<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1998
Registration Nos. 33-11905, 811-5010
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 26 [X]
and
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 28 [X]
THE MONITOR MONEY MARKET FUND, THE MONITOR OHIO MUNICIPAL MONEY MARKET FUND, THE
MONITOR U.S. TREASURY MONEY MARKET FUND, THE MONITOR GROWTH FUND, THE MONITOR
INCOME EQUITY FUND, THE MONITOR OHIO TAX-FREE FUND, THE MONITOR MICHIGAN TAX-
FREE FUND, THE MONITOR FIXED INCOME SECURITIES FUND, THE MONITOR INTERMEDIATE
GOVERNMENT INCOME FUND, THE MONITOR SHORT/INTERMEDIATE FIXED INCOME SECURITIES
FUND and THE MONITOR MORTGAGE SECURITIES FUND
each a Series of
THE MONITOR FUNDS
(Exact Name of Registrant as Specified in Charter)
41 South High Street
Columbus, Ohio 43287
(Address of Principal Executive Office)
1-800-544-8347
(Registrant's Telephone Number)
Kevin P. Robins, Senior Vice President
SEI Fund Resources
One Freedom Valley Road
Oaks, Pennsylvania 19456
(Name and Address of Agent for Service)
Copy to:
Bradley J. Schram, Esq.
Hertz, Schram & Saretsky, P.C.
1760 Telegraph Road, Suite 300
Bloomfield Hills, Michigan 48302-0183
(248) 335-3346 (FAX)
Approximate Date of Proposed Public Offering: Continuous
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box):
[ ] 60 days after filing pursuant to Rule 485(a)(1), or
[ ] On , 199 , pursuant to Rule 485(a)(1), or
[ ] 75 days after filing pursuant to Rule 485(a)(2), or
[ ] On , 199 , pursuant to Rule 485(a)(2).
[ ] Immediately upon filing pursuant to Rule 485(b), or
[X] On April 30, 1998, pursuant to Rule 485(b)
If appropriate, check this box:
[ ] This post-effective amendment designates a new effective date for a
previously-filed post-effective amendment.
- --------------------------------------------------------------------------------
Title of Securities Being Registered: Shares of Beneficial Interest
<PAGE>
CROSS REFERENCE SHEET
The portfolios listed on the Cover Page are offered in two separate classes of
shares known as Trust Shares and Investment Shares. This Cross-Reference Sheet
includes information relating to each Class of each Fund to facilitate the
cross-reference process.
FORM N-1A PART A ITEM LOCATION IN PROSPECTUS
- --------------------- ----------------------
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Summary; Fee Table and Example
Item 3. Condensed Financial Information...... Financial Highlights
Item 4. General Description of Registrant.... The Funds' Investment
Objectives; Money Market
Funds; Equity Funds; Income
Funds; Additional Information
on Portfolio Investments and
Strategies; Investment
Restrictions
Item 5. Management of the Fund............... Management of the Trust;
Administration of the Funds;
Custodian, Recordkeeper,
Transfer Agent and Dividend
Disbursing Agent; Independent
Accountants
Item 5a. Management's Discussion of Fund
Performance.......................... Not Applicable
Item 6. Capital Stock and Other Securities... Distributions and Taxes;
Distribution Options; Federal
Income Taxes; Ohio Personal
Income Taxes; Organization of
the Trust; Voting Rights;
Shareholder Inquiries; Other
Classes of Shares
Item 7. Purchase of Securities Being
Offered.............................. How the Funds Value Their
Shares; How to Buy
(Trust/Investment Shares); To
Place an Order (Investment
Shares Only); Minimum
Investment Required; What
Shares Cost (Investment Shares
Only); Purchases as Net Asset
Value (Investment Shares Only);
Reducing the Sales Charge
(Investment Shares Only);
Quantity Discounts and
Accumulated Purchases
(Investment Shares Only);
Letter of Intent (Investment
Shares Only); Reinstatement
Privilege (Investment Shares
Only); Concurrent Purchases
(Investment Shares Only);
Systematic Investment program;
How to Exchange
(Trust/Investment) Shares
Among the Funds; By Telephone
(Investment Shares Only); By
Mail (Investment Shares Only);
Distribution of
(Trust/Investment) Shares;
Distribution Plan (Investment
Shares Only)
Item 8. Redemption of Repurchase............. How to Redeem
(Trust/Investment) Shares;
Redeeming by Telephone;
Redeeming by Mail; Redeeming
by Check (Investment Shares
Only); Redeeming by Fax
(Investment Shares Only);
Systematic Withdrawal Program
(Investment Shares Only);
Accounts with Low Balances
(Investment Shares only)
Item 9. Pending Legal Proceedings............ Not Applicable
<PAGE>
FORM N-1A PART B ITEM LOCATION IN STATEMENT OF
- --------------------- ------------------------
ADDITIONAL INFORMATION
----------------------
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Table of Contents
Item 12. General Information and History...... Definitions; Additional
Information About the Trust
and Investment Objectives and
Policies of the Trust;
Investment Restrictions
Item 13. Investment Objectives and Policies... Management of the Trust
Item 14. Management of the Fund............... Fund Ownership
Item 15. Control Persons and Principal
Holders of Securities................ Investment Adviser;
Administrator; Distributor;
Custodian; Transfer Agent and
Dividend Disbursing Agent;
Independent Accountants
Item 16. Other Services....................... Portfolio Transactions;
Brokerage and Research
Services
Item 17. Brokerage Allocation and Other
Practices............................ Dividends and Distributions
Item 18. Capital Stock and Other Securities... Distribution Plan (Investment
Shares Only);
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............. Determination of Net Asset
Value; Additional Purchase
Information - Payment in Kind
Item 20. Tax Status........................... Taxes
Item 21. Underwriters......................... Not Applicable
Item 22. Calculation of Performance Data...... Performance Information
Item 23. Financial Statements................. Incorporated by Reference
into the Combined Statement
of Additional Information by
Reference to the Trust's
Combined Annual Report dated
December 31, 1997
FORM N-1A PART C
- ----------------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Post-Effective Amendment to the
Registration Statement.
<PAGE>
PROSPECTUS
April 30, 1998
The Monitor Funds, a Massachusetts business trust (the "Trust"), consists of
separate series (the "Funds") which have different investment objectives and
policies. All of the Funds may offer two classes of shares: Investment Shares
and Trust Shares. Investment Shares in each of the Funds may be purchased
through The Huntington Investment Company, a Huntington Personal Banker or
MONITORdirect pursuant to respective agreements between The Huntington
Investment Company or The Huntington National Bank ("Huntington" or the
"Adviser"), and SEI Investments Distribution Co. ("SEI" or the "Distributor"),
the Trust's distributor. The different Funds for which Investment Shares are
available through this Prospectus include:
MONEY MARKET FUNDS--INVESTMENT SHARES
The Monitor Money Market Fund
The Monitor Ohio Municipal Money Market Fund
The Monitor U.S. Treasury Money Market Fund
EQUITY FUNDS--INVESTMENT SHARES
The Monitor Growth Fund
The Monitor Income Equity Fund
INCOME FUNDS--INVESTMENT SHARES
The Monitor Mortgage Securities Fund
The Monitor Ohio Tax-Free Fund
The Monitor Michigan Tax-Free Fund
The Monitor Fixed Income Securities Fund
The Monitor Intermediate Government Income Fund [/R]
This Prospectus relates only to Investment Shares of the Funds listed above.
This Prospectus sets forth concisely what a shareholder should know before
investing in Investment Shares of any of the Funds and should be read
carefully and retained for future reference. The Combined Statement of
Additional Information for Investment Shares and Trust Shares has been filed
with the Securities and Exchange Commission (the "SEC") and is incorporated
into this Prospectus by reference.The SEC maintains a Web site
(http://www.sec.gov) that contains the Combined Statement of Additional
Information, material incorporated by reference and other information relating
to the Funds. FOR A FREE COPY OF THE COMBINED STATEMENT OF ADDITIONAL
INFORMATION CALL MONITORDIRECT AT 800-253-0412.
THE HUNTINGTON NATIONAL BANK
Investment Adviser and Administrator
SEI INVESTMENTS DISTRIBUTION CO.
Distributor
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE INVESTMENT COMPANY SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY HUNTINGTON, NOR ARE THEY INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT OR ANY AGENCY SPONSORED
BY THE FEDERAL GOVERNMENT OR ANY STATE. INVESTMENT IN THESE SHARES INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. EACH MONEY MARKET
FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT A MONEY MARKET FUND WILL BE ABLE TO DO SO.
IN ADDITION, THE OHIO MUNICIPAL MONEY MARKET FUND IS CONCENTRATED IN
SECURITIES ISSUED BY THE STATE OF OHIO OR OTHER GOVERNMENTAL ENTITIES WITHIN
THE STATE OF OHIO AND THEREFORE AN INVESTMENT IN THAT FUND MAY BE RISKIER THAN
AN INVESTMENT IN OTHER TYPES OF MONEY MARKET FUNDS.
<PAGE>
PAGE
SUMMARY...................................................................... 1
FEE TABLE AND EXAMPLE........................................................ 3
FINANCIAL HIGHLIGHTS......................................................... 4
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES...............................12
MONEY MARKET FUNDS...........................................................12
Money Market Fund...........................................................12
Ohio Municipal Money Market Fund............................................13
U.S. Treasury Money Market Fund.............................................15
EQUITY FUNDS.................................................................15
Growth Fund.................................................................15
Income Equity Fund..........................................................16
INCOME FUNDS.................................................................16
Mortgage Securities Fund....................................................16
Ohio Tax-Free Fund..........................................................18
Michigan Tax-Free Fund......................................................19
Fixed Income Securities Fund................................................20
Intermediate Government Income Fund.........................................20
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS AND STRATEGIES...............21
Ohio Tax-Exempt Securities..................................................21
Michigan Tax-Exempt Securities..............................................22
Credit Enhancement..........................................................23
Non-Diversification.........................................................23
Defensive Investment Strategies.............................................23
Options and Futures Contracts...............................................23
Foreign Investments.........................................................25
Repurchase Agreements.......................................................25
When-Issued and Delayed Delivery Transactions...............................26
Lending of Portfolio Securities.............................................26
Mortgage-Related Securities.................................................27
Mortgage Pass-Through Securities............................................27
Adjustable Rate Mortgage Securities.........................................27
Collateralized Mortgage Obligations.........................................28
Stripped Mortgage-Backed Securities.........................................29
U.S. Government Securities..................................................30
INVESTMENT RESTRICTIONS......................................................31
HOW THE FUNDS VALUE THEIR SHARES.............................................32
HOW TO BUY INVESTMENT SHARES.................................................32
To Place an Order...........................................................33
Minimum Investment Required.................................................33
Systematic Investment Program...............................................33
What Shares Cost............................................................34
HOW TO EXCHANGE INVESTMENT SHARES AMONG THE FUNDS............................37
By Telephone................................................................37
By Mail.....................................................................38
HOW TO REDEEM INVESTMENT SHARES..............................................38
Redeeming by Telephone......................................................38
Redeeming by Mail...........................................................39
Redeeming by Check..........................................................40
Redeeming by Fax............................................................40
SYSTEMATIC WITHDRAWAL PROGRAM................................................40
ACCOUNTS WITH LOW BALANCES...................................................40
MANAGEMENT OF THE TRUST......................................................41
Distribution of Investment Shares...........................................42
Distribution Plan...........................................................42
Administration of the Funds.................................................43
Custodian, Recordkeeper, Transfer Agent, and Dividend Disbursing Agent......44
Independent Accountants.....................................................44
DISTRIBUTIONS AND TAXES......................................................44
Money Market Funds..........................................................44
Other Funds.................................................................44
Distribution Options........................................................44
Federal Income Taxes........................................................45
Ohio Personal Income Taxes..................................................47
Michigan Personal Income Taxes..............................................47
ORGANIZATION OF THE TRUST....................................................48
Voting Rights...............................................................48
PERFORMANCE DATA AND COMPARISONS.............................................50
SHAREHOLDER INQUIRIES........................................................50
OTHER CLASSES OF SHARES......................................................51
<PAGE>
SUMMARY
The Trust, a management investment company, was established as Massachusetts
business trust under a Declaration of Trust dated February 10, 1987. The
Declaration of Trust permits the Trust to offer separate series of shares of
beneficial interest representing interests in separate portfolios of
securities. The shares in any one Fund may be offered in separate classes. As
of the date of this Prospectus, the Board of Trustees has established two
classes of shares, known as Trust Shares and Investment Shares, in the Money
Market Fund, the Ohio Municipal Money Market Fund, the U.S. Treasury Money
Market Fund, the Growth Fund, the Income Equity Fund, the Mortgage Securities
Fund, the Ohio Tax-Free Fund, the Michigan Tax-Free Fund, the Fixed Income
Securities Fund, the Intermediate Government Income Fund and the
Short/Intermediate Fixed Income Securities Fund. Investment Shares of the
Short/Intermediate Fixed Income Securities Fund are not currently being
offered to the public. All of the Funds of the Trust, with the exception of
the Ohio Municipal Money Market Fund, the Ohio Tax-Free Fund and the Michigan
Tax-Free Fund are diversified. This Prospectus relates solely to the
Investment Shares of each Fund as set forth below.
As of the date of this Prospectus, the Trust offers Investment Shares of the
following ten Funds:
MONEY MARKET FUNDS--INVESTMENT SHARES
MONEY MARKET FUND--seeks to maximize current income while preserving
capital and maintaining liquidity by investing in a portfolio of high
quality money market instruments;
OHIO MUNICIPAL MONEY MARKET FUND--seeks to provide income exempt from
both federal regular income tax and Ohio personal income taxes while
preserving capital and maintaining liquidity by investing in Ohio tax-
exempt securities;
U.S. TREASURY MONEY MARKET FUND--seeks to maximize current income while
preserving capital and maintaining liquidity by investing exclusively
in obligations issued by the U.S. Government and backed by its full
faith and credit, and in repurchase agreements with respect to such
obligations;
EQUITY FUNDS--INVESTMENT SHARES
GROWTH FUND--seeks to achieve long-term capital appreciation by
investing primarily in equity securities;
INCOME EQUITY FUND--seeks to achieve high current income and moderate
appreciation of capital by investing in income-producing equity
securities;
INCOME FUNDS--INVESTMENT SHARES
MORTGAGE SECURITIES FUND--seeks to achieve current income by investing
in mortgage securities and in U.S. Government securities;
OHIO TAX-FREE FUND--seeks to provide current income exempt from federal
income taxes and Ohio personal income taxes by investing in Ohio tax-
exempt securities;
MICHIGAN TAX-FREE FUND--seeks to provide investors with current income
exempt from both federal and Michigan personal income taxes by
investing in Michigan tax-exempt securities;
FIXED INCOME SECURITIES FUND--seeks to achieve high current income by
investing in fixed income securities where the average maturity of the
Fund will not exceed 10 years;
INTERMEDIATE GOVERNMENT INCOME FUND--seeks to provide investors with a
high level of current income by investing primarily in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, mortgage-backed securities and collateralized
1
<PAGE>
mortgage obligations with dollar-weighted average maturities of not
less than three nor more than ten years; and
For information on how to purchase Investment Shares of any of the Funds,
please refer to "How to Buy Investment Shares." A minimum initial investment
of $1,000 is required for each Fund. Subsequent investments in a Fund must be
in amounts of at least $50. Investment Shares of each Fund are sold at net
asset value plus a sales charge where applicable. Shares of each Fund are
redeemed at net asset value. Information on redeeming shares may be found
under "How to Redeem Investment Shares." The Funds are advised by Huntington.
RISK FACTORS. Investors should be aware of the following general
observations. There can be no assurance that a Fund will achieve its
investment objective. The market value of fixed-income securities, which
constitute a major part of the investments of several Funds, may vary
inversely in response to changes in prevailing interest rates ("interest rate
risk"). Shareholders of the Ohio Municipal Money Market Fund may be subject to
the federal alternative minimum tax on that part of the Funds' dividends
derived from interest on certain municipal securities. One or more Funds may
make certain investments and employ certain investment techniques that involve
special risks, including the use of repurchase agreements, lending portfolio
securities, entering into futures contracts and related options as hedges,
investing in foreign securities, and purchasing securities on a when-issued or
delayed delivery basis, including the use of "dollar rolls." These investments
and investment techniques may increase the volatility of a Fund's net asset
value. Their risks are described under "Additional Information on Portfolio
Investments and Strategies." The Mortgage Securities Fund may engage in short-
term trading in attempting to achieve its investment objective, which will
increase transaction costs. Both the Mortgage Securities Fund and the
Intermediate Government Income Fund may purchase mortgage-related securities
including derivative mortgage securities. In addition to interest rate risk,
mortgage-related securities are subject to prepayment risk. Past market
experience has shown that certain derivative mortgage securities may be
extremely sensitive to changes in interest rates and in prepayment rates on
the underlying assets and, as a result, the prices of such securities may be
highly volatile.
YEAR 2000 RISK. Like other mutual funds, financial and business
organizations around the world, each of the Monitor Funds could be adversely
impacted if the computer systems used by Huntington, SEI or other service
providers and entities with computer systems that are linked to Fund records
do not properly process and calculate date-related information and data from
and after January 1, 2000. This is commonly known as "Year 2000 Risk."
Huntington is taking steps that it believes are reasonably designed to address
Year 2000 Risk with respect to the computer systems it uses and to obtain
satisfactory assurances that comparable steps are being taken by each of the
Funds' other major service providers. There can be no assurance, however, that
these steps will be sufficient to avoid any adverse impact on the Funds.
2
<PAGE>
FEE TABLE AND EXAMPLE
The following Fee Table and Example summarize the various costs and expenses
that a shareholder of Investment Shares will bear, either directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
FIXED
INCOME MORTGAGE OHIO MICHIGAN INCOME INTERMEDIATE
GROWTH EQUITY SECURITIES TAX-FREE TAX-FREE SECURITIES GOVERNMENT
FUND FUND FUND FUND FUND FUND INCOME FUND
------ ------ ---------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)....... 4.00% 5.50% 2.00% 2.00% 2.00% 2.00% 2.00%
</TABLE>
The Distributor may waive all or a portion of this sales load. See "What
Shares Cost--Purchases at Net Asset Value."
ANNUAL INVESTMENT SHARES OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
<TABLE>
<CAPTION>
TOTAL
INVESTMENT
SHARES
OPERATING
EXPENSES NET
NET OF ANY WAIVERS
MANAGEMENT 12B-1 OTHER OR
FEES (1) FEES (2) EXPENSES (3) REIMBURSEMENTS
---------- -------- ------------ --------------
<S> <C> <C> <C> <C>
Money Market Fund (4)*......... 0.30% 0.10% 0.21% 0.61%
Ohio Municipal Money Market
Fund (4)* .................... 0.25% 0.10% 0.24% 0.59%
U.S. Treasury Money Market Fund
(4)*.......................... 0.20% 0.10% 0.22% 0.52%
Growth Fund.................... 0.60% 0.25% 0.20% 1.05%
Income Equity Fund............. 0.60% 0.25% 0.23% 1.08%
Mortgage Securities Fund (5)*.. 0.30% 0.25% 0.36% 0.91%
Ohio Tax-Free Fund............. 0.50% 0.25% 0.26% 1.01%
Michigan Tax-Free Fund (5)*.... 0.43% 0.25% 0.30% 0.98%
Fixed Income Securities Fund... 0.50% 0.25% 0.20% 0.95%
Intermediate Government Income
Fund (5)*..................... 0.45% 0.25% 0.24% 0.94%
</TABLE>
- --------
(1)Fees paid by each Fund for investment advisory services. See "Management of
the Trust."
(2)Fees paid by Investment Shares of each Fund for distribution services
provided with respect to Investment Shares. Total payments of up to 0.25 of 1%
for all Funds except the Mortgage Securities Fund, and up to 0.50 of 1% for
the Mortgage Securities Fund, of the average daily net assets attributable to
Investment Shares are permitted under the Distribution Plan. See "Management
of the Trust--Distribution Plan."
(3)Includes administration fees. See "Management of the Trust--Administration
of the Funds."
(4)The Total Investment Shares Operating Expenses for the Ohio Municipal Money
Market Fund would be 0.79%, absent the voluntary waiver of management fees and
12b-1 fees. The Total Investment Shares Operating Expenses for the Money
Market Fund would be 0.76%, absent the voluntary waiver of 12b-1 fees. The
Total Investment Shares Operating Expenses for the U.S. Treasury Money Market
Fund would be 0.67%, absent the voluntary waiver of 12b-1 fees. The maximum
management fee for the Ohio Municipal Money Market Fund is 0.30%. The maximum
12b-1 fee for the Money Market Fund, the Ohio Municipal Money Market Fund and
the U.S.Treasury Money Market Fund is 0.25%.
(5)The Total Investment Shares Operating Expenses for the Mortgage Securities
Fund would be 1.36% absent the voluntary waiver of management fees and 12b-1
fees. The maximum management fee for the Mortgage Securities Fund is 0.50%.
The maximum 12b-1 fee for the Mortgage Securities Fund is 0.50%. The Total
Investment Shares Operating Expenses for the Michigan Tax-Free Fund would be
1.05%, absent the expected voluntary waiver of management fees. The Total
Investment Shares Operating Expenses for the Intermediate Government Income
Fund would be 0.99%, absent the expected voluntary waiver of management fees.
The maximum management fee for the Michigan Tax-Free Fund and the Intermediate
Government Income Fund is 0.50%. Expenses for the Michigan Tax-Free Fund and
the Intermediate Government Income Fund are based on estimates for the current
fiscal year.
*The adviser, administrator and/or distributor can terminate these voluntary
waivers at any time at their sole discretion.
EXAMPLE:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period, and (3)
payment of maximum sales load:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund............................... $ 6 $20 $34 $ 76
Ohio Municipal Money Market Fund................ $ 6 $19 $33 $ 74
U.S. Treasury Money Market Fund................. $ 5 $17 $29 $ 65
Growth Fund..................................... $50 $72 $96 $163
Income Equity Fund.............................. $65 $87 $(1) $179
Mortgage Securities Fund........................ $29 $48 $69 $131
Ohio Tax-Free Fund.............................. $30 $52 $75 $141
Michigan Tax-Free Fund.......................... $30 $51 $73 $138
Fixed Income Securities Fund.................... $30 $50 $72 $134
Intermediate Government Income Fund............. $30 $49 $71 $133
</TABLE>
The purpose of the foregoing example is to assist an investor in
understanding the various costs and expenses that a shareholder of Investment
Shares will bear directly or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
3
<PAGE>
FINANCIAL HIGHLIGHTS--MONEY MARKET FUNDS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information with respect to each of the five years in the
period ended December 31, 1997, has been derived from the Trust's financial
statements. The following financial highlights for the year ended December 31,
1997 were audited by the Trust's independent accountants, KPMG Peat Marwick
LLP and should be read in conjunction with the financial statements and notes
thereto included in the Trust's 1997 Annual Report to Shareholders. The
financial highlights for the periods or years and the four-year period ended
December 31, 1996 were audited by the Trust's former auditors. KPMG Peat
Marwick LLP's report on the Trust's financial statements and financial
highlights for the year ended December 31, 1997 is included in the Trust's
1997 Annual Report to Shareholders, and is incorporated by reference into the
Combined Statement of Additional Information.
