,716
Ratio of expenses to
average net assets before
reimbursement of
expenses by Adviser ..... 1.79% 1.72% 2.79%*
Ratio of expenses to
average net assets after
reimbursement of
expenses by Adviser ..... 1.50% 1.50% 1.50%*
Ratio of net investment
income to average
net assets before
reimbursement of
expenses by Adviser ..... 0.98% 1.20% 0.10%*
Ratio of net investment
income to average
net assets after
reimbursement of
expenses by Adviser ..... 1.26% 1.42% 1.39%*
Portfolio turnover ........ 13.36% 35.16% 4.18%
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<FN>
* Annualized
** Not Annualized
(1) This Fund commenced operations on July 1, 1993.
</TABLE>
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<TABLE>
<CAPTION>
FAIRPORT
GOVERNMENT SECURITIES
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Year Year Period
Ended Ended Ended
10/31/95 10/31/94 10/31/93(1)
- ------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, beginning
of period ................. $ 9.03 $ 10.20 $10.00
------ ------- ------
Income from Investment
Operations:
Net investment income ..... 0.49 0.43 0.15
Net realized and
unrealized gain/loss
on investments .......... 0.81 (1.17) 0.16
------ ------- ------
Total from investment
operations ............ 1.30 (0.74) 0.31
------ ------- ------
Less Distributions:
From net investment
income .................. (0.49) (0.42) (0.11)
From realized capital
gains ................... 0.00 (0.01) 0.00
------ ------- ------
Total distributions ..... (0.49) (0.43) (0.11)
------ ------- ------
Net Asset Value, end of
period .................... $ 9.84 $ 9.03 $10.20
====== ====== ======
Total Return ................. 14.76% (7.24)% 3.04%**
Ratios/Supplemental Data:
Net assets, end of period
(in 000's) .............. $8,647 $7,614 $5,829
Ratio of expenses to
average net assets before
reimbursement of
expenses by Adviser ..... 2.16% 1.80% 2.78%*
Ratio of expenses to
average net assets after
reimbursement of
expenses by Adviser ..... 0.90% 0.90% 0.90%*
Ratio of net investment
income to average
net assets before
reimbursement of
expenses by Adviser ..... 3.89% 3.88% 2.29%*
Ratio of net investment
income to average
net assets after
reimbursement of
expenses by Adviser ..... 5.16% 4.78% 4.17%*
Portfolio turnover ........ 1.28% 24.14% 24.53%
- --------------------------------------------------------------------------------
<FN>
* Annualized
** Not Annualized
(1) This Fund commenced operations on July 1, 1993.
</TABLE>
THE TRUST AND ITS FUNDS
In order to provide you with a variety of mutual funds with different investment
objectives, the Trust offers shares of the Midwest Growth Fund, the Growth and
Income Fund and the Government Fund, each of which is a diversified Fund of the
Trust, and which may be referred to individually as a "Fund" and collectively as
the "Funds." Of course, there can be no guarantee that any Fund will achieve its
investment objectives.
INVESTMENT OBJECTIVES AND POLICIES
MIDWEST GROWTH FUND
The Midwest Growth Fund seeks, as its investment objective, capital
appreciation.
Under normal circumstances, the Fund will be invested as fully as practicable in
common stocks, but may also invest in rights and debt securities and preferred
stocks convertible into common stocks (together with common stocks, "equity
securities") and in warrants to acquire such equity securities. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
equity securities of companies headquartered in the states or areas bordering
the Great Lakes; that is, Ohio, Michigan, Indiana, Illinois, Western New York,
Western Pennsylvania, Wisconsin and Minnesota (the "Midwest"). Roulston, as the
Fund's investment adviser, will generally select for investment by the Fund
common stocks that Roulston's research indicates represent high investment
potential and/or value for the Fund. Roulston will not necessarily consider
dividend income when selecting common stocks for the Fund.
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The Midwest Growth Fund seeks
capital appreciation, primarily through
investments in common stocks.
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Roulston, as investment adviser to the Midwest Growth Fund, will select
convertible securities primarily upon its evaluation that the underlying common
stocks meet the criteria for selection of common stocks as described above. The
Fund intends to invest in convertible debt securities which are primarily
investment grade (i.e., rated within the four highest rating categories of a
nationally recognized statistical rating organization ("NRSRO"), e.g., Standard
& Poor's Corporation
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or Moody's Investors Service, Inc., or, if unrated, are deemed to be of
comparable quality to securities so rated). The Fund, however, may invest up to
5% of its net assets in noninvestment grade convertible debt securities rated no
lower than B by an appropriate NRSRO or in unrated securities which are deemed
by Roulston to be of comparable quality. Noninvestment grade securities are
commonly referred to as high yield or high risk securities. High yield, high
risk securities generally have more risk than higher quality securities and are
subject to more credit risk, including risk of default, and volatility than
higher quality securities. In addition, such securities may have less liquidity
and experience more price fluctuation than higher quality securities. For a
further discussion of convertible debt securities rated B by an NRSRO, please
see "Risk Factors" below.
Any of the Midwest Growth Fund's assets not invested in equity securities will
be invested in certain money market instruments ("Money Market Instruments")
which consist of securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; certificates of deposit, time deposits, and
bankers' acceptances issued by domestic and foreign branches of U.S. commercial
banks or savings and loan associations and domestic branches of foreign banks,
having net assets of at least $10 billion as stated on their most recently
published financial statements; commercial paper rated in one of the two highest
rating categories assigned by at least one NRSRO or, if unrated, are of
comparable quality at the time of purchase as determined by Roulston; variable
amount master demand notes; repurchase agreements involving such securities; and
(as permitted by applicable law) shares of other investment companies holding
themselves out as money market funds. Please see the Appendix to the Statement
of Additional Information for a description of the applicable NRSRO ratings.
GROWTH AND INCOME FUND
The Growth and Income Fund seeks, as its investment objectives, capital
appreciation and current income.
Under normal market conditions, the Growth and Income Fund will be invested as
fully as practicable in common stocks of U.S. issuers but may also invest in
warrants, rights and debt securities and preferred stocks convertible into
common stocks, which are rated at the time of purchase in one of the four
highest rating categories by an NRSRO (or if not rated, deemed by Roulston to be
of comparable quality to securities so rated), and U.S. dollar denominated
securities of foreign issuers, including American Depository Receipts ("ADRs").
In addition, up to 5% of the Fund's net assets may be invested in noninvestment
grade convertible debt securities rated no lower than B by an appropriate NRSRO
or in unrated securities which are deemed by Roulston to be of comparable
quality. The risks of investment in such securities are described above under
"Midwest Growth Fund."
Roulston, as the Growth and Income Fund's investment adviser, will generally
select for investment by the Fund common stocks that pay dividends and that
Roulston's research indicates represent potential value upon consideration of
relative price/earnings multiples, price to book value and/or price/earnings
ratios.
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The Growth and Income Fund seeks capital appreciation and current income,
primarily through investments in common stocks.
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Any of the Growth and Income Fund's assets not invested in the securities listed
above will be invested in Money Market Instruments.
GOVERNMENT FUND
The Government Fund seeks, as its investment objective, current income
consistent with preservation of capital.
The Government Fund will invest at least 65% of its total assets in direct
obligations issued by the U.S. Treasury; separately traded component parts of
U.S. Treasury obligations, transferable only through the Federal book entry
system and which are a part of the U.S. Government's STRIPs program; obligations
issued or guaranteed as to principal and interest by the U.S. Government or its
agencies or instrumentalities; and repurchase agreements involving any of the
foregoing securities. The Fund may also invest up to 5% of its net assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities which are "mortgage-related" securities, meaning that they
represent an interest in an underlying pool of mortgages.
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The remaining assets of the Government Fund will be invested in any of the
following: domestic corporate fixed income securities rated in one of the two
highest rating categories by at least one NRSRO or, if unrated, are of
comparable quality at the time of purchase as determined by Roulston; variable
amount master demand notes; short-term bank obligations, including certificates
of deposit, time deposits and bankers' acceptances, of domestic and foreign
branches of U.S. commercial banks or savings and loan institutions and domestic
branches of foreign banks, with assets of at least $10 billion as stated on
their most recently published financial statements; U.S. dollar denominated
securities issued or guaranteed by supranational entities, foreign governments,
their political subdivisions, agencies or instrumentalities; and repurchase
agreements involving such securities.
================================================================================
The Government Fund seeks current income consistent with the
preservation of capital.
================================================================================
The Government Fund expects to maintain a dollar-weighted average portfolio
maturity of three to ten years. Within this range, Roulston will maintain a
relatively even distribution of maturities among the funds holdings.
IN GENERAL
Each Fund will purchase only those securities that are traded in the United
States or Canada on registered exchanges or the over-the-counter markets,
including established dealer markets.
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis, may invest in variable and floating rate instruments, may purchase
securities of other investment companies, and may purchase and sell options on
securities or market indices and may write covered-call options (for hedging
purposes only). For more information regarding such investment techniques,
please see "Risk Factors" and "DESCRIPTION OF PERMITTED INVESTMENTS" below.
For temporary defensive purposes, when Roulston determines that market
conditions warrant, each Fund may invest up to 100% of its assets in cash and
Money Market Instruments. To the extent a Fund is so invested, that Fund may not
achieve its investment objective or objectives.
RISK FACTORS
Each Fund's shares will fluctuate in value. An investment in any of the Funds
may be more suitable for long-term investors who can bear the risk of short-term
fluctuations in value.
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time and therefore the net asset value of a
Fund investing in such securities to fluctuate. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provisions.
The market value of a Fund's fixed income investments will also change in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities with longer maturities
tend to produce higher yields, the price of longer maturity securities are also
subject to greater price fluctuations as a result of changes in interest rates.
Changes by an NRSRO in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal also affect the
value of these investments. Changes in the value of portfolio securities will
not necessarily affect cash income derived from these securities but will affect
a Fund's net asset value.
================================================================================
An investment in any of the Funds may be more
suitable for longer-term investors who can bear
the risk of short-term fluctuations in value.
================================================================================
Convertible debt securities which are rated B by Moody's Investors Service
generally lack characteristics of a desirable investment, since the assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Debt rated B by Standard & Poor's
Corporation is regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance- with the terms of
the obligation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
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Investments in securities of foreign issuers by the Growth and Income Fund and
the Government Fund may subject them to risks which differ in some respects from
those associated with investments in securities of U.S. issuers. Such risks
include differences in accounting, auditing and financial reporting standards,
trade balances and imbalances and related economic policies, fluctuations in
currency exchange rates, the possibility of expropriation or confiscatory
taxation, nationalization or expropriation of foreign investments or deposits,
less stringent disclosure requirements, the possible establishment of exchange
controls and political instability. There may also be less publicly available
information with regard to foreign issuers than domestic issuers.
Each of the Funds may purchase put and call options and may write covered call
options for hedging purposes only and will limit its investment in options such
that no more than 5% of such Fund's net assets will be invested in or subject to
such options. Each Fund may also enter into repurchase agreements and may
purchase securities on a when-issued or delayed delivery basis. Although the
Funds will not use any such investment techniques for purposes of leveraging a
Fund's portfolio or for speculative purposes, such investment techniques involve
certain risks of which investors should be aware, including the risk that the
other party to the transaction will default in its obligations.
Each of the Funds may also invest in variable or floating instruments. Such
instruments involve the risk that the interest rate or index on which such
instrument's interest rate is based will not closely follow or match current
interest rates. For additional information regarding additional risks associated
with these permitted investments of the Funds, please see "DESCRIPTION OF
PERMITTED INVESTMENTS AND RELATED RISK FACTORS" below and the Statement of
Additional Information.
INVESTMENT LIMITATIONS OF THE FUNDS
The investment objective or objectives of each Fund described above and the
investment limitations described below and in the Statement of Additional
Information are fundamental policies of that Fund. Fundamental policies cannot
be changed with respect to a Fund without the consent of the holders of a
"majority of the outstanding shares" of that Fund as that term is defined below
under "GENERAL INFORMATION--Voting Rights."
NO FUND MAY:
1. Purchase securities of any one issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements involving such securities) if as a result more than
5% of the value of the total assets of the Fund would be invested in the
securities of such issuer or the Fund would hold more than 10% of the
outstanding voting securities of such issuer. This restriction applies to
75% of a Fund's total assets.
2. Purchase any securities which would cause 25% or more of the total assets
of a Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry;
provided that this limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities. For
purposes of this limitation, (i) utility companies will be divided
according to their services; for example, gas distribution, gas
transmission, electric and telephone will each be considered a separate
industry, and (ii) financial service companies will be classified according
to the end users of their services; for example, automobile finance, bank
finance and diversified finance will each be considered a separate
industry.
3. Borrow money or issue senior securities, except that a Fund may borrow from
banks or enter into reverse repurchase agreements for temporary purposes in
amounts not exceeding 10% of the value of its total assets and except as
permitted by rule, regulation or order of the Securities and Exchange
Commission. A Fund will not purchase securities while its borrowings
(including reverse repurchase agreements) exceed 5% of its total assets.
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<PAGE> 10
MANAGEMENT OF THE TRUST
Overall responsibility for the management of the Trust and the Funds is vested
in the Board of Trustees of the Trust, who will manage the Trust in accordance
with the laws of Ohio governing business trusts. Individual Trustees are elected
by the shareholders of the Trust and may be removed by the Board of Trustees or
shareholders in accordance with the provisions of the Declaration of Trust and
By-Laws of the Trust and Ohio law. The Board of Trustees elects officers and
contracts with and provides for the compensation of agents, consultants and
other professionals to assist and advise it in the day-to-day operations of the
Trust and the Funds. See "GENERAL INFORMATION--The Trust and Its Shares" below
for further information.
THE ADVISER
Roulston, 4000 Chester Avenue, Cleveland, Ohio 44103, which serves as the
investment adviser for each Fund, is a professional investment management firm
and registered investment adviser that was founded in 1963. Roulston is
controlled, directly and indirectly, by Thomas H. Roulston and members of his
immediate family. As of December 31, 1995, Roulston had discretionary management
authority with respect to approximately $520 million of assets. In addition to
advising the Funds, Roulston provides advisory services to pension plans,
corporations, 401(k) plans, profit sharing plans, individual investors, trusts
and estates.
Roulston serves as the investment adviser for each Fund under an investment
advisory agreement (the "Advisory Agreement") with the Trust. Under the terms of
the Advisory Agreement, Roulston makes the investment decisions for the assets
of the Funds and continuously reviews, supervises and administers the investment
program of the Funds, subject to the supervision of, and policies established
by, the Trustees of the Trust.
Joseph A. Harrison, C.F.A., Executive Vice President and Director of Investments
for Roulston since 1991, and D. Keith Lockyer, Vice President and Portfolio
Manager for Roulston, manage the portfolio of the Government Fund. Prior to
1991, Mr. Harrison was the Director of Portfolio Management for Roulston. Mr.
Harrison also manages the Growth and Income Fund. Norman F. Klopp, C.F.A.,
Executive Vice President of Roulston, manages the portfolio of the Midwest
Growth Fund.
For its services as investment adviser, Roulston receives a fee, which is
calculated daily and paid monthly, at an annual rate of 0.75% of the average
daily net assets of each of the Midwest Growth Fund and the Growth and Income
Fund up to $100 million, and 0.50% of each such Fund's assets of $100 million or
more. With respect to the Government Fund, Roulston receives a fee, which is
calculated daily and paid monthly, at an annual rate of 0.25% of the average
daily net assets of the Government Fund up to $100 million, and .125% of such
assets of $100 million or more.
================================================================================
The Funds' investment adviser, Roulston &
Company, Inc., is a professional investment
management firm founded in 1963.
================================================================================
The advisory fee with respect to the Midwest Growth Fund and the Growth and
Income Fund is higher, in the opinion of the Securities and Exchange Commission
(the "Commission"), than that paid by most investment companies, but Roulston
believes the fee to be comparable to that paid by investment companies with
similar objectives and policies. Roulston has voluntarily agreed, until October
1996, to waive such portion of its advisory fee from the Funds in order to limit
total operating expenses to an annual rate of 1.38% of the Midwest Growth Fund's
average daily net assets, 1.50% of the Growth and Income Fund's average daily
net assets and .90% of the Government Fund's average daily net assets. Such
voluntary fee waivers will cause the yield and total return of a Fund to be
higher than they otherwise would be absent such waivers.
Mr. Scott D. Roulston, President of the Trust, is the president and a director
of both Roulston and the Distributor. Ms. Michele R. Fogarty is Treasurer of the
Trust and Chief Financial Officer of Roulston and the Distributor.
THE DISTRIBUTOR
The Distributor, whose business address is 4000 Chester Avenue, Cleveland, Ohio
44103, is a wholly owned subsidiary of Roulston and has entered into a
distribution agreement with the Trust. Pursuant
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<PAGE> 11
to the Distribution Agreement, the Distributor acts as agent for the Funds in
the distribution of their shares on a continuous basis and, in such capacity,
solicits orders for the sale of shares, advertises and pays the costs and
expenses associated with such advertising. The Distributor receives no
compensation from the Funds for its services under the Distribution Agreement,
but receives compensation under the Trust's Distribution and Shareholder Service
Plan as described below.
THE DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a Distribution
and Shareholder Service Plan (the "Plan"), under which each Fund is authorized
to pay the Distributor, as the Funds' principal underwriter, a periodic amount
calculated at an annual rate not to exceed .25% of the average daily net asset
value of such Fund. Such amount may be used by the Distributor to pay
broker-dealers, banks and other institutions (a "Participating Organization")
for distribution and/or shareholder service assistance pursuant to an agreement
between the Distributor and the Participating Organization or for distribution
assistance and/or shareholder service provided by the Distributor. Under the
Plan, a Participating Organization may include the Distributor and the
Distributor's affiliates.
As authorized by the Plan, the Distributor has agreed to provide certain
shareholder services in connection with shares of the Funds purchased and held
by the Distributor for the accounts of its customers and shares of the Funds
purchased and held by customers of the Distributor directly, including, but not
limited to, answering shareholder questions concerning the Funds, providing
information to shareholders on their investments in the Funds and providing such
personnel and communication equipment as is necessary and appropriate to
accomplish such matters. In consideration of such services the Trust has agreed
to pay the Distributor a monthly fee, computed at the annual rate of .25% of the
average aggregate net asset value of shares held during the period in customer
accounts for which the Distributor has provided services under this Agreement.
Such fees paid by the Trust will be borne solely by the applicable Fund. Such
fee may exceed the actual costs incurred by the Distributor in providing such
services. In addition, the Distributor may enter into, from time to time, other
Rule 12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain shareholder services such as those described above.
THE ADMINISTRATOR, FUND ACCOUNTANT AND
TRANSFER AGENT
Fund/Plan Services, Inc., #2 West Elm Street, Conshohocken, Pennsylvania 19428
("Fund/Plan"), provides each Fund with administrative services, including
regulatory reporting and all necessary office space, equipment, personnel and
facilities, and serves as the transfer agent and dividend disbursing agent and
provides certain fund accounting and custody administration services for each of
the Funds. For its administrative services, Fund/Plan is entitled to receive a
fee from each Fund calculated at an annual rate of 0.15% of the value of such
Fund's first $50 million of total average net assets, 0.10% of the value of such
Fund's next $50 million of total average net assets and 0.05% of the value of
such Fund's total average net assets in excess of $100 million, subject to an
annual minimum fee of $70,000. For its fund accounting services, Fund/Plan is
entitled to receive an annual fee from each Fund equal to $24,000 for such
Fund's first $20 million of average net assets, .04% on such Fund's next $30
million of average net assets, .03% on such Fund's next $50 million of average
net assets and .01% on such Fund's average net assets in excess of $100 million.
CUSTODIAN
UMB Bank, N.A. (the "Custodian") acts as the custodian for each of the Funds.
The Custodian holds cash, securities and other assets of the Funds as required
by the 1940 Act.
HOW SHARES ARE VALUED
The net asset value per share of each Fund is determined by dividing the total
market value of that Fund's investments and other assets, less any liabilities,
by the total outstanding shares of that Fund. Net asset value per share for each
Fund is determined as of the Valuation Time on each Business Day.
The portfolio securities of each Fund will be valued at market value. Each Fund
uses one or more pricing services to provide market quotations for equity,
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<PAGE> 12
fixed income and variable income securities. The pricing service may use a
matrix system of valuation which considers factors such as securities prices,
yield features, call features, ratings and developments related to a specific
security. If market quotations are not available, the securities will be valued
by a method which the Board of Trustees believes accurately reflects fair value.
HOW TO PURCHASE SHARES
You may purchase shares of any Fund directly by mail or by wire on any Business
Day. You will buy shares at the next net asset value computed after the Transfer
Agent or a broker-dealer with whom the Distributor has a sales agreement
receives your order in proper form as described below. An Account Application
form may be obtained by calling 1-800-332-6459 (1-800-3-FAMILY). If a
broker-dealer assists you in the purchase of shares of a Fund, they may charge a
fee for this service in addition to a Fund's public offering price.
================================================================================
The minimal initial investment is $250, and any subsequent purchase must be at
least $50.
================================================================================
The minimum initial investment in any Fund is $250, and any subsequent purchase
must be at least $50. No minimum applies to subsequent purchases effected by
dividend reinvestment. The Distributor may waive minimums at its discretion.
Your purchase order will be effective as of the Business Day received by the
Transfer Agent or a broker-dealer with whom the Distributor has a sales
agreement if the order in proper form and payment is received before the
Valuation Time. Payment may be made by check or readily available funds (e.g.,
by Federal funds wire). Purchases will be made in full and fractional shares of
a Fund calculated to three decimal places. Your account statement from the Trust
will be your record of shares of the Funds owned by you. The Trust will not
issue certificates representing shares of any Fund.
If a check received from you for the purchase of shares does not clear, the
purchase will be canceled, and you could be liable for any losses or fees
incurred, including a $20 returned check fee.
