-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M3x3lpYSb2/os4T/70kucbXqqsJi1JzC1baSzjwHO9JBb2DsYoQZ5MHv+kaX5zXA KheNwkv6UdnaX88rS/2MEw== 0000950152-96-000725.txt : 20040405 0000950152-96-000725.hdr.sgml : 20040405 19960229160600 ACCESSION NUMBER: 0000950152-96-000725 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960229 DATE AS OF CHANGE: 19990831 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRMONT FUND TRUST CENTRAL INDEX KEY: 0000350796 IRS NUMBER: 616121673 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-70825 FILM NUMBER: 96529017 BUSINESS ADDRESS: STREET 1: 1346 S THIRD ST CITY: LOUISVILLE STATE: KY ZIP: 40208 BUSINESS PHONE: 5026365633 FORMER COMPANY: FORMER CONFORMED NAME: FAIRMONT FUND TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FAIRMONT FUND DATE OF NAME CHANGE: 19861103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRMONT FUND TRUST CENTRAL INDEX KEY: 0000350796 IRS NUMBER: 616121673 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-03139 FILM NUMBER: 96529018 BUSINESS ADDRESS: STREET 1: 1346 S THIRD ST CITY: LOUISVILLE STATE: KY ZIP: 40208 BUSINESS PHONE: 5026365633 FORMER COMPANY: FORMER CONFORMED NAME: FAIRMONT FUND TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FAIRMONT FUND DATE OF NAME CHANGE: 19861103 485APOS 1 FAIRMONT FUND TRUST 485APOS 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ Pre-Effective Amendment No. / / ----- Post-Effective Amendment No. 22 /X/ and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ Amendment No. 23 /X/ (Check appropriate box or boxes.) THE FAIRMONT FUND TRUST (formerly The Fairmont Fund) FILE NOS. 2-70825 and 811-3139 (Exact Name of Registrant as Specified in Charter) 1346 South Third Street, Louisville, Kentucky 40208 (Address of Principal Executive Offices) Zip Code Registrant's Telephone Number, including Area Code: (502) 636-5633 Morton H. Sachs, 1346 South Third Street, Louisville, Kentucky 40208 (Name and Address of Agent for Service) Release Date: April 30, 1996 It is proposed that this filing will become effective (check appropriate box): / / immediately upon filing pursuant to paragraph (b) / / on _____________ pursuant to paragraph (b) /x/ 60 days after filing pursuant to paragraph (a) / / on (date) pursuant to paragraph (a) of Rule 485 Registrant continues its election, made by the filing of its Initial Registration Statement, effective September 2, 1981, to register an indefinite number and amount of securities under Rule 24f-2. Pursuant to paragraph (b)(1) of Rule 24f-2, Registrant filed a Form 24F-2 for the fiscal year ended December 31, 1995, on February 26, 1996. TOTAL NUMBER OF PAGES: ----- EXHIBIT INDEX ON PAGE: ----- 2 THE FAIRMONT FUND CROSS REFERENCE SHEET FORM N-1A
ITEM NO. SECTION IN PROSPECTUS - -------- --------------------- 1 Cover Page 2 Fund Expenses 3 Financial Highlights, Performance Information 4 Operation of The Trust, Investment Objective, Strategy and Risk Factors, Investment Techniques 5 Operation of The Trust, Financial Highlights 5A Operation of The Trust 6 Investment Techniques, How to Withdraw (Redeem) an Investment, Cover Page, Dividends, Distributions and Taxes 7 How to Invest in The Fund, Determination of Net Asset Value, Operation of The Trust 8 How to Withdraw (Redeem) an Investment 9 None 14 The Trustees and Executive Officers 16 The Trustees and Executive Officers ITEM NO. SECTION IN STATEMENT OF ADDITIONAL INFORMATION - -------- ---------------------------------------------- 10 Cover Page 11 Table of Contents 12 None 13 Investment Policies, Other Restrictions, U.S. Government Obligations 14 Trustee Compensation 15 Description of The Trust 16 Investment Advisory Agreement, Custodian, Auditors, Transfer Agent 17 Portfolio Transactions and Brokerage 18 Description of The Trust 19 Determination of Net Asset Value 20 Taxes 21 None 22 Performance Information 23 Report of Independent Auditors, Financial Statements
3 THE FAIRMONT FUND 1346 South Third Street Louisville, Kentucky 40208 (502) 636-5633 (800) 262-9936 PROSPECTUS May 1, 1996 The Fairmont Fund (The Fund) is a no-load, diversified series of The Fairmont Fund Trust (The Trust), an open-end investment company seeking capital appreciation by investing in equity securities that the Adviser of The Trust believes are undervalued. This prospectus sets forth concisely the information about The Fund that you ought to know before investing. Please retain this prospectus for future reference. A Statement of Additional Information dated May 1, 1996 has been filed with the Securities and Exchange Commission and is hereby incorporated by reference in its entirety. A copy of the Statement can be obtained at no charge by calling the number listed above. For information or assistance, write to The Fund at the address listed above or call The Fund at the number listed above. You should read and retain this prospectus for future reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 4 TABLE OF CONTENTS
PAGE ---- FUND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 3 PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 5 PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 INVESTMENT OBJECTIVE, STRATEGY AND RISK FACTORS . . . . . . . . . . . . . 9 HOW TO INVEST IN THE FUND . . . . . . . . . . . . . . . . . . . . . . . . 9 Investments by Mail . . . . . . . . . . . . . . . . . . . . . . 9 Investments by Wire . . . . . . . . . . . . . . . . . . . . . . 10 Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . 10 Other Purchase Information . . . . . . . . . . . . . . . . . . . 11 Tax Sheltered Retirement Plans . . . . . . . . . . . . . . . . . 11 HOW TO WITHDRAW (REDEEM) AN INVESTMENT . . . . . . . . . . . . . . . . . 11 OPERATION OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . 12 DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . 13 DIVIDENDS, DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . 13 Dividends and Distributions . . . . . . . . . . . . . . . . . . 13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 INVESTMENT TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . 14 Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . 15 Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . 15 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 THE TRUSTEES AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . 16
- 2 - 5 FUND EXPENSES The following table illustrates all expenses and fees that a shareholder of The Fund will incur. The operating expense information is based upon operating expenses for the fiscal year ended December 31, 1995, expressed as a percentage of average daily net assets. Shareholder Transaction Expenses Sales Load Imposed on Purchases...................... None Sales Load Imposed on Reinvested Dividends........... None Redemption Fees...................................... None Annual Fund Operating Expenses Management Fees...................................... 1.70% 12b-1 Fees........................................... None Other Expenses....................................... None Total Fund Operating Expenses........................ 1.70%
Example
1 year 3 years 5 years 10 years ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemp- tion at the end of each time period: $17 $53 $92 $200
The purpose of the table above is to assist shareholders in understanding the costs and expenses that shareholders in The Fund will bear directly or indirectly. The Fund's Adviser pays all of the operating expenses of The Fund. For a more complete description of The Fund's expenses and its management fee structure, see "Operation of The Trust." The Example should not be considered a representation of past or future expenses and actual expenses may be greater or lesser than those shown. Shareholders should note that The Fund is a no-load fund and has no distribution expense plan. Accordingly, a shareholder does not pay any sales charge or commission upon purchase or redemption of shares of The Fund and does not pay any expenses with respect to the distribution of the shares of The Fund. FINANCIAL HIGHLIGHTS The following condensed financial information for The Fairmont Fund is derived from The Fund's financial statements. The financial statements for the years ended December 31, 1995, 1994, 1993 and 1992 have been audited by McCurdy & Associates - 3 - 6 CPA's, Inc., independent auditors. The financial statements for the remaining periods have been audited by other independent auditors whose reports for those years were unqualified. The financial statements of The Fund for the year ended December 31, 1995 and the independent auditors' report thereon are included in the Statement of Additional Information.
Years Ended Ten Months Ended Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec 31 31 31 31 31 31 31 31 31 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 Net Asset Value, Beginning of Period $ 24.06 22.43 19.41 17.02 12.17 16.02 15.19 14.96 16.50 17.88 Income From Investment Operations Net Investment Income (.08) (.16) (.14) (.17) .09 .30 .21 .24 .17 .11 Net Gains or Losses on Securities (both realized and unrealized) 6.80 1.79 3.16 2.56 4.85 (3.85) .83 .23 (1.47) .69 Total From Investment Operations 6.72 1.63 3.02 2.39 4.94 (3.55) 1.04 .47 (1.30) .80 Less Distributions Dividends (from net investment income) .00 .00 .00 .00 .09 .30 .21 .24 .17 .11 Distributions (from capital gains) 3.76 .00 .00 .00 .00 .00 .00 .00 .07 2.07 Returns of Capital .00 .00 .00 .00 .00 .00 .00 .00 .00 .00 Total Distributions 3.76 .00 .00 .00 .09 .30 .21 .24 .24 2.18 Net Asset Value, End of Period $ 27.02 24.06 22.43 19.41 17.02 12.17 16.02 15.19 14.96 16.50 Total Return 27.92 7.27 15.56 14.04 40.56 (22.13) 6.84 3.12 (7.77) 3.87(a) Ratios/Supplemental Data Net Assets, End of Period (in 000s) $28,191 22,195 18,884 16,788 17,385 15,859 42,511 64,145 79,008 79,636 Ratio of Expenses to Average Net Assets 1.70% 1.74% 1.78% 1.79% 1.79% 1.68% 1.37% 1.25% 1.18% 1.26%(a) Ratio of Net Income to Average Net Assets (.55)% (.79)% (.66)% (.85)% .51% 1.53% 1.01% 1.30% .91% .71%(a) Portfolio Turnover Rate 2.47 2.75 1.55 1.32 1.15 1.28% .90% 1.58% 1.45% 1.24%(a) (a) Computed on an annualized basis (b) All per share amounts have been restated to reflect a three-for-one share split which became effective February 15, 1990, and all per share amounts prior to November 30, 1986, have been restated to reflect a four-for-one share split which became effective at that date. (c) Per share information for periods prior to 1988 has been calculated based on the weighted average number of shares outstanding. (d) The Adviser has reimbursed certain operating expenses of The Fund in order to comply with state limitations. Had the Adviser not undertaken such action, the ratios indicated above would be as follows:
Years Ended Ten Months Ended Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec 31 31 31 31 31 31 31 31 31 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 Ratio of Expenses to Average Net Assets(d) 1.70% 1.74% 1.78% 1.79% 1.79% 1.68% 1.37% 1.25% 1.22% 1.28%(a) Ratio of Net Income to Average Net Assets(d) (.55)% (0.79)% (.66)% (.85)% .51% 1.53% 1.01% 1.30% .87% .70%(a)
- 4 - 7 PERFORMANCE INFORMATION Average Annual Total Return. From time to time, The Fund advertises its "average annual total return" for one, five and ten year periods, and for the period since inception (September 2, 1981). Average annual total return figures are based on historical performance and are not intended to indicate future performance. The "total return" of The Fund refers to the dividends and distributions generated by an investment in The Fund plus the change in the value of the investment from the beginning of the period to the end of the period. The "average annual total return" of The Fund refers to the rate of total return for each year of the period which, when compounded over the period, would be equivalent to the cumulative total return for the period. The dividends and distributions earned on the investment are assumed to be reinvested. The dividends and distributions and the principal value of an investment in The Fund will fluctuate so that a shareholder's shares, when redeemed, may be worth more or less than the shareholder's original investment. AVERAGE ANNUAL TOTAL RETURN: For the one year period ended December 31, 1995 . . . . . . . . . . . . 27.92% For the five year period ended December 31, 1995 . . . . . . . . . . . 20.51% For the ten year period ended December 31, 1995 . . . . . . . . . . . . 8.66% For the period since inception as of December 31, 1995 . . . . . . . . 13.84%
Other Performance Information. From time to time The Fund also advertises its rates of total return for specified periods, including the period from September 2, 1981 (date of initial public offering of shares), through a specified month end. It also advertises the value of a $10,000 investment made on September 2, 1981, as of a specified month end.
Year End Value of Net Asset Dividends $10,000 Total Return Year Ended Value(a) Paid (a) Investment (b) One Year Since Inception (c) - ---------- -------- --------- -------------- -------- ------------------- 12/31/81(c) $ 8.74 $ .00 $10,484 4.84%(c) 4.84% 12/31/82 11.02 .60 14,072 34.23% 40.72% 12/31/83 14.07 .74 19,093 35.68% 90.93% 12/31/84 14.76 .74 21,148 10.76% 111.48% 12/31/85 18.08 1.18 27,940 32.12% 179.40% 12/31/86 16.50 4.05 31,865 14.05% 218.65% 12/31/87 14.96 .26 29,388 -7.77% 193.88% 12/31/88 15.19 .24 30,306 3.12% 203.06%
- 5 - 8 12/31/89 16.02 .21 32,379 6.84% 223.79% 12/31/90 12.17 .30 25,212 -22.13% 152.12% 12/31/91 17.02 .09 35,439 40.56% 254.39% 12/31/92 19.41 .00 40,415 14.04% 304.15% 12/31/93 22.43 .00 46,704 15.56% 367.04% 12/31/94 24.06 .00 50,098 7.27% 400.98% 12/31/95 27.02 3.76 64,085 27.92% 540.85% (a) Per share data has been restated to reflect a three-for-one share split on February 15, 1990 and a four-for-one share split on November 30, 1986. (b) Value at end of calendar year of $10,000 investment made on September 2, 1981. (c) Not annualized and from the date of the initial offering of shares (September 2, 1981).
The Fund's advertised rates of total return for specified periods and the value of a $10,000 investment at the end of a specified period are based on historical performance and are not intended to indicate future performance. The rates of total return are calculated as indicated above for "total return" and represent the cumulative total return for the specified period. For example, for the one and two year periods, and for the period since inception, the cumulative total returns through December 31, 1995 were, respectively: 27.92%, 37.22% and 540.85%. The dividends and distributions and the principal value of an investment in The Fund will fluctuate so that a shareholder's shares, when redeemed, may be worth more or less than the shareholder's original investment. The Fund's Annual Report contains additional performance information and will be made available upon request and without charge. The Fund may also include in advertisements data comparing performance with other mutual funds as reported in non-related investment media, published editorial comments and performance rankings compiled by independent organizations and publications that monitor the performance of mutual funds (such as Lipper Analytical Services, Inc., Morningstar, Inc., Money, Investor's Business Daily, Barron's, Fortune or Business Week). Performance information may be quoted numerically or may be presented in a table, graph or other illustration. In addition, Fund performance may be compared to well-known indices of market - 6 - 9 performance including the Standard & Poor's (S&P) 500 Index or the Dow Jones Industrial Average. PORTFOLIO The Fund's portfolio of investments as of December 31, 1995 is set forth below:
Investments in Securities Common Stocks (Shares) Value Percent Automobile Insurance 50,000 Integon Corporation $1,031,250 3.66% Banking 55,000 Center Financial Corporation 962,500 20,000 Imperial Bancorp (a) 480,000 70,000 North Fork Bancorporation, Inc. 1,767,500 75,000 Riggs National Corporation (a) 975,000 75,000 UST Corporation 1,087,500 5,272,500 18.70 Business Services 125,000 Butler International, Inc. (a) 671,875 100,000 Employee Solutions, Inc. (a) 3,400,000 30,000 Kelly Services, Inc. Class A 832,500 4,904,375 17.40 Casualty Insurance 65,000 USF&G Company 1,096,875 3.89 Computer and Computer Equipment Manufacturers 110,000 Gandalf Technologies, Inc. (a) 1,870,000 10,000 Silicon Graphics, Inc. (a) 275,000 100,000 Tandem Computers, Inc. (a) 1,062,500 3,207,500 11.38 Dental Products 50,000 Sullivan Dental Products, Inc. 475,000 1.69 Electrical Apparatus 65,000 American Power Conversion Corp(a) 617,500 2.19 Electromedical Apparatus 250,000 Imatron, Inc. (a) 500,000 1.77 Grain Mill Products 10,000 International Multifoods Corporation 201,250 0.71 Health Care Management 100,000 Staff Builders, Inc. (a) 293,750 1.04 Life Insurance 65,000 John Alden Financial Corporation 1,356,875 10,000 Life Re Corporation 250,000
- 7 - 10 55,000 Pioneer Financial Services, Inc. 1,017,500 2,624,375 9.31 Oil and Gas Exploration 40,000 Oryx Energy Company (a) 535,000 1.90 Paper Products 10,000 Tambrands, Inc. 477,500 1.69 Pharmaceuticals 250,000 Pharmos Corporation (a) 367,188 18,750 Pharmos Corp Warrants Exp. 9/15/00(a)(b) 5,273 30,000 Sandoz Ltd. ADR 1,376,250 1,748,711 6.20 Savings Institutions 25,000 Interwest Bancorp, Inc. 509,375 45,000 St. Paul Bancorp, Inc. 1,147,500 1,656,875 5.88 Shoes 55,000 Timberland Company (a) 1,093,125 3.88 Transportation 200,000 Greyhound Lines Inc. (a) 862,500 3.06 Wholesale Groceries 50,000 International Dairy Queen, Cl A (a) 1,137,500 4.04 Total Common Stocks (Cost $23,492,129) 27,735,586 98.39 Bank Repurchase Agreement With Star Bank NA of Cincinnati, issued 12/29/95 due 1/2/96, fully collateralized by Government National Mortgage Association, 6.00% due 5/22/22 (Cost $674,000) 674,000 2.39 Total Investments (Cost $24,166,129) 28,409,586 100.78 Other Assets Less Liabilities (218,585) (0.78) Net Assets $28,191,001 100.00% (a) Common stocks which did not declare a dividend in 1995. (b) There are restrictions on these warrants which will limit The Fund's ability to convert them to stock until September 14, 1996.