<TABLE>
<CAPTION>
NET ASSET DISTRIBUTIONS TO NET ASSET
VALUE, NET SHAREHOLDERS VALUE,
YEAR ENDED BEGINNING INVESTMENT FROM NET END OF TOTAL
DECEMBER 31, OF PERIOD INCOME INVESTMENT INCOME PERIOD RETURN+ EXPENSES
- ---------------------------------------------------------------------------------
INVESTMENT SHARES
MONEY MARKET
<S> <C> <C> <C> <C> <C> <C>
1991* $1.00 $0.04 $(0.04) $1.00 3.56% 0.60%(a)
1992 1.00 0.03 (0.03) 1.00 3.34% 0.60%
1993 1.00 0.03 (0.03) 1.00 2.63% 0.61%
1994 1.00 0.04 (0.04) 1.00 3.76% 0.61%
1995 1.00 0.05 (0.05) 1.00 5.48% 0.63%
1996 1.00 0.05 (0.05) 1.00 4.90% 0.63%
1997 1.00 0.05 (0.05) 1.00 5.07% 0.61%
<CAPTION>
OHIO MUNICIPAL MONEY MARKET
<S> <C> <C> <C> <C> <C> <C>
1991* $1.00 0.03 (0.03) $1.00 2.51% 0.67%(a)
1992 1.00 0.03 (0.03) 1.00 2.51% 0.59%
1993 1.00 0.02 (0.02) 1.00 1.98% 0.55%
1994 1.00 0.02 (0.02) 1.00 2.31% 0.55%
1995 1.00 0.03 (0.03) 1.00 3.47% 0.52%
1996 1.00 0.03 (0.03) 1.00 3.04% 0.52%
1997 1.00 0.03 (0.03) 1.00 3.17% 0.55%
<CAPTION>
U.S. TREASURY MONEY MARKET
<S> <C> <C> <C> <C> <C> <C>
1993** $1.00 0.01 (0.01) $1.00 0.54% 0.50%(a)
1994 1.00 0.04 (0.04) 1.00 3.68% 0.52%
1995 1.00 0.05 (0.05) 1.00 5.43% 0.53%
1996 1.00 0.05 (0.05) 1.00 4.87% 0.52%
1997 1.00 0.05 (0.05) 1.00 4.95% 0.52%
- ---------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 1, 1991 (date of initial public
investment) to December 31, 1991.
** Reflects operations for the period from October 19, 1993 (date of initial
public investment) to December 31, 1993.
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
4
<PAGE>
<TABLE>
<CAPTION>
NET NET ASSETS,
INVESTMENT EXPENSE WAIVER/ END OF PERIOD
INCOME REIMBURSEMENT(B) (000 OMITTED)
- ----------------------------------------------------------------------------------
<S> <C> <C>
5.08%(a) -- $17,936
3.26% -- 19,962
2.60% 0.02% 21,583
3.85% 0.02% 41,629
5.30% 0.03% 91,288
4.80% -- 97,557
4.96% 0.15% 140,385
3.69%(a) 0.02%(a) $425
2.35% 0.14% 2,452
1.88% 0.20% 20,312
2.30% 0.19% 37,134
3.42% 0.20% 55,469
3.00% 0.12% 74,102
3.13% 0.22% 82,897
2.65%(a) 0.16%(a) $948
3.66% 0.17% 20,390
5.28% 0.18% 38,973
4.77% 0.15% 47,884
4.85% 0.15% 57,758
</TABLE>
- --------------------------------------------------
5
<PAGE>
FINANCIAL HIGHLIGHTS--EQUITY FUNDS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information with respect to each of the five years in the
period ended December 31, 1997, has been derived from the Trust's financial
statements. The following financial highlights for the year ended December 31,
1997 were audited by the Trust's independent accountants, KPMG Peat Marwick
LLP and should be read in conjunction with the financial statements and notes
thereto contained in the Trust's 1997 Annual Report to Shareholders. The
financial highlights for the periods or years and the four-year period ended
December 31, 1996 were audited by the Trust's former auditors. KPMG Peat
Marwick LLP's report on the Trust's financial statements and financial
highlights for the year ended December 31, 1997, is included in the Trust's
1997 Annual Report to Shareholders, and is incorporated by reference into the
Combined Statement of Additional Information.
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
DISTRIBUTIONS TO SHAREHOLDERS DISTRIBUTIONS
NET ASSET NET REALIZED SHAREHOLDERS FROM NET IN EXCESS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET REALIZED GAIN ON OF NET
YEAR ENDED BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT INVESTMENT INVESTMENT
DECEMBER 31, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME TRANSACTIONS INCOME+
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SHARES
GROWTH
1991* $22.79 $0.33 $ 2.07 $ 2.40 $(0.33) $(0.06) $(0.02)
1992 24.78 0.49 1.36 1.85 (0.48) (0.39) --
1993 25.76 0.40 0.43 0.83 (0.41) (0.02) --
1994 26.16 0.33 0.22 0.55 (0.33) (0.07) --
1995 26.31 0.35 7.61 7.96 (0.35) (3.11) --
1996 30.81 0.31 4.73 5.04 (0.33) (1.56) --
1997 33.96 0.19 11.63 11.82 (0.20) (2.12) --
INCOME EQUITY
1997** $31.20 $0.65 $ 5.72 $ 6.37 $(0.63) $(0.65) $ --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 1, 1991 (date of initial public
investment) to December 31, 1991.
** Reflects operations for the period from May 1, 1997 (date of initial public
investment) to December 31, 1997.
+ Distributions in excess of net investment income were the result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
++ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Average commission rate paid per share for securities purchases and sales
during the period. Presentation of the rate is only required beginning in
1996.
(d) Not annualized.
6
<PAGE>
<TABLE>
<CAPTION>
NET ASSET NET ASSETS,
VALUE, NET END OF PORTFOLIO AVERAGE
TOTAL END OF TOTAL INVESTMENT EXPENSE WAIVER/ PERIOD (000 TURNOVER COMMISSION
DISTRIBUTIONS PERIOD RETURN++ EXPENSES INCOME REIMBURSEMENT(B) OMITTED) RATE RATE(C)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.41) $24.78 9.20% 1.24%(a) 1.88%(a) 0.02%(a) $1,078 13% n/a
(0.87) 25.76 7.57% 1.16% 2.03% 0.01% 3,637 36% n/a
(0.43) 26.16 3.25% 1.10% 1.54% 0.04% 3,961 29% n/a
(0.40) 26.31 2.08% 1.13% 1.27% 0.04% 3,212 42% n/a
(3.46) 30.81 30.40% 1.11% 1.08% 0.05% 3,777 37% n/a
(1.89) 33.96 16.43% 1.08% 0.93% -- 4,285 21% $0.045
(2.31) 43.46 35.04% 1.05% 0.48% -- 5,485 12% $0.061
$(1.28) $36.29 16.09%(d) 1.08%(a) 2.76%(a) -- $ 279 24% $0.060
- -------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS--INCOME FUNDS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information with respect to each of the five years in the
period ended December 31, 1997, has been derived from the Trust's financial
statements. The following financial highlights for the year ended December 31,
1997 were audited by the Trust's independent accountants, KPMG Peat Marwick
LLP and should be read in conjunction with the financial statements and notes
thereto contained in the Trust's 1997 Annual Report to Shareholders. The
financial highlights for the periods or years and the four-year period ended
December 31, 1996 were audited by the Trust's former auditors. KPMG Peat
Marwick LLP's report on the Trust's financial statements and financial
highlights for the year ended December 31, 1997, is included in the Trust's
1997 Annual Report to Shareholders, and is incorporated by reference into the
Combined Statement of Additional Information.
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
DISTRIBUTIONS TO SHAREHOLDERS DISTRIBUTIONS
NET ASSET NET REALIZED SHAREHOLDERS FROM NET IN EXCESS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET REALIZED GAIN OF NET
YEAR ENDED BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT ON INVESTMENT INVESTMENT
DECEMBER 31, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME TRANSACTIONS INCOME+
- ------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES
OHIO TAX-FREE
<S> <C> <C> <C> <C> <C> <C> <C>
1991* $20.56 $0.67 $ 0.51 $ 1.18 $(0.69) -- --
1992 21.05 0.93 0.26 1.19 (0.93) -- --
1993 21.31 0.90 0.73 1.63 (0.90) -- --
1994 22.04 0.94 (1.56) (0.62) (0.92) -- --
1995 20.50 0.96 1.27 2.23 (0.96) -- --
1996 21.77 0.96 (0.29) 0.67 (0.96) -- --
1997 21.48 0.98 0.25 1.23 (0.97) (0.01) --
<CAPTION>
FIXED INCOME SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C>
1991* $20.17 0.91 1.47 2.38 (0.87) $(0.10) --
1992 21.58 1.33 (0.04) 1.29 (1.37) (0.12) $(0.06)
1993 21.32 1.19 0.92 2.11 (1.33) (0.06) --
1994 22.04 1.23 (2.29) (1.06) (1.28) -- --
1995 19.70 1.29 2.09 3.38 (1.30) -- --
1996 21.78 1.29 (0.83) 0.46 (1.29) -- --
1997 20.95 1.25 0.47 1.72 (1.26) -- --
<CAPTION>
MORTGAGE SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C>
1992**(c) $10.00 0.62 0.28 0.90 (0.60) (0.03) --
1993(c) 10.27 1.47 (0.27) 1.20 (1.43) (0.10) --
1994(c) 9.94 0.87 (3.19) (2.32) (0.91) -- (0.01)
1995(c) 6.70 0.55 1.46 2.01 (0.55) -- (0.04)
1996(c) 8.12 0.53 (0.04) 0.49 (0.53) -- --
1997(c) 8.08 0.50 0.17 0.67 (0.49) -- --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 1, 1991 (date of initial public
investment) to December 31, 1991.
** Reflects operations for the period from June 2, 1992 (date of initial
public investment) to December 31, 1992.
+ Distributions in excess of net investment income were the result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
++ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Per share information presented is based upon the monthly number of shares
outstanding due to large fluctuations in the number of shares outstanding
during the period.
8
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS,
NET ASSET NET END OF PORTFOLIO
TOTAL VALUE, END TOTAL INVESTMENT EXPENSE WAIVER/ PERIOD (000 TURNOVER
DISTRIBUTIONS OF PERIOD RETURN++ EXPENSES INCOME REIMBURSEMENT(B) OMITTED) RATE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.69) $21.05 5.78% 1.18%(a) 4.74%(a) -- $ 486 13%
(0.93) 21.31 5.76% 1.16% 4.36% -- 1,339 3%
(0.90) 22.04 7.78% 1.07% 4.13% 0.04% 2,838 2%
(0.92) 20.50 (2.83%) 1.02% 4.43% 0.04% 2,307 12%
(0.96) 21.77 11.10% 1.03% 4.49% 0.08% 2,163 13%
(0.96) 21.48 3.20% 1.01% 3.24% -- 1,900 6%
(0.98) 21.73 5.88% 0.97% 4.47% -- 1,468 14%
(0.97) $21.58 12.12% 1.19%(a) 6.68%(a) -- $ 135 21%
(1.55) 21.32 6.25% 1.08% 6.16% -- 845 15%
(1.39) 22.04 10.07% 0.99% 5.61% 0.04% 2,563 7%
(1.28) 19.70 (4.88%) 1.00% 6.01% 0.04% 1,958 23%
(1.30) 21.78 17.63% 1.02% 6.17% 0.05% 2,176 20%
(1.29) 20.95 2.32% 0.99% 6.12% -- 1,851 16%
(1.26) 21.41 8.54% 0.95% 6.01% -- 1,615 116%
(0.63) $10.27 8.97% 0.83%(a) 10.35%(a) 0.44%(a) $4,742 50%
(1.53) 9.94 11.94% 1.03% 13.95% 0.29% 8,533 154%
(0.92) 6.70 (24.72%) 1.13% 10.91% 0.37% 4,259 91%
(0.59) 8.12 31.13% 0.76% 7.40% 0.73% 2,008 194%
(0.53) 8.08 6.25% 0.92% 6.57% 0.53% 1,666 90%
(0.49) 8.26 8.54% 0.91% 6.16% 0.45% 1,082 63%
- -------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
FINANCIAL HIGHLIGHTS-INCOME FUNDS (CONT'D)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information has been derived from the financial statements for
the Consumer Class of shares of the FMB Michigan Tax-Free Bond Fund and the
FMB Intermediate Government Income Fund (the "FMB Funds"), the predecessor
funds to the Michigan Tax-Free Fund and the Intermediate Government income
Fund, respectively. Prior to the reorganization of the FMB Funds with and into
their corresponding Monitor Funds on April 6, 1998, neither of these Monitor
Funds had commenced operations. The following financial highlights for each of
the five years in the period ended November 30, 1997 were included in the
financial statements audited by Price Waterhouse LLP, the independent
accountants of the FMB Funds. This information should be read in connection
with the financial statements and the notes thereto included in the 1997
Annual Report to Shareholders of the FMB Funds. Price Waterhouse LLP's report
on the financial statements and financial highlights for the FMB Funds is
incorporated by reference into the Combined Statement of Additional
Information.
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
DISTRIBUTIONS TO SHAREHOLDERS
NET ASSET NET REALIZED SHAREHOLDERS FROM NET
VALUE NET AND UNREALIZED TOTAL FROM FROM NET REALIZED GAIN
YEAR ENDED BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT ON INVESTMENT
NOVEMBER 30, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME TRANSACTIONS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT SHARES
MICHIGAN TAX-FREE
1992* $10.00 $0.46 $0.24 $0.70 $(0.46) --
1993 10.24 0.49 0.37 0.86 (0.49) --
1994 10.61 0.47 (0.63) (0.16) (0.47) (0.01)
1995 9.97 0.49 0.82 1.31 (0.49) --
1996 10.79 0.48 -- 0.48 (0.48) --
1997 10.79 0.47 0.10 0.57 (0.47) --
INTERMEDIATE GOVERNMENT INCOME
1992* $10.00 $0.58 $0.10 $0.68 $(0.58) --
1993 10.10 0.59 0.36 0.95 (0.59) --
1994 10.46 0.57 (0.80) (0.23) (0.57) --
1995 9.66 0.61 0.58 1.19 (0.61) --
1996 10.24 0.57 (0.10) 0.47 (0.58) --
1997 10.13 0.57 0.02 0.59 (0.56) --
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------
* Reflects operations for the period from December 2, 1991 (date of initial
public investment) to November 30, 1992.
+ Based on net asset value, wich does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
10
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS,
NET ASSET NET END OF PORTFOLIO
TOTAL VALUE, END TOTAL INVESTMENT EXPENSE WAIVER/ PERIOD (000 TURNOVER
DISTRIBUTIONS OF PERIOD RETURN+ EXPENSES INCOME REIMBURSEMENT(B) OMITTED) RATE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.46) $10.24 7.17% 0.46%(a) 4.50%(a) 2.26% $ 4,572 30%
(0.49) 10.61 8.53% 0.35% 4.59% 1.03% 14,771 13%
(0.48) 9.97 (1.49%) 0.51% 4.50% 0.68% 12,249 22%
(0.49) 10.79 13.21% 0.70% 4.62% 0.48% 12,619 35%
(0.48) 10.79 4.61% 0.84% 4.55% 0.56% 9,050 16%
(0.47) 10.89 5.47% 0.48% 4.41% 0.37% 9,426 7%
$(0.58) $10.10 6.95% 0.61%(a) 5.67%(a) 0.47% $ 5,440 29%
(0.59) 10.46 9.60% 0.50% 5.66% 0.28% 10,872 17%
(0.57) 9.68 (2.23%) 0.83% 6.45% 0.02% 9,718 20%
(0.61) 10.24 12.64% 0.78% 6.09% -- 7,610 27%
(0.58) 10.13 4.80% 0.95% 5.73% 0.19% 5,230 16%
(0.56) 10.16 5.99% 1.04% 5.66% 0.10% 3,518 28%
</TABLE>
11
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the various Funds are described
below. There can, of course, be no guarantee that a Fund will achieve its
investment objective.
Each Fund's investment objective is fundamental and may be changed only by a
vote of a majority of the outstanding shares of that Fund. Unless otherwise
noted in this Prospectus or in the Statement of Additional Information, the
investment policies of the Funds are not fundamental and may be changed by the
Trust's Board of Trustees (the "Trustees"). Except with respect to borrowing
money or downgrades of securities in the Money Market Funds, any percentage
limitation on a Fund's investments (or other activities) will be considered to
be violated only if such limitation is exceeded immediately after, and is
caused by, an acquisition of an investment (or the taking of such other
action).
For a description of the ratings of nationally recognized statistical rating
organizations (individually, an "NRSRO") utilized by Huntington managing the
Funds' investments, see the Appendix to the Statement of Additional
Information.
MONEY MARKET FUNDS
Each of the Money Market Funds described below is designed for investors
seeking current income with stability of principal. The Money Market Funds
intend to limit their investments by operating in a manner consistent with
Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940
Act"). Rule 2a-7 permits funds to utilize the amortized cost method of
valuation in order to offer their shares at a net asset value of $1.00 per
share (see also the section of the Statement of Additional Information
entitled, "Determination of Net Asset Value"). Rule 2a-7 imposes certain risk
limiting conditions on the Money Market Funds which in some instances restrict
a Money Market Fund's investment policies. These risk limiting conditions
include the following:
. The Money Market Funds must limit their investments to "Eligible Securities"
as defined under Rule 2a-7, and which Huntington has determined present
minimal credit risks under guidelines adopted by the Trustees. (An
explanation of some of the terms defined by Rule 2a-7 is contained in the
Statement of Additional Information).
. Each Money Market Fund (except the Ohio Municipal Money Market Fund) must
limit investments in "Second Tier Securities" to 5% of total assets and the
greater of 1% of total assets or $1 million in the securities of a single
Second Tier issuer.
. The Money Market Funds may invest without limit in "First Tier Securities"
subject to 5% of total assets issuer diversification limitation where
applicable. In addition, the portfolio investments of each Money Market Fund
must be deemed to have a maturity of 397 days or less from the time of
purchase by it, although securities owned pursuant to a repurchase agreement
and certain adjustable interest rate instruments may bear longer maturities.
The dollar-weighted average maturity of each Money Market Fund's portfolio
must not exceed 90 days. Of course, a Money Market Fund's yield, and under
unusual circumstances, the value of its portfolio securities, will be
affected by changes in interest rates.
MONEY MARKET FUND
The objective of the Money Market Fund is to maximize current income while
preserving capital and maintaining liquidity by investing in a portfolio of
high quality money market instruments. The Money Market Fund's portfolio
investments may include:
(a) obligations, such as notes, bills or bonds, issued by or guaranteed as
to principal and interest by the U.S. Government or its agencies or
instrumentalities;
12
<PAGE>
(b) commercial paper, including U.S. dollar denominated eurodollar
commercial paper, considered under Rule 2a-7 to be rated in the highest
category by an NRSRO(s) or, if not rated, of comparable quality as
determined by Huntington pursuant to guidelines established by the
Trustees;
(c) negotiable certificates of deposit and bankers' acceptances issued by
domestic banks and U.S. branches of foreign banks which are subject to
the same regulation as U.S. banks and which, at the time of purchase,
have capital, surplus, and undivided profits in excess of $100,000,000
(as of the bank's most recently published financial statements);
(d) corporate debt obligations, including bonds, notes and debentures
considered under Rule 2a-7 to be rated in the two highest categories by
an NRSRO(s) or, if not rated, of comparable quality as determined by
Huntington pursuant to guidelines established by the Trustees; and
(e) repurchase agreements and master demand notes.
RESTRICTED AND ILLIQUID SECURITIES. The Money Market Fund intends to invest
in restricted securities. Restricted securities are any securities in which
the Money Market Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restriction on resale under
federal securities law. However, the Money Market Fund will limit investments
in illiquid securities, including certain restricted securities not determined
by the Trustees to be liquid, non-negotiable time deposits, and repurchase
agreements providing for settlement in more than seven days after notice, to
10% of its net assets.
The Money Market Fund may invest in commercial paper issued in reliance on
the exemption from registration afforded by Section 4(2) of the Securities Act
of 1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law, and is generally sold to institutional investors, such
as the Money Market Fund, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Money Market Fund
through or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. The Money
Market Fund believes that Section 4(2) commercial paper and possibly certain
other restricted securities which meet the criteria for liquidity established
by the Trustees are quite liquid. The Money Market Fund intends, therefore, to
treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) commercial paper, as
determined by Huntington, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section
4(2) commercial paper is liquid, the Money Market Fund intends to not subject
such paper to the limitation applicable to restricted securities.
OHIO MUNICIPAL MONEY MARKET FUND
The objective of the Ohio Municipal Money Market Fund is to provide income
exempt from both federal regular income tax and Ohio personal income taxes
while preserving capital and maintaining liquidity. As a fundamental policy,
the Ohio Municipal Money Market Fund invests its assets so that at least 80%
of its annual interest income is exempt from federal regular income tax. The
Ohio Municipal Money Market Fund invests primarily in Ohio tax-exempt
securities which, under normal market conditions, will comprise at least 65%
of its assets. Ohio tax-exempt securities are debt obligations issued by or on
behalf of the State of Ohio, its political subdivisions, or agencies, or
financing
13
<PAGE>
authorities of any of these, the income from which is, in the opinion of
qualified legal counsel, exempt from both federal regular income tax and the
personal income taxes imposed by the State of Ohio. Examples of tax-exempt
securities include, but are not limited to:
. tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
. bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
. municipal commercial paper and other short-term notes;
. variable rate demand notes;
. municipal bonds (including bonds having serial maturities and pre-
refunded bonds); and
. participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND OBLIGATIONS. Variable rate demand obligations are long-
term tax-exempt securities that have variable or floating interest rates and
provide the Ohio Municipal Money Market Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally established
by the remarketing agent of the respective securities. Most variable rate
demand obligations allow the holder to demand the repurchase of the security on
not more than seven days prior notice. Other obligations only permit the holder
to tender the security at the time of each interest rate adjustment or at other
fixed intervals. See "Demand Features." The Ohio Municipal Money Market Fund
treats variable rate demand obligations as maturing on the later of the date of
the next interest adjustment or the date on which it may next tender the
security for redemption.