The Trust reserves the right to reject any purchase order when the Trust
determines that it is not in the best interest of the Trust or its shareholders
to accept such order.
PURCHASES BY MAIL
You may open an account by mailing to the Distributor, 4000 Chester Avenue,
Cleveland, Ohio 44103, an account application and a check or other negotiable
bank draft (payable to the name of the appropriate Fund) for $250 or more. For
your initial order to be in good form, your account application must be
completed properly and mailed with your check or other negotiable instrument in
the proper amount.
================================================================================
You may open an account and make
subsequent investments by mail.
================================================================================
Upon review and approval of your application, the Distributor will then forward
your order to the Transfer Agent. For subsequent investments, you may send by
regular U.S. mail your check or other negotiable bank draft (payable to the name
of the appropriate Fund), along with the subsequent investment stub from your
account statement, to Fairport Funds, c/o Fund/Plan Services, Inc., P.O. Box
412797, Kansas City, Missouri 64141-2797. If you wish to send your subsequent
investments by other than regular U.S. mail (e.g., overnight or certified mail),
please send such items directly to the Transfer Agent at #2 West Elm Street,
Conshohocken, Pennsylvania 19428.
PURCHASES BY WIRE
Initial Purchases: Before making an initial investment by wire and for your
order to be in proper form, you must first telephone the Distributor at
1-800-332-6459 (1-800-3-FAMILY) to give the name(s) under which the account is
to be registered, tax identification number and the name of the bank sending
the wire, and to be assigned an account number. You may then purchase Shares by
requesting your bank to transmit immediately available funds by Federal funds
wire to the
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<PAGE> 13
Transfer Agent at: UMB Bank, N.A. ABA #10-10-00695/Attention: Fund/Plan
Services, Inc., A/C 98-7037-071-9/FBO [Fund Name], along with your name and
account number as specified on your account registration. In addition, an
Account Application should be completed with such information and promptly
forwarded to the Transfer Agent at its address set forth above under "Purchases
by Mail."
Subsequent Purchases: You may make additional investments at any time through
the wire procedures described above, which must include your name and account
number, after notifying the Distributor by telephone as noted above. Your bank
may impose a fee for investments by wire.
SYSTEMATIC INVESTMENT PLAN
You may arrange for periodic additional investments in the Funds through
automatic deductions by Automated Clearing House ("ACH") transactions from your
checking or savings account by completing the appropriate section of the Account
Application form. In order to use this Systematic Investment
================================================================================
You may arrange to have additional
investments automatically deducted from your
checking or savings account.
================================================================================
Plan, you must still have an initial purchase of $250 but minimum preauthorized
subsequent investments may be as low as $50 per month. The automatic deductions
may be made on the 10th, 15th or 20th of the month and may be made monthly,
quarterly, semi-annually or annually.
TAX DEFERRED INVESTMENT
The Funds are eligible for investment by tax-deferred retirement programs such
as 401(k) plans and IRAs. The minimum initial investment amount for an account
established under such programs is $250, and subsequent purchases must be at
least $50. All accounts established in a Fund under such programs must elect to
have all dividends reinvested in the Fund. For more information about prototype
401(k) plans and IRAs, please call the Distributor at 1-800-332-6459
(1-800-3-FAMILY).
HOW TO REDEEM SHARES
You may redeem shares by mail by writing to the Transfer Agent at its address
set forth above under "HOW TO PURCHASE SHARES--Purchases by Mail." You may also
redeem shares by telephone by calling the Distributor at 1-800-332-6459
(1-800-3-FAMILY) or by writing to the Distributor at 4000 Chester Avenue,
Cleveland, Ohio 44103. Your redemption request will then be forwarded by the
Distributor to the Transfer Agent. Redemption orders received by the Transfer
Agent prior to the Valuation Time on any Business Day will be effective that
day, and the redemption price of your shares will be the net asset value per
share of that Fund next determined after your redemption order, in proper order,
is received by the Transfer Agent. If a broker-dealer assists you in the
redemption of shares of a Fund, they may charge a fee for this service.
The Trust will make your redemption proceeds available as promptly as possible
and, in any event, within seven days after your redemption order, in proper
order, is received. For your redemption order to be in proper order, your order
must include your name as it appears on your account, your account number and a
signature guarantee as required as described below. However, your redemption
proceeds may be delayed if you purchased the shares to be redeemed by check
(including certified or cashier checks) until such check has cleared and the
Trust has collected good funds for your purchase. Such collection may take 15
days or more. In addition, you may not close your account by telephone. The
Trust intends to pay cash for all shares re-deemed, but under abnormal
conditions which make payment in cash unwise, the Trust may make payment wholly
or partly in portfolio securities at their then market value equal to the
redemption price. In such cases, you generally will incur brokerage costs in
converting such securities to cash.
You may receive your redemption payments in the form of a check, or by Federal
Reserve wire transfer or ACH transfer to the bank account previously designated
by you. Just notify the Transfer Agent in your redemption order of your
preference. There is no charge for having a check for redemption proceeds mailed
or for ACH transfers. The Trust's custodian
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<PAGE> 14
will deduct a wire charge, currently $9, from the amount of a Federal Reserve
wire redemption payment made at your request. You will not be able to redeem
shares of any Fund by Federal Reserve wire on federal holidays restricting wire
transfers. Payment by ACH transfer will not be posted to your bank account until
at least the second Business Day following the transaction.
================================================================================
You may redeem shares by mail or by
telephone at 1-800-332-6459.
================================================================================
The Transfer Agent will require a signature guarantee for (1) any written
redemption request of $25,000 or more; (2) a change in address or payee to where
redemption proceeds may be mailed as shown on your account application; or (3) a
change in the bank account to which redemption payments are made by either
Federal Reserve wire transfer or ACH transfer. You may have your signature
guaranteed by any bank, broker, dealer, credit union, savings and loan
association or other eligible institution as may be designated by the Transfer
Agent from time to time. Notarization of your signature does not constitute a
signature guarantee.
Neither the Trust, the Funds nor the Transfer Agent will be responsible for the
authenticity of the redemption instructions received by telephone if it
reasonably believes those instructions to be genuine. The Trust and the Transfer
Agent will each employ reasonable procedures to confirm that telephone
instructions are genuine, and may be liable for losses resulting from
unauthorized or fraudulent telephone transactions if it does not employ those
procedures. Such procedures may include taping of telephone conversations and
requesting a shareholder to state correctly his or her Fund account number, the
name in which his or her account is registered, his or her social security
number, banking institution bank account number and the name in which his or her
bank account is registered.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed by the Trust during certain periods as set forth more fully
in the Statement of Additional Information. In addition, if the balance of your
account in a Fund falls below $250 because of redemptions by you, the Trust
reserves the right to redeem at net asset value your shares. However, before the
Trust exercises this right, you will be given notice that your account has
fallen below this required minimum amount. You will then be given 60 days to
make an additional investment to meet this required minimum.
SYSTEMATIC WITHDRAWAL PLAN
Each Fund offers a Systematic Withdrawal Plan ("SWP") if you wish to receive
regular distributions from your account in that Fund. However, before you can
utilize the SWP, your account in the Fund must have a current value of $10,000
or more, your dividend and distributions must be automatically reinvested and
your requested distribution must be $100 or more made on a monthly, quarterly,
semi-annual or annual basis.
================================================================================
You can arrange to receive regular distributions from your
account, under certain conditions.
================================================================================
Your automatic payments under the SWP will either be made by check mailed to
your address as shown on the books of the Transfer Agent or via ACH to your bank
account designated on your Account Application form. An application form for the
SWP may be obtained by calling the Distributor at 1-800-332-6459
(1-800-3-FAMILY). You may change or cancel the SWP at any time, upon written
notice to the Transfer Agent at least five days prior to SWP withdrawal date for
which you want such change or cancellation.
Please note that if your redemptions from a Fund exceed your income dividends
from that Fund, your invested principal in the account will decrease. Thus
depending on the frequency and amounts of the withdrawals and/or any
fluctuations in the net asset value per share, your original investment could be
exhausted entirely using the SWP.
EXCHANGES
You may exchange your shares of any Fund for shares of either of the other Funds
at net asset value without the payment of any fee or charge. You may also
exchange your shares of any Fund for shares of Kemper's Cash Account Trust Money
Market Portfolio ("Kemper CAT") at net asset
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<PAGE> 15
value without the payment of any fee or charge. An exchange is considered,
however, a sale of shares and may result in capital gain or loss for federal
income tax purposes. Before an exchange can be made, you must have received the
current prospectus for the Fund or Kemper CAT into which you wish to exchange,
and the exchange privilege may be exercised only in those states where shares of
such Fund or Kemper CAT, as the case may be, may legally be sold. If the
Transfer Agent receives exchange instructions from you in writing or the
Distributor receives such instructions in writing or by telephone in good order
by the Valuation Time on any Business Day, the exchange will be effected that
day. For your exchange request to be in good order, your request must include
your name as it appears on your account, your account number, the amount to be
exchanged, the name of the Funds from which and to which the exchange is to be
made and a signature guarantee as may be required. A written request by you for
an exchange in excess of $25,000 must be accompanied by a signature guarantee as
described above under "HOW TO REDEEM SHARES."
================================================================================
You may exchange your shares of any Fund for
shares of either of the other Funds at net asset
value without the payment of any fee or charge.
================================================================================
The liability of the Trust, the Funds or the Transfer Agent for fraudulent or
unauthorized telephone instructions may be limited as described above under "HOW
TO REDEEM SHARES." The Trust reserves the right to modify or terminate this
exchange offer at any time or from time to time on 60 days' notice.
PERFORMANCE OF THE FUNDS
From time to time, each Fund may advertise its yield and total return. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. No representation can be made regarding future yields or
returns. The yield of a Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the same amount of income generated by the investment during
that period is generated in each 30-day period over one year and is shown as a
percentage of the investment.
The "total return" or "average annual total return" of a Fund reflects the
change in the value of an investment in a Fund over a stated period of time.
Total returns and average annual returns measure both the net investment income
from and any realized or unrealized appreciation or depreciation of a Fund's
holdings for a stated period and assume that the entire investment is redeemed
at the end of each period and the reinvestment of all dividends and capital gain
distributions.
================================================================================
Further information about the performance
of the Funds may be obtained
by calling the Trust at 1-800-332-6459.
================================================================================
The performance of a Fund may periodically be compared with that of other mutual
funds or broad groups of comparable mutual funds tracked by mutual fund rating
services (such as Lipper Analytical Services, Inc.) and financial and business
publications and periodicals. In addition, a Fund's performance may be compared
with unmanaged indices of various investments for which reliable performance
data is available. These may assume investment of dividends but generally do not
reflect deductions for administrative and management costs. The performance of a
Fund may also be compared in various publications to averages, performance
rankings or other information prepared by recognized mutual fund statistical
services. A Fund may quote Morningstar, Inc., a service that ranks mutual funds
on the basis of risk-adjusted performance, or Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the United
States. A Fund may use the long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. A Fund may
also quote financial and business publications and periodicals, such as SMART
MONEY(R), as they relate to Trust management, investment philosophy, and
investment techniques.
A Fund may also quote from time to time various measures of volatility and
benchmark correlations in advertising and may compare these measures with those
of other mutual funds. Measures of volatility attempt to compare historical
share price fluctuations or total returns to a benchmark while
15
<PAGE> 16
measures of benchmark correlation indicate how valid a comparative benchmark
might be. Measures of volatility and correlation are calculated using averages
of historical data and cannot be calculated precisely.
Further information about the performance of the Funds is contained in the
Funds' Annual Report to Shareholders which may be obtained without charge by
calling the Trust at 1-800-332-6459 (1-800-3-FAMILY).
HOW THE FUNDS ARE TAXED
Each Fund is treated as a separate entity for federal income tax purposes and
intends to qualify for the special tax treatment afforded regulated investment
companies as defined under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), for so long as such qualification is in the best interests
of that Fund's shareholders. Qualification as a regulated investment company
under the Code requires, among other things, that a Fund distribute to its
shareholders at least 90% of its investment company taxable income. Each Fund
contemplates declaring as dividends all or substantially all of that Fund's
investment company taxable income (before deduction of dividends paid).
A nondeductible 4% excise tax is imposed on regulated investment companies that
do not distribute in each calendar year (regardless of whether they otherwise
have a noncalendar taxable year) an amount equal to 98% of their ordinary income
for the calendar year plus 98% of their capital gain net income for the one-year
period ending on October 31 of such calendar year. If distributions during a
calendar year were less than the required amount, that Fund would be subject to
a nondeductible 4% excise tax on the deficiency.
DIVIDENDS AND SHAREHOLDER TAXES
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (exclusive of capital gains) of
the Midwest Growth Fund and the Growth and Income Fund is distributed in the
form of semi-annual dividends. For such Funds, shareholders of record on the
next-to-last Business Day of each month in which a dividend is declared will be
entitled to receive the dividend distribution which is generally paid on or
about the 1st Business Day of the following month. Net investment income
(exclusive of capital gains) of the Government Fund is declared daily and
distributed in the form of monthly dividends. If any capital gain is realized by
a Fund, substantially all of it will be distributed at least annually. You will
automatically receive all dividends and capital gain distributions in additional
shares at the net asset value determined on the next Business Day after the
record date, unless you elected to take such payment in cash.
================================================================================
You will automatically receive all dividends
and capital gains distributions in additional shares
unless you elect to take such payments in cash.
================================================================================
You may change your election by providing written notice to the Transfer Agent
at least 15 days prior to the distribution. You have the option to receive
payments for cash distributions in the form of a check or by Federal Reserve
Wire transfer or ACH.
GENERAL TAX INFORMATION
It is expected that each Fund will distribute annually to shareholders all or
substantially all of that Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to you for federal income tax purposes,
even if paid to you in additional shares of the Fund and not in cash. The
dividends-received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends deduction, if any, received by the Fund
bear to its gross income. And, of course, shareholders not subject to tax on
their income will not be required to pay tax on amounts distributed to them.
Since all of the Government Fund's net investment income is expected to be
derived from earned interest and short-term capital gains, it is anticipated
that no part of any distribution from such Fund will be eligible for the
dividends-received deduction for corporations.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to you as long-term capital gain in the year
in which it is received, regardless of how long
16
<PAGE> 17
you have held the shares. Such distributions are not eligible for the
dividends-received deduction.
If the net asset value of a share is reduced below your cost of that share by
the distribution of income or gain realized on the sale of securities, the
distribution, from a practical stand point, is a return of invested principal,
although taxable as described above.
Prior to purchasing shares, you should carefully consider the impact of
dividends or capital gains distributions which are expected to be declared or
have been declared, but have not been paid. Any such dividends or capital gains
distributions paid shortly after a purchase of shares prior to the record date
will have the effect of reducing the per share net asset value of the shares
purchased by you by the amount of the dividends or distributions. All or a
portion of such dividends or distributions, although in effect a return of
capital, is subject to tax.
================================================================================
Prior to purchasing shares, consider the impact of
dividends or capital gains distributions expected
to be declared or declared but not yet paid.
================================================================================
Additional information regarding federal taxes is contained in the Statement of
Additional Information under the heading "TAXES." However, the information
contained in this Prospectus and the additional material in the Statement of
Additional Information are only brief summaries of some of the important tax
considerations generally affecting the Funds and their shareholders.
Accordingly, you are urged to consult your tax adviser concerning the
application of federal, state and local taxes as such laws and regulations
affect your own tax situation.
You will be advised at least annually as to the federal income tax consequences
of distributions made to you during the year.
GENERAL INFORMATION
THE TRUST AND ITS SHARES
The Trust is an open-end management investment company and is organized under
Ohio law as a business trust under a Declaration of Trust dated September 16,
1994. The Trust currently consists of the three Funds, each of which is
diversified and each having its own class of shares. Each share represents an
equal proportional interest in a Fund with other shares of the same Fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Trustees.
When issued, the shares are fully paid, nonassessable and freely transferable.
VOTING RIGHTS
You, as a shareholder, are entitled to one vote for each dollar of value
invested and a proportionate fractional vote for any fraction of a dollar
invested, and will vote in the aggregate with other shareholders of the Trust
and not by Fund except as otherwise expressly required by law. For example,
shareholders of the Midwest Growth Fund will vote in the aggregate with other
shareholders of the Trust with respect to the election of Trustees and
ratification of the selection of independent accountants. However, shareholders
of a Fund will vote as a portfolio, and not in the aggregate with other
shareholders of the Trust, for purposes of approval of amendments to that Fund's
investment advisory agreement or any of that Fund's fundamental policies.
The Trust does not expect to have an annual or special meeting of shareholders
except, under certain circumstances, when the Declaration of Trust, the 1940 Act
or other authority requires such a meeting, such as the election or removal of
Trustees or certain amendments to the Declaration of Trust or the investment
advisory agreement.
The Trust has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request thereof from shareholders holding not less
than 10% of the outstanding votes of the Trust and that the Trust will assist in
communications with other shareholders as required by Section 16(c) of the 1940
Act. At such meeting, a quorum of shareholders (constituting a majority of votes
attributable to all outstanding shares of the Trust), by majority vote, has the
power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding shares" of a Fund means the affirmative
vote, at a meeting of shareholders duly called, of the lesser of (a) 67% or more
of the votes of sharehold-
17
<PAGE> 18
ers of that Fund present at a meeting at which the holders of more than 50% of
the votes attributable to shareholders of record of that Fund are represented in
person or by proxy, or (b) the holders of more than 50% of the outstanding votes
of shareholders of that Fund.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually for each Fund. The Trust also furnishes periodic
reports and, as necessary, proxy statements to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Trust, 4000 Chester Avenue,
Cleveland, Ohio 44103 or by calling 1-800-332-6459 (1-800-3-FAMILY).
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Baker & Hostetler serves as counsel to the Trust. Ernst & Young LLP serves as
the independent public accountants of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND RELATED RISK FACTORS
The following is a description of permitted investments for the Funds:
AMERICAN DEPOSITORY RECEIPTS ("ADRS") -- ADRs are typically issued by a U.S.
financial institution and evidence ownership of underlying securities issued by
a foreign issuer. Sponsored ADRs are a joint arrangement between the foreign
issuer and the depositary. The Growth and Income Fund is permitted to invest in
sponsored ADRs.
COMMERCIAL PAPER --Unsecured short-term promissory notes issued by corporations
and other entities. Maturities on these issues typically vary from a few days to
nine months. All Funds are permitted to invest in commercial paper.
CONVERTIBLE SECURITIES --Securities such as rights, bonds, notes and preferred
stocks which are convertible into or exchangeable for common stocks. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying common
stock.
As a result, a Fund's selection of convertible securities is based, to a great
extent, on the potential for capital appreciation that may exist in the
underlying stock. The value of convertible securities is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions. The Midwest Growth and the Growth and Income Funds are permitted to
invest in convertible securities. As described above, such Funds will invest in
convertible securities based primarily upon Roulston's evaluation of the
underlying common stocks. Roulston may invest up to 5% of such a Fund's net
assets in convertible debt securities which are not investment grade but are
rated not lower than B by an NRSRO. Such noninvestment grade securities are
considered to be high risk securities.
OPTIONS --Each Fund may invest in put and call options for various securities
and securities indices that are traded on national securities exchanges, from
time to time as Roulston deems to be appropriate. Each of the Funds may also
engage in writing call options from time to time as Roulston deems appropriate.
A Fund will write only covered call options (options on securities owned by that
Fund). A put option gives the purchaser of the option the right to sell, and the
writer the obligation to buy, the underlying security at any time during the
option period. A call option gives the purchaser of the option the right to buy,
and the writer of the option the obligation to sell, the underlying security at
any time during the option period. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract.
The Midwest Growth and Growth and Income Funds may invest in options on stocks
and stock indices, while the Government Fund may invest in options on fixed
income securities and fixed income indices. OPTIONS WILL BE USED ONLY FOR
HEDGING PURPOSES AND WILL NOT BE ENGAGED IN FOR SPECULATIVE PURPOSES. Currently,
no Fund anticipates entering into options transactions to the extent that the
aggregate value of portfolio securities subject to options or invested in
options positions will exceed 5% of a Fund's net assets as of the time the Fund
purchases or enters into such options.
For further information regarding a Fund's investment in options, see the
Statement of Additional Information.
18
<PAGE> 19
REPURCHASE AGREEMENTS --Agreements by which a Fund obtains securities from an
established financial institution and simultaneously commits to return the
securities to the seller at an agreed upon price and date. The agreed upon price
of the securities reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the underlying
securities. The Custodian or its agent will hold the security as collateral for
the repurchase agreement. Such collateral must be maintained at all times at a
value at least equal to 102% of the purchase price. A Fund bears a risk of loss
in the event the other party defaults on its obligations and the Fund is delayed
or prevented from exercising its rights with respect to the underlying
securities or if the Fund realizes a loss on the sale of the underlying
securities. Roulston will enter into repurchase agreements on behalf of a Fund
only with financial institutions, including banks and broker-dealers, deemed to
be creditworthy and present minimal risk of bankruptcy during the term of the
agreement based on guidelines established and periodically reviewed by the
Trustees. Repurchase agreements are considered loans by a Fund under the 1940
Act. All Funds are permitted to invest in repurchase agreements.
U.S. GOVERNMENT SECURITIES --U.S. Government direct obligations consist of
bills, notes and bonds issued by the U.S. Treasury and separately traded
interest and principal component parts of such obligations that are transferable
only through the Federal book entry system known as Separately Traded Registered
Interest and Principal Securities ("STRIPs"). All Funds are permitted to invest
in U.S. Government direct obligations, including STRIPs. The Funds intend to
invest in STRIPs that are only traded through the U.S. Government-sponsored
program.