- 8 - 11 INVESTMENT OBJECTIVE, STRATEGY AND RISK FACTORS The investment objective of The Fund is capital appreciation. The investment objective of The Fund may be changed by the Board of Trustees without shareholder approval. The Fund seeks to achieve its objective by investing in equity securities that its Adviser believes are undervalued and therefore represent basic investment value. The Adviser believes that this objective may be realized by using a strategy of investing in carefully selected, reasonably priced securities rather than in securities whose prices reflect a premium attributable to their current market popularity. The Fund seeks special opportunities for capital appreciation in securities that are selling at a discount from historical prices and/or at below average price-earnings ratios. The investment strategy of The Fund is based upon the belief that favorable changes in market prices for specific securities are more likely to begin once securities are out of favor, price-earnings ratios are relatively low, investment expectations are limited, and there is little investor interest in the particular security or industry involved. Fund investments primarily will be in equity securities of seasoned, established companies which appear to have appreciation potential. Emphasis will be placed on issues listed on national exchanges. As all investments are subject to inherent market risks and fluctuations in value due to earnings, economic conditions and other factors, The Fund cannot give assurance that its investment objective will be achieved. Income will not be a factor in the selection of The Fund's portfolio. For a more detailed discussion of The Fund's investment practices, see "Investment Techniques." HOW TO INVEST IN THE FUND Shares of The Fund may be purchased directly from The Fund. The minimum initial investment is $1,000. Investments by related parties may be aggregated for purposes of meeting minimum investment requirements. Contact The Fund for additional information. Additional purchases may be made by a shareholder in any amount. No commission or sales fee is charged in connection with purchases of The Fund's shares made directly from The Fund. Investments by Mail. An investor may purchase shares of The Fund by mailing the attached application, with a check made payable to The Fairmont Fund in the amount of the purchase price, to the following address: - 9 - 12 The Fairmont Fund Trust 1346 South Third Street Louisville, KY 40208 Investments in Fund shares will be credited to a shareholder's account at the net asset value next determined after receipt by The Fund of the shareholder's check (in U.S. dollars) and completed application. Investments by Wire. An investor may purchase shares of The Fund by wiring federal funds directly to The Fund's custodian. Prior to an investment by wire, the investor should telephone The Fund (502-636-5633) to advise it of the investment and to obtain an account number and instructions. The investor is required to mail a completed application to The Fund in order to make a wire purchase. There is presently no fee for receipt of wired funds, but the right to charge shareholders for this service is reserved by the custodian and The Fund. Exchange Privilege. The Fund has made arrangements to enable a shareholder, if his investment objectives change, to exchange shares of The Fund without sales charge for shares of the Kentucky Tax-free Income Series or the Kentucky Tax-Free Short to Medium Series of Dupree Mutual Funds. Shares of the above series of Dupree Mutual Funds may also be exchanged without sales charge for The Fund. Exchanges may be made only by Kentucky residents. Exchanges may be made by sending a written request to The Sachs Company, which acts as agent for shareholders making these exchanges. Subsequent exchanges involving Dupree Mutual Funds may be made by telephone. Contact The Sachs Company for additional information and instructions for exchanges with the Dupree Mutual Funds. The Fund has also made arrangements to enable a shareholder to exchange shares of The Fund without sales charge for shares of the Fixed Income Fund of Bartlett Capital Trust or the Bartlett Cash Reserves Fund of Bartlett Management Trust. Shares of Bartlett Fixed Income Fund and Bartlett Cash Reserves Fund may also be exchanged without sales charge for shares of The Fairmont Fund. Exchanges may be made only for shares of funds registered for sale in the shareholder's state of residence and are subject to the applicable minimum initial investment requirement. Exchanges may be made by sending a written request to The Fund. The exchange will be effected at the net asset value next determined after receipt of the request. A shareholder is required to obtain the appropriate prospectus and complete the appropriate application to exchange shares. Contact The Fund for additional information. Use of the exchange privilege is generally a taxable event, and shareholders should consult their tax advisers about the tax effect of an exchange. - 10 - 13 Other Purchase Information. The Fund's shares are offered for sale on a continuous basis at the net asset value next determined after the receipt of a shareholder's check (in U.S. dollars) and application in proper form. Purchase requests not in proper form will be returned to the investor within seven business days. The Fund will accept requests to purchase its shares on any day that the New York Stock Exchange is open for trading. The Fund reserves the right in its sole and absolute discretion to reject any purchase request in whole or in part. Requests received subsequent to the close of trading on the New York Stock Exchange on any day will be treated as if received on the next business day. No request will be binding until accepted. Any request may be withdrawn by an investor until accepted by The Fund. The Fund does not issue share certificates unless requested, but will mail each shareholder a statement after each transaction and a statement quarterly. Tax Sheltered Retirement Plans. Since The Fund seeks capital appreciation, shares of The Fund may be an appropriate investment medium for tax sheltered retirement plans, including: (a) Keogh (HR-10) Plans (for self-employed individuals); (b) qualified corporate pension and profit sharing plans (for employees); (c) individual retirement accounts (IRAs); and (d) tax deferred investment plans (for employees of public school systems and certain types of charitable organizations). Consultation with an attorney or tax adviser regarding these plans is advisable. Contact The Fund for information on the procedure to open an IRA. Custodial fees for an IRA will be paid by redemption of sufficient shares of The Fund from the IRA unless the fees are paid directly to the IRA custodian. HOW TO WITHDRAW (REDEEM) AN INVESTMENT The Fund will redeem for cash all full and fractional shares of The Fund upon receipt of a written request in proper form. Although requests for redemption usually must be in writing, you may make arrangements for redemption by telephone under certain circumstances. Contact The Fund for additional information. The redemption price is the next determined net asset value. The net asset value received by a shareholder upon the redemption of his shares of The Fund may be more or less than the price paid by such shareholder for his shares depending upon the market value of the securities owned by The Fund at the time of the redemption. Shareholders have the right to request a redemption on any day on which the New York Stock Exchange is open for trading and also on any other day in which there is significant trading in The Fund's portfolio securities which might cause a material change in its net asset value. All requests for redemption must be accompanied by certificates, if issued, for the shares to be redeemed. A written request must contain the signatures of all persons in whose names the shares are registered, signed as their - 11 - 14 names appear on the original application or on the certificate, as the case may be. In certain instances, The Fund may require additional documents to insure proper authorization. Contact The Fund for additional information and additional documents required to redeem tax sheltered retirement plans. The Fund will make payment within seven days (normally five business days) after a request is received in the form described above, except under unusual circumstances as determined by the Securities and Exchange Commission. However, redemption proceeds will not be mailed to an investor until the check used for investment has cleared the investor's bank for payment, which normally takes place within seven days of the date of purchase. Because The Fund incurs certain fixed costs in maintaining shareholder accounts, The Fund reserves the right to acquire any shareholder to redeem all of his shares after sixty days notice, if redemptions cause the value of his account to fall below $500 (or such other minimum amount as The Fund may determine from time to time). A shareholder will be given an opportunity to increase the value of his shares to the minimum amount within that sixty day period in order to avoid a mandatory redemption of his shares. Each share of The Fund is also subject to redemption at any time if the Board of Trustees determines in its sole discretion that failure to so redeem may have materially adverse consequences to all or any of the shareholders of The Fund. OPERATION OF THE TRUST The Fund is a no-load, diversified series of The Fairmont Fund Trust, an open-end management investment company established as a business trust under Kentucky law on December 29, 1980. The Board of Trustees supervises the business activities of The Trust. The Trust retains The Sachs Company, 1346 South Third Street, Louisville, Kentucky (the Adviser) to manage The Trust's investments and its business affairs. The Adviser is an investment manager which has provided investment advice to individuals, corporations, pension and profit sharing plans, and trust accounts since 1974. Morton H. Sachs, Trustee, Chairman of the Board and Chief Executive Officer of The Fund, and President, sole Director and Shareholder of the Adviser, is responsible for the day-to-day management of The Fund's portfolio and has been since The Fund's inception. The Trust acts as its own transfer agent and dividend paying agent. For the year ended December 31, 1995, The Fund paid the Adviser a fee equal to 1.70% of its average daily net assets. The rate of the fee paid by The Fund is higher than that paid by most other mutual funds; however such funds directly pay their own operating expenses, while all of The Fund's operating expenses (except brokerage fees and commissions, taxes, interest and extraordinary expenses) are paid by the Adviser. The Adviser - 12 - 15 is also a registered broker-dealer and, in that capacity, receives brokerage commissions from The Trust. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to its objective of seeking best qualitative execution of portfolio transactions, the Adviser may give consideration to sale of shares of The Trust as a factor in the selection of brokers and dealers to execute portfolio transactions for each series of The Trust. DETERMINATION OF NET ASSET VALUE The net asset value of the shares of The Fund is determined as of 4:00 p.m. Eastern time on each day The Fund is open for business. The Fund is open for business on any day that the New York Stock Exchange is open for trading. The net asset value per share is computed by dividing the sum of the value of the securities held by The Fund plus any cash or other assets (including interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) by the total number of shares outstanding at such time, rounded to the nearest cent. The management fee payable to the Adviser is accrued daily. Portfolio securities which are traded on stock exchanges or in over-the-counter markets are valued at the last sale price as of 4:00 p.m. Eastern time on the day the securities are being valued or, lacking any sales, at the mean between closing bid and asked prices. Portfolio securities which are traded both on the over-the-counter market and on a stock exchange or on more than one stock exchange are valued according to the broadest and most representative market. Fixed income securities are valued by using market quotations, or independent pricing services which use prices provided by market makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. Securities and other assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Trustees. DIVIDENDS, DISTRIBUTIONS AND TAXES Dividends and Distributions. It is The Fund's intention to distribute substantially all of its net investment income, if any, in the form of dividends to The Fund's shareholders. It is contemplated that net investment income and net realized long or short term capital gains, if any, reduced by any capital loss carryovers, will be distributed to The Fund's shareholders annually. Such distributions from investment income and capital gains are automatically reinvested, unless otherwise instructed by the shareholder, in additional Fund shares at the net asset value next determined after the distributions are paid. - 13 - 16 Shareholders may obtain such distributions in cash by requesting cash distributions on the application accompanying this prospectus or by sending a written request to The Fund. Taxes. Dividends paid by The Fund from its ordinary income and distributions of The Fund's net realized short term capital gains are taxable to shareholders as ordinary income. However, dividends paid by The Fund may be eligible in part for the dividends received deduction for corporations. Any distributions of The Fund's net realized long term capital gains are taxable to shareholders as long term capital gains regardless of the holding period of such shareholder. The Fund will mail to each shareholder a statement setting forth the federal income tax status of all distributions made during the year. Shareholders are urged to consult their own tax advisers regarding specific questions as to federal, state or local taxes and the tax effect of distributions, exchanges and redemptions from The Fund. The tax consequences described in this section apply whether distributions are taken in cash or reinvested in additional shares. INVESTMENT TECHNIQUES Subjective judgment will be exercised in selecting securities for investment, and it is the intention of The Fund's management to use economic projections, technical analysis and earnings projections for market timing purposes and for individual stock selection. In seeking The Fund's objective of capital appreciation, reliance will be placed primarily upon common stocks. For temporary defensive purposes, or when investment opportunities are limited, The Fund may at times hold all or a portion of its assets in cash, in securities of other investment companies or in obligations of the U.S. Government or its agencies or instrumentalities, and may enter into repurchase agreements fully collateralized as to principal and interest by such obligations. Foreign Securities. The Fund may invest in foreign securities through the purchase of American Depositary Receipts. American Depositary Receipts are certificates of ownership issued by a U.S. bank as a convenience to the investors in lieu of the underlying shares which it holds in custody. The Fund will not invest in American Depositary Receipts if, immediately after a purchase and as a result of the purchase, the total value of foreign securities owned by The Fund would exceed 25% of the value of the total assets of The Fund. To the extent that The Fund does invest in foreign securities, such investments may be subject to special risks, such as changes in restrictions on foreign currency transactions and rates of exchange, and changes - 14 - 17 in the administrations or economic and monetary policies of foreign governments. Repurchase Agreements. Repurchase transactions are transactions by which The Fund purchases a U.S. Government obligation and simultaneously commits to resell that obligation to the seller at an agreed upon price and date. The resale price reflects the purchase price plus an agreed upon market rate of interest which is unrelated to the coupon rate or maturity of the purchased obligation. A repurchase transaction involves the obligation of the seller to pay the agreed upon price, which obligation is in effect secured by the value of the underlying U.S. Government obligation. In the event of a bankruptcy or other default of the seller of a repurchase agreement, The Fund could experience both delays in liquidating the underlying U.S. Government obligation and losses. To minimize these possibilities, The Fund intends to enter into repurchase agreements only with its custodian, banks having assets in excess of $1 billion and the largest and most creditworthy (as determined by the Board of Trustees and the Adviser) securities dealers. In addition, the repurchase agreements will be fully collateralized by the underlying U.S. Government obligations. The Fund will not engage in a repurchase transaction maturing in more than seven days if as a result thereof more than 10% of its total assets would be invested in such transactions and in other illiquid investments. Portfolio Turnover. It is the policy of The Fund not to engage in trading for short term profits and The Fund intends to limit its portfolio turnover to the extent practicable. Nevertheless, changes in the portfolio will be made promptly when determined to be advisable by reason of developments not foreseen at the time of the investment decision, and usually without reference to the length of time a security has been held. Accordingly, portfolio turnover rate will not be considered a limiting factor in the implementation of investment decisions. The turnover rate may vary from year to year or during periods within a year. A high rate of portfolio turnover results in correspondingly greater brokerage commission expenses and may result in the realization of additional capital gains for tax purposes. General. Any investment policy, strategy, technique or practice that is not labelled fundamental in this Prospectus or the Statement of Additional Information may be changed by the Board of Trustees without the vote of The Fund's shareholders. For additional information concerning The Fund's investment practices, including the risks involved in such practices, see "Investment Techniques" and "Investment Policies" in the Statement of Additional Information. Any Trustee may be removed by vote of the shareholders holding not less than two-thirds of the outstanding shares of The Trust. The Trust does not hold annual meetings of shareholders. When matters are submitted to shareholders for a vote, each - 15 - 18 shareholder is entitled to one vote for each whole share he owns and fractional votes for fractional shares he owns. All shares have equal voting rights and liquidation rights. THE TRUSTEES AND EXECUTIVE OFFICERS The Trustees and Executive Officers of The Trust and their principal occupations during the last five years are set forth below.
