<PAGE> 1
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 FAIRPORT FUNDS (the "Trust"), and its Funds, 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 became
effective on March 1, 1996.
This Statement of Additional Information is intended to provide
additional information regarding the activities and operations of the Trust and
should be read in conjunction with the Funds' Prospectus dated February 28,
1997. 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 TRUST OR ITS DISTRIBUTOR. THE PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
February 28, 1997
Supplemented as of April 11, 1997
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TABLE OF CONTENTS
-----------------
THE TRUST......................................................................
ADDITIONAL INFORMATION ON
PERMITTED INVESTMENTS AND RELATED RISK FACTORS..............................
ADDITIONAL INVESTMENT LIMITATIONS..............................................
MANAGEMENT OF THE TRUST........................................................
PRINCIPAL HOLDERS OF SECURITIES................................................
INVESTMENT ADVISORY AND OTHER SERVICES.........................................
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS...............................
NET ASSET VALUE................................................................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................
TAXES..........................................................................
PERFORMANCE INFORMATION........................................................
OTHER INFORMATION..............................................................
APPENDIX "A"
------------
DESCRIPTIONS OF SECURITIES RATINGS
APPENDIX "B"
------------
ANNUAL REPORT TO SHAREHOLDERS
OCTOBER 31, 1996
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THE TRUST
---------
FAIRPORT FUNDS (formerly THE ROULSTON FAMILY OF FUNDS) (the "Trust") is
an 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 "OTHER 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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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. Bankers' 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 invests in securities issued or guaranteed by the
U.S. Government or 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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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 Reserve 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
in the Prospectus 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, a 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.
A 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. 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. The premium paid
to the writer is consideration for undertaking the obligations under the option
contract. 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 Roulston 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 securities held by a 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, the 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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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.
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
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<PAGE> 11
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.
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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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<TABLE>
<CAPTION>
NAME, BUSINESS POSITIONS(S) HELD PRINCIPAL OCCUPATION(S)
ADDRESS AND AGE WITH THE TRUST DURING PAST FIVE YEARS
--------------- -------------- ----------------------
<S> <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 since 1990.
Age: 39
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: 50 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
1001 Lakeside Avenue Chief Executive Officer of Capitol
Cleveland, Ohio 44114 American Financial Corporation
(insurance company) since February,
Age: 54 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: 62 (certified public accounting firm).
</TABLE>
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<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 and Since May, 1996, Chief Financial
4000 Chester Avenue Secretary Officer of Roulston & Company,
Cleveland, Ohio 44103 Inc.; February 1996 to May 1996,
Director of Finance, Controller and
Age: 35 Treasurer of Roulston & Company,
Inc.; 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).
</TABLE>
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<TABLE>
<CAPTION>
NAME, BUSINESS POSITIONS(S) HELD PRINCIPAL OCCUPATION(S)
ADDRESS AND AGE WITH THE TRUST DURING PAST FIVE YEARS
--------------- -------------- ----------------------
<S> <C> <C>
Kristin Hay Ives, Esq. Assistant Secretary Partner of the law firm of Baker
Capitol Square, Suite 2100 & Hostetler LLP, counsel to the
65 East State Street Trust.
Columbus, Ohio 43215
Age: 36
Charles A. Kiraly Assistant Treasurer Since April, 1996, an employee of
4000 Chester Avenue Roulston & Company, Inc.; prior
Cleveland, OH 44130 thereto, Senior Dealer Services
Representative at BISYS Fund
Age 28 Services, Ohio, Inc.; Employee at
BISYS Fund Services, Ohio, Inc.
since May, 1993. 1992 Graduate of
Ohio University, BBA in Business
Administration.
</TABLE>
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
those officers who are 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, 1996. The Trust has no pension or
retirement plans.
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<PAGE> 16
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 $8,000 $8,000
David H. Gunning,
Trustee $8,000 $8,000
Ivan J. Winfield,
Trustee $8,000 $8,000
</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.
PRINCIPAL HOLDERS OF SECURITIES
-------------------------------
Listed below are the names and addresses of those shareholders and
accounts who, as of January 31, 1997, owned 5% or more of the shares of each
Fund.
FAIRPORT MIDWEST GROWTH FUND:
- -----------------------------
<TABLE>
<CAPTION>
Shareholder(s) Percentage Owned
-------------- ----------------
<S> <C>
Charles Schwab & Co., Inc. 10.07%
Special Custody Account
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
B-16
<PAGE> 17
<TABLE>
<CAPTION>
FAIRPORT GROWTH AND INCOME FUND:
- --------------------------------
Shareholder(s) Percentage Owned
-------------- ----------------
<S> <C>
Liqui Box Corp. EMP PSP 6.55%
William McBee Trustee
c/o The Hampton Company
320 Springside Drive
Suite 350
Akron, Ohio 44333
FAIRPORT GOVERNMENT SECURITIES FUND:
Shareholder(s) Percentage Owned
-------------- ----------------
Liqui Box Corp. EMP PSP 24.47%
William McBee Trustee
c/o The Hampton Company
320 Springside Drive
Suite 350
Akron, Ohio 44333
Charles Schwab & Co., Inc. 22.33%
Special Custody A/C for BNFT CUST
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
B-17
<PAGE> 18
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, amended as of
November 30, 1996. Pursuant to the Advisory Agreement, Roulston has agreed to
provide investment advisory services to the Funds as described in the
Prospectus.
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").
Unless sooner terminated, the Advisory Agreement with respect to a Fund
continues in effect 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.
B-18
<PAGE> 19
For the fiscal year ended October 31, 1996, Roulston earned and
voluntarily waived the amounts indicated below with respect to its investment
advisory services to the Funds.
<TABLE>
<CAPTION>
GROSS ADVISORY NET
FUND ADVISORY FEES ADVISORY
---- FEES EARNED WAIVED FEES RECEIVED
---- ----------- ------ -------------
<S> <C> <C> <C>
MIDWEST GROWTH FUND $417,458 $169,950 $247,508
GROWTH AND INCOME FUND $184,723 $ 81,095 $103,628
GOVERNMENT SECURITIES FUND $ 18,674 $ 18,674 $ 0
TOTALS $620,855 $269,719 $351,136
</TABLE>
For the fiscal year ended 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 year.
