<PAGE> 1
As filed with the Securities and Exchange Commission on February 27, 1998
1933 Act Registration No. 33-84186
1940 Act File No. 811-8774
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 5 [X]
FAIRPORT FUNDS
(Exact Name of Registrant as Specified in Charter)
4000 Chester Avenue, Cleveland, Ohio 44103
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 216/431-3000
Scott D. Roulston, 4000 Chester Avenue, Cleveland, Ohio 44103
(Name and Address of Agent for Service)
Copy to: Kristin H. Ives, Esq., Baker & Hostetler LLP
65 East State Street, Columbus, Ohio 43215
Approximate Date of Proposed Public Offering:
Immediately, upon effectiveness
It is proposed that this filing will become effective (check appropriate box)
_X_ immediately upon filing pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant filed its Rule 24f-2 Notice for its fiscal year ended
October 31, 1997, on January 30, 1998.
<PAGE> 2
CROSS REFERENCE SHEET
FAIRPORT MIDWEST GROWTH FUND
FAIRPORT GROWTH AND INCOME FUND
FAIRPORT GOVERNMENT SECURITIES FUND
Three Funds
of
FAIRPORT FUNDS
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Prospectus Highlights; Fund Expenses
3. Condensed Financial
Information............... Financial Highlights;
Performance of the Funds
4. General Description of
Registrant................ General Information -- The Trust and
Its Shares; Investment Objectives and
Policies; Investment Limitations of the
Funds; Description of Permitted
Investments and Related Risk Factors
5. Management of the Fund...... Management of the Trust;
General Information
5A. Management's Discussion
of Fund Performance....... Inapplicable
6. Capital Stock and Other
Securities................ How to Purchase Shares; How to Redeem
Shares; How the Funds are Taxed;
Dividends and Shareholder Taxes;
General Information
7. Purchase of Securities
Being Offered............. How Shares are Valued; How to Purchase
Shares; How to Redeem Shares; Exchanges
8. Redemption or Repurchase.... How to Purchase Shares; How to Redeem
Shares; Exchanges
9. Pending Legal Proceedings... Inapplicable
</TABLE>
<PAGE> 3
FAIRPORT FUNDS
================================================================================
Charting A Course You Can Trust
================================================================================
INVESTMENT ADVISER:
ROULSTON & COMPANY, INC.
Fairport Funds (the "Trust") provides a convenient and economical means of
investing in professionally managed portfolios of securities. This Prospectus
describes the following portfolios of the Trust (the "Funds"), each of which is
a separate diversified portfolio.
FAIRPORT MIDWEST GROWTH FUND
FAIRPORT GROWTH AND INCOME FUND
FAIRPORT GOVERNMENT SECURITIES FUND
This Prospectus provides the information about the Trust and the Funds that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. Additional information
regarding the Trust and the Funds is included in a Statement of Additional
Information dated February 27, 1998, which has been filed with the Securities
and Exchange Commission and is incorporated into this Prospectus by reference.
Copies of the Statement of Additional Information may be obtained without charge
by calling 1-800-332-6459 (1-800-3-FAMILY) or by writing to the Trust at 4000
Chester Avenue, Cleveland, Ohio 44103. You may also visit our website at
www.Fairport.com. Additionally, the Securities and Exchange Commission maintains
a website (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference into this Prospectus, and other
information regarding the Trust and its Funds which is filed electronically with
the Securities and Exchange Commission.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated February 27, 1998
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Highlights.............. 3
Fund Expenses...................... 4
Financial Highlights............... 4
The Trust and Its Funds............ 8
Investment Objectives and
Policies......................... 8
Investment Limitations of the
Funds............................ 11
Management of the Trust............ 11
How Shares are Valued.............. 14
How to Purchase Shares............. 14
How to Redeem Shares............... 16
Exchanges.......................... 17
Integrated Voice Response ("IVR")
System........................... 18
Performance of the Funds........... 18
How the Funds are Taxed............ 19
Dividends and Shareholder Taxes.... 19
General Information................ 20
Description of Permitted
Investments and Related Risk
Factors.......................... 21
</TABLE>
2
<PAGE> 5
PROSPECTUS HIGHLIGHTS
The following summary provides basic information about FAIRPORT MIDWEST GROWTH
FUND (the "MIDWEST GROWTH FUND"), FAIRPORT GROWTH AND INCOME FUND (the "GROWTH
AND INCOME FUND") and FAIRPORT GOVERNMENT SECURITIES FUND (the "GOVERNMENT
FUND"), (each, a "Fund" and, collectively, the "Funds"). However, the following
is only a summary, so please review carefully the remainder of the Prospectus
for more information.
INVESTMENT OBJECTIVES OF THE FUNDS
The MIDWEST GROWTH FUND seeks capital appreciation. The MIDWEST GROWTH FUND
seeks to achieve its objective by investing primarily in equity securities of
companies headquartered in the Midwest region of the United States.
The GROWTH AND INCOME FUND seeks capital appreciation and current income. The
GROWTH AND INCOME FUND seeks to achieve its objective by investing primarily in
common stocks or securities convertible into common stocks.
The GOVERNMENT FUND seeks current income consistent with preservation of
capital. The GOVERNMENT FUND seeks to achieve its objectives by investing
primarily in mid- to intermediate term fixed income securities in the high end
of the credit spectrum. The GOVERNMENT FUND will invest at least 65% of its
total assets in U.S. Government securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
You should be aware of certain risks and considerations before investing in any
of the Funds. Each Fund invests in securities that fluctuate in value; therefore
you should expect each Fund's net asset value per share to fluctuate. Since each
of the MIDWEST GROWTH FUND and GROWTH AND INCOME FUND invests primarily in
common stocks, such Funds are subject to stock market risk, i.e., the
possibility that stock prices in general will decline over short or even
extended periods. Values of fixed income securities and, correspondingly, of
mutual funds invested in such securities, such as the GOVERNMENT FUND, generally
vary inversely with interest rates and may be affected by other market and
economic factors as well. There is no assurance that the investment objective of
any Fund will be achieved. In addition, the Funds, to the extent set forth under
"INVESTMENT OBJECTIVES AND POLICIES" and "DESCRIPTION OF PERMITTED INVESTMENTS
AND RELATED RISK FACTORS," may engage in the following practices: the use of
repurchase agreements, entering into options transactions, purchasing securities
on a when-issued or delayed-delivery basis and purchasing noninvestment grade
convertible debt securities, variable or floating rate securities, securities
restricted as to disposition and foreign securities.
THE INVESTMENT ADVISER
Roulston & Company, Inc. ("Roulston") is the investment adviser ("Adviser" or
"Investment Adviser") for each Fund.
THE DISTRIBUTOR
Roulston Research Corp., a wholly-owned subsidiary of Roulston (the
"Distributor").
PURCHASES AND REDEMPTIONS
Shares of the Funds are sold and redeemed at their net asset value without any
sales load. Each Fund has a minimum initial investment requirement of $250.
Purchases and redemptions may be made on each day the New York Stock Exchange
(the "Exchange") is open for regular business (a "Business Day"). Your purchase
order will be effective as of the Business Day it is received by the Transfer
Agent if the Transfer Agent receives your order and payment by check or wire
transfer of funds prior to the earlier of 4:00 p.m. Eastern Time or the close of
regular trading on the Exchange (the "Valuation Time") on such Business Day.
Redemption orders received by the Transfer Agent prior to the Valuation Time on
any Business Day will be effective as of that Business Day. The Funds also offer
both a Systematic Investment Plan and a Systematic Withdrawal Plan.
DIVIDENDS AND DISTRIBUTIONS
The MIDWEST GROWTH FUND and the GROWTH AND INCOME FUND intend to declare and pay
dividends of net investment income twice per year. The GOVERNMENT FUND'S net
investment income dividends are declared daily and payable monthly. All Funds
will make distributions of capital gains at least annually. You will receive
such dividends and distributions in additional shares unless you otherwise elect
to take those payments in cash.
3
<PAGE> 6
THE ADMINISTRATOR AND TRANSFER AGENT
FPS Services, Inc. ("FPS") serves as the Administrator, Transfer Agent, and
dividend disbursing agent, and provides certain Fund Accounting and Custody
Administration services for each of the Funds.
FUND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load on Purchases........ None
Sales Load on Reinvested None
Dividends....................
Deferred Sales Load............ None
Redemption Fee................. None, although a wire
redemption charge,
currently $9, is
deducted from the
amount of a Federal
Reserve wire
redemption payment.
Exchange Fee................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
<TABLE>
<CAPTION>
MIDWEST GROWTH GOVERNMENT
GROWTH AND INCOME SECURITIES
FUND FUND FUND
- ----------------------------------------------------------
<S> <C> <C> <C>
Management Fees After
Fee Waiver......... .55%(1) .49%(1) .00%(1)
12b-1 Fees........... .25% .25% .25%
Other Expenses After
Reimbursements..... .58% .76% .65%(1)
---- ---- ----
Total Operating
Expenses After Fee
Waivers and/ or
Expense
Reimbursements(1)... 1.38% 1.50% .90%
==== ==== ====
</TABLE>
(1) The above table reflects a continuation of the agreement Roulston has made
with the Trust to waive all or a portion of its investment advisory fee, and to
reimburse certain Other Expenses. Such waivers and reimbursements shall continue
until further written notice to shareholders, to the extent necessary to cause
Total Operating Expenses not to exceed: 1.38% for the MIDWEST GROWTH FUND; 1.50%
for the GROWTH AND INCOME FUND; and 0.90% for the GOVERNMENT FUND. Absent such
fee waivers and expense reimbursements, Management Fees, Other Expenses, and
Total Operating Expenses for the fiscal year ended October 31, 1997 would have
been: 0.75%, 0.58%, and 1.58%, respectively, for the MIDWEST GROWTH FUND; 0.75%,
0.76%, and 1.76%, respectively, for the GROWTH AND INCOME FUND; and 0.25%,
2.20%, and 2.70%, respectively, for the GOVERNMENT FUND.
Such expenses are illustrated by the following examples. You would pay the
following expenses on a $1,000 investment (assuming a 5% annual return and
redemption at the end of each period):
<TABLE>
<CAPTION>
MIDWEST GROWTH GOVERNMENT
GROWTH AND INCOME SECURITIES
FUND FUND FUND
- ----------------------------------------------------------
<S> <C> <C> <C>
One Year............. $ 14 $ 15 $ 9
Three Years.......... $ 44 $ 47 $ 29
Five Years........... $ 76 $ 82 $ 50
Ten Years............ $166 $179 $111
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
purpose of these tables is to assist you in understanding the various costs and
expenses that you may bear directly or indirectly when you invest in a Fund. As
the result of the payment of Rule 12b-1 fees, long-term shareholders may pay
more than the maximum front-end sales charge permitted by the Rules of the
National Association of Securities Dealers, Inc. Additional information may be
found under "MANAGEMENT OF THE TRUST" and "HOW TO PURCHASE SHARES".
FINANCIAL HIGHLIGHTS
The Financial Highlights with respect to the fiscal years ended October 31,
1997, 1996 and 1995, have been audited by Ernst & Young LLP, independent
auditors of the Funds. The report of Ernst & Young LLP, together with certain
financial statements, are incorporated by reference into the Trust's Statement
of Additional Information and may be obtained by shareholders and prospective
investors at no cost.
On April 29, 1995, pursuant to an Agreement and Plan of Reorganization and
Liquidation, each of the FAIRPORT MIDWEST GROWTH FUND, the FAIRPORT GROWTH AND
INCOME FUND and the FAIRPORT GOVERNMENT SECURITIES FUND of the Trust acquired in
a tax-free reorganization all of the assets of each of the Roulston Midwest
Growth Fund, the Roulston Growth and Income Fund and the Roulston Government
Securities Fund (collectively the "Acquired Funds") of The Advisors' Inner
Circle Fund, a Massachusetts business trust, respectively, in exchange for the
assumption of such Acquired Fund's liabilities and a number of full and
fractional shares of the corresponding Fund of the Trust having an aggregate net
asset value equal to such Acquired Fund's net assets (the "Reorganization").
The Financial Highlights with respect to the fiscal year ended October 31, 1994
and the period from July 1, 1993 (commencement of operations) through October
31, 1993, were audited by the independent auditors of the Acquired Funds prior
to the Reorganization.
The following tables should be read in conjunction with the financial statements
and related notes which appear in the 1997 Annual Report to Shareholders.
4
<PAGE> 7
<TABLE>
<CAPTION>
FAIRPORT MIDWEST GROWTH FUND
------------------------------------------------------------------
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
10/31/97 10/31/96 10/31/95 10/31/94 10/31/93 (1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period...... $ 15.50 $ 13.55 $ 12.27 $ 11.07 $ 10.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (loss)............ (0.01) 0.02 0.04 0.02 0.01
Net realized and unrealized gain (loss)
on investments....................... 4.55 2.16 2.04 1.19 1.07
------- ------- ------- ------- -------
Total from investment operations..... 4.54 2.18 2.08 1.21 1.08
------- ------- ------- ------- -------
Less Distributions:
From net investment income.............. (0.01) (0.03) (0.04) (0.01) (0.01)
From realized capital gains............. (1.15) (0.20) (0.76) 0.00 0.00
------- ------- ------- ------- -------
Total distributions.................. (1.16) (0.23) (0.80) (0.01) (0.01)
------- ------- ------- ------- -------
Net Asset Value, end of period............ $ 18.88 $ 15.50 $ 13.55 $ 12.27 $ 11.07
======= ======= ======= ======= =======
Total Return.............................. 31.00% 16.28% 18.17% 10.89% 10.90%**
Ratios/Supplemental Data:
Net assets, end of period (000)......... $77,017 $57,198 $49,408 $29,688 $ 9,870
Ratio of expenses to average net assets
before reimbursement of expenses by
Adviser.............................. 1.58% 1.69% 1.57% 1.54% 2.89%*
after reimbursement of expenses by
Adviser............................ 1.38% 1.38% 1.41% 1.45% 1.50%*
Ratio of net investment income to
average net assets before
reimbursement of expenses by
Adviser.............................. (0.25%) (0.16%) 0.14% 0.08% (1.11%)*
after reimbursement of expenses by
Adviser............................ (0.05%) 0.15% 0.29% 0.17% 0.28%*
Portfolio turnover...................... 41.16% 58.01% 46.51% 77.57% 0.00%
Average commission rate paid............ $0.0499 $0.0600 N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not Annualized
N/A Not Applicable; disclosure not required
(1) Commenced operations on July 1, 1993.
5
<PAGE> 8
<TABLE>
<CAPTION>
FAIRPORT GROWTH AND INCOME FUND
------------------------------------------------------------------
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
10/31/97 10/31/96 10/31/95 10/31/94 10/31/93 (1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period...... $ 14.22 $ 12.29 $ 10.68 $ 10.36 $ 10.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (loss)............ 0.05 0.13 0.15 0.14 0.04
Net realized and unrealized gain (loss)
on investments....................... 4.83 2.04 1.68 0.35 0.36
------- ------- ------- ------- -------
Total from investment operations..... 4.88 2.17 1.83 0.49 0.40
------- ------- ------- ------- -------
Less Distributions:
From net investment income.............. (0.09) (0.14) (0.12) (0.14) (0.04)
From realized capital gains............. (1.14) (0.10) (0.10) (0.03) 0.00
------- ------- ------- ------- -------
Total distributions.................. (1.23) (0.24) (0.22) (0.17) (0.04)
------- ------- ------- ------- -------
Net Asset Value, end of period............ $ 17.87 $ 14.22 $ 12.29 $ 10.68 $ 10.36
======= ======= ======= ======= =======
Total Return.............................. 36.61% 17.77% 17.36% 4.72% 3.98%**
Ratios/Supplemental Data:
Net assets, end of period (000)......... $30,841 $23,071 $23,082 $18,177 $ 8,716
Ratio of expenses to average net assets
before reimbursement of expenses by
Adviser.............................. 1.76% 1.83% 1.79% 1.72% 2.79%*
after reimbursement of expenses by
Adviser............................ 1.50% 1.50% 1.50% 1.50% 1.50%*
Ratio of net investment income to
average net assets before
reimbursement of expenses by
Adviser.............................. 0.03% 0.58% 0.98% 1.20% 0.10%*
after reimbursement of expenses by
Adviser............................ 0.29% 0.91% 1.26% 1.42% 1.39%*
Portfolio turnover...................... 42.45% 34.02% 13.36% 35.16% 4.18%
Average commission rate paid............ $0.0599 $0.0591 N/A N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
N/A Not Applicable; disclosure not required
(1) Commenced operations on July 1, 1993.
6
<PAGE> 9
<TABLE>
<CAPTION>
FAIRPORT GOVERNMENT SECURITIES FUND
--------------------------------------------------------
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
10/31/97 10/31/96 10/31/95 10/31/94 10/31/93 (1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period.... $ 9.75 $ 9.84 $ 9.03 $ 10.20 $ 10.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (loss)............ 0.49 0.49 0.49 0.43 0.15
Net realized and unrealized gain (loss)
on investments....................... 0.15 (0.05) 0.81 (1.17) 0.16
------- ------- ------- ------- -------
Total from investment operations..... 0.64 0.44 1.30 (0.74) 0.31
------- ------- ------- ------- -------
Less Distributions:
From net investment income.............. (0.49) (0.53) (0.49) (0.42) (0.11)
From realized capital gains............. 0.00 0.00 0.00 (0.01) 0.00
------- ------- ------- ------- -------
Total distributions.................. (0.49) (0.53) (0.49) (0.43) (0.11)
------- ------- ------- ------- -------
Net Asset Value, end of period............ $ 9.90 $ 9.75 $ 9.84 $ 9.03 $ 10.20
======= ======= ======= ======= =======
Total Return.............................. 6.76% 4.58% 14.76% (7.24%) 3.04%**
Ratios/Supplemental Data:
Net assets, end of period (000)......... $ 4,411 $ 5,752 $ 8,647 $ 7,614 $ 5,829
Ratio of expenses to average net assets
before reimbursement of expenses by
Adviser.............................. 2.70% 2.05% 2.16% 1.80% 2.78%*
after reimbursement of expenses by
Adviser............................ 0.90% 0.90% 0.90% 0.90% 0.90%*
Ratio of net investment income to
average net assets before
reimbursement of expenses by
Adviser.............................. 3.23% 3.78% 3.89% 3.88% 2.29%*
after reimbursement of expenses by
Adviser............................ 5.03% 4.93% 5.16% 4.78% 4.17%*
Portfolio turnover...................... 21.01% 21.23% 1.28% 24.14% 24.53%
Average commission rate paid............ N/A N/A N/A N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
N/A Not Applicable; disclosure not required
(1) Commenced operations on July 1, 1993.
7
<PAGE> 10
THE TRUST AND ITS FUNDS
In order to provide you with a variety of mutual funds with different investment
objectives, the Trust offers shares of the MIDWEST GROWTH FUND, the GROWTH AND
INCOME FUND and the GOVERNMENT FUND, each of which is a diversified Fund of the
Trust, and which may be referred to individually as a "Fund" and collectively as
the "Funds." Of course, there can be no guarantee that any Fund will achieve its
investment objectives.
INVESTMENT OBJECTIVES AND POLICIES
MIDWEST GROWTH FUND
The MIDWEST GROWTH FUND seeks, as its investment objective, capital
appreciation.
Under normal circumstances, the Fund invests as fully as practicable in common
stocks, but may also invest in rights and debt securities and preferred stocks
convertible into common stocks (together with common stocks, "equity
securities") and in warrants to acquire such equity securities. Under normal
market conditions, the Fund invests at least 65% of its total assets in equity
securities of companies headquartered in the states or areas bordering the Great
Lakes; that is, Ohio, Michigan, Indiana, Illinois, Western New York, Western
Pennsylvania, Wisconsin and Minnesota (the "Midwest"). Roulston, as the Fund's
investment adviser, generally selects for investment by the Fund common stocks
that Roulston's research indicates represent high investment potential and/or
value for the Fund. Roulston does not necessarily consider dividend income when
selecting common stocks for the Fund.
===============================================================================
THE MIDWEST GROWTH FUND SEEKS CAPITAL
APPRECIATION, PRIMARILY THROUGH
INVESTMENTS IN COMMON STOCKS.
===============================================================================
Roulston, as investment adviser to the MIDWEST GROWTH FUND, selects convertible
securities primarily upon its evaluation that the underlying common stocks meet
the criteria for selection of common stocks as described above. The Fund intends
to invest in convertible debt securities which are primarily investment grade
(i.e., rated within the four highest rating categories of a nationally
recognized statistical rating organization ("NRSRO"), e.g., Standard & Poor's
Corporation ("S&P") or Moody's Investors Service, Inc., ("Moody's") or, if
unrated, are deemed to be of comparable quality to securities so rated). The
Fund, however, may invest up to 5% of its net assets in noninvestment grade
convertible debt securities rated no lower than B by an appropriate NRSRO or in
unrated securities which are deemed by Roulston to be of comparable quality.
Noninvestment grade securities are commonly referred to as high yield or high
risk securities. High yield, high risk securities generally have more risk than
higher quality securities and are subject to more credit risk, including risk of
default, and volatility than higher quality securities. In addition, such
securities may have less liquidity and experience more price fluctuation than
higher quality securities. For a further discussion of convertible debt
securities rated B by an NRSRO, please see "Risk Factors" below.
Any of the MIDWEST GROWTH FUND'S assets not invested in equity securities are
invested in certain money market instruments ("Money Market Instruments") which
consist of securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities; certificates of deposit, time deposits, and bankers'
acceptances issued by domestic and foreign branches of U.S. commercial banks or
savings and loan associations and domestic branches of foreign banks, having net
assets of at least $10 billion as stated on their most recently published
financial statements; commercial paper rated in one of the two highest rating
categories assigned by at least one NRSRO or, if unrated, are of comparable
quality at the time of purchase as determined by Roulston; variable amount
master demand notes; repurchase agreements involving such securities; and shares
of other investment companies holding themselves out as money market funds.
Please see Appendix "A" to the Statement of Additional Information for a
description of the applicable NRSRO ratings.
GROWTH AND INCOME FUND
The GROWTH AND INCOME FUND seeks, as its investment objectives, capital
appreciation and current income.
Under normal market conditions, the Fund invests as fully as practicable in
common stocks of U.S. issuers but may also invest in warrants, rights and debt
securities and pre-
8
<PAGE> 11
ferred stocks convertible into common stocks, which are rated at the time of
purchase in one of the four highest rating categories by an NRSRO (or if not
rated, deemed by Roulston to be of comparable quality to securities so rated),
and U.S. dollar denominated securities of foreign issuers, including American
Depository Receipts ("ADRs"). In addition, up to 5% of the Fund's net assets may
be invested in noninvestment grade convertible debt securities rated no lower
than B by an appropriate NRSRO or in unrated securities which are deemed by
Roulston to be of comparable quality. The risks of investment in such securities
are described above under "MIDWEST GROWTH FUND."
Roulston, as the GROWTH AND INCOME FUND'S investment adviser, generally selects
for investment by the Fund common stocks that pay dividends and that Roulston's
research indicates represent potential value upon consideration of relative
price/earnings multiples, price to book value and/or price/earnings ratios.
==============================================================================
THE GROWTH AND INCOME FUND SEEKS CAPITAL
APPRECIATION AND CURRENT INCOME, PRIMARILY
THROUGH INVESTMENTS IN COMMON STOCKS.
==============================================================================
Any of the GROWTH AND INCOME FUND'S assets not invested in the securities listed
above are invested in Money Market Instruments.
GOVERNMENT FUND
The GOVERNMENT FUND seeks, as its investment objective, current income
consistent with preservation of capital.
The Fund invests at least 65% of its total assets in direct obligations issued
by the U.S. Treasury; separately traded component parts of U.S. Treasury
obligations, transferable only through the Federal Reserve's book entry system
and which are a part of the U.S. Government's STRIPs program; obligations issued
or guaranteed as to principal and interest by the U.S. Government or its
agencies or instrumentalities; and repurchase agreements involving any of the
foregoing securities. The Fund may also invest up to 5% of its net assets in
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities which are "mortgage-related" securities, meaning that they
represent an interest in an underlying pool of mortgages.
The remaining assets of the GOVERNMENT FUND may be invested in any of the
following: domestic corporate fixed income securities rated in one of the two
highest rating categories by at least one NRSRO or, if unrated, are of
comparable quality at the time of purchase as determined by Roulston; variable
amount master demand notes; short-term bank obligations, including certificates
of deposit, time deposits and bankers' acceptances, of domestic and foreign
branches of U.S. commercial banks or savings and loan institutions and domestic
branches of foreign banks, with assets of at least $10 billion as stated on
their most recently published financial statements; U.S. dollar denominated
securities issued or guaranteed by supranational entities, foreign governments,
their political subdivisions, agencies or instrumentalities; and repurchase
agreements involving such securities.
==============================================================================
THE GOVERNMENT FUND SEEKS CURRENT INCOME
CONSISTENT WITH THE PRESERVATION OF CAPITAL.
==============================================================================
The GOVERNMENT FUND expects to maintain a dollar-weighted average portfolio
maturity of three to ten years. Within this range, Roulston will maintain a
relatively even distribution of maturities among the Fund's holdings.
IN GENERAL
Each Fund generally will purchase only those securities that are traded in the
United States or Canada on registered exchanges or the over-the-counter markets,
including established dealer markets. Each of the MIDWEST GROWTH FUND and the
GROWTH AND INCOME FUND, however, may invest up to 5% of their respective net
assets in equity securities that are restricted as to their resale as described
more fully below.
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis, may invest in variable and floating rate instruments, may purchase
securities of other investment companies, and may purchase and sell options on
securities or market indices and may write covered-call options (for hedging
9
<PAGE> 12
purposes only). For more information regarding such investment techniques,
please see "Risk Factors" and "DESCRIPTION OF PERMITTED INVESTMENTS AND RELATED
RISK FACTORS" below.
For temporary defensive purposes, when Roulston determines that market
conditions warrant, each Fund may invest up to 100% of its assets in cash and
Money Market Instruments. To the extent a Fund is so invested, that Fund may not
achieve its investment objective or objectives.
RISK FACTORS
Each Fund's shares will fluctuate in value. An investment in any of the Funds
may be more suitable for long-term investors who can bear the risk of short-term
fluctuations in value.
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time, and therefore the net asset value of
a Fund investing in such securities to fluctuate. There is the risk that stock
prices in general will decline over short or even extended periods of time. The
value of convertible securities is also affected by prevailing interest rates,
the credit quality of the issuer and any call provisions.
The market value of a Fund's fixed income investments will also change in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities with longer maturities
tend to produce higher yields, the price of longer maturity securities are also
subject to greater price fluctuations as a result of changes in interest rates.
Changes by an NRSRO in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal also affect the
value of these investments. Changes in the value of portfolio securities will
not necessarily affect cash income derived from these securities but will affect
a Fund's net asset value.
================================================================================
AN INVESTMENT IN ANY OF THE FUNDS MAY BE MORE SUITABLE FOR LONGER-TERM INVESTORS
WHO CAN BEAR THE RISK OF SHORT-TERM FLUCTUATIONS IN VALUE.
================================================================================
Convertible debt securities which are rated B by Moody's generally lack
characteristics of a desirable investment, since the assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small. Debt rated B by S&P is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
Investments in securities of foreign issuers by the GROWTH AND INCOME FUND and
the GOVERNMENT FUND may subject them to risks which differ in some respects from
those associated with investments in securities of U.S. issuers. Such risks
include differences in accounting, auditing and financial reporting standards,
trade balances and imbalances and related economic policies, fluctuations in
currency exchange rates, the possibility of expropriation or confiscatory
taxation, nationalization or expropriation of foreign investments or deposits,
less stringent disclosure requirements, the possible establishment of exchange
controls and political instability. There may also be less publicly available
information with regard to foreign issuers than domestic issuers.
Each of the Funds may purchase put and call options and may write covered call
options for hedging purposes only and will limit its investment in options such
that no more than 5% of such Fund's net assets will be invested in or subject to
such options. Each Fund may also enter into repurchase agreements and may
purchase securities on a when-issued or delayed-delivery basis. Although the
Funds will not use any such investment techniques for purposes of leveraging a
Fund's portfolio or for speculative purposes, such investment techniques involve
certain risks of which investors should be aware, including the risk
10
<PAGE> 13
that the other party to the transaction will default in its obligations.
Each of the Funds may also invest in variable or floating instruments. Such
instruments involve the risk that the interest rate or index on which such
instrument's interest rate is based will not closely follow or match current
interest rates.
The MIDWEST GROWTH FUND and the GROWTH AND INCOME FUND may each invest in
restricted, or Section 4(2), securities. These securities are issued by
corporations without registration under the Securities Act of 1933, as amended
(the "1933 Act"), in reliance on an exemption from registration which is
afforded by Section 4(2) of the 1933 Act. Section 4(2) securities are generally
sold to institutional investors rather than the general public and therefore may
not be as readily saleable, or liquid, as securities that are registered under
the 1933 Act.
The MIDWEST GROWTH FUND and the GROWTH AND INCOME FUND may also invest from time
to time in the securities of selected new issuers or in initial public offerings
(IPOs). Investments in relatively new issuers, i.e., those having continuous
operating histories of less than three years, may carry special risks and may be
more speculative because such companies are relatively unseasoned. In addition,
the market prices of securities may be more volatile than the prices of such
securities of more established companies.
For additional information regarding additional risks associated with these
permitted investments of the Funds, please see "DESCRIPTION OF PERMITTED
INVESTMENTS AND RELATED RISK FACTORS" below and the Statement of Additional
Information.
INVESTMENT LIMITATIONS OF THE FUNDS
The investment objective or objectives of each Fund described above and the
investment limitations described below and in the Statement of Additional
Information are fundamental policies of that Fund. Fundamental policies cannot
be changed with respect to a Fund without the consent of the holders of a
"majority of the outstanding shares" of that Fund as that term is defined below
under "GENERAL INFORMATION--Voting Rights."
No Fund may:
1. Purchase securities of any one issuer (except securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the
value of the total assets of the Fund would be invested in the securities of
such issuer or the Fund would hold more than 10% of the outstanding voting
securities of such issuer. This restriction applies to 75% of a Fund's total
assets.
2. Purchase any securities which would cause 25% or more of the total assets of
a Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry; provided that this
limitation does not apply to investments in obligations issued or guaranteed
by the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be divided according to their services; for example,
gas distribution, gas transmission, electric and telephone will each be
considered a separate industry, and (ii) financial service companies will be
classified according to the end users of their services; for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry.
3. Borrow money or issue senior securities, except that a Fund may borrow from
banks or enter into reverse repurchase agreements for temporary purposes in
amounts not exceeding 10% of the value of its total assets and except as
permitted by rule, regulation or order of the Securities and Exchange
Commission. A Fund will not purchase securities while its borrowings
(including reverse repurchase agreements) exceed 5% of its total assets.
MANAGEMENT OF THE TRUST
Overall responsibility for the management of the Trust and the Funds is vested
in the
11
<PAGE> 14
Board of Trustees of the Trust, who will manage the Trust in accordance with the
laws of Ohio governing business trusts. Unless so required by the Trust's
Declaration of Trust or By-Laws or by Ohio law, at any given time all of the
Trustees may not have been elected by the shareholders of the Trust. Trustees
may be removed by the Board of Trustees or shareholders in accordance with the
provisions of the Declaration of Trust and By-Laws of the Trust and Ohio law.
The Board of Trustees elects officers and contracts with and provides for the
compensation of agents, consultants and other professionals to assist and advise
it in the day-to-day operations of the Trust and the Funds. See "GENERAL
INFORMATION--The Trust and its Shares" below for further information.
THE ADVISER
Roulston, 4000 Chester Avenue, Cleveland, Ohio 44103, which serves as the
investment adviser for each Fund, is a professional investment management firm
and registered investment adviser that was founded in 1963. Roulston is
controlled, directly and indirectly, by Thomas H. Roulston and members of his
immediate family. As of December 31, 1997, Roulston had discretionary management
authority with respect to approximately $800 million of assets. In addition to
advising the Funds, Roulston provides advisory services to pension plans,
corporations, 401(k) plans, profit sharing plans, individual investors, trusts
and estates.
Roulston serves as the investment adviser for each Fund under an investment
advisory agreement (the "Advisory Agreement") with the Trust. Under the terms of
the Advisory Agreement, Roulston makes the investment decisions for the assets
of the Funds and continuously reviews, supervises and administers the investment
program of the Funds, subject to the supervision of, and policies established
by, the Trustees of the Trust.
Joseph A. Harrison, C.F.A., Executive Vice President and Director of Investments
for Roulston since 1991, and D. Keith Lockyer, Vice President and Portfolio
Manager of Roulston, manage the portfolio of the GOVERNMENT SECURITIES FUND. Mr.
Harrison and Elmer L. Meszaros manage the portfolio of the GROWTH AND INCOME
FUND. Mr. Meszaros has been an analyst with Roulston since July, 1975, and began
managing the portfolio of the GROWTH AND INCOME FUND with Mr. Harrison as of
July, 1997. Norman F. Klopp, C.F.A., Executive Vice President of Roulston since
1991, manages the portfolio of the MIDWEST GROWTH FUND. Mr. Klopp has been an
analyst with Roulston since 1964.
For its services as investment adviser, Roulston receives a fee, which is
calculated daily and paid monthly, at an annual rate of 0.75% of the average
daily net assets of each of the MIDWEST GROWTH FUND and the GROWTH AND INCOME
FUND up to $100 million, and 0.50% of each such Fund's assets of $100 million or
more. With respect to the GOVERNMENT FUND, Roulston receives a fee, which is
calculated daily and paid monthly, at an annual rate of 0.25% of the average
daily net assets of the Government Fund up to $100 million, and .125% of such
assets of $100 million or more.
===============================================================================
THE FUNDS' INVESTMENT ADVISER, ROULSTON &
COMPANY, INC., IS A PROFESSIONAL
INVESTMENT MANAGEMENT FIRM FOUNDED IN 1963.
===============================================================================
The advisory fee with respect to the MIDWEST GROWTH FUND and the GROWTH AND
INCOME FUND is higher, in the opinion of the Securities and Exchange Commission
(the "Commission"), than that paid by most investment companies, but Roulston
believes the fee to be comparable to that paid by investment companies with
similar objectives and policies. Roulston has voluntarily agreed, until further
written notice to shareholders, to waive such portion of its advisory fee, or
otherwise reimburse expenses of the Funds, in order to limit total operating
expenses to an annual rate of 1.38% of the MIDWEST GROWTH FUND'S average daily
net assets, 1.50% of the GROWTH AND INCOME FUND'S average daily net assets and
.90% of the GOVERNMENT FUND'S average daily net assets. Such voluntary fee
waivers and/or expense reimbursements will cause the yield and total return of a
Fund to be higher than they otherwise would be absent such waivers and
reimbursements.