Positions Held Principal Occupations Name and Address With Trust During Past Five Years - ---------------- -------------- ---------------------- *Morton H. Sachs Trustee He is the President and sole 1346 South Third St. Chairman of the Board Director and shareholder of The Louisville, KY 40208 Chief Executive Officer Sachs Company, The Trust's Adviser. *Oscar S. Bryant, Jr. Trustee He is the Executive Vice 1346 South Third St. President President of The Trust's Adviser. Louisville, KY 40208 Prior to 1981, he was Executive Vice President, Secretary to the Board and member of the Executive Committee of Liberty National Bank and Trust Company of Louisville. *Jennifer S. Dobbins Vice President She is a Vice President and a 1346 South Third St. Assistant Secretary Registered Principal of The Louisville, KY 40208 Trust's Adviser. *Inda M. Wangerin Secretary She is a Vice President and 1346 South Third St. Accountant of The Trust's Louisville, KY 40208 Adviser. *Louis T. Young Treasurer He is an employee of The Trust's 1346 South Third St. Adviser. Louisville, KY 40208 O. Grant Bruton Trustee He is an Attorney at Law and a 2500 Brown & Director of Porcelain Metals Williamson Tower Corporation, a fabricator of Louisville, KY 40202 enameled parts.
- 16 - 19 Carl T. Fischer, Jr. Trustee He is a self-employed farmer and 1041 Alta Vista Road horsebreeder and former President Louisville, KY 40205 of Fischer Packing Co., a meat packing company. He is a Director of Stock Yards Bank & Trust Co. located in Louisville. Raphael O. Nystrand Trustee Since 1978, he has been a 3015 Springcrest Drive Professor and Dean of the School Louisville, KY 40241 of Education, University of Louisville. He was on leave from this position to serve as Secretary of Education and Humanities for the Commonwealth of Kentucky during calendar year 1984.
- ---------------------------------- *Interested person of The Trust and affiliated person of The Trust and the Adviser, both as defined by the Investment Company Act of 1940. Mr. Sachs is a Trustee of The Trust and a controlling person of the Adviser, as such term is defined by the Securities and Exchange Commission. Mr. Bryant is a Trustee and Officer of the Trust and an Officer of the Adviser. Ms. Dobbins is an Officer of both The Trust and the Adviser and a daughter of Morton H. Sachs. Ms. Wangerin is an Officer of both The Trust and the Adviser. Mr. Young is an Officer of The Trust and an employee of the Adviser. - 17 - 20 THE FAIRMONT FUND STATEMENT OF ADDITIONAL INFORMATION May 1, 1996 This Statement of Additional Information is not a Prospectus. It should be read in conjunction with the Prospectus of The Fairmont Fund dated May 1, 1996. A copy of the Prospectus can be obtained by writing The Fund at 1346 South Third Street, Louisville, Kentucky 40208 or by calling The Fund at (502) 636-5633. 21 TABLE OF CONTENTS
PAGE ---- DESCRIPTION OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . 3 INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 OTHER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 U.S. GOVERNMENT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . 7 INVESTMENT ADVISORY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 8 TRUSTEE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . 9 PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . 9 DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . 12 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 13 INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . 14 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 15
- 2 - 22 DESCRIPTION OF THE TRUST The Fairmont Fund Trust (The Trust) is an open-end investment company established as a business trust under Kentucky law by Declaration of Trust dated December 29, 1980. The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of separate series. This Statement of Additional Information provides information relating to The Fairmont Fund series (The Fund). Each share of a series represents an equal proportional interest in the assets and liabilities belonging to the series. Upon liquidation of a series, shareholders are entitled to share pro rata in the net assets of the series available for distribution to shareholders. Shares of each series are fully paid and have no preemptive or conversion rights. Kentucky law provides that no assessment shall be made against the interest of any shareholder and no shareholder shall be personally liable for any debts or liabilities incurred by the Trustees or by The Trust. Shareholders are entitled to one (1) vote for each full share held and fractional votes for fractional shares held and may vote in the election of Trustees and on other matters submitted to the vote of shareholders. Voting rights are cumulative, which means that each shareholder has the right to cumulate the voting power he possesses and to give one (1) nominee for Trustee as many votes as the number of Trustees to be elected multiplied by the number of his shares, or to distribute his votes on the same principle among two or more candidates, as the shareholder desires. Shares are voted in the aggregate and not by series, except when the matter to be voted upon affects only the interest of a particular series. For information concerning the purchase and redemption of shares of The Fund, see "How to Invest in The Fund" and "How to Withdraw (Redeem) An Investment" in the Prospectus. As of February 13, 1996, the Trustees and Officers of The Trust as a group owned of record and beneficially 64,148 shares of The Fund, or 6.0% of the outstanding shares of The Fund. As of that date, The Courier Journal TIP Fund, Louisville, Kentucky, owned of record 10.5% of the outstanding shares of The Fund. INVESTMENT POLICIES The Fund has adopted the following investment policies, which may be changed only with approval of a majority of the outstanding shares of The Fund. As used in this Statement of Additional Information, the term "majority" of the outstanding shares of The Fund means the lesser of (1) 67% or more of the outstanding shares of The Fund present at a meeting, if the holders of more than 50% of the outstanding shares of The Fund are present or represented at such meeting; or (2) more than 50% of the outstanding shares of The Fund. 1. Borrowing Money. The Fund may borrow money, if it borrows money (a) from a bank, provided that immediately after such borrowing - 3 - 23 there is an asset coverage of 300% for all borrowings of The Fund; or (b) from a bank or other persons for temporary purposes only, provided that such temporary borrowings are in an amount not exceeding 5% of The Fund's total assets at the time when the borrowing is made. The Fund may enter into reverse repurchase transactions and any other transactions which may be deemed to be borrowings, provided that The Fund has an asset coverage of 300% for all borrowings and commitments of The Fund pursuant to reverse repurchase and other such transactions. 2. Pledging. The Fund may mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any assets of The Fund if it is necessary in connection with borrowings described in policy (1) above. For purposes of the Statement of Intention below, margin deposits, security interests, liens and collateral arrangements with respect to permitted investments and techniques are not deemed to be a mortgage, pledge or hypothecation of assets. 3. Underwriting. The Fund may act as underwriter of securities issued by other persons if immediately thereafter the amount of its outstanding underwriting commitments, plus the value of its investments in securities of issuers (other than investment companies) of which it owns more than 10% of the outstanding voting securities, does not exceed 25% of its total assets. This limitation and the Statement of Intention are not applicable to the extent that, in connection with the disposition of portfolio securities (including restricted securities), The Fund may be deemed an underwriter under certain federal securities laws. 4. Real Estate. The Fund may purchase, hold or deal in real estate, and may invest in securities which are secured by or represent interests in real estate, mortgage-related securities or directly in mortgages. 5. Loans. The Fund may make loans to other persons, including (a) loaning portfolio securities, (b) engaging in repurchase agreements, (c) purchasing debt securities, and (d) making direct investments in mortgages. For purposes of the Statement of Intention below, the term "loans" shall not include the purchase of a portion of an issue of publicly distributed bonds, debentures or other securities. 6. Margin Purchases. The Fund may not purchase securities or evidences of interest thereon on "margin." For purposes of this limitation and the Statement of Intention below, (a) short term credit obtained by The Fund for the clearance of purchases and sales or redemption of securities and (b) margin deposits and collateral arrangements with respect to permitted investments and techniques are not considered to be purchases on "margin." This limitation is not applicable to activities that may be deemed to involve purchases on "margin" by The Fund, provided that The Fund's engagement in such activities is consistent with or permitted by the Investment Company Act of 1940, the rules and regulations promulgated thereunder or - 4 - 24 interpretations of the Securities and Exchange Commission, its staff or other legal authority. 7. Senior Securities. The Fund may not issue senior securities. This limitation is not applicable to activities that may be deemed to involve the issuance or sale of a senior security by The Fund, provided that The Fund's engagement in such activities is consistent with or permitted by the Investment Company Act of 1940, the rules and regulations promulgated thereunder or interpretations of the Securities and Exchange Commission, its staff or other legal authority. 8. Short Sales. The Fund may not effect short sales of securities. 9. Options. The Fund may not purchase or sell put or call options. 10. Commodities. The Fund may not purchase, hold or deal in commodities or commodities futures contracts. 11. Concentration. The Fund will not invest 25% or more of its total assets in a particular industry. This limitation is not applicable to investments in obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities or repurchase agreements with respect thereto. 12. Diversification. As a diversified series of The Trust, The Fund will not purchase the securities of any issuer if such purchase at the time thereof would cause less than 75% of the value of the total assets of The Fund to be invested in cash and cash items (including receivables), securities issued by the U.S. Government, its agencies or instrumentalities and repurchase agreements with respect thereto, securities of other investment companies, and other securities for the purposes of this calculation limited in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of The Fund and to not more than 10% of the outstanding voting securities of such issuer. Statement of Intention. It is The Fund's intention (which may be changed by the Board of Trustees without shareholder approval) that it will not engage in any of the investment practices permitted by (1)-(7) above in the coming year, except borrowing for temporary purposes and repurchase transactions. If the Board of Trustees determines that it would be appropriate for The Fund to employ any of the other investment practices permitted by (1)-(7) above, The Fund's Prospectus or Statement of Additional Information will be amended with appropriate disclosure prior to The Fund engaging in the practice. With respect to the percentages adopted by The Fund as maximum limitations in its investment policies, an excess above the fixed percentage (except for the percentage limitation relative to the borrowing of money) shall not be a violation of the policy or - 5 - 25 limitation unless the excess results immediately and directly from the acquisition of any security or the action taken. Notwithstanding any of the foregoing policies or limitations, any investment company, whether organized as a trust, association or corporation, or a personal holding company, may be merged or consolidated with or acquired by The Fund, provided that if such merger, consolidation or acquisition results in an investment in the securities of any issuer prohibited by said paragraphs, The Fund shall, within ninety days after the consummation of such merger, consolidation or acquisition, dispose of all of the securities of such issuer so acquired or such portion thereof as shall bring the total investment therein within the limitations imposed by said paragraphs above as of the date of consummation. OTHER RESTRICTIONS State Restrictions. To comply with the current regulations of the states of California, Missouri, Ohio and Texas, The Fund presently intends to observe the following restrictions, which may be changed by the Board of Trustees without shareholder approval. California Restrictions. The Fund will not invest directly in real estate, will not engage in underwriting and will not invest in other open-end investment companies without obtaining the prior approval of the California Department of Corporations to engage in the particular activity. In addition, The Fund will not engage in margin purchases, unless such transactions are consistent with applicable requirements of the California Blue Sky Regulations. Missouri Restriction. The Fund will not invest in securities of issuers which, together with any predecessors, have a record of less than three years continuous operation. Ohio Restrictions. The Fund will not purchase or retain securities of any issuer if the Trustees and Officers of The Trust and the Directors and Officers of the Adviser, who individually own beneficially more than 0.5% of the outstanding securities of such issuer, together own beneficially more than 5% of such securities. The Fund will not purchase securities issued by other investment companies except by purchase in the open market where no commission or profit to a sponsor or dealer results from such purchase other than customary broker's commission or except when such purchase is part of a plan of merger, consolidation, reorganization or acquisition. The Fund will not borrow (other than by entering into reverse repurchase agreements), pledge, mortgage or hypothecate more than one-third of its total assets. In addition, The Fund will engage in borrowing (other than reverse repurchase agreements) only for emergency or extraordinary purposes and not for leverage. The Fund will not invest more than 10% of its total assets in securities of issuers which, together with any predecessors, have a record of less than three years continuous operation or securities of issuers which are restricted as to disposition. - 6 - 26 Texas Restrictions. The Fund will lend portfolio securities only if collateral values are continuously maintained at no less than 100% by "marking to market" daily and the practice is fair, just, and equitable, as determined by a finding that adequate provision has been made for margin calls, termination of the loan, reasonable servicing fees (including finder's fees), voting rights, dividend rights, shareholder approval and disclosure. The Fund will not invest more than 5% of the value of its net assets in warrants, valued at the lower of cost or market, of which amount not more than 2% of the value of its net assets may be warrants that are not listed on the New York or American Stock Exchange. The Fund will not invest in oil, gas, or other mineral leases, nor will it purchase or sell real property (including limited partnership interests, but excluding readily marketable interests in real estate investment trusts or readily marketable securities of companies which invest in real estate). Restrictions Due to Regulatory Positions. It is the current position of the staff of the Securities and Exchange Commission that The Trust may not invest more than 25% of its total assets in securities as to which The Trust owns more than 10% of the outstanding voting securities of the issuer. The Trust has made a commitment, which may be changed by the Board of Trustees without shareholder approval, to comply with the above restriction. It is the current position of the staff of the Securities and Exchange Commission that The Fund may not invest more than 15% of its net assets in illiquid securities, including restricted securities, real estate, mortgages and nonpublicly offered debt securities. U.S. GOVERNMENT OBLIGATIONS The Fund may invest in "U.S. Government obligations," which term refers to a variety of securities which are issued or guaranteed by the United States Treasury, by various agencies of the United States Government, and by various instrumentalities which have been established or sponsored by the United States Government. The term is also deemed by The Fund to include participation interests in U.S. Government obligations. Participation interests are pro-rata interests in U.S. Government obligations held by others. Certificates of deposit or safekeeping are documentary receipts for U.S. Government obligations held in custody by others. U.S. Treasury securities are backed by the "full faith and credit" of the United States Government. Other U.S. Government obligations may or may not be backed by the "full faith and credit" of the United States. In the case of securities not backed by the "full faith and credit" of the United States, the investor must look principally to the agency issuing or guaranteeing the obligation for ultimate repayment, and may not be able to assert a claim against the United States itself in the event the agency or instrumentality does not meet its commitments. Furthermore, there can be no assurance that the United States Government will provide financial support if not obligated to do so by law. - 7 - 27 Treasury securities include Treasury bills, Treasury notes, and Treasury bonds. Government agencies which issue or guarantee securities backed by the "full faith and credit" of the United States include the Government National Mortgage Association and the Small Business Administration. Government agencies and instrumentalities which issue or guarantee securities not backed by the "full faith and credit" of the United States include the Farm Credit System, the Federal Home Loan Banks, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. The Fund may invest in securities issued or guaranteed by any of the entities listed above or by any other agency or instrumentality established or sponsored by the United States Government. INVESTMENT ADVISORY AGREEMENT The Trust has entered into a Management Agreement (the Agreement) with The Sachs Company, 1346 South Third Street, Louisville, Kentucky (the Adviser), under which the Adviser manages The Trust's portfolios of investments subject to the approval of the Board of Trustees. The Adviser is an investment manager which has provided investment advice to individuals, corporations, pension and profit sharing plans and trust accounts since 1974, when it was formed as a Kentucky proprietorship. The Adviser was incorporated in Kentucky in 1975, and its principal place of business is in Louisville, Kentucky. The Adviser is a broker-dealer registered under the Securities Exchange Act of 1934, and as a broker operates on a fully-disclosed basis through Legg Mason Wood Walker, Inc. or Conners & Co., Inc. Under the terms of the Agreement, The Fund pays the Adviser a fee computed and accrued daily and paid monthly at an annual rate of 2% of the average value of the daily net assets of The Fund up to and including $10,000,000, 1-1/2% of such assets of The Fund from $10,000,000 to and including $30,000,000 and 1% of such assets of The Fund in excess of $30,000,000; provided, however, that the total fees paid during the first and second halves of each fiscal year of The Trust shall not exceed the semiannual total of the daily fee accruals requested by the Adviser during the applicable six month period. Pursuant to the Agreement, the Adviser pays all operating expenses of The Trust except brokerage fees and commissions, taxes, interest, expenses incurred by The Trust in connection with the organization and registration of shares of any series of The Trust established after May 7, 1987, and such extraordinary or nonrecurring expenses as may arise, including litigation to which The Trust may be a party and indemnification of The Trust's Trustees and Officers with respect to the litigation. State securities administrators may impose limitations on the annual expenses of The Trust or The Fund. The most restrictive state expense limitation applicable to The Trust is presently 2-1/2% of the first $30 million of average net assets of a series, 2% of the next $70 million and 1-1/2% of average net assets of a series in excess of $70 million. Certain expenses such as brokerage commissions, if any, taxes, interest and extraordinary items are excluded from the - 8 - 28 limitation. If the expenses of The Trust or a series approach the applicable limitation in any state, The Trust will consider the various actions that are available to it, including suspension of sales to residents of that state. For the fiscal years ended December 31, 1995, 1994, and 1993, the Adviser received advisory fees of $421,935, $371,862 and $305,708, respectively. The Trust pays no direct remuneration to any Officer of The Trust, although Morton H. Sachs, by reason of his affiliation with the Adviser, will receive benefits from the advisory fees and brokerage commissions paid to The Trust's Adviser, The Sachs Company. TRUSTEE COMPENSATION The compensation paid to the Trustees of The Trust for the year ended December 31, 1995 is set forth in the following table:
TOTAL PENSION OR COMPENSATION AGGREGATE RETIREMENT ACCRUED ESTIMATED ANNUAL FROM TRUST (THE COMPENSATION FROM AS PART OF FUND BENEFITS UPON TRUST IS NOT IN NAME, AGE TRUST(1) EXPENSES RETIREMENT A FUND COMPLEX)(1) O. Grant Bruton, 64 3,000 0 0 3,000 Oscar S. Bryant, Jr., 75 0 0 0 0 Carl T. Fischer, Jr., 63 4,000 0 0 4,000 Raphael O. Nystrand, 58 4,000 0 0 4,000 Morton H. Sachs, 61 0 0 0 0 (1) Trustee fees are Trust expenses. However, the Adviser makes the actual payment because the management agreement obligates the Adviser to pay (with limited exceptions) all of the operating expenses of the Trust.