STRIPS are sold as zero coupon securities, that is, fixed income securities that
have been stripped of their unmatured interest coupons. Zero coupon securities
are sold at a (usually substantial) discount and redeemed at face value at their
maturity date without interim cash payments of interest or principal. The amount
of this discount is accreted over the life of the security, and the accretion
constitutes the income earned on the security for both accounting and tax
purposes. Because of these features, the market prices of zero coupon securities
are generally more volatile than the market prices of securities that have a
similar maturity but pay interest periodically. Zero coupon securities are
likely to respond to a greater degree to interest rate changes than are nonzero
coupon securities with similar maturity and credit qualities.
U.S. Government agency securities are issued by certain federal agencies that
have been established as instrumentalities of the U.S. Government to supervise
and finance certain types of activities. Issues of these agencies, while not
direct obligations of the U.S. Government, are either backed by the full faith
and credit of the United States, guaranteed by the Treasury or supported by the
issuing agency's right to borrow from the Treasury or supported only by the
credit of the instrumentality. All Funds are permitted to invest in U.S.
Government agency securities.
VARIABLE AMOUNT MASTER DEMAND NOTES --
Variable amount master demand notes in which the Funds may invest are unsecured
demand notes that permit the indebtedness thereunder to vary and that provide
for periodic adjustments in the interest rate according to the terms of the
instrument. Because master demand notes are direct lending arrangements between
a Fund and the issuer, they are not normally traded. Although there is no
secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by NRSROs,
issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial, and other business concerns) must satisfy the
same criteria as set forth above for commercial paper. Roulston will consider
the earning power, cash flow, and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial status and ability to meet
payment on demand. In determining average weighted portfolio maturity, a
variable amount master demand note will be deemed to have a maturity equal to
the period of time remaining until the principal amount can be recovered from
the issuer through demand. In the event that the period of time remaining until
the principal amount can be recovered under a variable master demand note
exceeds seven days, a Fund will treat such note as illiquid for purposes of its
limitations on investments in illiquid securities.
19
<PAGE> 20
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain of the obligations purchased
by the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature. Such instruments bear interest at
rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period. The Funds intend to invest in variable and floating rate instruments
whose market value upon reset of the interest rate will approximate par value
because their interest rates will be tied to short-term rates. However, there
is a risk that the current interest rate on such obligations may not
accurately reflect existing market rates, and therefore that upon such interest
rate reset, the instrument may decline in value. All Funds are permitted to
invest in variable and floating rate instruments. A demand instrument with a
demand notice exceeding seven days will be considered illiquid if there is no
secondary market for such securities.
WARRANTS --These instruments give holders the right, but not the obligation, to
buy shares of a company at a given price during a specified period. The Midwest
Growth Fund and Growth and Income Fund are permitted to invest in warrants.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS -- These transactions involve the
purchase of securities subject to settlement and delivery beyond the normal
settlement date. The price and yield on these securities is fixed as of the
purchase date, and no interest accrues to the Fund before settlement. These
securities are therefore subject to market fluctuation due to changes in
market interest rates, and, although the purchase of securities on a
when-issued basis is not considered leveraging, it has the effect of leveraging
a Fund's assets. Segregated accounts will be established with the Custodian,
and a Fund will maintain in such account, high quality liquid assets in an
amount at least equal in value to that Fund's commitments to purchase
when-issued securities.
The purchase of securities on a when-issued or delayed-delivery basis involves a
risk of loss if the value of the security to be purchased declines prior to the
settlement date or if the seller fails to complete the transaction and the Fund,
as a result, misses a price or yield considered to be advantageous. Although
each Fund will purchase securities on a when-issued or delayed-delivery basis
only with the intention of actually acquiring securities for its portfolio, a
Fund may dispose of a when-issued security prior to settlement if Roulston deems
it appropriate to do so. No Fund's commitments to purchase when-issued or
delayed-delivery securities will exceed 25% of the value of its total assets.
All Funds may purchase securities on a when-issued or delayed-delivery basis for
investment purposes only and not for leveraging purposes.
INVESTMENT COMPANY SECURITIES --Each Fund may also invest up to 10% of the value
of its total assets in the securities of other investment companies subject to
the limitations set forth in the 1940 Act. Each Fund intends to invest in the
securities of other investment companies to the extent that Roulston believes
that such investment will assist that Fund in meeting its investment objectives
and in money market mutual funds for purposes of short-term cash management. A
Fund's investment in such other investment companies will result in the
duplication of fees and expenses, particularly investment advisory fees. For a
further discussion of the limitations on the Funds' investments in other
investment companies, see "INVESTMENT OBJECTIVES AND POLICIES--Additional
Information on Portfolio Instruments--Securities of Other Investment Companies"
in the Trust's Statement of Additional Information.
20
<PAGE> 21
STATEMENT OF ADDITIONAL INFORMATION
===================================
FAIRPORT MIDWEST GROWTH FUND
(formerly known as Roulston Midwest Growth Fund)
FAIRPORT GROWTH AND INCOME FUND
(formerly known as Roulston Growth and Income Fund)
FAIRPORT GOVERNMENT SECURITIES FUND
(formerly known as Roulston Government Securities Fund)
Three Funds of
FAIRPORT FUNDS
Investment Adviser:
ROULSTON & COMPANY, INC.
This Statement of Additional Information is not a prospectus and
relates to FAIRPORT MIDWEST GROWTH FUND (the "MIDWEST GROWTH FUND"), FAIRPORT
GROWTH AND INCOME FUND (the "GROWTH AND INCOME FUND"), and FAIRPORT GOVERNMENT
SECURITIES FUND (the "GOVERNMENT FUND"). The MIDWEST GROWTH FUND, GROWTH AND
INCOME FUND, and GOVERNMENT FUND are sometimes referred to individually as a
"Fund" and collectively as the "Funds".
The name changes for the Trust and its Funds as noted above were
approved by unanimous vote of the Board of Trustees, in accordance with the
Trust's Declaration of Trust and By-Laws, on February 22, 1996 and will become
effective as of the date hereof.
This Statement of Additional Information is intended to provide
additional information regarding the activities and operations of FAIRPORT FUNDS
(the "Trust") and should be read in conjunction with the Funds' Prospectus dated
March 1, 1996, as supplemented June 7, 1996. The Prospectus may be obtained
through the Trust's Distributor, Roulston Research Corp., 4000 Chester Avenue,
Cleveland, Ohio 44103 (the "Distributor").
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
STATEMENT OF ADDITIONAL INFORMATION OR IN THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ITS
DISTRIBUTOR. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
MARCH 1, 1996
AS SUPPLEMENTED JUNE 7, 1996
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<PAGE> 22
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE TRUST...............................................................................................................B-3
ADDITIONAL INFORMATION ON
PERMITTED INVESTMENTS AND RELATED RISK FACTORS..................................................................... B-4
ADDITIONAL INVESTMENT LIMITATIONS..................................................................................... B-9
MANAGEMENT OF THE TRUST............................................................................................... B-13
PRINCIPAL HOLDERS OF SECURITIES....................................................................................... B-17
INVESTMENT ADVISORY AND OTHER SERVICES................................................................................ B-18
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS...................................................................... B-25
NET ASSET VALUE....................................................................................................... B-28
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........................................................................ B-29
TAXES................................................................................................................. B-29
PERFORMANCE INFORMATION............................................................................................... B-32
OTHER INFORMATION..................................................................................................... B-33
</TABLE>
APPENDIX "A"
------------
DESCRIPTIONS OF SECURITIES RATINGS
APPENDIX "B"
------------
ANNUAL REPORT TO SHAREHOLDERS
OCTOBER 31, 1995
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<PAGE> 23
THE TRUST
---------
FAIRPORT FUNDS (formerly THE ROULSTON FAMILY OF FUNDS) (the "Trust") is
a diversified, open-end management investment company established under Ohio law
as an Ohio business trust under a Declaration of Trust dated September 16, 1994.
On April 28, 1995, pursuant to an Agreement and Plan of Reorganization
and Liquidation with The Advisors' Inner Circle Fund, a Massachusetts business
trust ("Advisors"), FAIRPORT MIDWEST GROWTH FUND (formerly Roulston Midwest
Growth Fund), FAIRPORT GROWTH AND INCOME FUND, (formerly Roulston Growth and
Income Fund) and FAIRPORT GOVERNMENT SECURITIES FUND (formerly Roulston
Government Securities Fund) of the Trust acquired all of the assets of each of
the Roulston Midwest Growth Fund, the Roulston Growth and Income Fund, and the
Roulston Government Securities Fund of Advisors (collectively, the "Acquired
Funds"), respectively, in exchange for the assumption of such Acquired Fund's
liabilities and a number of full and fractional shares of the corresponding Fund
of the Trust having an aggregate net asset value equal to such Acquired Fund's
net assets (the "Reorganization"). The performance and financial information
included in this Statement of Additional Information relates to both the
operations of the Acquired Funds prior to the Reorganization and to the Funds of
the Trust since the Reorganization.
The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest ("shares"). Each share of each Fund represents an
equal proportionate interest in that Fund. See "ADDITIONAL
INFORMATION--Description of Shares" below. This Statement of Additional
Information relates to the Trust's FAIRPORT MIDWEST GROWTH FUND (the "MIDWEST
GROWTH FUND"), FAIRPORT GROWTH AND INCOME FUND (the "GROWTH AND INCOME FUND"),
and FAIRPORT GOVERNMENT SECURITIES FUND (the "GOVERNMENT FUND"). The MIDWEST
GROWTH FUND, GROWTH AND INCOME FUND, and GOVERNMENT FUND are sometimes referred
to individually as a "Fund" and collectively as the "Funds".
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of the Funds.
Capitalized terms not defined herein are defined in the Prospectus. No
investment in shares of a Fund should be made without first reading the
Prospectus.
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<PAGE> 24
ADDITIONAL INFORMATION ON PERMITTED INVESTMENTS
AND RELATED RISK FACTORS
------------------------
BANKERS' ACCEPTANCES
- --------------------
Negotiable bills of exchange or time drafts drawn on and accepted by a
commercial bank, meaning, in effect, that the bank unconditionally agrees to pay
the face value of the instrument on maturity. Banker's acceptances are used by
corporations to finance the shipment and storage of goods and to furnish dollar
exchanges. Maturities are generally six months or less. All Funds are permitted
to invest in bankers' acceptances.
CERTIFICATES OF DEPOSIT
- -----------------------
A negotiable interest bearing instrument with a specific maturity.
Certificates of deposit are issued by U.S. commercial banks and savings and loan
institutions in exchange for the deposit of funds and normally can be traded in
the secondary market prior to maturity. Certificates of deposit generally carry
penalties for early withdrawal. All Funds are permitted to invest in
certificates of deposit.
TIME DEPOSITS
- -------------
A non-negotiable receipt issued by a bank in exchange for the deposit
of funds. Like a certificate of deposit, it earns a specified rate of interest
over a definite period of time; however, it cannot be traded in the secondary
market. Time deposits in excess of seven days with a withdrawal penalty are
considered to be illiquid securities; a Fund will not invest more than 15% of
its net assets in illiquid securities, including such time deposits. All Funds
are permitted to invest in time deposits.
U.S. GOVERNMENT SECURITIES
- --------------------------
The GOVERNMENT FUND may invest in securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. Such agencies and
instrumentalities include the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC"), and the Student Loan Marketing Association
("SLMA"). Obligations of agencies such as GNMA are backed by the full faith and
credit of the U.S. Government. Others, such as the obligations of FNMA, are not
backed by the full faith and credit of the U.S. Government but are supported by
the right of the issuer to borrow from the U.S. Treasury; others, such as those
of SLMA, are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; and still others, such as the Federal Farm
Credit Banks, are supported only by the credit of the agency. No assurance can
be given that the U.S. Government would provide financial assistance to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law.
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<PAGE> 25
Some of these securities are considered to be "mortgage-related
securities" because they represent ownership in a pool of federally insured
mortgage loans with maturities of up to 30 years. However, due to scheduled and
unscheduled principal payments, such securities have a shorter average maturity
and, therefore, less principal volatility than a bond with a comparable
maturity. Since prepayment rates vary widely, it is not possible to accurately
predict the average maturity of a particular pool of mortgages. The scheduled
monthly interest and principal payments relating to mortgages in the pool will
be "passed through" to investors. Such mortgage-related securities differ from
conventional bonds in that principal is paid back to the certificate holders
over the life of the loan rather than at maturity. As a result, there will be
monthly scheduled payments of principal and interest. In addition, there may be
unscheduled principal payments representing prepayments on the underlying
mortgages. Although mortgage-related securities may offer yields higher than
those available from other types of U.S. Government securities, such securities
may be less effective than other types of securities as a means of "locking in"
attractive long-term rates because of the prepayment feature. For instance, when
interest rates decline, the value of a mortgage-related security likely will not
rise as much as comparable debt securities due to the prepayment feature. In
addition, these prepayments can cause the price of a mortgage-related security
originally purchased at a premium to decline in price to its par value, which
may result in a loss. The market value and interest yield of these securities
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.
Each Fund may invest in Separately Traded Interest and Principal
Securities ("STRIPs"), which are component parts of U.S. Treasury securities
traded through the Federal Book-Entry System. Roulston will purchase only those
STRIPs that it determines are liquid or, if illiquid, do not violate the Fund's
investment policy concerning investments in illiquid securities. While there is
no limitation on the percentage of a Fund's assets that may be comprised of
STRIPs, Roulston will monitor the level of such holdings to avoid the risk of
impairing shareholders' redemption rights.
VARIABLE AMOUNT MASTER DEMAND NOTES
- -----------------------------------
Variable amount master demand notes, in which the Funds may invest, are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between a Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time within 30 days. While such notes are not typically
rated by credit rating agencies, issuers of variable amount master demand notes
(which are normally manufacturing, retail, financial and other business
concerns), must satisfy, for purchase by a Fund, the same criteria as set forth
above for commercial paper for such Fund. Roulston will consider the earning
power, cash flow, and other liquidity ratios of the issuers of such notes and
will continuously monitor their financial status and ability to meet payment on
demand. In determining average weighted portfolio maturity, a variable amount
master demand note will be deemed to have a maturity equal to the longer of the
period of time remaining until the next interest rate adjustment or the period
of time remaining until the principal amount can be recovered from the issuer
through demand.
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VARIABLE AND FLOATING RATE NOTES
- --------------------------------
Each Fund may acquire variable and floating rate notes, subject to such
Fund's investment objectives, policies and restrictions. A variable rate note is
one whose terms provide for the adjustment of its interest rate on set dates and
which, upon such adjustment, can reasonably be expected to have a market value
that approximates its par value. A floating rate note is one whose terms provide
for the adjustment of its interest rate whenever a specified interest rate
changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value. Such notes are frequently not rated by
credit rating agencies; however, unrated variable and floating rate notes
purchased by a Fund will be determined by Roulston to be of comparable quality
at the time of purchase to rated instruments eligible for purchase under that
Fund's investment policies. In making such determinations, Roulston will
consider the earning power, cash flow and other liquidity ratios of the issuers
of such notes (such issuers include governmental agencies, and financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate note purchased by a Fund, the
Fund may resell the note at any time to a third party. The absence of an active
secondary market, however, could make it difficult for the Fund to dispose of a
variable or floating rate note in the event the issuer of the note defaulted on
its payment obligations and the Fund could, as a result or for other reasons,
suffer a loss to the extent of the default. To the extent that a Fund is not
entitled to receive the principal amount of a note within seven days and there
is no established market for such note, such a note will be treated as an
illiquid security for purposes of calculation of the 15% limitation on such
Fund's investment in illiquid securities.
REPURCHASE AGREEMENTS
- ---------------------
Securities held by each of the Funds may be subject to repurchase
agreements. Under the terms of a repurchase agreement, a Fund would acquire
securities from member banks of the Federal Reserve System and registered
broker-dealers which Roulston deems creditworthy under guidelines approved by
the Trust's Board of Trustees, subject to the seller's agreement to repurchase
such securities at a mutually agreed-upon date and price. The repurchase price
would generally equal the price paid by the Fund plus interest negotiated on the
basis of current short-term rates, which may be more or less than the rate on
the underlying portfolio securities. The seller under a repurchase agreement
will be required to maintain at all times the value of collateral held pursuant
to the agreement at not less than the repurchase price (including accrued
interest). If the seller were to default on its repurchase obligation or become
insolvent, the Fund would suffer a loss to the extent that the proceeds from a
sale of the underlying portfolio securities were less than the repurchase price
under the agreement, or to the extent that the disposition of such securities by
the Fund were delayed pending court action. Additionally, there is no
controlling legal precedent confirming that the Fund would be entitled, as
against a claim by such seller or its receiver or trustee in bankruptcy, to
retain the underlying securities, although the Board of Trustees of the Trust
believes that, under the regular procedures normally in effect for custody of
the Fund's securities subject to repurchase agreements and under Federal laws, a
court of competent jurisdiction would rule in favor of the Trust if presented
with the question. Securities subject to repurchase agreements will be held by
the Trust's Custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
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FOREIGN INVESTMENT
- ------------------
Investment in foreign securities is subject to special investment risks
that differ in some respects from those related to investments in securities of
U.S. domestic issuers. Since investments in the securities of foreign issuers
may involve currencies of foreign countries, the Fund may be affected favorably
or unfavorably by changes in currency rates and in exchange control regulations
and may incur costs in connection with conversions between various currencies.
Since foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies, there may be less publicly available
information about a foreign company than about a U.S. company. Securities of
many foreign companies are less liquid and more volatile than securities of
comparable U.S. companies.
In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect a Fund's investments
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
The Fund will acquire such securities only when Roulston believes the
risks associated with such investments are minimal.
OPTIONS TRADING
- ---------------
Each of the Funds may purchase put and call options. A call option
gives the purchaser of the option the right to buy, and a writer has the
obligation to sell, the underlying security at the stated exercise price at any
time prior to the expiration of the option, regardless of the market price of
the security. The premium paid to the writer is consideration for undertaking
the obligations under the option contract. A put option gives the purchaser the
right to sell the underlying security at the stated exercise price at any time
prior to the expiration date of the option, regardless of the market price of
the security. Put and call options purchased by the Funds will be valued at the
last sale price, or in the absence of such a price, at the mean between bid and
asked price.
When a Fund writes a call option, an amount equal to the net premium
(the premium less the commission) received by the Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or a loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option is
exercised, the Fund may deliver the underlying security in the open market. In
either event, the proceeds of the sale will be increased by the net premium
originally received and the Fund will realize a gain or loss.
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In addition, when a Fund writes a covered call option and such option
is exercised, that Fund will forego the appreciation, if any, on the underlying
security in excess of the exercise price. In order to close out a call option it
has written, a Fund will enter into a "closing purchase transaction" -- the
purchase of a call option on the same security with the same exercise price and
expiration date as the call option which that Fund previously wrote on any
particular securities. When a portfolio security subject to a call option is
sold, the Fund which wrote the call will effect a closing purchase transaction
to close out any existing call option on that security. There is no assurance of
liquidity in the secondary market for purposes of closing out options positions.
If that Fund is unable to effect a closing purchase transaction, it will not be
able to sell the underlying security until the option expires or such Fund
delivers the underlying security upon exercise.
Although a Fund will engage in option transactions only as hedging
transactions and not for speculative purposes, there are risks associated with
such investment including the following: (i) the success of a hedging strategy
may depend on the ability of the Adviser to predict movements in the prices of
the individual securities, fluctuations in markets and movements in interest
rates; (ii) there may be an imperfect correlation between the changes in market
value of the stocks held by the Fund and the prices of options; (iii) there may
not be a liquid secondary market for options; and (iv) while a Fund will receive
a premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security.
The Funds may also purchase or sell index options. Index options (or
options on securities indices) are similar in many respects to options on
securities except that an index option gives the holder the right to receive,
upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
- -------------------------------------------
As discussed in the Prospectus, each Fund may purchase securities on a
"when-issued" or "delayed-delivery" basis (I.E., for delivery beyond the normal
settlement date at a stated price and yield). When a Fund agrees to purchase
securities on a "when-issued" or "delayed-delivery" basis, such Fund's Custodian
will set aside in a separate account cash or high quality liquid debt securities
equal to the amount of the commitment. Normally, the Custodian will set aside
portfolio securities to satisfy the purchase commitment, and in such a case, the
Fund may be required subsequently to place additional assets in the separate
account in order to assure that the value of the account remains equal to the
amount of such Fund's commitment. It may be expected that a Fund's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. In addition,
because the Fund will set aside cash or high quality liquid debt securities to
satisfy its purchase commitments in the manner described above, such Fund's
liquidity and the ability of Roulston to manage it might be affected in the
event its commitments to purchase "when-issued" or "delayed- delivery"
securities ever exceeded 25% of the value of its assets. Under normal market
conditions, however, a Fund's commitments to purchase "when-issued" or
"delayed-delivery" securities will not exceed 25% of the value of its assets.
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<PAGE> 29
When a Fund engages in "when-issued" or "delayed-delivery"
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in such Fund's incurring a loss or missing the
opportunity to obtain a price considered to be advantageous. A Fund will engage
in "when-issued" or "delayed-delivery" transactions only for the purpose of
acquiring portfolio securities consistent with such Fund's investment objectives
and policies and not for investment leverage.
INVESTMENT COMPANY SHARES
- -------------------------
Each Fund may invest in securities of other investment companies,
including shares of money market mutual funds. Since such funds pay management
fees and other expenses, shareholders of a Fund would indirectly pay both Fund
expenses and the expenses of underlying funds with respect to Fund assets
invested therein. Applicable regulations prohibit a Fund from acquiring the
securities of other investment companies if, as a result of such acquisition,
the Fund owns more than 3% of the total voting stock of the acquired investment
company; more than 5% of the Fund's total assets are invested in securities
issued by any one investment company; or more than 10% of the total assets of
the Fund in the aggregate are invested in securities of investment companies as
a group.
ADDITIONAL INVESTMENT LIMITATIONS
---------------------------------
Each Fund's investment objective is a fundamental policy and may not be
changed without a vote of the holders of a majority of such Fund's outstanding
shares.