<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>
Roulston earned and waived the following fees for investment advisory
services provided to the Acquired Funds during the fiscal year ended 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>
B-19
<PAGE> 20
THE ADMINISTRATOR
- -----------------
The Trust and FPS Services, Inc. ("FPS"), the Administrator, 3200
Horizon Drive, King of Prussia, Pennsylvania 19406, have entered into an
administration agreement dated January 20, 1995, as amended as of January 1,
1997 (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 remained in effect for a
period of two years after its effective date and shall continue in effect for
successive periods of two years thereafter unless terminated by either party on
not less than 180 days' prior written notice to the other party.
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
B-20
<PAGE> 21
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 minimum annual fee of $55,000 for the first series and $12,000 for each
additional domestic series, 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 year ended October 31, 1996, the Administrator earned
the following amounts with respect to administrative services provided to the
Funds:
<TABLE>
<CAPTION>
ADMINISTRATIVE
FUND FEES PAID
---- TO FPS
------
<S> <C>
MIDWEST GROWTH FUND $ 75,644
GROWTH AND INCOME FUND $ 33,436
GOVERNMENT SECURITIES FUND $ 10,062
TOTAL $119,142
</TABLE>
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 FPS
------
<S> <C>
MIDWEST GROWTH FUND $33,600
GROWTH AND INCOME FUND $16,895
GOVERNMENT SECURITIES FUND $ 7,516
TOTAL $58,011
</TABLE>
B-21
<PAGE> 22
TRANSFER AGENT AND FUND ACCOUNTANT
- ----------------------------------
The Trust has entered into a Transfer Agent Services Agreement dated as
of January 20, 1995, amended as of January 1, 1997 (the "Transfer Agent
Agreement"), with FPS (the "Transfer Agent"), pursuant to which FPS 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 consideration for such services, each Fund has agreed
to pay the Transfer Agent a fee, computed daily and paid periodically, according
to the following schedule:
For account maintenance: $15.00 per Account per year Annual Maintenance
Fee subject to a minimum monthly fee of $2,500 for Fairport Midwest
Growth Fund, $2,500 for Fairport Growth and Income Fund and $2,000 for
Fairport Government Securities Fund. For IRA's, 403(b) Plans, Defined
Contribution/Benefit Plans: $12.00 per Account per Year Annual
Maintenance Fee. Out of pocket expenses are reimbursed to FPS monthly.
Additional fees may apply in the event that FPS performs special
projects as Transfer Agent.
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, amended as of January 1, 1997. 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.
B-22
<PAGE> 23
THE DISTRIBUTOR
- ---------------
Roulston Research Corp., a wholly owned subsidiary of Roulston (the
"Distributor"), and the Trust are parties to a distribution agreement dated
January 20, 1995, amended as of June 3, 1996 (the "Distribution Agreement"). The
Distributor receives no compensation under the Distribution Agreement for
distribution of shares of the Funds, but receives payments under the Trust's
Distribution and Shareholder Service Plan described below.
The Distribution Agreement remains in effect for successive one-year
periods ending January 20th 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 SHAREHOLDER SERVICE PLAN
- -----------------------------------------
As described in the Prospectus, the Trust has adopted a Distribution
and Shareholder Service Plan (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.
B-23
<PAGE> 24
The Plan continues 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 distribution and share holder 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 year ended October 31, 1996, such fees totaled $219,481.
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 $139,214
GROWTH AND INCOME FUND $ 61,603
GOVERNMENT SECURITIES FUND $ 18,664
TOTAL $219,481
</TABLE>
B-24
<PAGE> 25
In addition, the Distributor has entered into Rule 12b-1 Agreements
with selected dealers pursuant to which such dealers agree to provide certain
shareholder services and distribution assistance including, but not limited to,
those discussed above.
THE CUSTODIAN
- -------------
UMB Bank, n.a., 928 Grand Avenue, Kansas City, Missouri 64141, serves
as the Funds' Custodian pursuant to the Custody Agreement dated January 20,
1995. In such capacity the Custodian holds or arranges for the holding of all
portfolio securities and other assets of the Funds.
LEGAL COUNSEL AND INDEPENDENT AUDITORS
- --------------------------------------
Baker & Hostetler LLP, 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 for the fiscal year ended October
31, 1996, 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.
B-25
<PAGE> 26
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.
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.
Roulston has an arrangement with Thompson Institutional Services, Inc.
("Thompson") whereby Roulston receives specific research products known as First
Call, ALERT, Research Direct, Baseline, HOLT, STOCK VAL, and Muller Data in
exchange for placing an agreed upon amount of trades on behalf of privately
managed accounts and the Funds. During the period of January 1, 1997 through
March 31, 1997, the following transactions were placed with Merrill
Lynch/Dayton (MLDAYTON), the executing broker-dealer for Thompson during that
period. The Fairport Growth & Income Fund placed 16 trades for shares totaling
$1,851,029 with a commission rate of $0.06 for a total commission of $1,818.00
with MLDAYTON. The Fairport Midwest Growth Fund placed 13 trades for shares
totaling $5,522,589 with a commission rate of $0.06 for a total commission of
$10,182.00 with MLDAYTON.
B-26
<PAGE> 27
any portfolio of the Trust.
Under the provisions of the 1940 Act, the Securities Exchange Act of
1934 and rules promulgated by the Commission 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 have reviewed 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, the Distributor has not done so since
February, 1996 and does not expect to do so in the future. In addition, a Fund
may direct commission business to one or more designated broker/dealers,
including the Distributor, in connection with such broker/dealer's payment of
certain of a Fund's or the Trust's expenses.
For the fiscal year ended October 31, 1996, brokerage commissions paid
by the Trust on behalf of the Funds amounted to $156,078. The total brokerage
commissions attributable to each Fund are set forth below.
<TABLE>
<CAPTION>
11/01/95
FUND TO
---- 10/31/96
--------
<S> <C>
MIDWEST GROWTH FUND $122,870
GROWTH AND INCOME FUND $ 33,208
GOVERNMENT SECURITIES FUND $ 0
TOTALS $156,078*
<FN>
* Of this amount, $42,316 was paid to the Distributor, which represents
27% of the total commissions paid by the Trust to all brokers through
whom trades were placed during the period. In addition, 19% of the
Trust's aggregate dollar amount of transactions were effected through
the Distributor.
</TABLE>
B-27
<PAGE> 28
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>
11/01/95
FUND TO
---- 10/31/96
--------
<S> <C>
MIDWEST GROWTH FUND $63,257
GROWTH AND INCOME FUND $ 7,883
GOVERNMENT SECURITIES FUND $ 0
TOTALS $71,140*
</TABLE>
* Of this amount, $68,731 was paid to the Distributor, 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
the Distributor .