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<PAGE> 15
Mr. Scott D. Roulston, President and a Trustee of the Trust, is the President
and a Director of both Roulston and the Distributor. Mr. Kevin M. Crotty is
Treasurer of the Trust, and Director of Finance of Roulston and the Distributor.
Mr. Charles A. Kiraly, Manager of Mutual Fund Administration of Roulston, is the
Secretary and Assistant Treasurer of the Trust.
THE DISTRIBUTOR
The Distributor, whose business address is 4000 Chester Avenue, Cleveland, OH
44103, is a wholly owned subsidiary of Roulston and has entered into a
Distribution Agreement with the Trust. Pursuant to the Distribution Agreement,
the Distributor acts as agent for the Funds in the distribution of their shares
on a continuous basis and, in such capacity, solicits orders for the sale of
shares, advertises and pays the costs and expenses associated with such
advertising. The Distributor receives no compensation from the Funds for its
services under the Distribution Agreement, but receives compensation under the
Trust's Distribution and Shareholder Service Plan as described in the next
section.
THE DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a Distribution
and Shareholder Service Plan (the "Plan"), under which each Fund is authorized
to pay the Distributor, as the Funds' principal underwriter, a periodic amount
calculated at an annual rate not to exceed .25% of the average daily net asset
value of such Fund. Such amount may be used by the Distributor to pay
broker-dealers, banks and other institutions (a "Participating Organization")
for distribution and/or shareholder service assistance pursuant to an agreement
between the Distributor and the Participating Organization or for distribution
assistance and/or shareholder service provided by the Distributor. Under the
Plan, a Participating Organization may include the Distributor and the
Distributor's affiliates.
As authorized by the Plan, the Distributor has agreed to provide distribution
services and certain shareholder services in connection with shares of the Funds
purchased and held by the Distributor for the accounts of its customers and
shares of the Funds purchased and held by customers of the Distributor directly,
including, but not limited to, answering shareholder questions concerning the
Funds, providing information to shareholders on their investments in the Funds
and providing such personnel and communication equipment as is necessary and
appropriate to accomplish such matters. In consideration of such services the
Trust has agreed to pay the Distributor a monthly fee, computed at the annual
rate of .25% of the average aggregate net asset value of shares held during the
period in customer accounts for which the Distributor has provided services
under this Agreement. Such fees paid by the Trust will be borne solely by the
applicable Fund. Such fee may exceed the actual costs incurred by the
Distributor in providing such services.
In addition, the Distributor may enter into, from time to time, other Rule 12b-1
Agreements with selected dealers pursuant to which such dealers will provide
certain shareholder services such as those described above.
THE ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT
FPS Services, Inc., 3200 Horizon Drive, King of Prussia, PA 19406 ("FPS"),
provides each Fund with administrative services, including regulatory reporting
and all necessary office space, equipment, personnel and facilities, and serves
as the transfer agent and dividend disbursing agent and provides certain fund
accounting and custody administration services for each of the Funds. For its
administrative services, FPS is entitled to receive a fee from each Fund
calculated at an annual rate of 0.15% of the value of such Fund's first $50
million of total average net assets, 0.10% of the value of such Fund's next $50
million of total average net assets and 0.05% of the value of such Fund's total
average net assets in excess of $100 million, subject to an annual minimum fee
of $55,000 for the first series and $12,000 for each additional domestic series.
For its fund accounting services, FPS is entitled to receive an annual fee from
each Fund equal to $24,000 for such Fund's first $20 million of average net
assets, .04% on such Fund's next $30 million of average net assets, .03% on such
Fund's next $50 million of average net assets and .01% on such Fund's average
net assets in excess of $100 million.
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<PAGE> 16
CUSTODIAN
UMB Bank, n.a. (the "Custodian") acts as the custodian for each of the Funds.
The Custodian holds cash, securities and other assets of the Funds as required
by the 1940 Act.
HOW SHARES ARE VALUED
The net asset value per share of each Fund is determined by dividing the total
market value of that Fund's investments and other assets, less any liabilities,
by the total outstanding shares of that Fund. Net asset value per share for each
Fund is determined as of the Valuation Time on each Business Day.
The portfolio securities of each Fund will be valued at market value. Each Fund
uses one or more pricing services to provide market quotations for equity, fixed
income and variable income securities. If market quotations are not available,
securities will be valued by a method which the Board of Trustees believes
accurately reflects fair value. 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. For fixed and variable income securities, the pricing
service may use a matrix system of valuation which considers factors such as
securities prices, yield features, call features, ratings and developments
related to a specific security. For further information regarding the pricing of
securities, please see the Statement of Additional Information.
HOW TO PURCHASE SHARES
You may purchase shares of any Fund directly by mail or by wire on any Business
Day. You will buy shares at the next net asset value computed after the Transfer
Agent or a broker-dealer with whom the Distributor has a sales agreement
receives your order in proper form as described below. An Account Application
form may be obtained by calling the Distributor at 1-800-332-6459 (1-800-3-
FAMILY). If a broker-dealer assists you in the purchase of shares of a Fund,
they may charge a fee for this service in addition to a Fund's public offering
price.
===============================================================================
THE MINIMAL INITIAL INVESTMENT IS $250,
AND ANY SUBSEQUENT PURCHASE MUST BE AT LEAST $50.
===============================================================================
The minimum initial investment in any Fund is $250, and any subsequent purchase
must be at least $50. No minimum applies to subsequent purchases effected by
dividend reinvestment. The Distributor may waive minimums at its discretion.
Your purchase order will be effective as of the Business Day received by the
Transfer Agent or a broker-dealer with whom the Distributor has a sales
agreement if the order in proper form and payment is received before the
Valuation Time. Payment may be made by check or readily available funds (e.g.,
by Federal funds wire). Purchases will be made in full and fractional shares of
a Fund calculated to three decimal places. Your account statement from the Trust
will be your record of shares of the Funds owned by you. The Trust will not
issue certificates representing shares of any Fund.
If a check received from you for the purchase of shares does not clear, the
purchase will be canceled, and you could be liable for any losses or fees
incurred, including a $20 returned check fee.
The Trust reserves the right to reject any purchase order when the Trust
determines that it is not in the best interest of the Trust or its shareholders
to accept such order.
PURCHASES BY MAIL
You may open an account by mailing to the Transfer Agent, Fairport Funds, c/o
FPS Services, Inc., 3200 Horizon Drive, King of Prussia, PA 19406, an account
application and a check or other negotiable bank draft (payable to the name of
the appropriate Fund) for $250 or more. For your initial order to be in good
form, your account application must be completed properly and mailed with your
check or other negotiable instrument in the proper amount.
===============================================================================
YOU MAY OPEN AN ACCOUNT
AND MAKE SUBSEQUENT INVESTMENTS BY MAIL.
===============================================================================
14
<PAGE> 17
For subsequent investments, you may send by regular U.S. mail your check or
other negotiable bank draft (payable to the name of the appropriate Fund), along
with the subsequent investment stub from your account statement, to FAIRPORT
FUNDS, c/o FPS Services, Inc., P.O. Box 412797, Kansas City, Missouri
64141-2797. If you wish to send your subsequent investments by other than
regular U.S. mail (e.g., overnight or certified mail), please send such items
directly to the Transfer Agent at 3200 Horizon Drive, King of Prussia, PA 19406.
PURCHASES BY WIRE
INITIAL PURCHASES: Before making an initial investment by wire and for your
order to be in proper form, you must first telephone the Transfer Agent at
1-800-332-6459 (1-800-3-FAMILY) to give the name(s) under which the account is
to be registered, tax identification number and the name of the bank sending the
wire, and to be assigned an account number. You may then purchase Shares by
requesting your bank to transmit immediately available funds by Federal funds
wire to the Transfer Agent at: UMB Bank, n.a., ABA #10-10-00695/Attention: FPS
Services, Inc., A/C 98-7037-071-9/FBO [Fund Name], along with your name and
account number as specified on your account registration. In addition, an
Account Application should be completed with such information and promptly
forwarded to the Transfer Agent at its address set forth above under "Purchases
by Mail."
SUBSEQUENT PURCHASES: You may make additional investments at any time through
the wire procedures described above, which must include your name and account
number, after notifying the Transfer Agent by telephone as noted above. Your
bank may impose a fee for investments by wire.
SYSTEMATIC INVESTMENT PLAN
You may arrange for periodic additional investments in the Funds through
automatic deductions by Automated Clearing House ("ACH") transactions from your
checking or savings account by completing the appropriate section of the Account
Application form.
===============================================================================
YOU MAY ARRANGE TO HAVE ADDITIONAL
INVESTMENTS AUTOMATICALLY DEDUCTED
FROM YOUR CHECKING OR SAVINGS ACCOUNT.
===============================================================================
In order to use this Systematic Investment Plan, you must still have an initial
purchase of at least $250 but minimum preauthorized subsequent investments may
be as low as $50 per month. The automatic deductions may be made on the 10th,
15th or 20th of the month and may be made monthly, quarterly, semi-annually or
annually.
TAX DEFERRED INVESTMENT
The Funds are eligible for investment by tax-deferred retirement programs such
as 401(k) plans and IRAs. The minimum initial investment amount for an account
established under such programs is $250, and subsequent purchases must be at
least $50. All accounts established in a Fund under such programs must elect to
have all dividends reinvested in the Fund. For more information about prototype
401(k) plans and IRAs, please call the Distributor at 1-800-332-6459 (1-800-3-
FAMILY).
RETIREMENT PLANS
The Taxpayers Relief Act which was signed into law on August 5, 1997, impacts
the traditional IRA and creates two additional types of IRAs.
TRADITIONAL (DEDUCTIBLE) IRAS:
The Taxpayers Relief Act will gradually increase the adjusted gross income
phaseouts for deductible IRAs over the next ten years. Married individuals may
make deductible contributions even if spouses are active participants in an
employer-sponsored plan. The 10% early withdrawal tax will not apply for up to
$10,000 for first-time home purchases or education expenses.
ROTH IRAS:
The Taxpayers Relief Act has created the new Roth IRA. While contributions to a
Roth IRA are not currently deductible, the amounts within the accounts
accumulate tax-free and qualified distributions will not be included in a
shareholder's taxable income. The contribution limit is $2,000 annually ($4,000
for joint returns) in aggregate with contributions to
15
<PAGE> 18
traditional IRAs. Certain income phaseouts apply.
HOW TO REDEEM SHARES
You may redeem shares by mail by writing to the Transfer Agent at its address
set forth above under "HOW TO PURCHASE SHARES--Purchases by Mail." You may also
redeem shares by telephone by calling the Transfer Agent at 1-800-332-6459
(1-800-3-FAMILY). Redemption orders received by the Transfer Agent prior to the
Valuation Time on any Business Day will be effective that day, and the
redemption price of your shares will be the net asset value per share of that
Fund next determined after your redemption order, in proper order, is received
by the Transfer Agent. If a broker-dealer assists you in the redemption of
shares of a Fund, they may charge a fee for this service.
The Trust will make your redemption proceeds available as promptly as possible
and, in any event, within seven days after your redemption order, in proper
order, is received. For your redemption order to be in proper order, your order
must include your name as it appears on your account, your account number and a
signature guarantee as required and described below. However, your redemption
proceeds may be delayed if you purchased the shares to be redeemed by check
(including certified or cashier checks) until such check has cleared and the
Trust has collected good funds for your purchase. Such collection may take 15
days or more. Pursuant to the Trust's Declaration of Trust, payment for shares
redeemed may be made either in cash or inkind, or partly in cash and partly
in-kind. However, the Trust has elected pursuant to Rule 18f-1 under the 1940
Act to redeem its shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund, during any ninety-day period for any one
shareholder. Payments in excess of this limit by any of the Funds will also be
made wholly in cash unless the Board of Trustees believes that economic
conditions exist which would make such a practice detrimental to the best
interests of any such Fund. Any portfolio securities paid or distributed in-kind
would be valued as described under "HOW SHARES ARE VALUED". In the event that an
in-kind distribution is made, you may incur additional expenses, such as the
payment of brokerage commissions, on the sale or other disposition of the
securities received from a Fund. In-kind payments need not constitute a
cross-section of the Fund's portfolio.
You may receive your redemption payments in the form of a check, or by Federal
Reserve wire transfer or ACH transfer to the bank account previously designated
by you. Just notify the Transfer Agent in your redemption order of your
preference. There is no charge for having a check for redemption proceeds mailed
or for ACH transfers. The Trust's Custodian will deduct a wire charge, currently
$9, from the amount of a Federal Reserve wire redemption payment made at your
request. You will not be able to redeem shares of any Fund by Federal Reserve
wire on federal holidays restricting wire transfers. Payment by ACH transfer
will not be posted to your bank account until at least the second Business Day
following the transaction.
===============================================================================
YOU MAY REDEEM SHARES
BY MAIL OR BY TELEPHONE AT 1-800-332-6459.
===============================================================================
The Transfer Agent will require a signature guarantee for (1) any written
redemption request of $25,000 or more; (2) a change in address or payee to where
redemption proceeds may be mailed as shown on your account application; or (3) a
change in the bank account to which redemption payments are made by either
Federal Reserve wire transfer or ACH transfer. You may have your signature
guaranteed by any bank, broker, dealer, credit union, savings and loan
association or other eligible institution as may be designated by the Transfer
Agent from time to time. Notarization of your signature does not constitute a
signature guarantee.
Neither the Trust, the Funds nor the Transfer Agent will be responsible for the
authenticity of the redemption instructions received by telephone if it
reasonably believes those instructions to be genuine. The Trust and the Transfer
Agent will each employ reasonable procedures to confirm that telephone
instructions are genuine, and may be liable for losses resulting from
unauthorized or fraudulent telephone transactions if it does not employ
16
<PAGE> 19
those procedures. Such procedures may include taping of telephone conversations
and requesting a shareholder to state correctly his or her Fund account number,
the name in which his or her account is registered, his or her social security
number, banking institution bank account number and the name in which his or her
bank account is registered.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed by the Trust during certain periods as set forth more fully
in the Statement of Additional Information. In addition, if the balance of your
account in a Fund falls below $250 because of redemptions by you, the Trust
reserves the right to redeem at net asset value your shares. However, before the
Trust exercises this right, you will be given notice that your account has
fallen below this required minimum amount. You will then be given at least 60
days to make an additional investment to meet this required minimum.
SYSTEMATIC WITHDRAWAL PLAN
Each Fund offers a Systematic Withdrawal Plan ("SWP") if you wish to receive
regular distributions from your account in that Fund. However, before you can
utilize the SWP, your account in the Fund must have a current value of $10,000
or more, your dividend and distributions must be automatically reinvested and
your requested distribution must be $100 or more made on a monthly, quarterly,
semi-annual or annual basis.
===============================================================================
YOU CAN ARRANGE TO RECEIVE REGULAR
DISTRIBUTIONS FROM YOUR ACCOUNT,
UNDER CERTAIN CONDITIONS.
===============================================================================
Your automatic payments under the SWP will either be made by check mailed to
your address as shown on the books of the Transfer Agent or via ACH to your bank
account designated on your Account Application form. An application form for the
SWP may be obtained by calling the Distributor or Transfer Agent at
1-800-332-6459 (1-800-3-FAMILY). You may change or cancel the SWP at any time,
upon written notice to the Transfer Agent at least five days prior to SWP
withdrawal date for which you want such change or cancellation.
Please note that if your redemptions from a Fund exceed your dividends from that
Fund, your invested principal in the account may decrease. Thus depending on the
frequency and amounts of the withdrawals and/or any fluctuations in the net
asset value per share, your original investment could be exhausted entirely
using the SWP.
EXCHANGES
You may exchange your shares of any Fund for shares of either of the other Funds
at net asset value without the payment of any fee or charge. You may also
exchange your shares of any Fund for shares of Kemper's Cash Account Trust Money
Market Portfolio ("Kemper CAT") at net asset value without the payment of any
fee or charge.
An exchange is considered, however, a sale of shares and may result in capital
gain or loss for federal income tax purposes. Before an exchange can be made,
you must have received the current prospectus for the Fund or Kemper CAT into
which you wish to exchange, and the exchange privilege may be exercised only in
those states where shares of such Fund or Kemper CAT, as the case may be, may
legally be sold. If the Transfer Agent receives exchange instructions from you
in writing or by telephone in good order by the Valuation Time on any Business
Day, the exchange will be effected that day. For your exchange request to be in
good order, your request must include your name as it appears on your account,
your account number, the amount to be exchanged, the name of the Funds from
which and to which the exchange is to be made and a signature guarantee as may
be required. A written request by you for an exchange in excess of $25,000 must
be accompanied by a signature guarantee as described above under "HOW TO REDEEM
SHARES."
================================================================================
YOU MAY EXCHANGE YOUR SHARES OF ANY FUND FOR SHARES OF EITHER OF THE OTHER FUNDS
AT NET ASSET VALUE WITHOUT THE PAYMENT OF ANY FEE OR CHARGE.
================================================================================
The liability of the Trust, the Funds or the Transfer Agent for fraudulent or
unauthorized telephone instructions may be limited as
17
<PAGE> 20
described above under "HOW TO REDEEM SHARES." The Trust reserves the right to
modify or terminate this exchange offer at any time or from time to time on 60
days' notice.
INTEGRATED VOICE RESPONSE ("IVR") SYSTEM
Shareholders in any Fund can obtain access to information about their account
and conduct certain transactions by calling toll-free 1 (800) 332-6459. The IVR
System provides total return, share price, price change and yield quotations for
each Fund; gives account balances and history (i.e., last transaction, latest
dividend distribution, redemptions by check during the last three months); and
allows sales or exchanges of shares. Security is controlled through the use of a
personal identification number ("PIN" number) unique to each shareholder. This
number is initially assigned by FPS and may subsequently be changed at anytime
by you. When using the IVR System, you bear the risk of any loss due to your
error, unless the Trust or Transfer Agent fails to use established safeguards,
which may include written confirmations of transactions.
PERFORMANCE OF THE FUNDS
From time to time, each Fund may advertise its yield and total return. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. No representation can be made regarding future yields or
returns. The yield of a Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the same amount of income generated by the investment during
that period is generated in each 30-day period over one year and is shown as a
percentage of the investment.
The "total return" or "average annual total return" of a Fund reflects the
change in the value of an investment in a Fund over a stated period of time.
Total returns and average annual returns measure both the net investment income
from and any realized or unrealized appreciation or depreciation of a Fund's
holdings for a stated period and assume that the entire investment is redeemed
at the end of each period and the reinvestment of all dividends and capital gain
distributions.
================================================================================
FURTHER INFORMATION ABOUT THE PERFORMANCE
OF THE FUNDS MAY BE OBTAINED BY
CALLING THE FUNDS AT 1-800-332-6459.
================================================================================
The performance of a Fund may periodically be compared with that of other mutual
funds or broad groups of comparable mutual funds tracked by mutual fund rating
services (such as Lipper Analytical Services, Inc.) and financial and business
publications and periodicals. In addition, a Fund's performance may be compared
with unmanaged indices of various investments for which reliable performance
data is available. These may assume investment of dividends but generally do not
reflect deductions for administrative and management costs. The performance of a
Fund may also be compared in various publications to averages, performance
rankings or other information prepared by recognized mutual fund statistical
services. A Fund may quote Morningstar, Inc., a service that ranks mutual funds
on the basis of risk-adjusted performance, or Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the United
States. A Fund may use the long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. A Fund may
also quote financial and business publications and periodicals, such as SMART
MONEY(R), as they relate to Trust management, investment philosophy, and
investment techniques.
A Fund may also quote from time to time various measures of volatility and
benchmark correlations in advertising and may compare these measures with those
of other mutual funds. Measures of volatility attempt to compare historical
share price fluctuations or total returns to a benchmark while measures of
benchmark correlation indicate how valid a comparative benchmark might be.
Measures of volatility and correlation are calculated using averages of
historical data and cannot be calculated precisely.
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<PAGE> 21
Further information about the performance of the Funds is contained in the
Funds' Annual Report to Shareholders which may be obtained without charge by
calling the Distributor at 1-800-332-6459 (1-800-3-FAMILY).
HOW THE FUNDS ARE TAXED
Each Fund is treated as a separate entity for federal income tax purposes and
intends to qualify for the special tax treatment afforded regulated investment
companies as defined under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), for so long as such qualification is in the best interests
of that Fund's shareholders. Qualification as a regulated investment company
under the Code requires, among other things, that a Fund distribute to its
shareholders at least 90% of its investment company taxable income. Each Fund
contemplates declaring as dividends all or substantially all of that Fund's
investment company taxable income (before deduction of dividends paid).
A nondeductible 4% excise tax is imposed on regulated investment companies that
do not distribute in each calendar year (regardless of whether they otherwise
have a noncalendar taxable year) an amount equal to 98% of their ordinary income
for the calendar year plus 98% of their capital gain net income for the one-year
period ending on October 31 of such calendar year. If distributions during a
calendar year were less than the required amount, that Fund would be subject to
a nondeductible 4% excise tax on the deficiency.
DIVIDENDS AND SHAREHOLDER TAXES
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (exclusive of capital gains) of
the MIDWEST GROWTH FUND and the GROWTH AND INCOME FUND is distributed in the
form of semi-annual dividends. For such Funds, shareholders of record on the
next-to-last Business Day of each month in which a dividend is declared will be
entitled to receive the dividend distribution which is generally paid on or
about the first Business Day of the following month. Net investment income
(exclusive of capital gains) of the GOVERNMENT FUND is declared daily and
distributed in the form of monthly dividends. If any capital gain is realized by
a Fund, substantially all of it will be distributed at least annually. You will
automatically receive all dividends and capital gain distributions in additional
shares at the net asset value determined on the next Business Day after the
record date, unless you elected to take such payment in cash.
===============================================================================
YOU WILL AUTOMATICALLY RECEIVE ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS IN
ADDITIONAL SHARES UNLESS YOU ELECT TO TAKE SUCH PAYMENTS IN CASH.
===============================================================================
You may change your election by providing written notice to the Transfer Agent
at least 15 days prior to the distribution. You have the option to receive
payments for cash distributions in the form of a check or by Federal Reserve
wire transfer or ACH.
GENERAL TAX INFORMATION
It is expected that each Fund will distribute annually to shareholders all or
substantially all of that Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to you for federal income tax purposes,
even if paid to you in additional shares of the Fund and not in cash. The
dividends-received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends deduction, if any, received by the Fund
bear to its gross income. And, of course, shareholders not subject to tax on
their income will not be required to pay tax on amounts distributed to them.
Since all of the GOVERNMENT FUND'S net investment income is expected to be
derived from earned interest and short-term capital gains, it is anticipated
that no part of any distribution from such Fund will be eligible for the
dividends-received deduction for corporations.
Distribution by a Fund of the excess of net mid-term or net long-term capital
gain over net short-term capital loss is taxable to you as mid-term or long-term
capital gain, respectively, in the year in which it is received, regardless of
how long you have held the
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<PAGE> 22
shares. Such distributions are not eligible for the dividends-received
deduction.
If the net asset value of a share is reduced below your cost of that share by
the distribution of income or gain realized on the sale of securities, the
distribution, from a practical stand point, is a return of invested principal,
although taxable as described above.
Prior to purchasing shares, you should carefully consider the impact of
dividends or capital gains distributions which are expected to be declared or
have been declared, but have not been paid. Any such dividends or capital gains
distributions paid shortly after a purchase of shares prior to the record date
will have the effect of reducing the per share net asset value of the shares
purchased by you by the amount of the dividends or distributions. All or a
portion of such dividends or distributions, although in effect a return of
capital, is subject to tax.
==============================================================================
PRIOR TO PURCHASING SHARES, CONSIDER THE IMPACT OF DIVIDENDS OR CAPITAL GAINS
DISTRIBUTIONS EXPECTED TO BE DECLARED OR DECLARED BUT NOT YET PAID.
==============================================================================
Additional information regarding federal taxes is contained in the Statement of
Additional Information under the heading "TAXES." However, the information
contained in this Prospectus and the additional material in the Statement of
Additional Information are only brief summaries of some of the important tax
considerations generally affecting the Funds and their shareholders.
Accordingly, you are urged to consult your tax adviser concerning the
application of federal, state and local taxes as such laws and regulations
affect your own tax situation.
You will be advised at least annually as to the federal income tax consequences
of distributions made to you during the year.
GENERAL INFORMATION
THE TRUST AND ITS SHARES
The Trust is an open-end management investment company and is organized under
Ohio law as a business trust under a Declaration of Trust dated September 16,
1994. The Trust currently consists of the three Funds, each of which is
diversified and each having its own class of shares. Each share represents an
equal proportional interest in a Fund with other shares of the same Fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Trustees.
When issued, the shares are fully paid, nonassessable and freely transferable.
VOTING RIGHTS
You, as a shareholder, are entitled to one vote for each dollar of value
invested and a proportionate fractional vote for any fraction of a dollar
invested, and will vote in the aggregate with other shareholders of the Trust
and not by Fund except as otherwise expressly required by law. For example,
shareholders of the MIDWEST GROWTH FUND will vote in the aggregate with other
shareholders of the Trust with respect to the election of Trustees and
ratification of the selection of independent accountants. However, shareholders
of a Fund will vote as a portfolio, and not in the aggregate with other
shareholders of the Trust, for purposes of approval of amendments to that Fund's
investment advisory agreement or any of that Fund's fundamental policies.
The Trust does not expect to have an annual or special meeting of shareholders
except, under certain circumstances, when the Declaration of Trust, the 1940 Act
or other authority requires such a meeting, such as the election or removal of
Trustees or certain amendments to the Declaration of Trust or the investment
advisory agreement.
The Trust has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request thereof from shareholders holding not less
than 10% of the outstanding votes of the Trust and that the Trust will assist in
communications with other shareholders as required by Section 16(c) of the 1940
Act. At such meeting, a quorum of shareholders (constituting a majority of votes
attributable to all outstanding shares of the Trust), by majority vote, has the
power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional Information, a
"vote
20
<PAGE> 23
of a majority of the outstanding shares" of a Fund means the affirmative vote,
at a meeting of shareholders duly called, of the lesser of (a) 67% or more of
the votes of shareholders of that Fund present at a meeting at which the holders
of more than 50% of the votes attributable to shareholders of record of that
Fund are represented in person or by proxy, or (b) the holders of more than 50%
of the outstanding votes of shareholders of that Fund.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually for each Fund. The Trust also furnishes periodic
reports and, as necessary, proxy statements to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be made by calling 1-800-332-6459 (1-800-3-FAMILY),
or by writing to Fairport Funds, c/o FPS Services, Inc., 3200 Horizon Drive,
King of Prussia, PA 19406.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Baker & Hostetler LLP serves as counsel to the Trust. Ernst & Young LLP serves
as the independent public accountants of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS AND RELATED RISK FACTORS
The following is a description of permitted investments for the Funds:
AMERICAN DEPOSITORY RECEIPTS ("ADRS")--ADRs are typically issued by a U.S.
financial institution and evidence ownership of underlying securities issued by
a foreign issuer. Sponsored ADRs are a joint arrangement between the foreign
issuer and the depositary and tend to be more liquid than unsponsored ADRs. The
GROWTH AND INCOME FUND is permitted to invest in sponsored ADRs.
COMMERCIAL PAPER--Unsecured short-term promissory notes issued by corporations
and other entities. Maturities on these issues typically vary from a few days to
nine months. All Funds are permitted to invest in commercial paper.
CONVERTIBLE SECURITIES--Securities such as rights, bonds, notes and preferred
stocks which are convertible into or exchangeable for common stocks. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying common
stock. As a result, a Fund's selection of convertible securities is based, to a
great extent, on the potential for capital appreciation that may exist in the
underlying stock. The value of convertible securities is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions. The MIDWEST GROWTH and GROWTH AND INCOME FUNDS are permitted to
invest in convertible securities. As described above, such Funds will invest in
convertible securities based primarily upon Roulston's evaluation of the
underlying common stocks. Roulston may invest up to 5% of such a Fund's net
assets in convertible debt securities which are not investment grade but are
rated not lower than B by an NRSRO. Such noninvestment grade securities are
considered to be high risk securities.
INITIAL PUBLIC OFFERINGS--The MIDWEST GROWTH and GROWTH AND INCOME FUNDS may
each invest from time to time in the securities of selected new issuers, or
initial public offerings (IPOs). If the Fund is to invest in securities of
relatively new issuers, it will only be in those securities which Roulston
believes present an acceptable amount of risk. Investments in relatively new
issuers, i.e., those having continuous operating histories of less than three
years, may carry special risks and may be more speculative because such
companies are relatively unseasoned. Such companies may also lack sufficient
resources, may be unable to generate internally the funds necessary for growth
and may find external financing to be unavailable on favorable terms or even
totally unavailable. Those companies will often be involved in the development
or marketing of a new product with no established market, which could lead to
significant losses. In addition, the securities of such issuers may have limited
marketability, which may affect or limit their liquidity and therefore the
ability of the Fund to sell such securities at the time and price it deems
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<PAGE> 24
advisable. Such securities may also be subject to more abrupt or erratic market
movements over time than securities of more seasoned companies or the market as
a whole.
OPTIONS--Each Fund may invest in put and call options for various securities and
securities indices that are traded on national securities exchanges, from time
to time, as Roulston deems to be appropriate. Each of the Funds may also engage
in writing call options from time to time as Roulston deems appropriate. A Fund
will write only covered call options (options on securities owned by that Fund).
A put option gives the purchaser of the option the right to sell, and the writer
the obligation to buy, the underlying security at any time during the option
period. A call option gives the purchaser of the option the right to buy, and
the writer of the option the obligation to sell, the underlying security at any
time during the option period. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract.
The MIDWEST GROWTH and GROWTH AND INCOME FUNDS may invest in options on stocks
and stock indices, while the GOVERNMENT FUND may invest in options on fixed
income securities and fixed income securities indices. OPTIONS WILL BE USED ONLY
FOR HEDGING PURPOSES AND WILL NOT BE ENGAGED IN FOR SPECULATIVE PURPOSES.
Currently, no Fund anticipates entering into options transactions to the extent
that the aggregate value of portfolio securities subject to options or invested
in options positions will exceed 5% of a Fund's net assets as of the time the
Fund purchases or enters into such options.
For further information regarding a Fund's investment in options, see the
Statement of Additional Information.
REPURCHASE AGREEMENTS--Agreements by which a Fund obtains securities from an
established financial institution and simultaneously commits to return the
securities to the seller at an agreed upon price and date. The agreed upon price
of the securities reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the underlying
securities. The Custodian or its agent will hold the security as collateral for
the repurchase agreement. Such collateral must be maintained at all times at a
value at least equal to 102% of the purchase price. A Fund bears a risk of loss
in the event the other party defaults on its obligations and the Fund is delayed
or prevented from exercising its rights with respect to the underlying
securities or if the Fund realizes a loss on the sale of the underlying
securities. Roulston will enter into repurchase agreements on behalf of a Fund
only with financial institutions, including banks and broker-dealers, deemed to
be creditworthy and present minimal risk of bankruptcy during the term of the
agreement based on guidelines established and periodically reviewed by the
Trustees. Repurchase agreements are considered loans by a Fund under the 1940
Act. All Funds are permitted to invest in repurchase agreements.
SECTION 4(2) SECURITIES--The MIDWEST GROWTH and the GROWTH AND INCOME FUNDS may
each invest in restricted, or Section 4(2), securities. These securities are
issued by corporations without registration under the 1933 Act in reliance on an
exemption from registration which is afforded by Section 4(2) of the 1933 Act
("Section 4(2) securities"). Section 4(2) securities are restricted as to
disposition under Federal securities laws, and generally are sold to
institutional investors who agree that they are purchasing the securities for
investment and not with a view to public distribution. Any resale may also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold, if at all, to other institutional investors through or with the
assistance of the issuer or investment dealers who facilitate the resale of such
Section 4(2) securities, thus providing some liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Trust, Roulston
may determine Section 4(2) securities to be liquid if such securities are
eligible for resale under Rule 144A under the 1933 Act and are readily saleable.
Rule 144A permits the Funds to purchase securities which have been privately
placed and resell securities to certain qualified institutional buyers without
restriction. For purposes of determining whether a Rule 144A security is readily
saleable, and
22
<PAGE> 25
therefore liquid, Roulston must consider, among other things, the frequency of
trades and quotes for the security, the number of dealers willing to purchase or
sell the security and the number of potential purchasers, dealer undertakings to
make a market in the security, and the nature of the security and marketplace
trades of such security. However, investing in Rule 144A securities, even if
such securities are initially determined to be liquid, could have the effect of
increasing the level of the Fund's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
U.S. GOVERNMENT SECURITIES--U.S. Government direct obligations consist of bills,
notes and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable only through
the Federal Reserve's book entry system known as Separately Traded Registered
Interest and Principal Securities ("STRIPs"). All Funds are permitted to invest
in U.S. Government direct obligations, including STRIPs. The Funds intend to
invest in STRIPs that are only traded through the U.S. Government-sponsored
program.
STRIPS are sold as zero coupon securities, that is, fixed income securities that
have been stripped of their unmatured interest coupons. Zero coupon securities
are sold at a (usually substantial) discount and redeemed at face value at their
maturity date without interim cash payments of interest or principal. The amount
of this discount is accreted over the life of the security, and the accretion
constitutes the income earned on the security for both accounting and tax
purposes. Because of these features, the market prices of zero coupon securities
are generally more volatile than the market prices of securities that have a
similar maturity but pay interest periodically. Zero coupon securities are
likely to respond to a greater degree to interest rate changes than are nonzero
coupon securities with similar maturity and credit qualities.
U.S. Government agency securities are issued by certain federal agencies that
have been established as instrumentalities of the U.S. Government to supervise
and finance certain types of activities. Issues of these agencies, while not
direct obligations of the U.S. Government, are either backed by the full faith
and credit of the United States, guaranteed by the Treasury or supported by the
issuing agency's right to borrow from the Treasury or supported only by the
credit of the instrumentality. All Funds are permitted to invest in U.S.
Government agency securities.
VARIABLE AMOUNT MASTER DEMAND NOTES--Variable amount master demand notes in
which the Funds may invest are unsecured demand notes that permit the
indebtedness thereunder to vary and that provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there is no secondary market in the notes, a Fund
may demand payment of principal and accrued interest at any time within 30 days.
While the notes are not typically rated by NRSROs, issuers of variable amount
master demand notes (which are normally manufacturing, retail, financial, and
other business concerns) must satisfy the same criteria as set forth above for
commercial paper. Roulston will consider the earning power, cash flow, and other
liquidity ratios of the issuers of such notes and will continuously monitor
their financial status and ability to meet payment on demand. In determining
average weighted portfolio maturity, a variable amount master demand note will
be deemed to have a maturity equal to the period of time remaining until the
principal amount can be recovered from the issuer through demand. In the event
that the period of time remaining until the principal amount can be recovered
under a variable master demand note exceeds seven days, a Fund will treat such
note as illiquid for purposes of its limitations on investments in illiquid
securities.