PARTICIPATION INTERESTS. The Ohio Municipal Money Market Fund may purchase
interests in tax-exempt securities from financial institutions such as
commercial and investment banks, savings and loan associations and insurance
companies. These interests may take the form of participations, beneficial
interests in a trust, partnership interests or any other form of indirect
ownership that allows the holder to treat the income from the investment as
exempt from federal income tax. The Ohio Municipal Money Market Fund invests in
these participation interests in order to obtain credit enhancement or demand
features that would not be available through direct ownership of the underlying
tax-exempt securities.
DEMAND FEATURES AND GUARANTEES. The Ohio Municipal Money Market Fund may
acquire securities which are subject to puts and standby commitments ("demand
features") to purchase the securities at their principal amount (usually with
accrued interest) within a fixed period (usually seven days) following a demand
by the Fund. In addition, certain of the portfolio investments of the Ohio
Municipal Money Market Fund may be credit enhanced by a guarantee, including a
letter of credit, insurance or unconditional demand feature. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the
quality and marketability of the underlying security. Except as permitted under
Rule 2a-7 of the 1940 Act, the Ohio Municipal Money Market Fund will not
invest, with respect to 75% of its total assets, more than 10% of its total
assets in securities issued by or subject to guarantees or demand features from
the issuing institution.
The Ohio Municipal Money Market Fund uses demand features to provide
liquidity and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership
14
<PAGE>
or default by the issuer of the demand feature, or a default on the underlying
security or other event that terminates the demand feature before its
exercise, will adversely affect the liquidity of the underlying security.
Demand features that are exercisable even after a payment default on the
underlying security may be treated as a form of credit enhancement.
TEMPORARY INVESTMENTS. The Ohio Municipal Money Market Fund invests its
assets so that at least 80% of its annual interest income is exempt from
federal regular income taxes and at least 65% of its assets are invested in
securities the income from which is exempt from Ohio personal income taxes.
However, from time to time, when Huntington determines that market conditions
call for a temporary defensive posture, the Ohio Municipal Money Market Fund
may invest in temporary investments with remaining maturities of 13 months or
less at the time of purchase, or hold assets in cash. Interest income from
temporary investments may be taxable to shareholders as ordinary income. These
temporary investments include: obligations issued by or on behalf of municipal
or corporate issuers having the same quality characteristics as Ohio tax-
exempt securities purchased by the Fund; marketable obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities;
instruments issued by a U.S. branch of a domestic bank or other depository
institutions having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment; repurchase agreements (arrangements in
which the organization selling a temporary investment agrees at the time of
sale to repurchase it at a mutually agreed upon time and price); and
commercial paper rated in one of the two highest short-term rating categories
by an NRSRO(s).
Although the Ohio Municipal Money Market Fund is permitted to make taxable,
temporary investments that may have Ohio state tax implications, there is no
current intention of generating income subject to federal regular or Ohio
personal income taxes.
U.S. TREASURY MONEY MARKET FUND
The objective of the U.S. Treasury Money Market Fund is to maximize current
income while preserving capital and maintaining liquidity by investing
exclusively in obligations issued by the U.S. Government and backed by its
full faith and credit and in repurchase agreements with respect to such
obligations. At least 65% of the U.S. Treasury Money Market Fund's total
assets will be invested in Treasury bills, notes and bonds which are direct
obligations of the U.S. Treasury, and repurchase agreements with respect to
such obligations.
EQUITY FUNDS
GROWTH FUND
The objective of the Growth Fund is to achieve long-term capital
appreciation primarily through investments in equity securities. Current
income will be only an incidental consideration in the selection of
investments. Equity securities in which the Growth Fund may invest include
common stocks, preferred stocks, securities convertible into or exchangeable
for common stocks, and other securities which Huntington believes have common
stock characteristics, such as rights and warrants. The Growth Fund may invest
in foreign securities and, subject to its investment restrictions, securities
restricted as to resale under federal securities laws. The Growth Fund's
common stock selection emphasizes those companies which Huntington believes
have characteristics such as above average
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earnings and dividend growth, superior balance sheets, and potential for
capital gains, but its investment policy recognizes that securities of other
companies may be attractive for capital appreciation purposes by virtue of
special developments or depression in price believed to be temporary. The
Growth Fund will invest in large and medium-sized capitalization growth
companies which provide these financial and growth characteristics. As a
matter of fundamental policy, under normal market conditions, the Growth Fund
will invest at least 65% of its total assets in equity securities. The Growth
Fund may also, under normal market conditions, invest a portion of its assets
in cash equivalents, including repurchase agreements and the shares of money
market mutual funds, for liquidity purposes.
INCOME EQUITY FUND
The objective of the Income Equity Fund is to achieve high current income
and moderate appreciation of capital primarily through investment in income-
producing equity securities. Consistent with this objective, the Income Equity
Fund may invest in preferred stocks, in securities convertible into or
exchangeable for common stocks and securities which Huntington believes have
common stock characteristics, such as rights and warrants. The Income Equity
Fund may invest in foreign securities and, subject to its investment
restrictions, in securities restricted as to resale under federal securities
laws. As a matter of fundamental policy, under normal market conditions, the
Income Equity Fund will invest at least 65% of its total assets in the equity
securities described in this paragraph. The Income Equity Fund may invest up
to 35% of its assets in debt securities rated investment grade or better. The
Income Equity Fund may also, under normal market conditions, invest a portion
of its assets in cash equivalents, including repurchase agreements and the
shares of money market mutual funds, for liquidity purposes.
INCOME FUNDS
The investment objectives and policies of the Income Funds are described
below. Each of the Income Funds invests primarily in debt securities. The
prices of fixed income securities generally fluctuate inversely to the
direction of interest rates. Thus, a decrease in interest rates will generally
result in an increase in the values of debt securities held by an Income Fund.
Conversely, during periods of rising interest rates, the values of an Income
Fund's assets will generally decline. The values of such securities are also
affected by changes in the financial condition of their issuers. Changes in
the values of an Income Fund's securities will not generally affect the income
derived from such securities but will affect an Income Fund's net asset value.
MORTGAGE SECURITIES FUND
The investment objective of the Mortgage Securities Fund is current income.
The Mortgage Securities Fund seeks to achieve this investment objective by
investing at least 65% of the value of its total assets in mortgage-related
securities issued by the U.S. Government, government-related entities, and
private entities. These mortgage-related securities include derivative
mortgage securities. For a further description of these securities and other
investment activities, see "Additional Information on Portfolio Investments
and Strategies" below.
The Mortgage Securities Fund may invest up to 35% of the value of its total
assets in:
(i) non-mortgage related securities issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities;
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(ii) certificates of deposit, bankers' acceptances and interest-bearing
savings deposits of banks having total assets of more than $1 billion and
which are members of the Federal Deposit Insurance Corporation (the
"FDIC"); and
(iii) commercial paper rated A-1 by Standard & Poor's Ratings Group
("S&P") or P-1 by Moody's Investors Service, Inc. ("Moody's") or, if not
rated, issued by companies which have an outstanding debt issue rated AAA
by S&P or Aaa by Moody's.
The Mortgage Securities Fund will attempt to maintain a dollar-weighted
average portfolio life of more than three years but no more than ten years. In
order to maintain this dollar-weighted average portfolio life, Huntington will
monitor the prepayment experience of the underlying mortgage pools of
the mortgage-related securities and will purchase and sell securities in the
portfolio to shorten or lengthen the average life of the portfolio, as
appropriate.
It is important to understand that, while a valuable measure, average life
is based on certain assumptions and has several limitations. It is most useful
as a measure of the repayment of principal when interest rate changes are
small. In addition, average life is difficult to calculate precisely for bonds
with prepayment options, such as mortgage-related securities, because the
calculation requires assumptions about prepayment rates. For example, when
interest rates go down, homeowners may prepay their mortgages at a higher rate
than assumed in the initial securities. Conversely, if rates increase,
prepayments may decrease to a greater extent than assumed, extending the
average life of such securities. For these reasons, average lives of funds
which invest a significant portion of their assets in mortgage-related
securities can be greatly affected by changes in interest rates.
The portfolio turnover rate of the Mortgage Securities Fund may exceed 100%,
which is higher than the portfolio turnover rate of most mutual funds.
However, the Adviser does not expect the portfolio turnover rate of the
Mortgage Securities Fund to exceed 200%. To the extent that short-term trading
results in the realization of short-term capital gains, shareholders will be
taxed on such gains at ordinary income tax rates. However, certain tax rules
may restrict the Mortgage Securities Fund's ability to sell securities in some
circumstances when the security has been held for less than three (3) months.
Increased portfolio turnover necessarily results in higher costs, including
brokerage commissions, dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities, and may result in the
acceleration of capital gains.
Short-Term Trading. The Mortgage Securities Fund will use short-term trading
to benefit from yield disparities among different issues of securities or
otherwise to achieve its investment objective. To the extent that the Mortgage
Securities Fund engages in short-term trading, such activities will cause it
to pay greater mark-up charges. The Mortgage Securities Fund's portfolio
turnover rate is set forth in "Financial Highlights."
Investment Risks. The Mortgage Securities Fund is subject to interest rate
risk, which is the potential for a decline in bond prices due to rising
interest rates. In general, bond prices vary inversely with interest rates.
When interest rates rise, bond prices generally fall. Conversely, when
interest rates fall, bond prices generally rise. Interest rate risk applies to
U.S. Government securities as well as other bonds. U.S. Government securities
are guaranteed only as to the payment of interest and principal. The current
market prices for such securities are not guaranteed and will fluctuate.
The Mortgage Securities Fund invests a significant portion of its assets in
mortgage-related securities and, as a result, is subject to prepayment risk.
Prepayment risk results because, as interest rates fall, homeowners are more
likely to refinance their home mortgages. When home mortgages are
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refinanced, the principal on mortgage-related securities held is prepaid
earlier than expected. The Mortgage Securities Fund must then reinvest the
unanticipated principal payments, just at a time when interest rates on new
mortgage investments are falling. Prepayment risk has two important effects on
the Fund:
. When interest rates fall and additional mortgage prepayments must be
reinvested at lower interest rates, Mortgage Securities Fund's income
will be reduced; and
. When interest rates fall, prices on mortgage-backed securities may not
rise as much as comparable Treasury bonds because bond market investors
may anticipate an increase in mortgage prepayments and a likely decline
in income.
The Mortgage Securities Fund's investments in mortgage-related securities
also subject it to extension risk. Extension risk is the possibility that
rising interest rates may cause prepayments to occur at a slower than expected
rate. This particular risk may effectively change a security which was
considered short- or intermediate-term at the time of purchase into a long-
term security. Long-term securities generally fluctuate more widely in
response to changes in interest rates than short- or intermediate-term
securities.
The Mortgage Securities Fund's investments in mortgage-related securities
include derivative mortgage securities such as CMOs and stripped mortgage-
backed securities which, as discussed below, may involve risks in addition to
those found in other mortgage-related securities. Past market experience has
shown that certain derivative mortgage securities may be highly sensitive to
changes in interest and prepayment rates and, as a result, the prices of such
securities may be highly volatile. In addition, recent market experience has
shown that during periods of rising interest rates, the market for certain
derivative mortgage securities may become more unstable and such securities
may become more difficult to sell as market makers either choose not to
repurchase such securities or offer prices, based on current market
conditions, which are unacceptable to the Fund.
OHIO TAX-FREE FUND
The objective of the Ohio Tax-Free Fund is to provide current income exempt
from federal income tax and Ohio personal income taxes. The Ohio Tax-Free Fund
will attempt to achieve its objective by investing in Ohio tax-exempt
securities. "Ohio tax-exempt securities" are debt obligations which (i) are
issued by or on behalf of the State of Ohio or its respective authorities,
agencies, instrumentalities and political subdivisions, and (ii) produce
interest which, in the opinion of bond counsel at the time of issuance, is
exempt from federal income tax and Ohio personal income taxes. As a matter of
fundamental policy, under normal market conditions at least 80% of the Ohio
Tax-Free Fund's net assets will be invested in Ohio tax-exempt securities. In
addition, the Ohio Tax-Free Fund will not, as a matter of fundamental policy,
invest in securities the income from which is treated as a preference item for
purposes of the federal alternative minimum tax. This policy will restrict the
Ohio Tax-Free Fund's ability to invest in certain private activity bonds
issued after August 7, 1986.
The Ohio Tax-Free Fund will only invest in Ohio tax-exempt securities that
are rated at the time of purchase in one of the top four categories by an
NRSRO(s) or, if not rated, are determined by Huntington to be of comparable
quality under guidelines established by the Trustees. Based on current market
conditions, it is anticipated that the dollar-weighted average portfolio
maturity will be between four and ten years. Under normal market conditions,
the Ohio Tax-Free Fund will not invest in obligations with a remaining
maturity of more than 15 years at the time of purchase.
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The Ohio Tax-Free Fund may also invest in numerous types of short-term tax-
exempt instruments, which may be used to fund short-term cash requirements
such as interim financing in anticipation of the collections, revenue receipts
or bond sales to finance various public purposes.
From time to time, the Ohio Tax-Free Fund may invest in obligations the
interest on which is subject to federal income tax or Ohio personal income
taxes pending investment in Ohio tax-exempt securities or for liquidity
purposes. The Ohio Tax-Free Fund may also hold a portion of its assets in cash
or money market instruments, the interest on which may not be exempt from
federal or Ohio personal income taxes.
MICHIGAN TAX-FREE FUND
The investment objective of the Michigan Tax-Free Fund is to provide
investors with current income exempt from both federal and Michigan personal
income taxes. The Michigan Tax-Free Fund will attempt to achieve this
objective by investing primarily in debt obligations with short-to-
intermediate remaining maturities (less than 15 years) issued by or on behalf
of the State of Michigan and its political subdivisions, agencies, and
instrumentalities or by other issuers outside the State of Michigan if such
obligations pay interest that, in the opinion of counsel to the issuer, is
exempt from both federal and Michigan personal income tax ("Michigan tax-
exempt securities"). The Michigan Tax-Free Fund may also invest in numerous
types of short-term Michigan tax-exempt securities that may be used to fund
short-term cash requirements such as interim financing in anticipation of the
collections, revenue receipts or bond sales to finance various public
purposes. As a matter of fundamental policy, under normal market conditions at
least 65% of the Michigan Tax-Free Fund's net assets will be invested in
Michigan tax-exempt securities. In addition, the Michigan Tax-Free Fund will
not, as a matter of fundamental policy invest more than 20% of its net assets
in Michigan tax-exempt securities the income from which is treated as a
preference item for purposes of the federal alternative minimum tax. This
policy will restrict the Michigan Tax-Free Fund's ability to invest in certain
private activity bonds issued after August 7, 1986.
Bank and Savings and Loan Obligations. These obligations include negotiable
certificates of deposit, fixed time deposits, bankers' acceptances, and
interest bearing demand accounts. The Michigan Tax-Free Fund limits its bank
investments to dollar-denominated obligations of U.S., Canadian, Asian or
European banks which have more than $500 million in total assets at the time
of investment or of United States savings and loan associations which have
more than $1 billion in total assets at the time of investment and, in the
case of U.S. banks, are members of the Federal Reserve System or are examined
by the Comptroller of the Currency or whose deposits are insured by the FDIC.
Commercial Paper. Commercial paper includes short-term unsecured promissory
notes, and variable floating rate demand notes issued by domestic and foreign
bank holding companies, corporations and financial institutions as well as
similar taxable and tax-exempt instruments issued by government agencies and
instrumentalities.
Variable and Floating Rate Demand and Master Demand Notes. The Michigan Tax-
Free Fund may, from time to time, buy variable or floating rate demand notes
issued by corporations, bank holding companies and financial institutions and
similar taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities typically will have a nominal maturity of
over one year but will give the holder the right to "put" the securities to a
remarketing agent or other
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entity at designated time intervals and on specified notice. The obligation of
the issuer of the put to repurchase the securities may be backed by a letter
of credit or other obligation issued by a financial institution. The purchase
price is ordinarily par plus accrued and unpaid interest. Generally, the
remarketing agent will adjust the interest rate every seven days (or at other
specified intervals) in order to maintain the interest rate at the prevailing
rate for securities with a seven-day or other designated maturity.
The Michigan Tax-Free Fund also may buy variable rate master demand notes.
The terms of these obligations permit the Fund to invest fluctuating amounts
at varying rates of interest pursuant to direct arrangements between the
Michigan Tax-Free Fund, as lender, and the borrower. These instruments permit
weekly and, in some instances, daily changes in the amounts borrowed. The
Michigan Tax-Free Fund has the right to increase the amount under the note at
any time up to the full amount provided by the note agreement, or to decrease
the amount, and the borrower may repay up to the full amount of the note
without penalty. The notes may or may not be backed by bank letters of credit.
Because the notes are direct lending arrangements between the Michigan Tax-
Free Fund and borrower, it is not generally contemplated that they will be
traded, and there is no secondary market for them, although they are
redeemable (and thus, immediately repayable by the borrower) at principal
amount, plus accrued interest, at any time. In connection with any such
purchase and on an ongoing basis, Huntington will consider the earning power,
cash flow and other liquidity ratios of the issuer, and its ability to pay
principal and interest on demand, including situations in which all holders of
such notes make demand simultaneously. While master demand notes, as such, are
not typically rated by NRSROs, if not so rated, the Michigan Tax-Free Fund
may, under its minimum rating standards, invest in them only if, at the time
of an investment, the issuer meets the criteria set forth in this Prospectus
for commercial paper obligations.
FIXED INCOME SECURITIES FUND
The objective of the Fixed Income Securities Fund is to achieve high current
income through investment in fixed income securities where the average
maturity of the Fixed Income Securities Fund will not exceed 10 years. The
Fixed Income Securities Fund may purchase obligations of the U.S. Government
and its agencies and instrumentalities, corporate bonds, debentures,
nonconvertible fixed income preferred stocks, mortgage pass-through
securities, eurodollar certificates of deposit and eurodollar bonds. The Fixed
Income Securities Fund may also invest up to 10% of its net assets in non-U.S.
dollar denominated bonds. Both fixed and variable rate issues may be
purchased. Debt securities will be rated at the time of purchase in one of the
top four categories by an NRSRO(s) or, if not rated, of comparable quality as
determined by Huntington under guidelines established by the Trustees. As a
matter of fundamental policy, under normal market conditions, the Fixed Income
Securities Fund will invest at least 65% of its assets in fixed income
securities. The Fixed Income Securities Fund may also, under normal market
conditions, invest a portion of its assets in cash equivalents, including
repurchase agreements and the shares of money market mutual funds, for
liquidity purposes.
INTERMEDIATE GOVERNMENT INCOME FUND
The investment objective of the Intermediate Government Income Fund is to
provide investors with high level of current income. The Intermediate
Government Income Fund invests primarily in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities in the form
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of U.S. Treasury bills, notes and bonds, mortgage-backed securities and
collateralized mortgage obligations having a dollar-weighted average maturity
of not less than three or more than ten years. The mortgage-related securities
in which the Intermediate Government Income Fund invests include derivative
mortgage securities. For a further description of these securities and other
investment activities, see "Additional Information on Portfolio Investments
and Strategies" below. As a fundamental policy, under normal market
conditions, the Intermediate Government Income Fund invests at least 65% of
its assets in such securities. Certain of these securities may be subject to
repurchase agreements and the Intermediate Government Income Fund also may
engage in transactions in interest rate futures contracts and options thereon.
Investment Risks. The Intermediate Government Income Fund invests a portion
of its assets in mortgage-related securities, and, as a result, is subject to
prepayment risk. Prepayment risk results because, as interest rates fall,
homeowners are more likely to refinance their home mortgages. When home
mortgages are refinanced, the principal on mortgage-related securities held is
prepaid earlier than expected. The Intermediate Government Income Fund must
then reinvest the unanticipated principal payments just at a time when
interest rates on new mortgage investments are falling. Prepayment risk has
two important effects on the Fund:
. When interest rates fall and additional mortgage prepayments must be
reinvested at lower interest rates, the Intermediate Government Income
Fund's income will be reduced; and
. When interest rates fall, prices on mortgage-backed securities may not
rise as much as comparable Treasury bonds because bond market investors
may anticipate an increase in mortgage prepayments and a likely decline
in income.
The Intermediate Government Income Fund's investments in mortgage-related
securities also subject it to extension risk. Extension risk is the
possibility that rising interest rates may cause prepayments to occur at a
slower than expected rate. This particular risk may effectively change a
security which was considered short- or intermediate-term at the time of
purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short- or
intermediate-term securities.
The Intermediate Government Income Fund's investments in mortgage-related
securities may include derivative mortgage securities such as CMOs and
stripped mortgage-backed securities, as discussed below, which may involve
risks in addition to those found in other mortgage-related securities. Recent
market experience has shown that certain derivative mortgage securities may be
highly sensitive to changes in interest and prepayment rates and, as a result,
the prices of such securities may be highly volatile. In addition, recent
market experience has shown that during periods of rising interest rates, the
market for certain derivative mortgage securities may become more unstable and
such securities may become more difficult to sell as market makers either
choose not to repurchase such securities or offer prices, based on current
market conditions, which are unacceptable to the Fund.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS AND STRATEGIES
OHIO TAX-EXEMPT SECURITIES
The two principal classifications of Ohio tax-exempt securities are general
obligation and limited obligation (or revenue) securities. General obligation
securities involve the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. The
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characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Limited
obligation securities are payable only from the revenues derived from a
particular facility or class of facilities, or a specific revenue source, and
generally are not payable from the unrestricted revenues of the issuer.
Private activity bonds and industrial development bonds generally are limited
obligation securities, the credit and quality of which are usually directly
related to the credit of the private user of the facilities.
The economy of Ohio, while diversifying more into the service area,
continues to rely in part on durable goods manufacturing, which is largely
concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity in Ohio, as in
many other industrially-developed states, tends to be more cyclical than in
some other states and in the nation as a whole. Agriculture also is an
important segment of the economy in the State, and the State has instituted
several programs to provide financial assistance to farmers. Ohio's economy,
including particularly an unemployment rate usually somewhat higher than the
national average, has had varying effects on the different geographic areas of
the State and the political subdivisions located in such geographic areas.
Although revenue obligations of the State or its political subdivisions may be
payable from a specific source or project, there can be no assurance that
future economic difficulties and the resulting impact on state and local
government finances will not adversely affect the market value of the Ohio
tax-exempt securities in an Ohio Fund, as defined below, or the ability of the
respective obligors to make timely payment of interest and principal on such
obligations. See "Investment Objectives and Policies of the Trust--Ohio Tax-
Exempt Securities" in the Statement of Additional Information.