Prior to the Reorganization, Advisors paid the following brokerage
commissions on behalf of the Acquired Funds during the periods shown:
<TABLE>
<CAPTION>
11/01/93 11/01/94
FUND TO TO
---- 10/31/94 4/30/95
-------- -------
<S> <C> <C>
MIDWEST GROWTH FUND $83,351 $78,378
GROWTH AND INCOME FUND $12,948 $ 6,877
GOVERNMENT SECURITIES FUND $ 0 $ 0
TOTALS $96,299 $85,255*
<FN>
* Prior to the Reorganization, a portion of the above-referenced
brokerage commissions was paid on behalf of the Acquired Funds to
the Distributor.
</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.
B-28
<PAGE> 29
PORTFOLIO TURNOVER
- ------------------
The portfolio turnover rate for each Fund 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,
1996, 1995 and 1994, for the MIDWEST GROWTH FUND were 58.01%, 46.51% and 77.57%,
respectively; for the GROWTH AND INCOME FUND were 34.02%, 13.36% and 35.16%,
respectively; and for the GOVERNMENT FUND were 21.23%, 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 close of regular trading on the New York Stock
Exchange (the "Exchange"), on each Business Day. A "Business Day" is any day the
Exchange is open for regular 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
Day.
Valuations of securities purchased by the Funds are supplied by
independent pricing services used by FPS, as administrator, which have been
approved by the Trustees of the Trust. Equity securities which are listed or
admitted to trading on a national securities exchange or other market trading
system which reports actual transaction prices on a contemporaneous basis 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 value as determined in good faith by the Board of Trustees.
Valuations of fixed and variable income securities ("debt securities")
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.
B-29
<PAGE> 30
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 under the heading "The Distributor", and through other
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and have sales agreements with the Distributor.
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 disposition 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.
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
B-30
<PAGE> 31
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.
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
B-31
<PAGE> 32
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.
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, 1996, the yields for FAIRPORT
MIDWEST GROWTH FUND, FAIRPORT GROWTH AND INCOME FUND and FAIRPORT GOVERNMENT
SECURITIES FUND were 0.00%, 0.78%, and 5.34%, respectively.
B-32
<PAGE> 33
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 (exponent) = 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.
For the one year period ended October 31, 1996, and the period from
July 1, 1993 (commencement of operations) through October 31, 1996, the average
annual total returns for the Funds were as follows:
<TABLE>
<CAPTION>
7/01/93 11/01/95
FUND TO TO
---- 10/31/96 10/31/96
-------- --------
<S> <C> <C>
MIDWEST GROWTH FUND 17.01% 16.28%
GROWTH AND INCOME FUND 13.02% 17.77%
GOVERNMENT SECURITIES FUND 4.19% 4.58%
</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
B-33
<PAGE> 34
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.
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.
B-34
<PAGE> 35
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.
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.
B-35
<PAGE> 36
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
B-36
<PAGE> 37
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.
B-37
<PAGE> 38
Duff & Phelps, Inc.:
The following summarizes the six highest long-term debt ratings by Duff &
Phelps, Inc. ("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.
B-38
<PAGE> 39
IBCA Limited and its affiliate IBCA, Inc.:
The following summarizes the six highest long-term debt ratings by IBCA Limited
and its affiliate IBCA, Inc. (collectively "IBCA"). 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 BankWatch, Inc.:
The following summarizes the six highest long-term debt ratings by Thomson Bank
Watch, Inc. ("Thompson"). "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.
B-39
<PAGE> 40
APPENDIX "B"
------
ANNUAL REPORT TO SHAREHOLDERS
------
FISCAL YEAR ENDED
OCTOBER 31, 1996
B-40
<PAGE> 41
FAIRPORT FUNDS
CHARTING A COURSE YOU CAN TRUST(SM)
ANNUAL REPORT TO
SHAREHOLDERS
- FAIRPORT MIDWEST GROWTH FUND
- FAIRPORT GROWTH AND INCOME FUND
- FAIRPORT GOVERNMENT SECURITIES FUND
October 31, 1996
Advised by
ROULSTON & COMPANY, INC.
<PAGE> 42
FAIRPORT FUNDS ANNUAL REPORT TO SHAREHOLDERS
November 27, 1996
Dear Shareholder:
We are pleased to issue the financial report on the Fairport Funds for the year
ended October 31, 1996.
The Fairport Midwest Growth Fund gained 16.28% during the period, while the
Fairport Growth and Income Fund gained 17.77%. These returns were earned in a
period when the market, as measured by the Standard & Poor's 500 Stock Index,
gained by 23.98%. The Fairport Government Securities Fund gained 4.58% during
the period while the Lehman Brothers Intermediate Treasury Bond Index increased
by 5.62%.
Economic activity continued at the slower pace set in the preceding year.
Capital spending and export growth remain the driving engines of this expansion,
while consumer and public sector spending remain the restraining elements. Some
price increases among a few commodities were worrisome early in the year, but
this concern evaporated over the summer. Productivity, wage restraint, better
than anticipated agricultural production, and moderate growth kept a tight rein
on inflation.
Continued moderate economic growth approaching 3% with inflation under control
remains a favorable setting for both the bond and stock markets.
In the commentary that follows on each of the Funds, you will note a common
theme that has long been a hallmark of our investment management. Research is
the cornerstone of our investment process. Our research efforts for the Fairport
Funds continue to give us confidence in the future of the economy and the
portfolios we manage on your behalf.
/s/ Scott D. Roulston /s/ Joseph A. Harrison
Scott D. Roulston Joseph A. Harrison
President Director of Investments
<PAGE> 43
FAIRPORT FUNDS INVESTMENT ADVISER'S REPORT
FAIRPORT MIDWEST GROWTH FUND
The graph below compares the increase in value of a $10,000 investment in
Fairport Midwest Growth Fund with the performance of the Standard & Poor's 500
Stock and Lipper Growth Fund indices.
<TABLE>
<CAPTION>
FAIRPORT MIDWEST GROWTH FUND: GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
AVERAGE ANNUAL TOTAL RETURN*
1 Year ..............16.28%
Since Inception......17.01%
*For period ending 10/31/96
7/1/93 7/93 10/93 1/94 4/94 7/94 10/94 1/95 4/95 7/95 10/95 1/96 4/96 7/96 10/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fairport Midwest Growth Fund
Lipper Growth Fund Index
Standard & Poor's 500 Stock Index
<FN>
Past performance is not indicative of future results.
</TABLE>
Fairport Midwest Growth 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.