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain of the obligations purchased by
the Funds may carry variable or floating rates of interest and may involve a
conditional or unconditional demand feature. Such instruments bear interest at
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal
23
<PAGE> 26
Reserve composite index. The interest rates on these securities may be reset
daily, weekly, quarterly or some other reset period. The Funds intend to invest
in variable and floating rate instruments whose market value upon reset of the
interest rate will approximate par value because their interest rates will be
tied to short-term rates. However, there is a risk that the current interest
rate on such obligations may not accurately reflect existing market rates, and
therefore that upon such interest rate reset, the instrument may decline in
value. All Funds are permitted to invest in variable and floating rate
instruments. A demand instrument with a demand notice exceeding seven days will
be considered illiquid if there is no secondary market for such securities.
WARRANTS--These instruments give holders the right, but not the obligation, to
buy shares of a company at a given price during a specified period. The MIDWEST
GROWTH and GROWTH AND INCOME FUNDS are permitted to invest in warrants.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS--These transactions involve the
purchase of securities subject to settlement and delivery beyond the normal
settlement date. The price and yield on these securities is fixed as of the
purchase date, and no interest accrues to the Fund before settlement. These
securities are therefore subject to market fluctuation due to changes in market
interest rates, and, although the purchase of securities on a when-issued basis
is not considered leveraging, it has the effect of leveraging a Fund's assets.
Segregated accounts will be established with the Custodian, and a Fund will
maintain in such account liquid assets in an amount at least equal in value to
that Fund's commitments to purchase when-issued securities.
The purchase of securities on a when-issued or delayed-delivery basis involves a
risk of loss if the value of the security to be purchased declines prior to the
settlement date or if the seller fails to complete the transaction and the Fund,
as a result, misses a price or yield considered to be advantageous. Although
each Fund will purchase securities on a when-issued or delayed delivery basis
only with the intention of actually acquiring securities for its portfolio, a
Fund may dispose of a when-issued security prior to settlement if Roulston deems
it appropriate to do so. No Fund's commitments to purchase when-issued or
delayed-delivery securities will exceed 25% of the value of its total assets.
All Funds may purchase securities on a when-issued basis or delayed-delivery for
investment purposes only and not for leveraging purposes.
INVESTMENT COMPANY SECURITIES--Each Fund may also invest up to 10% of the value
of its total assets in the securities of other investment companies subject to
the limitations set forth in the 1940 Act. Each Fund intends to invest in the
securities of other investment companies to the extent that Roulston believes
that such investment will assist that Fund in meeting its investment objectives
and in money market mutual funds for purposes of short-term cash management. A
Fund's investment in such other investment companies will result in the
duplication of fees and expenses, particularly investment advisory fees. For a
further discussion of the limitations on the Funds' investments in other
investment companies, see "INVESTMENT OBJECTIVES AND POLICIES--Additional
Information on Portfolio Instruments--Securities of Other Investment Companies"
in the Trust's Statement of Additional Information.
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<PAGE> 27
STATEMENT OF ADDITIONAL INFORMATION
FAIRPORT MIDWEST GROWTH FUND
FAIRPORT GROWTH AND INCOME FUND
FAIRPORT 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 ByLaws, 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 27,
1998. 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 27, 1998
<PAGE> 28
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
<PAGE> 29
THE TRUST
FAIRPORT 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, FAIRPORT GROWTH AND INCOME
FUND and FAIRPORT 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.
<PAGE> 30
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.
<PAGE> 31
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.
<PAGE> 32
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.
<PAGE> 33
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.
<PAGE> 34
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.
<PAGE> 35
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;
<PAGE> 36
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. Pledge, mortgage or hypothecate assets in excess of one third of the
Fund's total assets;
4. 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;
<PAGE> 37
If any percentage restriction or requirement described above is
satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in asset value will not constitute a
violation of such restriction or requirement. However, should a change in net
asset value or other external events cause a Fund's investments in illiquid
securities, including repurchase agreements with maturities in excess of seven
days, to exceed the limit set forth above for such Fund's investment in illiquid
securities, the Fund will act to cause the aggregate amount of such securities
to come within such limit as soon as reasonably practicable. In such an event,
however, such Fund would not be required to liquidate any portfolio securities
where the Fund would suffer a loss on the sale of such securities.
None of the Funds currently intends to enter into reverse repurchase
agreements during the current fiscal year.
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 or may be deemed to be 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.
<PAGE> 38
<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 and President President and Director of
4000 Chester Avenue Roulston & Company, Inc. and
Cleveland, Ohio 44103 Roulston Research Corp. since
1990.
Age: 40
- ----------------------------------------------------------------------------------------------------------------
Thomas V. Chema Trustee Partner, Arter & Hadden (law
1100 Huntington Building firm) since April, 1989; since
Cleveland, Ohio 44115 June, 1995, President, Gateway
Consultants Group, Inc. (sports
Age: 51 and 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 B. Gale Trustee Executive Director of North
1700 East 13th Street American Association of State
Suite 4PE and Provincial Lotteries (non-
Cleveland, Ohio 44114 profit association of sanctioned
lotteries) since March, 1995;
Age: 45 President of DBG Consulting,
Inc. (management consulting
firm) since December, 1994;
from August, 1993 to
November 1994, Vice President
and General Manager of Media
Drop-In Productions, Inc.
(marketing/promotions firm);
from August, 1987 to August,
1993, Vice President and
General Manager of BABN
Technologies, Inc. (printing
production facility).
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 39
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
David H. Gunning Trustee Principal at Encinitos Ventures
55 Public Square since December 1997 to
Suite 1485 present; President of Parkwood
Cleveland, OH 44113 Corporation (personal services
corporation) from June,
Age: 55 1997 to December 8, 1997;
Chairman, President and Chief
Executive Officer of Capitol
American Financial
Corporation (insurance
company) from February, 1993
to February, 1997; prior thereto,
partner of Jones, Day, Reavis &
Pogue (law firm).
- ----------------------------------------------------------------------------------------------------------------
*Ivan J. Winfield Trustee Associate Professor, Baldwin
30901 Ainsworth Drive Wallace College since 1995;
Pepper Pike, Ohio 44124 from 1980 to 1994, Managing
Partner, Coopers & Lybrand,
Age: 63 Northeast Ohio (certified public
accounting firm).
- ----------------------------------------------------------------------------------------------------------------
Charles A. Kiraly Secretary and Assistant Since May, 1997, Manager of
4000 Chester Avenue Treasurer Mutual Fund Administration
Cleveland, Ohio 44103 and an employee of Roulston &
Company, Inc. since April,
Age 28 1996; prior thereto, Senior
Dealer Services Representative
at BISYS Fund Services, Ohio,
Inc.; employee at BISYS Fund
Services, Ohio, Inc. since May,
1993.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 40
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Kevin M. Crotty Treasurer Since June, 1997, Director of
4000 Chester Avenue Finance of Roulston &
Cleveland, Ohio 44103 Company, Inc. and an employee
of Roulston & Company, Inc.
Age: 36 since November, 1996; from
October, 1993 to October, 1996,
Accounting Manager of
Philanthropic and Tax Planning
Department of Premier
Industrial Corporation
(electronic component
distributor); from September,
1989 to October, 1993,
employee of Carnegie Capital
Management Company
(investment management firm).
- ----------------------------------------------------------------------------------------------------------------
Kristin Hay Ives, Esq. Assistant Secretary Partner of the law firm of Baker
Capitol Square & Hostetler LLP, Counsel to
Suite 2100 the Trust.
65 East State Street
Columbus, Ohio 43215
Age: 37
- ----------------------------------------------------------------------------------------------------------------
</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, 1997. The Trust has no pension or
retirement plans.
<PAGE> 41
COMPENSATION TABLE:
<TABLE>
<CAPTION>
NAME AND POSITION AGGREGATE 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 B. Gale
Trustee $4,000 $4,000
- ----------------------------------------------------------------------------------------------------------------
David H. Gunning,
Trustee $7,000 $7,000
- ----------------------------------------------------------------------------------------------------------------
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. Mr. Gale was
not a Trustee of the Trust until June 26, 1997.
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 February 2, 1998, owned of record 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. 10.21%
Special Custody Account
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
<PAGE> 42
FAIRPORT GROWTH AND INCOME FUND:
Shareholder(s) Percentage Owned
-------------- ----------------
Charles Schwab & Co., Inc. 19.17%
Special Custody A/C for BNFT CUST
ATTN: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Liqui Box Corp. EMP PSP 5.89%
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 27.92%
William McBee Trustee
c/o The Hampton Company
320 Springside Drive
Suite 350
Akron, Ohio 44333
Charles Schwab & Co., Inc. 19.16%
Special Custody A/C for BNFT CUST
101 Montgomery Street
San Francisco, CA 94104
<PAGE> 43
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.
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.
<PAGE> 44
For the fiscal year ended October 31, 1997, 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 $513,898 $136,636 $377,262
GROWTH AND INCOME FUND $204,420 $72,293 $132,127
GOVERNMENT SECURITIES FUND $ 11,697 $11,697 $0
TOTALS $730,015 $220,626 $509,389
</TABLE>
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>
<PAGE> 45
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 Custody Administration and Agency
Agreement.
<PAGE> 46
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 years ended October 31, 1997 and 1996 the period from
May 1, 1995 to October 31, 1995 the Administrator earned the following amounts
with respect to administrative services provided to the Funds:
<TABLE>
<CAPTION>
11/01/96 11/01/95 5/1/95
FUND TO TO TO
10/31/97 10/31/96 10/31/95
======================================== =========================== ============================ ========================
<S> <C> <C> <C>
MIDWEST GROWTH FUND $85,926 $75,644 $33,600
GROWTH AND INCOME FUND $34,406 $33,436 $16,895
GOVERNMENT SECURITIES FUND $6,056 $10,062 $7,516
TOTAL $126,388 $119,142 $58,011
</TABLE>
<PAGE> 47
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
<PAGE> 48
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.
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, "Partici
pating 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.
<PAGE> 49
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.
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.
<PAGE> 50
For the fiscal year ended October 31, 1997, such fees totaled $248,020.
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 $169,263
GROWTH AND INCOME FUND $67,196
GOVERNMENT SECURITIES FUND $11,561
TOTAL $248,020
</TABLE>
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.
<PAGE> 51
LEGAL COUNSEL AND INDEPENDENT AUDITORS
Baker & Hostetler LLP, 65 East State, Columbus Ohio 43215, is counsel
to the Trust and has passed 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
audited financial statements and notes thereto for each Fund, contained in the
Annual Report to Shareholders dated October 31, 1997, are incorporated by
reference into this Statement of Additional Information and have been audited by
Ernst & Young LLP, whose report also appears in the Annual Report and is also
incorporated by reference herein. No other parts of the Annual Report are
incorporated by reference herein. Such financial statements and notes thereto
have been incorporated herein in reliance on the report of Ernst & Young LLP,
independent auditors, given on the authority of said firm as experts in auditing
and accounting.
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
<PAGE> 52
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 trades on behalf of privately managed accounts and the
Funds. During the period November 1, 1996 through October 31, 1997, the
following transactions were placed with Merrill Lynch/Dayton (MLDAYTON), the
executing broker-dealer for Thompson during such period. The Growth & Income
Fund placed 36 trades for shares totaling $116,300 with a commission rate of
$0.06 per share for a total commission of $6,938 with MLDAYTON. The Fairport
Midwest Growth Fund placed 18 trades for shares totaling $209,600 with a
commission rate of $0.06 per share for a total commission of $12,576 with
MLDAYTON.
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, in
connection with such broker/dealer's payment of certain of a Fund's or the
Trust's expenses.
<PAGE> 53
For the fiscal years ended October 31, 1997 and 1996, and for the
period of May 1, 1995 to October 31, 1995 the total brokerage commissions
attributable to each Fund are set forth below.
<TABLE>
<CAPTION>
11/01/96 11/01/95 5/01/95
FUND TO TO TO
10/31/97 10/31/96 10/31/95
========================================== =================== ==================== ======================
<S> <C> <C> <C>
MIDWEST GROWTH FUND $74,304 $122,870 $63,257
GROWTH AND INCOME FUND $33,625 $33,208 $7,883
GOVERNMENT SECURITIES FUND $0 $0 $0
TOTALS $107,929 $156,078* $71,140*
</TABLE>
* Of this amount, $ was paid to the Distributor, which represents % of
the total commissions paid by the Trust to all brokers through whom
trades were placed during the period. In addition, % of the Trust's
aggregate dollar amount of transactions were effected through the
Distributor.
<PAGE> 54
Prior to the Reorganization, Advisors paid the following brokerage
commissions on behalf of the Acquired Funds during the period shown:
<TABLE>
<CAPTION>
11/01/94
FUND TO
4/30/95
======================================== =================
<S> <C>
MIDWEST GROWTH FUND $78,378
GROWTH AND INCOME FUND $6,877
GOVERNMENT SECURITIES FUND $0
TOTALS $85,255*
</TABLE>
* Prior to the Reorganization, a portion of the above-referenced brokerage
commissions was paid on behalf of the Acquired Funds to the Distributor.
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.
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.
<PAGE> 55
The portfolio turnover rates for the fiscal years ended October 31,
1997, 1996 and 1995, for the MIDWEST GROWTH FUND were 41.16%, 58.01% and 46.51%,
respectively; for the GROWTH AND INCOME FUND were 42.45%, 34.02% and 13.36% ,
respectively; and for the GOVERNMENT FUND were 21.01%, 21.23% and 1.28% ,
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, Martin Luther King, Jr.
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.
<PAGE> 56
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 has authorized one or more brokers to accept on its
behalf purchase and redemption orders. Such brokers are authorized to
designated other intermediaries to accept purchase and redemption orders on the
Trust's behalf. The Trust will be deemed to have received a purchase or
redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order and that orders will be priced at the
Fund's Net Asset Value next computed after they are accepted by an
authorized broker or the broker's authorized designee.
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; 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.
<PAGE> 57
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 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 mid-term or net long-term
capital gain over net short-term capital loss, if any, is taxable to
shareholders as mid-term or long-term capital gain, respectively, 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.
Long-term capital gains of individuals are subject to a maximum tax
rate of 20% (10% for individuals in the 15% ordinary income tax bracket).
Mid-term capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on mid-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. The holding period for mid-term capital gains is more than one
year but not more than 18 months; the holding period for long-term capital gains
is more than eighteen months.
<PAGE> 58
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 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 sub stitute 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.
<PAGE> 59
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, 1997, the yields for FAIRPORT
MIDWEST GROWTH FUND, FAIRPORT GROWTH AND INCOME FUND and FAIRPORT GOVERNMENT
SECURITIES FUND were -0.26%, 0.00%, and 5.09%, respectively.
CALCULATION OF TOTAL RETURN
Each quotation of average annual total return will be computed by
finding the average annual compounded rate of return over that period which
would equate the value of an initial amount of $1,000 invested in a Fund equal
to the ending redeemable value, according to the following formula:
n
P(T + 1) = 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.
<PAGE> 60
For the one year period ended October 31, 1997, and the period from
July 1, 1993 (commencement of operations) through October 31, 1997, the average
annual total returns for the Funds were as follows:
<TABLE>
<CAPTION>
7/01/93 11/01/96
FUND TO TO
10/31/97 10/31/97
=================================================================
<S> <C> <C>
MIDWEST GROWTH FUND 20.11% 31.00%
GROWTH AND INCOME FUND 18.08% 36.61%
GOVERNMENT SECURITIES FUND 4.78% 6.76%
</TABLE>
At any time in the future, yields and total return may be higher or
lower than past yields and total return and there can be no assurance that any
historical results will continue. Investors in the Funds are specifically
advised that share prices, expressed as the net asset values per share, will
vary just as yields and total return will vary.
PERFORMANCE COMPARISONS
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. and Ibbotson Associates of Chicago, Illinois. Comparison may
also be made to indices or data published in various financial and business
publications and periodicals. In addition to performance information, general
information about the Funds that appears in a publication such as those
mentioned above may be included in advertisements and in reports to
shareholders.
OTHER INFORMATION
DESCRIPTION OF SHARES
The Trust is an Ohio business trust. The Trust was organized on
September 16, 1994, and the Trust's Declaration of Trust was filed with the
Secretary of State of Ohio on September 19, 1994. The Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares, which
are units of beneficial interest, without par value. The Trust presently has
three series of shares, which represent interests in the Funds. The Trust's
Declaration of Trust authorizes the Board of Trustees to divide or redivide any
unissued shares of the Trust into one or more additional series by setting or
changing in any one or more respects their respective preferences, conversion or
other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
<PAGE> 61
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, a Fund's shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Trust,
shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Fund, of any general assets not
belonging to any particular Fund which are available for distribution. As used
in the Prospectus and in this Statement of Additional Information, "assets
belonging to a Fund" means the consideration received by a Fund upon the
issuance or sale of shares in that Fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
asset of the Trust not readily identified as belonging to a particular Fund that
is allocated to the Fund by the Trust's Board of Trustees. The Board of Trustees
may allocate such general assets in any manner it deems fair and equitable.
Determinations by the Board of Trustees of the Trust as to the timing of the
allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to the Funds are
conclusive.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a series will be required in
connection with a matter, a series will be deemed to be affected by a matter
unless it is clear that the interests of each series in the matter are
identical, or that the matter does not affect any interest of the series. Under
Rule 18f-2, the approval of any amendment to the Advisory Agreement or any
change in investment policy submitted to shareholders would be effectively acted
upon with respect to a series only if approved by a majority of the outstanding
shares of such series. However, Rule 18f-2 also provides that the ratification
of independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
shareholders of the Trust voting without regard to series.
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
As used in the Prospectus and this Statement of Additional Information,
"vote of a majority of the outstanding shares" of the Trust or a Fund, means the
affirmative vote, at an annual or special meeting of shareholders duly called,
of the lesser of (a) 67% or more of the votes of shareholders of the Trust or
that Fund present at such meeting at which the holders of more than 50% of the
votes attributable to the shareholders of record of the Trust or that Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of shareholders of the Trust or such Fund.
<PAGE> 62
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 Section 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.
Each of Roulston, the Distributor and FPS has represented to the Trust
that it has examined all of its systems as they relate to the services provided
to and operation of the Funds and that to the best of its knowledge and belief
it is not aware of any material operational or financial obstacles presented by
the Year 2000 issue. The Year 2000 issue refers to existing computer programs
that use two digits to identify a year in a date field and therefore would read
the year 2000 to be the year 1900. As a result such computer applications could
fail or create erroneous results by or at the year 2000. There can be no
assurance, however, that the Funds or their service providers will not
experience problems or difficulties as a result of the Year 2000 issue.
<PAGE> 63
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 IBCA:
Commercial paper rated "F-1" by Fitch IBCA ("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
<PAGE> 64
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.
<PAGE> 65
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 IBCA:
The following summarizes the six highest long-term debt ratings by Fitch
IBCA(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.
<PAGE> 66
THOMPSON BANKWATCH, INC.:
The following summarizes the six highest long-term debt ratings by Thompson
BankWatch, 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. Thomson may include a plus (+) or minus (-) designation to
indicate where within the respective category the issue is placed.
<PAGE> 67
REGISTRATION STATEMENT
OF
FAIRPORT FUNDS
ON
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
-- FINANCIAL HIGHLIGHTS
Included in Part B:
-- Incorporated by reference in Part B hereof:
The audited financial statements and
related notes thereto as well as the
auditors report thereon for the
fiscal year ended October 31, 1997
are incorporated by reference to the
Annual Report to Shareholders as
filed with the Securities and
Exchange Commission on December 30,
1997 pursuant to Rule 30b2-1 of the
Investment Company Act of 1940.
<PAGE> 68
(b) Exhibits
(1) Declaration of Trust, dated as of September
16, 1994 and amended as of March 1, 1996 --
incorporated herein by reference to
Post-Effective Amendment No. 2 to
Registration Statement #33-84186 filed via
EDGAR on February 29, 1996.
(2) By-Laws as amended March 1, 1996 --
incorporated herein by reference to
Post-Effective Amendment No. 2 to
Registration Statement #33-84186 filed via
EDGAR on February 29, 1996.
(3) None.
(4) Certificates for shares are not issued.
Articles IV, V, VI and VII of the
Declaration of Trust, filed as Exhibit 1
hereto, define the rights of holders of
shares.
(5) Investment Advisory Agreement dated January
20, 1995, as amended as of November 30,
1996, between Registrant and Roulston &
Company, Inc. -- incorporated herein by
reference to Post-Effective Amendment No. 3
to Registration Statement #33-84186 filed
via EDGAR on February 27, 1997.
(6) (a) Distribution Agreement dated January 20,
1995, as amended as of June 3, 1996, between
Registrant and Roulston Research Corp --
incorporated herein by reference to
Post-Effective Amendment No. 3 to Registration
Statement #33-84186 filed via EDGAR on
February 27, 1997.
(b) Form of Selected Dealer Agreement --
incorporated herein by reference to
Exhibit 15(b) of Post-Effective
Amendment No. 2 to Registration
Statement #33-84186 filed via EDGAR
on February 29, 1996.
<PAGE> 69
As of filing date, Selected Dealer
Agreements are in effect between
Roulston Research Corp. (Principal
Underwriter) and each of Bidwell &
Co.; Ameritrade, Inc.; American
Capital Corp.; Jack White & Company;
Mutual Service Corporation; First
Cleveland Securities Corporation;
Vista Financial Services
Corporation; and Capital Analysts
Incorporated.
(c) Charles Schwab Mutual Fund
Marketplace Operating Agreement
dated October 25, 1996, between
Charles Schwab & Co., Inc. and the
Trust -- filed herewith.
(i) Order Placement Procedures
Amendment to the Operating
Agreement dated December 1,
1997, between Charles
Schwab & Co., Inc., and the
Trust -- filed herewith.
(7) None.
(8) (a) Custody Agreement between
Registrant and UMB Bank, n.a. --
incorporated herein by reference to
Post-Effective Amendment No. 2 to
Registration Statement #33-84186
filed via EDGAR on February 29,
1996.
(b) Custody Administration and Agency
Agreement dated January 20, 1995, as
amended January 1, 1997, between
Registrant and FPS Services, Inc.
-- incorporated herein by reference
to Post-Effective Amendment No. 3 to
Registration Statement #33-84186
filed via EDGAR on February 27,
1997.
(9) (a) Administration Agreement dated
January 20, 1995, as amended January
1, 1997, between Registrant and FPS
Services, Inc. -- incorporated
herein by reference to
Post-Effective Amendment No. 3 to
Registration Statement #33-84186
filed via EDGAR on February 27,
1997.
(b) Accounting Services Agreement dated
January 20, 1995, as amended January
1, 1997, between Registrant and FPS
Services, Inc. -- incorporated
herein by reference to
Post-Effective Amendment No. 3 to
Registration Statement #33-84186
filed via EDGAR on
February 27, 1997.
<PAGE> 70
(c) Transfer Agent Services Agreement
dated January 20, 1995, as amended
January 1, 1997, between Registrant
and FPS Services, Inc. --
incorporated herein by reference to
Post-Effective Amendment No. 3 to
Registration Statement #33-84186
filed via EDGAR on February 27,
1997.
(d) Agreement and Plan of Reorganization
and Liquidation dated November 23,
1994, between Registrant and The
Advisers' Inner Circle Fund is
incorporated by reference to Exhibit
(9)(d) of Pre-Effective Amendment
No. 1 to Registrant's Registration
Statement (No. 33-84186) filed on
January 19, 1995.
(10) See opinion of Counsel filed as attachment
to Registrant's Rule 24f-2 Notice filed
December 24, 1996 and incorporated herein by
reference.
(11) Consent of Ernst & Young LLP -- filed
herewith.
(12) None.
(13) None.
(14) IRA Disclosure Statement -- filed herewith.
(15) (a) Distribution and Shareholder
Services Plan dated January 20,
1995, as amended June 3, 1996
-- incorporated herein by reference
to Post-Effective Amendment No. 3 to
Registration Statement #33-84186
filed via EDGAR on February 27,
1997.
(b) Form of Selected Dealer Agreement (a
related agreement under the Rule
12b-1 Plan) is incorporated by
reference to Exhibit 15(b) of
Post-Effective Amendment No. 2 to
Registration Statement #33-84186
filed via EDGAR on February 29,
1996. -- see (6)(b) above.
(c) Omnibus Account Services Agreement
dated July 7, 1996, between Roulston
Research Corp. and Waterhouse
Securities, Inc. -- incorporated
herein by reference to
Post-Effective Amendment No. 3 to
Registration Statement #33-84186
filed via EDGAR on February 27,
1997.
<PAGE> 71
(d) Shareholder Service Agreement dated
December 12, 1996, between Roulston
Research Corp. and First Trust
Corporation -- incorporated herein
by reference to Post-Effective
Amendment No. 3 to Registration
Statement #33-84186 filed via EDGAR
on February 27, 1997.
(16) Computation of Performance
Quotations for FAIRPORT MIDWEST
GROWTH FUND, FAIRPORT GROWTH AND
INCOME FUND and FAIRPORT GOVERNMENT
SECURITIES FUND -- incorporated by
reference to Exhibit 16 of
Post-Effective Amendment No. 1 to
Registration Statement #33-84186
filed on March 31, 1995.
(18) 18f3 - Not Applicable
(19) (Powers of Attorney of Scott D. Roulston, Thomas V. Chema, David B. Gale,
David H. Gunning and Ivan J. Winfield filed herewith.
(27) Financial Data Schedules for the
fiscal year ended October 31, 1996
-- filed herewith.
Item 25. Persons Controlled Or Under Common Control With Registrant
None.
Item 26. Number Of Holders Of Securities
The number of holders of securities for each Series of the
Trust as of February 2, 1998 is set forth below:
<TABLE>
<CAPTION>
FUND NUMBER OF SECURITY HOLDERS
======================================================= ========================================
<S> <C>
FAIRPORT MIDWEST GROWTH FUND 1,290
FAIRPORT GROWTH AND INCOME FUND 544
FAIRPORT GOVERNMENT SECURITIES FUND 78
</TABLE>
<PAGE> 72
Item 27. Indemnification
Article VI, Section 6.4 of the Registrant's Declaration of
Trust, filed as Exhibit 1 hereto, provides for the
indemnification of Registrant's Trustees and officers.
Indemnification of Registrant's principal underwriter,
custodian, investment adviser, administrator, and transfer
agent is provided for, respectively, in Section 1.11 of the
Distribution Agreement filed as Exhibit 6(a) hereto, Section
8(a) of the Custody Agreement filed as Exhibit 8(a) hereto,
Section 4(c) of the Custody Administration and Agency
Agreement filed as Exhibit 8(b) hereto, Section 5 of the
Investment Advisory Agreement filed as Exhibit 5 hereto,
Section 9(d) of the Administration Agreement filed as Exhibit
9(a) hereto, Section 11(c) of the Accounting Services
Agreement filed as Exhibit 9(b) hereto and Section 19(c) of
the Transfer Agent Services Agreement filed as Exhibit 9(c)
hereto. As of the effective date of this Registration
Statement, Registrant will have obtained from a major
insurance carrier a trustees' and officers' liability policy
covering certain types of errors and omissions. In no event
will Registrant indemnify any of its trustees, officers,
employees or agents against any liability to which such person
would otherwise be subject by reason of his willful
misfeasance, bad faith, or gross negligence in the performance
of his duties, or by reason of his reckless disregard of the
duties involved in the conduct of his office or under his
agreement with Registrant. Registrant will comply with Rule
484 under the Securities Act of 1933 and Release 11330 under
the Investment Company Act of 1940 in connection with any
indemnification.
<PAGE> 73
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers,
and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer, or controlling person
of Registrant in the successful defense of any action, suit,
or proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Information with respect to Roulston & Company, Inc. and its
officers and directors as set forth under the captions
"MANAGEMENT OF THE TRUST" contained in Prospectus and in the
Statement of Additional Information which are a part of this
Registration Statement is hereby incorporated herein by
reference. To the knowledge of Registrant, none of the
directors or officers of Roulston & Company, Inc., except
those set forth below, is or has been at any time during the
past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature.
Set forth below are the names, principal businesses and
addresses of those businesses of the directors and officers of
Roulston & Company, Inc. who are or have been engaged in any
other business, profession, vocation or employment of a
substantial nature during the past two fiscal years.
<PAGE> 74
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS OF POSITION WITH NAME AND ADDRESS OF NATURE OF CONNECTION
ROULSTON & COMPANY, INC. ROULSTON OTHER BUSINESS TO OTHER BUSINESS
====================================== ========================= =============================== ================================
<S> <C> <C> <C>
Thomas H. Roulston Chairman; Defiance, Inc. Chairman and Director
Director 1111 Chester Avenue
Suite #750
Cleveland, Ohio 44114
University Club Chairman and Director
of Cleveland
3813 Euclid Avenue
Cleveland, Ohio 44115
American Stone Chairman and Director
Industries
900 Keele Street
Toronto, Canada
M6N 3E7
Continental Managed Chairman and Director
Pharmacy Services
1400 East Schaaf Road
Brooklyn Heights, OH
44131
Roulston Investment General Partner
Trust Limited
Partnership
4000 Chester Avenue
Cleveland, OH 44103
Roulston Ventures General Partner
Limited Partnership
4000 Chester Avenue
Cleveland, OH 44103
</TABLE>
<PAGE> 75
<TABLE>
<S> <C> <C>
MJM Industries Chairman and Director
1200 East Street
Fairport Harbor, OH
44077
RB Mfg Co. Chairman and Director
2620 West Monroe
Street
Sandusky, OH 44870
Scott D. Roulston Director; Defiance, Inc. Director
President; Chief 1111 Chester Avenue
Executive Officer Suite #750
Cleveland, Ohio 44114
Heather R. Ettinger Director; University Club Director
Executive Vice of Cleveland
President; 3813 Euclid Avenue
Secretary Cleveland, Ohio 44115
Continental Managed Director
Pharmacy Services
1400 Schaaf Road
Cleveland, Ohio 44113
RB Manufacturing Director
Company
2620 West Monroe
Sandusky, OH 44870
</TABLE>
<PAGE> 76
Item 29. Principal Underwriter
(a) Roulston Research Corp. acts as principal underwriter
for Registrant.
(b) The Directors and Officers of Roulston Research Corp.
and their positions with Registrant are as follows:
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS UNDERWRITER REGISTRANT
====================================== ================================ ========================
<S> <C> <C>
Thomas H. Roulston Director
4000 Chester Avenue
Cleveland, Ohio 44103
Scott D. Roulston Director; Trustee;
4000 Chester Avenue President President
Cleveland, Ohio 44103
Heather R. Ettinger Director;
4000 Chester Avenue Executive Vice
Cleveland, Ohio 44103 President and Secretary
Kevin M. Crotty Treasurer Treasurer
4000 Chester Avenue
Cleveland, Ohio 44103
Joseph A. Harrison Executive Vice
4000 Chester Avenue President;
Cleveland, Ohio 44103 Assistant Treasurer
Norman F. Klopp, Jr. Executive Vice
4000 Chester Avenue President
Cleveland, Ohio 44103
Robert. J. Yaroma Executive Vice
4000 Chester Avenue President
Cleveland, Ohio 44103
Charles A. Kiraly Secretary;
4000 Chester Avenue Assistant Treasurer
Cleveland, Ohio 44103
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND POSITIONS AND
BUSINESS ADDRESS OFFICES WITH OFFICES WITH
UNDERWRITER REGISTRANT
====================================== ================================ ========================
<S> <C> <C>
Elmer L. Meszaros Senior Vice President
4000 Chester Avenue
Cleveland, Ohio 44103
Mark Wipper Vice President
4000 Chester Avenue
Cleveland, Ohio 44103
Keith Vargo Vice President
4000 Chester Avenue
Cleveland, Ohio 44103
</TABLE>
(c) None.
Item 30. Location of Accounts and Records
(1) Roulston & Company, Inc., 4000 Chester Avenue, Cleveland,
Ohio 44103 (records relating to its functions as
investment adviser).
(2) Roulston Research Corp., 4000 Chester Avenue, Cleveland,
Ohio 44103 (records relating to its function as
distributor).
(3) FPS Services, Inc., 3200 Horizon Drive, King of Prussia,
Pennsylvania, 19406 (records relating to its functions as
administrator, dividend and transfer agent, fund account
and custody administrator and agent, Minute Books,
Declaration of Trust and By-Laws).
(4) UMB Bank, n.a., 928 Grand Avenue, Kansas City, Missouri
64141 (records relating to its functions as custodian).
Item 31. Management Services
None.
Item 32. Undertakings
None.
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 4 to its Registration Statement under the
Securities Act of 1933 and Amendment No. 5 to its Registration Statement under
the Investment Company Act of 1940 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland and State of
Ohio on the 27th day of February, 1998.
FAIRPORT FUNDS
By /s/ Scott D. Roulston
----------------------------
Scott D. Roulston, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Scott D. Roulston President (Principal February 27, 1998
- --------------------- Executive Officer) and Trustee
Scott D. Roulston
/s/ Kevin M. Crotty Treasurer February 27, 1998
- ---------------------
Kevin M. Crotty
/s/ Charles A. Kiraly Secretary February 27, 1998
- ---------------------
Charles A. Kiraly
* /s/ Thomas V. Chema Trustee February 27, 1998
- ---------------------
Thomas V. Chema
*/s/ David H. Gunning Trustee February 27, 1998
- ---------------------
David H. Gunning
*/s/ Ivan J. Winfield Trustee February 27, 1998
- ---------------------
Ivan J. Winfield
* /s/ David B. Gale Trustee February 27, 1998
- ---------------------
David B. Gale
</TABLE>
*By /s/ Deborah Ann Potter
-----------------------
Deborah Ann Potter, Attorney-In-Fact
<PAGE> 79
ITEM #24 FINANCIAL STATEMENTS AND EXHIBITS
99.B INDEX TO EXHIBITS FILED PURSUANT TO FORM N-1A:
(6)(C) CHARLES SCHWAB MUTUAL FUND MARKETPLACE OPERATING AGREEMENT
(6)(C)(I) ORDER PLACEMENT PROCEDURES AMENDMENT TO THE OPERATING AGREEMENT
(11)(A) CONSENT OF INDEPENDENT AUDITORS
(14) IRA DISCLOSURE STATEMENT
(19) POWERS OF ATTORNEY
(27) FINANCIAL DATA SCHEDULES FOR ANNUAL REPORT DATED 10/31/97
485(b) REPRESENTATION OF COUNSEL
<PAGE> 1
Exhibit 99.B(6)(c)
CHARLES SCHWAB
MUTUAL FUND MARKETPLACE@
OPERATING AGREEMENT
This Agreement is made as of October 25, 1996, between Charles Schwab &
Co., Inc. ("Schwab"), a California corporation, and each registered investment
company executing this Agreement ("Fund Company"), on its own behalf and on
behalf of each of the series or classes of shares, if any, listed on Schedule I,
as amended from time to time (such series or classes being referred to as the
"Fund(s)"). In the event there are no series or classes of shares listed on
Schedule I, then the term "Fund(s)" shall mean "Fund Company".