FUNDAMENTAL RESTRICTIONS
- ------------------------
The following investment restrictions may be changed with respect to a
Fund only by a vote of the majority of the outstanding Shares of that Fund (as
defined below under "ADDITIONAL INFORMATION - Vote of a Majority of the
Outstanding Shares"). In addition to the investment restrictions set forth in
the Prospectus, each Fund may not:
1. Make loans, except that the Fund may purchase or hold debt instruments
and make time deposits with financial institutions in accordance with
its investment objectives and policies, and the Fund may enter into
repurchase agreements and engage in securities lending, as described in
the Prospectus and this Statement of Additional Information;
2. Purchase or sell real estate (although investment in marketable
securities of issuers which can invest in real estate or engage in such
activities, securities backed or secured by interests in real estate,
institutions that issue mortgages, or real estate investment trusts
which deal in real estate or interests therein are not prohibited by
this restriction);
3. Purchase securities on margin, except that a Fund may obtain short-term
credit as necessary for the clearance of securities transactions and
except as may be necessary to make margin payments in connection with
derivative securities transactions;
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4. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter under Federal securities laws in selling a
portfolio security; and
5. Purchase or sell commodities or commodities contracts (including future
contracts), except to the extent disclosed in the current Prospectus of
the Fund.
NON-FUNDAMENTAL RESTRICTIONS
- ----------------------------
The following additional investment restrictions of the Funds are
non-fundamental and may be changed by the Trust's Board of Trustees without
shareholder approval. A Fund may not:
1. Purchase or otherwise acquire any securities, if as a result, more than
15% of that Fund's net assets would be invested in securities that are
illiquid;
2. Engage in any short sales;
3. Invest more than 10% of its total assets in the securities of issuers
which, together with any predecessors, have a record of less than three
years of continuous operation;
4. Purchase or retain securities of an issuer if an officer, trustee,
partner or director of the Trust or of any investment adviser of the
Fund owns beneficially more than 1/2 of 1% of the shares or securities
of such issuer and all such officers, trustees, partners and directors
owning more than 1/2 of 1% of such shares or securities together own
more than 5% of such shares or securities;
5. Pledge, mortgage or hypothecate assets in excess of one third of the
Fund's total assets;
6. Purchase securities of other investment companies except (a) in
connection with a merger, consolidation, acquisition or
reorganization, and (b) to the extent permitted by the 1940 Act and
the rules and regulations thereunder or pursuant to any exemptions
therefrom;
7. Invest in interests in oil, gas or other mineral exploration or
development programs or in oil, gas or mineral leases; and
8. Invest more than 5% of its net assets in warrants valued at the lower
of cost or market, provided, that included within that amount, but not
to exceed 2% of net assets, may be warrants which are not listed on the
New York or American Stock Exchanges. For purposes of this restriction,
warrants acquired in units or attached to securities are deemed to be
without value.
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If any percentage restriction or requirement described above is
satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in asset value will not constitute a
violation of such restriction or requirement. However, should a change in net
asset value or other external events cause a Fund's investments in illiquid
securities, including repurchase agreements with maturities in excess of seven
days, to exceed the limit set forth above for such Fund's investment in illiquid
securities, the Fund will act to cause the aggregate amount of such securities
to come within such limit as soon as reasonably practicable. In such an event,
however, such Fund would not be required to liquidate any portfolio securities
where the Fund would suffer a loss on the sale of such securities.
None of the Funds currently intends to enter into reverse repurchase
agreements during the current fiscal year.
CALIFORNIA LIMITATIONS
- ----------------------
The Trust, on behalf of each Fund, has also represented to the
California Department of Corporations that (1) in order to comply with
applicable regulations, each Fund will acquire or retain securities of other
open-end management investment companies if such investments are made in
open-end management investment companies sold with no sales commission and such
Fund's Investment Adviser waives its management fee with respect to such
investments, and (2) it will hold a special meeting of shareholders if such
meeting is called by holders of not less than 10% of the shares of the Trust
entitled to vote at such meeting. The Trust intends to comply with these
undertakings for so long as the Funds have their shares registered for sale in
the State of California or such representation is required by the California
Department of Corporations.
OHIO LIMITATIONS
- ----------------
The Trust, on behalf of each Fund, has represented to the Ohio Division
of Securities that each Fund will (1) not invest any of its assets in the
securities of other investment companies, except by purchase in the open market
where no commission or profit to a sponsor or dealer results from the purchase
other than the customary broker's commission, or except when the purchase is
part of a plan of merger, consolidation, reorganization, or acquisition; and (2)
limit its investments to 15% of its total assets in securities of any issuer (a)
which, together with any predecessors, have a record of less than three years
continuous operation or (b) which are restricted as to disposition, including
securities eligible for resale under Rule 144A of the Securities Act of 1933, as
amended (the "Securities Act"). The Trust intends to comply with these
representations with respect to each Fund for so long as the Shares of such Fund
are registered for sale in the State of Ohio.
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<PAGE> 32
NEW MEXICO LIMITATIONS
- ----------------------
The Trust has represented to the Regulation and Licensing Department of
the New Mexico Securities Division that the Trust, on behalf of the MIDWEST
GROWTH FUND and the GROWTH AND INCOME FUND, will acquire and retain the
securities of other open-end investment companies only if such securities are
sold with no sales commission and the Trust's Investment Adviser waives its
investment advisory fee with respect to such investment. The Trust intends to
comply with this undertaking for so long as such Funds have their shares
registered for sale in the State of New Mexico or such representation is
required by the New Mexico Securities Division.
SOUTH DAKOTA LIMITATIONS
- ------------------------
The Trust has represented to the South Dakota Department of Commerce
and Regulation, Division of Securities, that the Trust, on behalf of each Fund,
will not invest more than 5% of a Fund's total assets in securities of issuers,
which together with any predecessors, have a record of less than three years of
continuous operation.
WISCONSIN LIMITATIONS
- ---------------------
The Trust has represented to the Wisconsin Securities Bureau on behalf
of the MIDWEST GROWTH FUND and the GROWTH AND INCOME FUND that each such Fund
(1) will limit to 10% of its total assets its investments in securities of
issuers that the Fund is restricted from selling to the public without
registration under the Securities Act (excluding restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act that have been
determined to be liquid by the Trust's Board of Trustees based upon the trading
markets for such securities), and securities of unseasoned issuers, including
their predecessors and any unconditional guarantor of such issuer, which have
been in operation for less than three years and illiquid equity securities of
issuers, including those securities that are subject to legal or contractual
restrictions on disposition; provided however, that upon appropriately amending
the Funds' prospectus, the Trust reserves the right to increase the 10%
limitation described in this paragraph to 15%; and (2) will limit to 10% of its
total assets its investments in securities of one or more real estate investment
trusts.
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<PAGE> 33
MANAGEMENT OF THE TRUST
-----------------------
TRUSTEES AND OFFICERS OF THE TRUST
- ----------------------------------
The management and affairs of the Trust are supervised by the Trustees
under the laws of the State of Ohio. The Trustees and executive officers of the
Trust and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Each Trustee who is an "interested person" of the Trust, as that term is
defined in the 1940 Act, is indicated by an asterisk. Certain officers of the
Trust also serve as Directors and/or officers of Roulston or the Distributor.
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<PAGE> 34
<TABLE>
<CAPTION>
NAME, BUSINESS POSITIONS(S) HELD PRINCIPAL OCCUPATION(S)
ADDRESS AND AGE WITH THE TRUST DURING PAST FIVE YEARS
======================================= ====================================== =====================================
<S> <C> <C> <C>
* Scott D. Roulston Trustee President and Director of Roulston
4000 Chester Avenue and President & Company, Inc. and Roulston
Cleveland, Ohio 44103 Research Corp.
Age: 38
Thomas V. Chema Trustee Partner, Arter & Hadden
1100 Huntington Building (law firm) since April, 1989; since
Cleveland, Ohio 44115 June 1995, President, Gateway
Consultants Group, Inc. (sports and
Age: 49 related public facilities consulting);
from June 1990, to June, 1995,
Executive Director of Gateway
Economic Development Corp. of
Greater Cleveland (sports and related
facilities public development
company).
David H. Gunning Trustee Chairman, President and Chief
1001 Lakeside Avenue Executive Officer of Capitol
Cleveland, Ohio 44114 American Financial Corporation
(insurance company) since February,
Age: 53 1993; prior thereto, partner of Jones,
Day, Reavis & Pogue (law firm).
Ivan J. Winfield Trustee Associate Professor, Baldwin
30901 Ainsworth Drive Wallace College since 1995; from
Pepperpike, Ohio 44124 1980 to 1994, Managing Partner,
Coopers & Lybrand, Northeast Ohio
Age: 61 (certified public accounting firm).
James A. Yockey Vice President Director of Distribution of Roulston
4000 Chester Avenue Research Corp. since January,
Cleveland, Ohio 44103 1996; From September, 1988 to
January, 1995, Regional Vice
Age: 49 President/Senior Vice President,
Alliance Capital Management
(mutual funds).
</TABLE>
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<PAGE> 35
<TABLE>
<CAPTION>
NAME, BUSINESS POSITIONS(S) HELD PRINCIPAL OCCUPATION(S)
ADDRESS AND AGE WITH THE TRUST DURING PAST FIVE YEARS
======================================= ====================================== ========================================
<S> <C> <C>
Michele R. Fogarty Treasurer Since May 1996, Chief Financial
4000 Chester Avenue Officer of Roulston & Company, Inc. and
Cleveland, Ohio 44103 Roulston Research Corp.; Controller
and Treasurer of Roulston &
Age: 34 Company, Inc. since February, 1996;
January, 1994 to February, 1996,
Vice-President-Accounting & Operations
for Carnegie Capital Management Co.
and Treasurer of Carnegie Funds
Group; prior thereto, Assistant Vice
President and Assistant Treasurer for
Carnegie Capital Management Co.
(financial services/mutual fund
companies).
Kathryn G. Balazs Secretary Since August, 1994, Senior Vice
4000 Chester Avenue President and Director of Mutual
Cleveland, Ohio 44103 Funds Administrations, Roulston
Research Corp.; from February,
Age: 49 1992 to August, 1994, Independent
Brokerage and Insurance Consultant;
from July, 1991, to February, 1992,
Administrative Manager for
Birchfield Homes, Inc. (residential
home builders); prior thereto, Vice
President of American Express
Information Services/The
Shareholder Services Group, Inc.
John P. Norton Assistant Treasurer Since September, 1986, employee of
4000 Chester Avenue Roulston & Company, Inc.
Cleveland, Ohio 44103
Age: 29
Kristin Hay Ives, Esq. Assistant Secretary Partner of the law firm of Baker
Capitol Square, Suite 2100 & Hostetler, counsel to the Trust.
65 East State Street
Columbus, Ohio 43215
Age: 36
</TABLE>
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<PAGE> 36
The Trust pays the fees for unaffiliated Trustees (currently $1,000 per
Board meeting attended and $4,000 per year retainer). The officers and
affiliated Trustee of the Trust receive no compensation for such services, but
as employees of Roulston receive compensation from Roulston.
The following table sets forth information regarding the total
compensation paid by the Trust to its Trustees for their services as Trustees
during the fiscal year ended October 31, 1995. The Trust has no pension or
retirement plans.
COMPENSATION TABLE:
<TABLE>
<CAPTION>
NAME AND POSITION AGGREGATE ESTIMATED TOTAL COMPENSATION
WITH THE TRUST COMPENSATION FROM THE TRUST AND
FROM THE TRUST THE FUND COMPLEX *
======================================= ====================================== ======================================
<S> <C> <C>
Scott D. Roulston,
Chairman $ 0 $ 0
Thomas V. Chema,
Trustee $10,000 $10,000
David H. Gunning,
Trustee $10,000 $10,000
Ivan J. Winfield,
Trustee $10,000 $10,000
</TABLE>
* For purposes of this Table, Fund Complex means one or more mutual
funds, including the Funds, which have a common investment adviser or affiliated
investment advisers or which hold themselves out to the public as being related.
The Funds are currently the only members of their Fund Complex.
As of the date hereof, all Trustees and Officers of the Trust, as a
group, owned fewer than one percent of the shares of each of the Funds.
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<PAGE> 37
PRINCIPAL HOLDERS OF SECURITIES
-------------------------------
Listed below are the names and addresses of those shareholders and
accounts who, as of February 1, 1996, owned 5% or more of the shares of each
Fund.
FAIRPORT MIDWEST GROWTH FUND:
- -----------------------------
<TABLE>
<CAPTION>
Shareholder(s) Percentage Owned
-------------- ----------------
<S> <C>
National City Bank, N.A. 5.28%
TRST Akron Porcelain & Plastics
Profit Sharing Plan
P.O. Box 94777
Cleveland, Ohio 44101
</TABLE>
FAIRPORT GROWTH AND INCOME FUND:
- --------------------------------
<TABLE>
<CAPTION>
Shareholder(s) Percentage Owned
-------------- ----------------
<S> <C>
Thomas H. Roulston II 10.95%
TRST Martha M. Barr Trust
2627 Fairmont Blvd.
Cleveland, Ohio 44106
Liqui Box Corp. EMP PSP 5.29%
William McBee Trustee
c/o The Hampton Company
320 Springside Drive
Suite 350
Akron, Ohio 44333
</TABLE>
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<PAGE> 38
FAIRPORT GOVERNMENT SECURITIES FUND:
- ------------------------------------
<TABLE>
<CAPTION>
Shareholder(s) Percentage Owned
-------------- ----------------
<S> <C>
Thomas H. Roulston II 23.64%
TRST Martha M. Barr Trust
2627 Fairmont Blvd.
Cleveland, Ohio 44106
Liqui Box Corp. EMP PSP 12.68%
William McBee Trustee
c/o The Hampton Company
320 Springside Drive
Suite 350
Akron, Ohio 44333
Charles Schwab & Co., Inc. 6.58%
Special Custody A/C for BNFT CUST
101 Montgomery Street
San Francisco, CA 94104
National City Bank, N.A. 5.83%
TRST Akron Porcelain & Plastics
Profit Sharing Plan
P.O. Box 94777
Cleveland, Ohio 44101
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------
THE INVESTMENT ADVISER
- ----------------------
The Trust and Roulston have entered into an Investment Advisory
Agreement (the "Advisory Agreement") dated as of January 20, 1995. Pursuant to
the Advisory Agreement, Roulston has agreed to provide investment advisory
services to the Funds as described in the Prospectus. Prior subsequent to the
effective date of the Reorganization, the Advisory Agreement will be approved by
the initial shareholder of each Fund.
The Advisory Agreement provides that if, for any fiscal year, the ratio
of expenses of any Fund (including amounts payable to Roulston but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by any state in which the shares of such Fund
are registered, Roulston will bear the amount of such excess. Roulston will not
be required to bear expenses of the Fund to an extent which would result in a
Fund's inability to qualify as a regulated investment company under provisions
of the Internal Revenue Code of 1986, as amended (the "Code").
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<PAGE> 39
Unless sooner terminated, the Advisory Agreement with respect to a Fund
continues in effect until January 20, 1997, and thereafter continues for
successive one-year periods ending January 20 of each year if such continuance
is approved at least annually by the Trust's Board of Trustees or by vote of a
majority of the outstanding shares of that Fund (as defined under "ADDITIONAL
INFORMATION -- Vote of a Majority of the Outstanding Shares" below), and a
majority of the Trustees who are not parties to the Advisory Agreement or
interested persons (as defined in the 1940 Act) of any party to the Advisory
Agreement by votes cast in person at a meeting called for such purpose. The
Advisory Agreement is terminable as to a Fund at any time on 60 days' written
notice without penalty by the Trustees, by vote of a majority of the outstanding
shares of that Fund, or by Roulston. The Advisory Agreement also terminates
automatically in the event of any assignment, as defined in the 1940 Act.
The Advisory Agreement provides that Roulston shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance by Roulston of its obligations under the
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or negligence on the part of Roulston in the
performance of its duties, or from negligent disregard by Roulston of its duties
and obligations thereunder. Roulston from time to time may defray certain of the
administrative costs of retirement accounts in connection with such accounts'
investment in the Funds and may also pay certain costs associated with the
distribution of the Funds' shares. Such costs will not be borne by the Funds.
For the fiscal period of November 1, 1994 through October 31, 1995,
Roulston earned and voluntarily waived the amounts indicated below with respect
to its investment advisory services to the Funds, including advisory services
provided to the Acquired Funds during the first six months of such period.
<TABLE>
<CAPTION>
GROSS ADVISORY NET
FUND ADVISORY FEES ADVISORY
FEES EARNED WAIVED FEES RECEIVED
=========================================== =================== ================= ================
<S> <C> <C> <C>
MIDWEST GROWTH FUND $341,934 $61,126 $280,808
GROWTH AND INCOME FUND $175,714 $58,630 $117,084
GOVERNMENT SECURITIES FUND $29,634 $29,634 $0
TOTALS $547,282 $149,390 $397,892
</TABLE>
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<PAGE> 40
Roulston earned and waived the following fees for investment advisory
services provided to the Acquired Funds during the fiscal period of November 1,
1993 to October 31, 1994:
<TABLE>
<CAPTION>
GROSS ADVISORY NET
FUND ADVISORY FEES ADVISORY
FEES EARNED WAIVED FEES RECEIVED
================================================= =================== =================== =====================
<S> <C> <C> <C>
MIDWEST GROWTH FUND $188,000 $16,000 $172,000
GROWTH AND INCOME FUND $127,000 $28,000 $99,000
GOVERNMENT SECURITIES FUND $32,000 $32,000 $0
TOTALS $347,000 $76,000 $271,000
</TABLE>
Roulston earned and waived the following fees for investment advisory
services provided to the Acquired Funds during the fiscal period of July 1, 1993
(commencement of operations) to October 31, 1993:
<TABLE>
<CAPTION>
GROSS ADVISORY NET
FUND ADVISORY FEES ADVISORY
FEES EARNED WAIVED FEES RECEIVED
================================================= =================== =================== =====================
<S> <C> <C> <C>
MIDWEST GROWTH FUND $23,000 $23,000 $0
GROWTH AND INCOME FUND $24,000 $24,000 $0
GOVERNMENT SECURITIES FUND $9,000 $9,000 $0
TOTALS $56,000 $56,000 $0
</TABLE>
Roulston has licensed the name "Fairport" to the Trust on a
royalty-free basis, and Roulston has reserved to itself the right to grant the
non-exclusive right to use the name "Fairport" to any other person.
THE ADMINISTRATOR
- -----------------
The Trust and Fund/Plan Services, Inc. ("Fund/Plan"), the
Administrator, #2 West Elm Street, Conshohocken, Pennsylvania 19428, have
entered into an administration agreement dated January 20, 1995 (the
"Administration Agreement"). The Administration Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust in connection with the matters to which the
Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Administrator in
the performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. The Administration Agreement shall remain in effect for
a period of two years after its effective date and shall continue in effect for
successive periods of two years unless terminated by either party on not less
than 180 days' prior written notice to the other party.
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<PAGE> 41
The Administrator assists in supervising all operations of each Fund
(other than those performed by Roulston under the Advisory Agreement, by UMB
Bank, N.A. under the Custodian Agreement and by the Administrator under the
Accounting Services Agreement, the Transfer Agent Services Agreement and the
Custody Administration and Agency Agreement).
Under the Administration Agreement, the Administrator has agreed to
furnish statistical and research data, clerical, and certain bookkeeping
services; prepare the periodic reports to the Securities and Exchange Commission
(the "Commission") on Form N-SAR or any replacement forms therefor; prepare
compliance filings pursuant to state securities laws with the advice of the
Trust's counsel; assist to the extent requested by the Trust with the Trust's
preparation of its Annual and Semi-Annual Reports to Shareholders and its
Registration Statement (on Form N-1A or any replacement therefor); compile data
for, prepare and file timely Notices to the Commission required pursuant to Rule
24f-2 under the 1940 Act; keep and maintain the financial accounts and records
of each Fund, including calculation of daily expense accruals; and generally
assist in all aspects of the Funds' operations other than those performed by
Roulston under the Advisory Agreement, by UMB Bank, N.A. under the Custodian
Agreement and by the Administrator under the Accounting Services Agreement, the
Transfer Agent Services Agreement and the Custody Administration and Agency
Agreement.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement
equal to a fee, calculated daily and paid monthly, at the annual rate, subject
to a $70,000 minimum annual fee, calculated as follows:
.15% On the First $50 Million of Total Average Net Assets; .10% On the
Next $50 Million of Total Average Net Assets; and .05% Of Total Average
Net Assets in Excess of $100 Million of Average Net Assets.
The Administrator also receives certain out-of-pocket expenses.
For the fiscal period of May 1, 1995 through October 31, 1995, the
Administrator earned the following amounts with respect to administrative
services provided to the Funds:
<TABLE>
<CAPTION>
ADMINISTRATIVE
FUND FEES PAID
TO FUND/PLAN
============================================== =========================
<S> <C>
MIDWEST GROWTH FUND $33,600
GROWTH AND INCOME FUND $16,895
GOVERNMENT SECURITIES FUND $7,516
TOTAL $58,011
</TABLE>
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<PAGE> 42
TRANSFER AGENT AND FUND ACCOUNTANT
- ----------------------------------
The Trust has entered into a Transfer Agent Services Agreement dated as
of January 20, 1995 (the "Transfer Agent Agreement"), with Fund/Plan (the
"Transfer Agent"), pursuant to which Fund/Plan has agreed to act as the transfer
and dividend disbursing agent for each Fund. Pursuant to the Transfer Agent
Agreement, the Transfer Agent, among other things, performs the following
services in connection with each Fund's shareholders of record: maintenance of
shareholder records for each of the Trust's shareholders of record; processing
shareholder purchase, redemption and exchange orders; processing transfers of
shares of the Trust on the shareholder files and records; processing dividend
payments and reinvestments; generating account statements; and assistance in the
mailing of shareholder reports and proxy solicitation materials.