While the Fund's objective is capital appreciation, investments are not limited
to growth stocks. We seek opportunities in a broad spectrum of investments from
traditional growth companies to highly cyclical companies.
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.
Internal changes that would be significant might include:
- - An internal change in management
- - A strategic decision to change the business focus of the company or a sector
of the company that could include an acquisition or divestiture
- - The development of an important new product or service
- - Adoption of new operating methods or systems that could positively impact
profitability and cash flow.
Significant external changes might include:
- - A new CEO or other important manager brought in from outside the company
- - A structural change such as a consolidation or bankruptcy in an important
customer industry
- - A significant change in the competitive environment caused by a new entrant
into the market, a new product introduced by a competitor or a dramatic
change in product pricing or costs
- - The development of a new technology that could impact the industry.
While the above lists are far from exclusive, they provide some examples of the
type of changes our research process attempts to identify and analyze.
Continued steady domestic economic growth and the potential for improving
international economies provide a positive backdrop for the Midwest in the year
ahead. The combination of modest growth and low inflation, while generally
positive, will present operating challenges to many company managements. Our
research-driven stock selection process will continue to focus on each
management's ability to prosper in this environment. To date, this disciplined
approach is still able to identify attractive investments in the Midwest.
<PAGE> 44
FAIRORT FUNDS
FAIRPORT GROWTH AND INCOME FUND
The graph below compares the increase in value of a $10,000 investment in
Fairport Growth and Income Fund with the performance of the Standard & Poor's
500 Stock and Lipper Growth & Income Fund indices.
<TABLE>
<CAPTION>
FAIRPORT MIDWEST GROWTH FUND: GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
AVERAGE ANNUAL TOTAL RETURN*
1 Year...............17.77%
Since Inception.......13.02%
*For period ending 10/31/96
7/1/93 7/93 10/93 1/94 4/94 7/94 10/94 1/95 4/95 7/95 10/95 1/96 4/96 7/96 10/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fairport Midwest Growth Fund
Lipper Growth and Income Fund Index
Standard & Poor's 500 Stock Index
<FN>
Past performance is not indicative of future results.
</TABLE>
Fairport Growth and Income 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 price to earnings, book value and cash flows.
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 firms that typify our investment approach are AVX Corp. and Avnet, Inc. Both
companies, one a manufacturer of electronic components and the other a
distributor of components and computer equipment, were adversely affected by an
inventory correction that began one year ago. In mid-summer, both issues were
very attractively valued. Our research contacts at a number of manufacturing and
distribution companies were able to confirm that excess inventories in some
lines had already been eliminated and others had but a short time until they
would be in balance as well. Two fine companies, with prospects for solid
earnings growth ahead confirmed, made excellent additions to the portfolio.
Currently, the fund is diversified among 32 investments representing most
sectors of our economy. Our broad-based research effort is focused on companies
that are taking requisite action to improve profitability. Conversations with a
broad cross-section of managements indicate a favorable outlook for continued
moderate economic growth with low inflation. We will continue to seek out those
companies that present a favorable earnings outlook at prices that offer good
value.
2
<PAGE> 45
INVESTMENT ADVISER'S REPORT
FAIRPORT GOVERNMENT SECURITIES FUND
The graph below compares the increase in value of a $10,000 investment in
Fairport Government Securities Fund with the performance of the Lehman Brothers
Intermediate Treasury Bond Index.
<TABLE>
<CAPTION>
FAIRPORT GOVERNMENT SECURITIES FUND: GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Fairport Government Securities Fund
Lehman Brothers Intermediate Treasury Bond Index
AVERAGE ANNUAL TOTAL RETURN*
1 Year...............4.58%
Since Inception......4.19%
*For period ending 10/31/96
7/1/93 7/93 10/93 1/94 4/94 7/94 10/94 1/95 4/95 7/95 10/95 1/96 4/96 7/96 10/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<FN>
Past performance is not indicative of future results.
</TABLE>
In order to meet its objective of current income with preservation of capital,
Fairport Government Securities 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.
Since our last report, many of the concerns about commodity prices and wage
increases have been put to rest. Inflation remained in check and interest rates
receded from the interim highs reached in June. Our outlook calls for continued
moderate growth and low inflation which should be a favorable environment for
the bond market.
3
<PAGE> 46
FAIRPORT FUNDS
<TABLE>
<CAPTION>
FAIRPORT MIDWEST GROWTH FUND October 31, 1996
==============================================================
Shares Value
- --------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 93.08%
CAPITAL GOODS-22.80%
AMP, Inc. ........................ 36,700 $ 1,243,212
GATX Corp. ....................... 41,000 1,957,750
Harnischfeger Industries, Inc. ... 50,000 2,000,000
Kennametal, Inc. ................. 50,000 1,700,000
Myers Industries, Inc. ........... 120,000 1,860,000
Nordson Corp. .................... 24,700 1,358,500
Park-Ohio Industries, Inc.* ...... 100,509 1,507,635
Trinova Corp. .................... 43,000 1,413,625
---------
13,040,722
- --------------------------------------------------------------
COMMUNICATION EQUIPMENT-3.05%
Allen Group, Inc.* ............... 110,000 1,746,250
- --------------------------------------------------------------
CONSUMER DURABLES-6.84%
Masco Corp. ...................... 65,000 2,039,375
Royal Appliance Manufacturing Co.* 300,000 1,875,000
---------
3,914,375
- --------------------------------------------------------------
CONSUMER NON-DURABLES-21.57%
Consolidated Stores Corp.* ....... 54,700 2,112,788
Patterson Dental Co.* ............ 75,000 2,100,000
Rite Aid Corp. ................... 72,000 2,448,000
Stryker Corp. .................... 100,000 2,975,000
Worthington Foods, Inc. .......... 120,000 2,700,000
---------
12,335,788
- --------------------------------------------------------------
ENERGY-5.33%
Belden & Blake Corp.* ............ 115,100 3,050,150
- --------------------------------------------------------------
FINANCE-16.25%
First Bank System, Inc. .......... 33,000 2,178,000
First Empire State Corp. ......... 8,000 2,054,000
Norwest Corp. .................... 60,000 2,632,500
Star Banc Corp. .................. 27,000 2,430,000
---------
9,294,500
- --------------------------------------------------------------
</TABLE>
4
<PAGE> 47
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
Shares Value
- ------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
MATERIALS/SERVICES-17.24%
Bearings, Inc. ............................................ 78,750 $2,047,500
Duriron Co., Inc. ......................................... 55,800 1,492,650
Figgie International, Inc. Class A* ....................... 180,000 1,912,500
Libbey, Inc. .............................................. 70,000 1,680,000
Owens Corning Fiberglass Corp. ............................ 29,700 1,150,875
Pioneer Standard Electronics, Inc. ........................ 150,000 1,575,000
-----------
9,858,525
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS-(COST $43,100,008) .................... 53,240,310
- ------------------------------------------------------------------------------------------
Principal
Amount
- ------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.47%
United Missouri Bank, U.S. Treasury Note,
$2,585,000 par, 5.125% coupon,
due 06/30/98, dated 10/31/96,
to be sold on 11/01/96 at $2,555,380 (Cost $2,555,000) $ 2,555,000 2,555,000
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-97.55% (COST $45,655,008)** ............. 55,795,310
-----------
CASH AND OTHER ASSETS NET OF LIABILITIES-2.45% ............ 1,402,607
-----------
NET ASSETS-100.00% ........................................ $57,197,917
===========
===========================================================================================
<FN>
* Non-income producing security.