WHEREAS Fund Company wishes to have shares of the Fund(s) available for
purchase and redemption by Schwab's brokerage customers through Schwab's Mutual
Fund Marketplace ("MFMP");
WHEREAS certain policies, procedures and information are necessary to
enable the fund(s) to participate in the MFMP; and
WHEREAS Schwab is willing to permit the Fund(s) to participate in its
MFMP pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises set forth below, the parties agree as follows:
1. Operating Procedures
Schwab will open an omnibus account (the "Account") with each
Fund through which it will purchase and redeem shares, settle transactions,
reconcile transactions, obtain pricing, reinvest distributions and maintain
records in accordance with the Operating Procedures set forth in Exhibit A
hereto. In addition, the parties agree to transfer accounts, communicate with
Fund shareholders and perform other obligations in accordance with the Operating
Procedures.
2. Registration Requirements
a. Schwab will only place purchase orders for shares of a Fund
on behalf of a customer whose account address recorded on Schwab's books is in a
state or other jurisdiction in which Fund Company has advised Schwab that such
Fund has registered or qualified its shares for sale under applicable law. Fund
Company shall advise Schwab immediately if any such registration or
qualification is terminated or if it wishes Schwab not to place purchase orders
for a Fund on behalf of its customers who reside in a particular state or other
jurisdiction.
<PAGE> 2
b. Schwab will, upon request, (i) furnish Fund Company with
monthly written statements of the number of shares of each Fund purchased on
behalf of Schwab customers resident in one or more states or other jurisdictions
indicated by Fund Company or (ii) on a daily basis, transmit to an electronic
database provider with whom Schwab has established effective systems interfaces
information regarding the number of shares of each Fund sold in each state for
retrieval by Fund Company. Fund Company shall be responsible for all reasonable
fees and other reasonable charges of such database provider in connection with
Schwab's transmission of such information to and Fund Company's retrieval of
such information from such database provider.
c. Fund Company agrees that any rescission offer that is made
to shareholders who own shares directly with a Fund will also be made to Schwab
customers who would be entitled to such rescission offer if they owned shares
directly with the Fund. Fund Company will provide Schwab with a letter on Fund
Company letterhead containing the terms of any such rescission offer, and Schwab
may send this writing, or any derivation thereof, to the affected Schwab
customers. To assist Fund Company in effecting any such rescission offer, Schwab
agrees to provide Fund Company with relevant information regarding any affected
Schwab customer, including the account number, the number of shares purchased
and redeemed, if any, the dates of the purchase(s) and redemption(s), if any,
and the dollar amount of such transactions.
3. Compliance Responsibilities
a. Fund Company is responsible for (I) the compliance of each
prospectus, registration statement, annual or other periodic report, proxy
statement and item of advertising or marketing material of or relating to each
Fund with all applicable laws, rules and regulations (except for advertising or
marketing material prepared by Schwab that was not published or provided to
Schwab by or on behalf of Fund Company or any Affiliate (defined below) or
accurately derived from information published or provided by or on behalf of
Fund Company or any Affiliate), (ii) the distribution and tabulation of proxies
in accordance with all applicable laws, rules and regulations (except for such
proxy related services provided by Schwab's mailing agent), (iii) the
registration or qualification of the shares of each Fund under all applicable
laws, rules and regulations, and (iv) the compliance by Fund Company and each
Affiliate of Fund Company, as that term is defined below, with all applicable
laws, rules and regulations (including the Investment Company Act of 1940, as
amended (the "1940 Act"), and the Investment Advisers Act of 1940, as amended),
and the rules and regulations of each self-regulatory organization with
jurisdiction over Fund Company or Affiliate, except to the extent that the
failure to so comply by Fund Company or any Affiliate is caused by Schwab's
breach of this Agreement. An "Affiliate" of a person means (i) any person
directly or indirectly controlling, controlled by, or under common control with,
such person, (ii) any officer, director, partner, corporation, or employee of
such person, and (iii) if such person is an investment company, any investment
advisor thereof or any member of the advisory board thereof.
b. In the event that the Account holds five percent (5%) or
more of the
<PAGE> 3
outstanding Fund shares, Fund Company will be responsible for requesting Schwab
to confirm its status as shareholder of record and to confirm whether any Schwab
customer beneficially owns five percent (5%) or more of the outstanding Fund
shares through its Schwab brokerage account. For this purpose, Fund Company
shall indicate in its inquiry the number of Fund shares that equal five percent
(5%) of outstanding Fund shares. Schwab shall promptly reply to any such
inquiries.
c. Schwab is responsible for Schwab's compliance with all
applicable laws, rules and regulations governing Schwab's performance under this
Agreement, except to the extent that Schwab's failure to comply with any law,
rule or regulation is caused by Fund Company's breach of this Agreement.
d. Except as set forth in this Agreement or as otherwise
agreed upon in writing by the parties, any communication, instruction or notice
made pursuant to this Agreement shall be made orally, provided that such oral
communication is on a recorded telephone line or is promptly confirmed in
writing by facsimile transmission. Schwab is entitled to rely on any
communications, instructions or notices which it reasonably believes were
provided to it by Fund Company, any Affiliate or their agents authorized to
provide such communications, instructions or notices to Schwab, and on
communications, instructions or notices provided to it by its customers. Fund
Company is entitled to rely on any communications, instructions or notices it
reasonably believes were provided to it by Schwab, or its agents authorized to
provide such communications, instructions or notices to Fund Company.
e. Except to the extent otherwise expressly provided in this
Agreement, neither party assumes any responsibility hereunder, or will be liable
to the other, for any damage, loss of data, delay or any other loss whatsoever
caused by events beyond its reasonable control.
f. Fund Company and each Fund shall indemnify and hold
harmless Schwab and each director, officer, employee and agent of Schwab from
and against any and all losses, claims, liabilities and expenses (including
reasonable attorney's fees) ("Losses") incurred by any of them arising out of
(i) any untrue statement of material fact or any omission of a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading in any prospectus, registration
statement, annual or other periodic report or proxy statement of the Fund or in
any advertising or promotional material published or provided to Schwab by or on
behalf of Fund Company or any Affiliate or accurately derived from information
published or provided by or on behalf of Fund Company or any Affiliate, (ii) any
violation of any law, rule or regulation relating to the registration or
qualification of shares of the Fund, (iii) any breach by Fund Company of any
representation, warranty or agreement contained in this Agreement, or (iv) any
willful misconduct or negligence by Fund Company or a Fund in the performance
of, or failure to perform, its obligations under this Agreement, except to the
extent such Losses are caused by Schwab's breach of this Agreement or its
willful misconduct or negligence in the performance, or failure to perform, its
obligations under this Agreement. This Section 3(f) shall survive termination of
this Agreement.
<PAGE> 4
4. Representations and Warranties
a. Fund Company represents and warrants to Schwab that each
Fund is in compliance with the conditions and qualifications set forth in the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
("NASD"), Article III, Section 26, as amended from time to time ("Section 26"),
which enable an NASD member to offer or sell shares in the Fund. Fund Company
represents and warrants that each Fund marked with an asterisk on Schedule I is
a "no load" or "no sales charge" Fund as defined in Section 26. If a Fund, for
any reason, fails to satisfy the terms and conditions of Section 26, Fund
Company will notify Schwab immediately of the Fund's disqualification and the
reason therefore.
b. Schwab represents and warrants that Schwab is a member of
the NASD.
5. Use of Parties' Names
a. Without Schwab's prior written consent, Fund Company will
not cause or permit the use, description, or reference to Schwab, or to the
relationship contemplated by this Agreement in any advertisement or promotional
materials or activities.
b. Fund Company authorizes Schwab to use the names or other
identifying marks of Fund Company and Fund in connection with the operation of
the MFMP. Fund Company may withdraw this authorization as to any particular use
of any such name or identifying marks at any time (i) upon Fund Company's
reasonable determination that such use would have a material adverse effect on
the reputation or marketing efforts of Fund Company or such Fund, or (ii) if any
of the Funds cease to be available through the MFMP; provided, however, that
Schwab may, in its discretion, continue to use materials prepared or printed
prior to the withdrawal of such authorization or in the process of being
prepared or printed at the time of such withdrawal.
6. Proprietary Information
Each party hereto acknowledges that the identities of the other party's
customers, information maintained by such other party regarding those customers,
and all computer programs and procedures developed by such other party or such
other party's Affiliates or agents in connection with such other party's
performance of its duties hereunder constitute the valuable property of such
other party. Each party agrees that should it come into possession of any list
or compilation of the identities of or other information about the other party's
customers, or any other property of such party, pursuant to this Agreement or
any other agreement related to services under this Agreement, the party who
acquired such information or property shall use its best efforts to hold such
information or property in confidence and refrain from using, disclosing, or
distributing any of such information or other property, except (i) with the
other party's prior written consent, or (ii) as required by law or judicial
process. Each party acknowledges that any breach of the foregoing agreements as
to another party would result in immediate and irreparable harm to such other
party for which there would be no adequate remedy at law and agrees that in the
event of such a breach such other party will be entitled to equitable relief by
way of temporary and
<PAGE> 5
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
7. Assignability
This Agreement is not assignable by either party without the
other party's prior written consent, and any attempted assignment in
contravention hereof shall be null and void; provided, however, that Schwab may,
without the consent of Fund Company, assign its rights and obligations under
this Agreement to any Affiliate.
8. Exhibits and Schedules, Entire Agreement
All Exhibits and Schedules to this Agreement, as they may be
amended from time to time, are by this reference incorporated into and made a
part of this Agreement. This Agreement (including the Exhibits and Schedule
hereto) constitutes the entire agreement between the parties as to the subject
matter hereof and supersedes any and all agreements, representations and
warranties, written or oral, regarding such subject matter made prior to the
time at which this Agreement has been executed and delivered by Schwab and Fund
Company.
9. Amendment
This Agreement may be amended only by a writing executed by
each party hereto that is to be bound by such amendment, except as provided in
this Section 9. Exhibit A may be amended by Schwab on forty (40) days' written
notice to Fund Company or such earlier time as shall be agreed to by the
parties. Exhibits B and C shall be amended by Fund Company in the event of any
change to the information contained therein.
10. Governing Law
This Agreement will be governed by and interpreted under the
laws of the State of California, as applied to contracts entered into and to be
performed entirely within the state.
11. Counterparts
This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which together shall
constitute one and the same instrument.
12. Effectiveness and Termination
a. Upon Schwab's acceptance of Schedule I, as amended from
time to time, the effective date of this Agreement as to any Fund shall be the
later of the date on which this Agreement is made or the date set forth opposite
the name of the Fund on Schedule I.
b. This Agreement may be terminated as to any Fund by Schwab
immediately upon written notice to Fund Company. This Agreement may be
terminated as to any
<PAGE> 6
Fund by Fund Company upon thirty (30) days' written notice to Schwab.
c. Upon the termination date for any Fund, Schwab will no
longer make the Fund shares available for purchase by Schwab's customers through
the MFMP. Schwab reserves the right to transfer the Fund, shares of its
customers out of the Account. If Schwab continues to hold the Fund shares on
behalf of its customers in the Account, the parties agree to be obligated under,
and act in accordance with, the terms and conditions of this Agreement with
respect to such shares.
IN WITNESS WHEREOF, this Agreement has been executed by a duly authorized
representative of the parties hereto.
Charles Schwab & Co., Inc. Fairport Funds
--------------------
Name of Fund Company
on its own behalf and on
behalf of each of its
Fundslisted on Schedule I
hereto amended from time to
time.
By: By:
-------------------------------- ---------------------------
Colleen Hummer
Senior Vice President/Mutual Funds Name: Scott D. Roulston
Operations Administration -------------------------
Title: President
------------------------
Date: Date:
------------------------------ ------------------------
<PAGE> 7
SCHEDULE I
TO THE OPERATING AGREEMENT
Fund Effective Date
Fairport Midwest Growth Fund * 11/19/96
Fairport Growth and Income Fund * 11/19/96
Fairport Government Securities Fund * 11/19/96
*Indicates that Fund is a "no load" or "no sales charge" Fund as defined in
Section 26 of the NASD's Rules of Fair Practice.
Fairport Funds
----------------------------- ,
Name of Fund Company
On its own behalf and on behalf of each
of the Funds listed on this Schedule I
By:
---------------------------
Name: Scott D. Roulston
-------------------------
Title: President
------------------------
Date:
------------------------
Accepted by Charles Schwab & Co., Inc.
By:
---------------------------------------
Colleen Hummer
Senior Vice President/Mutual Funds
Operations Administration
Date:
-------------------------------------
<PAGE> 8
EXHIBIT A
OPERATING PROCEDURES
1 . The Account
a. Schwab will open an omnibus account with each Fund. The
Account shall be registered:
Charles Schwab & Co., Inc.,
Special Custody Account for the Exclusive Benefit of
Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104
The Account will be set up for the reinvestment of capital gains and dividend
distributions.
b. The Fund shall designate the Account with account numbers.
Account numbers will be the means of identification when the parties are
transacting in the Account.
c. The parties acknowledge that the Account is an omnibus
account in Schwab's name with shares held by any number of beneficial owners.
Schwab represents that the shares in the Account are customer securities and are
segregated from Schwab's own assets. Fund Company represents that the shares in
the Account are carried free of any charge, lien or payment of any kind in favor
of the Fund or any person claiming through the Fund.
d. The Account shall be kept open on the Fund's books
regardless of a lack of activity or small position size, except to the extent
that Schwab takes specific action to close the Account, or to the extent the
Fund's prospectus reserves the right to close accounts that are inactive. In the
latter case, Fund Company will give prior notice to Schwab before closing any
Account.
e. Schwab has the right to open additional accounts from time
to time to accommodate other investment options and features, and to consolidate
existing accounts if and when appropriate to meet the needs of the MFMP. In the
event that it is necessary for Schwab to open an account with a Fund for the
payment of distributions in cash, the term "Account" shall mean both the account
for the reinvestment of capital gains and dividend distributions and the account
for the payment of distributions in cash.
f. Schwab reserves the right to issue instructions to each
Fund to move shares between the Account and any other account Schwab may open.
<PAGE> 9
2. Purchase and Redemption Orders
For each day on which any Schwab customer places with Schwab a
purchase or redemption order for shares of a Fund, Schwab shall aggregate all
such purchase orders and aggregate all such redemption orders and communicate to
the Fund an aggregate purchase order and an aggregate redemption order. Schwab
will accept orders to purchase and redeem Fund shares from its customers no
later than 4:00 p.m. Eastern Time (market close). Schwab will communicate the
order to the Fund prior to a mutually agreed upon time.
3. Settlement of Transactions
a. Schwab will transmit the purchase price of the aggregate
purchase order to the Fund by wire transfer on the next business day after the
trade date. For purposes of this Agreement, a "business day" is any day the New
York Stock Exchange is open for trading.
b. For each business day on which Schwab places a redemption
order for a Fund within the time designated by the Fund, Fund Company will cause
the Fund(s) to send to Schwab the aggregate proceeds of all redemption orders
for the Fund(s) placed by Schwab on that day. Such redemption proceeds will be
sent by wire transfer on the next business day following the trade date for the
redemption orders; provided that Fund Company may, in its discretion, send such
proceeds by check if the aggregate amount is less than $250. Wire transfers of
redemption proceeds shall be separate from wire transfers for other purposes.
c. Each wire transfer of redemption proceeds shall indicate,
on the Fed Funds wire system, the amount thereof attributable to each Fund;
provided, however, that if the number of entries would be too great to be
transmitted through the Fed Funds wire system, Fund Company shall, on the day
the wire is sent, notify Schwab of such entries. The cost of the wire transfer
is the responsibility of the party sending the wire. The interest cost
associated with any delayed wire is the responsibility of the party sending the
wire.
d. Should a Fund need to extend settlement on a trade, Fund
Company must contact Schwab on trade date to discuss the extension. For purposes
of determining the length of settlement, Fund Company agrees to treat
shareholders that hold Fund shares through the Account the same as it treats
shareholders that hold Fund shares directly with the Fund.
e. In the event that a Fund cannot verify redemption proceeds,
Fund Company will settle trades and forward redemption proceeds in accordance
with this Agreement based on the information provided by Schwab. Schwab will be
responsible for the accuracy of all trade information provided by it.
f. Fund Company represents that each Fund that has reserved
the right to redeem in kind has filed Form N-1 8F-1 with the Securities and
Exchange Commission. For purposes of complying with the Fund's election on Form
N-I 8F-1, Fund Company agrees that it will treat as a "shareholder" each
shareholder that holds Fund shares through the Account, provided that Schwab
provides to Fund Company, upon request, the name or account number,
<PAGE> 10
number of Fund shares and other relevant information for each such shareholder.
Fund Company acknowledges that treatment of Schwab as the sole shareholder of
Fund shares held in the Account for purposes of applying the limits in Rule
l8f-I under the 1940 Act would be inconsistent with the intent of Rule l8f-I and
the Fund's election on Form N-I 8F-I and could unfairly prejudice shareholders
that hold Fund shares through the Account.
4. Account Reconciliation Requirements
a. Schwab shall verify, on a next day basis, orders placed for
the Account with each Fund. All activity in the Account must be reflected.
Therefore, any "as of" activity must be shown with its corresponding "as of" of'
dates.
b. Schwab must receive statements on or before the eighth
business day of each month, even if there has been no activity in the Account
during the period, unless Schwab can verify transactions by direct or indirect
systems access.
c. The parties agree to notify each other and correct any
error in the Account with any Fund upon discovery. If an error is not corrected
by the day following discovery, each party agrees to make best efforts to avoid
this from hindering any routine daily operational activity.
5. Pricing
Every business day on which there is a transaction in the
Account and for each month-end business day, Fund Company will provide to Schwab
prior to 7:00 p.m., Eastern Time, each Fund's closing net asset value and public
offering price (if applicable) for that day and/or notification of no price for
that day. Fund Company shall provide such information on a best efforts basis
taking into consideration any extraordinary circumstances arising at the Fund
(e.g. natural disasters, etc.).
6. Distributions
a. Fund Company shall provide distribution information to
Schwab in a timely manner to enable Schwab to pay distributions to its customers
on or as close to payable date as practicable. As to each Fund, Fund Company or
such Fund shall provide Schwab with (i) the record date, ex-dividend date, and
payable date with respect to a Fund as soon as practicable after it is
announced, but no later than three (3) business days prior to record date, (ii)
the record date share balance in the Account and the distribution rate per share
on the first business day after record date, and (iii) the reinvest price per
share as soon as it is available. Other distribution information required by
Schwab from time to time for payment of distributions to its customers shall be
provided by Fund Company on such dates as are agreed upon between Schwab and
Fund Company, but no later than payable date.
b. For purposes of effecting cash distributions for customers
who have elected to receive their capital gains distributions and/or dividends
in cash, prior to 10:00 a.m., Eastern Time, on the next business day following
receipt of the reinvest price per share as
<PAGE> 11
provided in paragraph 6(a)(iii) above, Schwab shall notify Fund Company of the
aggregate number of Fund shares with respect to which the purchase is required
to be voided. Fund Company agrees that the purchase of such aggregate number of
Fund shares may be voided. Fund Company or such Fund shall wire the proceeds of
such voided transaction from the Fund to the Account on the same business day.
Schwab shall use such voided transaction proceeds to pay the distribution in
cash to Schwab customers who have elected to receive such distributions in cash.
c. For each Fund that pays daily dividends, Fund Company shall
provide on a daily basis, the following record date information: daily rate,
account share balance, account accrual dividend amount (for that day), account
accrual dividend amount (for period to date), and account transfers and
period-to-date accrual amounts.
d. In the event that Schwab maintains an Account with a Fund
for the payment of distributions in cash, Fund Company shall wire, on payable
date, any cash distribution from the Fund to the Account.
e. Each Fund shall accrue dividends, commencing on the
settlement date for the purchase of Fund shares and terminating on the trade
date for the redemption of Fund shares.
f. For annual tax reporting purposes, Fund Company shall
inform Schwab of the portion of each Fund's distributions that include any of
the following: foreign source income, tax exempt income by state of origin or
return of capital.
g. Schwab shall prepare and file with the appropriate
governmental agencies, such information, returns and reports as are required to
be so filed for reporting (I) dividends and other distributions made, (ii)
amounts withheld on dividends and other distributions and payments under
applicable federal and state laws, rules and regulations and (iii) gross
proceeds of sales transactions as required.
h. Upon notice from Fund Company, Schwab shall effect mergers,
splits and other reorganization activities of a Fund for its customers.
7. Price and Distribution Rate Errors
a. In the event adjustments are required to correct any error
in the computation of the net asset value or public offering price of a Fund's
shares or in the distribution rate for a Fund's shares, Fund Company shall
notify Schwab as soon as possible after discovering the need for such
adjustments. Notification can be made orally, but must be confirmed in writing.
b. Schwab and Fund Company shall agree promptly and in good
faith to a resolution of the error, and no adjustment for the error shall be
taken in the Account until such agreement is reached. Following resolution, upon
request by Schwab, Fund Company shall provide Schwab with written notification
of the resolution. The letter shall be written on Fund Company letterhead and
must state for each day on which an error occurred the incorrect price or
<PAGE> 12
rate, the correct price or rate, and the reason for the price or rate change.
Fund Company agrees that Schwab may send this writing, or derivation thereof, to
Schwab's customers whose accounts are affected by the price or rate change.
c. If a Schwab customer has received cash in excess of what he
is entitled, Schwab will, when requested by Fund Company, and to the extent
practicable and permitted by law, debit the customer's brokerage account in the
amount of such excess, but only to the extent of any cash in the account, and
repay it to the Fund. In no event, however, shall Schwab be liable to Fund
Company or the Fund for any such amounts. Upon the request of Fund Company,
Schwab shall provide Fund Company with the name of Schwab's customer and other
relevant information concerning the customer's brokerage account to assist Fund
Company in the collection from Schwab's customer of any such excess amount not
repaid to the Fund.
d. If adjustment is necessary to correct an error which has
caused Schwab's customers to receive dollars or shares less than that to which
they are entitled, the Fund shall, as appropriate and as mutually agreed by the
parties pursuant to 7(b) above, make all necessary adjustments to the number of
shares owned in the Account and/or distribute to Schwab any and all amounts of
the underpayment. Schwab will credit the appropriate amount of such shares or
payment to each Schwab customer.
e. For purposes of making adjustments, including the
collection of overpayments, Fund Company agrees to treat shareholders that hold
Fund shares through the Account the same as it treats shareholders that hold
Fund shares directly with the Fund. When making adjustments for an error, a Fund
shall not net same day transactions in the Account.
8. Record Maintenance
a. Schwab shall maintain records for each of its customers who
holds Fund shares through the Account, which records shall include:
i. Number of shares;
ii. Date, price and amount of purchases and redemptions
(including dividend reinvestments) and date and
amounts of dividends paid for at least the current
year to date;
iii. Name and address of each of its customers, including
zip codes and social security numbers or taxpayer
identification numbers;
iv. Records of distributions and dividend payments;
v. Any transfers of shares; and
vi. Overall control records.
b. Schwab will be responsible for accurately posting
transactions in Fund shares to its customers' brokerage accounts.
<PAGE> 13
9. Transfer of Accounts
a. Fund Company agrees to transfer shares between accounts for
Schwab customers or other street name brokers held directly with a Fund and the
Account on the Fund's records. For the purpose of expediting direct transfers
from accounts for Schwab customers, Fund Company will accept by facsimile
transmission a summary sheet of information indicating the customers' names,
account numbers, the Fund affected and the number of shares to be re-registered.
For record keeping purposes, actual copies of transfer forms will be forwarded
to a Fund upon its request for such forms.
b. Schwab represents and warrants that for each transfer
indicated in the summary sheet of information, it holds each underlying
instruction for re-registration signed by its customer, and that its customer's
signature on such instruction is signature guaranteed by, Schwab pursuant to the
New York Stock Exchange's Medallion Signature Program.
c. Schwab agrees to indemnify and hold harmless Fund Company,
the Fund and each director, officer, employee and agent of Fund Company
("indemnified person") from and against any and all Losses incurred by any of
them arising out of the impropriety of any transfer effected by the Fund in
reliance on the summary sheet of information, except to the extent such Losses
arise out of the failure of any indemnified person to comply with the
instructions on the summary sheet of information.
d. Fund Company shall process all transfer requests into the
appropriate Account. Schwab as custodian is qualified to accept in the Accounts
shares from Fund IRA, Keogh or 401(k) accounts. At no time shall any Fund
establish separate accounts registered to Schwab for the benefit of individual
shareholders. In the event any such account is mistakenly opened, Schwab
reserves the right to instruct such Fund to move Fund shares to the Account.
e. Fund Company must confirm to Schwab the completion of each
transfer on the day it occurs. The confirming information shall include the
number of shares, date ("as of" date if unavoidable delay), transaction date,
account number of the customer and the Account, registration, accrued dividends
and account type (i.e., IRA, Keogh, 401(k), etc.).
f. Transfer processing after record date but prior to payable
date will include all accrued dividends. Each Fund is responsible for monitoring
all completed full transfers for "trailing" dividends. Should a "trailing"
dividend appear in an account, a Fund shall send such dividend to Schwab within
five (5) business days, along with a specific written notification thereof.
Notification shall include details of the dividend and customer, including the
customer's social security number or taxpayer identification number, and/or the
account number for the Account to which the transfer was made.
g. If Schwab customers submit share certificates for transfer
into their Schwab brokerage accounts, Schwab will send such certificates,
properly endorsed to the applicable Fund, for transfer into the Account with
such Fund. Upon Schwab's request, Fund Company agrees to provide the status of
said certificates and book share balances.
<PAGE> 14
10. Shareholder Communication
a. Fund Company shall arrange with Schwab, or a mailing agent
designated or approved by Schwab, for the distribution of the materials listed
below to all of Schwab's customers who hold Fund shares, which distribution
shall be so arranged by Fund Company as to occur immediately upon the effective
date of the materials:
i. All proxy or information statements prepared for
circulation to shareholders of record of such Fund;
iii. Annual reports;
iii. Semi-annual reports;
iv. Quarterly reports (if applicable); and
v. All updated prospectuses, supplements and amendments
thereto.
Fund Company shall be responsible for providing the materials and for Schwab or
the mailing agent's fees in connection with this service as well as for timely
distribution. Fund Company agrees to have Schwab or the mailing agent
consolidate mailings of material to shareholders of more than one Fund if the
mailing is identical for all Funds in the Fund Company family.
b. In addition to the materials listed above, Fund Company
agrees to provide directly to Schwab all prospectuses, statements of additional
information and supplements and amendments thereto, and annual and other
periodic reports for each Fund in amounts reasonably requested by Schwab for
distribution to its customers. Fund Company is obligated to supply these
materials to Schwab in a timely manner so as to allow Schwab, at its own
expense, to send current prospectuses and statements of additional information
and periodic reports, immediately upon their effective dates, to customers and
prospective customers requesting them through Schwab. Schwab will also send a
current Fund prospectus with purchase trade confirmations for the initial
purchase of a Fund. Fund Company shall notify Schwab immediately of any change
to a Fund's prospectus.
c. If Schwab acts as clearing broker in an omnibus
relationship with a correspondent bank or broker ("Correspondent"), Fund Company
shall also provide to Schwab, in a timely manner, sufficient supplies of Fund
materials identified in Sections 10(a) and 10(b) for Schwab to give to
Correspondent for the distribution of such materials to Correspondent's
customers who hold Fund shares.
d. Fund Company shall ensure that the foregoing materials
shall be in compliance with all applicable provisions of the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, the 1940 Act,
as amended, all applicable rules and regulations under each such statute, and
any and all laws, rules and regulations that may be adopted and become
applicable in the future.
e. Fund Company shall ensure that the prospectus of each of
its Funds discloses (i) that a broker may charge transaction fees on the
purchase and/or sale of Fund shares,
<PAGE> 15
(ii) that the performance of the Fund may be compared in publications to the
performance of various indices and investments for which reliable performance
data is available, (iii) that the performance of the Fund may be compared in
publications to averages, performance rankings, or other information prepared by
recognized mutual fund statistical services, and (iv) that the annual report
contains additional performance information and will be made available to
investors upon request and without charge.
f. Schwab shall mail statements to its customers on a monthly
basis (or as to accounts in which there has been no activity in a particular
month, no less frequently than quarterly) showing, among other things, the
number of shares of each Fund owned by such customer and the net asset value of
each such Fund as of a recent date.
g. Schwab shall respond to customer inquiries regarding, among
other things, share prices, account balances, dividend amounts and dividend
payment dates. With respect to Fund shares purchased by customers after the
effective date of this Agreement, Schwab shall provide average cost basis
reporting to assist customers in the preparation of income tax returns.
11. New Processing Systems
Fund Company agrees to cooperate to the extent possible with
Schwab as Schwab develops and seeks to implement new processing systems for the
MFMP.
<PAGE> 1
Fairport
EXHIBIT 99.B(6)(C)(I)
ORDER PLACEMENT PROCEDURES AMENDMENT
TO THE OPERATING AGREEMENT
This Order Placement Procedures Amendment ("Amendment") is
made as of December 1, 1997, by and between Charles Schwab & Co., Inc.
("Schwab"), a California corporation; and each registered investment company
("Fund Company") executing this Amendment on its own behalf and on behalf of
each of the series or classes of shares ("Fund(s)"), which are parties to an
Operating Agreement with Schwab, made as of October 25, 1996, as amended
thereafter ("Operating Agreement"). This Amendment amends the Operating
Agreement. In the event that there are no Funds, then the term "Fund(s)" shall
mean "Fund Company." Capitalized terms used, but not defined, in this Amendment
shall have the respective meanings given to them in the Operating Agreement.
WHEREAS, Schwab and Fund Company, on its own behalf and on
behalf of the Funds, have entered into the Operating Agreement pursuant to which
shares of the Funds are made available for purchase and redemption by Schwab's
brokerage customers through Schwab's Mutual Fund Marketplace(R) (MFMP), and
WHEREAS, Schwab and Fund Company desire to amend the Operating
Agreement to authorize Schwab to receive customer orders for purchase and
redemption of Fund shares on each business day up until the time at which the
Fund prices its shares, and to transmit those orders to the Fund or its transfer
agent or another Fund-designated agent (each of the three is individually
referred to herein as the "Order Accepter"), as appropriate, after the time at
which the Fund prices its shares, subject to the terms and conditions of this
Amendment.
NOW THEREFORE, in consideration of the foregoing and the
mutual promises set forth below, the parties hereto agree as follows:
1. Authorization to Receive Orders. Fund Company hereby
designates and authorizes Schwab to receive purchase and redemption orders in
proper form ("Orders") from Schwab customers on the Fund's behalf for purposes
of Rule 22c-1, so that any such Schwab customer will receive the share price
next computed by the Fund after the time at which such customer places its order
with Schwab, as more specifically provided in this Amendment.
<PAGE> 2
2. Sub-Designees of Schwab. Fund Company further agrees that
Schwab may designate and authorize such intermediaries as it deems necessary,
appropriate or desirable, pursuant to such terms as are consistent with this
Amendment ("Sub-Designees"), to receive orders from their customers on the
Fund's behalf for purposes of Rule 22c-1, so that any such customer will receive
the share price next computed by the Fund after the time at which such customer
places its order with the intermediary, as more specifically provided in this
Amendment. Schwab shall be liable to Fund Company and the Funds for the
observance of the terms of this Amendment by the Sub-Designee.
3. Receipt and Transmission of Orders. Schwab agrees that,
except as set forth in Section 4b below, (a) Orders received by Schwab or a
Sub-Designee prior to the close of the New York Stock Exchange (generally, 4:00
p.m. Eastern Time) ("Market Close") on any Business Day will be transmitted by
Schwab to the Order Accepter by 8:00 p.m. Eastern Time on the same Business Day
("Day 1 Trades"); and (b) Orders received by Schwab or Sub-Designees after
Market Close on any Business Day will be transmitted by Schwab to the Order
Accepter by 8:00 p.m. Eastern Time on the next Business Day ("Day 2 Trades").
4. Fund's Pricing of Orders.
a. Fund Company agrees that, except as set forth in Section
4b below, Day 1 Trades will be effected at the net asset value of each Fund's
shares ("Net Asset Value") calculated as of Market Close on Day 1, provided such
trades are received by the Order Accepter by 8:00 p.m. Eastern Time on Day 1;
and Day 2 Trades will be effected at the Net Asset Value calculated as of Market
Close on Day 2, provided such trades are received by the Order Accepter by 8:00
p.m. Eastern Time on Day 2. Fund Company agrees that, consistent with the
foregoing, Day 1 Trades will have been received by the Fund prior to Market
Close on Day 1, and Day 2 Trades will have been received by the Fund prior to
Market Close on Day 2, for all purposes, including, without limitation,
effecting distributions.
b. Notwithstanding Sections 3 and 4a above, Fund Company
agrees that, if Schwab is prevented from transmitting Day 1 Trades to the Order
Accepter by 8:00 p.m. Eastern Time on Day 1 due to unforeseen circumstances,
such as computer system failures, natural catastrophes, or other emergencies or
human error, then Schwab may transmit such Day 1 Trades by 9:30 a.m. Eastern
Time on Day 2, and such Day 1 Trades will be effected at the Net Asset Value
calculated as of Market Close on Day 1, provided that Schwab notifies the Order
Accepter of such contingency prior to 8:00 p.m. Eastern Time on Day 1.
<PAGE> 3
5. Settlement. In accordance with the Operating Agreement,
Schwab and Fund Company will settle Day 1 Trades on Day 2 and will settle Day 2
Trades on Day 3.
6. Representations and Warranties.
a. Fund Company represents and warrants that each Fund's
board of directors or board of trustees has authorized the Fund Company and each
Fund to enter into this +- Amendment, or will ratify the action of the Fund
Company and each Fund of entering into this Amendment within four months after
the date of this Amendment.
b. Fund Company represents and warrants that it will cause
each Fund's board of directors or board of trustees thereafter periodically to
review the terms of this Amendment.
c. Fund Company represents and warrants that the person
signing this Amendment on its behalf and on behalf of each Fund is an officer so
authorized to execute this Amendment.
d. Schwab represents and warrants that Schwab's internal
control structure over the processing and transmission of Orders for Fund
transactions is suitably designed to prevent or detect on a timely basis Orders
received after Market Close from being aggregated with Orders received before
Market Close, and to minimize errors that could result in late transmission of
Orders to the Funds under Section 4b above.
e. Schwab represents and warrants that it will cause an
independent public accountant or other qualified independent party annually to
review Schwab's internal controls and prepare a written report to Schwab
concerning their adequacy for the obligations undertaken by Schwab under this
Amendment.
f. Schwab represents and warrants that it will also require
each Sub-Designee to retain an independent public accountant or other qualified
independent party annually to review Sub-Designee's internal controls and
prepare a written report to Schwab and the Sub-Designee concerning their
adequacy for the obligations undertaken by Sub-Designee as set forth in this
Amendment.
g. Schwab represents and warrants that, upon its receipt of
its internal control report and those of any Sub-Designee, described in Sections
6d and 6e respectively, it will make them available to Fund Company or any Fund
upon request.