MICHIGAN TAX-EXEMPT SECURITIES
The tax-exempt securities which the Michigan Tax-Free Fund may purchase
include fixed and floating rate and variable rate municipal obligations,
participation interests in municipal bonds, tax-exempt commercial paper,
short-term municipal notes, and stand-by commitments. The Michigan Tax-Free
Fund's concentration in investments in Michigan tax-exempt securities will
subject the Fund to greater risk with respect to its portfolio securities than
an investment company that is permitted to invest in a broader range of
investments, because changes in the financial condition or market assessment
of issuers of Michigan tax-exempt securities generally may cause substantial
fluctuations in the Michigan Tax-Free Fund's yield and price of Fund shares.
Also, political or economic developments that affect one such security might
affect the other securities.
The performance of the Michigan Tax-Free Fund is closely tied to conditions
within the State of Michigan. The economy of Michigan is principally dependent
on three sectors--manufacturing (particularly durable goods automotive
products and office equipment), tourism and agriculture. Michigan encountered
financial difficulties during the late 1980s, largely as a result of poor
conditions in the automotive industry, but recovered from the prolonged
downturn in production levels in this sector in the early 1990s. Structural
changes in the automotive industry have given the Michigan economy greater
financial stability. The State's finances continue to be in excellent
condition, and a Budget Stabilization Fund that exceeds $1 billion should help
the state weather any potential economic recessions. At the end of 1997, after
several years of rapid growth, the Michigan economy was evidencing continued
growth and unemployment levels which were lower than they had been for the
past several years. The market value and the marketability of bonds issued by
local units of government in the state may be affected adversely by the same
factors that affect Michigan's economy generally. The ability of the State and
its local units of government to pay the principal of and interest
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on their bonds may also be affected by such factors and by certain
constitutional, statutory and charter limitations. See "Investment Objectives
and Policies of the Trust--Michigan Tax-Exempt Securities" in the Statement of
Additional Information.
CREDIT ENHANCEMENT
Certain of the portfolio investments of the Ohio Tax-Free Fund and the
Michigan Tax-Free Fund may have been credit enhanced by a guarantee, letter of
credit or insurance. These Funds typically evaluate the credit quality and
ratings of credit enhanced securities based upon the financial condition and
ratings of the party providing the credit enhancement (the "credit enhancer"),
rather than the issuer. However, credit enhanced securities will not be
treated as having been issued by the credit enhancer for diversification
purposes, unless the Fund has invested more than 10% of its assets in
securities issued, guaranteed or otherwise credit enhanced by the credit
enhancer, in which case the securities will be treated as having been issued
both by the issuer and the credit enhancer. The bankruptcy, receivership or
default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.
NON-DIVERSIFICATION
The Ohio Municipal Money Market Fund, the Ohio Tax-Free Fund and the
Michigan Tax-Free Fund (the "Single State Funds") are non-diversified Funds
under the 1940 Act, which means that they may invest their assets in the
obligations of fewer issuers than would be the case if they were
"diversified". The Single State Funds' ability to invest a relatively high
percentage of their assets in the securities of a limited number of issuers
involves an increased risk of loss to a Single State Fund if any one issuer is
unable to make interest or principal payments or if the market value of the
issuer's securities declines.
Although non-diversified under the Investment Company Act, the Single State
Funds intend to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires, among other things, that at the end of each quarter of
the taxable year, with regard to at least 50% of each Single State Fund's
total assets, no more than 5% of its total assets are invested in the assets
of a single issuer; beyond that, no more than 25% of its total assets are
invested in the securities of a single issuer.
DEFENSIVE INVESTMENT STRATEGIES
At times Huntington may judge that conditions in securities markets may make
pursuing a Fund's basic investment strategy inconsistent with the best
interests of the Fund's shareholders. At such times, Huntington may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of a Fund's assets. In implementing these temporary
"defensive" strategies, a Fund may temporarily place all or a portion of its
assets in cash, U.S. Government securities, debt securities which Huntington
considers to be of comparable quality to the acceptable investments of the
Fund and other investments which Huntington considers consistent with such
strategies. In the case of the Single State Funds, a Fund's alternative
strategies may give rise to income which is not exempt from federal or state
taxes.
OPTIONS AND FUTURES CONTRACTS (ALL FUNDS OTHER THAN THE MONEY MARKET FUNDS)
A Fund may seek to increase its current return by writing covered call
options and covered put options on its portfolio securities or other
securities in which it may invest. A Fund receives a premium
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from writing a call or put option, which increases a Fund's return if the
option expires unexercised or is closed out at a net profit. A Fund may also
buy and sell put and call options on its securities for hedging purposes. When
a Fund writes a call option on a portfolio security, it gives up the
opportunity to profit from any increases in the price of the security above
the exercise price of the option. When it writes a put option, a Fund takes
the risk that it will be required to purchase a security from the option
holder at a price above the current market price of the security. A Fund may
terminate an option that it has written prior to expiration by entering into a
closing purchase transaction in which it purchases an option having the same
terms as the option written.
A Fund may purchase and sell futures contracts and related options to hedge
against changes in the value of securities it owns or expects to purchase.
Futures contracts on a variety of stock and bond indices are currently
available. An index is intended to represent a numerical measure of market
performance by the securities making up the index. A Fund may purchase and
sell futures contracts on any index approved for trading by the Commodity
Futures Trading Commission to hedge against general changes in market values
of securities which a Fund owns or expects to purchase. A Fund may also
purchase and sell put and call options on index futures or directly on the
underlying indices for hedging purposes. In addition, a Fund may purchase and
sell futures contracts and related options on individual debt securities which
a Fund owns or expects to purchase, if and when such futures contracts and
options become available.
In connection with its futures transactions, a Fund will be required to
deposit as "initial margin" an amount of cash and/or securities. Thereafter,
subsequent payments (referred to as "variation margin") are made to and from
the broker to reflect changes in the value of the futures contract. A Fund
will not generally purchase or sell futures contracts or purchase or sell
options on futures contracts if as a result the sum of initial margin deposits
on a Fund's existing futures contracts and options written by a Fund plus
premiums paid for outstanding options on futures contracts purchased by a
Fund, would exceed 5% of a Fund's net assets.
Options and futures transactions involve various risks, including the risk
that a Fund may be unable at times to close out its positions, that such
transactions may not accomplish their purposes because of imperfect market
correlations, or that Huntington or its Subadviser may not forecast market
movements correctly. Options and futures transactions involve costs and may
result in losses. The effective use of options and futures strategies by a
Fund is dependent upon, among other things, a Fund's ability to terminate
options and futures positions at times when Huntington or its Subadviser deems
it desirable to do so. Although a Fund will enter into an options or futures
contract position only if Huntington or its Subadviser believes that a liquid
secondary market exists for such options or futures contract, there is no
assurance that a Fund will be able to effect closing transactions at a
particular time or at an acceptable price.
The Funds generally expect that their options and futures transactions will
be conducted on recognized exchanges. In certain instances, however, a Fund
may purchase and sell options in the over-the-counter ("OTC") markets. A
Fund's ability to terminate options in the OTC market may be more limited than
for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to a Fund. A Fund will, however, engage in OTC market transactions
only when appropriate exchange-traded transactions are unavailable and when,
in the opinion of Huntington, the pricing mechanism and liquidity of the OTC
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market is satisfactory and the participants are responsible parties likely to
meet their contractual obligations.
The use of options and futures strategies also involves the risk of
imperfect correlation between movements in the prices of options and futures
contracts and movements in the value of the underlying securities that are the
subject of a hedge. The successful use of these strategies further depends on
the ability of Huntington to forecast market movements correctly.
For more information about any of the options or futures portfolio
transactions described above, see the Statement of Additional Information.
FOREIGN INVESTMENTS
Except as otherwise limited in this Prospectus, a Fund may invest some or
all of its assets in securities principally traded in foreign markets. Since
foreign securities are normally denominated and traded in foreign currencies,
the value of a Fund's assets may be affected favorably or unfavorably by
currency exchange rates and exchange control regulation. Exchange rates with
respect to certain currencies may be particularly volatile. There may be less
information publicly available about a foreign company than about a U.S.
company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those
in the United States. The securities of some foreign companies are less liquid
and at times more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally higher than in
the United States. Foreign settlement procedures and trade regulations may
involve certain risks (such as delays in payment or delivery of securities or
in the recovery of a Fund's assets held abroad) and expenses not present in
the settlement of domestic investments.
In addition, with respect to certain foreign countries, there is a
possibility of nationalization or expropriation of assets, confiscatory
taxation, political or financial instability and diplomatic developments which
could affect the value of investments in those countries. In certain
countries, legal remedies available to investors may be more limited than
those available with respect to investments in the United States or other
countries. The laws of some foreign countries may limit a Fund's ability to
invest in securities of certain issuers located in those countries. Special
tax considerations apply to foreign securities.
A Fund may buy or sell foreign currencies and forward foreign currency
exchange contracts for hedging purposes in connection with its foreign
investments.
A more detailed explanation of foreign investments, and the risks associated
with them, is included in the Statement of Additional Information.
REPURCHASE AGREEMENTS
Certain securities in which a Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S.
Government securities or other securities to a Fund and agree at the time of
sale to repurchase them at a mutually agreed upon time and price. A Fund or
its custodian will take possession of the securities subject to repurchase
agreements and these securities will be marked to market daily. To the extent
that the original seller does not repurchase the securities from a Fund, a
Fund could receive less than the repurchase price on any sale of such
securities. In the event that
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<PAGE>
such a defaulting seller filed for bankruptcy or became insolvent, disposition
of such securities by a Fund might be delayed pending court action. The
Trustees believe that under the regular procedures normally in effect for
custody of a Fund's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of a Fund and allow
retention or disposition of such securities. A Fund will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are found by Huntington to be creditworthy
pursuant to guidelines established by the Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
A Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which a Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause a Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, a Fund may pay more
or less than the market value of the securities on the settlement date.
A Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so.
In connection with its ability to purchase securities on a when-issued or
delayed delivery basis, the Mortgage Securities Fund may enter into mortgage
"dollar rolls" in which it sells securities for delivery in the current month
and simultaneously contracts with the same counterparty to repurchase similar
(same type, coupon and maturity) but not identical securities on a specified
future date. The Mortgage Securities Fund gives up the right to receive
principal and interest paid on the securities sold. However, the Mortgage
Securities Fund would benefit to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase plus any fee income received. Unless such benefits exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the mortgage dollar
roll, the use of this technique will diminish the investment performance of
the Mortgage Securities Fund compared with what such performance would have
been without the use of mortgage dollar rolls. The Mortgage Securities Fund
will hold and maintain in a segregated account until the settlement date, cash
or liquid high-grade debt securities in an amount equal to the forward
purchase price. The benefits derived from the use of mortgage dollar rolls may
depend upon Piper's ability to predict correctly mortgage prepayments and
interest rates. There is no assurance that mortgage dollar rolls can be
successfully employed. In addition, the use of mortgage dollar rolls by the
Mortgage Securities Fund while remaining substantially fully invested
increases the amount of its assets that are subject to market risk to an
amount that is greater than its net asset value, which could result in
increased volatility of the price of its shares. The Mortgage Securities Fund
may invest up to 35% of its total assets in securities purchased on a when-
issued or delayed delivery basis.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, a Fund may lend its portfolio
securities on a short-term basis to brokers, dealers or other financial
institutions. A Fund will only enter into loan arrangements with brokers,
dealers or other financial institutions which Huntington has determined are
creditworthy under guidelines established by the Trustees and must receive
collateral equal to at least 102% of the current market value of the
securities loaned. The collateral received when a Fund lends portfolio
26
<PAGE>
securities must be valued daily and, should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. As a matter of fundamental policy, the aggregate value of all securities
loaned by a Fund may not exceed 20% of the Fund's total assets.
There is the risk that, when lending portfolio securities, the securities
may not be available to a Fund on a timely basis and a Fund may, therefore,
lose the opportunity to sell the securities at a desirable price. In addition,
in the event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities in which the Mortgage Securities Fund and the
Intermediate Government Income Fund invest are securities that, directly or
indirectly, represent participations in, or are secured by and payable from,
loans secured by real property. Mortgage-related securities, as the term is
used in this Prospectus, include mortgage pass-through securities, adjustable
rate mortgage securities, collateralized mortgage obligations and stripped
mortgage-backed securities. These mortgage-related securities include
derivative mortgage securities. Mortgage-related securities fall into three
categories: (a) those issued or guaranteed by the U.S. Government or one of
its agencies or instrumentalities, such as Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"); (b) those issued by non-
governmental issuers that represent interests in, or are collateralized by,
mortgage-related securities issued or guaranteed by the United States
Government or one of its agencies or instrumentalities; and (c) those issued
by non-governmental issuers that represent an interest in, or are
collateralized by, whole mortgage loans or mortgage-related securities without
a government guarantee but usually with over-collateralization or some other
form of private credit enhancement. Non-governmental issuers referred to in
(b) and (c) above include originators of and investors in mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.
MORTGAGE PASS-THROUGH SECURITIES
The mortgage pass-through securities in which the Mortgage Securities Fund
and the Intermediate Government Income Fund invest provide for the pass-
through to investors of their pro-rata share of monthly payments (including
any prepayments) made by the individual borrowers on the pooled mortgage
loans, net of any fees paid to the guarantor of such securities and the
servicer of the underlying mortgage loans. The Mortgage Securities Fund
invests both in U.S. Government pass-through securities issued by GNMA, FNMA
and FHLMC, and in pass-through securities issued by non-governmental issuers.
Each of GNMA, FNMA and FHLMC guarantee timely distributions of interest to
certificate holders. GNMA and FNMA guarantee timely distributions of scheduled
principal. FHLMC generally guarantees only ultimate collection of principal of
the underlying mortgage loans.
ADJUSTABLE RATE MORTGAGE SECURITIES
The Mortgage Securities Fund and the Intermediate Government Income Fund may
also invest in adjustable rate mortgage securities ("ARMS"). ARMS are pass-
through mortgage securities collateralized by mortgages with interest rates
that are adjusted from time to time. The adjustments usually are determined in
accordance with a predetermined interest rate index and may be subject to
certain limits. While the values of ARMS, like other debt securities,
generally vary inversely with
27
<PAGE>
changes in market interest rates (increasing in value during periods of
declining interest rates and decreasing in value during periods of increasing
interest rates), the values of ARMS should generally be more resistant to
price swings than other debt securities because the interest rates of ARMS
move with market interest rates. The adjustable rate feature of ARMS will not,
however, eliminate fluctuations in the prices of ARMS, particularly during
periods of extreme fluctuations in interest rates. Also, since many adjustable
rate mortgages only reset on an annual basis, it can be expected that the
prices of ARMS will fluctuate to the extent that changes in prevailing
interest rates are not immediately reflected in the interest rates payable on
the underlying adjustable rate mortgages.
ARMS typically have caps which limit the maximum amount by which the
interest rate may be increased or decreased at periodic intervals or over the
life of the loan. To the extent that interest rates increase in excess of the
caps, ARMS can be expected to behave more like traditional debt securities and
to decline in value to a greater extent than would be the case in the absence
of such caps. Also, since many adjustable rate mortgages only reset on an
annual basis, it can be expected that the prices of ARMS will fluctuate to the
extent that changes in prevailing interest rates are not immediately reflected
in the interest rates payable on the underlying adjustable rate mortgages. The
extent to which the prices of ARMS fluctuate with changes in interest rates
will also be affected by the indices underlying the ARMS. Some indices, such
as the one-year constant maturity Treasury note rate, closely mirror changes
in market interest rate levels. Others, such as the 11th District Federal
Reserve Cost of Funds Index (often related to ARMS issued by FNMA), tend to
lag changes in market levels and tend to be somewhat less volatile.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Mortgage Securities Fund and the Intermediate Government Income Fund may
invest in CMOs (collateralized mortgage obligations and multi-class pass-
through securities unless the context otherwise indicates), which are
derivative mortgage securities. Collateralized mortgage obligations are debt
instruments issued by special purpose entities which are secured by pools of
mortgage loans or other mortgage-related securities. Multi-class pass-through
securities are equity interests in a trust composed of mortgage loans or other
mortgage-related securities. Payments of principal and interest on underlying
collateral provide the funds to pay debt service on the collateralized
mortgage obligation or make scheduled distributions on the multi-class pass-
through security. The Intermediate Government Income Fund will invest only in
CMOs which are issued by agencies or instrumentalities of the U.S. government.
The Mortgage Securities Fund may also invest in CMOs issued by private
organizations which are rated AAA by an NRSRO.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMO, often referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on collateral underlying a CMO may cause it to be retired
substantially earlier than the stated maturities or final distribution dates.
The principal and interest on the underlying mortgages may be allocated
among the several tranches of a CMO in many ways. For example, certain
tranches may have variable or floating interest rates and others may be
stripped securities which provide only the principal or interest feature of
the underlying security. See "Stripped Mortgage-Backed Securities," below.
Generally, the purpose of the allocation of the cash flow of a CMO to the
various tranches is to obtain a more predictable cash flow to certain of the
individual tranches than exists with the underlying collateral of the CMO. As
a general rule, the more predictable the cash flow is on a CMO tranche, the
lower the anticipated yield will be on that tranche at the time of issuance
relative to prevailing market yields on mortgage-related securities.
28
<PAGE>
As part of the process of creating more predictable cash flows on most of the
tranches of a CMO, one or more tranches generally must be created that absorb
most of the volatility in the cash flows on the underlying mortgage loans. The
yields on these tranches, which may include inverse floaters, IOs, POs, and Z
tranches, discussed below, are generally higher than prevailing market yields
on mortgage-related securities with similar maturities. As a result of the
uncertainty of the cash flows of these tranches, the market prices of and
yield on these tranches generally are more volatile.
The Mortgage Securities Fund and the Intermediate Government Income Fund may
invest in any CMO tranche, including "inverse floaters" and "Z tranches." An
inverse floater is a CMO tranche with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Inter-Bank Offered Rate) or COFI (Cost
of Funds Index). Like most other fixed-income securities, the value of inverse
floaters will decrease as interest rates increase. Inverse floaters, however,
exhibit greater price volatility than the majority of mortgage pass-through
securities or CMOs. Coupon rates on inverse floaters typically change at a
multiple of the changes in the relevant index rate. Thus, any rise in the
index rate (as a consequence of an increase in interest rates) causes a
correspondingly greater drop in the coupon rate of an inverse floater while
any drop in the index rate causes a correspondingly greater increase in the
coupon of an inverse floater. Some inverse floaters also exhibit extreme
sensitivity to changes in prepayments. Inverse floaters would be purchased by
the Fund to attempt to protect against a reduction in the income earned on the
Fund's investments due to a decline in interest rates.
Z tranches of CMOs defer interest and principal payments until one or more
other classes of the CMO have been paid in full. Interest accretes on the Z
tranche, being added to principal, and is compounded through the accretion
period. After the other classes have been paid in full, interest payments
begin and continue through maturity. Z tranches have characteristics similar
to zero coupon bonds. Like a zero coupon bond, during its accretion period a Z
tranche has the advantage of eliminating the risk of reinvesting interest
payments at lower rates during a period of declining market interest rates. At
the same time, however, and also like a zero coupon bond, the market value of
a Z tranche can be expected to fluctuate more widely with changes in market
interest rates than would the market value of a tranche which pays interest
currently. In addition, changes in prepayment rates on the underlying mortgage
loans will affect the accretion period of a Z tranche, and therefore also will
influence its market value.
STRIPPED MORTGAGE-BACKED SECURITIES
Some of the mortgage-related securities purchased by the Mortgage Securities
Fund or the Intermediate Government Income Fund may represent an interest
solely in the principal repayments or solely in the interest payments on
mortgage-backed securities (stripped mortgage-backed securities or "SMBSs").
SMBSs are derivative multi-class securities. SMBSs are usually structured with
two classes and receive different proportions of the interest and principal
distributions on the pool of underlying mortgage-backed securities. Due to the
possibility of prepayments on the underlying mortgages, SMBSs may be more
interest-rate sensitive than other securities purchased. If prevailing
interest rates fall below the level at which SMBSs were issued, there may be
substantial prepayments on the underlying mortgages, leading to the relatively
early prepayments of principal-only SMBSs (the principal-only or "PO" class) and
a reduction in the amount of payments made to holders of interest-only SMBSs
(the interest-only or "IO" class). Therefore, interest-only SMBSs generally
increase in value as interest rates rise and decrease in value as interest rates
fall, counter to changes in value experienced by most fixed income securities.
If the underlying mortgages experience slower than anticipated prepayments of
principal, the yield on a PO class will be affected more severely than would
29
<PAGE>
be the case with a traditional mortgage-related security. Because the yield to
maturity of an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage-backed
securities, it is possible that the Mortgage Securities Fund or the
Intermediate Government Income Fund might not recover its original investment
on interest-only SMBSs if there are substantial prepayments on the underlying
mortgages. A Fund's inability to fully recoup its investment in these
securities as a result of a rapid rate of principal prepayments may occur even
if the securities are rated AAA by an NRSRO. In view of these considerations,
Huntington intends to use these characteristics of interest-only SMBSs to
reduce the effects of interest rate changes on the value of the Fund's
portfolio, while continuing to pursue current income.
U.S. GOVERNMENT SECURITIES
U.S. government securities are securities that are either issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies, or instrumentalities. THE CURRENT MARKET PRICES FOR SUCH SECURITIES
ARE NOT GUARANTEED AND WILL FLUCTUATE. Investments in U.S. Government
securities are limited to:
(a) direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
(b) notes, bonds, and discount notes of U.S. Government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives and Banks for Cooperatives; Federal Home
Loan Banks; Federal Home Loan Mortgage Corporation; Federal National
Mortgage Association; Government National Mortgage Association; Export-
Import Bank of the United States; Commodity Credit Corporation; Federal
Financing Bank; The Student Loan Marketing Association; National Credit
Union Administration; and Tennessee Valley Authority.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government, such as Government National Mortgage Association
participation certificates, are backed by the full faith and credit of the
U.S. Treasury. No assurances can be given that the U.S. Government will
provide financial support to other agencies or instrumentalities, since it is
not obligated to do so. These instruments are supported by:
(a)the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
(b)the discretionary authority of the U.S. Government to purchase certain
obligations of an agency or instrumentality; or
(c)the credit of the agency or instrumentality.
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<PAGE>
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions and limitations for
the purpose of reducing its exposure in specific situations. These investment
limitations are fundamental policies and may be changed with respect to any
Fund only by a vote of a majority of the outstanding shares of that Fund.
No Fund will:
(1) Except for the Single State Funds, invest more than 5% of the value of
its total assets in the securities of any one issuer (this limitation
does not apply to securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities or to repurchase
agreements secured by such obligations);
(2) Invest 25% or more of the value of its total assets (i) in securities
of companies primarily engaged in any one industry (other than the U.S.
