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FAIRPORT FUNDS
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Charting A Course You Can Trust
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INVESTMENT ADVISER:
ROULSTON & COMPANY, INC.
Fairport Funds (the "Trust") 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
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TABLE OF CONTENTS
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PAGE
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Prospectus Highlights.............. 3
Fund Expenses...................... 4
Financial Highlights............... 4
The Trust and Its Funds............ 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>
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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.
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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
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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>
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MIDWEST GROWTH GOVERNMENT
GROWTH AND INCOME SECURITIES
FUND FUND FUND
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<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):
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MIDWEST GROWTH GOVERNMENT
GROWTH AND INCOME SECURITIES
FUND FUND FUND
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<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.
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FAIRPORT MIDWEST GROWTH FUND
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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.
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<TABLE>
<CAPTION>
FAIRPORT GROWTH AND INCOME FUND
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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>
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* Annualized
** Not Annualized
N/A Not Applicable; disclosure not required
(1) Commenced operations on July 1, 1993.
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<TABLE>
<CAPTION>
FAIRPORT GOVERNMENT SECURITIES FUND
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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>
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* Annualized
** Not Annualized
N/A Not Applicable; disclosure not required
(1) Commenced operations on July 1, 1993.
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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-
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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 GOVERNMENT FUND SEEKS CURRENT INCOME
CONSISTENT WITH THE PRESERVATION OF CAPITAL.
===================================================
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 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
purposes only). For more information regard-
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<PAGE> 10
ing 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> 11
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 such securities may be more volatile than the prices of
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> 12
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.
12
<PAGE> 13
[FAIRPORT FUNDS LOGO] 1-800-332-6459
(1-800-3-FAMILY)
________________________________________________________________________________
ACCOUNT APPLICATION FORM
________________________________________________________________________________
A. Indicate Amount of Investment (The minimum initial investment
is $250)
INITIAL
INVESTMENT [ ] FAIRPORT GROWTH AND INCOME FUND (#133580) ___% and $_________
& FUND
SELECTION [ ] FAIRPORT GOVERNMENT SECURITIES FUND ___% and $_________
(#133581)
[ ] 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.
TOTAL 100% $_________
[ ] BY CHECK: Please make payable to appropriate Fund Name
[ ] BY WIRE:
_________________________________________________________________
A. [ ] Please check here if you wish to receive a
consolidated statement for all accounts.
B. STATEMENT COPY TO ANOTHER ADDRESS OR INTERESTED FIRM
_________________________________________________________________
NAME | ADDRESS
___________________________|_____________________________________
CITY | STATE | ZIP CODE
________________________________________________________|____________|__________
B. INDIVIDUAL
________________________________________ _______________________
First Name Middle Initial Last Name Social Security Number
REGISTRATION ________________________________________ _______________________
Jt. Owner Middle Initial Last Name Social Security Number
(Please Print) First Name*
*(Joint ownership with rights of survivorship unless otherwise
noted)
_________________________________________________________________
_________________________________________________________________
GIFT TO MINORS
_________________________________________________________________
Name of Custodian As Custodian for
(name one only) (name one only)
Under the__________________(UGMA/UTMA) ________________________
State Minors Social Security#
_________________________________________________________________
_________________________________________________________________
CORPORATION, PARTNERSHIP, OR TRUST
_________________________________________________________________
Name of Corporation, Partnership or Trust
________________ _____________________________________________
Tax I.D.# Name of Trustee(s) Date of Trust
________________________________________________________________________________
C.
MAILING _________________________________________________________________
ADDRESS & Street Address & Apt.# or P.O. Box
TELEPHONE
NUMBER(S) ______________________________________|_______|__________________
City State Zip Code + 4
( ) ( )
_________________________ _________________________
Home Phone Number Business Phone Number
________________________________________________________________________________
D.
DISTRIBUTION Check one box only for each; if none are checked all dividend
OPTIONS income and capital gains, if any, will be reinvested.
If money is to be reinvested in a different Fairport Fund,
please indicate in space provided.
Income Dividends [ ]Cash [ ]Reinvest [ ]Cash Account Trust
[ ]Other Fairport Fund Money Market Portfolio
__________________________________
name / account#
Capital Gains [ ]Cash [ ]Reinvest [ ]Cash Account Trust
Distributions [ ]Other Fairport Fund Money Market Portfolio
__________________________________
name / account#
________________________________________________________________________________
<PAGE> 14
- -------------------------------------------------------------------------------
E. [ ] Check box if you want this service.
To establish a Systematic Withdrawal Plan (SWP), an account
must have a current market value of $10,000, or more.