In addition, the Transfer Agent provides certain fund accounting
services to each of the Funds pursuant to an Accounting Services Agreement dated
as of January 20, 1995. Such services include maintaining the accounting books
and records for each Fund, including journals containing an itemized daily
record of all purchases and sales of portfolio securities, all receipts and
disbursements of cash and all other debits and credits, general and auxiliary
ledgers reflecting all asset, liability, reserve, capital, income and expense
accounts, including interest accrued and interest received, and other required
separate ledger accounts; maintaining a monthly trial balance of all ledger
accounts; performing certain accounting services for each Fund, including
calculation of the net asset value per share, calculation of the dividend and
capital gain distributions, if any, and of yield, reconciliation of cash
movements with such Fund's Custodian, affirmation to that Fund's Custodian of
all portfolio trades and cash settlements, verification and reconciliation with
that Fund's Custodian of all daily trade activity; providing certain reports;
obtaining dealer quotations, prices from a pricing service or matrix prices on
all portfolio securities in order to mark the portfolio to the market; and
preparing an interim balance sheet, statement of income and expense, and
statement of changes in net assets for each Fund. In consideration for such
services, each Fund has agreed to pay the Transfer Agent a fee, computed daily
and paid periodically, at an annual rate calculated as follows:
$24,000 Minimum to $20 Million of Average Net Assets; .04% On the Next
$30 Million of Average Net Assets; .03% On the Next $50 Million of
Average Net Assets; .01% Over $100 Million of Average Net Assets.
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<PAGE> 43
THE DISTRIBUTOR
- ---------------
Roulston Research Corp. (the "Distributor"), a wholly owned subsidiary
of Roulston, and the Trust are parties to a distribution agreement dated January
20, 1995 amended as of June 3, 1996 (the "Distribution Agreement"). The
Distributor will receive no compensation under the Distribution Agreement for
distribution of shares of the Funds, but will receive payments under the Trust's
Distribution and Shareholder Service Plan and Agreement described below.
The Distribution Agreement shall remain in effect until January 20,
1997, and thereafter continues for successive one-year periods if approved at
least annually (i) by the Trust's Board of Trustees or by the vote of a majority
of the outstanding shares of the Trust, and (ii) by the vote of a majority of
the Trustees of the Trust who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement may be terminated in the event of any
assignment, as defined in the 1940 Act.
In its capacity as Distributor, the Distributor solicits orders for the
sale of shares, advertises and pays the costs of advertising, office space and
the personnel involved in such activities.
DISTRIBUTION AND SHAREHOLDERS SERVICE PLAN
- ------------------------------------------
As described in the Prospectus, the Trust has adopted a Distribution
and Shareholder Service Plan and Agreement (the "Plan") pursuant to Rule 12b-1
under the 1940 Act under which each Fund is authorized to pay the Distributor
for payments it makes to broker-dealers, banks and other institutions
(collectively, "Participating Organizations") for providing distribution or
shareholder service assistance or for distribution assistance and/or shareholder
service provided by the Distributor. Payments to such Participating
Organizations may be made pursuant to agreements entered into with the
Distributor. The Plan authorizes each Fund to make payments to the Distributor
in an amount not in excess, on an annual basis, of 0.25% of the average daily
net asset value of that Fund.
As required by Rule 12b-1, the Plan was approved by the initial sole
shareholder of each Fund and by the Board of Trustees, including a majority of
the Trustees who are not interested persons of that Fund and who have no direct
or indirect financial interest in the operation of the Plan (the "Independent
Trustees"). The Plan may be terminated as to a Fund by vote of a majority of the
Independent Trustees, or by vote of majority of the outstanding shares of that
Fund. Any change in the Plan that would materially increase the distribution
cost to a Fund requires shareholder approval. The Trustees review quarterly a
written report of such costs and the purposes for which such costs have been
incurred. The Plan may be amended by vote of the Trustees, including a majority
of the Independent Trustees, cast in person at a meeting called for that
purpose. For so long as the Plan is in effect, selection and nomination of those
Trustees who are not interested persons of the Trust shall be committed to the
discretion of such disinterested persons. All agreements with any person
relating to the implementation of the Plan with respect to a Fund may be
terminated at any time on 60 days' written notice without payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of the
majority of the outstanding shares of such Fund.
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<PAGE> 44
The Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees, and (ii) by a vote of a majority of the
entire Board of Trustees cast in person at a meeting called for that purpose.
The Board of Trustees has a duty to request and evaluate such information as may
be reasonably necessary for them to make an informed determination of whether
the Plan should be implemented or continued. In addition the Trustees in
approving the Plan must determine that there is a reasonable likelihood that the
Plan will benefit the Funds and their shareholders.
The Board of Trustees of the Trust believes that the Plan is in the
best interests of the Funds since it encourages Fund growth and retention of
Fund assets. As a Fund grows in size, certain expenses, and therefore total
expenses per share, may be reduced and overall performance per share may be
improved.
As authorized by the Plan, the Distributor has agreed to provide
certain shareholder services in connection with shares purchased and held by the
Distributor for the accounts of its customers and shares purchased and held by
customers of the Distributor directly, including, but not limited to, answering
shareholder questions concerning the Funds, providing information to
shareholders on their investments in the Funds and providing such personnel and
communication equipment as is necessary and appropriate to accomplish such
matters. In consideration of such services the Trust, on behalf of each Fund,
has agreed to pay the Distributor a monthly fee, computed at the annual rate of
.25% of the average aggregate net asset value of shares of that Fund held during
the period in customer accounts for which the Distributor has provided services
under the Plan. For the fiscal period from May 1, 1995 through October 31, 1995,
such fees totaled $96,650. The amounts incurred with respect to each Fund during
such period are set forth below:
<TABLE>
<CAPTION>
AMOUNTS
FUND INCURRED
PURSUANT
TO 12B-1 PLAN
============================================== =========================
<S> <C>
MIDWEST GROWTH FUND $58,561
GROWTH AND INCOME FUND $27,717
GOVERNMENT SECURITIES FUND $10,372
TOTAL $96,650
</TABLE>
In addition, the Distributor may enter into, from time to time, Rule
12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain shareholder services including, but not limited to, those
discussed above.
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<PAGE> 45
THE CUSTODIAN
- -------------
UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri 64141, has been
selected to serve as the Funds' Custodian pursuant to the Custody Agreement
dated January 20, 1995. In such capacity the Custodian will hold or arrange for
the holding of all portfolio securities and other assets of the Funds.
LEGAL COUNSEL AND INDEPENDENT AUDITORS
- --------------------------------------
Baker & Hostetler, 65 East State Street, Columbus, Ohio 43215, is
counsel to the Trust and will pass upon the legality of the shares offered
thereby. The Trust has selected Ernst & Young LLP, 1300 Huntington Building, 925
Euclid Avenue, Cleveland, Ohio 44115-1405, as independent auditors for the
Funds. The financial statements for the Funds at and for the fiscal year ended
October 31, 1995, appearing as Appendix "B" in this Statement of Additional
Information have been audited by Ernst & Young LLP as set forth in their report
attached thereto and are included in reliance upon such report and on the
authority of such firm as experts in auditing and accounting.
EXPENSES
- --------
If total expenses borne by any of the Funds in any fiscal year exceed
expense limitations imposed by applicable state securities regulations, Roulston
will reimburse that Fund by the amount of such excess. As of the date of this
Statement of Additional Information, the most restrictive expense limitation
applicable to the Funds limits each Fund's aggregate annual expenses, including
management and advisory fees but excluding interest, taxes, brokerage
commissions and certain other expenses, to 2 1/2% of the first $30 million of a
Fund's average net assets, 2% of the next $70 million of such Fund's average net
assets, and 1 1/2% of such Fund's remaining average net assets. Any expense
reimbursements will be estimated daily and reconciled and paid on a monthly
basis. Fees imposed upon customer accounts by Roulston or its affiliates for
brokerage or other cash management services would not be included within Fund
expenses for purposes of any such expense limitation.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
------------------------------------------------
PORTFOLIO TRANSACTIONS
- ----------------------
Roulston is authorized to select brokers and dealers to effect
securities transactions for the Funds. Roulston will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of executions, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While Roulston generally seeks reasonably
competitive spreads or commissions, a Fund will not necessarily be paying the
lowest spread or commission available. Roulston seeks to select brokers or
dealers that offer a Fund best price and execution or other services which are
of benefit to the Fund.
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<PAGE> 46
BROKERAGE COMMISSIONS
- ---------------------
Roulston may, consistent with the interests of the Funds, select
brokers on the basis of the research services they provide to Roulston. Such
services may include analyses of the business or prospects of a company,
industry or economic sector, or statistical and pricing services. Information so
received by Roulston will be in addition to and not in lieu of the services
required to be performed by Roulston under the Advisory Agreement. If, in the
judgment of Roulston, a Fund or other accounts managed by Roulston will be
benefitted by supplemental research services, Roulston is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of Roulston
will not necessarily be reduced as a result of the receipt of such supplemental
information, such services may not be used exclusively, or at all, with respect
to the Fund or account generating the brokerage, and there can be no guarantee
that Roulston will find all of such services of value in advising the Funds.
Under the provisions of the 1940 Act, the Securities Exchange Act of
1934 and the rules thereunder the Distributor is permitted to receive and retain
compensation for effecting portfolio transactions for a Fund on an exchange if
written procedures approved by the Trust's Board of Trustees are in effect
expressly permitting the Distributor to receive and retain such compensation.
The Trustees, including those who are not "interested persons" of the Trust,
have adopted procedures for evaluating the reasonableness of commissions paid to
the Distributor and will review these procedures periodically. The rules of the
Commission and such procedures require that commissions paid to the Distributor
by a Fund for exchange transactions not exceed "usual and customary" brokerage
commissions. "Usual and customary" commissions are defined to include amounts
which are "reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time." Since the Funds'
inception, the Distributor had so effected portfolio transactions for the Funds;
however, it is not expected that the Distributor will do so after the date
hereof. In addition, a Fund may direct commission business to one or more
designated broker/dealers in connection with such broker/dealer's payment of
certain of a Fund's or the Trust's expenses.
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<PAGE> 47
Since the Reorganization, for the fiscal period of May 1, 1995 through
October 31, 1995, brokerage commissions paid by the Trust on behalf of the Funds
amounted to $71,140. The total brokerage commissions attributable to each Fund
are set forth below.
<TABLE>
<CAPTION>
5/01/95
FUND TO
10/31/95
======================================== ====================
<S> <C>
MIDWEST GROWTH FUND $63,257
GROWTH AND INCOME FUND $7,883
GOVERNMENT SECURITIES FUND $0,000
TOTALS $71,140*
</TABLE>
* Of this amount, $68,731 was paid to Roulston Research Corp. ("RRC"), an
affiliate of Roulston, which represents 97% of the total commissions
paid by the Trust to all brokers through whom trades were placed during
the period. In addition, 96% of the Trust's aggregate dollar amount of
transactions were effected through RRC.
Prior to the Reorganization, the Trust paid the following brokerage
commissions on behalf of the Funds during the period shown:
<TABLE>
<CAPTION>
7/01/93 11/01/93 11/01/94
FUND TO TO TO
10/31/93 10/31/94 4/30/95
======================================== ================= ================= ================
<S> <C> <C> <C>
MIDWEST GROWTH FUND $4,106 $83,351 $78,378
GROWTH AND INCOME FUND $4,004 $12,948 $6,877
GOVERNMENT SECURITIES FUND $0,000 $0,0000 $0,000
TOTALS $8,110 $96,299 $85,255
</TABLE>
It is not the Funds' practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, Roulston may place portfolio orders with qualified
broker/dealers who recommend such Funds' shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker/dealers.
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<PAGE> 48
PORTFOLIO TURNOVER
- ------------------
The portfolio turnover rate for each Trust is calculated by dividing
the lesser of that Fund's purchases or sales of portfolio securities for the
year by the monthly average value of the portfolio securities. The calculation
excludes all securities whose remaining maturities at the time of acquisition
were one year or less.
The portfolio turnover rates for the fiscal years ended October 31,
1995 and 1994, for the MIDWEST GROWTH FUND were 46.51% and 77.57%, respectively;
for the GROWTH AND INCOME FUND were 13.36% and 35.16%, respectively; and for the
GOVERNMENT FUND were 1.28% and 24.14%, respectively. The portfolio turnover rate
for a Fund may vary greatly from year to year as well as within a particular
year, and may also be affected by cash requirements for redemptions of Shares.
Portfolio turnover will not be a limiting factor in making investment decisions.
NET ASSET VALUE
---------------
As indicated in the Prospectus, the net asset value of each Fund is
determined and the shares of each Fund are priced as of the earlier of 4:00
p.m., Eastern Time, or the time the New York Stock Exchange (the "Exchange")
closes, on each Business Day. A "Business Day" is any day the Exchange is open
for business. Currently the Exchange is closed in observance of the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
Equity securities which are listed or admitted to trading on a national
securities exchange will be valued at the last sales price on the exchange on
which the security is principally traded. Equity securities for which there is
no sale on that day and equity securities traded only in the over-the-counter
market will be valued at their closing bid prices obtained from one or more
dealers making markets for such securities or, if market quotations are not
readily available, at their fair values a determined in good faith by the Board
of Trustees.
Valuations of fixed and variable income securities ("debt securities")
are supplied by independent pricing services used by Fund/Plan, as
administrator, which have been approved by the Trustees of the Trust. Valuations
are based upon a consideration of yields or prices of obligations of comparable
quality, coupon, maturity and type, indications at to value from recognized
dealers, and general market conditions. The pricing services may use electronic
data processing techniques and/or a computerized matrix system to determine
valuations. Debt securities for which market quotations are readily available
are valued based upon those quotations. The procedures used by the pricing
service are reviewed by the officers of the Trust under the general supervision
of the Trustees. The Trustees may deviate from the valuation provided by the
pricing service whenever, in their judgment, such valuation is not indicative of
the fair value of the debt security. In such instances the debt security will be
valued at fair value as determined in good faith by or under the direction of
the Trustees.
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<PAGE> 49
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
The Funds' shares may be purchased at the public offering price, which
is the net asset value next computed, and are sold on a continuous basis through
the Distributor, principal underwriter of the Funds' shares, at its address and
number set forth above, and through other broker-dealers who are members of the
National Association of Securities Dealers, Inc.
The Trust may suspend the right of redemption or postpone the date of
payment for shares during any period when (a) trading on the Exchange is
restricted by applicable rules and regulations of the Commission, (b) the
Exchange is closed for other than customary weekend and holiday closings, (c)
the Commission has by order permitted such suspension, or (d) an emergency
exists as a result of which (i) disposal by the Trust of securities owned by it
is not reasonably practical or (ii) it is not reasonably practical for the Trust
to determine the fair value of its net assets.
TAXES
-----
Each Fund intends to qualify as a "regulated investment company" under
the Code for so long as such qualification is in the best interest of that
Fund's shareholders. In order to qualify as a regulated investment company, a
Fund must, among other things: derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other dispo sition of securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; derive less than 30% of its gross income from the
sale or other disposition of stock, securities, options, future contracts or
foreign currencies held less than three months; and diversify its investments
within certain prescribed limits. In addition, to utilize the tax provisions
specially applicable to regulated investment companies, a Fund must distribute
to its shareholders at least 90% of its investment company taxable income for
the year. In general, a Fund's investment company taxable income will be its
taxable income subject to certain adjustments and excluding the excess of any
net long-term capital gain for the taxable year over the net short-term capital
loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, such
Fund would be subject to a non-deductible excise tax equal to 4% of the
deficiency.
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<PAGE> 50
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if for
any taxable year a Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
Federal tax at regular corporate rates (without any deduction for distributions
to its shareholders). In such event, dividend distributions would be taxable to
shareholders to the extent of earnings and profits, and would be eligible for
the dividends received deduction for corporations.
It is expected that each Fund will distribute annually to shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for Federal income
tax purposes, even if paid in additional shares of the Fund and not in cash.
Distribution by a Fund of the excess of net long-term capital gain over
net short-term capital loss is taxable to shareholders as long-term capital gain
in the year in which it is received, regardless of how long the shareholder has
held the shares. Such distributions are not eligible for the dividends-received
deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be in excess
of 39.6%, because adjustments reduce or eliminate the benefit of the personal
exemption and itemized deductions for individuals with gross income in excess of
certain threshold amounts.
Capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on long-term capital gains
of individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss each
year to offset ordinary income. Excess net capital loss may be carried forward
to future years.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's Federal taxable income in excess of $15 million is subject to an
additional tax equal to 3% of taxable income over $15 million, but not more than
$100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.
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Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by that
Fund for its taxable year that qualifies for the dividends received deduction.
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities. Since less than 50% in value of
any one Fund's total assets at the end of its fiscal year are expected to be
invested in stocks or securities of foreign corporations, such Fund will not be
entitled under the Code to pass through to its shareholders their pro-rata share
of the foreign taxes paid by the Fund. These taxes will be taken as a deduction
by such Fund.
Each Fund may be required by Federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
paid to any shareholder, and the proceeds of redemption or the values of any
exchanges of shares of a Fund, if such shareholder (1) fails to furnish the
Trust with a correct tax identification number, (2) under-reports dividend or
interest income, or (3) fails to certify to the Fund that he or she is not
subject to such withholding. An individual's taxpayer identification number is
his or her Social Security Number.
Information set forth in the Prospectus and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of shares of a Fund. No attempt has been made to present a detailed explanation
of the Federal income tax treatment of a Fund or its shareholders and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation. In addition,
the tax discussion in the Prospectus and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the date
of the Prospectus and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action. As of the
date hereof, several proposals have been introduced by the 104th Congress which,
if enacted, could affect much of the information contained in this section.
However, it is not possible at this time to assess which, if any, of such
proposals will be acted upon and the effect thereof, if any, on this
information.
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PERFORMANCE INFORMATION
-----------------------
YIELD
- -----
As summarized in the Prospectus under the heading "PERFORMANCE OF THE
FUNDS," the yield of a Fund will be computed by annualizing net investment
income per share for a recent 30-day period and dividing that amount by a
share's maximum offering price (reduced by any undeclared earned income expected
to be paid shortly as a dividend) on the last trading day of that period. Net
investment income will reflect amortization of any market value premium or
discount of fixed income securities (except for obligations backed by mortgages
or other assets) and may include recognition of a pro rata portion of the stated
dividend rate of dividend paying portfolio securities. The yield of a Fund will
vary from time to time depending upon market conditions, the composition of the
Fund's portfolio and operating expenses of the Trust allocated to the Fund.
These factors and possible differences in the methods used in calculating yield
should be considered when comparing a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of a Fund's shares and to the
relative risks associated with the investment objective and policies of such
Fund.
For the 30-day period ended October 31, 1995, the yields for FAIRPORT
MIDWEST GROWTH FUND, FAIRPORT GROWTH AND INCOME FUND and FAIRPORT GOVERNMENT
SECURITIES FUND were 0.21%, 1.19%, and 4.99%, respectively.
CALCULATION OF TOTAL RETURN
- ---------------------------
Each quotation of average annual total return will be computed by
finding the average annual compounded rate of return over that period which
would equate the value of an initial amount of $1,000 invested in a Fund equal
to the ending redeemable value, according to the following formula:
P(T + 1)n = ERV
Where: P = a hypothetical initial payment of $1,000, T = average annual
total return, n = number of years, and ERV = ending redeemable value of a
hypothetical $1,000 payment at the beginning of the period at the end of the
period for which average annual total return is being calculated assuming a
complete redemption. The calculation of average annual total return assumes the
deduction of the maximum sales charge, if any, from the initial investment of
$1,000, assumes the reinvestment of all dividends and distributions at the price
stated in the then effective Prospectus on the reinvestment dates during the
period and includes all recurring fees that are charged to all Shareholder
accounts assuming such Fund's average account size. Aggregate total return is a
measure of change in value of an investment in a Fund over the relevant period
and is calculated similarly to average annual total return except that the
result is not annualized.
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For the one year period ended October 31, 1995, and the period from
July 1, 1993 (commencement of operations) through October 31, 1995, the average
annual total returns for the Funds were as follows:
<TABLE>
<CAPTION>
7/01/93 11/01/94
FUND TO TO
10/31/95 10/31/95
================================================ =================== ====================
<S> <C> <C>
MIDWEST GROWTH FUND 17.34% 18.17%
GROWTH AND INCOME FUND 11.07% 17.36%
GOVERNMENT SECURITIES FUND 4.03% 14.76%
</TABLE>
At any time in the future, yields and total return may be higher or
lower than past yields and total return and there can be no assurance that any
historical results will continue. Investors in the Funds are specifically
advised that Share prices, expressed as the net asset values per share, will
vary just as yields and total return will vary.
PERFORMANCE COMPARISONS
- -----------------------
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. and Ibbotson Associates of Chicago, Illinois. Comparison may
also be made to indices or data published in various financial and business
publications and periodicals. In addition to performance information, general
information about the Funds that appears in a publication such as those
mentioned above may be included in advertisements and in reports to
shareholders.
OTHER INFORMATION
-----------------
DESCRIPTION OF SHARES
- ---------------------
The Trust is an Ohio business trust. The Trust was organized on
September 16, 1994, and the Trust's Declaration of Trust was filed with the
Secretary of State of Ohio on September 19, 1994. The Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares, which
are units of beneficial interest, without par value. The Trust presently has
three series of shares, which represent interests in the Funds. The Trust's
Declaration of Trust authorizes the Board of Trustees to divide or redivide any
unissued shares of the Trust into one or more additional series by setting or
changing in any one or more respects their respective preferences, conversion or
other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
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Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, a Fund's shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Trust,
shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Fund, of any general assets not
belonging to any particular Fund which are available for distribution. As used
in the Prospectus and in this Statement of Additional Information, "assets
belonging to a Fund" means the consideration received by a Fund upon the
issuance or sale of shares in that Fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
asset of the Trust not readily identified as belonging to a particular Fund that
is allocated to the Fund by the Trust's Board of Trustees. The Board of Trustees
may allocate such general assets in any manner it deems fair and equitable.