The ages of the officers of The Trust are as follows: Jennifer S. Dobbins, 37; Inda M. Wangerin, 74; Louis T. Young, 47. PORTFOLIO TRANSACTIONS AND BROKERAGE Subject to policies established by the Board of Trustees of The Trust, the Adviser is responsible for The Fund's portfolio decisions and the placing of The Fund's portfolio's transactions. In placing portfolio transactions, the Adviser seeks the best qualitative execution for The Fund, taking into account such factors as price (including the applicable brokerage commission or dealer spread), the execution capability, financial responsibility and responsiveness of the broker or dealer and the brokerage and research services provided by the broker or dealer. The Adviser generally seeks favorable prices and commission rates that are reasonable in relation to the benefits received. The Adviser is specifically authorized to select brokers or dealers who also provide brokerage and research services to The Fund and/or the other accounts over which the Adviser exercises investment discretion and to pay such brokers or dealers a commission in excess of the commission another broker or dealer would charge if the Adviser - 9 - 29 determines in good faith that the commission is reasonable in relation to the value of the brokerage and research services provided. The determination may be viewed in terms of a particular transaction or the Adviser's overall responsibilities with respect to The Fund and to other accounts over which it exercises investment discretion. Research services include supplemental research, securities and economic analysis, and statistical services and information with respect to the availability of securities or purchasers or sellers of securities. Although this information is useful to The Fund and the Adviser, it is not possible to place a dollar value on it. It is the opinion of the Board of Trustees and the Adviser that the review and study of this information will not reduce the overall cost to the Adviser of performing its duties to The Fund under the Agreement. Research services furnished by brokers or dealers through whom The Fund effects securities transactions may be used by the Adviser in servicing all of its accounts and not all such services may be used by the Adviser in connection with The Fund. While The Fund does not deem it practicable and in its best interests to solicit competitive bids for commission rates on each transaction, consideration is regularly given to posted commission rates as well as other information concerning the level of commissions charged on comparable transactions by qualified brokers. The Fund has no obligation to deal with any broker or dealer in the execution of its transactions. However, it is contemplated that the Adviser, in its capacity as a registered broker-dealer, will effect substantially all securities transactions which are executed on a national securities exchange and over-the-counter transactions conducted on an agency basis. Such transactions will be executed at competitive commission rates through Legg Mason Wood Walker, Inc. or Conners & Co., Inc. Transactions in the over-the-counter market can be placed directly with market makers who act as principals for their own account and include mark-ups in the prices charged for over-the-counter securities. Transactions in the over-the-counter market can also be placed with broker-dealers who act as agents and charge brokerage commissions for effecting over-the-counter transactions. The Fund may place its over-the-counter transactions either directly with principal market makers, or with broker-dealers if that is consistent with the Adviser's obligation to obtain best qualitative execution. Under the Investment Company Act of 1940, persons affiliated with The Fund such as the Adviser are prohibited from dealing with The Fund as a principal in the purchase and sale of securities. Therefore, The Sachs Company will not serve as The Fund's dealer in connection with over-the-counter transactions. However, The Sachs Company may serve as The Fund's broker in over-the-counter transactions conducted on an agency basis and will receive brokerage commissions in connection with such transactions. Such agency transactions will be executed through Legg Mason Wood Walker, Inc. or Conners & Co., Inc. - 10 - 30 The Fund will not effect any brokerage transactions in its portfolio securities with the Adviser if such transactions would be unfair or unreasonable to Fund shareholders, and the commissions will be paid solely for the execution of trades and not for any other services. The Agreement provides that the Adviser may receive brokerage commissions in connection with effecting such transactions for The Fund. In determining the commissions to be paid to The Sachs Company, it is the policy of The Fund that such commissions will, in the judgment of The Trust's Board of Trustees, be (a) at least as favorable to The Fund as those which would be charged by other qualified brokers having comparable execution capability and (b) at least as favorable to The Fund as commissions contemporaneously charged by The Sachs Company on comparable transactions for its most favored unaffiliated customers, except for customers of The Sachs Company considered by a majority of The Trust's disinterested Trustees not to be comparable to The Fund. The disinterested Trustees from time to time review, among other things, information relating to the commissions charged by The Sachs Company to The Fund and its other customers, and rates and other information concerning the commissions charged by other qualified brokers. Any profits from brokerage commissions earned by The Sachs Company as a result of portfolio transactions for The Fund will accrue to Morton H. Sachs who is the sole shareholder of The Sachs Company. The Agreement does not provide for a reduction of the Adviser's fee by the amount of any profits earned by The Sachs Company from brokerage commissions generated from portfolio transactions of The Fund. For the fiscal years ended December 31, 1995, 1994 and 1993, the Fund's portfolio transactions generated total brokerage commissions of $528,313, $510,558 and $272,404, respectively. For the fiscal year ended December 31, 1995, The Sachs Company was paid $393,234 or 74% of the total brokerage commission for effecting (through Bartlett & Co. or Conners & Co.) 93% of The Fund's commission transactions. For the fiscal year ended December 31, 1994, The Sachs Company was paid $371,077 or 73% of the total brokerage commissions for effecting (through Bartlett & Co. or Conners & Co.) 92% of The Fund's commission transactions. For the fiscal year ended December 31, 1993, The Sachs Company was paid $185,660 or 68% of the total brokerage commissions for effecting (through Bartlett & Co. or Conners & Co.) 92% of The Fund's commission transactions. While The Fund contemplates no ongoing arrangements with any other brokerage firms, brokerage business may be given from time to time to other firms. The Sachs Company will not receive reciprocal brokerage business as a result of the brokerage business placed by The Fund with others. To the extent that The Fund and another of the Adviser's clients seek to acquire the same security at about the same time, The Fund may not be able to acquire as large a position in such security as it desires or it may have to pay a higher price for the security. Similarly, The Fund may not be able to obtain as large an execution of an order to sell or as high a price for any particular portfolio security if the other client desires to sell the same portfolio - 11 - 31 security at the same time. On the other hand, if the same securities are bought or sold at the same time by more than one client, the resulting participation in volume transactions could produce better executions for The Fund. In the event that more than one client purchases or sells the same security on a given date, the purchases and sales will normally be made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. DETERMINATION OF NET ASSET VALUE The net asset value of the shares of The Fund is determined as of 4:00 p.m. Eastern time on each day The Fund is open for business. The Fund is open for business on every day except Saturdays, Sundays and the following holidays: New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. For a description of the methods used to determine the net asset value, see "Determination of Net Asset Value" in the Prospectus. TAXES The Fund has qualified for the last twelve (12) fiscal periods, and intends to continue to qualify, under Subchapter M of the Internal Revenue Code. By so qualifying, The Fund will not be liable for federal income taxes to the extent its taxable net investment income and net realized capital gains are distributed to shareholders. The Fund is required by federal law to withhold and remit to the U.S. Treasury a portion (31%) of the dividend income and capital gains distributions of any account unless the shareholder provides a taxpayer identification number and certifies that the taxpayer identification number is correct and that the shareholder is not subject to backup withholding. CUSTODIAN Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202 has been retained to act as Custodian of The Trust's investments. The Custodian acts as The Trust's depository, safekeeps its portfolio securities and investments, collects all income and other payments with respect thereto, disburses funds at The Fund's request and maintains records in connection with its duties. Certain investments may be held by a depository in the United States. TRANSFER AGENT The Trust acts as its own transfer agent and dividend paying agent. To enable The Trust to perform these functions, the Adviser provides computer services and personnel to The Trust. - 12 - 32 AUDITORS The firm of McCurdy & Associates CPA's, Inc., 27955 Clemens Road, Westlake, Ohio 44145 has been selected as independent auditors for The Trust for the year ending December 31, 1996. McCurdy & Associates CPA's, Inc. performs an annual audit of The Trust's financial statements and provides financial, tax and accounting consulting services as requested. PERFORMANCE INFORMATION Average annual total return is computed by finding the average annual compounded rates of return (over one, five and ten year periods, and since inception) that would equate the initial amount invested to the ending redeemable value, according to the following formula: n P(1+T) = ERV Where: P = a hypothetical $1,000 initial investment T = average annual total return n = number of years ERV = ending redeemable value at the end of the applicable period of the hypothetical $1,000 investment made at the beginning of the applicable period The computation assumes that all dividends and distributions are reinvested at the net asset value on the reinvestment dates and that a complete redemption occurs at the end of the applicable period. From time to time, in advertisements, sales literature and information furnished to present or prospective shareholders, the performance of The Fund may be compared to indices of broad groups of unmanaged securities considered to be representative of or similar to the portfolio holdings of The Fund or considered to be representative of the stock market in general. For example, The Fund's performance may be compared to that of the Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average. The investment performance figures for The Fund and the indices will include reinvestment of dividends and capital gains distributions. In addition, the performance of The Fund may be compared to other groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely used independent research firm which ranks mutual funds by overall performance, investment objectives and assets. Performance rankings and ratings reported periodically in national financial publications such as Barron's may also be used. - 13 - 33 INDEPENDENT AUDITOR'S REPORT To the Shareholders and Board of Directors: Fairmont Fund We have audited the accompanying statement of assets and liabilities of Fairmont Fund, including the schedule of investments, as of December 31, 1995, and the related statements of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of materials misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Fairmont Fund as of December 31, 1995, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. /s/ McCurdy & Associates CPA's, Inc. Westlake, Ohio 44145 January 16, 1996 - 14 - 34 FINANCIAL STATEMENTS The Fairmont Fund Statement of Assets and Liabilities December 31, 1995 ASSETS INVESTMENTS IN SECURITIES, At Value (Note 2) Common stocks (Cost $23,492,129) $27,735,586 Bank repurchase agreement 674,000 ----------- Total investments in securities $28,409,586 CASH 1,495 RECEIVABLES Investment securities sold 2,200,449 Dividends 13,900 Interest 298 ----------- Total receivables 2,214,647 ----------- Total assets 30,625,728 LIABILITIES PAYABLES Investment securities purchased $ 2,250,178 Distributions to shareholders (Note 4) 141,060 Management fee (Note 3) 39,769 Shares redeemed 3,140 Other 580 ----------- Total liabilities 2,434,727 ----------- NET ASSETS $28,191,001 NET ASSETS CONSIST OF Capital stock (1,043,270 shares outstanding) (Note 8) $24,505,746 Accumulated net realized losses on investments (Note 6) ( 558,202) Net unrealized appreciation on investments (Note 5) 4,243,457 ----------- NET ASSETS $28,191,001 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE ($28,191,001 divided by 1,043,270 shares) $ 27.02
- 15 - 35 The Fairmont Fund Statement of Operations Year Ended December 31, 1995 INVESTMENT INCOME (Note 2) Dividends $ 220,482 Interest 51,438 Other 13,750 ----------- Total investment income 285,670 EXPENSES Management fee (Note 3) 421,935 ----------- Net investment loss (136,265) NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS (Note 2) Net realized gains from investment transactions 3,460,455 Net change in unrealized appreciation on investments 2,774,041 Net realized and unrealized gains on investments 6,234,496 ----------- Net increase in net assets resulting from operations $ 6,098,231
- 16 - 36 The Fairmont Fund Statement of Changes in Net Assets Years Ended December 31, 1995 and December 31, 1994
1995 1994 FROM OPERATIONS Net investment loss $ (136,265) $ (168,798) Net realized gains on investments 3,460,455 3,196,379 Net change in unrealized appreciation on investments 2,774,041 (1,742,141) Net increase in net assets resulting from operations 6,098,231 1,285,440 DISTRIBUTIONS TO SHAREHOLDERS (Note 4) Distributions from net realized gains on investments (3,458,598) 0
FROM CAPITAL SHARE TRANSACTIONS (Note 8) Shares Shares Proceeds from sale of shares 106,454 2,870,723 278,757 6,824,928 Shares issued in reinvest ment of distributions 122,781 3,317,538 0 0 Payments for shares redeemed (108,307) (2,831,640) (198,262) (4,799,611) Net increase or decrease in net assets from capital share transactions 120,928 3,356,621 80,495 2,025,317 Net increase in net assets 5,996,254 3,310,757 NET ASSETS Beginning of year 22,194,747 18,883,990 End of period $28,191,001 $22,194,747
- 17 - 37 Schedule of Investments December 31, 1995
Investments in Securities Common Stocks (Shares) Value Percent Automobile Insurance 50,000 Integon Corporation $1,031,250 3.66% Banking 55,000 Center Financial Corporation 962,500 20,000 Imperial Bancorp (a) 480,000 70,000 North Fork Bancorporation, Inc. 1,767,500 75,000 Riggs National Corporation (a) 975,000 75,000 UST Corporation 1,087,500 5,272,500 18.70 Business Services 125,000 Butler International, Inc. (a) 671,875 100,000 Employee Solutions, Inc. (a) 3,400,000 30,000 Kelly Services, Inc. Class A 832,500 4,904,375 17.40 Casualty Insurance 65,000 USF&G Company 1,096,875 3.89 Computer and Computer Equipment Manufacturers 110,000 Gandalf Technologies, Inc. (a) 1,870,000 10,000 Silicon Graphics, Inc. (a) 275,000 100,000 Tandem Computers, Inc. (a) 1,062,500 3,207,500 11.38 Dental Products 50,000 Sullivan Dental Products, Inc. 475,000 1.69 Electrical Apparatus 65,000 American Power Conversion Corp(a) 617,500 2.19 Electromedical Apparatus 250,000 Imatron, Inc. (a) 500,000 1.77 Grain Mill Products 10,000 International Multifoods Corporation 201,250 0.71 Health Care Management 100,000 Staff Builders, Inc. (a) 293,750 1.04 Life Insurance 65,000 John Alden Financial Corporation 1,356,875 10,000 Life Re Corporation 250,000 55,000 Pioneer Financial Services, Inc. 1,017,500 2,624,375 9.31 Oil and Gas Exploration 40,000 Oryx Energy Company (a) 535,000 1.90 Paper Products
- 18 - 38 10,000 Tambrands, Inc. 477,500 1.69 Pharmaceuticals 250,000 Pharmos Corporation (a) 367,188 18,750 Pharmos Corp Warrants Exp. 9/15/00(a)(b) 5,273 30,000 Sandoz Ltd. ADR 1,376,250 1,748,711 6.20 Savings Institutions 25,000 Interwest Bancorp, Inc. 509,375 45,000 St. Paul Bancorp, Inc. 1,147,500 1,656,875 5.88 Shoes 55,000 Timberland Company (a) 1,093,125 3.88 Transportation 200,000 Greyhound Lines Inc. (a) 862,500 3.06 Wholesale Groceries 50,000 International Dairy Queen, Cl A (a) 1,137,500 4.04 Total Common Stocks (Cost $23,492,129) 27,735,586 98.39 Bank Repurchase Agreement With Star Bank NA of Cincinnati, issued 12/29/95 due 1/2/96, fully collateralized by Government National Mortgage Association, 6.00% due 5/22/22 (Cost $674,000) 674,000 2.39 Total Investments (Cost $24,166,129) 28,409,586 100.78 Other Assets Less Liabilities (218,585) (0.78) Net Assets $28,191,001 100.00% (a) Common stocks which did not declare a dividend in 1995. (b) There are restrictions on these warrants which will limit The Fund's ability to convert them to stock until September 14, 1996.