**Also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
</TABLE>
5
<PAGE> 48
FAIRPORT FUNDS
<TABLE>
<CAPTION>
FAIRPORT GROWTH AND INCOME FUND October 31, 1996
============================================================
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 91.34%
AEROSPACE DEFENSE-2.89%
Boeing Co. ....................... 7,000 $ 667,625
- ------------------------------------------------------------
CAPITAL GOODS-18.84%
Emerson Electric Co. ............. 8,000 712,000
GATX Corp. ....................... 14,000 668,500
General Electric Co. ............. 7,100 686,925
Harnischfeger Industries, Inc. ... 20,000 800,000
Johnson Controls, Inc. ........... 10,000 730,000
Kennametal, Inc. ................. 22,000 748,000
---------
4,345,425
- ------------------------------------------------------------
CONSUMER DURABLES-9.23%
Leggett & Platt, Inc. ............ 26,000 776,750
TRW, Inc. ........................ 7,000 633,500
Tupperware Corp. ................. 14,000 719,250
---------
2,129,500
- ------------------------------------------------------------
CONSUMER NON-DURABLES-16.71%
Banta Corp. ...................... 24,000 507,000
Baxter International, Inc. ....... 10,000 416,250
Beckman Instruments, Inc. ........ 20,000 735,000
Dial Corp. ....................... 26,000 357,500
Rite Aid Corp. ................... 20,000 680,000
Sara Lee Corp. ................... 22,000 781,000
Viad Corp. ....................... 26,000 377,000
---------
3,853,750
- ------------------------------------------------------------
ENERGY-3.07%
Exxon Corp. ...................... 8,000 709,000
- ------------------------------------------------------------
FINANCE-17.70%
American International Group, Inc. 8,000 869,000
First Empire State Corp. ......... 3,000 770,250
KeyCorp .......................... 15,000 699,375
National City Corp. .............. 20,000 867,500
Norwest Corp. .................... 20,000 877,500
---------
4,083,625
- ------------------------------------------------------------
</TABLE>
6
<PAGE> 49
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
MATERIALS/SERVICES-9.98%
Avnet, Inc. ............................. 13,000 $ 654,875
Cabot Corp. ............................. 18,000 434,250
Ferro Corp. ............................. 20,000 540,000
Teleflex, Inc. .......................... 14,000 673,750
-----------
2,302,875
- ------------------------------------------------------------------------
TECHNOLOGY-9.63%
AVX Corp. ............................... 32,000 592,000
Frontier Corp. .......................... 24,000 696,000
Harris Corp. ............................ 12,000 751,500
Lucent Technologies, Inc. ............... 3,889 182,783
-----------
2,222,283
- ------------------------------------------------------------------------
UTILITIES-3.29%
GTE Corp. ............................... 18,000 758,250
- ------------------------------------------------------------------------
TOTAL COMMON STOCKS-(COST $16,006,261) .. 21,072,333
- ------------------------------------------------------------------------
Principal
Amount
- ------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 7.68%
United Missouri Bank, U.S. Treasury Note,
$1,792,000 par, 5.125% coupon, due
06/30/98, dated 10/31/96, to be sold
on 11/01/96 at $1,771,263
(Cost $1,771,000) .................... $ 1,771,000 1,771,000
- ------------------------------------------------------------------------
TOTAL INVESTMENTS-99.02%
(COST $17,777,261)** ................ 22,843,333
-----------
CASH AND OTHER ASSETS NET OF
LIABILITIES-0.98% ................... 227,520
-----------
NET ASSETS-100.00% ...................... $23,070,853
===========
=========================================================================
<FN>
**Also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
</TABLE>
7
<PAGE> 50
<TABLE>
<CAPTION>
FAIRPORT FUNDS SCHEDULE OF INVESTMENTS
FAIRPORT GOVERNMENT SECURITIES FUND October 31, 1996
============================================================================
Principal
Amount Value
- ----------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY NOTES -- 96.69%
U.S. TREASURY NOTES
6.875%, 08/31/99 ............................. $1,000,000 $1,024,720
5.500%, 04/15/00 ............................. 1,000,000 985,480
5.625%, 02/28/01 ............................. 1,000,000 983,690
6.250%, 02/15/03 ............................. 1,000,000 1,003,880
5.875%, 02/15/04 ............................. 1,600,000 1,564,112
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS-96.69% (COST $5,561,814)** . 5,561,882
----------
CASH AND OTHER ASSETS NET OF LIABILITIES-3.31% 190,418
----------
NET ASSETS-100.00% ........................... $5,752,300
==========
<FN>
**Also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
</TABLE>
8
<PAGE> 51
<TABLE>
<CAPTION>
FAIRPORT FUNDS STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1996
======================================================================================================================
FAIRPORT MIDWEST FAIRPORT GROWTH FAIRPORT GOVERNMENT
GROWTH FUND AND INCOME FUND SECURITIES FUND
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities at value
(cost $45,655,008,
$17,777,261 and $5,561,814, respectively) ...... $ 55,795,310 $ 22,843,333 $ 5,561,882
Cash .............................................. 754 833 117,328
Receivable for capital stock sold ................. 97,227 5,517 2,678
Receivable for securities sold .................... 1,412,285 685,000 0
Dividends and interest receivable ................. 27,368 17,725 57,646
Reimbursement due from adviser .................... 11,559 7,992 11,248
Deferred organization costs (Note A) .............. 10,868 10,868 10,868
Other assets ...................................... 1,368 627 197
------------ ----------- -----------
Total assets ............................... 57,356,739 23,571,895 5,761,847
------------ ----------- -----------
LIABILITIES
Payable for capital stock redeemed ................ 103,698 54,383 0
Payable for securities purchased .................. 0 421,530 0
Accrued expenses .................................. 55,124 25,129 9,269
Distributions payable ............................. 0 0 278
------------ ----------- -----------
Total liabilities ........................... 158,822 501,042 9,547
------------ ----------- -----------
NET ASSETS
Applicable to 3,689,148, 1,622,062
and 589,863 shares outstanding,
respectively ................................... $ 57,197,917 $ 23,070,853 $ 5,752,300
============ =========== ===========
NET ASSETS CONSIST OF
Capital paid-in ................................... $ 42,806,548 $ 16,110,573 $ 5,861,145
Undistributed net investment income (loss) ........ (10,427) 35,717 0
Accumulated net realized gain (loss) on investments 4,261,494 1,858,491 (108,913)
Net unrealized appreciation on investments ........ 10,140,302 5,066,072 68
------------ ----------- -----------
$ 57,197,917 $ 23,070,853 $ 5,752,300
============ =========== ===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE ..................... $ 15.50 $ 14.22 $ 9.75
======================================================================================================================
<FN>
See accompanying notes to financial statements.