Government, its agencies and instrumentalities), and (ii) with respect
to the Single State Funds, in municipal obligations of one issuer or
which are related in such a way that, in the opinion of Huntington, an
economic, business or political development (other than a state-wide,
national or international development) affecting one such municipal
obligation would also affect the others in a similar manner. Such
concentration may occur as a result of changes in the market value of
portfolio securities, but such concentration may not result from
investment;
(3) Except for investments by the Money Market Fund in commercial paper
issued under Section 4(2) of the Securities Act of 1933 and certain
other restricted securities which meet the criteria for liquidity as
established by the Trustees, invest more than 10% (15% in the case of
the Intermediate Government Income Fund) of the value of its total
assets in illiquid securities, including restricted securities,
repurchase agreements of over seven days' duration and OTC options; and
(4) Borrow in excess of 5% of its total assets (borrowings are permitted
only as a temporary measure for extraordinary or emergency purposes) or
pledge (mortgage) its assets as security for any indebtedness, except
that each of the Michigan Tax-Free Fund and the Intermediate Government
Income Fund may borrow from banks up to 10% of the current value of its
total net assets for temporary or defensive purposes and those
borrowings may be secured by the pledge of not more than 15% of the
current value of its total net assets (but investments may not be
purchased by these Funds while any such borrowings are outstanding).
In addition, neither the Michigan Tax-Free Fund nor the Intermediate
Government Income Fund will make loans, except loans of portfolio securities
and except that each Fund may enter into repurchase agreements with respect to
its portfolio securities and may purchase the types of debt instruments
described in this Prospectus. To increase current income, the Michigan Tax-
Free Fund may lend portfolio securities comprising up to 5% of total assets
and the Intermediate Government Income may lend portfolio securities
comprising up to 20% of total assets to brokers, dealers and financial
institutions, provided certain conditions are met, including the condition
that each loan is secured continuously by collateral maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned.
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<PAGE>
HOW THE FUNDS VALUE THEIR SHARES
Each Money Market Fund attempts to stabilize the net asset value of its
Investment Shares at $1.00 by valuing its portfolio securities using the
amortized cost method. The net asset value per Investment Share is determined
by adding the interest of the Investment Shares in the value of all securities
and other assets of a Money Market Fund, subtracting the interest of the
Investment Shares in the liabilities of a Fund and those attributable to
Investment Shares, and dividing the remainder by the total number of
Investment Shares outstanding. A Money Market Fund cannot guarantee that its
net asset value will always remain at $1.00 per share.
The net asset value for Investment Shares of each of the other Funds is
determined by adding the interest of the Investment Shares in the market value
of all securities and other assets of a Fund, subtracting the interest of the
Investment Shares in the liabilities of a Fund and those attributable to
Investment Shares, and dividing the remainder by the total number of
Investment Shares outstanding. The net asset value of a Fund's Investment
Shares will differ from that of Trust Shares due to the expense of the Rule
12b-1 fee applicable to a Fund's Investment Shares.
Securities for which market quotations are readily available are stated at
market value. Short-term investments with remaining maturities of 60 days or
less at the time of purchase are stated at amortized cost, which approximates
market value. Debt securities for which market quotations are not readily
available will be valued on the basis of valuations provided by pricing
services approved by the Trustees. Pricing services often use information with
respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities, and various relationships between
securities in determining value. All other Fund assets are valued at their
fair value following procedures approved by the Trustees.
The Money Market Funds calculate net asset value per Investment Share as of
the close of the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on
each Business Day. The other Funds calculate net asset value per Investment
Share as of the close of the New York Stock Exchange (currently 4:00 p.m.
Eastern Time) on each Business Day. As used herein, a "Business Day"
constitutes Monday through Friday except (i) days on which there are not
sufficient changes in the value of a Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; (iii)
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day and (iv)
other civil holidays, such as Veterans' Day and Martin Luther King Day, when
the Federal Reserve Banks or the financial markets are closed.
HOW TO BUY INVESTMENT SHARES
Investment Shares of the Funds may be purchased through The Huntington
Investment Company, Huntington Personal Bankers or MONITORdirect, part of
Investor Services, (collectively, the "Huntington Group") pursuant to
respective agreements between The Huntington Investment Company or Huntington
and the Distributor. Investors may purchase Investment Shares of the Funds on
all Business Days. Investment Shares in each Money Market Fund other than the
Ohio Municipal Money Market Fund purchased prior to 1:00 p.m. (Eastern Time)
begin earning dividends that day; Investment Shares in the Ohio Municipal
Money Market Fund purchased prior to 10:30 a.m. (Eastern Time) begin earning
dividends that day; Investment Shares purchased after such time begin earning
dividends on the following day. In connection with the sale of a Fund's
Investment Shares, the Distributor may from time to time offer certain items
of nominal value to any shareholder.
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<PAGE>
From time to time, the Trust may temporarily suspend the offering of shares
of one or more of the Funds or any class thereof. During the period of any
such suspension and depending on the reasons for the suspension, persons who
are already shareholders of any such Fund or class may be permitted to
continue to purchase additional shares and to have dividends reinvested. The
Trust or the Distributor may refuse any order to purchase shares or waive any
minimum purchase requirements. The Funds will issue certificates representing
Investment Shares upon request.
TO PLACE AN ORDER
To purchase Investment Shares of the Funds, an investor may call The
Huntington Investment Company at 800-322-4600, or the investor's Personal
Banker directly. All other investors should call MONITORdirect at 800-253-
0412.
Payment may be made either by check or wire transfer of federal funds. To
purchase by check, the check must be included with the order and made payable
to the name of the applicable Fund, designating Investment Shares. If a
shareholder pays for Investment Shares by check and the check does not clear,
the purchase will be cancelled, and the shareholder may be charged a fee and
will be liable for any losses incurred. Neither initial nor subsequent
investments will be made by third party check. If a shareholder pays for
Investment Shares with a check drawn from a bank outside the United States,
the check will be sent to the bank for collection prior to placing the trade
in the shareholder's account, and approximately four to five weeks will be
required before the trade will be processed. Orders are considered received
after payment by check is converted into federal funds by the Funds' transfer
agent, State Street Bank and Trust Company (the "Transfer Agent").
When payment is made through wire transfer of federal funds, the order is
considered received immediately upon receipt by the Transfer Agent. With
respect to the Money Market Fund, Ohio Municipal Money Market Fund and U.S.
Treasury Money Market Fund, payment by wire must be received by the applicable
member of the Huntington Group before 10:30 a.m. (Eastern Time) in order to
earn dividends for that day. Payment by wire must be received by the
applicable member of the Huntington Group before 4:00 p.m. (Eastern Time) in
order for Investment Shares of a Fund to be purchased at that day's price.
Prior to purchasing by wire, investors should call the applicable member of
the Huntington Group. It is the responsibility of the applicable member of the
Huntington Group to transmit orders promptly to the Transfer Agent. Federal
funds should be wired as follows: Huntington National Bank, ABA 044000024,
Trust Department, Account Number 01891160404, Monitor Retail, Attention:
Shareholder Services.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Investment Shares of a Fund is $1,000.
Subsequent investments must be in amounts of at least $50.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, holders of Investment Shares of a Fund may
add to their investment on a regular basis in minimum amounts of at least $50.
The Funds will waive the initial $1,000 investment minimum for investors who
sign up for the Systematic Investment Program. Under this program, funds will
be automatically withdrawn periodically from the shareholder's banking account
and invested in Investment Shares of a Fund at the applicable public offering
price per share next determined after an order is received by the Transfer
Agent. Shareholders may apply for participation in this program by completing
the appropriate section of the account application.
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<PAGE>
If the shareholder's automatic investment program payment does not clear,
the purchase will be cancelled and the shareholder may be charged a fee and
will be liable for any losses incurred. Any subsequent such occurrences may
result in the cancellation of the automatic investment program feature of the
shareholder's account.
WHAT SHARES COST
Money Market Funds. With respect to the Money Market Fund, Ohio Municipal
Money Market Fund and U.S. Treasury Money Market Fund, Investment Shares are
sold at their net asset value next determined after an order is received.
There is no sales charge imposed by these Funds.
Growth Fund. With respect to the Growth Fund, Investment Shares are sold at
their net asset value per share next determined after an order is received,
plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
--------------------- --------------------- -------------------
<S> <C> <C>
Less than $100,000 4.00% 4.17%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 1.50% 1.52%
$750,000 but less than $1 million 0.75% 0.76%
$1 million or more 0.25% 0.25%
</TABLE>
Income Equity Fund. With respect to the Income Equity Fund, Investment
Shares are sold at their net asset value per share next determined after an
order is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
--------------------- --------------------- -------------------
<S> <C> <C>
Less than $50,000 5.50% 5.82%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.75% 2.83%
$500,000 but less than $1 million 2.00% 2.04%
$1 million or more none none
</TABLE>
Income Funds. With respect to the Mortgage Securities Fund, Ohio Tax-Free
Fund, Michigan Tax-Free Fund, Fixed Income Securities Fund and Intermediate
Government Income Fund, Investment Shares are sold at their net asset value
per share next determined after an order is received, plus a sales charge as
follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
--------------------- --------------------- -------------------
<S> <C> <C>
Less than $500,000 2.00% 2.04%
$500,000 but less than $750,000 1.50% 1.52%
$750,000 but less than $1 million 0.75% 0.76%
$1 million or more 0.00% 0.00%
</TABLE>
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<PAGE>
Purchases at Net Asset Value. Investment Shares issued through reinvestment
of dividends and capital gains distributions are not subject to a sales
charge. In addition, the Distributor has agreed to waive all sales loads
imposed on purchases of Investment Shares of any of the Funds and any other
classes of Investment Shares hereafter offered by any other Series of The
Monitor Funds by the following persons: (a) current officers, directors,
employees (and their spouses or immediate family members) and retired officers
and employees (including their spouses) of Huntington Bancshares Incorporated
or any of its subsidiaries; (b) persons who participate in certain financial
services programs offered by the banking subsidiaries of Huntington Bancshares
Incorporated; and (c) persons who are current members of certain affinity
groups (such as trade associations or membership associations) that have
entered into written agreements with the Trust's Investment Advisor and the
Distributor providing for such a sales load waiver. Potential investors who
believe that they are eligible for this sales load waiver may contact Investor
Services (1-800-253-0412) for further information.
Dealer Concession. For sales of Investment Shares of the Funds, a dealer
will normally receive up to 90% of the applicable sales charge. Any portion of
the sales charge which is not paid to a dealer will be retained by the
Distributor. However, the Distributor will, periodically, uniformly offer to
pay cash, or promotional incentives in the form of trips to sales seminars at
luxury resorts, tickets or other items, to all dealers selling Investment
Shares of the Funds, from that portion of the sales load which the Distributor
retains or any other source available to it. Such payments will be predicated
upon the amount of Investment Shares of the Funds that are sold by the dealer.
The sales charge for Investment Shares sold other than through registered
broker/dealers will be retained by the Distributor. The Distributor may pay
fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the banks' customers in
connection with the initiation of customer accounts and purchases of
Investment Shares of the Funds.
Reducing the Sales Charge. The sales charge can be reduced through:
. quantity discounts and accumulated purchases;
. signing a 13-month letter of intent;
. using the reinstatement privilege; or
. concurrent purchases.
Quantity Discounts and Accumulated Purchases. As shown in the table above,
larger purchases reduce the sales charge paid. The Distributor will combine
purchases made on the same day by the investor, his spouse, and his children
under age 21 when it calculates the sales charge. In addition, the sales
charge, if applicable, is reduced for purchases made at one time by a trustee
or fiduciary for a single trust estate or a single fiduciary account.
If an additional purchase of Investment Shares in a Fund which impose a
sales charge is made, the Distributor will aggregate such additional purchases
with previous purchases of Investment Shares of Funds imposing a sales charge
provided the prior purchase is still invested in the Funds. For example, if a
shareholder already owns Investment Shares having a current value at the
public offering price of $700,000 and he purchases $50,000 more at the current
public offering price, the sales charge on the additional purchase according
to the schedule now in effect would be 0.75%, not 1.5%.
To receive the sales charge reduction, an investor should complete the
appropriate section of the account application at the time the purchase is
made indicating that Investment Shares of Funds which impose a sales charge
have been purchased and are still invested or that such purchases are being
combined. The Distributor will reduce the sales charge after it confirms the
purchase.
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Letter of Intent. If an investor intends to purchase at least $100,000 of
Investment Shares in a Fund that imposes a 4% sales charge or at least
$500,000 in one or more Funds that imposes a 2% sales charge, over the next 13
months, the sales charge may be reduced by completing the Letter of Intent
section of the account application. The Letter of Intent includes a provision
for a sales charge adjustment depending on the amount actually purchased
within the 13-month period. In addition, pursuant to a Letter of Intent, the
custodian will hold in escrow the difference between the sales charge
applicable to the amount initially purchased and the sales charge paid at the
time of the investment, which is based on the amount covered by the Letter of
Intent.
For example, assume an investor signs a Letter of Intent to purchase at
least $250,000 in Investment Shares of a Fund that imposes a 4% sales charge
and, at the time of signing the Letter of Intent, purchases $100,000 of
Investment Shares of one of these Funds. The investor would pay an initial
sales charge of 2.50% (the sales charge applicable to purchases of $250,000),
and 1.00% of the investment (representing the difference between the 3.50%
sales charge applicable to purchases of $100,000 and the 2.50% in sales
charges already paid) would be held in escrow until the investor has purchased
the remaining $150,000 or more of Investment Shares under his Letter of
Intent.
The amount held in escrow will be applied to the investor's account at the
end of the 13-month period unless the amount specified in the Letter of Intent
is not purchased. In order to qualify for a Letter of Intent, the investor
will be required to make a minimum initial investment of at least $25,000.
A Letter of Intent will not obligate the investor to purchase Investment
Shares, but if he does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. The Letter of
Intent may be dated as of a prior date to include any purchases made within
the past 90 days.
Reinstatement Privilege. If Investment Shares in a Fund have been redeemed,
the shareholder has a one-time right, within 30 days of redemption, to
reinvest the redemption proceeds at the next-determined net asset value
without any sales charge. The applicable member of the Huntington Group must
be notified in writing of the reinvestment by the shareholder in order to
eliminate a sales charge. If the shareholder redeems his Investment Shares in
a Fund and utilizes the reinstatement privilege, there may be tax
consequences.
Concurrent Purchases. For purposes of qualifying for a sales charge
reduction, a shareholder has the privilege of combining concurrent purchases
of Investment Shares in two or more Funds in the Trust, the public offering
price of which includes a sales charge. For example, if a shareholder of the
Growth Fund concurrently invests $30,000 in one Fund with a sales charge, and
$70,000 in another Fund with a sales charge, the sales charge will be reduced.
In addition, if a shareholder of the Mortgage Securities Fund, Ohio Tax-Free
Fund, Michigan Tax-Free Fund, Fixed Income Securities Fund or Intermediate
Government Income Fund concurrently invests $50,000 in one Fund with a sales
charge, and $450,000 in another Fund with a sales charge, the sales charge
will be reduced.
To receive this sales charge reduction, the applicable Huntington Group
member must be notified in writing by the shareholder (at the address provided
below under "How to Exchange Investment Shares Among the Funds--By Mail") at
the time the concurrent purchases are made. The Distributor will reduce the
sales charge after it confirms the purchases.
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HOW TO EXCHANGE INVESTMENT SHARES AMONG THE FUNDS
Shareholders may exchange Investment Shares in any Fund for Investment
Shares in any other Fund offering Investment Shares at the respective net
asset values per Investment Share next determined after receipt of the request
in good order, plus the applicable sales charge (if any) as described below.
This privilege is available to shareholders resident in any state in which the
Fund shares being acquired may be sold.
No sales charge applies when Investment Shares are exchanged from a Fund
that imposes such a charge to a Fund with no sales charge. If, however, a
shareholder seeks to exchange shares of a Fund that does not have a sales
charge for shares of a Fund that imposes such a charge, the shareholder will
be required to pay the applicable sales charge of the Fund into which the
shares are exchanged. In all cases, shareholders will be required to pay a
sales charge only once. Thus, for example, no sales charge applies when shares
are exchanged among Funds that impose a sales charge. Similarly, no sales
charge applies where a shareholder exchanges shares of a Fund with a sales
charge for shares of a Fund that does not impose such a charge and
subsequently exchanges those shares back into a Fund with a sales charge.
In order to make an exchange, shareholders will be required to maintain the
applicable minimum account balance in each Fund in which shares are owned and
must satisfy the minimum initial and subsequent purchase amounts of the Fund
into which shares are exchanged.
If the exchanging shareholder does not have an account in the Fund whose
Investment Shares are being acquired, a new account will be established with
the same registration and reinvestment options for dividends and capital gains
distributions as the account of the Fund from which the Investment Shares are
exchanged, unless otherwise specified in writing by the shareholder. In the
event the new account registration is not identical to that of the existing
account, a signature guarantee will be required. (See "Redeeming By Mail"
below.)
An exchange is treated as a sale for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may
be realized. In addition, if a shareholder exchanges shares of a Fund that
imposes a sales charge into another Fund that imposes such a charge, there may
be special tax consequences.
The Trust's exchange privileges may be terminated or modified. Except as
indicated below, shareholders will be given 60 days' prior notice of any such
termination or any material amendment of existing exchange privileges. No
notice will be given when the only material effect of an amendment is to
reduce or eliminate any charges payable at the time of an exchange or under
certain extraordinary circumstances, such as in connection with the suspension
of the sale or redemption of Fund shares. Shareholders may obtain further
information on the exchange privilege by calling the applicable member of the
Huntington Group.
BY TELEPHONE
Shareholders may provide instructions for exchanges between Funds by
calling: The Huntington Investment Company at 800-322-4600; their Personal
Banker directly or MONITORdirect at 800-253-0412. Investors may request the
Trust's telephone exchange privilege on their account application. Information
on this service can be obtained through the applicable member of the
Huntington Group.
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Investment Shares may be exchanged by telephone only between Fund accounts
having identical shareholder registrations. Exchange instructions given by
telephone may be electronically recorded and will be binding upon the
shareholder. Because telephone exchange requests will be honored from anyone
who provides the correct information (described below under "By Mail"), this
service involves a possible risk of loss if someone uses the service without
the shareholder's permission.
Telephone exchange instructions must be received by the applicable member of
the Huntington Group before 3:00 p.m. (Eastern Time) for Investment Shares to
be exchanged the same day. The telephone exchange privilege may be modified or
terminated at any time and shareholders will be notified of any such
modification or termination. Shareholders of a Fund may have difficulty in
making exchanges by telephone during times of extreme economic or market
conditions. If a shareholder cannot make contact by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail to the appropriate member of the Huntington Group. Written instructions
may require a signature guarantee. If reasonable procedures are not followed
by the Funds, they may be liable for losses due to unauthorized or fraudulent
telephone instructions.
BY MAIL
Shareholders may provide instructions for exchanges between the Funds by
making a written request to the appropriate member of the Huntington Group at
Huntington Center, 41 South High Street, Columbus, Ohio 43287.
To exchange by letter or by telephone, a shareholder must state (1) the name
of the Fund from which the exchange is to be made (and designating that
Investment Shares are involved), (2) the name(s) and address on the
shareholder account, (3) the account number, (4) the dollar amount or number
of Investment Shares to be exchanged, and (5) the Fund into which the
Investment Shares are to be exchanged. Written exchange requests must be
signed by the shareholder, and it may be necessary to have the shareholder's
signature guaranteed by a member firm of a national securities exchange or by
a commercial bank, savings and loan association or trust company. Further
documentation may be required, and a signature guarantee is generally required
from corporations, executors, administrators, trustees and guardians.
HOW TO REDEEM INVESTMENT SHARES
Shareholders may redeem all or any portion of the Investment Shares in their
account on any Business Day at the appropriate net asset value per share next
determined after a redemption request in proper form is received by the
Transfer Agent. Under unusual circumstances, a Fund may suspend redemptions or
postpone payment for more than seven days, as permitted by federal securities
law.
REDEEMING BY TELEPHONE
A shareholder may redeem Investment Shares of a Fund by calling The
Huntington Investment Company at 800-322-4600, their Personal Banker directly
or MONITORdirect at 800-253-0412.
Shareholders of the Money Market Fund and U.S. Treasury Money Market Fund
who request a redemption before 1:00 p.m. (Eastern Time) will usually have the
proceeds wired the same day but will not be entitled to that day's dividend;
redemption requests received after 1:00 p.m. (Eastern Time) will receive that
day's dividend and the proceeds will normally be wired the following Business
Day.
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The applicable cut-off time for the Ohio Municipal Money Market Fund is 10:30
a.m. (Eastern Time). Requests for redemptions in the Income and Equity Funds
must be received by the appropriate member of the Huntington Group before 3:00
p.m. (Eastern Time) in order for Investment Shares to be redeemed at that
day's net asset value.
Members of the Huntington Group are responsible for promptly submitting
redemption requests and providing proper written redemption instructions to a
Fund. If at anytime the Trust shall determine it necessary to terminate or
modify this method of redemption, shareholders will be promptly notified.
Investors may request the Trust's telephone redemption privilege on their
account application. If not completed at the time of initial application,
authorization forms and information on this service can be obtained through
the members of the Huntington Group. Proceeds for redemptions will normally be
wired to the shareholder's account with proper authorization (at a domestic
commercial bank that is a member of the Federal Reserve System designated by
the shareholder in writing) or a check will be sent to the address of record.
Telephone redemption instructions may be recorded.
In the event of extreme economic or market conditions, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption, such as through written request, should be
considered. If reasonable procedures are not followed by the Funds, they may
be liable for losses due to unauthorized or fraudulent telephone instructions.
REDEEMING BY MAIL
Shareholders may redeem Investment Shares of a Fund by sending a written
request to the appropriate member of the Huntington Group. The written request
should include the shareholder's name, Fund name (designating Investment
Shares), the account number, and the Investment Share or dollar amount
requested.
Shareholders requesting a redemption of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Transfer
Agent, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
-- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the FDIC;
-- a member of the New York, American, Midwest, or Pacific Stock Exchanges;
-- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is
administered by the FDIC; or
-- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Funds and the Transfer Agent reserve the
right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request provided that Huntington has received payment for
Investment Shares from the shareholder. Shares will be redeemed at the net
asset value determined as of the end of the Business Day on which the written
redemption request is received by the Transfer Agent.
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REDEEMING BY CHECK (MONEY MARKET FUNDS ONLY)
At the shareholder's request, the appropriate member of the Huntington Group
will establish a checking account for redeeming Investment Shares of the Money
Market Funds. Shareholders may be charged a fee for this service.
With a Fund checking account, Investment Shares may be redeemed simply by
writing a check for $250 or more. The redemption will be made at the
applicable net asset value per share on the date that the check is presented
to the Fund. A check may not be written to close an account. In addition, if a
shareholder wishes to redeem Investment Shares and have the proceeds
available, a check may be written and negotiated through the shareholder's
local bank. Checks should never be sent to the issuing bank to redeem
Investment Shares. Cancelled checks are sent to the shareholder each month.