Determinations by the Board of Trustees of the Trust as to the timing of the
allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to the Funds are
conclusive.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a series will be required in
connection with a matter, a series will be deemed to be affected by a matter
unless it is clear that the interests of each series in the matter are
identical, or that the matter does not affect any interest of the series. Under
Rule 18f-2, the approval of any amendment to the Advisory Agreement or any
change in investment policy submitted to shareholders would be effectively acted
upon with respect to a series only if approved by a majority of the outstanding
shares of such series. However, Rule 18f-2 also provides that the ratification
of independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
shareholders of the Trust voting without regard to series.
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
- --------------------------------------------
As used in the Prospectus and this Statement of Additional Information,
"vote of a majority of the outstanding shares" of the Trust or a Fund, means the
affirmative vote, at an annual or special meeting of shareholders duly called,
of the lesser of (a) 67% or more of the votes of shareholders of the Trust or
that Fund present at such meeting at which the holders of more than 50% of the
votes attributable to the shareholders of record of the Trust or that Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of shareholders of the Trust or such Fund.
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<PAGE> 55
MISCELLANEOUS
- -------------
Individual Trustees are elected by the shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals. Generally,
shareholders owning not less than 20% of the outstanding shares of the Trust
entitled to vote may cause the Trustees to call a special meeting. However, the
Trust has represented to the Commission that the Trustees will call a special
meeting for the purpose of considering the removal of one or more Trustees upon
written request therefor from shareholders owning not less than 10% of the
outstanding votes of the Trust entitled to vote and that the Trust will assist
in communications with other shareholders as required by ss.16(c) of the 1940
Act. At such a meeting, a quorum of shareholders (constituting a majority of
votes attributable to all outstanding shares of the Trust), by majority vote,
has the power to remove one or more Trustees.
The Trust is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of the Trust.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
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<PAGE> 56
APPENDIX "A"
RATINGS OF SECURITIES
---------------------
COMMERCIAL PAPER RATINGS
STANDARD & POOR'S CORPORATION:
Commercial paper ratings of Standard & Poor's Corporation ("S&P") are current
assessments of the likelihood of timely payment of debts having original
maturities of no more than 365 days. Commercial paper rated "A-1" by S&P
indicates that the degree of safety regarding timely payment is either
overwhelming or very strong. Those issues determined to possess overwhelming
safety characteristics are denoted "A-1+." Commercial paper rated "A-2" by S&P
indicates that capacity for timely payment on issues is strong. However, the
relative degree of safety is not as high as for issues designated "A-1."
MOODY'S INVESTORS SERVICE, INC.:
The rating "Prime-1" is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated "Prime-2" (or
related supporting institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of "Prime-1" rated issuers, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variations.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.
FITCH INVESTORS SERVICE, INC.:
Commercial paper rated "F-1" by Fitch Investors Service, Inc. ("Fitch") is
regarded as having the strongest degree of assurance for timely payments.
Commercial paper rated "F-2" by Fitch is regarded as having an assurance of
timely payment only slightly less than the strongest rating, i.e., "F-1." The
plus (+) sign is used after a rating symbol to designate the relative position
of an issuer within the rating category.
CORPORATE DEBT RATINGS
----------------------
STANDARD & POOR'S CORPORATION:
An S&P corporate debt rating is a current assessment of the creditworthiness of
an obligor with respect to a specific obligation. Debt rated "AAA" has the
highest rating assigned by S&P. Capacity to pay interest and repay principal is
extremely strong. Debt rated "AA" has a very strong capacity to pay interest and
to repay principal and differs from the highest rated issues only in small
degree. Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories. Debt
rated "BBB" is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing
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circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Debt
rated "BB" and "B" is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal.
"BB" indicates the least degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Debt rated "BB" has less
near-term vulnerability to default than other speculative issues. However, it
faces major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BBB" rating.
Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
MOODY'S INVESTORS SERVICE, INC.:
The following summarizes the six highest ratings used by Moody's for corporate
debt. Bonds that are rated "Aaa" by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
that are rated "Aa" are judged to be of high quality by all standards. Together
with the "Aaa" group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in "Aaa" securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in "Aaa" securities. Bonds that
are rated "A" by Moody's possess many favorable investment attributes and are to
be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future. Bonds that
are rated "Baa" by Moody's are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds that are rated "Ba" are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bond
which are rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small. Moody's applies
numerical modifiers (1, 2, and 3) with respect to bonds rated "Aa" through "B."
The modifier 1 indicates that the bond being rated ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the bond ranks in the lower end of its generic
rating category.
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DUFF:
The following summarizes the six highest long-term debt ratings by Duff. Debt
rated "AAA" has the highest credit quality. The risk factors are negligible
being only slightly more than for risk-free U.S. Treasury debt. Debt rated "AA"
has a high credit quality and protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions. Debt rated
"A" has protection factors that are average but adequate. However, risk factors
are more variable and greater in periods of economic stress. Debt rated "BBB"
has below average protection factors but is still considered sufficient for
prudent investment. However, there is considerable variability in risk during
economic cycles. Debt rated "BB" is below investment-grade but deemed likely to
meet obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category. Debt rated "B" is below
investment-grade and possesses risk that obligations will not be met when due.
Financial protection factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists for frequent
changes in the rating within this category or into a higher or lower rating
grade. To provide more detailed indications of credit quality, the ratings from
"AA" to "B" may be modified by the addition of a plus (+) or minus (-) sign to
show relative standing within this major rating category.
FITCH:
The following summarizes the six highest long-term debt ratings by Fitch (except
for "AAA" ratings, plus(+) or minus (-) signs are used with a rating symbol to
indicate the relative position of the credit within the rating category). Bonds
rated "AAA" are considered to be investment-grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated "AA" are considered to be investment-grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated "F-1+." Bonds rated as "A" are considered to be investment-grade and of
high credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Bonds
rated "BBB" are considered to be investment-grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore,
impair timely payment. The likelihood that the ratings for these bonds will fall
below investment-grade is higher than for bonds with higher ratings. Bonds rated
"BB" are considered speculative. The obligor's ability to pay interest and repay
principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements. Bonds rated "B" are
considered highly speculative. While bonds in this class are currently meeting
debt service requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of safety and the
need for reasonable business and economic activity throughout the life of the
issue.
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IBCA:
The following summarizes IBCA's six highest long-term debt ratings. Obligations
rated "AAA" are those for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations rated "AA" are
those for which there is a very low expectation of investment risk. Capacity for
timely repayment of principal and interest is substantial. Adverse changes in
business, economic, or financial conditions may increase investment risk albeit
not very significantly. Obligations rated "A" are those for which there is a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk. Obligations rated "BBB" are
those for which there is currently a low expectation of investment risk.
Capacity for timely repayment of principal and interest is adequate, although
adverse changes in business, economic, or financial conditions are more likely
to lead to increased investment risk than for obligations in other categories.
Obligations rated "BB" are those for which there is a possibility of investment
risk developing. Capacity for timely repayment of principal and interest exists,
but is susceptible over time to adverse changes in business, economic or
financial conditions. Obligations rated "B" are those for which investment risk
exists. Timely repayment of principal and interest is not sufficiently protected
against adverse changes in business, economic or financial conditions.
THOMPSON:
The following summarizes Thomson's description of its six highest long-term debt
ratings (Thomson may include a plus (+) or minus (-) designation to indicate
where within the respective category the issue is placed). "AAA" is the highest
category and indicates that the ability to repay principal and interest on a
timely basis is very high. "AA" is the second highest category and indicates a
superior ability to repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category. "A" is the third
highest category and indicates the ability to repay principal and interest is
strong. Issues rated "A" could be more vulnerable to adverse developments (both
internal and external) than obligations with higher ratings. "BBB" is the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings. While not investment-grade, the "BB" rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations. Issuer rated "B" show a higher degree of uncertainty
and therefore greater likelihood of default that higher rated issuers. Adverse
developments could well negatively affect the payment of interest and principal
on a timely basis.
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<PAGE> 60
APPENDIX "B"
-----------------
ANNUAL REPORT TO SHAREHOLDERS
-----------------
FISCAL YEAR ENDED
OCTOBER 31, 1995
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<PAGE> 61
THE ROULSTON FAMILY OF FUNDS
ANNUAL REPORT
November 27, 1995
Dear Shareholder,
We are pleased to issue the financial report on The Roulston Family of Funds
for the year ended October 31, 1995.
During this fiscal year, both equity funds, the Roulston Midwest Growth Fund
and the Roulston Growth and Income Fund, as well as the Roulston Government
Securities Fund provided positive returns. The Roulston Midwest Growth Fund
gained 18.17% during the period and the Roulston Growth and Income Fund gained
17.36%. These returns were earned during a period when the market, as measured
by the Standard & Poor's 500 Stock Index, gained by 26.38%. The Roulston
Government Securities Fund gained 14.76% during the period while the Lehman
Brothers Intermediate Treasury Bond Index increased by 11.75%.
In the commentary that follows on each of the Funds, you will note a common
theme that has long been a landmark of our investment management. Research is
the cornerstone of our investment process. Our research efforts for The Roulston
Family of Funds gives us confidence in the future of the economy and the
portfolios we manage on your behalf.
Sincerely,
/s/ Scott D. Roulston /s/ Joseph A. Harrison
-------------------------- ---------------------------
Scott D. Roulston Joseph A. Harrison
President Director of Investments
<PAGE> 62
THE ROULSTON FAMILY OF FUNDS -- INVESTMENT ADVISERS REPORT
- --------------------------------------------------------------------------------
ECONOMIC TRENDS AND OUTLOOK
During the year ended October 31, 1995, economic activity slowed in response
to the monetary restraint imposed by the Federal Reserve during the preceding
year. Most measures of economic activity are posting slower growth rates than
the year before, but are continuing to grow. Capital spending and export growth
remain the driving engines of this expansion.
Continued efforts to reduce costs, bolstered by strong profits, inject this
capital spending cycle with an element of stability and longevity that is
reassuring. Slower growth overseas has put some pressure on our exports, but
growth remains strong reflecting the favorable competitive position of U.S.
manufacturing and service industries. Continued efforts to improve productivity
offer the promise that export growth will remain a driver for the domestic
economy.
Consumer and public sector spending will remain the restraining elements on
the economy. Overall economic growth approaching 3% with inflation under control
should provide a favorable setting for both the bond and stock markets.
ROULSTON MIDWEST GROWTH FUND
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
The graph below compares the increase in value of a $10,000 investment in
Roulston Midwest Growth Fund with the performance of the Standard & Poor's 500
Stock and Lipper Growth Fund Indices.
<TABLE>
ROULSTON MIDWEST GROWTH FUND
(Assuming $10,000 invested at inception)
Past performance is not indicative of future results.
<CAPTION>
Period
7/1/93 7/93 10/93 1/94 4/94 7/94 10/94 1/95 4/95 7/95 10/95
------ ---- ----- ---- ---- ---- ----- ---- ---- ---- -----
VALUE (In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Roulston Midwest Growth Fund $10,000 $10,200 $11,090 $11,730 $11,847 $11,796 $12,298 $12,222 $13,327 $14,950 $14,532
Standard & Poor's 500 Stock Index 10,000 9,970 10,480 10,862 10,241 10,482 10,880 10,914 12,019 13,207 13,750
Lipper Growth Fund Index 10,000 9,988 10,653 11,088 10,479 10,457 10,871 10,587 11,631 13,127 13,478
</TABLE>
<TABLE>
<CAPTION>
Average Annual
Total Return
- ---------------------
Since
One Year Inception
- -------- ---------
<S> <C>
18.17% 17.34%
</TABLE>
2
<PAGE> 63
THE ROULSTON FAMILY OF FUNDS -- INVESTMENT ADVISERS REPORT
- --------------------------------------------------------------------------------
The Fund was established to achieve capital appreciation through the
investment in equity securities of companies that are headquartered in the eight
state area contiguous to the Great Lakes.
Investment decisions are driven by intense and continuous fundamental
research. This research focus attempts to uncover a combination of internal and
external change at a company that presents an unusual appreciation potential.
While the Fund's objective is growth, investments are not limited to growth
stocks. We seek opportunities in a broad spectrum of investments from
traditional growth companies to highly cyclical companies.
Some examples include:
R.G. BARRY
This highly successful consumer marketing company known primarily for its
Dearfoam slippers, is developing a variety of new products such as Pyrex
Portables using its new proprietary heat retention technology.
NATIONAL AUTO CREDIT
The company is undergoing a complete change from an insurance car rental
company (Agency Rent-A-Car) to a used car finance company.
ACME CLEVELAND
The sale of the traditional machine and cutting tool business combined with
an aggressive expansion of the telecommunications and industrial test and
control equipment businesses are drastically changing the nature of this
company.
Divergent demand trends and margin pressures should put even greater
emphasis on a research driven stock selection process in the year ahead. The
Midwest secular trends of increased productivity, global competitiveness and
strong demand, and continuing manufacturing and service diversity should
continue to present investment opportunities.
3
<PAGE> 64
THE ROULSTON FAMILY OF FUNDS -- INVESTMENT ADVISERS REPORT
- --------------------------------------------------------------------------------
ROULSTON GROWTH AND INCOME FUND
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
The graph below compares the increase in value of a $10,000 investment in
Roulston Growth and Income Fund with the performance of the Standard & Poor's
500 Stock and Lipper Growth & Income Fund Indices.
<TABLE>
ROULSTON GROWTH AND INCOME FUND
(Assuming $10,000 invested at inception)
Past performance is not indicative of future results.
<CAPTION>
Period
7/1/93 7/93 10/93 1/94 4/94 7/94 10/94 1/95 4/95 7/95 10/95
------ ---- ----- ---- ---- ---- ----- ---- ---- ---- -----
VALUE (In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Roulston Growth & Income Fund $10,000 $10,030 $10,398 $10,894 $10,682 $10,900 $10,889 $10,940 $11,746 $12,541 $12,780
Standard & Poor's 500 Stock Index 10,000 9,970 10,480 10,862 10,241 10,482 10,880 10,914 12,019 13,207 13,750
Lipper Growth & Income Fund Index 10,000 10,054 10,606 11,051 10,478 10,677 10,941 10,778 11,759 12,799 13,125
</TABLE>
<TABLE>
<CAPTION>
Average Annual
Total Return
- -----------------------
Since
One Year Inception
- ------------------------
<S> <C>
17.36% 11.07%
</TABLE>
The Fund was established to achieve capital appreciation and current income
primarily through investment in common stocks or securities convertible into
common stocks.
The investment policy is to invest in a diversified portfolio of dividend
paying common stocks which have been researched by our own staff and offer
reasonable valuation based on the ratio of price to earnings, book value and
cash flow.
Our investment strategy is to seek out companies that meet the demanding
fundamental analysis of our research staff. Visits with management, suppliers,
customers, distributors and unions are among the sources utilized by our
analysts to form judgments about the outlook for each company. The results of
this analysis are joined with rigorous valuation for each investment in the
portfolio.
Two industrial companies that typify our investment approach are TRW and
Johnson Controls. Both companies are reasonably valued by the marketplace,
reflecting their reliance on the automotive industry
4
<PAGE> 65
THE ROULSTON FAMILY OF FUNDS -- INVESTMENT ADVISERS REPORT
- --------------------------------------------------------------------------------
for a substantial portion of their earnings. Yet, each company has established
itself as an innovative low cost producer able to sustain strong earnings in a
difficult automotive environment.
Currently the Fund is diversified among thirty-seven investments
representing most sectors of our economy. Based on our broad based research
effort we continue to be impressed with the favorable outlook for well-managed
companies that have taken the requisite action to improve profitability.
Conversations with a broad cross section of managements point to continued
strong earnings domestically. A strong relative competitive position for U.S.
manufacturers enhance the earnings outlook for many companies. We will continue
to seek out those companies that present a favorable earnings outlook at prices
that offer a good value.
ROULSTON GOVERNMENT SECURITIES FUND
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
The graph below compares the increase in value of a $10,000 investment in
Roulston Government Securities Fund with the performance of the Lehman Brothers
Intermediate Treasury Bond Index.
<TABLE>
ROULSTON GOVERNMENT SECURITIES FUND
(Assuming $10,000 invested at inception)
Past performance is not indicative of future results.
<CAPTION>
Period
7/1/93 7/93 10/93 1/94 4/94 7/94 10/94 1/95 4/95 7/95 10/95
------ ---- ----- ---- ---- ---- ----- ---- ---- ---- -----
VALUE (In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Roulston Government Securities Fund 10,000 10,000 10,304 10,346 9,649 9,748 9,558 9,733 10,170 10,628 10,968
Lehman Brothers Intermediate Treasury 10,000 10,019 10,236 10,328 9,972 10,118 10,067 10,215 10,588 10,963 11,249
Bond Index
</TABLE>
<TABLE>
<CAPTION>
Average Annual
Total Return
- -----------------------
Since
One Year Inception
- ------------------------
<S> <C>
14.76% 4.03%
</TABLE>
<PAGE> 66
THE ROULSTON FAMILY OF FUNDS -- INVESTMENT ADVISERS REPORT
- --------------------------------------------------------------------------------
In order to meet its objective of current income with preservation of
capital, the Fund seeks to minimize credit risk by investment in securities
issued directly by the U.S. Government. Because changes in interest rates affect
the value of the Fund's holdings, investment in issues maturing in less than ten
years are the primary focus of the portfolio.
During this past year bond prices recovered from the violent reaction of the
preceding year. This return to lower interest rates was occasioned by slower
economic growth and a calming of inflation fears. It has been nearly thirty
years since we have enjoyed four consecutive years with inflation at 3.0% or
less. Our outlook calls for continued moderate growth and low inflation. This
should provide a favorable environment for the bond market.
REORGANIZATION
On April 29, 1995, pursuant to an Agreement and Plan of Reorganization and
Liquidation, the Midwest Growth Fund, the Growth and Income Fund and the
Government Fund of The Roulston Family of Funds (the "Trust") acquired in a tax
free reorganization, all of the assets of each of the Midwest Growth Fund, the
Growth and Income Fund and the Government Fund (collectively, the "Acquired
Funds") of the Advisors' Inner Circle Fund, a Massachusetts business trust,
respectively, in exchange for the assumption of such Acquired Fund's liabilities
and a number of full and fractional shares of the corresponding Fund of the
Trust having an aggregate net asset value equal to such Acquired Fund's net
assets (the "Reorganization"). The Reorganization was approved by the
shareholders of the Acquired Funds in a Special Meeting held on March 24, 1995.
The results of the vote were as follows:
<TABLE>
<CAPTION>
BROKER
FOR (000) AGAINST (000) ABSTAIN (000) NON-VOTES (000)
--------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Midwest Growth Fund........... 1,506 41 42 0
Growth and Income Fund........ 1,279 13 25 0
Government Fund............... 715 4 2 0
</TABLE>
6
<PAGE> 67
THE ROULSTON FAMILY OF FUNDS -- SCHEDULE OF INVESTMENTS October 31, 1995
- --------------------------------------------------------------------------------
ROULSTON MIDWEST GROWTH FUND
<TABLE>
<CAPTION>
SHARES VALUE (000)
-------------- --------------
<S> <C> <C>
COMMON STOCKS - 93.97%
CAPITAL GOODS - 15.09%
Acme-Cleveland Corp. .......................................... 91,300 $ 1,997
AMP, Inc. ..................................................... 36,700 1,440
Nordson Corp. ................................................. 24,700 1,426
Park Ohio Industries, Inc. *................................... 100,509 1,382
Trinova Corp. ................................................. 43,000 1,209
--------------
7,454
--------------
CONSUMER DURABLES - 14.15%
Cooper Tire & Rubber Co. ...................................... 55,000 1,272
Federal-Mogul Corp. ........................................... 67,000 1,198
Masco Corp. ................................................... 42,000 1,181
Owens-Corning Fiberglas Corp.*................................. 29,700 1,259
Royal Appliance Manufacturing Co.*............................. 300,000 937
Varity Corp. New*.............................................. 31,600 1,146
--------------
6,993
--------------
CONSUMER NON-DURABLES - 24.05%
American Greetings Corp. Class A............................... 42,000 1,323
Barry (R.G.) Corp.*............................................ 106,667 2,027
Consolidated Stores Corp.*..................................... 54,700 1,265
Dean Foods Co. ................................................ 44,000 1,227
Fays Drug, Inc. ............................................... 175,400 1,403
Revco D.S., Inc. New*.......................................... 66,600 1,582
Rite Aid Corp. ................................................ 55,000 1,485
Universal Foods Corp. ......................................... 40,500 1,387
Worthington Foods, Inc. ....................................... 11,000 184
--------------
11,883
--------------
ENERGY - 2.85%
Belden & Blake Corp.*.......................................... 97,100 1,409
--------------
FINANCE - 9.35%
National Auto Credit, Inc.*.................................... 120,000 1,950
Norwest Corp. ................................................. 39,800 1,174
Star Banc Corp. ............................................... 27,000 1,495
--------------
4,619
--------------
MATERIALS/SERVICES - 22.10%
Armco, Inc. ................................................... 188,000 1,152
Bearings, Inc. Ohio............................................ 52,500 1,903
Duriron Co., Inc. ............................................. 55,800 1,493
Figgie International, Inc. Class A*............................ 180,000 2,160
Libbey, Inc. .................................................. 48,100 986
OHM Corp.*..................................................... 140,000 1,138
Premier Industrial Corp. ...................................... 37,000 920
Worthington Industries, Inc. .................................. 70,083 1,165
--------------
10,917
--------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 68
THE ROULSTON FAMILY OF FUNDS -- SCHEDULE OF INVESTMENTS October 31, 1995
- --------------------------------------------------------------------------------
ROULSTON MIDWEST GROWTH FUND (continued)
<TABLE>
<CAPTION>
SHARES VALUE (000)
-------------- --------------
<S> <C> <C>
COMMON STOCKS - (CONTINUED)
TECHNOLOGY - 6.38%
Diebold, Inc. ................................................. 27,000 $ 1,431
Telxon Corp. .................................................. 74,400 1,721
--------------
3,152
--------------
TOTAL COMMON STOCKS - (COST $40,091,616)....................... 46,427
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT - 6.40% AMOUNT
--------------
<S> <C> <C>
United Missouri Bank, U.S. Treasury Note, $3,202,000 par, 7.50%
coupon, due 02/29/96, dated 10/31/95, to be sold on 11/01/95
at $3,166,466................................................ $3,166,000 3,166
--------------
TOTAL INVESTMENTS - 100.37% (COST $43,257,616#)................ 49,593
--------------
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS - (0.37%)....... (185)
--------------
NET ASSETS - 100.00%........................................... $ 49,408
==============
<FN>
- ---------------
* Non-income producing security.