</TABLE>
9
<PAGE> 52
<TABLE>
<CAPTION>
FAIRPORT FUNDS STATEMENTS OF OPERATIONS
Year Ended October 31, 1996
===========================================================================================================================
FAIRPORT MIDWEST FAIRPORT GROWTH FAIRPORT GOVERNMENT
GROWTH FUND AND INCOME FUND SECURITIES FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends ........................................ $ 716,743 $ 551,308 $ 0
Interest ......................................... 134,338 43,022 434,855
--------- --------- ---------
Total investment income .................... 851,081 594,330 434,855
--------- --------- ---------
EXPENSES
Investment advisory fees (Note B) ................ 417,458 184,723 18,674
Transfer agent fees .............................. 55,050 38,160 27,891
Administration fees .............................. 75,644 33,436 10,062
Distribution expenses (Note B) ................... 139,214 61,603 18,664
Pricing fees ..................................... 39,023 26,857 25,267
Printing fees .................................... 30,611 12,105 3,417
Custodian fees ................................... 28,152 19,365 9,428
Auditing fees .................................... 24,785 9,944 3,204
Legal fees ....................................... 45,627 18,291 6,445
Insurance fees ................................... 19,597 9,631 4,164
Amortization of organization costs (Note A) ...... 3,115 3,115 3,115
Registration expenses ............................ 40,663 27,016 19,867
Trustees fees .................................... 15,381 4,927 1,969
Miscellaneous expenses ........................... 4,093 1,541 777
--------- --------- ---------
Total expenses ............................. 938,413 450,714 152,944
Expenses reimbursed (Note B) ..................... (169,950) (81,095) (85,718)
--------- --------- ---------
Net expenses ............................... 768,463 369,619 67,226
--------- --------- ---------
NET INVESTMENT INCOME ............................ 82,618 224,711 367,629
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments .......... 4,515,778 1,856,970 (97,666)
Net change in unrealized
appreciation (depreciation) on investments .... 3,805,220 1,863,728 (3,304)
--------- --------- ---------
Net realized and unrealized
gain (loss) on investments .................... 8,320,998 3,720,698 (100,970)
--------- --------- ---------
INCREASE IN NET ASSETS FROM OPERATIONS ........... $ 8,403,616 $ 3,945,409 $ 266,659
===================================================================================================
<FN>
See accompanying notes to financial statements.
</TABLE>
10
<PAGE> 53
FAIRPORT FUNDS STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
====================================================================================================================================
FAIRPORT MIDWEST FAIRPORT GROWTH FAIRPORT GOVERNMENT
GROWTH FUND AND INCOME FUND SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
10/31/96 10/31/95 10/31/96 10/31/95 10/31/96 10/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income ..................... $ 82,618 $ 116,744 $ 224,711 $ 257,163 $ 367,629 $ 412,546
Net realized gain (loss) on investments ... 4,515,778 1,329,274 1,856,970 280,894 (97,666) (1,571)
Net change in unrealized appreciation
(depreciation) on investments .......... 3,805,220 5,112,366 1,863,728 2,751,712 (3,304) 698,738
------------ ------------ ------------ ------------ ----------- -----------
Increase in net assets .................... 8,403,616 6,558,384 3,945,409 3,289,769 266,659 1,109,713
------------ ------------ ------------ ------------ ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................ (91,013) (130,340) (254,673) (207,044) (405,004) (411,089)
From net realized gains ................... (774,801) (2,076,604) (178,762) (167,462) 0 0
------------ ------------ ------------ ------------ ----------- -----------
Total distributions ....................... (865,814) (2,206,944) (433,435) (374,506) (405,004) (411,089)
------------ ------------ ------------ ------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................. 11,742,064 17,023,299 4,811,561 5,619,642 1,737,076 1,562,174
Reinvestment of dividends ................. 857,142 2,182,580 383,496 309,030 309,367 265,604
Amount paid for repurchase of shares ...... (12,346,785) (3,838,535) (8,718,184) (3,939,188) (4,802,614) (1,493,055)
------------ ------------ ------------ ------------ ----------- -----------
Net increase (decrease) from capital
transactions ........................... 252,421 15,367,344 (3,523,127) 1,989,484 (2,756,171) 334,723
------------ ------------ ------------ ------------ ----------- -----------
Total increase (decrease) in net assets ... 7,790,223 19,718,784 (11,153) 4,904,747 (2,894,516) 1,033,347
NET ASSETS
Beginning of year ......................... 49,407,694 29,688,910 23,082,006 18,177,259 8,646,816 7,613,469
------------ ------------ ------------ ------------ ----------- -----------
End of year ............................... $ 57,197,917 $ 49,407,694 $ 23,070,853 $ 23,082,006 $ 5,752,300 $ 8,646,816
------------ ------------ ------------ ------------ ----------- -----------
Accumulated undistributed (overdistributed)
net investment income included in
net assets at end of year .............. $ (10,427) $ (2,032) $ 35,717 $ 65,679 $ 0 $ 37,375
------------ ------------ ------------ ------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS
Shares sold ............................... 815,058 1,339,632 361,212 502,408 177,063 166,952
Shares issued on reinvestment
of dividends ........................... 62,134 187,547 28,972 28,130 31,864 28,472
Shares repurchased ........................ (835,517) (299,578) (646,096) (355,019) (498,079) (159,651)
------------ ------------ ------------ ------------ ----------- -----------
Net increase (decrease) from capital
transactions ........................... 41,675 1,227,601 (255,912) 175,519 (289,152) 35,773
============ ============ ============ ============ =========== ===========
===================================================================================================================================
<FN>
See accompanying notes to financial statements.