REDEEMING BY FAX
Shareholders wishing to expedite the redemption process may Fax a copy of
their written request to the appropriate member of the Huntington Group at Fax
No. 614-480-4682 (The Huntington Investment Company) or 614-480-5516 (Investor
Services). Shareholders redeeming by Fax must call the appropriate member of
the Huntington Group to confirm receipt of the written request. See "Redeeming
By Telephone" in this Prospectus for a discussion of when shareholders will
receive redemption proceeds when redeeming by Fax.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may
take advantage of the Systematic Withdrawal Program. Under this program,
Investment Shares of a particular Fund are redeemed at the applicable net
asset value per Investment Share at the time of the withdrawal to provide for
periodic withdrawal payments in an amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Investment Shares, and
the fluctuation of the net asset value of Investment Shares redeemed under
this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in Investment Shares of a particular Fund. For this
reason, payments under this program should not be considered as yield or
income on the shareholder's investment in Investment Shares of a Fund. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through the appropriate member of the Huntington Group. The Trust
requires two to three days to process a systematic withdrawal and uses
automated clearing house funds, which are transferred electronically and thus
have the potential to be uninvested for up to 48 hours.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem Investment Shares in any account, except retirement plans, and pay the
proceeds to the shareholder if the account balance falls below the required
minimum value of $1,000 due to shareholder redemptions. This
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requirement does not apply, however, if the balance falls below $1,000 because
of changes in a Fund's net asset value. Before Investment Shares are redeemed
to close an account, the shareholder will be notified in writing and allowed
30 days to purchase additional Investment Shares to meet the minimum
requirement.
MANAGEMENT OF THE TRUST
The Trustees of the Trust are responsible for generally overseeing the
conduct of each Fund's business. Huntington, Huntington Center, 41 South High
Street, Columbus, Ohio 43287, serves as investment adviser to the Funds
pursuant to investment advisory agreements with the Trust.
Subject to the supervision of the Trustees, Huntington provides a continuous
investment program for the Funds, including investment research and management
with respect to all securities, instruments, cash and cash equivalents in the
Funds. The Trust pays Huntington management fees, computed daily and payable
monthly, for each of the Funds at the following annual rates: Money Market
Fund and Ohio Municipal Money Market Fund: 0.30% of the first $500 million of
average daily net assets of the Fund, 0.25% of the next $500 million, and
0.20% of any amount over $1 billion; U.S. Treasury Money Market Fund: 0.20% of
the Fund's average daily net assets; Growth Fund and Income Equity Fund: 0.60%
of the Fund's average daily net assets; and Mortgage Securities Fund, Ohio
Tax-Free Fund, Michigan Tax-Free Fund, Fixed Income Securities Fund, and
Intermediate Government Income Fund 0.50% of the Fund's average daily net
assets. Huntington may periodically waive all or a portion of its management
fee with respect to any Fund to increase the net income of the Fund available
for distribution as dividends. Formerly, Huntington had entered into a sub-
advisory contract with Piper Capital Management Incorporated, a wholly-owned
subsidiary of Piper Jaffray Companies Inc. ("Piper"), to assist in the
management of the Mortgage Securities Fund. That contract was automatically
terminated upon the acquisition of Piper by U.S. Bancorp.
Adviser's Background. Huntington is an indirect, wholly-owned subsidiary of
Huntington Bancshares Incorporated ("HBI"), a registered bank holding company
with executive offices located at Huntington Center, 41 South High Street,
Columbus, Ohio 43287. With $26 billion in assets as of December 31, 1997, HBI
is a major Midwest regional bank holding company. Through its subsidiaries and
affiliates, HBI offers a full range of services to the public, including:
commercial lending, depository services, cash management, brokerage services,
retail banking, international services, mortgage banking, investment advisory
services, and trust services. Huntington, a recognized investment advisory and
fiduciary services subsidiary of HBI, provides investment advisory services
for corporate, charitable, governmental, institutional, personal trust and
other assets. Huntington is responsible for $12.0 billion of assets, and has
investment discretion over approximately $2.8 billion of that amount.
Huntington has served as investment adviser to mutual funds since 1987 and
has over 75 years of experience providing investment advisory services to
fiduciary accounts.
As part of its regular banking operations, Huntington may make loans to
public companies. Thus, it may be possible, from time to time, for the Funds
to hold or acquire the securities of issuers which are also lending clients of
Huntington. The lending relationship will not be a factor in the selection of
securities for the Funds.
James M. Buskirk, Chief Investment Officer of Huntington, has been the
portfolio manager of the Income Equity Fund since January of 1991. As Chief
Investment Officer of Huntington, Mr. Buskirk has ultimate responsibility for
all investment management activities. He brings more than 15 years of
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investment experience to Huntington. His background includes extensive
experience in managing both personal and employee benefit balanced portfolios
for a major investment advisory company and bank holding company. Mr. Buskirk
is a Chartered Financial Analyst. He received his undergraduate degree in
Finance from the Ohio State University and his MBA from the University of
Oregon.
Duane J. Carpenter, an Assistant Vice President of Huntington, has been a
portfolio manager of the Intermediate Government Income Fund, previously FMB
Intermediate Government Income Fund, since December, 1991; and the Michigan
Tax-Free Fund, previously FMB Michigan Tax-Free Bond Fund, since July, 1997.
Mr. Carpenter began co-managing the Mortgage Securities Fund in April 1998.
Mr. Carpenter has more than 14 years of investment management experience, and
has been employed by Huntington or First Michigan Bank since 1984. Mr.
Carpenter is a graduate of Hope College, Holland, Michigan.
William G. Doughty, a Vice President of Huntington, has been the portfolio
manager of the Ohio Tax-Free Fund since its inception. Mr. Doughty has more
than 25 years of experience in the investment field. He is responsible for
fixed income portfolio management and heads the fixed income trading operation
at Huntington. Mr. Doughty is a graduate of Franklin University with a degree
in Business Administration and has an MBA from the University of Dayton.
Philip H. Farrington, a Vice President of Huntington, has been a co-
portfolio manager of the Growth Fund since April of 1994. Mr. Farrington has
more than 30 years of investment management experience. He has held the
positions of Chief Investment Officer, Portfolio Manager, and Director of
Research for major banks and asset management companies. He is a member of the
equity management team at Huntington. Mr. Farrington is a graduate of Harvard
University.
Stephen M. Geis, a Vice President of Huntington, has been the portfolio
manager of the Fixed Income Securities Fund since October 1989. Mr. Geis began
co-managing the Mortgage Securities Fund in April 1998. Mr. Geis, a Chartered
Financial Analyst, serves as Huntington's senior fixed income manager. Prior
to joining Huntington in 1988, he spent nearly ten years as a fixed income
manager for a major insurance company and treasurer of a regional bank. Mr.
Geis received his undergraduate degree from the College of Wooster, his MBA
from the University of Dayton, and his Juris Doctorate from Capital
University.
James Gibboney, Jr., a Vice President of Huntington, has been a co-portfolio
manager of the Growth Fund since November of 1993. Mr. Gibboney, a Chartered
Financial Analyst, serves as one of Huntington's balanced portfolio managers.
Prior to joining Huntington in 1989, he gained more than 12 years of
investment management experience as portfolio manager for a major investment
firm, a trust company, and a state government agency. He received his
undergraduate degree in Finance from the Ohio State University and an MBA from
Xavier University.
DISTRIBUTION OF INVESTMENT SHARES
SEI Investments Distribution Co., One Freedom Valley Road, Oaks,
Pennsylvania 19456, is the principal distributor for shares of each Fund. It
is a Delaware corporation, and is the principal distributor for a number of
investment companies.
DISTRIBUTION PLAN
Each Fund offering Investment Shares has adopted a Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act (the "Distribution Plan"). The
Distribution Plan provides for payments to be made to the Distributor in
connection with the provision of certain services (described below) with
respect to the Funds' Investment Shares.
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In accordance with the Distribution Plan, the Distributor may enter into
agreements with brokers and dealers relating to distribution and/or
administrative services with respect to the Investment Shares of the Funds.
The Distributor may also enter into agreements with administrators (including
financial institutions, fiduciaries, custodians for public funds, and
investment advisers) to provide administrative services with respect to
Investment Shares. Administrative services may include, but are not limited
to, the following functions: providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other personnel
as necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of customer account cash balances; answering routine customer
inquiries regarding Investment Shares; assisting customers in changing
dividend options, account designations, and addresses; and providing such
other services as the Distributor may reasonably request in connection with
investments in Investment Shares. As of the date of this Prospectus, The
Huntington Investment Company and Huntington have entered into agreements with
the Distributor concerning the provision of administrative services to
customers of the Huntington Group who purchase Investment Shares of the Funds.
In connection with the provision of the distribution and administrative
services described above, the Distributor will pay brokers, dealers and
administrators (including The Huntington Investment Company) a fee based on
the amount of Investment Shares owned by their customers. For all of the Funds
except the Mortgage Securities Fund amounts paid by the Distributor for
services rendered with respect to a Fund's Investment Shares will be
reimbursed by the Fund in an amount which may not exceed an annual rate of
0.25 of 1% of the average daily net assets attributable to the Fund's
Investment Shares held in customer accounts for which brokers, dealers, and
administrators provide such services. For the Mortgage Securities Fund, the
amounts that may be reimbursed by the Fund may not exceed an annual rate of
0.50 of 1% of the Fund's average daily net assets. Fees under the Distribution
Plan with respect to each Fund's Investment Shares are accrued daily, payable
quarterly, and calculated on an annual basis.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or a savings and loan association) from being an underwriter
or distributor of most securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the administrative
capacities described above or should Congress relax current restrictions on
depository institutions, the Trustees will consider appropriate changes in the
administrative services performed in connection with the Distribution Plan.
State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as brokers or dealers
pursuant to state law.
Shareholder Servicing Arrangements. In addition to the fees paid by the
Distributor to financial institutions under the Distribution Plan as described
above, the Distributor may also pay financial institutions a fee based upon
the average net asset value of Investment Shares held by their customers for
providing administrative services. This fee, if paid, will be reimbursed by
the Huntington and not the Funds.
ADMINISTRATION OF THE FUNDS
Effective January 12, 1998, Huntington became the administrator of the
Funds, providing certain administrative personnel and services necessary to
operate the Funds. For these services, each of the
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Funds pays a fee, computed and payable daily, to Huntington at an annual rate
of 0.11% of their average daily net assets. SEI Fund Resources has entered
into an agreement with Huntington pursuant to which SEI Fund Resources
provides certain administrative services to the Funds. The fees paid to SEI
Fund Resources under this agreement are paid by Huntington and not by the
Funds.
CUSTODIAN, RECORDKEEPER, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Huntington acts as custodian and recordkeeper of the Trust's investments and
other assets, except for the Mortgage Securities Fund, where Huntington acts
only as custodian. Huntington receives custody and recordkeeping fees of 5.6
basis points (0.056%) for each Fund except the Mortgage Securities Fund, for
which Huntington receives 2.6 basis points (0.026%) for custody services only.
American Data Services, Inc., acts as recordkeeper for the Mortgage Securities
Fund, for which it receives an annual fee of $35,000. Effective January 1,
1998, State Street Bank and Trust Company began serving as the Trust's
transfer agent and dividend disbursing agent.
INDEPENDENT ACCOUNTANTS
The independent accountants for the Trust are KPMG Peat Marwick, LLP,
Columbus, Ohio.
DISTRIBUTIONS AND TAXES
MONEY MARKET FUNDS
All of the net income of both classes of shares of each Money Market Fund is
declared each Business Day as a dividend to shareholders of record at the time
of the declaration. A Money Market Fund's net income from the time of the
immediately preceding dividend declaration consists of interest accrued or
discount earned during such period (including both original issue and market
discount) on the Money Market Fund's securities, less amortization of premium
and the estimated expenses of each class of shares of the Money Market Fund.
Shares of the Ohio Municipal Money Market Fund purchased prior to 10:30 a.m.
(Eastern Time) and shares of the Money Market Fund and U.S Treasury Money
Market Fund purchased prior to 1:00 p.m. (Eastern Time) begin earning
dividends that day. Shares purchased after such time begin earning dividends
on the following day. Dividends are declared daily and payable monthly.
Although none of the Money Market Funds expects to realize long-term capital
gains, any net long-term capital gains that may be realized will be paid
annually. Each Money Market Fund expects to distribute any net realized short-
term gains once each year, although it may distribute them more frequently if
necessary in order to maintain the net asset value of each Money Market Fund
at $1.00 per share.
OTHER FUNDS
Dividends, if any, from the investment income of each Fund other than the
Money Market Funds are declared and paid monthly to both classes of shares.
Distributions resulting from any net realized capital gains of any Fund will
be paid at least annually.
DISTRIBUTION OPTIONS
Shareholders of the Money Market Funds may choose to receive all
distributions in cash or to reinvest all distributions in additional
Investment Shares of a Fund. Shareholders of other Funds may choose to receive
all distributions in cash, to reinvest all distributions in additional
Investment Shares, or to reinvest all capital gains distributions in
additional Investment Shares and to receive all other distributions in cash.
Shareholders may choose a distribution option by selecting the appropriate
option on the Account Registration Form or by notifying the appropriate member
of the Huntington Group of their selection. If a shareholder fails to choose a
distribution option, all distributions will be reinvested in additional
Investment Shares of the Fund making the distribution.
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FEDERAL INCOME TAXES
Additional information regarding federal income and certain state taxes is
contained in the Statement of Additional Information. The following is a
general and abbreviated summary of certain applicable provisions of state law
and the Code and Treasury regulations currently in effect. State law, the Code
and regulations are subject to change by legislative or administrative action.
A Fund's distributions may also be subject to state and local taxes.
Shareholders should consult their own tax adviser to determine the precise
effect of an investment in a Fund on their particular tax situation.
Each Fund intends to qualify as a "regulated investment company" for federal
income tax purposes and to meet all other requirements that are necessary for
it to be relieved of federal taxes on income (and gains, if any) paid to
shareholders in the form of dividends. In order to accomplish this goal, each
Fund must, among other things, distribute substantially all of its ordinary
income (and net short-term capital gains, if any) on a current basis and
maintain a portfolio of investments which satisfies certain diversification
criteria. In addition, in order for each of the Single State Fund's
distributions to qualify as "exempt interest dividends", at least 50% of each
Fund's assets must consist of obligations described in Section 103(a) of the
Internal Revenue Code at the end of each quarter.
Shareholders should note that in certain cases (i) the Single State Funds
will be required to withhold 31% of dividends or sale proceeds otherwise due
to a shareholder and (ii) in addition to federal taxes, state and local taxes
may apply to transactions in shares. The exemption of interest on municipal
bonds for federal income tax purposes does not necessarily result in exemption
under the income, corporate or personal property tax laws of any state or
city. Generally, shareholders are afforded tax-exempt treatment at the state
and local levels for distributions derived from interest on municipal
securities of the shareholder's state of residency.
For federal income tax purposes, distributions (other than exempt-interest
dividends) will be taxable as ordinary income to the extent derived from the
Fund's investment income and net short-term gains. Pursuant to the Taxpayer
Relief Act of 1997, two different tax rates apply to distributions of net
capital gains. One rate (generally 28%) applies to net gains on capital assets
held for more than one year but not more than 18 months ("mid-term gains") and
a second, preferred rate (generally 20%) applies to the balance of such net
capital gains ("adjusted net capital gains"). Distributions of net capital
gains will be treated in the hands of shareholders as mid-term gains to the
extent designated by a Fund as deriving from net gains from assets held for
more than one year but not more than 18 months, and the balance will be
treated as adjusted net capital gains. Distributions of mid-term gains and
adjusted net capital gains will be taxable as such, regardless of how long
shares have been held. Distributions will be taxable as described above
whether received in cash or in shares through the reinvestment of
distributions.
Single State Fund distributions designated as exempt-interest dividends are
not generally subject to federal income tax. However, if a shareholder
receives social security or railroad retirement benefits, the shareholder
should consult a tax adviser to determine what effect, if any, an investment
in any of the Single State Funds may have on the taxation of such benefits. In
addition, an investment in any of the Single State Funds may result in
liability for federal alternative minimum tax, for both individual and
corporate shareholders.
If a shareholder receives an exempt-interest dividend with respect to a
share and holds the share for six months or less, any loss on the sale or
exchange of the share will be disallowed to the extent of the amount of such
exempt-interest dividend. The Treasury Department is authorized to issue
45
<PAGE>
regulations reducing the period to not less than 31 days for regulated
investment companies that regularly distribute at least 90% of their net tax-
exempt interest. No such regulations have been issued as of the date of this
Prospectus.
In addition, any loss (not already disallowed as provided in the preceding
paragraph) realized upon a taxable disposition of shares held for six months
or less will be treated as long-term, rather than short-term, to the extent of
any long-term capital gain distributions received by the shareholder with
respect to the shares.
For all Funds other than the Single State Funds, all dividends and capital
gains dividends are taxable whether they are reinvested in a Fund or received
in cash, unless a shareholder is exempt from taxation or entitled to tax
deferral. Each year, shareholders will be notified as to the amount and
federal tax status of all dividends and capital gains paid during the prior
year. Distributions of net capital gains designated by a Fund as a capital
gain dividend will be taxable as long-term capital gains, regardless of how
long a shareholder has held the Fund shares, and regardless of whether the
distributions are reinvested in additional shares or received in cash.
Dividends paid from a Fund's net investment income which includes the Fund's
net realized short-term capital gains, are taxable to shareholders as ordinary
income.
Generally, shareholders will be taxed, where applicable, on dividends or
distributions in the year of receipt; however, dividends declared in October,
November or December, payable to shareholders of record on a specified date in
one of those months and paid during the following January, will be treated as
having been distributed by the Fund (and received by the shareholders) on
December 31 of the year in which declared.
The redemption, sale or exchange of shares of a Fund for shares of another
Monitor Fund is a taxable event and may result in a gain or loss. Gain or
loss, if any, recognized on the sale or other disposition of shares of a Fund
will be taxed as capital gain or loss if the shares are capital assets in the
shareholder's hands. Generally, a shareholder's gain or loss will be a long-
term gain or loss if the shares have been held for more than one year. If a
shareholder sells or otherwise disposes of shares of a Fund before holding
them for more than six months, any loss on the sale or other disposition of
such shares shall be (i) treated as a long-term capital loss to the extent of
any capital gain dividends received by the shareholder with respect to such
shares or (ii) disallowed to the extent of any exempt-interest dividends
received by the shareholder with respect to such shares. A loss realized on a
sale or exchange of shares may be disallowed if other shares are acquired
within a 61-day period beginning 30 days before and ending 30 after the date
that the shares are disposed of.
If a shareholder has not furnished a certified correct TIN (generally the
shareholder's social security number) or has not certified that withholding
does not apply, or if the Internal Revenue Service has notified the Funds that
the TIN listed on the shareholder's account is incorrect according to their
records or that the shareholder is subject to backup withholding, federal law
generally requires the Funds to withhold 31% from any dividends and/or
redemptions (including exchange redemptions). Backup withholding is not an
additional tax and any amounts withheld may be credited against the
shareholder's federal income tax liability; a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of federal
income taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain non-resident alien,
non-
46
<PAGE>
U.S. partnership, non-U.S. trust, non-U.S. estate and non-U.S. corporation
shareholder accounts. Certain non-resident aliens will be subject to non-
resident alien tax withholding. The amount withheld is dependent on the
country of citizenship.
Dividends and distributions may be subject to state and local income taxes.
Shareholders are advised to consult with their own tax advisors about state
and local tax matters.
Early in each year the Funds will notify shareholders of the amount and the
federal income tax status of the distributions paid or deemed paid by the
Funds during the preceding year.
OHIO PERSONAL INCOME TAXES
Dividends received from the Ohio Municipal Money Market Fund and the Ohio
Tax-Free Fund (the "Ohio Funds") that are derived from interest on Ohio tax-
exempt securities are exempt from the Ohio personal income tax. Specific state
statutes authorizing the issuance of certain Ohio tax-exempt securities
provide that the interest on and gain from the sale or other disposition of
such obligations are exempt from all taxation in the State. Dividends on
shares of an Ohio Fund which are attributable to interest on or gain from the
sale of obligations issued pursuant to such statutes should be exempt from the
Ohio personal income tax. Ohio municipalities may not impose income taxes on
dividends or any intangible property, including shares of the Ohio Funds,
except that municipalities that taxed the types of intangible income which
were not exempt from municipal income taxation on or before April 1, 1986, may
tax such intangible income if such a tax was approved by the electors of the
municipality in an election held on November 8, 1988. Ohio residents should
consult their own tax adviser regarding potential municipal income tax
liability in connection with their investment in an Ohio Fund. The description
in this paragraph, which is only a summary of the Ohio tax treatment of
dividends paid by the Ohio Funds, is based upon current statutes and
regulations and upon current policies of the Ohio Department of Taxation, all
of which are subject to change.
MICHIGAN PERSONAL INCOME TAXES
Individual shareholders of the Michigan Tax-Free Fund residing in Michigan
will not be subject to Michigan personal income tax or personal income taxes
imposed by cities in Michigan, and corporate shareholders will not be subject
to the Michigan single business tax, on distributions received from the Fund
to the extent such distributions are attributable to interest on tax-exempt
obligations of the State of Michigan or any municipality, political
subdivision or governmental agency or instrumentality thereof or on
obligations issued by the Governments of Puerto Rico, the Virgin Islands and
Guam, provided that the Michigan Tax-Free Fund complies with the requirement
of the Internal Revenue Code that at least 50% of the value of its assets at
the close of each quarter of its taxable year is invested in state, municipal
or other obligations the interest on which is exempt from federal income tax
under Section 103(a) of the Internal Revenue Code.
Other distributions from the Michigan Tax-Free Fund, including those related
to long-term and short-term capital gains, will generally not be exempt from
the Michigan personal income tax or single business tax.
Income from the Michigan Tax-Free Fund, to the extent attributable to
interest on obligations issued by Michigan or its political subdivisions, will
be excluded for purposes of determining yield under the Michigan intangibles
tax.
47
<PAGE>
The Michigan Department of Treasury has issued rulings which confirm these
state tax consequences for Michigan resident individuals and corporations.
Shareholders of the Michigan Tax-Free Fund should consult their tax advisers
about other state and local tax consequences of their investments in the
Michigan Tax-Free Fund.
ORGANIZATION OF THE TRUST
The Trust was organized as a Massachusetts business trust on February 10,
1987. A copy of the Trust's Declaration of Trust, which is governed by
Massachusetts law, is on file with the Secretary of State of The Commonwealth
of Massachusetts.