# Also represents cost for Federal income tax purposes.
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 69
THE ROULSTON FAMILY OF FUNDS -- SCHEDULE OF INVESTMENTS October 31, 1995
- --------------------------------------------------------------------------------
ROULSTON GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
SHARES VALUE (000)
-------------- --------------
<S> <C> <C>
COMMON STOCKS - 97.87%
CAPITAL GOODS - 11.12%
Boeing Co. .................................................... 7,000 $ 459
Emerson Electric Co. .......................................... 10,000 713
General Electric Co. .......................................... 11,000 696
Johnson Controls, Inc. ........................................ 12,000 699
--------------
2,567
--------------
CONSUMER DURABLES - 13.96%
Cooper Tire & Rubber Co. ...................................... 25,000 578
Leggett & Platt, Inc. ......................................... 28,000 672
Masco Corp. ................................................... 24,000 675
Sherwin-Williams Co. .......................................... 17,000 640
TRW, Inc. ..................................................... 10,000 657
--------------
3,222
--------------
CONSUMER NON-DURABLES - 34.97%
American Greetings Corp. Class A............................... 22,000 693
Banta Corp. ................................................... 18,000 779
Baxter International, Inc. .................................... 10,000 386
Beckman Instruments, Inc. ..................................... 20,000 663
Dean Foods Co. ................................................ 20,000 557
Dial Corp. .................................................... 26,000 634
Hanson PLC ADR................................................. 25,000 388
Mallinckrodt Group, Inc. ...................................... 18,000 625
McGraw-Hill, Inc. ............................................. 3,700 303
Melville Corp. ................................................ 18,000 576
Proctor & Gamble Co. .......................................... 8,000 648
Rite Aid Corp. ................................................ 26,000 702
Sara Lee Corp. ................................................ 24,000 705
Universal Foods Corp. ......................................... 12,000 411
--------------
8,070
--------------
ENERGY - 8.46%
Exxon Corp. ................................................... 8,000 611
Royal Dutch Petroleum Co. ..................................... 4,000 492
Williams Companies, Inc. ...................................... 22,000 850
--------------
1,953
--------------
FINANCE - 7.72%
American International Group, Inc. ............................ 6,750 569
Keycorp........................................................ 15,000 506
Norwest Corp. ................................................. 24,000 708
--------------
1,783
--------------
MATERIALS/SERVICES - 11.58%
Great Lakes Chemical Corp. .................................... 10,000 671
Hanna (M.A.) Co. .............................................. 13,500 346
Ogden Corp. ................................................... 20,000 455
Teleflex, Inc. ................................................ 15,000 636
Worthington Industries, Inc. .................................. 34,000 565
--------------
2,673
--------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 70
THE ROULSTON FAMILY OF FUNDS -- SCHEDULE OF INVESTMENTS October 31, 1995
- --------------------------------------------------------------------------------
ROULSTON GROWTH AND INCOME FUND (continued)
<TABLE>
<CAPTION>
SHARES VALUE (000)
-------------- --------------
<S> <C> <C>
COMMON STOCKS - (CONTINUED)
TECHNOLOGY - 3.52%
Harris Corp. .................................................. 14,000 $ 813
--------------
UTILITIES - 6.54%
AT & T Corp. .................................................. 12,000 768
GTE Corp. ..................................................... 18,000 742
--------------
1,510
--------------
TOTAL COMMON STOCKS - (COST $19,389,312)....................... 22,591
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT - 2.73% AMOUNT
--------------
<S> <C> <C>
United Missouri Bank, U.S. Treasury Note, $636,000 par, 7.50%
coupon, due 02/29/96, dated 10/31/95, to be sold on 11/01/95
at $629,093.................................................. $ 629,000 629
--------------
TOTAL INVESTMENTS - 100.60% (COST $20,018,312#)................ 23,220
--------------
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS - (0.60%)....... (138)
--------------
NET ASSETS - 100.00%........................................... $ 23,082
============
- ---------------
<FN>
# Also represents cost for Federal income tax purposes.
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 71
THE ROULSTON FAMILY OF FUNDS -- SCHEDULE OF INVESTMENTS October 31, 1995
- --------------------------------------------------------------------------------
ROULSTON GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE (000)
---------- -----------
<S> <C> <C>
U.S. TREASURY NOTES - 98.20%
U.S. TREASURY NOTES
5.500%, 09/30/97............................................ $ 550,000 $ 549
5.125%, 06/30/98............................................ 750,000 740
6.875%, 08/31/99............................................ 1,800,000 1,866
5.500%, 04/15/00............................................ 2,000,000 1,979
6.250%, 02/15/03............................................ 1,450,000 1,475
5.750%, 08/15/03............................................ 700,000 691
5.875%, 02/15/04............................................ 1,200,000 1,191
-----------
TOTAL U.S. TREASURY NOTES - (COST $8,487,061)................... 8,491
-----------
REPURCHASE AGREEMENT - 0.58%
United Missouri Bank, U.S. Treasury Note, $51,000 par, 7.50%
coupon, due 02/29/96, dated 10/31/95, to be sold on 11/01/95
at $50,007.................................................. 50,000 50
-----------
TOTAL INVESTMENTS - 98.78% (COST $8,537,061#)................... 8,541
-----------
CASH AND OTHER ASSETS NET OF LIABILITIES - 1.22%................ 106
-----------
NET ASSETS - 100.00%............................................ $ 8,647
===========
- ---------------
<FN>
# Also represents cost for Federal income tax purposes.
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 72
THE ROULSTON FAMILY OF FUNDS --
STATEMENTS OF ASSETS AND LIABILITIES October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ROULSTON ROULSTON ROULSTON
MIDWEST GROWTH AND GOVERNMENT
GROWTH FUND INCOME FUND SECURITIES FUND
(000) (000) (000)
----------- ----------- ---------------
<S> <C> <C> <C>
ASSETS:
Investments in securities at value (cost
$43,257,616, $20,018,312 and $8,537,061
respectively)........................... $49,593 $23,220 $ 8,541
Cash...................................... 1 1 0
Receivable for capital stock sold......... 32 24 6
Dividends and interest receivable......... 8 22 84
Reimbursement due from adviser............ 0 0 14
Deferred organization costs (Note A)...... 14 14 14
Other assets.............................. 5 5 5
----------- ----------- ---------------
Total assets....................... 49,653 23,286 8,664
----------- ----------- ---------------
LIABILITIES:
Payable for capital stock redeemed........ 144 151 1
Accrued expenses.......................... 96 48 11
Payable to adviser........................ 5 5 5
----------- ----------- ---------------
Total liabilities.................. 245 204 17
----------- ----------- ---------------
NET ASSETS:
Applicable to 3,647,473, 1,877,974 and
879,015 shares outstanding,
respectively............................ $49,408 $23,082 $ 8,647
=========== =========== =============
NET ASSETS CONSIST OF:
Capital paid-in........................... $42,554 $19,634 $ 8,617
Undistributed net investment income
(loss).................................. (2) 66 37
Accumulated net realized gain (loss) on
investments............................. 521 180 (11)
Net unrealized appreciation on
investments............................. 6,335 3,202 4
----------- ----------- ---------------
$49,408 $23,082 $ 8,647
=========== =========== =============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE........................... $ 13.55 $ 12.29 $ 9.84
=========== =========== =============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 73
THE ROULSTON FAMILY OF FUNDS -- STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ROULSTON ROULSTON ROULSTON
MIDWEST GROWTH AND GOVERNMENT
GROWTH FUND INCOME FUND SECURITIES FUND
(000) (000) (000)
----------- ----------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................. $ 510 $ 522 $ 0
Interest.................................. 173 40 484
----------- ----------- ---------------
Total investment income............ 683 562 484
----------- ----------- ---------------
EXPENSES:
Investment advisory fees (Note B)......... 342 176 30
Transfer agent fees....................... 37 25 21
Administration fees....................... 67 42 32
Distribution expenses (Note B)............ 59 28 10
Pricing fees.............................. 20 15 15
Printing fees............................. 5 4 4
Custodian fees............................ 18 11 8
Insurance fees............................ 14 13 12
Legal fees................................ 14 11 8
Amortization of organization costs (Note
A)...................................... 12 12 12
Registration expenses..................... 9 8 8
Trustees fees............................. 12 10 9
Auditing fees............................. 16 8 3
Miscellaneous expenses.................... 2 1 1
----------- ----------- ---------------
Total expenses..................... 627 364 173
Expenses reimbursed (Note B).............. (61) (59) (101)
----------- ----------- ---------------
Net expenses....................... 566 305 72
----------- ----------- ---------------
NET INVESTMENT INCOME....................... 117 257 412
----------- ----------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments... 1,330 279 (2)
Net change in unrealized appreciation on
investments............................. 5,113 2,752 699
----------- ----------- ---------------
Net realized and unrealized gain on
investments............................. 6,443 3,031 697
----------- ----------- ---------------
INCREASE IN NET ASSETS FROM OPERATIONS...... $ 6,560 $ 3,288 $ 1,109
=========== =========== =============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 74
THE ROULSTON FAMILY OF FUNDS -- STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ROULSTON MIDWEST ROULSTON GROWTH AND
GROWTH FUND INCOME FUND
--------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994
(000) (000) (000) (000)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income................ $ 117 $ 31 $ 257 $ 182
Net realized gain (loss) on
investments........................ 1,330 1,268 279 77
Net change in unrealized appreciation
(depreciation) on investments...... 5,113 525 2,752 220
----------- ----------- ----------- -----------
Increase (decrease) in net assets.... 6,560 1,824 3,288 479
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income........... (130) (19) (207) (170)
From net realized gains.............. (2,077) 0 (167) (29)
----------- ----------- ----------- -----------
Total Distributions.................. (2,207) (19) (374) (199)
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold............ 17,023 20,028 5,620 10,447
Reinvestment of dividends............ 2,182 17 309 163
Amount paid for repurchase
of shares.......................... (3,838) (2,032) (3,938) (1,429)
----------- ----------- ----------- -----------
Net increase from capital
transactions....................... 15,367 18,013 1,991 9,181
----------- ----------- ----------- -----------
Total increase in net assets......... 19,720 19,818 4,905 9,461
NET ASSETS:
Beginning of year.................... 29,688 9,870 18,177 8,716
----------- ----------- ----------- -----------
End of year.......................... $49,408 $29,688 $23,082 $18,177
=========== =========== =========== ===========
Accumulated undistributed
(overdistributed) net investment
income included in net assets at
end of year........................ $ (2) $ 11 $ 66 $ 16
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Shares sold.......................... 1,340 1,699 503 980
Shares issued on reinvestment of
dividends.......................... 187 2 28 15
Shares repurchased................... (300) (172) (355) (134)
----------- ----------- ----------- -----------
Net increase from capital
transactions....................... 1,227 1,529 176 861
=========== =========== =========== ===========
<CAPTION>
ROULSTON GOVERNMENT
SECURITIES FUND
-------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
(000) (000)
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income................ $ 412 $ 306
Net realized gain (loss) on
investments........................ (2) (11)
Net change in unrealized appreciation
(depreciation) on investments...... 699 (770)
----------- -----------
Increase (decrease) in net assets.... 1,109 (475)
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income........... (411) (289)
From net realized gains.............. 0 (5)
----------- -----------
Total Distributions.................. (411) (294)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold............ 1,562 5,264
Reinvestment of dividends............ 266 191
Amount paid for repurchase
of shares.......................... (1,493) (2,901)
----------- -----------
Net increase from capital
transactions....................... 335 2,554
----------- -----------
Total increase in net assets......... 1,033 1,785
NET ASSETS:
Beginning of year.................... 7,614 5,829
----------- -----------
End of year.......................... $ 8,647 $ 7,614
=========== ===========
Accumulated undistributed
(overdistributed) net investment
income included in net assets at
end of year........................ $ 37 $ 36
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Shares sold.......................... 167 545
Shares issued on reinvestment of
dividends.......................... 29 20
Shares repurchased................... (160) (293)
----------- -----------
Net increase from capital
transactions....................... 36 272
=========== ===========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 75
THE ROULSTON FAMILY OF FUNDS -- FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of beneficial
interest outstanding throughout the periods presented.
<TABLE>
<CAPTION>
ROULSTON MIDWEST ROULSTON GROWTH AND ROULSTON GOVERNMENT
GROWTH FUND INCOME FUND SECURITIES FUND
----------------------------------- ----------------------------------- -----------------------------------
YEAR YEAR PERIOD YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
10/31/95 10/31/94 10/31/93(1) 10/31/95 10/31/94 10/31/93(1) 10/31/95 10/31/94 10/31/93(1)
-------- -------- ----------- -------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD......... $ 12.27 $ 11.07 $ 10.00 $ 10.68 $ 10.36 $ 10.00 $ 9.03 $10.20 $ 10.00
-------- -------- ----------- -------- -------- ----------- -------- -------- -----------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income....... 0.04 0.02 0.01 0.15 0.14 0.04 0.49 0.43 0.15
Net realized
and
unrealized
gain (loss)
on
investments... 2.04 1.19 1.07 1.68 0.35 0.36 0.81 (1.17) 0.16
-------- -------- ----------- -------- -------- ----------- -------- -------- -----------
Total from
investment
operations... 2.08 1.21 1.08 1.83 0.49 0.40 1.30 (0.74) 0.31
-------- -------- ----------- -------- -------- ----------- -------- -------- -----------
LESS
DISTRIBUTIONS:
From net
investment
income....... (0.04) (0.01) (0.01) (0.12) (0.14) (0.04) (0.49) (0.42) (0.11)
From realized
capital
gains........ (0.76) 0.00 0.00 (0.10) (0.03) 0.00 0.00 (0.01) 0.00
-------- -------- ----------- -------- -------- ----------- -------- -------- -----------
Total
distributions... (0.80) (0.01) (0.01) (0.22) (0.17) (0.04) (0.49) (0.43) (0.11)
NET ASSET VALUE,
END OF
PERIOD......... $ 13.55 $ 12.27 $ 11.07 $ 12.29 $ 10.68 $ 10.36 $ 9.84 $ 9.03 $ 10.20
========= ========= ============ ========= ========= ============ ========= ========= ============
TOTAL RETURN.... 18.17% 10.89% 10.90%** 17.36% 4.72% 3.98%** 14.76% (7.24%) 3.04%**
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period
(000)........ $49,408 $29,688 $ 9,870 $23,082 $18,177 $ 8,716 $8,647 $7,614 $ 5,829
Ratio of
expenses to
average net
assets before
reimbursement
of expenses
by Adviser... 1.57% 1.54% 2.89%* 1.79% 1.72% 2.79%* 2.16% 1.80% 2.78%*
after
reimbursement
of expenses
by
Adviser.... 1.41% 1.45% 1.50%* 1.50% 1.50% 1.50%* 0.90% 0.90% 0.90%*
Ratio of net
investment
income to
average net
assets before
reimbursement
of expenses
by Adviser... 0.14% 0.08% (1.11%)* 0.98% 1.20% 0.10%* 3.89% 3.88% 2.29%*
after
reimbursement
of expenses
by
Adviser.... 0.29% 0.17% 0.28%* 1.26% 1.42% 1.39%* 5.16% 4.78% 4.17%*
Portfolio
turnover..... 46.51% 77.57% 0.00% 13.36% 35.16% 4.18% 1.28% 24.14% 24.53%
- ---------------
<FN>
* Annualized
** Not Annualized
(1) The Roulston Midwest Growth Fund, Roulston Growth and Income Fund and the
Roulston Government Securities Fund commenced operations on July 1, 1993.
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 76
THE ROULSTON FAMILY OF FUNDS
NOTES TO FINANCIAL STATEMENTS October 31, 1995
- --------------------------------------------------------------------------------
NOTE (A) SIGNIFICANT ACCOUNTING POLICIES: The Roulston Family of Funds (the
"Trust") is an open-end management investment company and is organized under
Ohio law as a business trust under a Declaration of Trust dated September 16,
1994. The Trust currently consists of three Funds (the "Funds"): Roulston
Midwest Growth Fund (the "Midwest Growth Fund"), Roulston Growth and Income Fund
(the "Growth and Income Fund") and Roulston Government Securities Fund (the
"Government Fund"). The Trust is registered under the Investment Company Act of
1940, as amended (the "Act"). On April 29, 1995, pursuant to an Agreement and
Plan of Reorganization and Liquidation, the Midwest Growth Fund, the Growth and
Income Fund and the Government Fund of the Trust acquired in a tax free
reorganization, all of the assets of each of the Midwest Growth Fund, the Growth
and Income Fund and the Government Fund (collectively, the "Acquired Funds") of
the Advisors' Inner Circle Fund, a Massachusetts business trust, respectively,
in exchange for the assumption of such Acquired Fund's liabilities and a number
of full and fractional shares of the corresponding Fund of the Trust having an
aggregate net asset value equal to such Acquired Fund's net assets (the
"Reorganization"). The Reorganization was approved by the shareholders of the
Acquired Funds in a Special Meeting held on March 24, 1995. For accounting
purposes, the Reorganization was accounted for in a manner similar to a pooling
of interest and the financial highlights have been presented since the Funds'
inception, July 1, 1993. The following is a summary of significant accounting
policies consistently followed by the Trust.
(1) SECURITY VALUATION: Equity securities which are listed or admitted
to trading on a national securities exchange will be valued at the last
sales price on the exchange on which the security is principally traded.
Equity securities for which there is no sale on that day and equity
securities traded only in the over-the-counter market will be valued at
their closing bid prices obtained from one or more dealers making markets
for such securities or, if market quotations are not readily available, at
their fair values as determined in good faith by the Board of Trustees.
Valuations of fixed and variable income securities ("debt securities")
are supplied by independent pricing services used by Fund/Plan Services,
Inc., as administrator, which have been approved by the Trustees of the
Trust. Valuations are based upon a consideration of yields or prices of
obligations of comparable quality, coupon, maturity and type, indications as
to value from recognized dealers, and general market conditions. Debt
securities for which market quotations are readily available are valued
based upon these quotations. The Trustees may deviate from the valuation
provided by the pricing service whenever, in their judgment, such valuation
is not indicative of the fair value of the debt security. Short-term
investments with a maturity of 60 days or less are valued at amortized cost,
which approximates market value.
(2) REPURCHASE AGREEMENTS: All Funds may enter into repurchase
agreements with financial institutions deemed to be credit worthy by
Roulston & Company, Inc. ("Roulston"), the Funds' investment adviser, under
guidelines approved by the Trust's Board of Trustees, subject to the
seller's agreement to repurchase and the Funds' agreement to resell such
securities at a mutually agreed-upon date and price. Securities purchased
subject to repurchase agreements are deposited with the Funds' custodian
and, pursuant to the terms of the repurchase agreement, must have an
aggregate market value greater than or equal to the repurchase price plus
accrued interest at all times. If the seller were to default on its
repurchase obligation or become insolvent, the Fund would suffer a loss to
the extent that the proceeds from a sale of the underlying portfolio
securities were
16
<PAGE> 77
THE ROULSTON FAMILY OF FUNDS
NOTES TO FINANCIAL STATEMENTS (continued) October 31, 1995
- --------------------------------------------------------------------------------
less than the repurchase price under the agreement, or to the extent that
the disposition of such securities by the Fund was delayed pending court
action.
(3) FEDERAL INCOME TAXES: The Funds intend to be treated as "regulated
investment companies" under Sub-chapter M of the Internal Revenue Code and
to distribute substantially all of their net taxable income. Accordingly, no
provisions for Federal income taxes have been made in the accompanying
financial statements.
(4) INVESTMENT INCOME AND SECURITIES TRANSACTIONS: Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily. Security
transactions are accounted for on the date securities are purchased or sold.
Security gains and losses are determined on the identified cost basis.
(5) DIVIDENDS AND DISTRIBUTIONS: Substantially all of the net investment
income (exclusive of capital gains) of the Midwest Growth Fund and the
Growth and Income Fund is distributed in the form of dividends at least
annually, and of the Government Fund is distributed in the form of quarterly
dividends. Shareholders of record of the Government Fund on the next-to-last
business day of each quarter will be entitled to receive the quarterly
dividend distribution. If any capital gain is realized by a Fund,
substantially all of it will be distributed at least annually.
(6) DEFERRED ORGANIZATION COSTS: Organizational costs are being
amortized on a straight-line basis over five years commencing April 29,
1995.