Additionally, an account must have dividends reinvested.
[ ] Check box if you want withdrawal sent to address of
record.
[ ] Check box if you want withdrawal sent VIA ACH as
instructions indicate in section G.
SYSTEMATIC
WITHDRAWAL Amount and Frequency of Payments:
PLAN Beginning in _____________, 19__, Please make payments in the
Month
amount of $___________________
Amount $100 minimum
Payments will be processed on the 25th day of the month frequency
indicated below:
[ ] Monthly [ ] Quarterly [ ] Semi-annually [ ] Annually
- -------------------------------------------------------------------------------
F. [ ] Check box if you want this service. I (We) authorize FPS
TELEPHONE Services and/or Fairport Funds to act upon instructions
PRIVILEGE received by telephone from me (us) to redeem shares or to
Redemptions; exchange for share of other Fairport Funds. I (we) understand
Exchanges an exchange is made by redeeming shares of one portfolio and
Between using the proceeds to buy shares of another portfolio.
Portfolios Exchanges must be made into identically registered accounts.
Redemption proceeds will be sent as indicated in Section G.
* If not otherwise indicated below, only exchanges will be
allowed.
[ ] Redemptions [ ] Exchanges [ ] Both
- -------------------------------------------------------------------------------
[ ] All redemption proceeds will be executed
G. Check one only, if BY AN ACH TRANSACTION unless FPS
none are checked Services is notified otherwise in writing.
all redemptions There is no charge for ACH transactions.
REDEMPTION will be sent by Allow 3 business days.
& ACH check. [ ] All redemption proceeds will be executed BY
INFORMATION A FED WIRE TRANSACTION unless FPS Services
is notified otherwise in writing. There is a
$9 charge for FED Wire transactions.
[ ] All redemption proceeds will be sent BY
CHECK TO THE MAILING ADDRESS STATED IN
SECTION C ABOVE unless FPS Services is
notified otherwise in writing.
All FED Wire and ACH transactions will be sent as indicated below.
There will be no charge for ACH transactions. Any changes in ACH
transactions must be made in writing to FPS Services, Inc., P.O.
3200 Horizon Drive, King of Prussia, Pa 19406-0903. Please allow
one month for ACH instructions to be effective.
(Notify your bank of your intent to Establish this option on your
bank account.)
-------------------------------------------------------------------
Voided Bank Name Branch Office (if applicable)
Personal
Check or -------------------------------------------------------------
Deposit Bank Address (Do not use P.O. Box) City State Zip Code
Slip Must
Be Attached --------------------------
Bank Wire Routing Number Name(s) on Your Your Bank Account
Bank Account Number
- -------------------------------------------------------------------------------
H. TAXPAYER IDENTIFICATION NUMBER CERTIFICATION. UNDER THE PENALTIES
OF PERJURY, I (WE) CERTIFY THE FOLLOWING:
1. I (WE) CERTIFY THAT THE NUMBER SHOWN ON THIS FORM IS MY (OUR)
SIGNATURE CORRECT TAX IDENTIFICATION NUMBER.
& 2. I (WE) AM NOT (ARE NOT) SUBJECT TO BACKUP WITHHOLDING AS A RESULT
CERTIFICATION OF A FAILURE TO REPORT ALL INTEREST AND DIVIDENDS, OR THE
INTERNAL REVENUE SERVICE HAS NOTIFIED ME (US) THAT I (WE) AM
And Back-up (ARE) NO LONGER SUBJECT TO BACKUP WITHHOLDING.
Withholding CITIZEN OF: [ ] UNITED STATES [ ] OTHER (PLEASE INDICATE)
Certification
--------------------
"THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO
ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS
REQUIRED TO AVOID BACKUP WITHHOLDING".
------------------------------------------------------ ---------
SIGNATURE [ ] OWNER [ ] CUSTODIAN [ ] TRUSTEE DATE
------------------------------------------------------ ---------
SIGNATURE JOINT OWNER (IF APPLICABLE) DATE
[ ] CHECK BOX IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU
ARE SUBJECT TO BACKUP WITHHOLDING.