</TABLE>
11
<PAGE> 54
<TABLE>
<CAPTION>
FAIRPORT FUNDS
- -----------------------------------------------------------------------------------------------------------------------
The tables below set forth financial data for a share of beneficial interest
outstanding throughout the periods presented.
FAIRPORT MIDWEST GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------
Year Year Year Period
Ended Ended Ended Ended
10/31/96 10/31/95 10/31/94 10/31/93(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................. $ 13.55 $ 12.27 $ 11.07 $ 10.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................................ 0.02 0.04 0.02 0.01
Net realized and unrealized gain (loss) on investments 2.16 2.04 1.19 1.07
------------ ------------ ------------ ------------
Total from investment operations ............... 2.18 2.08 1.21 1.08
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS
From net investment income ........................... (0.03) (0.04) (0.01) (0.01)
From realized capital gains .......................... (0.20) (0.76) 0.00 0.00
------------ ------------ ------------ ------------
Total distributions ............................ (0.23) (0.80) (0.01) (0.01)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD ....................... $ 15.50 $ 13.55 $ 12.27 $ 11.07
------------ ------------ ------------ ------------
TOTAL RETURN ......................................... 16.28% 18.17% 10.89% 10.90%**
============ ============= ============ ============
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) ...................... $ 57,198 $ 49,408 $ 29,688 $ 9,870
Ratio of expenses to average net assets
before reimbursement of expenses by Adviser ....... 1.69% 1.57% 1.54% 2.89%*
after reimbursement of expenses by Adviser ........ 1.38% 1.41% 1.45% 1.50%*
Ratio of net investment income to average net assets
before reimbursement of expenses by Adviser ....... (0.16%) 0.14% 0.08% (1.11%)*
after reimbursement of expenses by Adviser ........ 0.15% 0.29% 0.17% 0.28%*
Portfolio turnover ................................... 58.01% 46.51% 77.57% 0.00%
Average commission rate paid ......................... $ 0.0600 N/A N/A N/A
================================================================================================================
<FN>
* Annualized
** Not annualized
N/A Not applicable; disclosure not required
(1) The Fairport Midwest Growth Fund, Fairport Growth and Income Fund and
Fairport Government Securities Fund commenced operations on July 1, 1993.
See accompanying notes to financial statements.
</TABLE>
12
<PAGE> 55
<TABLE>
<CAPTION>
FAIRPORT GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------
Year Year Year Period
Ended Ended Ended Ended
10/31/96 10/31/95 10/31/94 10/31/93(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................. $ 12.29 $ 10.68 $ 10.36 $ 10.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................................ 0.13 0.15 0.14 0.04
Net realized and unrealized gain (loss) on investments 2.04 1.68 0.35 0.36
------------ ------------ ------------ ------------
Total from investment operations ................ 2.17 1.83 0.49 0.40
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS
From net investment income ........................... (0.14) (0.12) (0.14) (0.04)
From realized capital gains .......................... (0.10) (0.10) (0.03) 0.00
------------ ------------ ------------ ------------
Total distributions ............................. (0.24) (0.22) (0.17) (0.04)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD ....................... $ 14.22 $ 12.29 $ 10.68 $ 10.36
------------ ------------ ------------ ------------
TOTAL RETURN ......................................... 17.77% 17.36% 4.72% 3.98%**
============ ============ ============ ============
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) .................... $ 23,071 $ 23,082 $ 18,177 $ 8,716
Ratio of expenses to average net assets
before reimbursement of expenses by Adviser ........ 1.83% 1.79% 1.72% 2.79%*
after reimbursement of expenses by Adviser ......... 1.50% 1.50% 1.50% 1.50%*
Ratio of net investment income to average net assets
before reimbursement of expenses by Adviser ........ 0.58% 0.98% 1.20% 0.10%*
after reimbursement of expenses by Adviser ......... 0.91% 1.26% 1.42% 1.39%*
Portfolio turnover ................................... 34.02% 13.36% 35.16% 4.18%
Average commission rate paid ......................... $ 0.0591 N/A N/A N/A
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FAIRPORT GOVERNMENT SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------
Year Year Year Period
Ended Ended Ended Ended
10/31/96 10/31/95 10/31/94 10/31/93(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................. $ 9.84 $ 9.03 $ 10.20 $ 10.00
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................................ 0.49 0.49 0.43 0.15
Net realized and unrealized gain (loss) on investments (0.05) 0.81 (1.17) 0.16
------------ ------------ ------------ ------------
Total from investment operations ................. 0.44 1.30 (0.74) 0.31
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS
From net investment income .......................... (0.53) (0.49) (0.42) (0.11)
From realized capital gains ......................... 0.00 0.00 (0.01) 0.00
------------ ------------ ------------ ------------
Total distributions ............................. (0.53) (0.49) (0.43) (0.11)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD ....................... $ 9.75 $ 9.84 $ 9.03 $ 10.20
------------ ------------ ------------ ------------
TOTAL RETURN ......................................... 4.58% 14.76% (7.24%) 3.04%**
============ ============ ============ ============
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) ...................... $ 5,752 $ 8,647 $ 7,614 $ 5,829
Ratio of expenses to average net assets
before reimbursement of expenses by Adviser ........ 2.05% 2.16% 1.80% 2.78%*
after reimbursement of expenses by Adviser ......... 0.90% 0.90% 0.90% 0.90%*
Ratio of net investment income to average net assets
before reimbursement of expenses by Adviser ........ 3.78% 3.89% 3.88% 2.29%*
after reimbursement of expenses by Adviser ......... 4.93% 5.16% 4.78% 4.17%*
Portfolio turnover ................................... 21.23% 1.28% 24.14% 24.53%
Average commission rate paid ......................... N/A N/A N/A N/A
========================================================================================================================
</TABLE>
13
<PAGE> 56
FAIRPORT FUNDS October 31, 1996
- ------------------------------------------------------------------------------
NOTE (A) SIGNIFICANT ACCOUNTING POLICIES:
Fairport Funds (the "Trust"), formerly known as Roulston Family of Funds, 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. On March
1, 1996, the Trust changed its name from The Roulston Family of Funds to
Fairport Funds. The Trust currently consists of three Funds (the "Funds"):
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 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 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
Reorganization was approved by the shareholders of the Acquired Funds 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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.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 or in the over-the-counter market will
be valued at the last sale price on the exchange on which the security is
principally traded. Equity securities for which there is no sale on that day
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 FPS 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
14
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS
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 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 semi-annual dividends. Net investment
income (exclusive of capital gains) of the Government Fund is declared daily and
distributed in the form of monthly dividends. Substantially all of the capital
gains realized by the Funds will be distributed 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, the Trust has adopted a Distribution
Agreement and Shareholder Service Plan dated January 20, 1995 (the "Plan"),
under which each Fund is authorized to pay or reimburse Roulston Research Corp.