- 19 - 39 The Fairmont Fund Financial Highlights (For a Share Outstanding Throughout Each Period)
Years Ended Dec Dec Dec Dec Dec 31 31 31 31 31 1995 1994 1993 1992 1991 Net Asset Value, Beginning of Period $ 24.06 22.43 19.41 17.02 12.17 Income From Investment Operations Net Investment Income (.08) (.16) (.14) (.17) .09 Net Gains or Losses on Securities (both realized and unrealized) 6.80 1.79 3.16 2.56 4.85 Total From Investment Operations 6.72 1.63 3.02 2.39 4.94 Less Distributions Dividends (from net investment income) .00 .00 .00 .00 .09 Distributions (from capital gains) 3.76 .00 .00 .00 .00 Returns of Capital .00 .00 .00 .00 .00 Total Distributions 3.76 .00 .00 .00 .09 Net Asset Value, End of Period $ 27.02 24.06 22.43 19.41 17.02 Total Return 27.92% 7.27% 15.56% 14.04% 40.56% Ratios/Supplemental Data Net Assets, End of Period (in 000s) $28,191 22,195 18,884 16,788 17,385 Ratio of Expenses to Average Net Assets 1.70% 1.74% 1.78% 1.79% 1.79% Ratio of Net Income to Average Net Assets (.55)% (.79)% (.66)% (.85)% .51% Portfolio Turnover Rate 2.47 2.75 1.55 1.32 1.15
- 20 - 40 The Fairmont Fund Notes to Financial Statements December 31, 1995 (1) Organization The Fairmont Fund (The Fund) is a no-load, diversified series of The Fairmont Fund Trust (The Trust), which is a Kentucky Business Trust and an open-end investment company registered under the Investment Company Act of 1940. The Fund was established under a declaration of trust dated December 29, 1980 and began offering its shares publicly on September 2, 1981. (2) Summary of Significant Accounting Policies (a) Valuation of Investment Securities - Purchases and sales of securities are recorded on a trade date basis. Portfolio securities which are traded on stock exchanges or in the over-the-counter markets are valued at the last sale price as of 4:00 P.M. Eastern time on the day the securities are being valued or, lacking any sales, at the mean between the closing bid and asked prices. Fixed income securities are valued by using market quotations, or independent pricing services which use prices provided by market makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. Securities and other assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Trustees. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. (b) Gains and Losses on Investment Securities - Gains and losses from sales of investments are calculated on the "identified cost" method. Upon disposition of a portion of the investment in a particular security, it is The Fund's general practice to first select for sale those securities which qualify for long-term capital gain or loss treatment for tax purposes. (c) Repurchase Agreements - The Fund may acquire repurchase agreements from banks or security dealers (the Seller) which the Board of Trustees and the Adviser have determined creditworthy. The Seller of the repurchase agreement is required to maintain the value of collateral at not less than the repurchase price, including accrued interest. Securities pledged as collateral for repurchase agreements are held by The Fund's custodian in the Federal Reserve/Treasury book-entry system. (d) Capital Shares - The Fund records purchases of its capital shares at the daily net asset value next determined after receipt of a shareholder's check or wire and application in proper form. Redemptions are recorded at the net asset value next determined following receipt of a shareholder's written request in proper form. - 21 - 41 (3) Investment Advisory Agreement, Commissions and Related Party Transactions The Investment Advisory Agreement (the Agreement) provides that The Sachs Company (the Adviser) will pay all of The Trust's operating expenses, including fees to disinterested trustees, but excluding brokerage fees and commissions, taxes, interest and extraordinary expenses. The Adviser also pays The Fund's officers' salaries. Under the terms of the Agreement, The Fund pays the Adviser a fee at the rate of 2% of the first $10,000,000 of average daily net assets, 1-1/2% of the next $20,000,000, and 1% of the average daily net assets over $30,000,000. The management fee is accrued daily and paid monthly. The Adviser received management fees of $421,935 for the year ended December 31, 1995. Morton H. Sachs, a trustee of The Fund, is the president and sole shareholder of the Adviser. The Adviser, as a registered broker-dealer of securities, effected substantially all of the investment portfolio transactions for The Fund. For this service the Adviser received commissions of $393,234 for the year ended December 31, 1995. Certain officers and/or Trustees of The Fund are officers of the Adviser. (4) Distributions to Shareholders The following is a summary of distributions to shareholders for the year ended December 31, 1995. No distributions were declared for the year ended December 31, 1994.
Period Date Paid Per Share Ended Declared In Cash Reinvested Total Amount 12/31/95 12/29/95 $141,060 $3,317,538 $3,458,598 $3.76
(5) Investments For the year ended December 31, 1995, the cost of purchases and proceeds from sales of investments, other than temporary cash investments, were $60,325,933 and $59,103,278, respectively. Following is information regarding unrealized appreciation (depreciation) and aggregate cost of securities based upon federal income tax cost at December 31, 1995: Tax Cost Aggregate gross unrealized appreciation for all securities with value in excess of cost $ 4,965,190 Aggregate gross unrealized depreciation for all securities with cost in excess of value
[/R] - 22 - 42 Net unrealized appreciation $ 3,685,255 Aggregate cost of securities $24,050,331
(6) Income Taxes It is The Fund's policy to comply with the special provisions of the Internal Revenue Code available to investment companies and, in the manner provided therein, to distribute substantially all of its income to shareholders. Therefore no tax provision is required. The accumulated net realized loss is due only to temporary timing differences caused by wash sales and does not represent a capital loss carryforward for income tax purposes. (7) There are no reportable financial instruments which have any off-balance sheet risk as of December 31, 1995. (8) At December 31, 1995 an indefinite number of capital shares (no par value) were authorized, and paid-in capital amounted to $24,505,746. Transactions in capital shares were as follows: Shares sold 229,235 Shares redeemed (108,307) Net increase 120,928 Shares outstanding: Beginning of period 922,342 Ending of period 1,043,270
(9) In accordance with SOP 93-2, The Fund has recorded a reclassification in the capital accounts. As of December 31, 1995, The Fund recorded permanent book/tax differences of $(136,265) from undistributed net investment income to paid in capital. This reclassification has no impact on the net asset value of The Fund and is designed generally to present undistributed income and realized gains on a tax basis which is considered to be more informative to the shareholder. - 23 - 43 THE FAIRMONT FUND TRUST PART C. OTHER INFORMATION Item 24. Financial Statements and Exhibits. (a) Financial Statements: Included in Part A for The Fairmont Fund series: Financial Highlights Included in Part B for The Fairmont Fund series: Independent Auditor's Report Statement of Assets and Liabilities December 31, 1995 Statement of Operations Year Ended December 31, 1995 Statement of Changes in Net Assets Years Ended December 31, 1995 and 1994 Schedule of Investments December 31, 1995 Financial Highlights for the Years Ended December 31, 1995, 1994, 1993, 1992 and 1991 Notes to Financial Statements December 31, 1995 (b) Exhibits: (1) Registrant's Declaration of Trust, which was filed as an Exhibit to Registrant's Registration Statement on Form N-1, and the Amendment thereto, which was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1, are hereby incorporated by reference. Copy of Amendment No. 2 to Registrant's Declaration of Trust dated May 15, 1984 which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 7, is hereby incorporated by reference. 44 Copy of Amendment No. 3 to Registrant's Declaration of Trust dated October 28, 1986, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 8, is hereby incorporated by reference. Copy of Amendment No. 4 to Registrant's Declaration of Trust dated April 28, 1988, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 14, is hereby incorporated by reference. Copy of Amendment No. 5 to Registrant's Declaration of Trust dated September 11, 1990, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 17, is hereby incorporated by reference. (2) Registrant's By-Laws, which were filed as an Exhibit to Registrant's Registration Statement on Form N-1, and the Amendment thereto, which was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1, are hereby incorporated by reference. Copy of Amendment No. 2 to Registrant's By-laws dated october 28, 1986, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 8, is hereby incorporated by reference. Copy of Amendment No. 3 to Registrant's By-Laws dated April 28, 1988, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 14, is hereby incorporated by reference. (3) Voting Trust Agreements - None. (4) Specimen of each security issued and each security being registered by the Registrant for The Fairmont Fund series, which was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1, are hereby incorporated by reference. (5) Registrant's Management Agreement for The Fairmont Fund series with The Sachs Company (formerly Morton H. Sachs & Co.), which was filed as an Exhibit to Registrant's - 2 - 45 Post-Effective Amendment No. 11, is hereby incorporated by reference. (6) Underwriting Agreements - None (7) Bonus, Profit Sharing, Pension or Similar Contracts for the benefit of directors or officers - None. (8) Registrant's agreement with the Custodian, Start Bank, N.A., Cincinnati, Ohio is filed herewith. (9) Other Material Contracts - None. (10) (i) Opinion and Consent of Brown, Cummins & Brown, which was filed with Registrant's Form 24F-2 for the fiscal year ended December 31, 1995, is hereby incorporated by reference. (ii) Opinion and Consent of John S. Greenebaum, which was filed with Registrant's Form 24F-2 for the fiscal year ended December 31, 1995, is hereby incorporated by reference. (11) Consent of McCurdy & Associates CPA's, Inc. is filed herewith. (12) Financial Statements Omitted from Item 23, Part B - None. (13) Copies of Letters of Initial Stockholders of The Fairmont Fund series, which were filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1, are hereby incorporated by reference. (14) Model Plan Used in Establishment of any Retirement Plan - The Liberty-Fairmont IRA Master Plan, Liberty-Fairmont IRA Adoption Agreement and Liberty-Fairmont IRA Fact Book and Disclosure which were filed as Exhibits to Registrant's Post-Effective Amendment No. 1, are hereby incorporated by reference. (15) Rule 12b-1 Plan and Implementation Agreements- None. - 3 - 46 (16) Schedule for Computation of Each Performance Quotation, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 13, is hereby incorporated by reference. (17) Powers of Attorney for the Registrant and its Trustees and Officers are filed herewith. Item 25. Persons Controlled by or Under Common Control with Registrant. None. Item 26. Number of Holders of Securities (as of January 31, 1996)
Title of Class Number of Record Holders -------------- ------------------------ The Fairmont Fund 1,148
Item 27. Indemnification Article VI of the Registrant's Declaration of Trust provides for indemnification of officers and trustees to the extent permitted by applicable law. The indemnification provisions are in accordance with Investment Company Act Release No. 11330 (September 2, 1980). Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the provisions of Kentucky law and the Registrant's Declaration of Trust and By Laws, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act - 4 - 47 and will be governed by the final adjudication of such issue. Item 28. Business and Other Connections of Investment Adviser (a) The Sachs Company (the "Adviser") is a registered investment adviser and a registered broker-dealer. It has engaged in no other business during the past two fiscal years. (b) Morton H. Sachs is the President and sole director of the Adviser. The following list sets forth the business and other connections of Mr. Sachs: (1) Partner, Windhurst Farm, 1346 South Third Street, Louisville, Kentucky 40208. (2) Shareholder and officer of Premier Care, Inc., 1346 South Third Street, Louisville, Kentucky 40208. (c) Oscar S. Bryant, Jr. is the Executive Vice President of the Adviser. (d) Inda M. Wangerin is a Vice President of the Adviser. (e) Mary S. Sachs is a Vice President of the Adviser. (f) Christopher A. Nunnelly is a Vice President of the Adviser. (g) Jennifer E. Sachs Dobbins is a Vice President of the Adviser. (h) Roy P. Durham is a Vice President of the Adviser. Item 29. Principal Underwriters None. Item 30. Location of Accounts and Records The Registrant will maintain physical possession of the Declaration of Trust, By-Laws and minute books. All other accounts, books and other documents required to be maintained by section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder will be maintained by the Registrant or - 5 - 48 Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202 as Custodian for the Registrant. Item 31. Management Services Not Discussed in Parts A or B None. Item 32. Undertakings (a) Not applicable. (b) Not applicable. (c) The Registrant hereby undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. - 6 - 49 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cincinnati, State of Ohio on the 29th day of February, 1996. THE FAIRMONT FUND TRUST By: /s/ ------------------------------- DONALD S. MENDELSOHN Attorney-in-Fact Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. MORTON H. SACHS Chairman of the Board & Trustee By: /s/ ---------------------- LOUIS YOUNG Treasurer DONALD S. MENDELSOHN Attorney-in-Fact RAPHAEL O. NYSTRAND Trustee February 29, 1996 O. GRANT BRUTON Trustee CARL T. FISCHER, JR. Trustee OSCAR S. BRYANT, JR. President and Trustee
- 7 - 50 EXHIBIT INDEX
Page ---- 99.8 Custodian Agreement . . . . . . . . . . . . . . . . . . . . . 49 99.B11 Consent of McCurdy & Associates CPA's, Inc. . . . . . . . . . 89 99.POA Powers of Attorney for the Registrant, its Trustees and its Officers . . . . . . . . . . . . . . . . . . . . . . . 90
- 8 - EX-99.8 2 EXHIBIT 99.8 1 [TYPE] EX-99.8 [DESCRIPTION] CUSTODIAN AGREEMENT CUSTODY AGREEMENT BETWEEN STAR BANK, N.A. AND THE FAIRMONT FUND - 9 - 2 TABLE OF CONTENTS Definitions 1.00 ARTICLE II - Appointment; Acceptance; and Furnishing of Documents II. A. Appointment of Custodian. 5.00 II. B. Acceptance of Custodian. 5.00 II. C. Documents to be Furnished. 5.00 II. D. Notice of Appointment of Dividend and Transfer Agent. 5.00 ARTICLE III - Receipt of Trust Assets III. A. Delivery of Moneys. 6.00 III. B. Delivery of Securities. 6.00 III. C. Payments for Shares. 6.00 III. D. Duties Upon Receipt. 6.00 ARTICLE IV - Disbursement of Trust Assets IV. A. Declaration of Dividends by Trust. 7.00 IV. B. Segregation of Redemption Proceeds. 7.00 IV. C. Disbursements of Custodian. 8.00 IV. D. Payment of Custodian Fees. 8.00 ARTICLE V - Custody of Trust Assets V. A. Separate Accounts for Each Fund. 8.00 V. B. Segregation of Non-Cash Assets. 9.00 V. C. Securities in Bearer and Registered Form. 9.00 V. D. Duties of Custodian as to Securities. 9.00 V. E. Certain Actions Upon Written Instructions. 10.00 V. F. Custodian to Deliver Proxy Materials. 11.00 V. G. Custodian to Deliver Tender Offer Information. 11.00 V. H. Custodian to Deliver Security and Transaction Information. 11.00 ARTICLE VI - Purchase and Sale of Securities VI. A. Purchase of Securities. 12.00
- 10 - 3 VI. B. Sale of Securities. 13.00 VI. C. Delivery Versus Payment for Purchases and Sales. 14.00 VI. D. Payment on Settlement Date. 14.00 VI. E. Segregated Accounts. 15.00 VI. F. Advances for Settlement. 16.00 ARTICLE VII - Trust Indebtedness VII. A. Borrowings. 17.00 VII. B. Advances. 18.00 ARTICLE VIII - Concerning the Custodian VIII. A. Limitations on Liability of Custodian. 18.00 VIII. B. Actions not Required by Custodian. 20.00 VIII. C. No Duty to Collect Amounts Due From Dividend and Transfer Agent. 21.00 VIII. D. No Enforcement Actions. 21.00 VIII. E. Authority to Use Agents and Sub-Custodians. 21.00 VIII. F. No Duty to Supervise Investments. 22.00 VIII. G. All Records Confidential. 22.00 VIII. H. Compensation of Custodian. 22.00 VIII. I. Reliance Upon Instructions. 23.00 VIII. J. Books and Records. 23.00 VIII. K. Internal Accounting Control Systems. 24.00 VIII. L. No Management of Assets by Custodian. 24.00 VIII. M. Assistance to Trust. 24.00 ARTICLE IX - Termination IX. A. Termination. 26.00 IX. B. Failure to Designate Successor Trustee. 27.00 ARTICLE X - Force Majeure ARTICLE XI - Miscellaneous XI. A. Designation of Authorized Persons. 28.00
- 11 - 4 XI. B. Limitation of Personal Liability. 28.00 XI. C. Authorization By Board. 28.00 XI. D. Custodian's Consent to Use of Its Name. 29.00 XI. E. Notices to Custodian. 29.00 XI. F. Notices to Trust. 29.00 XI. G. Amendments In Writing. 29.00 XI. H. Successors and Assigns. 30.00 XI. I. Governing Law. 30.00 XI. J. Jurisdiction. 30.00 XI. K. Counterparts. 30.00 XI. L. Headings. 30.00 APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E