NOTE (B) RELATED PARTY TRANSACTIONS: The Trust and Roulston have entered
into an Investment Advisory Agreement (the "Agreement") dated as of January 20,
1995. Under terms of the Agreement, Roulston makes the investment decisions for
the assets of the Funds and continuously reviews, supervises, and administers
the investment program of the Funds. For its services as investment adviser,
Roulston receives a fee, at an annual rate of 0.75% of the average daily net
assets of each of the Midwest Growth Fund and the Growth and Income Fund up to
$100 million of such assets, and 0.50% of each such Fund's assets of $100
million or more. With respect to the Government Fund, Roulston receives a fee at
an annual rate of 0.25% of the average daily net assets of the Government Fund
up to $100 million of such assets, and 0.125% of such assets of $100 million or
more. Such fees will be calculated daily and paid monthly.
Prior to the effective date of the Reorganization, Roulston served as the
investment adviser to each of the Acquired Funds. For such services, Roulston
received an advisory fee from the Acquired Funds at the following annual rates:
1.00% of the value of each of the Midwest Growth Fund's and the Growth and
Income Fund's average daily net assets up to $100 million, 0.75% of each such
Fund's assets over $100 million; and 0.50% of the value of the Government Fund's
average daily net assets up to $100 million, 0.375% of the average daily net
assets from $100 million to $200 million, and 0.25% of the average daily net
assets of such Fund over $200 million.
Pursuant to Rule 12b-1 under the Act, effective April 29, 1995, the Trust
has adopted a Distribution and Shareholder Service Plan and Agreement (the
"Plan"), under which each Fund is authorized to pay or reimburse Roulston
Research Corp. (the "Distributor"), a wholly owned subsidiary of Roulston, a
periodic amount calculated at an annual rate not to exceed 0.25% of the average
daily net assets value of such Fund. Such an amount may be used by the
Distributor to pay broker-dealers, banks and other
17
<PAGE> 78
THE ROULSTON FAMILY OF FUNDS
NOTES TO FINANCIAL STATEMENTS (continued) October 31, 1995
- --------------------------------------------------------------------------------
institutions (a "Participating Organization") for distribution and/or
shareholder service assistance pursuant to an agreement between the Distributor
and the Participating Organization or for distribution assistance and/or
shareholder service provided by the Distributor. Under the Plan, a Participating
Organization may include the Distributor's affiliates.
In addition, the Board of Trustees of the Trust has adopted certain
procedures in accordance with Section 17(e)(2) and Rule 17e-1 under the Act
pursuant to which the Distributor may execute certain portfolio transactions as
broker on behalf of the Funds. In connection with such brokerage transactions,
Roulston as the investment adviser may determine to use the Distributor if such
use will likely result in commissions, fees or other renumeration and prices for
and execution of securities transactions at least as favorable to such Fund as
those likely to be derived from other qualified brokers.
Roulston and the Distributor have each agreed with the Trust to waive its
investment advisory and 12b-1 fees, respectively, and to reimburse certain other
expenses of the Funds for one year from the effective date of the Reorganization
(April 29, 1995) to the extent necessary to cause total operating expenses as a
percentage of net assets of the Midwest Growth Fund, the Growth and Income Fund
and the Government Fund not to exceed 1.38%, 1.50% and 0.90%, respectively. For
the Midwest Growth Fund, such voluntary fee waivers and reimbursements limited
such Fund's total operating expenses for the year ended October 31, 1995, to
1.41% since for the period from November 1, 1994 to April 29, 1995, such
operating expenses had been limited to 1.50%.
Information regarding these transactions is as follows for the year ended
October 31, 1995:
<TABLE>
<CAPTION>
MIDWEST GROWTH AND GOVERNMENT
GROWTH FUND INCOME FUND FUND
(000) (000) (000)
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Fees Before Fee Waiver.................... $ 342 $ 176 $ 30
Fees Waived............................... 61 59 30
RULE 12B-1 FEES1:
Fees Before Fee Waiver.................... 59 28 10
Fees Waived............................... 0 0 4
OTHER EXPENSES REIMBURSED................. 0 0 67
BROKERAGE FEES PAID TO THE DISTRIBUTOR ON
PORTFOLIO TRANSACTIONS.................. 140 12 0
- ---------------
<FN>
1 Effective for the period April 30, 1995 through October 31, 1995.
</TABLE>
All of the officers and certain of the trustees of the Trust are also
officers, directors and/or employees of Roulston and the Distributor. The
officers and such interested trustees served without direct compensation from
the Trust during the year.
18
<PAGE> 79
THE ROULSTON FAMILY OF FUNDS
NOTES TO FINANCIAL STATEMENTS (continued) October 31, 1995
- --------------------------------------------------------------------------------
NOTE (C) INVESTMENT TRANSACTIONS: Purchases and sales of investment
securities (excluding short-term securities) for the year ended October 31,
1995, were:
<TABLE>
<CAPTION>
PROCEEDS FROM
PURCHASES SALES
(000) (000)
---------------- ----------------
<S> <C> <C>
Midwest Growth Fund.................................... $ 29,354 $ 17,198
Growth and Income Fund................................. 5,923 2,608
Government Fund........................................ 549 97
</TABLE>
NOTE (D) UNREALIZED APPRECIATION AND DEPRECIATION: At October 31, 1995, the
gross unrealized appreciation and depreciation of securities for book and
Federal income tax purposes consisted of the following:
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
(000) (000) (000)
------------- ------------- -------------
<S> <C> <C> <C>
Midwest Growth Fund....................... $ 7,896 $ 1,561 $ 6,335
Growth and Income Fund.................... 3,494 292 3,202
Government Fund........................... 79 75 4
</TABLE>
19
<PAGE> 80
THE ROULSTON FAMILY OF FUNDS
REPORT OF INDEPENDENT AUDITORS October 31, 1995
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
Roulston Midwest Growth Fund,
Roulston Growth and Income Fund and
Roulston Government Securities Fund of
The Roulston Family of Funds:
We have audited the accompanying statements of assets and liabilities of
Roulston Midwest Growth Fund, Roulston Growth and Income Fund and Roulston
Government Securities Fund (the three funds constituting the Roulston Family of
Funds), including the schedules of investments, as of October 31, 1995, and the
related statements of operations, changes in net assets and financial highlights
for the year then ended. These financial statements and financial highlights are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets of Roulston Midwest Growth Fund,
Roulston Growth and Income Fund and Roulston Government Securities Fund of the
Roulston Family of Funds for the year ended October 31, 1994 and the financial
highlights for the period from July 1, 1993 (commencement of operations) to
October 31, 1993 and for the year ended October 31, 1994 were audited by other
auditors whose report dated December 14, 1994 expressed an unqualified opinion
on those statements and financial highlights.
We conducted our audit 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
October 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Roulston Midwest Growth Fund, Roulston Growth and Income Fund and
Roulston Government Securities Fund of the Roulston Family of Funds at October
31, 1995, the results of their operations, the changes in their net assets and
financial highlights for the year then ended in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
November 27, 1995
Cleveland, Ohio
20
<PAGE> 81
[This Page Intentionally Left Blank]
<PAGE> 82
[This Page Intentionally Left Blank]
<PAGE> 83
DIRECTORS:
<TABLE>
<S> <C>
Thomas V. Chema Scott D. Roulston
David H. Gunning Ivan Winfield
</TABLE>
OFFICERS:
Scott D. Roulston, President
Kathryn G. Balazs, Secretary
Martin P. Rizzo, Treasurer
ADVISER:
ROULSTON & COMPANY, INC.
4000 Chester Avenue
Cleveland, Ohio 44103-3693
DISTRIBUTOR:
ROULSTON RESEARCH CORP.
4000 Chester Avenue
Cleveland, Ohio 44103-3693
ADMINISTRATOR & TRANSFER AGENT:
FUND/PLAN SERVICES, INC.
2 West Elm Street
Conshohocken, Pennsylvania 19428-0874
LEGAL COUNSEL:
BAKER & HOSTETLER
65 East State Street
Columbus, Ohio 43215-4260
INDEPENDENT PUBLIC ACCOUNTANTS:
ERNST & YOUNG LLP
1300 Huntington Building
925 Euclid Avenue
Cleveland, Ohio 44115-1405
This report is submitted for the general information of
the shareholders of the Fund. It is not authorized for
distribution to prospective investors in the Fund unless
preceded or accompanied by an effective Prospectus
which includes details regarding the Fund's objectives,
policies, expenses and other information.
------------------------------------------------------
For information call Roulston Research Corp.:
1-800-3-FAMILY (1-800-332-6459)
(LOGO) printed on recycled paper
-------------------------------------------------
THE ROULSTON
FAMILY OF FUNDS
Roulston Midwest
Growth Fund
Roulston Growth and
Income Fund
Roulston Government
Securities Fund
------------------------------------------------------
ANNUAL REPORT TO
SHAREHOLDERS
October 31, 1995
------------------------------------------------------
THE ROULSTON FAMILY OF FUNDS
------------------------------------------------------
Investing Family Style
<PAGE> 84
[FAIRPORT FUNDS LOGO] 1-800-332-6459
(1-800-3-FAMILY)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNT APPLICATION FORM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
A. Indicate Amount of Investment (The minimum initial investment is $250)
- -- ------------------------------------------------------- _______% and $________________
INITIAL -------------------------------------------------------
INVESTMENT / / FAIRPORT GROWTH AND INCOME FUND (133580)
& FUND ------------------------------------------------------- _______% and $________________
SELECTION -------------------------------------------------------
/ / FAIRPORT GOVERNMENT SECURITIES FUND (133581)
------------------------------------------------------- _______% and $________________
-------------------------------------------------------
/ / FAIRPORT MIDWEST GROWTH FUND (133582)
------------------------------------------------------- _______% and $________________
-------------------------------------------------------
/ / CASH ACCOUNT TRUST MONEY MARKET PORTFOLIO
(133583)
A prospectus must be obtained from Roulston Research
Corp. before you can purchase this fund.
/ / Check here if you have already received a prospectus.
TOTAL 100 % $______________
/ / BY CHECK: Please make payable to appropriate Fund Name
/ / BY WIRE: An initial purchase of $________________ was wired on ____________ by
Date
_______________________________ to account #_______________________________________
Name of your Bank or Broker Number assigned by F/P S
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FAIRPORT FUNDS PREFERS TO SEND ONE CONSOLIDATED STATEMENT PER HOUSEHOLD.
PLEASE LIST YOUR ACCOUNT NUMBERS TO BE PRINTED ON THE CONSOLIDATED STATEMENT:
A/C #____________________ A/C #____________________ A/C #____________________
A/C #____________________ A/C #____________________ A/C #____________________
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
B. INDIVIDUAL
- -- ----------
REGISTRATION ___________________________________________________________________ _______________________
(PLEASE PRINT) First Name Middle Initial Last Name Social Security Number
___________________________________________________________________ _______________________
Jt. Owner First Name* Middle Initial Last Name Social Security Number
*(Joint ownership with rights of survivorship unless otherwise
noted)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
<S> <C>
GIFT TO MINORS
---------------
_______________________________________________________________________________________
Name of Custodian (name one only) As Custodian
for (name one only)
Under the ____________________________ (UGMA/UTMA) _________________________
State Minors Social Security
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
<S> <C>
CORPORATION, PARTNERSHIP, OR TRUST
----------------------------------
_________________________________________________________________________________________
Name of Corporation, Partnership or Trust
_________________________ ____________________________________________________________
Tax I.D. Name of Trustee(s) Date of Trust
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
C. __________________________________________________________________________________________
- -- Street Address & Apt. or P.O. Box
MAILING
ADDRESS & __________________________________________________________________________________________
TELEPHONE City State Zip Code + 4
NUMBER(S) ( ) ( )
--------------------------------------------- -----------------------------------------
Home Phone Number Business Phone Number
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
D. Check one box only for each; if none are checked all dividend income and capital gains, if any, will
- -- be reinvested. If money is to be reinvested in a different Fairport Fund, please indicate in space
DISTRIBUTION provided.
OPTIONS
Income Dividends / / Cash / / Reinvest / / Cash Account Trust _______________________
/ / Other Fairport Fund Money Market Portfolio name / account
Capital Gains / / Cash / / Reinvest / / Cash Account Trust ______________________
Distributions / / Other Fairport Fund Money Market Portfolio name / account
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 85
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
E. / / Check box if you want this service.
- -- To establish a Systematic Withdrawal Plan (SWP), an account must have a current market value of
SYSTEMATIC $10,000 or more. Additionally, an account must have dividents reinvested.
WITHDRAWAL / / Check box if you want withdrawal sent to address of record.
PLAN / / Check box if you want withdrawal sent VIA ACH as instructions indicate in section G.
Amount and Frequency of Payments:
---------------------------------
Beginning in _________________, 19____, Please make payments in the amount of $____________________
Month Amount $100 minimum
Payments will be processed on the 25th day of the month frequency indicated below:
/ / Monthly / / Quarterly / / Semi-annually / / Annually
- ------------------------------------------------------------------------------------------------------------------------------------
F. / / Check box if you want this service.
- -- I (We) authorize Fund/Plan Services and/or Fairport Funds to act tructions received by telephone from me
TELEPHONE (us) to redeem shares or to exchange for shares of other Fairport Funds. I (we) understand an
PRIVILEGE exchange is made by redeeming shares of one portfolio and using the proceeds to buy shares of
REDEMPTIONS; another portfolio. Exchanges must be mad into identically registered accounts. Redemption proceeds will be
EXCHANGES BE sent as indicated in Section G.
PORTFOLIOS * If not otherwise indicated below, only exchanges will be allowed.
/ / Redemptions / / Exchanges / / Both
- ------------------------------------------------------------------------------------------------------------------------------------
G. Check one only, if none are / / All redemption proceeds will be executed BY
- -- checked all redemptions will AN ACH TRANSACTION unless
REDEMPTION be sent by check. Fund/Plan Services is notified otherwise in
& ACH writing. There is no charge for ACH
INFORMATION transactions. Allow 3 business days.
/ / All redemption proceeds will be executed BY A
FED WIRE TRANSACTION unless Fund/Plan
Services is notified otherwise in writing.
There is a $9 charge for FED Wire
transactions.
/ / All redemption proceeds will be sent BY CHECK
TO THE MAILING ADDRESS STATED IN SECTION C
ABOVE unless Fund/Plan Services is notified
otherwise in writing.
All FED Wire and ACH transactions will be sent as indicated here will be no charge for ACH transactions.
Any changes in ACH transactions must be made in writing to Fund/Plan Services, Inc., P.O. Box
874, Conshohocken, PA 19428. Please allow one month for ACH instructions to be effective.
(Notify your bank of your intent to establish this option on your bank account.)
----------------------------------------------------------------------------------------------
VOIDED PERSONAL Bank Name Branch Office (if applicable)
CHECK OR DEPOSIT SLIP
MUST BE ATTACHED ----------------------------------------------------------------------------------------------
Bank Address (Do not use P.O. Box) City State Zip Code
----------------------------------------------------------------------------------------------
Bank Wire Routing Number Name(s) on Your Bank Account Your Bank Account Number
----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
H. TAXPAYER IDENTIFICATION NUMBER CERTIFICATION. UNDER THE PENALTIES OF PERJURY, I (WE) CERTIFY THE
- -- FOLLOWING:
SIGNATURE 1. I (WE) CERTIFY THAT THE NUMBER SHOWN ON THIS FORM IS MY (OUR) CORRECT TAX IDENTIFICATION NUMBER.
& 2. I (WE) AM NOT (ARE NOT) SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST
CERTIFICATION AND DIVIDENDS, OR THE INTERNAL REVENUE SERVICE HAS NOTIFIED ME (US) THAT I (WE) AM (ARE) NO LONGER
AND BACK-UP SUBJECT TO BACKUP WITHHOLDING.
WITHHOLDING
CERTIFICATION CITIZEN OF: / / UNITED STATES / / OTHER (PLEASE INDICATE) _________________________
"THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT
OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING".
________________________________________________________________ _____________________
SIGNATURE / / OWNER / / CUSTODIAN / / TRUSTEE DATE
________________________________________________________________ _____________________
SIGNATURE JOINT OWNER (IF APPLICABLE) DATE
/ / CHECK BOX IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING.
- ------------------------------------------------------------------------------------------------------------------------------------
FOR INVESTMENT DEALER ONLY
- --------------------------
/
------------------------------------------------------------------------------------- ---------------------
Firm Name / Dealer # Branch/Branch #
--------------------------------------------------------------------------------------------------------------
Branch Address
------------------------------------------------------------ --------------- -----------------
City State Zip Code
-------------------- ---------------------------------------
Rep # Rep's Last Name
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAIL COMPLETED APPLICATION TO: ROULSTON RESEARCH CORP., 4000 CHESTER AVENUE,
CLEVELAND, OH 44103
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAKE CHECK PAYABLE TO: "FAIRPORT FUNDS" OR APPROPRIATE FUND NAME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 86
[FAIRPORT FUNDS LOGO] 1-800-332-6459
(1-800-3-FAMILY)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN APPLICATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INSTRUCTIONS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOW DOES IT WORK?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Fund/Plan Services, Inc., through our bank, UMB Bank, N.A., draws
an automatic clearing house (ACH) debit against your personal
checking/savings account each month.
2. Choose any amount (over the minimum $50 subsequent payment amount)
that you would like to invest regularly and your debit will be
processed by Fund/Plan Services, Inc.
3. Shares will be purchased and a confirmation sent to you.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOW DO I SET IT UP?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MUST MEET MINIMUM INVESTMENT REQUIREMENT OF $250.
-------------------------------------------------
1. Complete the form (and a fund application if you are establishing a new
account).
2. If you are using a Credit Union, please have your financial institution
complete the form.
3. This option is not available on Cash Account Trust Money Market Portfolio.
4. Attach a VOIDED check to the Automatic Investment Plan application.
5. Mail form to Fund/Plan Services, Inc. or Roulston Research Corp. at the
address above.
6. As soon as your bank accepts your authorization, debits will be generated
and your Automatic Investment Plan started. In order for you to have
Automatic Clearing House (ACH) debits from your account, your bank must
be able to accept ACH transactions and/or be a member of an ACH
association. We cannot guarantee acceptance by your bank.
7. Please allow one month for processing before the first debit occurs.
8. Returned items will result in a $20.00 fee being deducted from your
account.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Check One: / / I am in the process of establishing a new account.
/ / My account number is #____________________________
Deposit my automatic investments in (check one):
/ / Fairport Government Securities Fund (#133581)
/ / Fairport Growth and Income Fund (#133580)
/ / Fairport Midwest Growth Fund (#133582)
Shareholder Name:
- --------------------------------------------------------------------------------
Joint Owner:
- --------------------------------------------------------------------------------
Street Address:
- --------------------------------------------------------------------------------
City: State: ZIP Code:
- --------------------------------------------------------------------------------
Phone Number: [daytime] ( ) [evening] ( )
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTHORIZATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I authorize the fund to establish an Automatic Investment Plan for me and
invest $___________________ on the 10th, 15th, 20th of each month in the fund.
[$50.00 MINIMUM]
I understand that my ACH debit will be dated on the day of each month as
indicated above. I agree that if such a debit is not honored upon
presentation, Fund/Plan Services, Inc. may discontinue this service and
any share purchase made upon deposit of such debit may be cancelled. I
further agree that if the net asset
<PAGE> 87
value of the shares purchased with such debit is less when said purchase is
cancelled than when the purchase was made, Fund/Plan Services, Inc. shall be
authorized to liquidate other shares or fractions thereof held in my account to
make up the deficiency. This Automatic Investment Plan may be discontinued by
Fund/Plan Services, Inc. upon 30 days written notice or at any time by the
investor by written notice to Fund/Plan Services, Inc. which is received no
later than five (5) business days prior to the above designated investment
date.
SIGNATURE OF ACCOUNT OWNER DATE:
- --------------------------------------------------------------------------------
SIGNATURE OF JOINT ACCOUNT OWNER DATE:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK INFORMATION AND AUTHORIZATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK ACCOUNT OWNER
- --------------------------------------------------------------------------------
BANK ACCOUNT JOINT OWNER
- --------------------------------------------------------------------------------
BANK NAME
- --------------------------------------------------------------------------------
BANK BRANCH STREET ADDRESS
- --------------------------------------------------------------------------------
CITY STATE ZIP CODE
- --------------------------------------------------------------------------------
ABA NUMBER (9 DIGITS) ACCOUNT NUMBER
- --------------------------------------------------------------------------------
CHECK ONE: / / Checking / / Savings
As a convenience to me, please honor ACH debits on my account drawn by
Fund/Plan Services, Inc., UMB Bank, N.A. and payable to the FUND.
I agree that your rights with respect to such debit shall be the same as
if it were a check drawn upon you and signed personally by me. This
authority shall remain in effect until you receive notice to the
contrary. I agree that you shall be fully protected in honoring any such
debit.
I further agree that if any debit is dishonored, whether with or without
cause or whether intentionally or inadvertently, you shall be under no
liability whatsoever.
SIGNATURE OF BANK ACCOUNT OWNER DATE:
- --------------------------------------------------------------------------------
SIGNATURE OF JOINT ACCOUNT OWNER DATE:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEMNIFICATION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO: THE BANK NAMED ABOVE:
So that you may comply with your Depositor's request and authorization,
Fund agrees as follows:
1. To indemnify and hold you harmless from any loss you may suffer
arising from or in connection with the payment of a debit drawn by
Fund/Plan Services, Inc. to the order of the fund, designated on the
account of your depositor's executing the authorization including
any costs or expenses reasonably incurred in connection with such
loss. Fund will not, however, indemnify you against any loss due to
your payment of any debit generated against insufficient funds.
2. To refund to you any amount erroneously paid by you to Fund/Plan
Services, Inc. on any such debit if claim for the amount of such
debit on which erroneous payment was made.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MAIL COMPLETED AUTOMATIC INVESTMENT PLAN APPLICATION TO:
FUND/PLAN SERVICES, INC., P.O. BOX 874, CONSHOHOCKEN, PA 19428
OR
ROULSTON RESEARCH CORP., 4000 CHESTER AVENUE, CLEVELAND, OH 44103
1-800-332-6459 (1-800-3FAMILY)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