7. Prospectus Disclosure. Fund Company shall ensure that the
prospectus of each Fund adequately discloses that (I) the Fund has authorized
one or more brokers to accept on its behalf purchase and redemption orders; (ii)
that such brokers are authorized to designate other
<PAGE> 4
intermediaries to accept purchase and redemption orders on the Fund's behalf,
(iii) that the Fund will be deemed to have received a purchase or redemption
order when an authorized broker or, if applicable, a broker's authorized
designee, accepts the order; and (iv) that customer orders will be priced at the
Fund's Net Asset Value next computed after they are accepted by an authorized
broker or the broker's authorized designee. This disclosure may be contained in
the statement of additional information of the Fund ("SAI") if the SAI is
incorporated into the prospectus. If adequate disclosure is not currently
contained in the prospectus (including any incorporated SAI), then it may be
added at the next regular printing of the prospectus, provided such printing
occurs within a reasonable time after the date of this Amendment.
8. Effectiveness. This Amendment shall become effective 10
days after written notice by Schwab to Fund Company.
9. Effect of Amendment. This Amendment is intended to amend
and supplement the provisions of the Operating Agreement. In the event of a
conflict between the provisions of this Amendment and the provisions of the
Operating Agreement, the provisions of this Amendment shall control. All other
provisions of the Operating Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Agreement has been executed by a duly
authorized representative of the parties hereto.
CHARLES SCHWAB & CO., INC. FAIRPORT FUNDS, on its own behalf and on
behalf of each Fund
By: ___________________________ By: _____________________________
Fred Potts
Vice President/Mutual Funds Name: ___________________________
Operations Administration
Title: __________________________
Date: _________________________ Date: ___________________________
<PAGE> 5
SHAREHOLDER SERVICE AGREEMENT
This Shareholder Service Agreement (this "Agreement") is made
and entered into by and between First Trust Corporation ("FTC"), a Colorado
corporation with its principal office at 717 Seventeenth Street, Denver,
Colorado 80202 and Roulston Research Corporation (the "Company"), an Ohio
corporation, with its principal office at 4000 Chester Avenue, Cleveland, Ohio
44103.
RECITALS
A. FTC is a duly licensed trust company providing trust,
custodial and other services to individual retirement accounts, qualified
retirement plans and taxable investment accounts (the "Plan(s)"). Some of the
Plans contain provisions that permit or require each participant to direct the
investment of that portion of a Plan's assets that is allocated to such
participant's account. Some of the Plans provide for the delegation of
investment authority to investment managers, co-trustees, or named fiduciaries
other than FTC. In no case does FTC have any investment discretion or authority
with respect to any of the Plans.
B. In its capacity as principal underwriter, the Company has
entered into a plan and agreement with each of the mutual fund companies
identified on EXHIBIT A for making payments to certain persons for shareholder
servicing and administration of shareholder accounts. The Company may enter into
a similar plan and agreement with other mutual fund companies in the future, and
such additional mutual fund companies may be added to this Agreement as provided
below. The mutual fund companies currently identified on EXHIBIT A and those
added to this Agreement in the future are referred to below individually as the
"Fund" and collectively as the "Funds."
C. FTC desires to make the Funds available to the Plans and to
provide shareholder servicing and record keeping functions required for
purchases and redemptions of, and dividends paid on account of, the shares of
the Funds to be held by FTC for the benefit of the Plans.
AGREEMENT
1. Procedures for Accounts and Transactions. The Company will
cause the Funds' transfer agent (the "Transfer Agent") to maintain one or more
accounts (the "FTC Account(s)") on its books for each Fund for the Plans. The
assets of one or more Plans may be held in any FTC Account. The FTC Accounts
will be titled in the nominee name of "FTC & Co., Attn: DATAlynx #__________,"
and FTC, as trustee or custodian of the Plans, will be the shareholder of record
for the FTC Accounts. FTC will purchase or redeem shares of each Fund for the
benefit of the Plans, as applicable, as follows:
(a) The Company confirms that if FTC notifies the
Company or the Transfer Agent prior to the earlier of 4:00 P.M. or the close of
trading on the New York Stock Exchange on any business day (which is defined as
each day that the New York Stock Exchange is open for regular business)
concerning the purchase of a Fund's shares, the purchase will be effected on
such business day, and that if FTC notifies the Company or the Transfer Agent at
or after such time on any business day concerning the purchase of a Fund's
shares, the purchase will be effected
<PAGE> 6
on the next business day. (All times referred to in this Agreement will be
Eastern time.) Purchases will be paid for in cash or by Federal Funds at prices
equal to net asset value. FTC will make reasonable efforts to ensure that
payment is received by the Transfer Agent prior to 4:00 o'clock P.M. on the next
business day following the effective date of the purchase.
(b) The Company confirms that if FTC notifies the Company or
the Transfer Agent prior to the time set forth in Section 1(a) on any business
day concerning the redemption of a Fund's shares, the redemption will be
effected on such business day, and that if FTC notifies the Company or the
Transfer Agent at or after such time on any business day concerning the
redemption of a Fund's shares, the redemption will be effected on the next
business day. The Company confirms that the Transfer Agent will wire redemption
proceeds to FTC on the next business day following the effective date of the
redemption.
(c) The Company confirms that FTC may make orders for the
purchase or redemption of shares of a Fund by telephonic advice, subject to that
Fund's telephone order procedures as set forth in EXHIBIT C.
(d) FTC will maintain separate accounting and record keeping
for each of the Plans, and will allocate on its records the number of Fund
shares purchased, accrued as dividends and redeemed, and any cash dividends or
distributions paid on account of the shares of each Fund, for each of the Plans.
FTC will reconcile the amounts posted to each Plan with the amounts recorded on
the Transfer Agent's records for each Fund for each respective FTC Account.
(e) The Company will be responsible under this Agreement for
the servicing of the respective FTC Accounts and will have no responsibility for
the servicing of the Plans. FTC will provide record keeping services to the
Plans. The foregoing obligations of the parties are more particularly described
on EXHIBIT B, which is made a part of this Agreement.
2. Fees. For the services provided by FTC under this
Agreement, the Company will pay to FTC a quarterly service fee equal on an
annual basis to .25% (0.0625% per quarter) of the average daily net asset
value of the shares of such Fund which are owned beneficially by the Plans
during such period. Such fees will be paid no later than ten (10) days following
the end of the calendar quarter in which they accrue.
3. Manner of Payment. Payments made pursuant to Section 2 of
this Agreement will be made by check, and will be accompanied by one report for
each FTC Account. Such report will show the calculation used to arrive at the
amount paid.
4. Reporting of Transactions. The Company will furnish or
cause to be furnished to FTC, on a transaction-by-transaction basis, a statement
that will set forth for each FTC Account the number of shares purchased or
redeemed, the beginning and ending share balances, and the net asset value per
share. The Company will mail such statement to FTC no later than the business
day next following the transaction being reported.
5. Shareholder Communications. FTC will cause the mailing to
the Plans of all currently effective prospectuses of the Fund, proxy materials
(including notices, proxy statements and forms of proxies), reports and other
communications which must be furnished by law to
<PAGE> 7
shareholders, in accordance with the procedures set forth on EXHIBIT B. Upon
FTC's request, the Company will provide FTC with sufficient copies of any
requested communications to ensure FTC is able to fulfill its obligations as
described in this Section 5.
6. Coordination of Operations. The Company will cause
appropriate personnel to be made available, as may be reasonably requested by
FTC, to consult with FTC in coordinating operations pursuant to this Agreement.
7. Status of FTC. The parties acknowledge and agree that the
services provided by FTC are record keeping and related services only and are
not the services of an underwriter or a principal underwriter of the Funds
within the meaning of the Securities Act of 1933 or the Investment Company Act
of 1940. This Agreement does not grant FTC any right to purchase shares from the
Funds, nor does it constitute FTC an agent of the Funds or of the Company, for
purposes of selling shares of the Funds to any dealer or to the public, or for
any other purposes. To the extent FTC enters any purchase or redemption order
for an FTC Account, such purchase or redemption order will be made by FTC (a) as
agent of each of the Plans whose shares are the subject of such purchase or
redemption order, and (b) pursuant to instructions from the account owner,
participant, named fiduciary entity or any other person with investment
discretion and authority for the assets that are the subject of the transaction.
8. Amendments. Any amendment to this Agreement will be valid
only if in writing and signed by the parties. The parties agree that Funds may
be deleted from and additional Funds may be added to this Agreement (and thus
would become "Funds" for purposes of this Agreement), whenever the parties sign
an addendum that identifies such Funds, at which time this Agreement will be
deemed to have been so amended without further action by the parties.
9. Termination Without Cause. TC will have the right to
terminate this Agreement for any reason upon 60 days' written notice to the
Company, without any liability arising by reason of such termination. Company
may terminate this Agreement at any time, without payment of any penalty, by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of any Fund, upon 60 days written notice to FTC.
10. Termination Upon Breach. Upon any breach of this Agreement
by FTC, the Company may terminate this Agreement upon 10 days' written notice to
FTC. Upon any breach of this Agreement by the Company, FTC may terminate this
Agreement at any time upon 10 day's written notice to the Company.
11. Resolution of Disputes. All disputes arising out of or in
connection with this Agreement (except disputes concerning the Company's use of
FTC proprietary information described in Section 14) will be settled by
arbitration, to be conducted pursuant to the rules of the American Arbitration
Association. All arbitration proceedings will take place only in Denver,
Colorado. To the extent not preempted by federal law, Colorado statutory law
(including without limitation the statutes governing the award of damages and
arbitration) and Colorado common law will control during arbitration. Both
parties waive any right either of them may have to institute or conduct
litigation or arbitration in any other forum or location, or before any other
body, except that FTC expressly reserves the rights granted to it in Section 14.
Arbitration is final and binding on the parties. An award rendered by the
arbitrator(s) may be entered in any court having jurisdiction over
<PAGE> 8
the pertinent party. The prevailing party in any arbitration, or in any judicial
proceeding relating to the rights of FTC under Section 14, will be entitled to
reasonable attorneys' fees and costs.
12. Indemnification Obligations. FTC agrees to indemnify and
hold harmless the Company from any loss, expense, cost, liability or damage
(including reasonable attorneys fees) which may be suffered by it as a result of
any breach of this Agreement by FTC or arising from any negligent act or
omission of FTC in the performance of its duties under this Agreement. The
Company agrees to indemnify and hold harmless FTC from any loss, expense, cost,
liability or damage (including reasonable attorneys fees) which may be suffered
by it as a result of any breach of this Agreement by the Company or arising from
any negligent act or omission of the Company in the performance of its duties
under this Agreement.
13. Indemnification Procedures. If a person receives notice of
the commencement of any action, suit, or proceeding (an "Action") or notice that
any Action may be commenced, and if the person receiving the notice (the
"indemnified person") desires to be indemnified by a party under this Agreement
(the "indemnifying party"), the indemnified person will give notice to the
indemnifying party of the commencement of the Action or of the possibility that
an Action will be commenced. Any omission to notify an indemnifying party will
not relieve the indemnifying party from any liability which it may have under
this Agreement, except to the extent the failure to notify the indemnifying
party prejudices the rights of the indemnifying party. The indemnified person
will be entitled, at the sole expense and liability of the indemnifying party,
to exercise full control of the defense, compromise or settlement of any such
Action unless the indemnifying party, within a reasonable time after the giving
of such notice by the indemnified person, (1) admits in writing to the
indemnified person the indemnifying party's duty to indemnify the indemnified
person for such Action under the terms of this Section, (2) notifies the
indemnified person in writing of the indemnifying party's intention to assume
such defense, (3) provides evidence reasonably satisfactory to the indemnified
person as to the indemnifying party's ability to pay the amount, if any, for
which the indemnified person may be liable as a result of such Action, and (4)
retains legal counsel reasonably satisfactory to the indemnified person to
conduct the defense of such Action. The other person will cooperate with the
person assuming the defense, compromise or settlement of any Action in
accordance with this Agreement in any manner that such person reasonably may
request. If the indemnifying party so assumes the defense of any such Action,
the indemnified person will have the right to employ a separate counsel and to
participate in (but not control) the defense, compromise or settlement of the
Action, but the fees and expenses of such counsel will be at the expense of the
indemnified person unless (a) the indemnifying party has agreed to pay such fees
and expenses, (b) any relief other than the payment of money damages is sought
against the indemnified person, or (C) the indemnified person has been advised
by its counsel that there may be one or more defenses available to it which are
different from or additional to those available to the indemnifying party and
that a conflict of interest therefore exists, and in any such case that portion
of the fees and expenses of such separate counsel that are reasonably related to
matters covered by the indemnity provided in this Section will be paid by the
indemnifying party. No indemnified person will settle or compromise any such
Action for which it is entitled to indemnification under this Agreement without
the prior written consent of the indemnifying party, which consent cannot be
unreasonably withheld, unless the indemnifying party has failed, after
reasonable notice, to undertake control of such Action in the manner provided in
this Section. No indemnifying party will settle or compromise any such Action in
which any relief other than the payment of money damages is sought against any
indemnified person without the consent of the
<PAGE> 9
indemnified person, such consent not to be unreasonably withheld.
14. Confidentiality of Information. The Company recognizes
that the information provided to it or to be provided to it under this Agreement
relating to the Plans (including the names and addresses of the participants,
the account numbers of the Plans, and any similar information) is the
proprietary information of FTC and agrees to keep such information confidential
and to prevent the use of such information by others, except to the extent it is
required by law to disclose such information or necessary for it to perform its
own actions under this agreement. Prior to disclosing any such information to
any person in accordance with a requirement of law, the Company will redact such
information to the greatest extent permissible under law and will provide FTC
with a reasonable opportunity to appear in any judicial, administrative or
arbitration proceeding or investigation to contest the disclosure of such
information. The Company also agrees not to use such information for its benefit
or the benefit of any affiliate of the Company, directly or indirectly. The
obligations of the Company under this Section 14 will apply during the term of
this Agreement and for a period of five (5) years after the date this Agreement
is terminated, for whatever reason. Because a violation of the duties of the
Company under this Section 14 could cause irrevocable injury to FTC and could
cause injury to FTC which may not be measurable in money damages, the Company
agrees that FTC will be entitled to obtain injunctive relief against the Company
for any violation of such duties, without prejudicing FTC's right to obtain
money damages.
15. Interest on Amounts Due. Any amount due under this
Agreement from one party to another party will bear interest, from the date such
amount is due until such payment is made, at a rate equal to the "prime rate,"
as published from time to time by The Wall Street Journal.
16. Prior Agreements. This Agreement supersedes all
proposals, prior communications, advertising, representations, warranties and
promises, whether oral or written, relating to the subject matter of this
Agreement.
17. Assignment. This Agreement shall terminate automatically
in the event of its assignment.
18. Separability. If any provision of this Agreement is
deemed to be in violation of law or is unenforceable, the remainder of this
Agreement with such provision omitted will remain in full force and effect.
19. Compliance with Laws. Each party agrees to abide by all
applicable federal and state laws and regulations in connection with the
performance of its obligations under this Agreement.
20. Survival of Obligations. The representations and
warranties of the parties and all obligations and responsibilities of the
parties under this Agreement, including all payment obligations, as to periods
through the date this Agreement is terminated, will survive the termination of
this Agreement. Without limiting the foregoing, the provisions of Sections 11,
12, 13, 14, and 15 will continue to apply after termination of this Agreement.
21. Notices. Except as otherwise provided in this Agreement,
all notices given under this Agreement will be given only by delivery in person,
by deposit in the United States mails,
<PAGE> 10
using certified mail, by commercial overnight delivery service, or by facsimile
transmission (with machine confirmation) or electronic mail. All notices will be
in writing and addressed to the party at the address set forth in the first
paragraph of this Agreement (unless a party specifies by a written notice to the
other party that a different address should be used). Notices will be deemed
delivered when delivered in person or, if mailed by certified mail, on the third
business day after the date of deposit into the United States mails, and upon
receipt, if by commercial overnight delivery service. Facsimile transmission and
electronic mail will be deemed received the same day as sent.
22. Effective Date. This Agreement will be effective on the
date it is accepted and executed by FTC.
23. Governing Law. This Agreement will be construed by and
governed in accordance with the laws of the State of Colorado.
ROULSTON RESEARCH CORPORATION (Company)
By:______________________________
Its:_____________________________
Date:____________________________
Accepted by:
FIRST TRUST CORPORATION (FTC)
By:______________________________
Its:_____________________________
Date:____________________________
<PAGE> 11
EXHIBIT A
to Shareholder Service Agreement
Mutual Fund Companies
<TABLE>
<CAPTION>
Fund Name Cusip Ticker Symbol Trading Cutoff Time
--------- ----- ------------- -------------------
<S> <C> <C> <C>
1 Fairport Midwest Growth* 305562308 FPMGX 4:00 p.m. EST
2. Fairport Growth and Income* 305562100 FPGIX 4:00 p.m. EST
3. Fairport Government
Securities Fund* 305562209 FPGSX 4:00 p.m. EST
</TABLE>
* These Funds have adopted a Rule l2b-1 Plan.
<PAGE> 12
EXHIBIT B
TO SHAREHOLDER SERVICE AGREEMENT
REGISTRAR, TRANSFER AGENT AND
RECORD KEEPING SERVICES
A. Registrar and Transfer Agency Functions Provided or Caused to be Provided by
the Company
1. Process purchases, redemptions and exchanges of Fund shares in
accordance with instructions received from FTC.
2. Provide to FTC one Fund statement for each FTC Account as
described in Section 4 of the Agreement.
3. Provide daily pricing, dividend reinvestment and capital gain
information for each FTC Account.
4. Assist FTC in resolving any account discrepancies between FTC
and the Fund.
B. Recordkeeping and Shareholder Servicing Functions Provided by FTC
1. Provide sub-accounting services in accordance with Section
l(d) of the Agreement.
2. Timely cause the mailing of Fund prospectuses, proxies and
related information to those Plans and individual participants
identified by FTC and in accordance with Section 5 of the
Agreement.
3. Assist in processing purchase and redemption transactions;
changing dividend options, account designations and addresses;
and establishment and maintenance of Plan accounts and
records.
4. Provide additional services to the Plans as required in the
separate IRA account, custodial account or service agreement
between FTC and each taxable investment account owner or plan
employer, as they may be amended from time to time.
<PAGE> 13
EXHIBIT C
TO SHAREHOLDER SERVICE AGREEMENT
The Funds currently permit the transaction of purchase and redemption orders by
telephone. Shareholders may purchase or redeem shares by telephone by calling
the Company or the Transfer Agent. Orders received by the Company or the
Transfer Agent prior to the Valuation Time (as defined in the Funds' Prospectus)
on any Business Day will be effective that day, and the price of shares will be
the net asset value per share of that Fund next determined after the order, in
proper order, is received by the Company or the Transfer Agent.
Neither Fairport Funds, the Funds nor the Funds' transfer agent will be
responsible for the authenticity of the instructions received by telephone if it
reasonably believes those instructions to be genuine. Fairport Funds and the
Funds' transfer agent will each employ reasonable procedures to confirm that
telephone instructions are genuine, and may be liable for losses resulting from
unauthorized or fraudulent telephone transactions if it does not employ those
procedures. Such procedures may include taping of telephone conversations and
requesting a shareholder to state correctly his or her Fund account number, the
name in which his or her account is registered, his or her social security
number, banking institution bank account number and the name in which his or her
bank account is registered.
In addition, any transaction requests, whether by telephone or otherwise, are
subject to the Funds' transaction procedures as described in their then current
prospectus.
<PAGE> 1
Exhibit 99B(14)
Fairport Funds
Charting A Course You Can Trust(SM)
IRA
Individual Retirement
Accounts
* Fairport Midwest Growth Fund
* Fairport Growth and Income Fund
* Fairport Government Securities Fund
January 19, 1998
Advised by
Roulston & Company, Inc.
<PAGE> 2
ABOUT FAIRPORT FUNDS
AND ITS ADVISER
Fairport Funds are managed by Roulston & Company, a leading investment
management firm. Founded in Cleveland in 1963, Roulston & Company acts as
manager or investment adviser for more than $800 million in portfolio accounts
for pension funds, profit-sharing trusts, foundations, endowments and
individuals. Our investment style is designed to take advantage of
inefficiencies in the market by concentrating on undervalued equities where
management has historically demonstrated a strong commitment to the stockholders
and where the rigorous investigation of our research team can be satisfied.
While future risks are difficult to predict, we firmly believe that a
disciplined approach to investment management which incorporates our thorough
research effort will produce excellent returns with below average risk over
time.
Fairport Funds
* The Midwest Growth Fund seeks capital appreciation, primarily through
investments in common stocks of U.S. companies headquartered in the areas
bordering the Great Lakes.
* The Growth and Income Fund seeks capital appreciation and current income,
primarily through investments in common stocks of U.S. issuers.
* The Government Securities Fund seeks current income consistent with the
preservation of capital, primarily through investments in obligations issued or
guaranteed as to principal and interest by the U.S. Government or its agencies.
The Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by any bank, nor are such shares federally insured by the U.S.
Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other governmental agency. An investment in a Fund involves certain
investment risks, including the possible loss of principal. This material must
be accompanied or preceded by a prospectus.
<PAGE> 3
BUILD A SECURE RETIREMENT
THROUGH A TAX-ADVANTAGED IRA
Virtually all working Americans, regardless of age, should be thinking about
their long-term financial security. Changing tax laws and a trend away from
defined-benefit pension plans have created new savings opportunities but also
put more responsibility on each of us to manage our own retirement savings.
Investment returns are determined by many factors, but one of the most important
is time. You can put time on your side by building long-term financial security
through a Fairport Funds Individual Retirement Account. With some foresight,
planning and a little sacrifice during your working years, you can build a
comfortable nest egg for your retirement.
NEW OPTIONS FOR THE IRA INVESTOR
Congress created Individual Retirement Accounts -- IRAs -- to encourage people
to plan and save for their own retirement. The Taxpayer Relief Act of 1997 made
a number of favorable changes in the IRA rules, most prominently the creation of
the Roth IRA. These changes make this an excellent time to review your
retirement plan.
The primary appeal of the Roth IRA is that no taxes are due when you ultimately
withdraw the money. Your contributions are not tax deductible, but the money
builds tax free, just like in a traditional IRA.
The Roth IRA addresses the needs of middle- and upper-income workers whose
desire to secure a comfortable retirement was constrained under the traditional
IRA. For disciplined investors who have been making non-deductible IRA
contributions, the Roth IRA represents a very attractive alternative.
Individuals with adjusted gross income (AGI) as high as $110,000 a year
($160,000 for married couples filing jointly) qualify for a Roth IRA. The $2,000
per person annual contribution limit phases out above $95,000 for individuals
and $150,000 for couples, but these levels are still considerably higher than
those that apply to a traditional IRA.
As with a traditional IRA, you may begin taking distributions from a Roth IRA as
early as age 59 1/2, as long as the Roth account has been in existence for five
years. Also, the 1997 tax law changes now permit penalty-free distributions from
either a traditional or Roth IRA for the purchase of a first home or to fund
college expenses.
OTHER ADVANTAGES TO CONSIDER
There are other important benefits available to investors who qualify for a Roth
IRA. Unlike the traditional IRA, there are no rules about when you must begin
taking distributions from a Roth account. You may continue to make contributions
as long as you have earned income. This gives you control over the timing of
distributions and the flexibility to extend the tax-deferral and compounding
benefits for changing requirements. The Roth IRA receives favorable estate tax
treatment--the money passes tax free to heirs, and the surviving spouse or
designated beneficiary can continue to benefit from tax-deferred compounding in
the account.
================================================================================
The appeal of the Roth IRA is that
no taxes are due when you
ultimately withdraw the money.
================================================================================
If a Roth IRA sounds like a good idea, consider opening a Fairport Funds
account. Investors can have both a traditional IRA and a Roth IRA as long as
combined IRA contributions in any given year do not exceed the stipulated
limits.
Under the 1997 tax law changes, establishing a new IRA may be a smart move even
if you are already retired. Even fairly affluent retired people may now find it
worthwhile to take advantage of an IRA, so long as they have some earned income.
You may also convert an existing IRA into a Roth IRA provided your adjusted
gross income does not exceed $100,000 in the year you elect conversion.
Investors converting to a Roth IRA are required to pay taxes on the converted
amount. As with all investment decisions, individual circumstances vary and you
should consult your attorney or financial advisor before making decisions.
--------------------------------------------------------------
This material must be preceded or accompanied by a prospectus.
1
<PAGE> 4
<TABLE>
<CAPTION>
=============================================================================================================================
COMPARING YOUR IRA OPTIONS
=============================================================================================================================
Traditional Deductible IRA Roth IRA
=============================================================================================================================
<S> <C> <C>
Maximum 1998 AGI to $40,000 if filing singly; $110,000 if filing singly;
contribute $60,000 if filing jointly $160,000 if filing jointly
- -----------------------------------------------------------------------------------------------------------------------------
Maximum annual contribution $2,000 per person $2,000 per person
- -----------------------------------------------------------------------------------------------------------------------------
Tax treatment of contributions Deductible Not deductible
- -----------------------------------------------------------------------------------------------------------------------------
How long can you make As long as you have earned income, No limit, as long as you have
contributions? up until age 70 1/2 earned income
- -----------------------------------------------------------------------------------------------------------------------------
When can you withdraw Generally at age 59 1/2; also for Same as deductible IRA except that
money without penalty? first-time home purchase and college contributions may be withdrawn at any time
expenses after the account has been held 5 years
- -----------------------------------------------------------------------------------------------------------------------------
Tax treatment of withdrawals Taxable as ordinary income Not taxable if account is at least five
years old
- -----------------------------------------------------------------------------------------------------------------------------
When withdrawals must begin By age 70 1/2 No age 70 1/2 requirement
- -----------------------------------------------------------------------------------------------------------------------------
Survivorship deferral Funds can compound tax-free up to Funds can compound tax-free to spouse
age 70 1/2 for a spousal beneficiary; a or other beneficiary beyond age 70 1/2
nonspousal beneficiary must receive
distributions within the 5-year period
following death or over the beneficiary's
life or life expectancy
- -----------------------------------------------------------------------------------------------------------------------------
Tax treatment of distributions Distributions taken by surviving spouse Distributions taken by surviving spouse
to spouse or beneficiary or other beneficiary are taxable as or other beneficiary are tax-free
ordinary income at time of withdrawal
=============================================================================================================================
</TABLE>
THE POWER OF COMPOUNDING
Tax-deferred compounding is the cornerstone of effective retirement planning. An
IRA allows you to accumulate substantial savings faster than you could through a
conventional, non-tax-deferred savings program. As an example, over 30 years, a
tax-deferred IRA growing at an average annual rate of 8% would accumulate
$244,692. This compares with just $160,326 for an identical investment program
that was not tax-deferred, assuming annual contributions of $2,000 and a 28%
federal income tax bracket. (See chart, p. 3)
This extra return is possible because in an IRA, all dividends, interest and
capital gains continue to build exempt from federal income taxes.
The Roth IRA offers additional compelling possibilities. Consider this example:
A $30,000 Roth account left to a 5-year-old grandchild would grow to nearly
$82,000 in tax-free money by the time the child is 18, assuming an 8% average
annual growth rate. If the money were left alone for the child's retirement
(assuming a life expectancy of 65 years), the account would be worth $4.8
million when the child reaches age 65.
2
<PAGE> 5
HOW A TAX DEFERED IRA INCREASES THE VALUE
OF YOUR NEST EGG
<TABLE>
<CAPTION>
5 YEARS 10 YEARS 20 YEARS 30 YEARS
<S> <C> <C> <C> <C>
Ending value without
IRA: $160,326
Ending value with
IRA: $244,692
</TABLE>
This chart shows the value of your IRA's tax-deferred advantage -- a total of
more than $84,000 over 30 years compared with an identical investment without
tax-deferred compounded earnings. Our example assumes a $2,000 annual
contribution over a 30-year period, a 28% tax bracket, and earnings growth of 8%
annually. Note that earnings withdrawn from a traditional IRA account will be
taxed upon withdrawal (plus a 10% tax penalty if you are under age 59 1/2). This
example was selected for illustrative purposes only and does not imply that you
will earn this return from any particular investment you may make.
THE NEED FOR RETIREMENT SAVINGS
Most financial experts agree that the days are gone when traditional employer
pension plans and Social Security could provide enough income for most Americans
to maintain their lifestyles in retirement. Moreover, advances in medicine and
greater awareness of health issues mean that many of us will enjoy a longer and
more active retirement than our parents or grandparents.
To help ensure long-term financial security, more and more Americans are turning
to equity mutual funds when it comes to investing their IRA savings. Mutual
funds such as the Fairport Funds offer an easy, effective way to build a
diversified, professionally managed port-folio of stocks and bonds.
Over the long term, investments in U.S. stocks have consistently generated
higher real rates of return than either Treasury bills or bonds. And
historically, only U.S. stocks have achieved a real return high enough to keep
pace with ever-rising prices. Of course, past performance is no guarantee of
future results. *
The prices of stocks and bonds will fluctuate in value, but studies have shown
that these fluctuations smooth out over time. Remember, the biggest investment
risk you face is not that the stock market may decline tomorrow or next year.
The biggest risk is that 20 or 30 years from now you will not have saved enough
to retire comfortably. It is critical to begin investing early and regularly and
to generate long-term returns high enough to keep you ahead of the rising cost
of living.
Whether you are just beginning your career or are well into your working years,
you should seriously consider opening a Fairport Funds IRA. Never before have
investors had this many options for retirement planning. The time to capitalize
on them is now. You owe it to yourself to take advantage of a traditional
tax-deferred IRA or Roth IRA. Start building today for a brighter tomorrow.
================================================================================
THE ADVANTAGES OF MUTUAL FUNDS
Professionally managed mutual funds such as the Fairport Funds offer IRA
investors a number of advantages, including:
* INVESTMENT DIVERSIFICATION
* EASY AFFORDABILITY
* ASSET ALLOCATION FLEXIBILITY
* AUTOMATIC INVESTING
* PROFESSIONAL MANAGEMENT
* RESPONSIVE CUSTOMER SERVICE
When selecting a mutual fund company for your IRA, choose one that has an
investment style that makes you feel comfortable. Fairport Funds follows a
conservative, research-driven approach to investing that seeks to produce
superior returns with below average risk over time.
================================================================================
* This example assumes annual returns for the period 1926-1996 for common stocks
as measured by an unmanaged index of the S&P 500 (with dividends and capital
gains reinvested), for bonds as represented by 20-year U.S. government bonds and
for cash as represented by 30-day U.S. Treasury bills, with inflation as
measured by the Consumer Price Index. Government bonds and Treasury bills offer
a government guarantee as to return of principal and interest if held to
maturity. Computed using data from (C)Stocks, Bonds Bills and Inflation 1997
Yearbook(TM), Ibbotson Associates. Chicago (annually updates work by Roger G.
Ibbotson and Rex Sinquefield). Used with permission. All rights reserved. Not
intended to imply actual performance of any Fairport Fund or other mutual fund.
3
<PAGE> 6
ANSWERS TO COMMONLY ASKED QUESTIONS
WHO IS ELIGIBLE TO MAKE IRA CONTRIBUTIONS?
Anyone with earned income from employment, including self-employment, is
eligible to set up an IRA account and make contributions. Depending on the type
of IRA you choose and your income level, your contributions may or may not be
tax deductible. Contributions to a traditional IRA can be made up to age 70 1/2.
No age limits apply to Roth IRA contributions.
I AM MARRIED. WHAT ABOUT MY SPOUSE?
As long as one of you has earned income from employment, including
self-employment, you may each have your own IRA and contribute up to a maximum
of $2,000 a year each or 100% of earned income, which-ever is less.
I AM ALREADY RETIRED. WHY WOULD I WANT TO OPEN AN IRA ACCOUNT?
Changes in the laws under the Taxpayer Relief Act of 1997 make IRAs an
attractive investment for many retirees, even fairly affluent ones. Retired
individuals and couples with adjusted gross income of less than $150,000 and
some earned income may make annual tax-deductible contributions to a traditional
IRA or nondeductible contributions to a Roth IRA. You must start taking
withdrawals from a traditional IRA by age 70 1/2, but there are no such
requirements with a Roth IRA. You may continue to fund a Roth IRA as long as you
live, and the money in the account will pass to your heirs tax free.
CAN I OPEN A ROTH IRA IF I ALREADY HAVE A REGULAR IRA?
Yes. There is no limit to the number of IRA accounts you can have, so long as
your total annual IRA contributions do not exceed $2,000 or 100% of your earned
income.
ARE MY IRA CONTRIBUTIONS TAX DEDUCTIBLE?
It depends. Contributions to a Roth IRA are not tax deductible, but you may be
able to deduct your contributions to a traditional IRA. With a traditional IRA,
you may deduct your entire contribution if neither you nor your spouse is
covered by an employer-sponsored retirement plan, regardless of income level. A
$2,000 per person 1998 IRA contribution is fully tax deductible if your joint
adjusted gross income is $50,000 or less ($30,000 for a single person), even if
one of you is covered by an employer-sponsored plan. Above this income level,
the amount that is deductible declines on a sliding scale up to an adjusted
gross income of $60,000 in 1998 ($40,000 for a single person), at which level
none of the contribution is deductible. These caps on deductibility rise each
year through 2007.
WHAT ARE THE ADVANTAGES OF A ROTH IRA?
With a Roth IRA all your contributions and earnings accumulate free of federal
income tax, and you pay no taxes on qualified withdrawals. With a traditional
IRA, you may be able to deduct your contributions, but you will owe federal
income taxes on the funds when you make withdrawals. The Roth IRA allows you to
make contributions as long as you live, and there are no requirements about when
you must start to make withdrawals. Also, with a Roth IRA you may withdraw your
contributions (but not the earnings) at any time after five years without
penalty, and any funds not withdrawn pass tax free to your heirs.
HOW DO I KNOW WHICH TYPE OF IRA IS BEST FOR ME?
The Roth IRA is clearly the best choice for people who do not qualify to make
tax-deductible contributions to a traditional IRA and whose income does not
exceed stipulated limits. Even if your income level qualifies you to make
tax-deductible contributions to a traditional IRA, the Roth IRA will still
probably be a better choice unless you expect to be in a significantly lower tax
bracket in retirement. Please consult a competent tax advisor if you are unsure
about your particular situation.
CAN I CONVERT MY EXISTING IRA TO A ROTH IRA?