(the "Distributor"), ultimately a wholly-owned subsidiary of Roulston, a
periodic amount calculated at an annual rate not to exceed .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 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
15
<PAGE> 58
FAIRPORT FUNDS NOTES TO FINANCIAL STATEMENTS CONT.
October 31, 1996
the Distributor. Under the Plan, a Participating Organization may include the
Distributor's affiliates.
In addition, the Board of Trustees of the Trust adopted certain procedures in
accordance with Section 17(e)(2) and Rule 17e-1 under the Act pursuant to which
the Distributor was permitted to execute certain portfolio transactions as
broker on behalf of the Funds. In connection with such brokerage transactions,
Roulston as the investment adviser, could determine to use the Distributor if
such use would 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. Such
procedures were in place and used during the year ended October 31, 1996 until
February 12, 1996, and have not been used since that date.
Roulston has agreed with the Trust to waive its investment advisory fee and to
reimburse certain other expenses of the Funds from the effective date of the
Reorganization (April 29, 1995) and such waivers and reimbursements shall
continue at least through April 30, 1997, 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
.90%, respectively.
Information regarding these transactions is as follows for the year ended
October 31, 1996:
<TABLE>
<CAPTION>
Midwest Growth and
Growth Income Government
Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Fees before fee waiver .......... $417,458 $184,723 $18,674
Fees waived ..................... 169,950 81,095 18,674
RULE 12b-1 FEES:
Fees before fee waiver .......... 139,214 61,603 18,664
Fees waived ..................... 0 0 0
Other expenses
reimbursed .................... 0 0 67,044
Brokerage fees paid to the
distributor on portfolio
transactions .................. 37,716 4,600 0
- --------------------------------------------------------------------------------
</TABLE>
Certain of the officers and 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.
NOTE (C) INVESTMENT TRANSACTIONS:
Purchases and sales of investment securities (excluding short-term securities)
for the year ended October 31, 1996 were:
<TABLE>
<CAPTION>
Proceeds
Purchases from Sales
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
Midwest Growth Fund ....... $ 30,566 $ 32,074
Growth and Income Fund .... 8,032 13,272
Government Fund ........... 1,542 4,367
- -------------------------------------------------------------------------------
</TABLE>
NOTE (D) UNREALIZED APPRECIATION
AND DEPRECIATION:
At October 31, 1996, the gross unrealized appreciation and depreciation of
securities for book and Federal income tax purposes consisted of the
following:
<TABLE>
<CAPTION>
Net
Gross Gross Unrealized
Unrealized Unrealized Appreciation/
Appreciation (Depreciation) (Depreciation)
(000) (000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Midwest Growth Fund ....... $ 10,775 $ (635) $ 10,140
Growth and Income Fund .... 5,159 (93) 5,066
Government Fund ........... 43 (43) 0
- -------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 59
FAIRPORT FUNDS REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Trustees of
Fairport Midwest Growth Fund,
Fairport Growth and Income Fund
and Fairport Government Securities Fund
of Fairport Funds:
We have audited the accompanying statement of assets and liabilities of Fairport
Midwest Growth Fund, Fairport Growth and Income Fund and Fairport Government
Securities Fund (the three funds constituting the Fairport Funds, formerly The
Roulston Family of Funds), including the schedule of investments, as of October
31, 1996, and the related statements of operations for the year then ended,
changes in net assets and financial highlights for each of the two years in the
period then ended. These financial statements and financial highlights are the
responsibility of Fairport Funds' management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. 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 the financial statements (not presented herein) and
related financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per share data
and ratios 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, 1996, 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 audits provide a reasonable basis for our opinion.
In our opinion, the 1996 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Fairport Midwest Growth Fund, Fairport Growth and Income Fund and Fairport
Government Securities Fund of the Fairport Funds at October 31, 1996, the
results of their operations for the year then ended and the changes in their net
assets and financial highlights for each of the two years in the period then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
November 27, 1996
Cleveland, Ohio
<PAGE> 60
FAIRPORT
FUNDS
[LOGO]
CHARTING A COURSE YOU CAN TRUST
4000 Chester Avenue
Cleveland, Ohio 44103
1-800-332-6459
DIRECTORS:
Thomas V. Chema
David H. Gunning
Scott D. Roulston
Ivan Winfield
OFFICERS:
Scott D. Roulston, President
Michele R. Fogarty, Secretary and Treasurer
ADVISER:
Roulston & Company, Inc.
4000 Chester Avenue
Cleveland, Ohio 44103
DISTRIBUTOR:
Roulston Research Corp.
4000 Chester Avenue
Cleveland, Ohio 44103
ADMINISTRATOR & TRANSFER AGENT:
FPS Services, Inc.
3200 Horizon Drive
King of Prussia, Pennsylvania 19406
LEGAL COUNSEL:
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
INDEPENDENT PUBLIC ACCOUNTANTS:
Ernst & Young, LLP
1300 Huntington Building
925 Euclid Avenue
Cleveland, Ohio 44115-1405
For information call 1-800-332-6459
Fairport Funds take their name from the historic Fairport Harbor Lighthouse,
located on Lake Erie at the Grand River, just east of the Funds' headquarters
in Cleveland, Ohio. Originally built in 1825, the Fairport Harbor Lighthouse
guided ships safely in and out of the harbor for 100 years. In its early years
the lighthouse was considered the gateway to the Western Reserve and the vast
frontiers of the Northwest Territories and beyond. Later the lighthouse served
as a beacon and supply stop for pioneers and travelers on their way to western
Great Lakes ports and beyond. The original brick structure was rebuilt in 1871
of sandstone blocks, as it remains today.
This report is submitted for the general information of the shareholders of the
Funds. It is not authorized for distribution to prospective investors in a Fund
unless preceded or accompanied by an effective Prospectus which includes details
regarding the Fund's objectives, policies, expenses and other information.