The Trust is an open-end management investment company, whose Declaration of
Trust permits the Trust to offer separate series of shares of beneficial
interest representing interests in separate portfolios of securities. The
shares in any one portfolio may be offered in two or more separate classes. As
of the date of this Prospectus, the Trustees have established two classes of
shares, known as Investment Shares and Trust Shares, in the Money Market Fund,
the Ohio Municipal Money Market Fund, the U.S. Treasury Money Market Fund, the
Growth Fund, the Income Equity Fund, the Mortgage Securities Fund, the Ohio
Tax-Free Fund, the Michigan Tax-Free Fund the Fixed Income Securities Fund,
the Intermediate Government Income Fund and the Short/ Intermediate Fixed
Income Securities Fund. Investment Shares of the Short/Intermediate Fixed
Income Securities Fund are not presently being offered to the public.
Investment Shares and Trust Shares of a Fund are fully transferable. Each
class is entitled to dividends from the respective class assets of the Fund as
declared by the Trustees, and, if the Trust (or the Fund) were liquidated, the
shareholders of each class would receive the net assets of the Fund
attributable to each respective class.
VOTING RIGHTS
Shareholders are entitled to one vote for each share held on the record date
for any action requiring a vote by the shareholders, and a proportionate
fractional vote for each fractional share held. Shareholders of the Trust will
vote in the aggregate and not by Fund or class except (i) as otherwise
expressly required by law or when the Trustees determine that the matter to be
voted upon affects only the interests of the shareholders of a particular Fund
or class, and (ii) only holders of Investment Shares will be entitled to vote
on matters submitted to shareholder vote with respect to the Rule 12b-1 Plan
applicable to such class.
As of April 17, 1998, National Financial Services Corp., New York, NY, was
the owner of record of approximately 82,210,532 shares (33.9%) and Huntington,
acting in various capacities for numerous accounts, was the owner of record of
approximately 98,757,116 shares (40.7%) of the Investment Shares of the Money
Market Fund; Telamon, Indianapolis, IN was the owner of 7,353,945 shares
(6.1%) and Huntington, acting in various capacities for numerous accounts, was
the owner of record of approximately 106,302,205 shares (88.1%) of the
Investment Shares of the Ohio Municipal Money Market Fund; John B. and
Donaldeen A. Payne, Columbus, OH, were the owners of 2,055 shares (17.5%),
Joseph E. Segna, Columbus, OH, was the owner of 1,374 shares (11.7%), John M.
(a Trustee of the Trust) and Claire Shary, Columbus, OH, were the owners of
1,364 shares (11.6%), Deborah M. and Adam B. Maximoff, Indianapolis, IN, were
the owners of 874 shares (7.4%), Lucille R. Weiss, Wooster, OH, was the owner
of 754 shares (6.4%), William R. and Nancy R. Wise, Westerville, OH, were the
owners of 648 shares (5.5%), and Gretchen Sheridan and Robert G. White,
48
<PAGE>
Carmel, IN. were the owners of 614 shares (5.2%) of the Investment Shares of
the Income Equity Fund; William J. Umberg, Cincinnati, OH, was the owner of
5,660 shares (7.7%) and Cincinnati Institute of Fine Arts, Cincinnati, OH, was
the owner of 4,615 shares (6.3%) of the Investment Shares of the Fixed Income
Securities Fund; James E. Dill, Lockbourne, OH, was the owner of 7,357 shares
(5.6%) of the Investment Shares of the Mortgage Securities Fund; Huntington,
acting in various capacities for numerous accounts, was the owner of record of
approximately 33,818,787 shares (56.2%) and Allied Fidelity Insurance Co.,
Indianapolis, IN was the owner of record of approximately 3,973,828 shares
(6.6%) of the Investment Shares of the U.S. Treasury Money Market Fund; Ursula
E. M. and William J. Umberg, Cincinnati, OH, were the owners of 8,814 shares
(12.6%), John W. and Arlene J. Warbritton, Westerville, OH, were the owners of
6,332 shares (9.1%), Michael M. and Mary Ann Machowsky, Jr., Rossford, OH,
were the owners of 4,612 shares (6.6%) and Evelyn V. Culbertson, Columbus, OH,
was the owner of 4,523 shares (6.5%) of the Investment Shares of the Ohio Tax-
Free Fund; Advanced Clearing, Omaha, NE, was the owner of record of
approximately 28,209 shares (8.7%) of Investment Shares of the Intermediate
Government Income Fund. Such persons or entities may, for certain purposes, be
deemed to control the respective Funds and be able to affect the outcome of
certain matters presented for a vote of shareholders.
As of April 17, 1998, Huntington, acting in various capacities for numerous
accounts, was the owner of record of approximately 491,801,453 shares (99.3%)
of the Trust Shares of the Money Market Fund; 90,438,076 shares (100%) of the
Trust Shares of the Ohio Municipal Money Market Fund; 473,180,392 shares
(99.6%) of the Trust Shares of the U.S. Treasury Money Market Fund; 6,549,389
shares (99.2%) of the Trust Shares of the Growth Fund; 5,876,675 shares
(98.4%) of the Trust Shares of the Income Equity Fund; 4,506,045 shares
(98.2%) of the Trust Shares of the Mortgage Securities Fund; 2,847,068 shares
(94.5%) of the Trust Shares of the Ohio Tax-Free Fund; 2,370,918 shares
(95.1%) of the Trust Shares of the Michigan Tax-Free Fund; 7,263,858 shares
(99.3%) of the Trust Shares of the Fixed Income Securities Fund; 11,349,354
shares (99.3%) of the Trust Shares of the Intermediate Government Income Fund;
and 6,373,256 shares (99.1%) of the Trust Shares of the Short/Intermediate
Fixed Income Securities Fund, and therefore, may, for certain purposes, be
deemed to control the respective Funds and be able to affect the outcome of
certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
meetings of shareholders, but may hold special meetings from time to time.
Trustees may be removed by the Trustees or by shareholders at a meeting
called for that purpose. For information about how shareholders may call such
a meeting and communicate with other shareholders for that purpose, see the
Statement of Additional Information.
To the extent that matters arise requiring a shareholder vote in which
Huntington may have a conflict of interest, Huntington will engage in a voting
practice known as reflexive voting, whereby the votes of those shares over
which it exercises discretion will be voted in proportion to the votes cast by
the other record owners.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding shares" of the Trust or a particular
Fund or a particular class of shares of the Trust or a Fund means the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares
of the Trust or such Fund or such class, or (b) 67% or more of the shares of
the Trust or such Fund or such class present at a meeting at which the holders
of more than 50% of the outstanding shares of the Trust or such Fund or such
class are represented in person or by proxy.
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<PAGE>
PERFORMANCE DATA AND COMPARISONS
Yield and total return data for both classes of shares may, from time to
time, be included in advertisements about the Funds.
Each of the Money Market Funds may show its yield and effective yield for
both classes of shares. A Money Market Fund's yield represents an
annualization of the change in value of a shareholder account excluding any
capital changes in the Fund for a specific seven-day period. Effective yield
compounds the Fund's yield for a year and is, for that reason, greater than
the Money Market Fund's yield.
Yield for both classes of shares of each of the other Funds is calculated by
dividing the Fund's annualized net investment income per share during a recent
30-day period by the maximum public offering price per share on the last day
of that period. With respect to the Single State Funds, the tax-equivalent
yield of each class of shares shows the effect on performance of the tax-
exempt status of distributions received from Single State Fund. Tax-equivalent
yield reflects the approximate yield that a taxable investment must earn for
shareholders at stated income levels to produce an after-tax yield equivalent
to Single State Fund's tax-exempt yield. Total return for the one-year period
and for the life of a Fund through the most recent calendar quarter represents
the average annual compounded rate of return on a $1,000 investment in each
class of the Fund. Total return may also be presented for other periods.
Yield, effective yield, tax-equivalent yield, and total return will be
calculated separately for Investment Shares and Trust Shares. Because
Investment Shares are subject to 12b-1 fees, the yield, effective yield, tax-
equivalent yield, and total return for Investment Shares will be lower than
that of Trust Shares for the same period. In addition, the sales load
applicable to Investment Shares of the Growth Fund, Income Equity Fund,
Mortgage Securities Fund, Ohio Tax-Free Fund, Michigan Tax-Free Fund, Fixed
Income Securities Fund and Intermediate Government Income Fund, also
contributes to a lower total return for such Funds' Investment Shares. The
total return figures quoted in advertisements will normally reflect the effect
of the maximum sales load. However, from time to time, these advertisements
may include total returns which do not reflect the effect of an applicable
sales load.
All data is based on a Fund's past investment results and is not intended to
indicate future performance. Investment performance for both classes is based
on many factors, including market conditions, the composition of a Fund's
portfolio, and the operating expenses of a Fund or a particular class.
Investment performance also often reflects the risks associated with the
Fund's investment objective and policies. These factors should be considered
when comparing a Fund's investment results to those of other mutual funds and
other investment vehicles.
From time to time, advertisements for a Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare a
Fund's performance to certain indices.
SHAREHOLDER INQUIRIES
Shareholder inquiries regarding the Funds should be directed to The
Huntington Investment Company, Huntington Center, 41 South High Street,
Columbus, Ohio 43287.
50
<PAGE>
OTHER CLASSES OF SHARES
Each of the Funds also offers another class of shares called Trust Shares.
Trust Shares are sold through procedures established by the Distributor in
connection with the requirements of fiduciary, advisory, agency, and other
similar accounts maintained by or on behalf of customers of Huntington or its
affiliates or correspondent banks. Trust Shares are sold at net asset value
and are subject to a minimum initial investment of $1,000.
Investment Shares and Trust Shares of any Fund are subject to certain of the
same expenses; however, Investment Shares are distributed under a Rule 12b-1
Plan pursuant to which the Distributor is paid a fee based upon a percentage
of the average daily net assets attributable to a Fund's Investment Shares.
Expense differences between a Fund's Investment Shares and Trust Shares may
affect the performance of each class.
Investors may obtain information about Trust Shares by contacting Investor
Services at: (in Ohio) 614-480-5580 or (outside the 614 Area Code) 800-253-
0412.
51
<PAGE>
Investment Adviser
- --------------------------------------------------------------------------------
The Huntington National Bank
Huntington Center
Columbus, OH 43287
1-800-253-0412
Administrator
- --------------------------------------------------------------------------------
The Huntington National Bank
Huntington Center
Columbus, OH 43287
1-800-253-0412
Distributor
- --------------------------------------------------------------------------------
SEI Investments Distribution Co.
One Freedom Valley Road
Oaks, PA 19456
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations may not be relied upon as having been authorized by a Fund or
the Distributor. This Prospectus does not constitute an offering by a Fund or by
the Distributor in any jurisdiction in which such offering may not lawfully be
made.
14-000-16
[RECYCLE LOGO APPEARS HERE]
M logo FPO
The Monitor Funds
MARBLE SCREEN F.P.O.
Investment Shares
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
The Monitor Money Market Fund
The Monitor Ohio Municipal Money Market Fund
The Monitor U.S. Treasury Money Market Fund
EQUITY FUNDS
- --------------------------------------------------------------------------------
The Monitor Growth Fund
The Monitor Income Equity Fund
INCOME FUNDS
- --------------------------------------------------------------------------------
The Monitor Mortgage Securities Fund
The Monitor Ohio Tax-Free Fund
The Monitor Michigan Tax-Free Fund
The Monitor Fixed Income Securities Fund
The Monitor Intermediate Government Income Fund
April 30, 1998
ART
<PAGE>
PROSPECTUS
April 30, 1998
The Monitor Funds, a Massachusetts business trust (the "Trust"), consists of
separate series (the "Funds") which have different investment objectives and
policies. All of the Funds may offer two classes of shares: Trust Shares and
Investment Shares. Investors may purchase Trust Shares in each of the Funds
through procedures established by SEI Investments Distribution Co. ("SEI" or
the "Distributor"), the Trust's distributor, in connection with the
requirements of fiduciary, advisory, agency, and other similar accounts
maintained by or on behalf of customers of The Huntington National Bank
("Huntington" or the "Adviser"), or its affiliates or correspondent banks. The
different Funds for which Trust Shares are available through this Prospectus
include:
MONEY MARKET FUNDS--TRUST SHARES
The Monitor Money Market Fund
The Monitor Ohio Municipal Money Market Fund
The Monitor U.S. Treasury Money Market Fund
EQUITY FUNDS--TRUST SHARES
The Monitor Growth Fund
The Monitor Income Equity Fund
INCOME FUNDS--TRUST SHARES
The Monitor Mortgage Securities Fund
The Monitor Ohio Tax-Free Fund
The Monitor Michigan Tax-Free Fund
The Monitor Fixed Income Securities Fund
The Monitor Intermediate Government Income Fund
The Monitor Short/Intermediate Fixed Income Securities Fund
This Prospectus relates only to Trust Shares of the Funds. This Prospectus
sets forth concisely what a shareholder should know before investing in Trust
Shares of any of the Funds and should be read carefully and retained for
future reference. The Combined Statement of Additional Information for Trust
Shares and Investment Shares has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated into this Prospectus by reference.
The SEC maintains a Web site (http://www.sec.gov) that contains the Combined
Statement of Additional Information, material incorporated by reference and
other information relating to the Funds. FOR A FREE COPY OF THE COMBINED
STATEMENT OF ADDITIONAL INFORMATION CALL MONITORDIRECT AT 800-253-0412.
THE HUNTINGTON NATIONAL BANK
Investment Adviser and Administrator
SEI INVESTMENTS DISTRIBUTION CO.
Distributor
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INVESTMENT COMPANY SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY HUNTINGTON, NOR ARE THEY INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RE-
SERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND IS NEI-
THER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT OR ANY AGENCY SPONSORED BY
THE FEDERAL GOVERNMENT OR ANY STATE. INVESTMENT IN THESE SHARES INVOLVES IN-
VESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. EACH MONEY MARKET
FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT A MONEY MARKET FUND WILL BE ABLE TO DO SO.
IN ADDITION, THE OHIO MUNICIPAL MONEY MARKET FUND IS CONCENTRATED IN SECURI-
TIES ISSUED BY THE STATE OF OHIO OR OTHER GOVERNMENTAL ENTITIES WITHIN THE
STATE OF OHIO AND THEREFORE AN INVESTMENT IN THAT FUND MAY BE RISKIER THAN AN
INVESTMENT IN OTHER TYPES OF MONEY MARKET FUNDS.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
SUMMARY.......................................................................1
FEE TABLE AND EXAMPLE.........................................................3
FINANCIAL HIGHLIGHTS..........................................................4
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES................................12
MONEY MARKET FUNDS...........................................................12
Money Market Fund...........................................................12
Ohio Municipal Money Market Fund............................................13
U.S. Treasury Money Market Fund.............................................15
EQUITY FUNDS.................................................................16
Growth Fund.................................................................16
Income Equity Fund..........................................................16
INCOME FUNDS.................................................................16
Mortgage Securities Fund....................................................17
Ohio Tax-Free Fund..........................................................19
Michigan Tax-Free Fund......................................................19
Fixed Income Securities Fund................................................21
Intermediate Government Income Fund.........................................21
Short/Intermediate Fixed Income Securities Fund.............................22
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS AND STRATEGIES...............22
Ohio Tax-Exempt Securities..................................................22
Michigan Tax-Exempt Securities..............................................23
Credit Enhancement..........................................................23
Non-Diversification.........................................................24
Defensive Investment Strategies.............................................24
Options and Futures Contracts...............................................24
Foreign Investments.........................................................26
Repurchase Agreements.......................................................26
When-Issued and Delayed Delivery Transactions...............................27
Lending of Portfolio Securities.............................................27
Mortgage-Related Securities.................................................28
Mortgage Pass-Through Securities............................................28
Adjustable Rate Mortgage Securities.........................................28
Collateralized Mortgage Obligations.........................................29
Stripped Mortgage-Backed Securities.........................................30
U.S. Government Securities..................................................31
INVESTMENT RESTRICTIONS......................................................31
HOW THE FUNDS VALUE THEIR SHARES.............................................32
HOW TO BUY TRUST SHARES......................................................33
Minimum Investment Required.................................................34
Systematic Investment Program...............................................34
HOW TO EXCHANGE TRUST SHARES AMONG THE FUNDS.................................34
HOW TO REDEEM TRUST SHARES...................................................35
Redeeming By Telephone......................................................35
Redeeming By Mail...........................................................36
MANAGEMENT OF THE TRUST......................................................37
Distribution of Trust Shares................................................39
Administration of the Funds.................................................39
Custodian, Recordkeeper, Transfer Agent, and Dividend Disbursing Agent......39
Independent Accountants.....................................................39
DISTRIBUTIONS AND TAXES......................................................39
Money Market Funds..........................................................39
Other Funds.................................................................40
Distribution Options........................................................40
Federal Income Taxes........................................................40
Ohio Personal Income Taxes..................................................42
Michigan Personal Income Taxes..............................................43
ORGANIZATION OF THE TRUST....................................................43
Voting Rights...............................................................44
PERFORMANCE DATA AND COMPARISONS.............................................45
SHAREHOLDER INQUIRIES........................................................46
OTHER CLASSES OF SHARES......................................................46
</TABLE>
<PAGE>
SUMMARY
The Trust, a management investment company, was established as a
Massachusetts business trust under a Declaration of Trust dated February 10,
1987. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate
classes. As of the date of this Prospectus, the Board of Trustees has
established two classes of shares, known as Trust Shares and Investment
Shares, in the Money Market Fund, the Ohio Municipal Money Market Fund, the
U.S. Treasury Money Market Fund, the Growth Fund, the Income Equity Fund, the
Mortgage Securities Fund, the Ohio Tax-Free Fund, the Michigan Tax-Free Fund,
the Fixed Income Securities Fund, the Intermediate Government Income Fund and
the Short/Intermediate Fixed Income Securities Fund. Investment Shares of the
Short/Intermediate Fixed Income Securities Fund are not currently being
offered to the public. All of the Funds of the Trust, with the exception of
the Ohio Municipal Money Market Fund, the Ohio Tax-Free Fund and the Michigan
Tax-Free Fund are diversified. This Prospectus relates solely to the Trust
Shares of each Fund as set forth below.
As of the date of this Prospectus, the Trust is offers Trust Shares of the
following eleven Funds:
MONEY MARKET FUNDS--TRUST SHARES
MONEY MARKET FUND--seeks to maximize current income while preserving
capital and maintaining liquidity by investing in a portfolio of high
quality money market instruments;
OHIO MUNICIPAL MONEY MARKET FUND--seeks to provide income exempt from
both federal regular income tax and Ohio personal income taxes while
preserving capital and maintaining liquidity by investing in Ohio tax-
exempt securities;
U.S. TREASURY MONEY MARKET FUND--seeks to maximize current income while
preserving capital and maintaining liquidity by investing exclusively
in obligations issued by the U.S. Government and backed by its full
faith and credit and in repurchase agreements with respect to such
obligations;
EQUITY FUNDS--TRUST SHARES
GROWTH FUND--seeks to achieve long-term capital appreciation by
investing primarily in equity securities;
INCOME EQUITY FUND--seeks to achieve high current income and moderate
appreciation of capital by investing in income-producing equity
securities;
INCOME FUNDS--TRUST SHARES
MORTGAGE SECURITIES FUND--seeks to achieve current income by investing
in mortgage securities and in U.S. Government securities;
OHIO TAX-FREE FUND--seeks to provide current income exempt from federal
income tax and Ohio personal income taxes by investing in Ohio tax-
exempt securities;
MICHIGAN TAX-FREE FUND--seeks to provide investors with current income
exempt from both federal and Michigan personal income taxes by
investing in Michigan tax-exempt securities.
FIXED INCOME SECURITIES FUND--seeks to achieve high current income by
investing in fixed income securities where the average maturity of the
Fund will not exceed 10 years; and
INTERMEDIATE GOVERNMENT INCOME FUND--seeks to provide investors with a
high level of current income by investing primarily in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, mortgage-backed securities and collateralized
1
<PAGE>
mortgage obligations with dollar-weighted average maturities of not
less than three nor more than ten years.
SHORT/INTERMEDIATE FIXED INCOME SECURITIES FUND--seeks to achieve
current income by investing in fixed income securities with a maximum
maturity for individual issues of 5 years or less at the time of
purchase and a dollar-weighted average portfolio maturity of more than
2 but less than 5 years.
For information on how to purchase Trust Shares of any of the Funds, please
refer to "How to Buy Trust Shares." A minimum initial investment of $1,000 is
required for each Fund. Subsequent investments in a Fund must be in amounts of
at least $500. Trust Shares of each Fund are sold and redeemed at net asset
value. Information on redeeming shares may be found under "How to Redeem Trust
Shares." The Funds are advised by Huntington.
RISK FACTORS. Investors should be aware of the following general
observations. There can be no assurance that a Fund will achieve its
investment objective. The market value of fixed-income securities, which
constitute a major part of the investments of several Funds, may vary
inversely in response to changes in prevailing interest rates ("interest rate
risk"). Shareholders of the Ohio Municipal Money Market Fund may be subject to
the federal alternative minimum tax on that part of the Funds' dividends
derived from interest on certain municipal securities. One or more Funds may
make certain investments and employ certain investment techniques that involve
special risks, including the use of repurchase agreements, lending portfolio
securities, entering into futures contracts and related options as hedges,
investing in foreign securities, and purchasing securities on a when-issued or
delayed delivery basis, including the use of "dollar rolls." These investments
and investment techniques may increase the volatility of a Fund's net asset
value. Their risks are described under "Additional Information on Portfolio
Investments and Strategies." The Mortgage Securities Fund may engage in short-
term trading in attempting to achieve its investment objective, which will
increase transaction costs. Both the Mortgage Securities Fund and the
Intermediate Government Income Fund may purchase mortgage-related securities
including derivative mortgage securities. In addition to interest rate risk,
mortgage-related securities are subject to prepayment risk. Past market
experience has shown that certain derivative mortgage securities may be
extremely sensitive to changes in interest rates and in prepayment rates on
the underlying assets and, as a result, the prices of such securities may be
highly volatile.
YEAR 2000 RISK. Like other mutual funds, financial and business
organizations around the world, each of the Monitor Funds could be adversely
impacted if the computer systems used by Huntington, SEI or other service
providers and entities with computer systems that are linked to Fund records
do not properly process and calculate date-related information and data from
and after January 1, 2000. This is commonly known as "Year 2000 Risk."
Huntington is taking steps that it believes are reasonably designed to address
Year 2000 Risk with respect to the computer systems it uses and to obtain
satisfactory assurances that comparable steps are being taken by each of the
Funds' other major service providers. There can be no assurances, however,
that these steps will be sufficient to avoid any adverse impact on the Funds.