You can roll over all or any portion of an existing retirement account to a Roth
IRA, so long as your adjusted gross income is less than $100,000 (not including
the taxable amount rolled over, which must be declared as income). You will have
to pay the applicable tax on the funds converted from the existing IRA, but
there is no early withdrawal penalty. In general, financial advisors recommend
people consider a Roth rollover if they have the money to pay the tax that will
be due without dipping into the retirement account, unless they need to begin
withdrawing the money in less than five years or anticipate they will be in a
lower tax bracket at retirement. Consult a competent tax advisor about your
particular situation.
4
<PAGE> 7
IS THERE ANY INCENTIVE TO CONVERTING AN EXISTING IRA TO A ROTH IRA IN 1998?
Yes. If you decide to take a rollover in 1998, you can spread the taxable impact
equally over four years. Beginning in 1999, the taxable amount rolled over will
have to be declared and the taxes paid in a single year.
CAN I TRANSFER ASSETS INTO A ROTH IRA WITH THE FAIRPORT FUNDS FROM AN IRA I HAVE
AT A BANK, INSURANCE COMPANY OR OTHER MUTUAL FUND?
Yes. You can transfer, or roll over, funds from any IRA or other qualified
retirement account to a new or existing Fairport Funds IRA without incurring a
tax penalty, as long as you follow certain rules. To authorize the Fairport
Funds to arrange a transfer of assets from an existing IRA, simply complete the
attached IRA Transfer/Rollover Form and IRA Application Form. If you have any
questions about a rollover, see a competent tax advisor.
HOW MUCH AND HOW OFTEN CAN I CONTRIBUTE TO MY IRA?
The maximum amount an individual may contribute to IRA accounts -- traditional
and Roth combined -- for any taxable year is $2,000 or 100% of your earned
income, whichever is less. Married couples may make contributions totaling
$4,000, but no more than $2,000 to one spouse's account. Maximum 1998
contribution levels phase out at adjusted gross incomes above $35,000 for
traditional IRAs ($50,000 for couples filing jointly) and above $95,000
(($150,000 for couples filing jointly) for Roth IRAs. You may make contributions
for a given tax year at any time up to the due date for filing your tax return
for that year, normally April 15.
CAN I ARRANGE TO HAVE CONTRIBUTIONS MADE AUTOMATICALLY?
Yes. You can set up an automatic investment plan with the Fairport Funds using
the attached application form. You can make periodic contributions in amounts as
small as $50. Remember, the earlier in the year you contribute, the longer the
money has the opportunity to grow while sheltered from taxes.
DO I HAVE TO MAKE CONTRIBUTIONS TO MY IRA EVERY YEAR?
No, but it is a good idea to do so in order to take full advantage of the power
of tax-deferred compounding.
WHEN CAN I WITHDRAW MONEY FROM MY IRA?
Federal laws impose a 10% penalty tax if you withdraw funds prior to age 59 1/2
except in certain circumstances. The penalty is in addition to ordinary income
tax applicable to your withdrawal. Congress expanded the circumstances under
which you can withdraw money from your IRA before age 59 1/2 without being
subjected to a 10% tax penalty. In addition to reasons of death, disability or a
qualifying rollover, you are now permitted to withdraw cash without penalty if
you are buying your first home or funding a college education for yourself, your
spouse, your children or your grandchildren. You can withdraw your contributions
(but not the earnings) from a Roth IRA at any time without penalty after five
years.
HOW ARE WITHDRAWALS TAXED?
Generally, qualified withdrawals from a traditional IRA will be taxed as
ordinary income, except for any non-deductible contributions you may have made.
All qualified withdrawals from a Roth IRA will be tax free.
IS AN IRA STILL A GOOD IDEA EVEN IF MY INCOME IS TOO HIGH FOR A ROTH IRA?
Yes. You can still benefit from the significant tax-deferred compounding
advantages of a traditional IRA.
IF I HAVE MADE DEDUCTIBLE CONTRIBUTIONS IN THE PAST TO AN IRA, SHOULD I OPEN A
SEPARATE IRA TO MAKE NEW, NONDEDUCTIBLE IRA CONTRIBUTIONS?
You are not required to open separate IRAs for deductible and nondeductible
contributions, but it will simplify your recordkeeping once you begin taking
withdrawals. If you make nondeductible contributions to the same IRA which you
have also made deductible contributions, you must file IRS form 8606 to keep
track of your separate contributions.
5
<PAGE> 8
DISCLOSURE STATEMENT
RIGHT TO REVOKE YOUR IRA
IF YOU RECEIVE THIS DISCLOSURE STATEMENT AT THE TIME YOU ESTABLISH YOUR IRA, YOU
HAVE THE RIGHT TO REVOKE YOUR IRA WITHIN SEVEN (7) DAYS OF ITS ESTABLISHMENT. IF
REVOKED, YOU ARE ENTITLED TO A FULL RETURN OF THE CONTRIBUTION YOU MADE TO YOUR
IRA. THE AMOUNT RETURNED TO YOU WOULD NOT INCLUDE AN ADJUSTMENT FOR SUCH ITEMS
AS SALES COMMISSIONS, ADMINISTRATIVE EXPENSES, OR FLUCTUATION IN MARKET VALUE.
YOU MAY MAKE THIS REVOCATION ONLY BY MAILING OR DELIVERING A WRITTEN NOTICE TO
THE CUSTODIAN AT:
FPS SERVICES, INC.
3200 HORIZON DRIVE
KING OF PRUSSIA, PA 19406-0903
IF YOU SEND YOUR NOTICE BY FIRST-CLASS MAIL, YOUR REVOCATION WILL BE DEEMED
MAILED AS OF THE DATE OF THE POSTMARK.
IF YOU HAVE ANY QUESTIONS ABOUT THE PROCEDURE FOR REVOKING YOUR IRA, PLEASE CALL
THE CUSTODIAN AT THE TELEPHONE NUMBER LISTED ON THE APPLICATION.
REQUIREMENTS OF A TRADITIONAL IRA
A. Cash Contributions -- Your contribution must be in cash, unless it is a
rollover contribution.
B. Maximum Contribution -- The total amount you may contribute to an IRA for any
taxable year cannot exceed the lesser of $2,000 or 100 percent of your
compensation. If you also maintain a Roth IRA, the maximum contribution to your
Traditional IRAs (i.e., IRAs subject to Internal Revenue Code (IRC) Sections
408(a) or 408(b)) is reduced by any contributions you make to your Roth IRA.
Your total annual contribution to all Traditional IRAs and Roth IRAs cannot
exceed the lesser of $2,000 or 100 percent of your compensation.
C. Nonforfeitability -- Your interest in your IRA is nonforfeitable.
D. Eligible Custodians -- The Custodian of your IRA must be a bank, savings and
loan association, credit union, or a person approved by the Secretary of the
Treasury.
E. Commingling Assets -- The assets of your IRA cannot be commingled with other
property except in a common trust fund or common investment fund.
F. Life Insurance -- No portion of your IRA may be invested in life insurance
contracts.
G. Collectibles -- You may not invest the assets of your IRA in collectibles
(within the meaning of Internal Revenue Code (IRC) Section 408(m)). A
collectible is defined as any work of art, rug or antique, metal or gem, stamp
or coin, alcoholic beverage, or any other tangible personal property specified
by the Internal Revenue Service. However, specially minted United States gold
and silver bullion coins and certain state-issued coins are permissible IRA
investments. Beginning January 1, 1998, platinum coins and certain gold, silver,
platinum or palladium bullion (as described in IRC Section 408(m)(3)) are also
permitted as IRA investments.
H. Required Minimum Distributions -- You are required to take minimum
distributions from your IRA at certain times in accordance with Proposed
Treasury Regulations Section 1.408-8. Below is a summary of the IRA distribution
rules.
1. You are required to take a minimum distribution from your IRA beginning
April 1 of the calendar year following the calendar year in which you
reach age 70 1/2. You must take your first payout by your required
beginning date, and will receive payments each year thereafter. The
minimum distribution for any taxable year is equal to the amount obtained
by dividing the account balance at the end of the prior year (less any
required distribution taken between January 1 and April 1 of the year
following the year you attain age 70 1/2) by the joint life expectancy of
you and your designated beneficiary. If you have not designated a
beneficiary for your IRA by your required beginning date, your single
life expectancy will be used.
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2. Your single or joint life expectancy is determined by using the IRS unisex
life expectancy tables. You can find these tables in Treasury Regulation
Section 1.72-9.
We may establish a policy dictating whether or not life expectancies may
be recalculated in determining required minimum distributions from your
IRA. Alternatively, we may allow you to elect whether or not to
recalculate your life expectancies.
You may choose (within the limits set forth in the distribution rules and
our life expectancy recalculation policy) how you want your required
minimum distributions structured. You must make your payment elections no
later than April 1 following your 70 1/2 year. If you do not make an
election by that date, we may do any one of the following:
(a) make no payment until you give us a proper payout request,
(b) pay your entire IRA to you in a single sum payment, or
(c) determine your required minimum distribution each year based on your
single life expectancy (not recalculated) and pay those distributions
to you until you direct otherwise.
3. If you name someone other than your spouse as your beneficiary, and your
beneficiary is more than 10 years younger than you, your required minimum
distributions must satisfy the Minimum Distribution Incidental Benefit
(MDIB) rule. The MDIB rule generally requires that your required minimum
distributions be calculated as if your beneficiary were exactly 10 years
younger than you.
4. If you die:
(a) on or after your required beginning date, distributions must be made
to your beneficiary or beneficiaries at least as rapidly as under the
method being used to determine minimum distributions as of the date of
your death.
(b) before your required beginning date, the entire amount remaining in
your account will, at the election of your beneficiary or
beneficiaries, either
(i) be distributed by December 31 of the year containing the fifth
anniversary of your death, or
(ii) be distributed in equal or substantially equal payments over the
life or life expectancy of your designated beneficiary or
beneficiaries.
Your beneficiary or beneficiaries must elect either option (i) or (ii) by
December 31 of the year following the year of your death. If no election
is made, distribution will be made in accordance with (ii) if the
beneficiary is your surviving spouse, and in accordance with (i) if your
beneficiary is not your surviving spouse. In the case of distributions
under (ii), distributions must commence by December 31 of the year
following the year of your death. If your spouse is the beneficiary,
distributions need not commence until December 31 of the year you would
have attained age 70 1/2, if later.
INCOME TAX CONSEQUENCES OF
ESTABLISHING AN IRA
A. IRA Deductibility -- If you have not yet reached the year in which you attain
age 70 1/2 and have earned income from services rendered, you may make an IRA
contribution of the lesser of 100 percent of compensation or $2,000. However,
the amount of the contribution for which you may take a tax deduction will
depend upon whether you (or, in some cases, your spouse) are an active
participant in an employer-maintained retirement plan. If you are not an active
participant, your IRA contribution will be totally deductible. If you are an
active participant, the deductibility of your contribution will depend on your
modified adjusted gross income (MAGI) for the tax year for which the
contribution was made. MAGI is determined on your tax return using your adjusted
gross income but disregarding any deductible IRA contribution.
Definition of Active Participant -- Generally, you will be an active participant
if you are covered by one or more of the following employer-maintained
retirement plans:
1. a qualified pension, profit sharing, 401(k),
or stock bonus plan;
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2. a qualified annuity plan of an employer;
3. a simplified employee pension (SEP) plan;
4. a retirement plan established by the Federal government, a State, or a
political subdivision (except certain unfunded deferred compensation plans
under IRC Section 457);
5. a tax sheltered annuity for employees of certain tax-exempt organizations
or public schools;
6. a plan meeting the requirements of IRC
Section 501(c)(18);
7. a qualified plan for self-employed individuals (H.R. 10 or Keogh Plan);
and
8. a SIMPLE IRA plan or a SIMPLE 401(k) plan.
If you do not know whether your employer maintains one of these plans or whether
you are an active participant in it, check with your employer and your tax
advisor. Also, the Form W-2 (Wage and Tax Statement) that you receive at the end
of the year from your employer will indicate whether you are an active
participant.
If you are an active participant and are single, the deductible amount of your
contribution is determined as follows: (1) take the Phase-out Maximum for the
applicable year (specified below) and subtract your MAGI, (2) multiply the
difference by .2. For example, if your 1998 MAGI is $35,000, your maximum
deductible contribution is $1,000 (the 1998 Phase-out Maximum of $40,000 minus
your MAGI of $35,000, multiplied by .2). You must round the resulting number to
the next highest $10 if the number is not a multiple of 10.
If you are an active participant, are married and you file a joint tax return,
the deductible amount of your contributions is determined as follows: (1) take
the Phase-out Maximum for the applicable year (specified below) and subtract
your MAGI, (2) multiply the difference by .2. (Multiply the difference between
the Phase-out Maximum and your MAGI by .1 beginning in 2007.) For example, if
your MAGI in 1998 is $55,000, your maximum deductible contribution is $1,000:
[($60,000 minus $55,000) multiplied by .2]. You must round the resulting number
to the next highest $10 if the number is not a multiple of 10.
<TABLE>
<CAPTION>
====================================================
Tax Year Joint Filers Single Taxpayers
Phase-out Phase-out
Maximum Maximum
- ----------------------------------------------------
<S> <C> <C>
1997 $50,000 $35,000
1998 $60,000 $40,000
1999 $61,000 $41,000
2000 $62,000 $42,000
2001 $63,000 $43,000
2002 $64,000 $44,000
2003 $70,000 $50,000
2004 $75,000 $55,000
2005 $80,000 $60,000
2006 $85,000 $60,000
2007 $100,000 $60,000
====================================================
</TABLE>
If you are married filing jointly and are not an active participant in an
employer-maintained retirement plan, but are married to someone who is an active
participant, your maximum deductible contribution is determined by taking
$160,000 minus your MAGI and multiplying the result by .2 (subject to the
maximum combined annual contribution limit for Traditional and Roth IRAs of the
lesser of $2,000 or 100 percent of earned income).
B. Tax-Deferred Earnings -- The investment earnings of your IRA are not subject
to federal income tax until distributions are made (or, in certain instances,
when distributions are deemed to be made).
C. Nondeductible Contributions -- You may make non-deductible contributions to
your IRA to the extent that deductible contributions are not allowed. The sum of
your deductible and nondeductible IRA contributions cannot exceed your
contribution limit (the lesser of $2,000 or 100 percent of compensation). You
may elect to treat deductible IRA contributions as nondeductible contributions.
If you make nondeductible contributions for a particular tax year, you must
report the amount of the nondeductible contribution on your federal income tax
return (using IRS Form 8606).
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<PAGE> 11
If you overstate the amount of designated nondeductible contributions for any
taxable year, you are subject to a $100 penalty unless reasonable cause for the
overstatement can be shown. Failure to file any form required by the IRS to
report nondeductible contributions (eg., IRS Form 8606) will result in a $50 per
failure penalty.
D. Taxation of Distributions -- The taxation of IRA distributions depends on
whether or not you have ever made nondeductible IRA contributions. If you have
only made deductible contributions, any IRA distribution will be fully included
in income.
If you have ever made nondeductible contributions to any IRA, the following
formula must be used to determine the amount of any IRA distribution excluded
from income:
(Aggregate Nondeductible Contributions)
x (Amount Withdrawn) = Amount Excluded
- --------------------
Aggregate IRA Balance From Income
NOTE: Aggregate nondeductible contributions include all nondeductible
contributions made by you through the end of the year of the distribution (which
have not previously been withdrawn and excluded from income). Also note that
aggregate IRA balance includes the total balance of all of your IRAs as of the
end of the year of distribution and any distributions occurring during the year.
E. Rollovers -- Your IRA may be rolled over to an IRA of yours, or may receive
rollover contributions, provided that all of the applicable rollover rules are
followed. Rollover is a term used to describe a tax-free movement of cash or
other property to your IRA from any of your IRAs, or from your employer's
Qualified Retirement Plan or Tax Sheltered Annuity. SIMPLE IRA funds may not be
rolled to your IRA during the first two years you participate in your employer's
SIMPLE IRA plan. The rollover rules are generally summarized below. These
transactions are often complex. If you have any questions regarding a rollover,
please see a competent tax advisor.
1. IRA to IRA Rollovers -- Funds distributed from your IRA may be rolled over
to an IRA of yours if the requirements of IRC Section 408(d)(3) are met. A
proper IRA to IRA rollover is completed if all or part of the distribution
is rolled over not later than 60 days after the distribution is received.
You may not have completed another IRA to IRA rollover from the
distributing IRA during the 12 months preceding the date you receive the
distribution. Further, you may roll the same dollars or assets only once
every 12 months.
2. Qualified Plan (or Tax-Sheltered Annuity) to IRA Rollovers -- Effective
for qualified plan distributions received after January 1, 1993, you may
roll over, directly or indirectly, any eligible rollover distribution. An
eligible rollover distribution is defined generally as any distribution
from a qualified plan (other than distributions to nonspouse
beneficiaries) unless it is part of certain series of substantially equal
periodic payments, after-tax dollars or a required minimum distribution.
If you elect to receive your rollover distribution prior to placing it in
an IRA, thereby conducting an indirect rollover, your plan administrator
will generally be required to withhold 20 percent of your distribution as
a prepayment of income taxes. When completing the rollover, you may make
up the amount withheld, out of pocket, and roll over the full amount
distributed from your qualified plan balance, if you so choose. To qualify
as a rollover, your eligible rollover distribution must be rolled over to
your IRA no later than 60 days after you receive it. Alternatively, you
may claim the withheld amount as income and pay the applicable income tax
and, if you are under age 59 1/2, the 10 percent early distribution
penalty applies (unless an exception to the penalty applies).
As an alternative to the indirect rollover, your employer generally must
give you the option of directly rolling your qualified plan balance over
to an IRA. If you elect the direct rollover option, your eligible rollover
distribution will be paid directly to the IRA (or other qualified plan)
that you designate. The 20 percent withholding requirements do not apply
to direct rollovers.
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<PAGE> 12
If you place your rollover contribution in a separate (i.e., conduit) IRA
plan which holds just those dollars, you preserve the right to later roll
the money originating from the qualified plan into another qualified plan.
3. TRADITIONAL IRA TO ROTH IRA ROLLOVERS -- If your adjusted gross income is
not more than $100,000, you are eligible to roll over (or convert) all or
any portion of your existing Traditional IRA(s) into your Roth IRA(s). The
amount of the rollover from your Traditional IRA to your Roth IRA shall be
treated as a distribution for income tax purposes and is includible in
your gross income (except for any nondeductible contributions). Although
the rollover amount is generally included in income, the 10 percent early
distribution penalty shall not apply to rollovers or conversions from a
Traditional IRA to a Roth IRA, regardless of whether you qualify for any
exceptions to the 10 percent penalty.
If you roll over assets from your Traditional IRA to your Roth IRA prior
to January 1, 1999, you may spread the amount of the distributions which
must be included in your gross income ratably over a four year period
beginning with the year in which the payment or distribution is made.
4. WRITTEN ELECTION -- At the time you make a proper rollover to an IRA, you
must designate to the Custodian, in writing, your election to treat that
contribution as a rollover. Once made, the rollover election is
irrevocable.
F. Carryback Contributions -- A contribution is deemed to have been made on the
last day of the preceding taxable year if you make a contribution by the
deadline for filing your income tax return (not including extensions), and you
designate that contribution as a contribution for the preceding taxable year.
For example, if you are a calendar year taxpayer and you make your IRA
contribution on or before April 15, your contribution is considered to have been
made for the previous tax year if you designated it as such.
LIMITATIONS AND RESTRICTIONS
A. SEP Plans -- Under a Simplified Employee Pension (SEP) Plan that meets the
requirements of IRC Section 408(k), your employer may make contributions to your
IRA. Your employer is required to provide you with information which describes
the terms of your employer's SEP Plan.
B. Spousal IRA -- If you are married, you may make payments to an IRA
established for the benefit of your spouse. Your spouse must not have attained
age 70 1/2 in that year, or any prior year, even if you are age 70 1/2 or
older. You must file a joint tax return for the year for which the contribution
is made.
The amount you may contribute to your IRA and your spouse's IRA is the lesser of
$4,000 or 100 percent of your combined compensation. However, you may not
contribute more than $2,000 to any one IRA.
C. Deduction of Rollovers and Transfers -- A deduction is not allowed for
rollover or transfer contributions.
D. Estate Tax Exclusions -- The $100,000 federal estate tax exclusion previously
available has been repealed for individuals dying after 12/31/84. No exclusion
will be allowed for individuals dying after that date. Transfers of your IRA
assets to a named beneficiary made during your life and at your request or
because of your failure to instruct otherwise, may be subject to federal gift
tax under IRC Section 2501 if made after October 22, 1986.
E. Special Tax Treatment -- Capital gains treatment and the favorable five or
ten year forward averaging tax authorized by IRC Section 402 do not apply to IRA
distributions.
F. Income Tax Treatment -- Any withdrawal from your IRA, except a direct
transfer, is subject to federal income tax withholding. You may, however, elect
not to have withholding apply to your IRA withdrawal. If withholding is applied
to your withdrawal, not less than 10 percent of the amount withdrawn must be
withheld.
G. Prohibited Transactions -- If you or your beneficiary engage in a prohibited
transaction with your IRA, as
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described in IRC Section 4975, your IRA will lose its tax-exempt status and you
must include the value of your account in your gross income for that taxable
year.
H. Pledging -- If you pledge any portion of your IRA as collateral for a loan,
the amount so pledged will be treated as a distribution and will be included in
your gross income for that year.
FEDERAL TAX PENALTIES
A. Early Distribution Penalty -- If you are under age 59 1/2 and receive an IRA
distribution, an additional tax of 10 percent will apply, unless made on account
of death, disability, a qualifying rollover, a direct transfer, the timely
withdrawal of an excess contribution, or if the distribution is part of a series
of substantially equal periodic payments (at least annual payments) made over
your life expectancy or the joint life expectancy of you and your beneficiary.
Payments made to pay medical expenses which exceed 7.5 percent of your adjusted
gross income and distributions to pay for health insurance by an individual who
has separated from employment and who has received unemployment compensation
under a federal or state program for at least 12 weeks are also exempt from the
10 percent tax. Beginning January 1, 1998, payments to cover certain qualified
education expenses and distributions for first-home purchases (up to life-time
maximum of $10,000) are exempt from the 10 percent tax. This additional tax will
apply only to the portion of a distribution which is includible in your income.
B. Excess Contribution Penalty -- An excise tax of 6 percent is imposed upon any
excess contribution you make to your IRA. This tax will apply each year in which
an excess remains in your IRA. An excess contribution is any contribution amount
which exceeds your contribution limit, excluding rollover and direct transfer
amounts. Your contribution limit is the lesser of $2,000 or 100 percent of your
compensation for the taxable year.
C. Excess Accumulation Penalty -- One of the requirements listed above is that
you are required to take a minimum distribution by April 1 of the year
following the year you attain age 70 1/2 and by the end of each year thereafter
and that your designated beneficiary(ies) is required to take certain minimum
distributions after your death. An additional tax of 50 percent is imposed on
the amount of the required minimum distribution which should have been taken
but was not. This tax is referred to as an excess accumulation penalty tax.
D. Excess Distribution Penalty -- Prior to 1997, you would have been taxed an
additional 15 percent on any amount received and included in income during a
calendar year from qualified retirement plans, tax-sheltered annuities and IRAs
which exceeds $112,500 (indexed each year for the cost of living). Certain
exceptions applied. If you received an excess distribution as described above,
your tax advisor could determine if these exceptions applied to you. This tax
was referred to as an excess distribution penalty. However, this tax is repealed
effective for all payouts received after December 31, 1996, as a result of the
Taxpayer Relief Act of 1997.
E. Excess Retirement Accumulation Penalty -- In the past, your estate would have
paid additional federal estate tax if you died with an excess retirement
accumulation. An excess retirement accumulation existed if, at the time of your
death, the value of all of your interests in qualified plans, tax-sheltered
annuities and IRAs exceeds the present value of an annuity with annual payments
of $112,500 (indexed each year for the cost of living), payable over your life
expectancy immediately before your death. This tax was referred to as an excess
retirement accumulation tax penalty. However, this tax is repealed for estates
of decedents dying after December 31, 1996, as a result of the Taxpayer Relief
Act of 1997.
F. Penalty Reporting -- You must file Form 5329 with the Internal Revenue
Service to report and remit any penalties or excise taxes.
CUSTODIAN/PLAN ADMINISTRATOR
The Custodian of your IRA is identified in the Individual Retirement Account
Application. If FPS Services, Inc. is not the Custodian, FPS Services, Inc.
serves as the Plan Administrator, and in such capacity is responsible for all
record keeping, applicable tax reporting and fee collection in connection with
IRA accounts. FPS Services, Inc. is also the transfer agent for the Funds.
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<PAGE> 14
FEES
The custodial fee currently in effect is an annual maintenance fee. The amount
of the fee can be found on your application or in the offering documents.
Your first annual maintenance fee may be paid at the same time that you mail
your IRA Application to FPS Services, Inc. Forward a separate check made payable
to FPS Services, Inc.
In subsequent years, you may pay the annual maintenance fee by forwarding a
check to FPS Services, Inc. If you do not forward payment for the annual
maintenance fee by August 31 of each year, FPS Services, Inc. will obtain
payment directly from your IRA by redeeming a sufficient number of the Fund
shares held in your IRA.
The Custodial Fees may be modified upon 30 days' written notice from the
Custodian of your IRA.
One or more of the mutual funds available for investment through your IRA may be
subject to sales charges. Such charges, if any, are listed in the prospectus of
that fund.
OTHER
A. IRS Plan Approval -- The Agreement used to establish this IRA has been
approved by the Internal Revenue Service. The Internal Revenue Service approval
is a determination only as to form. It is not an endorsement of the plan in
operation or of the investments offered.
B. Additional Information -- You may obtain further information on IRAs from
your District Office of the Internal Revenue Service. In particular, you may
wish to obtain IRS Publication 590, Individual Retirement Arrangements.
INDIVIDUAL RETIREMENT
CUSTODIAL ACCOUNT
Form 5305-S Under Section 408(a)
of the Internal Revenue Code
The depositor whose name appears on the attached is establishing an Individual
Retirement Account under section 408(a) to provide for his or her retirement and
for the support of his or her beneficiaries after death.
The Custodian named on the attached Application has given the Depositor the
disclosure statement required under Regulations section 1.408-6. The Depositor
has assigned the custodial account the sum indicated on the Application.
The Depositor and the Custodian make the following agreement:
ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in Section 402(c), 403(a)(4), 403(b)(8), 408(d)(3) or an
employer contribution to a Simplified Employee Pension Plan as described in
Section 408(k).
ARTICLE II
The Depositor's interest in the balance in the Custodial account is
nonforfeitable.
ARTICLE III
1. No part of the Custodial funds may be invested in life insurance contracts,
nor may the assets of the Custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
Section 408(a)(5)).
2. No part of the Custodial funds may be invested in collectibles (within the
meaning of Section 408(m)) except as otherwise permitted by Section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state and certain bullion.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositor's interest in the Custodial account shall be made
in accordance with the following requirements and shall otherwise comply with
Section 408(a)(6) and Proposed Regulations Section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations Section
1.401(a)(9)-2, the provisions of which are herein incorporated by reference.
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<PAGE> 15
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph 3, or to the surviving spouse under paragraph 4,
other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the Depositor
and the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the Custodial account must be, or begin
to be, distributed by the Depositor's required beginning date (April 1
following the calendar year end in which the Depositor reaches age 70 1/2). By
that date, the Depositor may elect, in a manner acceptable to the Custodian, to
have the balance in the Custodial account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of
the Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period that
may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period that
may not be longer than the joint life and last survivor expectancy of the
Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to him
or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest has
begun, distribution must continue to be made in accordance with paragraph
3.
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of the
beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over the life
or life expectancy of the designated beneficiary or beneficiaries
starting by December 31 of the year following the year of the
Depositor's death. If, however, the beneficiary is the Depositor's
surviving spouse, then this distribution is not required to begin
before December 31 of the year in which the Depositor would have
turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of Section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Depositor's required beginning date, even though payments may actually
have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted
in the account.
5. In the case of a distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Depositor's entire interest in the Custodial account as of the close
of business on December 31 of the preceding year by the life expectancy of the
Depositor (or the joint life and last survivor expectancy of the Depositor and
the Depositor's designated beneficiary, or the life expectancy of the
designated beneficiary, whichever applies). In the case of distributions under
paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and designated
beneficiary as of their birthdays in the year the Depositor reaches age 70 1/2.
In the case of a distribution in accordance with paragraph 4(b)(ii), determine
life expectancy using the attained age of the designated beneficiary as of the
beneficiary's birthday in the year distributions are required to commence.
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6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under Section 408(i) and
Regulations Sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with Section 408(a) and related
regulations will be invalid.
ARTICLE VII
This Agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear on the Application.
ARTICLE VIII
1. Definitions. In this part of this agreement (Article VIII), the words "you"
and "your" mean the Depositor, the words "we", "us" and "our" mean the Custodian
or FPS Services, Inc. who serves as the plan administrator, "Code" means the
Internal Revenue Code and "sponsor" means the institution identified on your
application.
2. Notices And Change Of Address. Any required notice regarding this IRA will be
considered effective when we mail it to the last address of the intended
recipient which we have in our records. Any notice to be given to us will be
considered effective when we actually receive it. You must notify us of any
change of address.
3. Representations And Responsibilities. You represent and warrant to us that
any information you have given or will give us with respect to this Agreement is
complete and accurate. Further, you agree that any directions you give us, or
action you take will be proper under this Agreement and that we are entitled to
rely upon any such information or directions. We shall not be responsible for
losses of any kind that may result from your directions to us or your actions or
failures to act and you agree to reimburse us for any loss we may incur as a
result of such directions, actions or failures to act. We shall not be
responsible for any penalties, taxes, judgments or expenses you incur in
connection with your IRA. We have no duty to determine whether your
contributions or distributions comply with the Code, regulations, rulings or
this Agreement.
4. Service Fees. We have the right to charge an annual service fee or other
designated fees (for example, a transfer, rollover or termination fee) for
maintaining your IRA. In addition, we have the right to be reimbursed for all
reasonable expenses we incur in connection with the administration of your IRA.
We may charge you separately for any fees or expenses or we may deduct the
amount of the fees or expenses from the assets in your IRA at our discretion. We
reserve the right to charge any additional fee upon 30 days notice to you that
the fee will be effective.
Any brokerage commissions attributable to the assets in your IRA will be charged
to your IRA. You cannot reimburse your IRA for those commissions.
5. Investment Of Amounts In The IRA:
(a) Direction of Investment -- You have exclusive responsibility for and
control over the investment of the assets of your IRA. You shall direct
all in-vestment transactions, including earnings and the proceeds from
securities sales. Your selection of investments, however, shall be
limited to publicly traded securities, mutual funds, money market
instruments and other investments that are obtainable by us and that we
are capable of holding in the ordinary course of our business.
In the absence of instructions from you or if your instructions are not
in a form acceptable to us, we
14
<PAGE> 17
[FAIRPORT 1-800-332-6459
FUNDS LOGO] (1-800-3-FAMILY)
CHARTING A COURSE YOU CAN TRUST
SEMPER TRUST COMPANY, CUSTODIAN
IRA ASSET TRANSFER/ROLLOVER AUTHORIZATION
<TABLE>
<S> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
A. INVESTOR NAME DATE OF BIRTH
INFORMATION
--------------------------------------------------------------------------------------------------
(As it appears on ADDRESS
existing IRA
or Plan. --------------------------------------------------------------------------------------------------
Please Print) CITY STATE ZIP CODE
--------------------------------------------------------------------------------------------------
SOCIAL SECURITY NUMBER DAYTIME PHONE NUMBER
- - ( )
--------------------------------------------------------------------------------------------------------------------------
B. PREVIOUS NAME OF INSTITUTION
TRUSTEE OR
CUSTODIAN --------------------------------------------------------------------------------------------------
ADDRESS
(Please attach a
copy of your --------------------------------------------------------------------------------------------------
"previous" CITY STATE ZIP CODE ACCOUNT NUMBER (At Custodian)
Custodial
Statement) ---------------------------------------------------------------------------------------------------
TYPE OF ACCOUNT:
[ ] Regular IRA [ ] Spousal IRA [ ] 401K/Qualified Plan
[ ] SEP [ ] Roth IRA [ ] Other
TYPE OF ASSETS:
[ ] Mutual Fund [ ] Money Market [ ] CD ___ immediately
[ ] Securities [ ] Other _____ ___at maturity (date)
---------------------------------------------------------------------------------------------------------------------------
C. TRANSFER IRA [ ] This is a new IRA account. (Individual Retirement Account Application attached)
INSTRUCTIONS [ ] Please transfer to my existing IRA account #:__________________________________________________
AMOUNT TO BE TRANSFERRED:
[ ] Liquidate all assets from the above account and transfer the proceeds.
[ ] Liquidate $ / % ____________ from the above account and transfer the proceeds.
---------------------------------------------------------------------------------------------------------------------------
D. FUND MAKE CHECK PAYABLE TO THE APPROPRIATE FUND(S)
SELECTION The proceeds to be transferred should be invested in the following Fund(s):
AND
INVESTMENT [ ] FAIRPORT GROWTH AND INCOME FUND (#133580) ______% and $ ____________
AMOUNTS [ ] FAIRPORT GOVERNMENT SECURITIES FUND (#133581) ______% and $ ____________
[ ] FAIRPORT MIDWEST GROWTH FUND (#133582) ______% and $ ____________
----------------------------------------------------------------------------------------------------------------------------
[ ] CASH ACCOUNT TRUST MONEY MARKET PORTFOLIO ______% and $ ____________
(#133583)
[ ] A prospectus must be obtained from Roulston Research Corp.
before you can purchase this fund.
[ ] Check here if you have already received a prospectus.
---------------------------------------------------------------------------------------------------------------------------
E. INVESTOR'S INVESTOR'S AUTHORIZATION:
AUTHORIZATION
AND I have adopted an IRA with the institution named at the top of this request form as Custodian.
CUSTODIAN I understand that since this is a transfer from Custodian to Custodian, I will not be in receipt
ACCEPTANCE of my IRA assets.
X__________________________________________________________________________________ ___________
Signature of Participant Date
CUSTODIAN ACCEPTANCE:
The above IRA Transfer is accepted by the institution named at the top of this request form as
Custodian.
X /s/
----------------------------------------------------------------------------------- ------------
Authorized Signature: FPS Services, Inc., Custodian's Agent Date
MAIL THE COMPLETED ASSET TRANSFER AUTHORIZATION ALONG WITH
YOUR INDIVIDUAL RETIREMENT ACCOUNT APPLICATION TO:
FPS SERVICES, INC., 3200 HORIZON DRIVE, KING OF PRUSSIA, PA 19406-0903
1-300-332-6459 (1-800-3FAMILY)
</TABLE>
<PAGE> 18
[FAIRPORT 1-800-332-6459
FUNDS LOGO]
CHARTING A COURSE YOU CAN TRUST (1-800-3-FAMILY)
AUTOMATIC INVESTMENT PLAN APPLICATION
INSTRUCTIONS:
================================================================================
HOW DOES IT WORK?