- 12 - 5 CUSTODY AGREEMENT This agreement (the "Agreement") is entered into as of the _____ day of __________, 1995, by and between THE FAIRMONT FUND, a Kentucky business trust (the "Trust") and Star Bank, National Association, (the "Custodian"), a national banking association having its principal office at 425 Walnut Street, Cincinnati, Ohio, 45202. WHEREAS, the Trust and the Custodian desire to enter into this Agreement to provide for the custody and safekeeping of the assets of the Trust as required by the Act (as hereafter defined). THEREFORE, in consideration of the mutual promises hereinafter set forth, the Trust and the Custodian agree as follows: DEFINITIONS The following words and phrases, when used in this Agreement, unless the context otherwise requires, shall have the following meanings: Act - the Investment Company Act of 1940, as amended. 1934 Act - the Securities and Exchange Act of 1934, as amended. Authorized Person - any person, whether or not any such person is an officer or employee of the Trust, who is duly authorized by the Board of Trustees of the Trust to give Oral Instructions and Written Instructions on behalf of the Trust or any Fund, and named in Appendix A attached hereto and as amended from time to time by - 13 - 6 resolution of the Board of Trustees, certified by an Officer, and received by the Custodian. Board of Trustees - the Trustees from time to time serving under the Trust's Agreement and Declaration of Trust, as from time to time amended. Book-Entry System - a federal book-entry system as provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFT Part 350, or in such book-entry regulations of federal agencies as are substantially in the form of Subpart O. Business Day - any day recognized as a settlement day by The New York Stock Exchange, Inc. and any other day for which the Trust computes the net asset value of Shares of any fund. Depository - The Depository Trust Company ("DTC"), a limited purpose trust company, its successor(s) and its nominee(s). Depository shall include any other clearing agency registered with the SEC under Section 17A of the 1934 Act which acts as a system for the central handling of Securities where all Securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of the Securities provided that the Custodian shall have received a copy of a resolution of the Board of Trustees, certified by an Officer, specifically approving the use of such clearing agency as a depository for the Funds. - 14 - 7 Dividend and Transfer Agent - the dividend and transfer agent appointed, from time to time, pursuant to a written agreement between the dividend and transfer agent and the Trust. Foreign Securities - a) securities issued and sold primarily outside of the United States by a foreign government, a national of any foreign country, or a trust or other organization incorporated or organized under the laws of any foreign country or; b) securities issued or guaranteed by the government of the United States, by any state, by any political subdivision or agency thereof, or by any entity organized under the laws of the United States or of any state thereof, which have been issued and sold primarily outside of the United States. Fund - each series of the Trust listed in Appendix B and any additional series added pursuant to Proper Instructions. A series is individually referred to as a "Fund" and collectively referred to as the "Funds." Money Market Security - debt obligations issued or guaranteed as to principal and/or interest by the government of the United States or agencies or instrumentalities thereof, commercial paper, obligations (including certificates of deposit, bankers' acceptances, repurchase agreements and reverse repurchase agreements with respect to the same), and time deposits of domestic banks and thrift institutions whose deposits are insured by the Federal Deposit Insurance Corporation, and short-term corporate obligations where the purchase and sale of such securities normally - 15 - 8 require settlement in federal funds or their equivalent on the same day as such purchase and sale, all of which mature in not more than thirteen (13) months. NASD - the National Association of Securities Dealers, Inc. Officer - the Chairman, President, Secretary, Treasurer, any Vice President, Assistant Secretary or Assistant Treasurer of the Trust. Oral Instructions - instructions orally transmitted to and received by the Custodian from an Authorized Person (or from a person that the Custodian reasonably believes in good faith to be an Authorized Person) and confirmed by Written Instructions in such a manner that such Written Instructions are received by the Custodian on the Business Day immediately following receipt of such Oral Instructions. Proper Instructions - Oral Instructions or Written Instructions. Proper Instructions may be continuing Written Instructions when deemed appropriate by both parties. Prospectus - the Trust's then currently effective prospectus and Statement of Additional Information, as filed with and declared effective from time to time by the Securities and Exchange Commission. Security or Securities - Money Market Securities, common stock, preferred stock, options, financial futures, bonds, notes, debentures, corporate debt securities, mortgages, bank certificates of deposit, bankers' acceptances, mortgage-backed securities or - 16 - 9 other obligations and any certificates, receipts, warrants, or other instruments or documents representing rights to receive, purchase, or subscribe for the same or evidencing or representing any other rights or interest therein, or any similar property or assets, including securities of any registered investment company, that the Custodian has the facilities to clear and to service. SEC - the Securities and Exchange Commission of the United States of America. Shares - with respect to a Fund, the units of beneficial interest issued by the Trust on account of such Fund. Trust - the BUSINESS TRUST organized under the laws of KENTUCKY which is an OPEN-END investment company registered under the Act. Written Instructions - communications in writing actually received by the Custodian from an Authorized Person. A communication in writing includes a communication by facsimile, telex or between electro-mechanical or electronic devices (where the use of such devices have been approved by resolution of the Board of Trustees and the resolution is certified by an Officer and delivered to the Custodian). All written communications shall be directed to the Custodian, attention: Mutual Fund Custody Department. - 17 - 10 ARTICLE II APPOINTMENT; ACCEPTANCE; AND FURNISHING OF DOCUMENTS II. A. Appointment of Custodian. The Trust hereby constitutes and appoints the Custodian as custodian of all Securities and cash owned by the Trust at any time during the term of this Agreement. II. B. Acceptance of Custodian. The Custodian hereby accepts appointment as such custodian and agrees to perform the duties thereof as hereinafter set forth. II. C. Documents to be Furnished. The following documents, including any amendments thereto, will be provided contemporaneously with the execution of the Agreement, to the Custodian by the Trust: 1. A copy of the Declaration of Trust of the Trust certified by the Secretary. 2. A copy of the By-Laws of the Trust certified by the Secretary. 3. A copy of the resolution of the Board of Trustees of the Trust appointing the Custodian, certified by the Secretary. 4. A copy of the then current Prospectus. 5. A Certificate of the President and Secretary of the Trust setting forth the names and signatures of all Authorized Persons. II. D. Notice of Appointment of Dividend and Transfer Agent. The Trust agrees to notify the Custodian in writing of the appointment, termination or change in appointment of any Dividend and Transfer Agent. - 18 - 11 ARTICLE III RECEIPT OF TRUST ASSETS III. A. Delivery of Moneys. During the term of this Agreement, the Trust will deliver or cause to be delivered to the Custodian all moneys to be held by the Custodian for the account of any Fund. The Custodian shall be entitled to reverse any deposits made on any Fund's behalf where such deposits have been entered and moneys are not finally collected within 30 days of the making of such entry. III. B. Delivery of Securities. During the term of this Agreement, the Trust will deliver or cause to be delivered to the Custodian all Securities to be held by the Custodian for the account of any Fund. The Custodian will not have any duties or responsibilities with respect to such Securities until actually received by the Custodian. The Custodian is hereby authorized by the Trust, acting on behalf of the Fund, to actually deposit any assets of the Fund in the Book-Entry System or in a Depository, provided, however, that the Custodian shall always be accountable to the Trust for the assets of the Fund so deposited. Assets deposited in the Book-Entry System or the Depository will be represented in accounts which include only assets held by the Custodian for customers, including but not limited to accounts in which the Custodian acts in a fiduciary or representative capacity. III. C. Payments for Shares. As and when received, the Custodian shall deposit to the account(s) of a Fund any and all - 19 - 12 payments for Shares of that Fund issued or sold from time to time as they are received from the Trust's distributor or Dividend and Transfer Agent or from the Trust itself. III. D. Duties Upon Receipt. The Custodian shall not be responsible for any Securities, moneys or other assets of any Fund until actually received. ARTICLE IV DISBURSEMENT OF TRUST ASSETS IV. A. Declaration of Dividends by Trust. The Trust shall furnish to the Custodian a copy of the resolution of the Board of Trustees of the Trust, certified by the Trust's Secretary, either (i) setting forth the date of the declaration of any dividend or distribution in respect of Shares of any Fund of the Trust, the date of payment thereof, the record date as of which the Fund shareholders entitled to payment shall be determined, the amount payable per share to Fund shareholders of record as of that date, and the total amount to be paid by the Dividend and Transfer Agent on the payment date, or (ii) authorizing the declaration of dividends and distributions in respect of Shares of a Fund on a daily basis and authorizing the Custodian to rely on Written Instructions setting forth the date of the declaration of any such dividend or distribution, the date of payment thereof, the record date as of which the Fund shareholders entitled to payment shall be determined, the amount payable per share to Fund shareholders of - 20 - 13 record as of that date, and the total amount to be paid by the Dividend and Transfer Agent on the payment date. On the payment date specified in the resolution or Written Instructions described above, the Custodian shall segregate such amounts from moneys held for the account of the Fund so that they are available for such payment. IV. B. Segregation of Redemption Proceeds. Upon receipt of Proper Instructions so directing it, the Custodian shall segregate amounts necessary for the payment of redemption proceeds to be made by the Dividend and Transfer Agent from moneys held for the account of the Fund so that they are available for such payment. IV. C. Disbursements of Custodian. Upon receipt of a Certificate directing payment and setting forth the name and address of the person to whom such payment is to be made, the amount of such payment, the name of the Fund from which payment is to be made, and the purpose for which payment is to be made, the Custodian shall disburse amounts as and when directed from the assets of that Fund. The Custodian is authorized to rely on such directions and shall be under no obligation to inquire as to the propriety of such directions. IV. D. Payment of Custodian Fees. Upon receipt of Written Instructions directing payment, the Custodian shall disburse moneys from the assets of the Trust in payment of the Custodian's fees and expenses as provided in Article VIII hereof. - 21 - 14 ARTICLE V CUSTODY OF TRUST ASSETS V. A. Separate Accounts for Each Fund. As to each Fund, the Custodian shall open and maintain a separate bank account or accounts in the United States in the name of the Trust coupled with the name of such Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used by the Fund in accordance with Rule 17f-3 under the Act. Moneys held by the Custodian on behalf of a Fund may be deposited by the Custodian to its credit as Custodian in the banking department of the Custodian. Such moneys shall be deposited by the Custodian in its capacity as such, and shall be withdrawable by the Custodian only in such capacity. V. B. Segregation of Non-Cash Assets. All Securities and non-cash property held by the Custodian for the account of a Fund (other than Securities maintained in a Depository or Book-entry System) shall be physically segregated from other Securities and non-cash property in the possession of the Custodian (including the Securities and non-cash property of the other Funds) and shall be identified as subject to this Agreement. V. C. Securities in Bearer and Registered Form. All Securities held which are issued or issuable only in bearer form, shall be held by the Custodian in that form; all other Securities - 22 - 15 held for the Fund may be registered in the name of the Custodian, any sub-custodian appointed in accordance with this Agreement, or the nominee of any of them. The Trust agrees to furnish to the Custodian appropriate instruments to enable the Custodian to hold, or deliver in proper form for transfer, any Securities that it may hold for the account of any Fund and which may, from time to time, be registered in the name of a Fund. V. D. Duties of Custodian as to Securities. Unless otherwise instructed by the Trust, with respect to all Securities held for the Trust, the Custodian shall on a timely basis (concerning items 1 and 2 below, as defined in the Custodian's Standards of Service Guide, as amended from time to time, annexed hereto as Appendix D): 1.) Collect all income due and payable with respect to such Securities; 2.) Present for payment and collect amounts payable upon all Securities which may mature or be called, redeemed, or retired, or otherwise become payable; 3.) Surrender interim receipts or Securities in temporary form for Securities in definitive form; and 4.) Execute, as Custodian, any necessary declarations or certificates of ownership under the Federal income tax laws or the laws or regulations of any other taxing authority, including any foreign taxing authority, now or hereafter in effect. - 23 - 16 V. E. Certain Actions Upon Written Instructions. Upon receipt of a Written Instructions and not otherwise, the Custodian shall: 1.) Execute and deliver to such persons as may be designated in such Written Instructions proxies, consents, authorizations, and any other instruments whereby the authority of the Trust as beneficial owner of any Securities may be exercised; 2.) Deliver any Securities in exchange for other Securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation, or recapitalization of any corporation, or the exercise of any conversion privilege; 3.) Deliver any Securities to any protective committee, reorganization committee, or other person in connection with the reorganization, refinancing, merger, consolidation, recapitalization, or sale of assets of any corporation, and receive and hold under the terms of this Agreement such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery; 4.) Make such transfers or exchanges of the assets of any Fund and take such other steps as shall be stated in the Written Instructions to be for the purpose of effectuating - 24 - 17 any duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Trust; and 5.) Deliver any Securities held for any Fund to the depository agent for tender or other similar offers. V. F. Custodian to Deliver Proxy Materials. The Custodian shall promptly deliver to the Trust all notices, proxy material and executed but unvoted proxies pertaining to shareholder meetings of Securities held by any Fund. The Custodian shall not vote or authorize the voting of any Securities or give any consent, waiver or approval with respect thereto unless so directed by Written Instructions. V. G. Custodian to Deliver Tender Offer Information. The Custodian shall promptly deliver to the Trust all information received by the Custodian and pertaining to Securities held by any Fund with respect to tender or exchange offers, calls for redemption or purchase, or expiration of rights as described in the Standards of Service Guide attached as Appendix D. If the Trust desires to take action with respect to any tender offer, exchange offer or other similar transaction, the Trust shall notify the Custodian at least five Business Days prior to the date on which the Custodian is to take such action. The Trust will provide or cause to be provided to the Custodian all relevant information for any Security which has unique put/option provisions at least five Business Days prior to the beginning date of the tender period. - 25 - 18 V. H. Custodian to Deliver Security and Transaction Information. On each Business Day that the Federal Reserve Bank is open, the Custodian shall furnish the Trust with a detailed statement of monies held for the Fund under this Agreement and with confirmations and a summary of all transfers to or from the account of the Fund. At least monthly and from time to time, the Custodian shall furnish the Trust with a detailed statement of the Securities held for the Fund under this Agreement. Where Securities are transferred to the account of the Fund without physical delivery, the Custodian shall also identify as belonging to the Fund a quantity of Securities in a fungible bulk of Securities registered in the name of the Custodian (or its nominee) or shown on the Custodian's account on the books of the Book-Entry System or the Depository. With respect to information provided by this section, it shall not be necessary for the Custodian to provide notice as described by Article XI Section F. Notices to Trust; it shall be sufficient to communicate by such means as shall be mutually agreeable to the Trust and the Custodian. ARTICLE VI PURCHASE AND SALE OF SECURITIES VI. A. Purchase of Securities. Promptly after each purchase of Securities by the Trust, the Trust shall deliver to the Custodian (i) with respect to each purchase of Securities which are not Money Market Securities, Written Instructions, and (ii) with - 26 - 19 respect to each purchase of Money Market Securities, Proper Instructions, specifying with respect to each such purchase the; 1.) name of the issuer and the title of the Securities, 2.) the number of shares, principal amount purchased (and accrued interest, if any) or other units purchased, 3.) date of purchase and settlement, 4.) purchase price per unit, 5.) total amount payable, 6.) name of the person from whom, or the broker through which, the purchase was made, 7.) the name of the person to whom such amount is payable, and 8.) the Fund for which the purchase was made. The Custodian shall, against receipt of Securities purchased by or for the Trust, pay out of the moneys held for the account of such Fund the total amount specified in the Written Instructions, or Oral Instructions, if applicable, to the person named therein. The Custodian shall not be under any obligation to pay out moneys to cover the cost of a purchase of Securities for a Fund, if in the