- -------------------------------------------------------------------------------
FOR INVESTMENT DEALER ONLY
- --------------------------
----------------------------------- -----------------------------------
Firm Name Dealer #
----------------------------------- -----------------------------------
Branch Address Branch #
----------------------------------- -----------------------------------
City/State/Zip Rep # Rep's Last Name
===============================================================================
MAIL COMPLETED APPLICATION TO: FPS SERVICES, INC., 3200 HORIZON DRIVE, KING
OF PRUSSIA, PA 19406-0903
===============================================================================
MAKE CHECK PAYABLE TO: "FAIRPORT FUNDS" OR APPROPRIATE FUND NAME
===============================================================================
<PAGE> 15
[FAIRPORT FUNDS LOGO]
1-800-332-6459
(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. my 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> 16
- -------------------------------------------------------------------------------
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 cost 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> 17
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.
13
<PAGE> 18
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 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.
===================================================
THE MINIMAL INITIAL INVESTMENT IS $250,
AND ANY SUBSEQUENT PURCHASE MUST BE AT LEAST $50.
===================================================
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> 19
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).
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 traditional IRAs.
Certain income phaseouts apply.
15
<PAGE> 20
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> 21
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> 22
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
You may obtain access to information about your 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.
Further information about the performance of the Funds is contained in the
Funds' Annual Report to Shareholders which may be obtained
18
<PAGE> 23
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 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 distribu-
19
<PAGE> 24
tion of income or gain realized on the sale of securities, the distribution,
from a practical stand point, is a return of invested principal, although
taxable as described above.
Prior to purchasing shares, you should carefully consider the impact of
dividends or capital gains distributions which are expected to be declared or
have been declared, but have not been paid. Any such dividends or capital gains
distributions paid shortly after a purchase of shares prior to the record date
will have the effect of reducing the per share net asset value of the shares
purchased by you by the amount of the dividends or distributions. All or a
portion of such dividends or distributions, although in effect a return of
capital, is subject to tax.
===================================================
PRIOR TO PURCHASING SHARES, CONSIDER THE IMPACT OF DIVIDENDS OR CAPITAL GAINS
DISTRIBUTIONS EXPECTED TO BE DECLARED OR DECLARED BUT NOT YET PAID.
===================================================
Additional information regarding federal taxes is contained in the Statement of
Additional Information under the heading "TAXES." However, the information
contained in this Prospectus and the additional material in the Statement of
Additional Information are only brief summaries of some of the important tax
considerations generally affecting the Funds and their shareholders.
Accordingly, you are urged to consult your tax adviser concerning the
application of federal, state and local taxes as such laws and regulations
affect your own tax situation.
You will be advised at least annually as to the federal income tax consequences
of distributions made to you during the year.
GENERAL INFORMATION
THE TRUST AND ITS SHARES
The Trust is an open-end management investment company and is organized under
Ohio law as a business trust under a Declaration of Trust dated September 16,
1994. The Trust currently consists of the three Funds, each of which is
diversified and each having its own class of shares. Each share represents an
equal proportional interest in a Fund with other shares of the same Fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Trustees.
When issued, the shares are fully paid, nonassessable and freely transferable.
VOTING RIGHTS
You, as a shareholder, are entitled to one vote for each dollar of value
invested and a proportionate fractional vote for any fraction of a dollar
invested, and will vote in the aggregate with other shareholders of the Trust
and not by Fund except as otherwise expressly required by law. For example,
shareholders of the Midwest Growth Fund will vote in the aggregate with other
shareholders of the Trust with respect to the election of Trustees and
ratification of the selection of independent accountants. However, shareholders
of a Fund will vote as a portfolio, and not in the aggregate with other
shareholders of the Trust, for purposes of approval of amendments to that Fund's
investment advisory agreement or any of that Fund's fundamental policies.
The Trust does not expect to have an annual or special meeting of shareholders
except, under certain circumstances, when the Declaration of Trust, the 1940 Act
or other authority requires such a meeting, such as the election or removal of
Trustees or certain amendments to the Declaration of Trust or the investment
advisory agreement.
The Trust has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request thereof from shareholders holding not less
than 10% of the outstanding votes of the Trust and that the Trust will assist in
communications with other shareholders as required by Section 16(c) of the 1940
Act. At such meeting, a quorum of shareholders (constituting a majority of votes
attributable to all outstanding shares of the Trust), by majority vote, has the
power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding shares" of a Fund means the affirmative
vote, at a meeting of shareholders duly called, of the lesser of (a) 67% or more
of the votes of shareholders of that Fund present at a meeting at which
20
<PAGE> 25
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
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
21
<PAGE> 26
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 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
22
<PAGE> 27
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 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
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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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