1. FPS Services, Inc., through our bank, UMB Bank, N.A., draws an automatic
clearing house (ACH) debit against your personal checking/savings account
each month.
2. Choose any amount (over the minimum $50 subsequent payment amount) that you
would like to invest regularly and your debit will be processed by FPS
Services, Inc.
3. Shares will be purchased and a confirmation sent to you.
================================================================================
HOW DO I SET IT UP?
MUST MEET MINIMUM INVESTMENT REQUIREMENT OF $250.
- -------------------------------------------------
1. Complete the form (and a fund application if you are establishing a new
account).
2. If you are using a Credit Union, please have your financial institution
complete the form.
3. This option is not available on Cash Account Trust Money Market
Portfolio.
4. ATTACH A VOIDED CHECK OR DEPOSIT SLIP TO THE AUTOMATIC INVESTMENT PLAN
APPLICATION.
5. Mail form to FPS Services, Inc. at the address above.
6. As soon as your bank accepts your authorization, debits will be
generated and your Automatic Investment Plan started. In order for you to
have Automatic Clearing House (ACH) debits from your account, your bank
must be able to accept ACH transactions and/or be a member of an ACH
association. We cannot guarantee acceptance by your bank.
7. Please allow one month for processing before the first debit occurs.
8. Returned items will result in a $20.00 fee being deducted from your
account.
================================================================================
ACCOUNT INFORMATION
================================================================================
REGISTRATION:
================================================================================
Check One: [ ] I am in the process of establishing a new account.
[ ] My account number is #___________________________
Deposit my automatic investments in (check one):
[ ] Fairport Government Securities Fund (#133581)
[ ] Fairport Growth and Income Fund (#133580)
[ ] Fairport Midwest Growth Fund (#133582)
Shareholder Name:
- --------------------------------------------------------------------------------
Joint Owner:
- --------------------------------------------------------------------------------
Street Address:
- --------------------------------------------------------------------------------
City: State: ZIP Code:
- --------------------------------------------------------------------------------
Phone Number: [daytime] ( ) [evening] ( )
================================================================================
AUTHORIZATION
================================================================================
I authorize the fund to establish an Automatic Investment Plan for me and invest
$______________ [$50.00 minimum] on the [ ] 10th, [ ] 15th, [ ] 20th of each
month in the fund. I understand that my ACH debit will be dated on the day of
each month as indicated above. I agree that if such a debit is not honored upon
presentation, FPS Services, Inc. may discontinue this service and any share
purchase made upon deposit of such debit may be cancelled. I further agree that
if the net asset
<PAGE> 19
value of the shares purchased with such debit is less when said purchase is
cancelled than when the purchase was made, FPS Services, Inc. shall be
authorized to liquidate other shares or fractions thereof held in my account to
make up the deficiency. This Automatic Investment Plan may be discontinued by
FPS Services, Inc. upon 30 days written notice or at any time by the investor
by written notice to FPS Services, Inc. which is received no later than
five (5) business days prior to the above designated investment date.
SIGNATURE OF ACCOUNT OWNER DATE:
- -------------------------------------------------------------------------------
SIGNATURE OF JOINT ACCOUNT OWNER DATE:
- -------------------------------------------------------------------------------
BANK INFORMATION AND AUTHORIZATION
===============================================================================
BANK ACCOUNT OWNER
- -------------------------------------------------------------------------------
BANK ACCOUNT JOINT OWNER
- -------------------------------------------------------------------------------
BANK NAME
- -------------------------------------------------------------------------------
BANK BRANCH STREET ADDRESS
- -------------------------------------------------------------------------------
CITY STATE ZIP CODE
- -------------------------------------------------------------------------------
ABA NUMBER (9 DIGITS) ACCOUNT NUMBER
- -------------------------------------------------------------------------------
CHECK ONE: [ ] Checking [ ] Savings
As a convenience to me, please honor ACH debits on my account drawn by FPS
Services, Inc., UMB Bank, N.A. and payable to the FUND.
I agree that your rights with respect to such debit shall be the same as if it
were a check drawn upon you and signed personally by me. This authority shall
remain in effect until you receive notice to the contrary. I agree that you
shall be fully protected in honoring any such debit.
I further agree that if any debit is dishonored, whether with or without cause
or whether intentionally or inadvertently, you shall be under no liability
whatsoever.
SIGNATURE OF BANK ACCOUNT OWNER DATE:
- -------------------------------------------------------------------------------
SIGNATURE OF JOINT ACCOUNT OWNER DATE:
- -------------------------------------------------------------------------------
INDEMNIFICATION AGREEMENT
===============================================================================
TO: THE BANK NAMED ABOVE:
So that you may comply with your Depositor's request and authorization, Fund
agrees as follows:
1. To indemnify and hold you harmless from any loss you may suffer arising from
or in connection with the payment of a debit drawn by FPS Services, Inc. to
the order of the fund, designated on the account of your depositor's
executing the authorization including any costs or expenses reasonably
incurred in connection with such loss. Fund will not, however, indemnify
you against any loss due to your payment of any debit generated against
insufficient funds.
2. To refund to you any amount erroneously paid by you to FPS Services, Inc. on
any such debit if claim for the amount of such debit on which erroneous
payment was made.
===============================================================================
MAIL COMPLETED AUTOMATIC INVESTMENT PLAN APPLICATION TO:
FPS SERVICES, INC., 3200 HORIZON DRIVE, KING OF PRUSSIA, PA 19406-0903
1-800-332-6459 (1-800-3FAMILY)
<PAGE> 20
[FAIRPORT 1-800-332-6459
FUNDS LOGO]
CHARTING A COURSE YOU CAN TRUST (1-800-3-FAMILY)
SEMPER TRUST COMPANY, CUSTODIAN
INDIVIDUAL RETIREMENT ACCOUNT APPLICATION
<TABLE>
<S> <C> <C> <C> <C>
=============================================================================================================================
NAME SOCIAL SECURITY NUMBER
1. ACCOUNT -----------------------------------------------------------------------------------------
REGISTRATION/ ADDRESS DATE OF BIRTH
CUSTOMER
INFORMATION -----------------------------------------------------------------------------------------
(THE CUSTODIAN WILL CITY STATE ZIP CODE
DEBIT YOUR ACCOUNT
ANNUALLY IN SEPTEMBER -----------------------------------------------------------------------------------------
FOR A $12 ACCOUNT FEE HOME PHONE NUMBER BUSINESS PHONE NUMBER
UNLESS PAID IN ADVANCE) ( ) ( )
-----------------------------------------------------------------------------------------
A. [ ] Please check here if this is a modification to an existing account.
Existing Account Number_______________________________
B. [ ] STATEMENT COPY TO ANOTHER ADDRESS OR INTERESTED PARTY (IN
ADDITION TO THE FIRM)
-----------------------------------------------------------------------------------------
NAME ADDRESS
-----------------------------------------------------------------------------------------
CITY STATE ZIP CODE
==============================================================================================================================
2. INVESTMENT TYPE OF ACCOUNT:
TYPE A. [ ] Traditional IRA for Tax year ________ $__________
($250 minimum) B. [ ] Spousal IRA for Tax year ________ $__________
C. [ ] Roth IRA $__________
D. [ ] Rollover IRA $__________
E. [ ] SEP IRA Contribution Provision for Tax year ________ $__________
__________________________________________________________________
Employer Name (SEP accounts only)
__________________________________________________________________
Employer Address
SOURCE OF INVESTMENT:
A. [ ] Direct Investment
B. [ ] IRA Asset Transfer*
C. [ ] Rollover Contribution*
[ ] From a Qualified Plan/401K [ ] From another Roth/Rollover IRA
*PLEASE COMPLETE THE ATTACHED IRA ASSET TRANSFER/ROLLOVER FORM.
==============================================================================================================================
3. INVESTMENT Check the name of the appropriate Portfolio(s) you have selected and enter the amount to be
SELECTION invested in each. Make check payable to the appropriate Fund(s).
(MAKE CHECK
PAYABLE TO THE [ ] FAIRPORT GROWTH AND INCOME FUND (#133580) ______% and $ ____________
"FAIRPORT FUNDS") [ ] FAIRPORT GOVERNMENT SECURITIES FUND (#133581) ______% and $ ____________
[ ] FAIRPORT MIDWEST GROWTH FUND (#133582) ______% and $ ____________
---------------------------------------------------------- ______% and $ ____________
[ ] CASH ACCOUNT TRUST MONEY MARKET PORTFOLIO
(#133583)
A prospectus must be obtained from Roulston Research Corp.
before you can purchase this fund.
[ ] Check here if you have already received a prospectus.
This Figure MUST EQUAL Total of All Dollar TOTAL 100% $ ____________
Amounts Indicated in Section 3.
==============================================================================================================================
4. DIVIDENDS &
CAPITAL GAINS All mutual fund dividends and capital gains will be reinvested.
==============================================================================================================================
5. TELEPHONE
EXCHANGE [ ] Check box for the ability to switch between Funds
PRIVILEGE within the Fund Family at any time.
==============================================================================================================================
</TABLE>
<PAGE> 21
<TABLE>
<S> <C> <C>
================================================================================================================================
6. BENEFICIARY PRIMARY BENEFICIARY NAME
DESIGNATION
--------------------------------------------------------------------------------------------------
Address
--------------------------------------------------------------------------------------------------
Relationship Social Security Number Date of Birth
================================================================================================================================
SECONDARY BENEFICIARY(IES) Name
--------------------------------------------------------------------------------------------------
Address
--------------------------------------------------------------------------------------------------
Relationship Social Security Number Date of Birth
SECONDARY BENEFICIARY(IES) Name
--------------------------------------------------------------------------------------------------
Address
--------------------------------------------------------------------------------------------------
Relationship Social Security Number Date of Birth
================================================================================================================================
7. SIGNATURE & IMPORTANT: PLEASE READ BEFORE SIGNING.
CERTIFICATION
I UNDERSTAND THE ELIGIBILITY REQUIREMENTS FOR THE TYPE OF IRA DEPOSIT I AM MAKING AND I STATE THAT I
DO QUALIFY TO MAKE THE DEPOSIT. I HAVE RECEIVED A COPY OF THE APPLICATION, 5305-A PLAN AGREEMENT,
FINANCIAL DISCLOSURE AND DISCLOSURE STATEMENT. I UNDERSTAND THE TERMS AND CONDITIONS WHICH APPLY TO
THIS INDIVIDUAL AGREEMENT. I AGREE TO BE BOUND BY THOSE TERMS AND CONDITIONS. WITHIN SEVEN (7) DAYS
FROM THE DATE I OPEN THIS IRA I MAY REVOKE IT WITHOUT PENALTY BY MAILING OR DELIVERING A WRITTEN
NOTICE TO THE CUSTODIAN.
I ASSUME COMPLETE RESPONSIBILITY FOR:
1. DETERMINING THAT I AM ELIGIBLE FOR AN IRA EACH YEAR I MAKE A CONTRIBUTION.
2. INSURING THAT ALL CONTRIBUTIONS I MAKE ARE WITHIN THE LIMITS SET FORTH BY THE TAX LAWS.
3. THE TAX CONSEQUENCES OF ANY CONTRIBUTION (INCLUDING ROLLOVER CONTRIBUTIONS) AND DISTRIBUTION.
THE FOLLOWING IS REQUIRED BY FEDERAL TAX LAW TO AVOID BACKUP WITHHOLDING: "BY SIGNING BELOW, I
CERTIFY UNDER PENALTIES OF PERJURY THAT THE SOCIAL SECURITY NUMBER OR TAX I.D. NUMBER ENTERED ABOVE IS
CORRECT (OR I AM WAITING FOR A NUMBER TO BE ISSUED TO ME) AND THAT I HAVE NOT BEEN NOTIFIED BY THE IRS
THAT I AM SUBJECT TO BACKUP WITHHOLDINGS UNLESS I HAVE INDICATED."[ ]
"THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISIONS OF THIS DOCUMENT OTHER
THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING."
____________________________________________________________________ ___________________
SIGNATURE OF IRA HOLDER DATE
____________________________________________________________________ ___________________
SIGNATURE OF WITNESS DATE
=================================================================================================================================
8. CUSTODIAN
ACCEPTANCE /S/________________________________________________________________________________________________
AUTHORIZED SIGNATURE; FPS SERVICES, INC., PLAN ADMINISTRATOR
=================================================================================================================================
FOR INVESTMENT DEALER ONLY
- --------------------------
-------------------------------------------------------------- ----------------------------------------------------
Firm Name Dealer #
-------------------------------------------------------------- ----------------------------------------------------
Branch Address Branch #
-------------------------------------------------------------- ----------------------------------------------------
City/State/Zip Rep # Rep's Last Name
=================================================================================================================================
MAIL THE COMPLETED IRA APPLICATION TO:
FPS Services, Inc., 3200 Horizon Drive, King of Prussia, PA 19406-0903
1-800-332-6459 (1-800-3FAMILY)
=================================================================================================================================
</TABLE>
<PAGE> 22
shall hold any uninvested amounts in cash and we shall have no
responsibility to invest uninvested cash unless and until directed by
you.
All transactions shall be subject to any and all applicable Federal and
State laws and regulations and the rules, regulations, customs and usages
of any exchange, market or clearing house where the transaction is
executed and to our policies and practices.
After your death, your beneficiary(ies) shall have the right to direct
the investment of your IRA assets, subject to the same conditions that
applied to you during your lifetime under this Agreement (including,
without limitation, section 3).
(b) Our Investment Powers And Duties -- We shall have no discretion to direct
any investment in your IRA. We assume no responsibility for rendering
investment advice with respect to your IRA, nor will we offer any opinion
or judgment to you on matters concerning the value or suitability of any
investment or proposed investment for your IRA. We shall exercise the
voting rights and other shareholder rights with respect to securities in
your IRA but only in accordance with the instructions you give to us.
(c) Delegation Of Investment Responsibility -- We may, but are not required
to, permit you to delegate your investment responsibility for your IRA to
another party acceptable to us by giving written notice of your
delegation in a format we prescribe. We shall follow the direction of any
such party who is properly appointed and we shall be under no duty to
review or question, nor shall we be responsible for, any of that party's
directions, actions or failures to act.
6. Beneficiaries. If you die before you receive all of the amounts in your IRA,
payments from your IRA will be made to your beneficiaries.
You may designate one or more persons or entities as beneficiary of your IRA.
This designation can only be made on a form prescribed by us and it will only be
effective when it is filed with us during your lifetime. Each beneficiary
designation you file with us will cancel all previous ones. The consent of a
beneficiary shall not be required for you to revoke a beneficiary designation.
If you do not designate a beneficiary, your estate will be the beneficiary.
If the beneficiary payment election described in Article IV, Section 4(b) of
this Agreement is not made by December 31 of the year following the year of your
death, the following rules apply. If the beneficiary is your spouse, the payment
described in Article IV, Section 4(b)(ii) will be deemed elected (that is,
payments over the life or life expectancy of your spouse). If the beneficiary or
beneficiaries are or include anyone other than your surviving spouse, the
payment method described in Article IV, Section 4(b)(i) will be deemed elected
(that is the 5 year rule).
A spouse beneficiary will retain the option to treat the deceased's IRA as his
or her own.
7. Termination. This Agreement shall terminate upon the complete distribution of
the Account to you or your beneficiaries or to another IRA. We shall have the
right to terminate this Account upon 30 days' notice in writing to you or (in
the event of your death) to your beneficiaries. In such event and upon
expiration of such period, we shall distribute the Account:
(a) To such other IRA as you (or your beneficiaries) shall designate;
(b) In the absence of such direction, to you or a custodian or trustee of our
choice; or
(c) In the event of the your death, to the beneficiaries, as their interests
shall appear.
We shall not be liable for any actions or failures to act on the part of any
successor custodian or trustee nor for any tax consequences you may incur that
result from the transfer or distribution of your assets pursuant to this
section.
If this Agreement is terminated, we may hold back from your IRA a reasonable
amount of money that we believe is necessary to cover any one or more of the
following:
15
<PAGE> 23
- any fees, expenses or taxes chargeable against your IRA;
- any penalties associated with the early withdrawal of any savings instrument
or other investment in your IRA.
If our organization is merged with another organization (or comes under the
control of any Federal or State agency) or if our entire organization (or any
portion which includes your IRA) is bought by another organization, that
organization (or agency) shall automatically become the trustee or custodian of
your IRA, but only if it is the type of organization authorized to serve as an
IRA trustee or custodian.
If we are required to comply with Section 1.408-2(e) of the Treasury Regulations
and we fail to do so, or we are not keeping the records, making the returns or
sending the statements as are required by forms or regulations, the IRS may,
after notifying you, require you to substitute another custodian or trustee.
8. Resignation. We may resign at any time, upon 30 days' notice in writing to
you, and may be removed by you or the sponsor at any time, upon 30 days' notice
in writing to us. Upon such resignation or removal, you or the sponsor (as
appropriate) shall appoint a qualified successor custodian which shall be a
bank, within the meaning of Section 408(n) of the Code, or another person who
has satisfied the requirements of Section 408(a)(2) of the Code and related
regulations.
9. Successor Custodian. Upon receipt by us of written acceptance of such
appointment by the successor custodian, we shall transfer and pay over to the
successor custodian the assets of the Account and all records pertaining
thereto. We are authorized, however, to reserve such sum of money or assets as
we may deem advisable for payment of all of our fees, compensation, costs and
expenses, or for payment of any other liabilities constituting a charge on or
against the assets of the Account or on or against us with respect to the
Account; and any balance of such reserve remaining after the payment of all such
items shall be paid over to the successor custodian. If assets are retained in
accordance with this Section 9, they may be disposed of in accordance with the
provisions of Section 4 of this Article VIII. The successor custodian shall hold
the assets paid over to it under terms which are consistent with Section 408 of
the Code and related regulations.
10. Failure of Appointment. It shall be a condition of the removal of us that
you or the sponsor shall have appointed a qualified successor custodian. In the
event of the resignation of us and the failure to appoint a qualified successor
custodian, the Custodian may itself appoint such successor, unless it elects to
terminate this Agreement pursuant to Section 7 of this Article VIII, and the
costs of such appointment shall be treated in the same manner as fees under
Section 4 of this Article VIII.
11. Required Appointment of Successor Custodian. You may remove us and appoint a
successor custodian upon notification by the Commissioner of Internal Revenue
Service that we have failed to comply with the applicable requirements of
Section 1.401-12(n) or applicable successor provisions of the Income Tax
Regulations or are not keeping such records, making such returns or rendering
such statements as are required by applicable Treasury Regulations or by forms
prescribed by the Internal Revenue Service.
12. Amendments. We have the right to amend this Agreement at any time. Any
amendment we make to comply with the Code and related regulations does not
require your consent. You will be deemed to have consented to any other
amendment unless, within 30 days from the date we mail the amendment, you notify
us in writing that you do not consent.
13. Withdrawals. All requests for withdrawal shall be in writing on a form
provided by or acceptable to us.
The method of distribution must be specified in writing. The tax identification
number of the recipient must be provided to us before we are obligated to make a
distribution.
Any withdrawals shall be subject to all applicable tax and other laws and
regulations including possible early withdrawal penalties and withholding
requirements.
16
<PAGE> 24
14. Required Minimum Distributions. We reserve the right to elect whether or not
life expectancies will be recalculated in connection with required minimum
distributions from your IRA, provided, however, that we give you notice of our
election. Alternatively, we may allow you to make such an election.
As described in Article IV, Section 3, of this Agreement, you may make an
election to begin receiving payments from your IRA in a manner that satisfies
the required minimum distribution rules no later than April 1st of the year
following the year you reach age 70 1/2. (This is called the "required beginning
date.")
If you fail to make such an election by your required beginning date, we can, at
our complete and sole discretion, do any one of the following:
- make no payment until you give us a proper payment request;
- pay your entire IRA to you in a single sum payment; or
- calculate your required minimum distribution from your IRA each year based on
your single life expectancy (not recalculated) and pay those distributions to
you until you direct otherwise.
We will not be liable for any penalties or taxes related to your failure to take
a distribution.
15. Transfers From Other Plans. We can receive amounts transferred to this IRA
from the custodian or trustee of another IRA. In addition, we can accept direct
rollovers of eligible rollover distributions from employer plans as permitted by
the Code. We reserve the right not to accept any transfer or direct rollover
16. Liquidation Of Assets. We have the right to liquidate assets in your IRA if
necessary to make distributions or to pay fees, expenses or taxes properly
chargeable against your IRA. If you fail to direct us as to which assets to
liquidate, we will decide in our complete and sole discretion and you agree not
to hold us liable for any adverse consequences that result from our decision.
17. Restrictions On The Fund. Neither you nor any beneficiary may sell, transfer
or pledge any interest in your IRA in any manner whatsoever, except as provided
by law or this Agreement.
The assets in your IRA shall not be responsible for the debts, contracts or
torts of any person entitled to distributions under this Agreement.
18. Indemnification. You agree to indemnify and hold harmless us, the sponsor
and their respective affiliates, agents, employees, successors and assigns, from
and against any claim or liability arising in connection with your Account,
except in the case of gross negligence or willful misconduct.
19. Severability. If any provision of this Agreement is held invalid or
unenforceable, its invalidity or unenforceability shall not affect any other
provision of this Agreement, and this Agreement shall be construed and enforced
as if such provision had not been included.
20. Captions. The captions contained in this Agreement are inserted only as a
matter of convenience and for reference and in no way define, limit, enlarge or
describe the scope or intent of this Agreement nor in any way shall they affect
the construction of any provision of this Agreement.
21. What Law Applies. This Agreement is subject to all applicable Federal and
State laws and regulations. If it is necessary to apply any State law to
interpret and administer this Agreement, the law of our domicile shall govern.
If any part of this Agreement is held to be illegal or invalid, the remaining
parts shall not be affected. Neither your nor our failure to enforce at any time
or for any period of time any of the provisions of this Agreement shall be
construed as a waiver of such provisions, or your right or our right thereafter
to enforce each and every such provision.
INSTRUCTIONS
(Section references are to the Internal Revenue Code unless otherwise noted.)
17
<PAGE> 25
PURPOSE OF FORM
Form 5305-A is a model Custodial account agreement that meets the requirements
of Section 408(a) and has been automatically approved by the IRS. An individual
retirement account (IRA) is established after the form is fully executed by both
the individual (Depositor) and the Custodian and must be completed no later than
the due date of the individual's income tax return for the tax year (without
regard to extensions). This account must be created in the United States for the
exclusive benefit of the Depositor or his or her beneficiaries.
Individuals may rely on regulations for Tax Reform Act of 1986 to the extent
specified in those regulations.
Do not file Form 5305-A with the IRS. Instead, keep it for your records.
For more information on IRAs, including the required disclosure you can get from
your Custodian, get Pub. 590, Individual Retirement Accounts (IRAs).
DEFINITIONS
Custodian: The Custodian must be a bank or savings and loan association, as
defined in Section 408(n), or other person who has the approval of the IRS to
act as Custodian.
Depositor: The Depositor is the person who establishes the Custodial account.
IDENTIFYING NUMBER
The Depositor's social security number will serve as the identification number
of his or her IRA. An employer identification number is required only for an IRA
for which a return is filed to report unrelated business taxable income. An
employer identification number is required for a common fund created for IRAs.
IRA FOR NON-WORKING SPOUSE
Form 5305-A may be used to establish the IRA Custodial account for a nonworking
spouse.
Contributions to an IRA Custodial account for a nonworking spouse must be made
to a separate IRA Custodial account established by the nonworking spouse.
SPECIFIC INSTRUCTIONS
Article IV: Distributions made under this Article may be made in a single sum,
periodic payment, or a combination of both. The distribution option should be
reviewed in the year the Depositor reaches age 70 1/2 to ensure that the
requirements of Section 408(a)(6) have been met.
Article VIII: Article VIII and any that follow it may incorporate additional
provisions that are agreed upon by the Depositor and Custodian to complete the
Agreement. They may include, for example, definitions, investment powers, voting
rights, exculpatory provisions, amendment and termination, removal of Custodian,
Custodian's fees, State law requirements, beginning date of distributions,
accepting only cash, treatment of excess contributions, prohibited transactions
with the Depositor, etc. Use additional pages if necessary and attach them to
this form.
REQUESTING DISTRIBUTION
A request for a distribution from the IRA must be submitted in writing to:
FPS SERVICES, INC.
RETIREMENT PLANS -- LIQUIDATION DESK
3200 HORIZON DRIVE
KING OF PRUSSIA, PA 19406-0903
If a request does not contain all necessary information, FPS Services, Inc. will
notify the Depositor in writing as to its incompleteness, requesting the
additional information, including signature guarantee if required by the Fund.
When the distribution instructions are in proper order, only then will the
shares be redeemed and the monies distributed.
NOTE: Form 5305-A may be reproduced and reduced in size for adoption to
passbook purposes.
18
<PAGE> 26
ROTH DISCLOSURE STATEMENT
RIGHT TO REVOKE YOUR ROTH IRA
IF YOU RECEIVE THIS DISCLOSURE STATEMENT AT THE TIME YOU ESTABLISH YOUR ROTH
IRA, YOU HAVE THE RIGHT TO REVOKE YOUR ROTH IRA WITHIN SEVEN (7) DAYS OF ITS
ESTABLISHMENT. IF REVOKED, YOU ARE ENTITLED TO A FULL RETURN OF THE CONTRIBUTION
YOU MADE TO YOUR ROTH IRA. THE AMOUNT RETURNED TO YOU WOULD NOT INCLUDE AN
ADJUSTMENT FOR SUCH ITEMS AS SALES COMMISSIONS, ADMINISTRATIVE EXPENSES, OR
FLUCTUATION IN MARKET VALUE. YOU MAY MAKE THIS REVOCATION ONLY BY MAILING OR
DELIVERING A WRITTEN NOTICE TO THE CUSTODIAN:
FPS SERVICES, INC.
3200 HORIZON DRIVE
KING OF PRUSSIA, PA 19406-0903
IF YOU SEND YOUR NOTICE BY FIRST-CLASS MAIL, YOUR REVOCATION WILL BE DEEMED
MAILED AS OF THE DATE OF THE POSTMARK.
IF YOU HAVE ANY QUESTIONS ABOUT THE PROCEDURE FOR REVOKING YOUR ROTH IRA, PLEASE
CALL THE CUSTODIAN AT THE TELEPHONE NUMBER LISTED ON THE APPLICATION.
REQUIREMENTS OF A ROTH IRA
A. Cash Contributions -- Your contribution must be in cash, unless it is a
qualified rollover contribution.
B. Maximum Contribution -- The total amount you may contribute to a Roth IRA for
any taxable year cannot exceed the lesser of $2,000 or 100 percent of your
compensation. If you also maintain a Traditional IRA (i.e., an IRA subject to
the limits of Internal Revenue Code (IRC) Sec. 408(a) or 408(b)) the maximum
contribution to your Roth IRA is reduced by any contributions you make to your
Traditional IRA. Your total annual contribution to all Traditional IRAs and Roth
IRAs cannot exceed the lesser of $2,000 or 100 percent of your compensation.
Your Roth IRA contribution is further limited if your adjusted gross income
(AGI) exceeds $150,000 and you are a married individual filing jointly ($95,000
for single taxpayers). Married individuals filing jointly with AGI which exceeds
$160,000 may not fund a Roth IRA. Married individuals filing separately with AGI
exceeding $10,000 may not fund a Roth IRA. Single individuals with AGI exceeding
$110,000 may not fund a Roth IRA.
If you are married filing jointly and your AGI is between $150,000 and $160,000,
your maximum Roth IRA contribution is determined as follows: (1) Subtract your
AGI from $160,000, (2) divide the difference by $10,000, and (3) multiply the
result in step (2) by $2,000. For example, if your AGI is $155,000, your maximum
Roth IRA contribution is $1,000. This amount is determined as follows:
[($160,000 minus $155,000) divided by $10,000] multiplied by $2,000.
If you are single and your AGI is between $95,000 and $110,000, your maximum
Roth IRA contribution is determined as follows: (1) Subtract your AGI from
$110,000, (2) divide the difference by $15,000, and (3) multiply the result in
step (2) by $2,000. For example, if your AGI is $98,000, your maximum Roth IRA
contribution is $1,600. This amount is determined as follows: [($110,000 minus
$98,000) divided by $15,000] multiplied by $2,000.
Your Roth IRA contribution is not limited by your participation in a retirement
plan other than a Traditional IRA, as discussed above. In addition, unlike
Traditional IRAs, you may continue to fund a Roth IRA after age 70 1/2 so long
as you have earned income and your AGI is below the maximum thresholds
discussed above.
C. Nonforfeitability -- Your interest in your Roth IRA is nonforfeitable.
D. Eligible Custodians -- The Custodian of your Roth IRA must be a bank, savings
and loan association, credit union, or a person approved by the Secretary of the
Treasury.
E. Commingling Assets -- The assets of your Roth IRA cannot be commingled with
other property except in a common trust fund or common investment fund.
F. Life Insurance -- No portion of your Roth IRA may be invested in life
insurance contracts.
G. Collectibles -- You may not invest the assets of your Roth IRA in
collectibles (within the meaning of Internal Revenue Code (IRC) section 408(m)).
A collectible is
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defined as any work of art, rug or antique, metal or gem, stamp or coin,
alcoholic beverage, or other tangible personal property specified by the
Internal Revenue Service. However, specially minted United States gold and
silver bullion coins and certain state-issued coins are permissible investments.
Platinum coins and certain gold, silver, platinum or palladium bullion (as
described in IRC Sec. 408(m)(3)) are also permitted as Roth IRA investments.
H. Beneficiary Payouts -- If your surviving spouse is your sole beneficiary,
your spouse may treat your Roth IRA as his or her own Roth IRA and would not be
subject to the required minimum distribution rules. Your surviving spouse will
also be entitled to such additional beneficiary payment options as are permitted
under the law or related regulations. If the beneficiary or beneficiaries
include anyone other than your surviving spouse, the entire amount remaining in
your account will, at the election of your beneficiary or beneficiaries, either
(a) be distributed by December 31 of the year containing the fifth
anniversary of your death, or
(b) be distributed in equal or substantially equal payments over the life or
life expectancy of your designated beneficiary or beneficiaries.
A nonspouse beneficiary or beneficiaries must elect either option (a) or (b) by
December 31 of the year following the year of your death. If no election is
made, distribution will be made in accordance with option (a).
INCOME TAX CONSEQUENCES OF
ESTABLISHING A ROTH IRA
A. Contributions Not Deducted -- No deduction is allowed for Roth IRA
contributions, including transfers and rollover contributions.
B. Tax-Deferred Earnings -- The investment earnings of your Roth IRA are not
subject to federal income tax as they accumulate in your Roth IRA. In addition,
distributions of your Roth IRA earnings will be free from federal income tax if
you take a qualified distribution, as discussed below.
C. Taxation of Distributions -- The taxation of a Roth IRA distribution depends
on whether the distribution is a qualified distribution or a nonqualified
distribution.
(a) Qualified Distributions -- Qualified distributions from your Roth IRA
(both the contributions and earnings) are not included in gross income. A
qualified distribution occurs when the assets have been in the Roth IRA
for five tax years and one of the following events occurs:
- attainment of age 59 1/2,
- disability,
- the purchase of a first home, or
- death.
For contributory Roth IRAs, the five-tax-year period begins with the
first year for which you make a Roth IRA contribution. For example, if
you make a contribution to your Roth IRA for 1998, the five-tax-year
period will be completed at the end of 2002. However, a separate
five-tax-year requirement applies to each rollover contribution from a
Traditional IRA. The five-tax-year period for these rollovers begins with
the year in which the rollover contribution is made.
(b) Nonqualified Distributions -- If you do not meet the requirements for a
qualified distribution, any earnings you withdraw from your Roth IRA will
be included in your gross income and, if you are under age 59 1/2, may be
subject to an early distribution penalty. However, when you take a
nonqualified distribution, your basis (the amounts you contributed to the
account) will generally be removed first. Therefore, your nonqualified
distributions will not be taxable to you until your withdrawals exceed
the amount of your contributions. Special rules may apply to the
distribution of conversion amounts.
D. No Required Minimum Distributions -- You are not required to take
distribution from your Roth IRA at age 70 1/2 (as required for Traditional and
SIMPLE IRAs).
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E. Rollovers and Conversions -- Your Roth IRA may be rolled over to another Roth
IRA of yours, or may receive rollover contributions, provided that all of the
applicable rollover rules are followed. Rollover is a term used to describe a
tax-free movement of cash or other property to your Roth IRA from any of your
Roth or Traditional IRAs. The rollover rules are generally summarized below.
These transactions are often complex. If you have any questions regarding a
rollover, please see a competent tax advisor.
1. Roth IRA To Roth IRA Rollovers -- Funds distributed from your Roth IRA may
be rolled over to a Roth IRA of yours if the requirements of IRC section
408(d)(3) are met. A proper Roth IRA to Roth IRA rollover is completed if
all or part of the distribution is rolled over not later than 60 days
after the distribution is received. You may not have completed another
Roth IRA to Roth IRA rollover from the distributing Roth IRA during the 12
months preceding the date you receive the distribution. Further, you may
roll the same dollars or assets only once every 12 months. Roth IRA assets
may not be rolled over to other types of IRAs (e.g., Traditional IRA,
SIMPLE IRA).
2. Traditional IRA To Roth IRA Conversions- Unless your adjusted gross income
is more than $100,000, or you are married filing a separate tax return,
you are eligible to roll over, transfer or convert all or any portion of
your existing Traditional IRA(s) into your Roth IRA(s). A separate Roth
Conversion IRA should generally be established to hold conversion amounts.
If your Roth IRA is designated as a Roth Conversion IRA, the only
permissible contributions are amounts converted from a Traditional IRA
during the same tax year. The amount of the conversion from your
Traditional IRA to your Roth IRA will be treated as a distribution for
income tax purposes and is includible in your gross income (except for any
nondeductible contributions). Although the conversion amount is generally
included in income, the 10 percent early distribution penalty will not
apply to rollovers or conversions from a Traditional IRA to a Roth IRA,
regardless of whether you qualify for any exceptions to the 10 percent
penalty.
If you convert assets from your Traditional IRA to your Roth IRA prior to
January 1, 1999, you may include the taxable amount of the distribution in
your gross income ratably over a four year period beginning with 1998.
3. Written Election -- At the time you make a proper rollover to a Roth IRA,
you must designate to the Custodian, in writing, your election to treat
that contribution as a rollover. Once made, the rollover election is
irrevocable.
4. No Rollovers From Employer Plans -- You may not roll over distributions
from your employer's qualified retirement plan or 403(b) arrangement into
your Roth IRA.