relevant Fund custody account there is insufficient cash available to the Fund for which such purchase was made. With respect to any repurchase agreement transaction for the Funds, the Custodian shall - 27 - 20 assure that the collateral reflected on the transaction advice is received by the Custodian. VI. B. Sale of Securities. Promptly after each sale of Securities by a Fund, the Trust shall deliver to the Custodian (i) with respect to each sale of Securities which are not Money Market Securities, Written Instructions, and (ii) with respect to each sale of Money Market Securities, Proper Instructions, specifying with respect to each such sale the: 1.) name of the issuer and the title of the Securities, 2.) number of shares, principal amount sold (and accrued interest, if any) or other units sold, 3.) date of sale and settlement, 4.) sale price per unit, 5.) total amount receivable, 6.) name of the person to whom, or the broker through which, the sale was made, 7.) name of the person to whom such Securities are to be delivered, and 8.) Fund for which the sale was made. The Custodian shall deliver the Securities against receipt of the total amount specified in the Written Instructions, or Oral Instructions, if applicable. VI. C. Delivery Versus Payment for Purchases and Sales. Purchases and sales of Securities effected by the Custodian will be - 28 - 21 made on a delivery versus payment basis. The Custodian may, in its sole discretion, upon receipt of Written Instructions, elect to settle a purchase or sale transaction in some other manner, but only upon receipt of acceptable indemnification from the Fund. VI. D. Payment on Settlement Date. On contractual settlement date, the account of the Fund will be charged for all purchased Securities settling on that day, regardless of whether or not delivery is made. Likewise, on contractual settlement date, proceeds from the sale of Securities settling that day will be credited to the account of the Fund, irrespective of delivery. VI. E. Segregated Accounts. The Custodian shall, upon receipt of Proper Instructions so directing it, establish and maintain a segregated account or accounts for and on behalf of a Fund. Cash and/or Securities may be transferred into such account or accounts for specific purposes, to-wit: 1.) in accordance with the provision of any agreement among the Trust, the Custodian, and a broker-dealer registered under the 1934 Act, and also a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange, the Commodity Futures Trading Commission, any registered contract market, or any similar organization or organizations requiring escrow or other - 29 - 22 similar arrangements in connection with transactions by the Fund; 2.) for purposes of segregating cash or Securities in connection with options purchased, sold, or written by the Fund or commodity futures contracts or options thereon purchased or sold by the Fund; 3.) for the purpose of compliance by the Fund with the procedures required for reverse repurchase agreements, firm commitment agreements, standby commitment agreements, short sales, or any other securities by Act Release No. 10666, or any subsequent release or releases or rule of the SEC relating to the maintenance of segregated accounts by registered investment companies; 4.) for the purpose of segregating collateral for loans of Securities made by the Fund; and 5.) for other proper corporate purposes, but only upon receipt of, in addition to Proper Instructions, a copy of a resolution of the Board of Trustees, certified by an Officer, setting forth the purposes of such segregated account. Each segregated account established hereunder shall be established and maintained for a single Fund only. All Proper Instructions relating to a segregated account shall specify the Fund involved. - 30 - 23 VI. F. Advances for Settlement. Except as otherwise may be agreed upon by the parties hereto, the Custodian shall not be required to comply with any Written Instructions to settle the purchase of any Securities on behalf of a Fund unless there is sufficient cash in the account(s) pertaining to such Fund at the time or to settle the sale of any Securities from such an account(s) unless such Securities are in deliverable form. Notwithstanding the foregoing, if the purchase price of such Securities exceeds the amount of cash in the account(s) at the time of such purchase, the Custodian may, in its sole discretion, advance the amount of the difference in order to settle the purchase of such Securities. The amount of any such advance shall be deemed a loan from the Custodian to the Trust payable on demand and bearing interest accruing from the date such loan is made up to but not including the date such loan is repaid at the rate per annum customarily charged by the Custodian on similar loans. ARTICLE VII TRUST INDEBTEDNESS VII. A. Borrowings. In connection with any borrowings by the Trust, the Trust will cause to be delivered to the Custodian by a bank or broker requiring Securities as collateral for such borrowings (including the Custodian if the borrowing is from the Custodian), a notice or undertaking in the form currently employed by such bank or broker setting forth the amount of collateral. The Trust shall promptly deliver to the Custodian Written Instructions - 31 - 24 specifying with respect to each such borrowing: (a) the name of the bank or broker, (b) the amount and terms of the borrowing, which may be set forth by incorporating by reference an attached promissory note duly endorsed by the Trust, or a loan agreement, (c) the date, and time if known, on which the loan is to be entered into, (d) the date on which the loan becomes due and payable, (e) the total amount payable to the Trust on the borrowing date, and (f) the description of the Securities securing the loan, including the name of the issuer, the title and the number of shares or other units or the principal amount. The Custodian shall deliver on the borrowing date specified in the Written Instructions the required collateral against the lender's delivery of the total loan amount then payable, provided that the same conforms to that which is described in the Written Instructions. The Custodian shall deliver, in the manner directed by the Trust, such Securities as additional collateral, as may be specified in Written Instructions, to secure further any transaction described in this Article VII. The Trust shall cause all Securities released from collateral status to be returned directly to the Custodian and the Custodian shall receive from time to time such return of collateral as may be tendered to it. The Custodian may, at the option of the lender, keep such collateral in its possession, subject to all rights therein given to the lender because of the loan. The Custodian may require such - 32 - 25 reasonable conditions regarding such collateral and its dealings with third-party lenders as it may deem appropriate. VII. B. Advances. With respect to any advances of cash made by the Custodian to or for the benefit of a Fund for any purpose which results in the Fund incurring an overdraft at the end of any Business Day, such advance shall be repayable immediately upon demand made by the Custodian at any time. ARTICLE VIII CONCERNING THE CUSTODIAN VIII. A. Limitations on Liability of Custodian. Except as otherwise provided herein, the Custodian shall not be liable for any loss or damage, including counsel fees, resulting from its action or omission to act or otherwise, except for any such loss or damage arising out of its negligence or willful misconduct. The Trust, on behalf of the Fund and only from assets of the Fund (or insurance purchased by the Trust with respect to its liabilities on behalf of the Fund hereunder), shall defend, indemnify and hold harmless the Custodian and its directors, officers, employees and agents with respect to any loss, claim, liability or cost (including reasonable attorneys' fees) arising or alleged to arise from or relating to the Trust's duties hereunder or any other action or inaction of the Trust or its Trustees, officers, employees or agents, except such as may arise from the negligent action, omission, willful misconduct or breach of this Agreement by the Custodian, its directors, officers, employees or agents.. The - 33 - 26 Custodian shall defend, indemnify and hold harmless the Trust and its trustees, officers, employees or agents with respect to any loss, claim, liability or cost (including reasonable attorneys' fees) arising or alleged to arise from or relating to the Custodian's duties as specifically set forth in this agreement with respect to the Fund hereunder or any other action or inaction of the Custodian or its directors, officers, employees, agents, nominees, or Sub-Custodians as to the Fund, except such as may arise from the negligent action, omission or willful misconduct of the Trust, its trustees, officers, employees, or agents. The Custodian may, with respect to questions of law apply for and obtain the advice and opinion of counsel to the Trust at the expense of the Fund, or of its own counsel at its own expense, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with the advice or opinion of counsel to the Trust, and shall be similarly protected with respect to anything done or omitted by it in good faith in conformity with advice or opinion of its counsel, unless counsel to the Fund shall, within a reasonable time after being notified of legal advice received by the Custodian, have a differing interpretation of such question of law. The Custodian shall be liable to the Trust for any proximate loss or damage resulting from the use of the Book-Entry System or any Depository arising by reason of any negligence, misfeasance or misconduct on the part of the Custodian or any of its employees, agents, nominees or Sub-Custodians, but - 34 - 27 not for any special, incidental, consequential, or punitive damages; provided, however, that nothing contained herein shall preclude recovery by the Trust, on behalf of the Fund, of principal and of interest to the date of recovery on Securities incorrectly omitted from the Fund's account or penalties imposed on the Trust, in connection with the Fund, for any failures to deliver Securities. In any case in which one party hereto may be asked to indemnify the other or hold the other harmless, the party from whom indemnification is sought (the "Indemnifying Party") shall be advised of all pertinent facts concerning the situation in question, and the party claiming a right to indemnification (the "Indemnified Party") will use reasonable care to identify and notify the Indemnifying Party promptly concerning any situation which presents or appears to present a claim for indemnification against the Indemnifying Party. The Indemnifying Party shall have the option to defend the Indemnified Party against any claim which may be the subject of the indemnification, and in the event the Indemnifying Party so elects, such defense shall be conducted by counsel chosen by the Indemnifying Party and satisfactory to the Indemnified Party and the Indemnifying Party will so notify the Indemnified Party and thereupon such Indemnifying Party shall take over the complete defense of the claim and the Indemnifying Party shall sustain no further legal or other expenses in such situation for which indemnification has been sought under this paragraph, - 35 - 28 except the expenses of any additional counsel retained by the Indemnified Party. In no case shall any party claiming the right to indemnification confess any claim or make any compromise in any case in which the other party has been asked to indemnify such party (unless such confession or compromise is made with such other party's prior written consent. The provisions of this section VIII. A. shall survive the termination of this Agreement. VIII. B. Actions not Required by Custodian. Without limiting the generality of the foregoing, the Custodian, acting in the capacity of Custodian hereunder, shall be under no obligation to inquire into, and shall not be liable for: 1.) The validity of the issue of any Securities purchased by or for the account of any Fund, the legality of the purchase thereof, or the propriety of the amount paid therefor; 2.) The legality of the sale of any Securities by or for the account of any Fund, or the propriety of the amount for which the same are sold; 3.) The legality of the issue or sale of any Shares of any Fund, or the sufficiency of the amount to be received therefor; 4.) The legality of the redemption of any Shares of any Fund, or the propriety of the amount to be paid therefor; 5.) The legality of the declaration or payment of any dividend by the Trust in respect of Shares of any Fund; - 36 - 29 6.) The legality of any borrowing by the Trust on behalf of the Trust or any Fund, using Securities as collateral; 7.) Whether the Trust or a Fund is in compliance with the 1940 Act, the regulations thereunder, the provisions of the Trust's charter documents or by-laws, or its investment objectives and policies as then in effect. VIII. C. No Duty to Collect Amounts Due From Dividend and Transfer Agent. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount due to the Trust from any Dividend and Transfer Agent of the Trust nor to take any action to effect payment or distribution by any Dividend and Transfer Agent of the Trust of any amount paid by the Custodian to any Dividend and Transfer Agent of the Trust in accordance with this Agreement. VIII. D. No Enforcement Actions. Notwithstanding Section D of Article V, the Custodian shall not be under any duty or obligation to take action, by legal means or otherwise, to effect collection of any amount, if the Securities upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until (i) it shall be directed to take such action by Written Instructions and (ii) it shall be assured to its satisfaction (including prepayment thereof) of reimbursement of its costs and expenses in connection with any such action. - 37 - 30 VIII. E. Authority to Use Agents and Sub-Custodians. The Trust acknowledges and hereby authorizes the Custodian to hold Securities through its various agents described in Appendix C annexed hereto. In addition, the Trust acknowledges that the Custodian may appoint one or more financial institutions, as agent or agents or as sub-custodian or sub-custodians, including, but not limited to, banking institutions located in foreign countries, for the purpose of holding Securities and moneys at any time owned by the Fund. The Custodian shall not be relieved of any obligation or liability under this Agreement in connection with the appointment or activities of such agents or sub-custodians. Any such agent or sub-custodian shall be qualified to serve as such for assets of investment companies registered under the Act. The Funds shall reimburse the Custodian for all costs incurred by the Custodian in connection with opening accounts with any such agents or sub-custodians. Upon request, the Custodian shall promptly forward to the Trust any documents it receives from any agent or sub-custodian appointed hereunder which may assist trustees of registered investment companies to fulfill their responsibilities under Rule 17f-5 of the Act. VIII. F. No Duty to Supervise Investments. The Custodian shall not be under any duty or obligation to ascertain whether any Securities at any time delivered to or held by it for the account - 38 - 31 of the Trust are such as properly may be held by the Trust under the provisions of the Declaration of Trust and the Trust's By-Laws. VIII. G. All Records Confidential. The Custodian shall treat all records and other information relating to the Trust and the assets of all Funds as confidential and shall not disclose any such records or information to any other person unless (i) the Trust shall have consented thereto in writing or (ii) such disclosure is compelled by law. VIII. H. Compensation of Custodian. The Custodian shall be entitled to receive and the Trust agrees to pay to the Custodian, for the Fund's account from the Fund's assets only, such compensation as shall be determined pursuant to Appendix E attached hereto, or as shall be determined pursuant to amendments to Appendix E as approved by the Custodian and the Trust. The Custodian shall be entitled to charge against any money held by it for the accounts of the Fund the amount of any loss, damage, liability or expense, including counsel fees, for which it shall be entitled to reimbursement under the provisions of this Agreement as determined by agreement of the Custodian and the Trust or by the final order of any court or arbitrator having jurisdiction and as to which all rights of appeal shall have expired. The expenses which the Custodian may charge against the account of a Fund include, but are not limited to, the expenses of agents or Sub-Custodians incurred in settling transactions involving the purchase and sale of Securities of the Fund. - 39 - 32 VIII. I. Reliance Upon Instructions. The Custodian shall be entitled to rely upon any Proper Instructions if such reliance is made in good faith. The Trust agrees to forward to the Custodian Written Instructions confirming Oral Instructions in such a manner so that such Written Instructions are received by the Custodian, whether by hand delivery, telex, facsimile or otherwise, on the same Business Day on which such Oral Instructions were given. The Trust agrees that the failure of the Custodian to receive such confirming instructions shall in no way affect the validity of the transactions or enforceability of the transactions hereby authorized by the Trust. The Trust agrees that the Custodian shall incur no liability to the Trust for acting upon Oral Instructions given to the Custodian hereunder concerning such transactions. VIII. J. Books and Records. The Custodian will (i) set up and maintain proper books of account and complete records of all transactions in the accounts maintained by the Custodian hereunder in such manner as will meet the obligations of the Fund under the Act, with particular attention to Section 31 thereof and Rules 3la-1 and 3la-2 thereunder and those records are the property of the Trust, and (ii) preserve for the periods prescribed by applicable Federal statute or regulation all records required to be so preserved. All such books and records shall be the property of the Trust, and shall be available, upon request, for inspection by duly authorized officers, employees or agents of the Trust and employees of the SEC. - 40 - 33 VIII. K. Internal Accounting Control Systems. The Custodian shall send to the Trust any report received on the systems of internal accounting control of the Custodian, or its agents or sub-custodians, as the Trust may reasonably request from time to time. VIII. L. No Management of Assets by Custodian. The Custodian performs only the services of a custodian and shall have no responsibility for the management, investment or reinvestment of the Securities or other assets from time to time owned by any Fund. The Custodian is not a selling agent for Shares of any Fund and performance of its duties as custodian shall not be deemed to be a recommendation to any Fund's depositors or others of Shares of the Fund as an investment. The Custodian shall have no duties or obligations whatsoever except such duties and obligations as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against the Custodian. VIII. M. Assistance to Trust. The Custodian shall take all reasonable action, that the Trust may from time to time request, to assist the Trust in obtaining favorable opinions from the Trust's independent accountants, with respect to the Custodian's activities hereunder, in connection with the preparation of the Fund's Form N-IA, Form N-SAR, or other annual reports to the SEC. - 41 - 34 ARTICLE IX TERMINATION IX. A. Termination. Either party hereto may terminate this Agreement for any reason by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of giving of such notice. If such notice is given by the Trust, it shall be accompanied by a copy of a resolution of the Board of Trustees of the Trust, certified by the Secretary of the Trust, electing to terminate this Agreement and designating a successor custodian or custodians each of which shall be a bank or trust company having not less than $100,000,000 aggregate capital, surplus, and undivided profits. In the event such notice is given by the Custodian, the Trust shall, on or before the termination date, deliver to the Custodian a copy of a resolution of the Board of Trustees of the Trust, certified by the Secretary, designating a successor custodian or custodians to act on behalf of the Trust. In the absence of such designation by the Trust, the Custodian may designate a successor custodian which shall be a bank or trust company having not less than $100,000,000 aggregate capital, surplus, and undivided profits. Upon the date set forth in such notice this Agreement shall terminate, and the Custodian, provided that it has received a notice of acceptance by the successor custodian, shall deliver, on that date, directly to the successor custodian all Securities and monies then owned by the Fund and held - 42 - 35 by it as Custodian. Upon termination of this Agreement, the Trust shall pay to the Custodian on behalf of the Trust such compensation as may be due as of the date of such termination. The Trust agrees on behalf of the Trust that the Custodian shall be reimbursed for its reasonable costs in connection with the termination of this Agreement. IX. B. Failure to Designate Successor Trustee. If a successor custodian is not designated by the Trust, or by the Custodian in accordance with the preceding paragraph, or the designated successor cannot or will not serve, the Trust shall, upon the delivery by the Custodian to the Trust of all Securities (other than Securities held in the Book-Entry System which cannot be delivered to the Trust) and moneys then owned by the Trust, be deemed to be the custodian for the Trust, and the Custodian shall thereby be relieved of all duties and responsibilities pursuant to this Agreement, other than the duty with respect to Securities held in the Book-Entry System, which cannot be delivered to the Trust, which shall be held by the Custodian in accordance with this Agreement. ARTICLE X FORCE MAJEURE Neither the Custodian nor the Trust shall be liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without - 43 - 36 limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; strikes; epidemics; riots; labor disputes; acts of civil or military authority; governmental actions; or inability to obtain labor, material, equipment or transportation; provided, however, that the Custodian, in the event of a failure or delay, shall use its best efforts to ameliorate the effects of any such failure or delay. ARTICLE XI MISCELLANEOUS XI. A. Designation of Authorized Persons. Appendix A sets forth the names and the signatures of all Authorized Persons as of this date, as certified by the Secretary of the Trust. The Trust agrees to furnish to the Custodian a new Appendix A in form similar to the attached Appendix A, if any present Authorized Person ceases to be an Authorized Person or if any other or additional Authorized Persons are elected or appointed. Until such new Appendix A shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon Oral Instructions or signatures of the then current Authorized Persons as set forth in the last delivered Appendix A. XI. B. Limitation of Personal Liability. No recourse under any obligation of this Agreement or for any claim based thereon shall be had against any organizer, shareholder, officer, trustee, past, present or future as such, of the Trust or of any predecessor or successor, either directly or through the Trust or any such - 44 - 37 predecessor or successor, whether by virtue of any constitution, statute or rule of law or equity, or by the enforcement of any assessment or penalty or otherwise; it being expressly agreed and understood that this Agreement and the obligations thereunder are enforceable solely against the assets of the Trust, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the organizers, shareholders, officers, or trustees of the Trust or of any predecessor or successor, or any of them as such, because of the obligations contained in this Agreement or implied therefrom and that any and all such liability is hereby expressly waived and released by the Custodian as a condition of, and as a consideration for, the execution of this Agreement. XI. C. Authorization By Board. The obligations set forth in this Agreement as having been made by the Trust have been made by the Board of Trustees, acting as such Trustees for and on behalf of the Trust, pursuant to the authority vested in them under the laws of the State of KENTUCKY, the Declaration of Trust and the By-Laws of the Trust. This Agreement has been executed by Officers of the Trust as officers, and not individually, and the obligations contained herein are not binding upon any of the Trustees, Officers, agents or holders of shares, personally, but bind only the Trust and then only to the extent of the assets of the Trust. XI. D. Custodian's Consent to Use of Its Name. The Trust shall obtain the Custodian's consent prior to the publication and/or dissemination or distribution, of the Prospectus and any - 45 - 38 other documents (including advertising material) specifically mentioning the Custodian (other than merely by name and address). XI. E. Notices to Custodian. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, shall be sufficiently given if addressed to the Custodian and mailed or delivered to it at its offices at Star Bank Center, 425 Walnut Street, M. L. 6118, Cincinnati, Ohio 45202, attention Mutual Fund Custody Department, or at such other place as the Custodian may from time to time designate in writing. XI. F. Notices to Trust. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Trust shall be sufficiently given when delivered to the Trust or on the second Business Day following the time such notice is deposited in the U.S. mail postage prepaid and addressed to the Trust at its office at 1340 SOUTH 3RD STREET, LOUISVILLE, KENTUCKY 40208 or at such other place as the Trust may from time to time designate in writing. XI. G. Amendments In Writing. This Agreement, with the exception of the Appendices, may not be amended or modified in any manner except by a written agreement executed by both parties with the same formality as this Agreement, and authorized and approved by a resolution of the Board of Trustees of the Trust. XI. H. Successors and Assigns. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this - 46 - 39 Agreement shall not be assignable by the Trust or by the Custodian, and no attempted assignment by the Trust or the Custodian shall be effective without the written consent of the other party hereto. XI. I. Governing Law. This Agreement shall be construed in accordance with the laws of the State of Ohio. XI. J. Jurisdiction. Any legal action, suit or proceeding to be instituted by either party with respect to this Agreement shall be brought by such party exclusively in the courts of the State of Ohio or in the courts of the United States for the Southern District of Ohio, and each party, by its execution of this Agreement, irrevocably (i) submits to such jurisdiction and (ii) consents to the service of any process or pleadings by first class U.S. mail, postage prepaid and return receipt requested, or by any other means from time to time authorized by the laws of such jurisdiction. XI. K. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. XI. L. Headings. The headings of paragraphs in this Agreement are for convenience of reference only and shall not affect the meaning or construction of any provision of this Agreement. - 47 - 40 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective Officers, thereunto duly authorized as of the day and year FIRST above written. ATTEST: TRUST: THE FAIRMONT FUND /s/ Louis T. Young By:/s/ Morton H. Sachs Treasurer Title: Chairman ATTEST: CUSTODIAN: STAR BANK, N.A. /s/ Mark J. Dowling By:/s/ Nancy V. Kelly Title: Vice President & Trust Officer - 48 - EX-99.B.11 3 EXHIBIT 99B11 1 EXHIBIT 99.B11 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the use in this Post-Effective Amendment Number 22 to The Fairmont Fund's Registration Statement on Form N-1A of our report dated January 16, 1996 on the financial statements of The Fairmont Fund and the Summary Financial Information included in the Prospectus and to the references made to us under the caption "Condensed Financial Information" included in the Prospectus and under the caption "Auditor" included in the Statement of Additional Information. /s/ McCurdy & Associates CPA's, Inc. Westlake, Ohio 44145 February 12, 1996 - 49 - EX-99.P.0.A 4 EXHIBIT 99P0A 1 EXHIBIT 99.POA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, THE FAIRMONT FUND TRUST, a business trust organized under the laws of the Commonwealth of Kentucky (hereinafter referred to as the "Trust"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, Post-Effective Amendment No. 22 to its Registration Statement; and NOW, THEREFORE, the Trust hereby constitutes and appoints JAMES R. CUMMINS and DONALD S. MENDELSOHN, and each of them, its attorneys for it and in its name, place and stead, to execute and file such Post-Effective Amendment No. 22, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as it might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the Trust has caused its name to be subscribed by the President this 27th day of February, 1996. ATTEST: THE FAIRMONT FUND TRUST /s/ By: /s/ - ---------------------------- ----------------------------- INDA M. WANGERIN, Secretary MORTON H. SACHS, Chairman of the Board COMMONWEALTH OF KENTUCKY ) ) ss: COUNTY OF JEFFERSON ) Before me, a Notary Public, in and for said county and state, personally appeared MORTON H. SACHS, Chairman of the Board and INDA M. WANGERIN, Secretary, who represented that they are duly authorized in the premises, and who are known to me to be the persons described in and who executed the foregoing instrument, and they duly acknowledged to me that they executed and delivered the same for the purposes therein expressed. WITNESS my hand and official seal this 27th day of February, 1996. /s/ ------------------------------ Notary Public My Commission Expires: --------------------- - 50 - 2 CERTIFICATE The undersigned, Secretary of THE FAIRMONT FUND TRUST, hereby certifies that the following resolution was duly adopted by a majority of the Board of Trustees at the meeting held on February 27, 1996, and is in full force and effect: "WHEREAS, THE FAIRMONT FUND TRUST, a business trust organized under the laws of the Commonwealth of Kentucky (hereinafter referred to as the "Trust"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, Post-Effective Amendment No. 22 to its Registration Statement; NOW, THEREFORE, the Trust hereby constitutes and appoints JAMES R. CUMMINS and DONALD S. MENDELSOHN, and each of them, its attorneys for it and in its name, place and stead, to execute and file such Post-Effective Amendment No. 22, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as it might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof." Dated: February 27, 1996 /s/ ----------------------------------- INDA M. WANGERIN, Secretary The Fairmont Fund Trust - 51 - 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, THE FAIRMONT FUND TRUST, a business trust organized under the laws of the Commonwealth of Kentucky (hereinafter referred to as the "Trust"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, Post-Effective Amendment No. 22 to its Registration Statement; and WHEREAS, the undersigned are Trustees and/or an officer of the Trust; NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R. CUMMINS and DONALD S. MENDELSOHN, and each of them, their attorneys for them and in their name, place and stead, and in their office and capacity in the Trust, to execute and file such Post-Effective Amendment No. 22, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hand this 27th day of February, 1996. /s/ /s/ - ---------------------------------- ---------------------------------- MORTON H. SACHS, Chairman of the LOUIS YOUNG, Treasurer Board and Trustee COMMONWEALTH OF KENTUCKY ) ) ss: COUNTY OF JEFFERSON ) Before me, a Notary Public, in and for said county and state, personally appeared MORTON H. SACHS and LOUIS YOUNG, known to me to be the persons described in and who executed the foregoing instrument, and who acknowledged to me that they executed and delivered the same for the purposes therein expressed. WITNESS my hand and official seal this 27th day of February, 1996. /s/ ------------------------------- Notary Public My Commission Expires: --------------------- - 52 - 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, THE FAIRMONT FUND TRUST, a business trust organized under the laws of the Commonwealth of Kentucky (hereinafter referred to as the "Trust"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, Post-Effective Amendment No. 22 to its Registration Statement; and WHEREAS, the undersigned is a Trustee of the Trust; NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and in his name, place and stead, and in his office and capacity in the Trust, to execute and file such Post-Effective Amendment No. 22, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 27th day of February, 1996. /s/ ----------------------------------- RAPHAEL O. NYSTRAND, Trustee COMMONWEALTH OF KENTUCKY ) ) ss: COUNTY OF JEFFERSON ) Before me, a Notary Public, in and for said county and state, personally appeared RAPHAEL O. NYSTRAND, known to me to be the person described in and who executed the foregoing instrument, and who acknowledged to me that he executed and delivered the same for the purposes therein expressed. WITNESS my hand and official seal this 27th day of February, 1996. /s/ ------------------------------ Notary Public My Commission Expires: --------------------- - 53 - 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, THE FAIRMONT FUND TRUST, a business trust organized under the laws of the Commonwealth of Kentucky (hereinafter referred to as the "Trust"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, Post-Effective Amendment No. 22 to its Registration Statement; and WHEREAS, the undersigned is a Trustee of the Trust; NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and in his name, place and stead, and in his office and capacity in the Trust, to execute and file such Post-Effective Amendment No. 22, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 27th day of February, 1996. /s/ ----------------------------------- O. GRANT BRUTON, Trustee COMMONWEALTH OF KENTUCKY ) ) ss: COUNTY OF JEFFERSON ) Before me, a Notary Public, in and for said county and state, personally appeared O. GRANT BRUTON, known to me to be the person described in and who executed the foregoing instrument, and who acknowledged to me that he executed and delivered the same for the purposes therein expressed. WITNESS my hand and official seal this 27th day of February, 1996. /s/ ----------------------------- Notary Public My Commission Expires: --------------------- - 54 - 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, THE FAIRMONT FUND TRUST, a business trust organized under the laws of the Commonwealth of Kentucky (hereinafter referred to as the "Trust"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, Post-Effective Amendment No. 22 to its Registration Statement; and WHEREAS, the undersigned is a Trustee of the Trust; NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and in his name, place and stead, and in his office and capacity in the Trust, to execute and file such Post-Effective Amendment No. 22, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 27th day of February, 1996. /s/ ----------------------------------- CARL T. FISCHER, Trustee COMMONWEALTH OF KENTUCKY ) ) ss: COUNTY OF JEFFERSON ) Before me, a Notary Public, in and for said county and state, personally appeared CARL T. FISCHER, known to me to be the person described in and who executed the foregoing instrument, and who acknowledged to me that he executed and delivered the same for the purposes therein expressed. WITNESS my hand and official seal this 27th day of February, 1996. /s/ ------------------------------ Notary Public My Commission Expires: --------------------- - 55 - EX-27 5 EXHIBIT 27 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 1 THE FAIRMONT FUND YEAR DEC-31-1995 DEC-31-1995 24,166,129 28,409,586 2,214,647 1,495 0 30,625,728 2,250,178 0 184,549 2,434,727 0 24,505,746 1,043,270 922,342 (136,265) 0 (558,202) 0 4,243,457 28,191,001 220,482 51,438 13,750 421,935 (136,265) 3,460,455 2,744,041 6,098,231 0 0 3,458,598 0 106,454 108,307 122,781 5,996,254 0 (560,059) 0 0 421,935 0 421,935 24,792,687 24.06 (0.08) 6.80 0 3.76 0 27.02 1.70 0 0
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