F. Carryback Contributions -- A contribution is deemed to have been made on the
last day of the preceding taxable year if you make a contribution by the
deadline for filing your income tax return (not including extensions), and you
designate that contribution as a contribution for the preceding taxable year.
For example, if you are a calendar year taxpayer and you make your Roth IRA
contribution on or before April 15, your contribution is considered to have been
made for the previous tax year if you designate it as such.
LIMITATIONS AND RESTRICTIONS
A. Spousal Roth IRA -- If you are married, you may make payments to a Roth IRA
established for the benefit of your spouse. You must file a joint tax return for
the year for which the contribution is made.
The amount you may contribute to your Roth IRA and your spouse's Roth IRA is the
lesser of $4,000 or 100 percent of your combined compensation. However, you may
not contribute more than $2,000 to any one Roth IRA. Your contribution may be
further limited if your AGI exceeds the levels discussed in the section titled
Maximum Contribution.
B. Estate Tax Exclusion -- The $100,000 federal estate tax exclusion previously
available has been repealed for individuals dying after December 31, 1984. No
exclusion will be allowed for individuals dying after that date. Transfers of
your Roth IRA assets to a named beneficiary
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made during your life and at your request or because of your failure to instruct
otherwise, may be subject to federal gift tax under IRC section 2501 if made
after October 22, 1986.
C. Special Tax Treatment -- Capital gains treatment
and the favorable five or ten year forward averaging tax authorized by IRC
section 402 do not apply to Roth IRA distributions.
D. Income Tax Treatment -- Any nonqualified withdrawal of earnings from your
Roth IRA, is subject to federal income tax withholding. You may, however, elect
not to have withholding apply to your Roth IRA withdrawal. If withholding is
applied to your withdrawal, not less than 10 percent of the amount withdrawn
must be withheld.
E. Prohibited Transactions -- If you or your beneficiary engage in a prohibited
transaction with your Roth IRA, as described in IRC section 4975, your Roth IRA
will lose its tax-exempt status and you must generally include the value of the
earnings in your account in your gross income for that taxable year.
F. Pledging -- If you pledge any portion of your Roth IRA as collateral for a
loan, the amount so pledged will be treated as a distribution and may be
included in your gross income for that year to the extent it represents
earnings.
FEDERAL TAX PENALTIES
A. Early Distribution Penalty -- If you are under age 59 1/2 and receive a
nonqualified Roth IRA distribution, an additional tax of 10 percent will apply
to the amount includible in income (i.e., the earnings), unless the distribution
is made on account of death, disability, a qualifying rollover, a direct
transfer, the timely withdrawal of an excess contribution; or if the
distribution is part of a series of substantially equal periodic payments (at
least annual payments) made over your life expectancy or the joint life
expectancy of you and your beneficiary. Payments made to pay medical expenses
which exceed 7.5 percent of your adjusted gross income and distributions to pay
for health insurance by an individual who has separated from employment and who
has received unemployment compensation under a federal or state program for at
least 12 weeks are also exempt from the 10 percent tax. Payments to cover
certain qualified education expenses and distributions for first-home purchases
(up to life-time maximum of $10,000) are exempt from the 10 percent tax. This
additional tax will apply only to the portion of a distribution which is
includible in your income.
B. Excess Contribution Penalty -- An excise tax of 6 percent is imposed upon any
excess contribution you make to your Roth IRA. This tax will apply each year in
which an excess remains in your Roth IRA. An excess contribution is any
contribution amount which exceeds your contribution limit, excluding rollover
and direct transfer amounts. Your contribution limit is the lesser of $2,000 or
100 percent of your compensation for the taxable year. Your contribution may be
further limited if your AGI exceeds the levels discussed in the section titled
Maximum Contribution.
C. Excess Accumulation Penalty -- Unless your sole beneficiary is your surviving
spouse, your designated beneficiary(ies) is required to take certain minimum
distributions after your death. An additional tax of 50 percent is imposed on
the amount of the required minimum distribution which should have been taken but
was not. This tax is referred to as an excess accumulation penalty tax.
D. Penalty Reporting -- You must file Form 5329 with the Internal Revenue
Service to report and remit any penalties or excise taxes.
OTHER
A. IRS Plan Approval -- The Agreement used to establish this Roth IRA has been
approved by the Internal Revenue Service. The Internal Revenue Service approval
is a determination only as to form. It is not an endorsement of the plan in
operation or of the investments offered.
B. Additional Information -- You may obtain further information on Roth IRAs
from your District Office of the Internal Revenue Service. In particular, you
may wish to obtain IRS Publication 590, Individual Retirement Arrangements
(IRAs).
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ROTH INDIVIDUAL RETIREMENT
CUSTODIAL ACCOUNT
Form 5305-RA Under Section 408A of the
Internal Revenue Code FORM (REV. JAN.1998)
The Depositor whose name appears on the Application is establishing a Roth
Individual Retirement Account under section 408A to provide for his or her
retirement and for the support of his or her beneficiaries after death.
The Custodian named on the Application has given the Depositor the disclosure
statement required under Regulations section 1.408-6.
The Depositor has assigned the Custodial account the sum indicated on the
Application.
The Depositor and the Custodian make the following agreement:
ARTICLE I
1. If this Roth IRA is not designated as a Roth Conversion IRA, then, except in
the case of a rollover contribution described in section 408A(e), the Custodian
will accept only cash contributions and only up to a maximum amount of $2,000
for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no contributions
other than IRA Conversion Contributions made during the same tax year will be
accepted.
ARTICLE II
The $2,000 limit described in Article I is gradually reduced to $0 between
certain levels of adjusted gross income (AGI). For a single depositor, the
$2,000 annual contribution is phased out between AGI of $95,000 and $110,000;
for a married depositor who files jointly, between AGI of $150,000 and $160,000;
and for a married depositor who files separately, between $0 and $10,000. In the
case of a conversion, the Custodian will not accept IRA Conversion Contributions
in a tax year if the Depositor's AGI for that tax year exceeds $100,000 or if
the Depositor is married and files a separate return. Adjusted gross income is
defined in section 408A(c)(3) and does not include IRA Conversion Contributions.
ARTICLE III
The Depositor's interest in the balance in the Custodial account is
nonforfeitable.
ARTICLE IV
1. No part of the Custodial funds may be invested in life insurance contracts,
nor may the assets of the Custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5)).
2. No part of the Custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section 408(m)(3),
which provides an exception for certain gold, silver, and platinum coins, coins
issued under the laws of any state, and certain bullion.
ARTICLE V
1. If the Depositor dies before his or her entire interest is distributed to him
or her and the Depositor's surviving spouse is not the sole beneficiary, the
entire remaining interest will, at the election of the Depositor or, if the
Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(b) Be distributed over the life expectancy of the designated beneficiary
starting no later than December 31 of the year following the year of the
Depositor's death.
If distributions do not begin by the date described in (b), distribution method
(a) will apply.
2. In the case of distribution method 1.(b) above, to determine the minimum
annual payment for each year, divide the Depositor's entire interest in the
Custodial account as of the close of business on December 31 of the preceding
year by the life expectancy of the designated beneficiary using the attained age
of the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence and subtract 1 for each subsequent year.
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3. If the Depositor's spouse is the sole beneficiary on the Depositor's date of
death, such spouse will then be treated as the Depositor.
ARTICLE VI
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under sections 408(i) and
408A(d)(3)(E), Regulations sections 1.408-5 and 1.408-6, and under guidance
published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VII
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV and this sentence will be controlling. Any
additional articles that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
ARTICLE VIII
This agreement will be amended from time to time to comply with the provisions
of the Code, related regulations, and other published guidance. Other amendments
may be made with the consent of the persons whose signatures appear below.
ARTICLE IX
1. Definitions. In this part of this agreement (Article IX), the words "you" and
"your" mean the Depositor, the words "we", "us" and "our" mean the Custodian or
FPS Services, Inc. who serves as the plan administrator, "Code" means the
Internal Revenue Code and "sponsor" means the institution identified on your
application.
2. Notices And Change Of Address. Any required notice regarding this Roth IRA
will be considered effective when we mail it to the last address of the intended
recipient which we have in our records. Any notice to be given to us will be
considered effective when we actually receive it. You must notify us of any
change of address.
3. Representations And Responsibilities. You represent and warrant to us that
any information you have given or will give us with respect to this Agreement is
complete and accurate. Further, you agree that any directions you give us, or
action you take will be proper under this Agreement and that we are entitled to
rely upon any such information or directions. We shall not be responsible for
losses of any kind that may result from your directions to us or your actions or
failures to act and you agree to reimburse us for any loss we may incur as a
result of such directions, actions or failures to act. We shall not be
responsible for any penalties, taxes, judgments or expenses you incur in
connection with your Roth IRA. We have no duty to determine whether your
contributions or distributions comply with the Code, regulations, rulings or
this Agreement.
4. Service Fees. We have the right to charge an annual service fee or other
designated fees (for example, a transfer, rollover or termination fee) for
maintaining your Roth IRA. In addition, we have the right to be reimbursed for
all reasonable expenses we incur in connection with the administration of your
Roth IRA. We may charge you separately for any fees or expenses or we may deduct
the amount of the fees or expenses from the assets in your Roth IRA at our
discretion. We reserve the right to charge any additional fee upon 30 days
notice to you that the fee will be effective.
Any brokerage commissions attributable to the assets in your Roth IRA will be
charged to your Roth IRA. You cannot reimburse your Roth IRA for those
commissions.
5. Investment Of Amounts In The Roth IRA:
(a) Direction of Investment -- You have exclusive responsibility for and
control over the investment of the assets of your Roth IRA. You shall
direct all investment transactions, including earnings and the proceeds
from securities sales. Your selection of investments, however, shall be
limited to publicly traded securities, mutual funds, money market
instruments and other investments that are obtainable by us and that we
are capable of holding in the ordinary course of our business.
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In the absence of instructions from you or if your instructions are not
in a form acceptable to us, we shall hold any uninvested amounts in cash
and we shall have no responsibility to invest uninvested cash unless and
until directed by you.
All transactions shall be subject to any and all applicable Federal and
State laws and regulations and the rules, regulations, customs and usages
of any exchange, market or clearing house where the transaction is
executed and to our policies and practices.
After your death, your beneficiary(ies) shall have the right to direct
the investment of your Roth IRA assets, subject to the same conditions
that applied to you during your lifetime under this Agreement (including,
without limitation, section 3).
(b) Our Investment Powers And Duties -- We shall have no discretion to direct
any investment in your Roth IRA. We assume no responsibility for
rendering investment advice with respect to your Roth IRA, nor will we
offer any opinion or judgment to you on matters concerning the value or
suitability of any investment or proposed investment for your Roth IRA.
We shall exercise the voting rights and other shareholder rights with
respect to securities in your Roth IRA but only in accordance with the
instructions you give to us.
(c) Delegation Of Investment Responsibility -- We may, but are not required
to, permit you to delegate your investment responsibility for your Roth
IRA to another party acceptable to us by giving written notice of your
delegation in a format we prescribe. We shall follow the direction of any
such party who is properly appointed and we shall be under no duty to
review or question, nor shall we be responsible for, any of that party's
directions, actions or failures to act.
6. Beneficiaries. If you die before you receive all of the amounts in your Roth
IRA, payments from your Roth IRA will be made to your beneficiaries.
You may designate one or more persons or entities as beneficiary of your Roth
IRA. This designation can only be made on a form prescribed by us and it will
only be effective when it is filed with us during your lifetime. Each
beneficiary designation you file with us will cancel all previous ones. The
consent of a beneficiary shall not be required for you to revoke a beneficiary
designation. If you do not designate a beneficiary, your estate will be the
beneficiary.
If your surviving spouse is your sole beneficiary, your spouse may treat your
Roth IRA as his or her own Roth IRA and would not be subject to the required
minimum distribution rules. Your surviving spouse will also be entitled to such
additional beneficiary payment options as are permitted under the law or related
regulations. If the beneficiary or beneficiaries include anyone other than your
surviving spouse, distributions must commence in accordance with Article V. If
the beneficiary payment election described in Article V is not made by December
31 of the year following the year of your death, the payment method described
as the 5 year rule will be deemed elected.
7. Termination. This Agreement shall terminate upon the complete distribution of
the Account to you or your beneficiaries or to another Roth IRA. We shall have
the right to terminate this Account upon 30 days' notice in writing to you or
(in the event of your death) to your beneficiaries. In such event and upon
expiration of such period, we shall distribute the Account:
(a) To such other Roth IRA as you (or your beneficiaries) shall designate;
(b) In the absence of such direction, to you or a custodian or trustee of our
choice; or
(c) In the event of the your death, to the beneficiaries, as their interests
shall appear.
We shall not be liable for any actions or failures to act on the part of any
successor custodian or trustee nor for any tax consequences you may incur that
result from the transfer or distribution of your assets pursuant to this
section.
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If this Agreement is terminated, we may hold back from your Roth IRA a
reasonable amount of money that we believe is necessary to cover any one or more
of the following:
- any fees, expenses or taxes chargeable against your Roth IRA;
- any penalties associated with the early withdrawal of any savings instrument
or other investment in your Roth IRA.
If our organization is merged with another organization (or comes under the
control of any Federal or State agency) or if our entire organization (or any
portion which includes your Roth IRA) is bought by another organization, that
organization (or agency) shall automatically become the trustee or custodian of
your Roth IRA, but only if it is the type of organization authorized to serve as
a Roth IRA trustee or custodian.
If we are required to comply with Section 1.408-2(e) of the Treasury Regulations
and we fail to do so, or we are not keeping the records, making the returns or
sending the statements as are required by forms or regulations, the IRS may,
after notifying you, require you to substitute another custodian or trustee.
8. Resignation. We may resign at any time, upon 30 days' notice in writing to
you, and may be removed by you or the sponsor at any time, upon 30 days' notice
in writing to us. Upon such resignation or removal, you or the sponsor (as
appropriate) shall appoint a qualified successor custodian which shall be a
bank, within the meaning of Section 408(n) of the Code, or another person who
has satisfied the requirements of Section 408(a)(2) of the Code and related
regulations.
9. Successor Custodian. Upon receipt by us of written acceptance of such
appointment by the successor custodian, we shall transfer and pay over to the
successor custodian the assets of the Account and all records pertaining
thereto. We are authorized, however, to reserve such sum of money or assets as
we may deem advisable for payment of all of our fees, compensation, costs and
expenses, or for payment of any other liabilities constituting a charge on or
against the assets of the Account or on or against us with respect to the
Account; and any balance of such reserve remaining after the payment of all such
items shall be paid over to the successor custodian. If assets are retained in
accordance with this Section 9, they may be disposed of in accordance with the
provisions of Section 4 of this Article IX. The successor custodian shall hold
the assets paid over to it under terms which are consistent with Section 408 of
the Code and related regulations.
10. Failure of Appointment. It shall be a condition of the removal of us that
you or the sponsor shall have appointed a qualified successor custodian. In the
event of the resignation of us and the failure to appoint a qualified successor
custodian, the Custodian may itself appoint such successor, unless it elects to
terminate this Agreement pursuant to Section 7 of this Article IX, and the costs
of such appointment shall be treated in the same manner as fees under Section 4
of this Article IX.
11. Required Appointment of Successor Custodian. You may remove us and appoint a
successor custodian upon notification by the Commissioner of Internal Revenue
Service that we have failed to comply with the applicable requirements of
Section 1.401-12(n) or applicable successor provisions of the Income Tax
Regulations or are not keeping such records, making such returns or rendering
such statements as are required by applicable Treasury Regulations or by forms
prescribed by the Internal Revenue Service.
12. Amendments. We have the right to amend this Agreement at any time. Any
amendment we make to comply with the Code and related regulations does not
require your consent. You will be deemed to have consented to any other
amendment unless, within 30 days from the date we mail the amendment, you notify
us in writing that you do not consent.
13. Withdrawals. All requests for withdrawal shall be in writing on a form
provided by or acceptable to us. The method of distribution must be specified in
writing. The tax identification number of the recipient must be provided to us
before we are obligated to make a distribution.
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Any withdrawals shall be subject to all applicable tax and other laws and
regulations including possible early withdrawal penalties and withholding
requirements.
You are not required to take a distribution from your Roth IRA at age 70 1/2. At
your death, however, your beneficiaries must begin taking distributions in
accordance with Article V and section 6 of this Agreement. We will make no
payouts to you from your Roth IRA until you provide us with a written request
for a distribution on a form provided by or approved by us.
14. Transfers From Other Plans. We can receive amounts transferred or rolled
over to this Roth IRA from the trustee or custodian of another traditional or
Roth IRA as permitted by statute or applicable regulations.
However, if this Custodial account is designated as a Roth Conversion IRA, no
contributions other than IRA Conversion Contributions made during the same tax
year will be accepted.
15. Liquidation Of Assets. We have the right to liquidate assets in your Roth
IRA if necessary to make distributions or to pay fees, expenses or taxes
properly chargeable against your Roth IRA. If you fail to direct us as to which
assets to liquidate, we will decide in our complete and sole discretion and you
agree not to hold us liable for any adverse consequences that result from our
decision.
16. Restrictions On The Fund. Neither you nor any beneficiary may sell, transfer
or pledge any interest in your Roth IRA in any manner whatsoever, except as
provided by law or this Agreement.
The assets in your Roth IRA shall not be responsible for the debts, contracts or
torts of any person entitled to distributions under this Agreement.
17. Indemnification. You agree to indemnify and hold harmless us, the sponsor
and their respective affiliates, agents, employees, successors and assigns, from
and against any claim or liability arising in connection with your Account,
except in the case of gross negligence or willful misconduct.
18. Severability. If any provision of this Agreement is held invalid or
unenforceable, its invalidity or unenforceability shall not affect any other
provision of this Agreement, and this Agreement shall be construed and enforced
as if such provision had not been included.
19. Captions. The captions contained in this Agreement are inserted only as a
matter of convenience and for reference and in no way define, limit, enlarge or
describe the scope or intent of this Agreement nor in any way shall they affect
the construction of any provision of this Agreement.
20. What Law Applies. This Agreement is subject to all applicable Federal and
State laws and regulations. If it is necessary to apply any State law to
interpret and administer this Agreement, the law of our domicile shall govern.
If any part of this Agreement is held to be illegal or invalid, the remaining
parts shall not be affected. Neither your nor our failure to enforce at any time
or for any period of time any of the provisions of this Agreement shall be
construed as a waiver of such provisions, or your right or our right thereafter
to enforce each and every such provision.
INSTRUCTIONS
(Section references are to the Internal Revenue Code unless otherwise noted.)
PURPOSE OF FORM
Form 5305-RA is a model Custodial account agreement that meets the requirements
of section 408A and has been automatically approved by the IRS. A Roth
individual retirement account (Roth IRA) is established after the form is fully
executed by both the individual (Depositor) and the Custodian. This account must
be created in the United States for the exclusive benefit of the Depositor or
his or her beneficiaries.
Do not file Form 5305-RA with the IRS. Instead, keep it for your records.
Unlike contributions to Traditional individual retirement arrangements,
contributions to a Roth IRA are not
27
<PAGE> 35
deductible from the Depositor's gross income; and distributions after 5 years
that are made when the Depositor is 59H years of age or older or on account of
death, disability, or the purchase of a home by a first-time homebuyer (limited
to $10,000), are not includible in gross income. For more information on Roth
IRAs, including the required disclosure the Depositor can get from the
Custodian, get Pub. 590, Individual Retirement Arrangements (IRAs).
This Roth IRA can be used by a Depositor to hold: (1) IRA Conversion
Contributions, amounts rolled over or transferred from another Roth IRA, and
annual cash contributions of up to $2,000 from the Depositor; or (2) if
designated as a Roth Conversion IRA (by checking the box on the Application),
only IRA Conversion Contributions for the same tax year.
To simplify the identification of funds distributed from Roth IRAs, Depositors
are encouraged to maintain IRA Conversion Contributions for each tax year in a
separate Roth IRA.
DEFINITIONS
Roth Conversion IRA: A Roth Conversion IRA is a Roth IRA that accepts only IRA
Conversion Contributions made during the same tax year.
IRA Conversion Contributions: IRA Conversion Contributions are amounts rolled
over, transferred, or considered transferred from a nonRoth IRA to a Roth IRA.
A nonRoth IRA is an individual retirement account or annuity described in
section 408(a) or 408(b), other than a Roth IRA.
Custodian: The Custodian must be a bank or savings and loan association, as
defined in section 408(n), or any person who has the approval of the IRS to act
as Custodian.
Depositor: The Depositor is the person who establishes the Custodial account.
SPECIFIC INSTRUCTIONS
Article I: The Depositor may be subject to a 6-percent tax on excess
contributions if (1) contributions to other individual retirement arrangements
of the Depositor have been made for the same tax year, (2) the Depositor's
adjusted gross income exceeds the applicable limits in Article II for the tax
year, or (3) the Depositor's and spouse's compensation does not exceed the
amount contributed for them for the tax year. The Depositor should see the
Disclosure Statement or Pub. 590 for more information.
Article IX: Article IX and any that follow it may incorporate additional
provisions that are agreed to by the Depositor and Custodian to complete the
agreement. They may include, for example, definitions, investment powers, voting
rights, exculpatory provisions, amendment and termination, removal of the
Custodian, Custodian's fees, state law requirements, beginning date of
distributions, accepting only cash, treatment of excess contributions,
prohibited transactions with the Depositor, etc. Use additional pages if
necessary and attach them to this form.
Note: Form 5305-RA may be reproduced and reduced in size for adaption to
passbook purposes.
28
<PAGE> 36
[FAIRPORT FUNDS LOGO]
Roulston & Company, Inc.
4000 Chester Avenue
Cleveland, Ohio 44103
FAIRPORT FUNDS
ADVISER:
Roulston & Company, Inc.
4000 Chester Avenue
Cleveland, Ohio 44103
DISTRIBUTOR:
Roulston Research Corp.
4000 Chester Avenue
Cleveland, Ohio 44103
For information, call:
1-800-332-6459
This brochure may be used in conjunction with the offering of shares of any of
Fairport Funds only if preceded or accompanied by a current prospectus of each
Fund whose shares are being offered.
(C) 1998 Roulston Research Corp.
ABOUT THE COVER:
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.
<PAGE> 1
Exhibit 99.B(24)
[FORM OF POWER OF ATTORNEY]
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints CAROLYN F. MEAD, ESQ., GERALD J. HOLLAND, DEBORAH ANN
POTTER and WILLIAM J. BALTRUS and each of them, either of whom may act
without the joinder of the other, as his attorney-in-fact to (i) sign
and file on his behalf individually and in the capacity stated below
such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and
Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares
of FAIRPORT FUNDS (the "Funds") and (ii) take any appropriate action to
qualify or register shares of the Funds for sale in various states, to
perform on behalf of the Funds any and all such acts as such
attorneys-in-fact may deem necessary or advisable in order to comply
with the applicable laws of any such state, and in connection therewith
to execute and file all requisite papers and documents, and the
undersigned hereby ratifies and confirms all that said attorneys in
fact, or any of them, shall do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 27th day of January, 1998.
--------------------------
name: Scott D. Roulston
title: President
<PAGE> 2
[FORM OF POWER OF ATTORNEY]
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints CAROLYN F. MEAD, ESQ., GERALD J. HOLLAND, DEBORAH ANN
POTTER and WILLIAM J. BALTRUS and each of them, either of whom may act
without the joinder of the other, as his attorney-in-fact to (i) sign
and file on his behalf individually and in the capacity stated below
such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and
Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares
of FAIRPORT FUNDS (the "Funds") and (ii) take any appropriate action to
qualify or register shares of the Funds for sale in various states, to
perform on behalf of the Funds any and all such acts as such
attorneys-in-fact may deem necessary or advisable in order to comply
with the applicable laws of any such state, and in connection therewith
to execute and file all requisite papers and documents, and the
undersigned hereby ratifies and confirms all that said attorneys in
fact, or any of them, shall do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 27th day of January, 1998.
--------------------------
name: Thomas V. Chema
title: Trustee
<PAGE> 3
[FORM OF POWER OF ATTORNEY]
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints CAROLYN F. MEAD, ESQ., GERALD J. HOLLAND, DEBORAH ANN
POTTER and WILLIAM J. BALTRUS and each of them, either of whom may act
without the joinder of the other, as his attorney-in-fact to (i) sign
and file on his behalf individually and in the capacity stated below
such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and
Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares
of FAIRPORT FUNDS (the "Funds") and (ii) take any appropriate action to
qualify or register shares of the Funds for sale in various states, to
perform on behalf of the Funds any and all such acts as such
attorneys-in-fact may deem necessary or advisable in order to comply
with the applicable laws of any such state, and in connection therewith
to execute and file all requisite papers and documents, and the
undersigned hereby ratifies and confirms all that said attorneys in
fact, or any of them, shall do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 27th day of January, 1998.
--------------------------
name: David B. Gale
title: Trustee
<PAGE> 4
[FORM OF POWER OF ATTORNEY]
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints CAROLYN F. MEAD, ESQ., GERALD J. HOLLAND, DEBORAH ANN
POTTER and WILLIAM J. BALTRUS and each of them, either of whom may act
without the joinder of the other, as his attorney-in-fact to (i) sign
and file on his behalf individually and in the capacity stated below
such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and
Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares
of FAIRPORT FUNDS (the "Funds") and (ii) take any appropriate action to
qualify or register shares of the Funds for sale in various states, to
perform on behalf of the Funds any and all such acts as such
attorneys-in-fact may deem necessary or advisable in order to comply
with the applicable laws of any such state, and in connection therewith
to execute and file all requisite papers and documents, and the
undersigned hereby ratifies and confirms all that said attorneys in
fact, or any of them, shall do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 27th day of January, 1998.
--------------------------
name: David H. Gunning
title: Trustee
<PAGE> 5
[FORM OF POWER OF ATTORNEY]
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints CAROLYN F. MEAD, ESQ., GERALD J. HOLLAND, DEBORAH ANN
POTTER and WILLIAM J. BALTRUS and each of them, either of whom may act
without the joinder of the other, as his attorney-in-fact to (i) sign
and file on his behalf individually and in the capacity stated below
such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and
Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares
of FAIRPORT FUNDS (the "Funds") and (ii) take any appropriate action to
qualify or register shares of the Funds for sale in various states, to
perform on behalf of the Funds any and all such acts as such
attorneys-in-fact may deem necessary or advisable in order to comply
with the applicable laws of any such state, and in connection therewith
to execute and file all requisite papers and documents, and the
undersigned hereby ratifies and confirms all that said attorneys in
fact, or any of them, shall do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 27th day of January, 1998.
--------------------------
name: Ivan J. Winfield
title: Trustee
<PAGE> 6
[FORM OF POWER OF ATTORNEY]
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints CAROLYN F. MEAD, ESQ., GERALD J. HOLLAND, DEBORAH ANN
POTTER and WILLIAM J. BALTRUS and each of them, either of whom may act
without the joinder of the other, as his attorney-in-fact to (i) sign
and file on his behalf individually and in the capacity stated below
such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and
Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares
of FAIRPORT FUNDS (the "Funds") and (ii) take any appropriate action to
qualify or register shares of the Funds for sale in various states, to
perform on behalf of the Funds any and all such acts as such
attorneys-in-fact may deem necessary or advisable in order to comply
with the applicable laws of any such state, and in connection therewith
to execute and file all requisite papers and documents, and the
undersigned hereby ratifies and confirms all that said attorneys in
fact, or any of them, shall do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 27th day of January, 1998.
--------------------------
name: Kevin M. Crotty
title: Treasurer
<PAGE> 7
[FORM OF POWER OF ATTORNEY]
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints CAROLYN F. MEAD, ESQ., GERALD J. HOLLAND, DEBORAH ANN
POTTER and WILLIAM J. BALTRUS and each of them, either of whom may act
without the joinder of the other, as his attorney-in-fact to (i) sign
and file on his behalf individually and in the capacity stated below
such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and
Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares
of FAIRPORT FUNDS (the "Funds") and (ii) take any appropriate action to
qualify or register shares of the Funds for sale in various states, to
perform on behalf of the Funds any and all such acts as such
attorneys-in-fact may deem necessary or advisable in order to comply
with the applicable laws of any such state, and in connection therewith
to execute and file all requisite papers and documents, and the
undersigned hereby ratifies and confirms all that said attorneys in
fact, or any of them, shall do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 27th day of January, 1998.
--------------------------
name: Charles A. Kiraly
title: Secretary and Assistant Treasurer
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000930363
<NAME> FAIRPORT FUNDS
<SERIES>
<NUMBER> 1
<NAME> FAIRPORT MIDWEST GROWTH FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 53,389,001
<INVESTMENTS-AT-VALUE> 77,133,304
<RECEIVABLES> 11,454
<ASSETS-OTHER> 9,179
<OTHER-ITEMS-ASSETS> 138
<TOTAL-ASSETS> 77,154,075
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 136,669
<TOTAL-LIABILITIES> 136,669
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,787,168
<SHARES-COMMON-STOCK> 40,786,689
<SHARES-COMMON-PRIOR> 3,689,148
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 91,388
<ACCUMULATED-NET-GAINS> 4,577,323
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23,744,303
<NET-ASSETS> 77,017,406
<DIVIDEND-INCOME> 748,563
<INTEREST-INCOME> 160,281
<OTHER-INCOME> 0
<EXPENSES-NET> 945,118
<NET-INVESTMENT-INCOME> (36,274)
<REALIZED-GAINS-CURRENT> 4,609,662
<APPREC-INCREASE-CURRENT> 13,604,001
<NET-CHANGE-FROM-OPS> 18,177,389
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 44,687
<DISTRIBUTIONS-OF-GAINS> 4,293,833
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 639,390
<NUMBER-OF-SHARES-REDEEMED> 529,296
<SHARES-REINVESTED> 279,447
<NET-CHANGE-IN-ASSETS> 19,819,489
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,261,494
<OVERDISTRIB-NII-PRIOR> (10,427)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 513,898
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,081,754
<AVERAGE-NET-ASSETS> 68,551,032
<PER-SHARE-NAV-BEGIN> 15.50
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 4.55
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> 1.15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.88
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000930363
<NAME> FAIRPORT FUNDS
<SERIES>
<NUMBER> 2
<NAME> FAIRPORT GROWTH & INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 21,009,083
<INVESTMENTS-AT-VALUE> 31,014,187
<RECEIVABLES> 4,710
<ASSETS-OTHER> 8,315
<OTHER-ITEMS-ASSETS> 549
<TOTAL-ASSETS> 31,027,761
<PAYABLE-FOR-SECURITIES> 95,300
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 91,615
<TOTAL-LIABILITIES> 186,915
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,577,866
<SHARES-COMMON-STOCK> 1,725,373
<SHARES-COMMON-PRIOR> 1,622,062
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 27,435
<ACCUMULATED-NET-GAINS> 3,285,311
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,005,104
<NET-ASSETS> 30,840,846
<DIVIDEND-INCOME> 459,443
<INTEREST-INCOME> 29,345
<OTHER-INCOME> 0
<EXPENSES-NET> 408,559
<NET-INVESTMENT-INCOME> 80,229
<REALIZED-GAINS-CURRENT> 3,283,752
<APPREC-INCREASE-CURRENT> 4,939,032
<NET-CHANGE-FROM-OPS> 8,303,013
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 143,381
<DISTRIBUTIONS-OF-GAINS> 1,856,932
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 263,198
<NUMBER-OF-SHARES-REDEEMED> 298,742
<SHARES-REINVESTED> 138,855
<NET-CHANGE-IN-ASSETS> 7,769,993
<ACCUMULATED-NII-PRIOR> 35,717
<ACCUMULATED-GAINS-PRIOR> 1,858,491
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 204,420
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 480,852
<AVERAGE-NET-ASSETS> 27,267,917
<PER-SHARE-NAV-BEGIN> 14.22
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 4.83
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> 1.14
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.87
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000930363
<NAME> FAIRPORT FUNDS
<SERIES>
<NUMBER> 3
<NAME> FAIRPORT GOVERNMENT SECURITIES FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 4,508,088
<INVESTMENTS-AT-VALUE> 4,414,962
<RECEIVABLES> 41,954
<ASSETS-OTHER> 17,143
<OTHER-ITEMS-ASSETS> 2,875
<TOTAL-ASSETS> 4,476,934
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,242
<TOTAL-LIABILITIES> 28,242
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,635,390
<SHARES-COMMON-STOCK> 463,731
<SHARES-COMMON-PRIOR> 589,863
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (93,572)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (93,126)
<NET-ASSETS> 4,448,692
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 143,509
<OTHER-INCOME> 0
<EXPENSES-NET> 21,670
<NET-INVESTMENT-INCOME> 121,839
<REALIZED-GAINS-CURRENT> 15,341
<APPREC-INCREASE-CURRENT> (93,194)
<NET-CHANGE-FROM-OPS> 43,986
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 121,839
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37,261
<NUMBER-OF-SHARES-REDEEMED> 173,798
<SHARES-REINVESTED> 10,405
<NET-CHANGE-IN-ASSETS> (1,303,608)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (108,913)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,029
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 62,907
<AVERAGE-NET-ASSETS> 4,908,692
<PER-SHARE-NAV-BEGIN> 9.75
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.59
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
Exhibit 485(b)
BAKER & HOSTETLER LLP
65 EAST STATE STREET
SUITE 2100
COLUMBUS, OHIO 43215
(614) 228-1541
February 27, 1998
VIA EDGAR SUBMISSION
Securities and Exchange Commission
450 Fifth Street, N.W.
Attention: Filing Desk
Stop 1-4
Washington, DC 20549-1004
Subject: FAIRPORT FUNDS -- Post-Effective Amendment No. 4 to
Registration Statement on Form N-1A, Registration
No. 33-84186, filed under the Securities Act of
1933, as amended (the "1933 Act"), and Amendment No. 5
to Registration Statement on Form N-1A, File No.
811-3028, filed under the Investment Company Act
of 1940, as amended (the "Amendment")
Ladies and Gentlemen:
Accompanying this letter for filing via EDGAR on behalf of Fairport
Funds (the "Trust") is the above captioned Amendment. The Amendment is being
filed under Rule 485(b) of the 1933 Act for the purposes of bringing the
financial statements and other financial and non-financial information of the
Trust up-to-date pursuant to Section 10(a)(3) of the 1933 Act and Rule 8b-16
of the Investment Company Act of 1940 and to make certain additional
non-material changes.
In connection with the Amendment, we hereby represent that, to the best
of our knowledge and belief, the Amendment does not contain disclosures which
would render it ineligible to become effective pursuant to paragraph (b) of Rule
485 of the 1933 Act.
Yours very truly,
Baker & Hostetler
Kristen H. Ives, Esq.
cc(w/encl): Charles A. Kiraly
Arthur F. Anton
Debra Potter
James B. Griswold, Esq.