2
<PAGE>
FEE TABLE AND EXAMPLE
The following Fee Table and Example summarize the various costs and expenses
that a shareholder of Trust Shares will bear, either directly or indirectly.
ANNUAL TRUST SHARES OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL TRUST SHARES
NET OPERATING EXPENSES
MANAGEMENT 12B-1 OTHER NET OF ANY WAIVERS
FEES (1) FEES EXPENSES (2) OR REIMBURSEMENTS
---------- ------ ------------ ------------------
<S> <C> <C> <C> <C>
Money Market Fund............ 0.30% None 0.21% 0.51%
Ohio Municipal Money Market
Fund (3)*.................... 0.25% None 0.24% 0.49%
U.S. Treasury Money Market
Fund ........................ 0.20% None 0.22% 0.42%
Growth Fund.................. 0.60% None 0.20% 0.80%
Income Equity Fund........... 0.60% None 0.23% 0.83%
Mortgage Securities Fund
(4)*......................... 0.30% None 0.36% 0.66%
Ohio Tax-Free Fund........... 0.50% None 0.26% 0.76%
Michigan Tax-Free Fund(4)*... 0.43% None 0.30% 0.73%
Fixed Income Securities
Fund(4)*..................... 0.43% None 0.20% 0.70%
Intermediate Government
Income Fund.................. 0.45% None 0.24% 0.69%
Short/Intermediate Fixed
Income Securities Fund....... 0.50% None 0.22% 0.72%
</TABLE>
- --------
(1)Fees paid by each Fund for investment advisory services. See "Management of
the Trust."
(2)Includes administration fees. See "Management of the Trust--Administration
of the Funds."
(3) The Total Trust Shares Operating Expenses for the Ohio Municipal Money
Market Fund would be 0.54%, absent the voluntary waiver of management
fees. The maximum management fee for the Ohio Municipal Money Market Fund
is 0.30%.
(4) The Total Trust Shares Operating Expenses for the Mortgage Securities Fund
would be 0.86% absent the voluntary waiver of management fees. The maximum
management fee for the Mortgage Securities Fund is 0.50%. The Total
investment Shares Operating Expenses for the Michigan Tax-Free Fund would
be 0.80%, absent the expected voluntary waiver of management fees. The
Total Investment Shares Operating Expenses for the Intermediate Government
Income Fund would be 0.74%, absent the expected voluntary waiver of
management fees. The maximum management fee for the Michigan Tax-Free Fund
and the Intermediate Government Income Fund is 0.50%.
*The adviser can terminate its voluntary waiver at any time at its sole
discretion.
EXAMPLE:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund.............................. $5 $16 $29 $ 64
Ohio Municipal Money Market Fund............... $5 $16 $27 $ 62
U.S. Treasury Money Market Fund................ $ 4 $13 $24 $ 53
Growth Fund.................................... $ 8 $26 $44 $ 99
Income Equity Fund............................. $ 8 $26 $46 $103
Mortgage Securities Fund....................... $ 7 $21 $37 $ 82
Ohio Tax-Free Fund............................. $ 8 $24 $42 $ 94
Michigan Tax-Free Fund......................... $ 7 $23 $41 $ 91
Fixed Income Securities Fund................... $ 7 $22 $39 $ 87
Intermediate Government Income Fund............ $ 7 $22 $38 $ 86
Short/Intermediate Fixed Income Securities
Fund.......................................... $ 7 $23 $40 $ 88
</TABLE>
The purpose of the foregoing example is to assist an investor in
understanding the various costs and expenses that a shareholder of Trust
Shares will bear directly or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS--MONEY MARKET FUNDS (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD)
The following information with respect to each of the five years in the
period ended December 31, 1997, has been derived from the Trust's financial
statements, The following financial highlights for the year ended December 31,
1997 were audited by the Trust's independent accountants, KPMG Peat Marwick
LLP and should be read in conjunction with the financial statements and notes
thereto included in the Trust's 1997 Annual Report to Shareholders. The
financial highlights for the periods or years and the four-year period ended
December 31, 1996 were audited by the Trust's former auditors. KPMG Peat
Marwick LLP's report on the Trust's financial statements and financial
highlights for the year ended December 31, 1997, is included in the Trust's
1997 Annual Report to Shareholders, and is incorporated by reference into the
Combined Statement of Additional Information.
<TABLE>
<CAPTION>
NET ASSET DISTRIBUTIONS TO NET ASSET
VALUE, NET SHAREHOLDERS VALUE,
YEAR ENDED BEGINNING INVESTMENT FROM NET END OF TOTAL
DECEMBER 31, OF PERIOD INCOME INVESTMENT INCOME PERIOD RETURN+ EXPENSES
- ---------------------------------------------------------------------------------
TRUST SHARES
MONEY MARKET
<S> <C> <C> <C> <C> <C> <C>
1988 $1.00 $0.07 $(0.07) $1.00 7.45% 0.45%
1989 1.00 0.09 (0.09) 1.00 9.13% 0.50%
1990 1.00 0.08 (0.08) 1.00 8.10% 0.47%
1991 1.00 0.06 (0.06) 1.00 5.85% 0.50%
1992 1.00 0.03 (0.03) 1.00 3.44% 0.50%
1993 1.00 0.03 (0.03) 1.00 2.74% 0.51%
1994 1.00 0.04 (0.04) 1.00 3.86% 0.51%
1995 1.00 0.05 (0.05) 1.00 5.58% 0.53%
1996 1.00 0.05 (0.05) 1.00 5.01% 0.53%
1997 1.00 0.05 (0.05) 1.00 5.17% 0.51%
<CAPTION>
OHIO MUNICIPAL MONEY MARKET
<S> <C> <C> <C> <C> <C> <C>
1988 $1.00 $0.05 $(0.05) $1.00 4.89% 0.52%
1989 1.00 0.06 (0.06) 1.00 6.01% 0.52%
1990 1.00 0.05 (0.05) 1.00 5.43% 0.60%
1991 1.00 0.04 (0.04) 1.00 4.07% 0.58%
1992 1.00 0.03 (0.03) 1.00 2.61% 0.49%
1993 1.00 0.02 (0.02) 1.00 2.08% 0.45%
1994 1.00 0.02 (0.02) 1.00 2.41% 0.45%
1995 1.00 0.04 (0.04) 1.00 3.57% 0.42%
1996 1.00 0.03 (0.03) 1.00 3.14% 0.42%
1997 1.00 0.03 (0.03) 1.00 3.27% 0.45%
<CAPTION>
U.S. TREASURY MONEY MARKET
<S> <C> <C> <C> <C> <C> <C>
1989* $1.00 $0.02 $(0.02) $1.00 1.37% 0.38%(a)
1990 1.00 0.07 (0.07) 1.00 7.97% 0.44%
1991 1.00 0.05 (0.05) 1.00 5.66% 0.44%
1992 1.00 0.03 (0.03) 1.00 3.43% 0.41%
1993 1.00 0.03 (0.03) 1.00 2.77% 0.40%
1994 1.00 0.04 (0.04) 1.00 3.79% 0.42%
1995 1.00 0.05 (0.05) 1.00 5.53% 0.43%
1996 1.00 0.05 (0.05) 1.00 4.98% 0.42%
1997 1.00 0.05 (0.05) 1.00 5.06% 0.42%
</TABLE>
- -------------------------------------------------------------------------------
* Reflects operations for the period from October 2, 1989 (date of initial
public investment) to December 31, 1989.
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a)Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
4
<PAGE>
<TABLE>
<CAPTION>
NET NET ASSETS,
INVESTMENT EXPENSE WAIVER/ END OF PERIOD
INCOME REIMBURSEMENT(B) (000 OMITTED)
- -------------------------------------------------------
<S> <C> <C>
7.24% -- 295,414
8.75% -- 327,419
7.79% -- 313,436
5.74% -- 335,751
3.38% -- 291,818
2.70% 0.02% 337,276
3.75% 0.02% 287,805
5.44% 0.03% 296,764
4.90% -- 337,962
5.06% -- 424,050
4.76% -- 70,370
5.85% -- 71,527
5.33% -- 72,105
4.00% 0.02% 54,873
2.60% 0.14% 48,893
2.07% 0.20% 40,141
2.40% 0.19% 39,624
3.52% 0.20% 56,551
3.10% 0.12% 56,654
3.23% 0.07% 72,667
7.58%(a) 0.05%(a) $62,499
7.68% -- 149,066
5.52% -- 130,302
3.34% -- 146,453
2.74% 0.01% 231,123
3.76% 0.02% 256,538
5.40% 0.03% 277,142
4.87% -- 474,593
4.95% -- 483,548
</TABLE>
- -------------------------------------------------------
5
<PAGE>
FINANCIAL HIGHLIGHTS--EQUITY FUNDS (FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD)
The following information with respect to each of the five years in the
period ended December 31, 1997, has been derived from the Trust's financial
statements. The following financial highlights for the year ended December 31,
1997 were audited by the Trust's independent accountants, KPMG Peat Marwick
LLP and should be read in conjunction with the financial statements and notes
thereto contained in the Trust's 1997 Annual Report to Shareholders. The
financial highlights for the periods or years and the four-year period ended
December 31, 1996 were audited by the Trust's former auditors. KPMG Peat
Marwick LLP's report on the Trust's financial statements and financial
highlights for the year ended December 31, 1997, is included in the Trust's
1997 Annual Report to Shareholders, and is incorporated by reference into the
Combined Statement of Additional Information.
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
DISTRIBUTIONS TO SHAREHOLDERS DISTRIBUTIONS
NET ASSET NET REALIZED SHAREHOLDERS FROM NET IN EXCESS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET REALIZED GAIN OF NET
YEAR ENDED BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT ON INVESTMENT INVESTMENT
DECEMBER 31, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME TRANSACTIONS INCOME+
- ------------------------------------------------------------------------------------------------------------
TRUST SHARES
GROWTH
<S> <C> <C> <C> <C> <C> <C> <C>
1989* $20.00 $0.33 $0.59 $0.92 $(0.31) -- --
1990 20.61 0.50 (0.47) 0.03 (0.51) -- --
1991 20.13 0.53 4.74 5.27 (0.54) $(0.06) $(0.02)
1992 24.78 0.56 1.36 1.92 (0.55) (0.39) --
1993 25.76 0.46 0.44 0.90 (0.47) (0.02) --
1994 26.17 0.39 0.21 0.60 (0.40) (0.07) --
1995 26.30 0.43 7.62 8.05 (0.43) (3.11) --
1996 30.81 0.40 4.72 5.12 (0.40) (1.56) --
1997 33.97 0.29 11.63 11.92 (0.29) (2.12) --
<CAPTION>
INCOME EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
1989* $20.00 $0.50 $0.17 $0.67 $(0.42) -- --
1990 20.25 0.80 (2.57) (1.77) (0.88) -- --
1991 17.60 0.71 3.31 4.02 (0.72) -- --
1992 20.90 0.75 0.79 1.54 (0.74) -- --
1993 21.70 0.74 1.57 2.31 (0.74) $(0.06) --
1994 23.21 0.88 (1.29) (0.41) (0.87) -- --
1995 21.93 0.94 5.34 6.28 (0.96) -- --
1996 27.25 1.00 3.51 4.51 (1.00) (0.50) --
1997 30.26 1.03 6.70 7.73 (1.04) (0.65) --
</TABLE>
- -------------------------------------------------------------------------------
* Reflects operations for the period from July 3, 1989 (date of initial
public investment) to December 31, 1989.
+ Distributions in excess of net investment income were the result of
certain book and tax timing differences. These distributions do not
represent a return of capital for federal income tax purposes.
++ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a)Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Average commission rate paid per share for securities purchases and sales
during the period. Presentation of the rate is only required beginning in
fiscal 1996.
6
<PAGE>
<TABLE>
<CAPTION>
NET ASSET NET ASSETS,
VALUE, NET END OF PORTFOLIO AVERAGE
TOTAL END OF TOTAL INVESTMENT EXPENSE WAIVER/ PERIOD (000 TURNOVER COMMISSION
DISTRIBUTIONS PERIOD RETURN++ EXPENSES INCOME REIMBURSEMENT(B) OMITTED) RATE RATE(C)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.31) $20.61 4.63% 0.95%(a) 3.24%(a) -- $24,457 14% n/a
(0.51) 20.13 0.16% 1.00% 2.58% -- 36,253 18% n/a
(0.62) 24.78 26.47% 0.93% 2.33% 0.02% 71,451 13% n/a
(0.94) 25.76 7.88% 0.91% 2.25% 0.01% 90,096 36% n/a
(0.49) 26.17 3.53% 0.84% 1.79% 0.04% 109,576 29% n/a
(0.47) 26.30 2.28% 0.88% 1.52% 0.04% 103,463 42% n/a
(3.54) 30.81 30.75% 0.86% 1.34% 0.05% 143,421 37% n/a
(1.96) 33.97 16.72% 0.83% 1.20% -- 175,764 21% $0.045
(2.40) 43.48 35.37% 0.80% 0.73% -- 228,138 12% $0.061
$(0.42) $20.25 3.39% 0.92%(a) 5.13%(a) -- $35,215 29% n/a
(0.88) 17.60 (8.86%) 0.94% 4.43% -- 45,468 66% n/a
(0.72) 20.90 23.20% 0.93% 3.67% -- 79,908 25% n/a
(0.74) 21.70 7.49% 0.85% 3.53% 0.01% 95,182 22% n/a
(0.80) 23.21 10.85% 0.82% 3.29% -- 135,618 10% n/a
(0.87) 21.93 (1.82%) 0.84% 3.91% -- 115,399 50% n/a
(0.96) 27.25 29.26% 0.82% 3.85% -- 141,892 17% n/a
(1.50) 30.26 16.88% 0.82% 3.50% -- 172,767 25% $0.035
(1.69) 36.30 25.99% 0.81% 3.08% -- 214,625 24% $0.060
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
FINANCIAL HIGHLIGHTS--INCOME FUNDS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information with respect to each of the five years in the
period ended December 31, 1997, has been derived from the Trust's financial
statements. The following financial highlights for the year ended December 31,
1997 were audited by the Trust's independent accountants, KPMG Peat Marwick
LLP and should be read in conjunction with the financial statements and notes
thereto contained in the Trust's 1997 Annual Report to Shareholders. The
financial highlights for the periods or years and the four-year period ended
December 31, 1996 were audited by the Trust's former auditors. KPMG Peat
Marwick LLP's report on the Trust's financial statements and financial
highlights for the year ended December 31, 1997, is included in the Trust's
1997 Annual Report to Shareholders, and is incorporated by reference into the
Combined Statement of Additional Information.
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
DISTRIBUTIONS TO SHAREHOLDERS DISTRIBUTIONS
NET ASSET NET REALIZED SHAREHOLDERS FROM NET IN EXCESS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET REALIZED GAIN OF NET
YEAR ENDED BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT ON INVESTMENT INVESTMENT
DECEMBER 31, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME TRANSACTIONS INCOME+
- ------------------------------------------------------------------------------------------------------------
TRUST SHARES
OHIO TAX-FREE
<S> <C> <C> <C> <C> <C> <C> <C>
1988* $20.00 $0.22 $(0.05) $0.17 $(0.22) -- --
1989 19.95 1.20 0.23 1.43 (1.15) -- --
1990 20.23 1.11 0.12 1.23 (1.15) -- --
1991 20.31 1.05 0.74 1.79 (1.05) -- --
1992 21.05 0.98 0.26 1.24 (0.98) -- --
1993 21.31 0.96 0.73 1.69 (0.96) -- --
1994 22.04 0.99 (1.55) (0.56) (0.98) -- --
1995 20.50 1.01 1.27 2.28 (1.01) -- --
1996 21.77 1.01 (0.28) 0.73 (1.01) -- --
1997 21.49 1.01 0.27 1.28 (1.02) $(0.01) --
<CAPTION>
FIXED INCOME SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C>
1989** $20.00 $0.60 $0.02 $0.62 $(0.60) -- --
1990 20.02 1.44 (0.03) 1.41 (1.48) -- --
1991 19.95 1.43 1.65 3.08 (1.35) $(0.10) --
1992 21.58 1.37 (0.02) 1.35 (1.47) (0.12) $(0.02)
1993 21.32 1.28 0.88 2.16 (1.39) (0.06) --
1994 22.03 1.28 (2.28) (1.00) (1.34) -- --
1995 19.69 1.34 2.09 3.43 (1.34) -- --
1996 21.78 1.34 (0.83) 0.51 (1.35) -- --
1997 20.94 1.31 0.47 1.78 (1.31) -- --
<CAPTION>
MORTGAGE SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C>
1992***(c) $10.00 $0.63 $0.29 $0.92 $(0.61) $(0.04) --
1993(c) 10.27 1.50 (0.28) 1.22 (1.46) (0.10) --
1994(c) 9.93 0.89 (3.19) (2.30) (0.93) -- $(0.01)
1995(c) 6.69 0.55 1.46 2.01 (0.55) -- (0.06)
1996(c) 8.09 0.55 (0.04) 0.51 (0.54) -- --
1997(c) 8.06 0.52 0.16 0.68 (0.50) -- --
<CAPTION>
SHORT/INTERMEDIATE FIXED INCOME SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C>
1989** $20.00 $0.72 $0.05 $0.77 $(0.66) -- --
1990 20.11 1.50 0.10 1.60 (1.54) -- --
1991 20.17 1.49 1.14 2.63 (1.51) $(0.11) $(0.03)
1992 21.15 1.36 (0.09) 1.27 (1.36) (0.32) (0.11)
1993 20.63 1.19 0.31 1.50 (1.31) (0.25) --
1994 20.57 1.13 (1.33) (0.20) (1.23) -- --
1995 19.14 1.18 1.21 2.39 (1.18) -- --
1996 20.35 1.17 (0.37) 0.80 (1.19) -- --
1997 19.96 1.19 0.08 1.27 (1.19) -- --
</TABLE>
- -------------------------------------------------------------------------------
*Reflects operations for the period from October 18, 1988 (date of initial
public investment) to December 31, 1988.
**Reflects operations for the period from July 3, 1989 (date of initial public
investment) to December 31, 1989.
***Reflects operations for the period from June 2, 1992 (date of initial
public investment) to December 31, 1992.
+ Distributions in excess of net investment income were the result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
8
<PAGE>
<TABLE>
<CAPTION>
NET ASSETS,
NET ASSET NET END OF PORTFOLIO
TOTAL VALUE, END TOTAL INVESTMENT EXPENSE WAIVER/ PERIOD (000 TURNOVER
DISTRIBUTIONS OF PERIOD RETURN++ EXPENSES INCOME REIMBURSEMENT(B) OMITTED) RATE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.22) $19.95 0.59% 0.88%(a) 5.42%(a) -- $15,724 76%
(1.15) 20.23 7.37% 0.87% 5.88% -- 28,040 86%
(1.15) 20.31 6.28% 0.91% 5.59% -- 29,886 5%
(1.05) 21.05 9.06% 0.90% 5.13% -- 38,112 13%
(0.98) 21.31 6.04% 0.91% 4.62% -- 47,557 3%
(0.96) 22.04 8.08% 0.82% 4.39% 0.04% 59,541 2%
(0.98) 20.50 (2.57%) 0.77% 4.68% 0.04% 56,469 12%
(1.01) 21.77 11.35% 0.78% 4.74% 0.08% 59,869 13%
(1.01) 21.49 3.48% 0.76% 3.49% -- 64,799 6%
(1.03) 21.74 6.11% 0.72% 4.72% -- 64,325 14%
$(0.60) $20.02 3.14% 0.88%(a) 7.14%(a) -- $26,502 19%
(1.48) 19.95 7.49% 0.82% 7.56% -- 38,131 7%
(1.45) 21.58 16.13% 0.90% 7.12% -- 54,525 21%
(1.61) 21.32 6.54% 0.83% 6.49% -- 87,107 15%
(1.45) 22.03 10.32% 0.74% 5.87% 0.04% 112,103 7%
(1.34) 19.69 (4.62%) 0.75% 6.26% 0.04% 119,117 23%
(1.34) 21.78 17.95% 0.77% 6.41% 0.05% 141,423 20%
(1.35) 20.94 2.56% 0.74% 6.39% -- 144,038 16%
(1.31) 21.41 8.83% 0.70% 6.26% -- 153,374 116%
$(0.65) $10.27 9.12% 0.58%(a) 10.60%(a) 0.19%(a) $90,677 50%
(1.56) 9.93 12.10% 0.78% 14.20% 0.04% 90,461 154%
(0.94) 6.69 (24.59%) 0.88% 11.16% 0.12% 54,164 91%
(0.61) 8.09 31.10% 0.49% 7.29% 0.63% 52,667 194%
(0.54) 8.06 6.56% 0.67% 6.86% 0.29% 39,566 90%
(0.50) 8.24 8.77% 0.66% 6.39% 0.20% 37,057 63%
$(0.66) $20.11 3.91% 0.76%(a) 7.54%(a) -- $84,702 24%
(1.54) 20.17 8.34% 0.74% 7.59% -- 104,218 20%
(1.65) 21.15 13.62% 0.78% 7.23% -- 101,519 50%
(1.79) 20.63 6.25% 0.74% 6.44% -- 123,400 41%
(1.56) 20.57 7.43% 0.71% 5.70% -- 123,897 24%
(1.23) 19.14 (0.98%) 0.72% 5.76% -- 125,112 38%
(1.18) 20.35 12.81% 0.74% 5.93% -- 133,951 40%
(1.19) 19.96 4.08% 0.72% 5.83% -- 125,514 39%
(1.19) 20.04 6.56% 0.71% 5.94% -- 126,845 160%
- -------------------------------------------------------------------------------------------------
</TABLE>
++Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a)Computed on an annualized basis.
(b)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Per share information presented is based upon the monthly number of shares
outstanding due to large fluctuations in the number of shares outstanding
during the period.
9
<PAGE>
FINANCIAL HIGHLIGHTS--INCOME FUNDS (CONT'D) (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD)
The following information has been derived from the financial statements for
the Institutional Class of shares of FMB Michigan Tax-Free Bond Fund and the
FMB Intermediate Government Income Fund (the "FMB Funds"), the predecessor
funds to the Michigan Tax-Free Fund and the Intermediate Government Income
Fund, respectively. Prior to the reorganization of the FMB Funds with and into
their corresponding Monitor Funds on April 6, 1998, neither of these Monitor
Funds had commenced operations. The following financial highlights for each of
the five years in the period ended November 30, 1997 were included in the
financial statements audited by Price Waterhouse LLP, the independent
accountants of the FMB Funds. This information should be read in connection
with the financial statements and the notes thereto included in the 1997
Annual Report to Shareholders of the FMB Funds. Price Waterhouse LLP's report
on the financial statements and financial highlights for the FMB Funds is
incorporated by reference into the Combined Statement of Additional
Information.
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
DISTRIBUTIONS TO SHAREHOLDERS
NET ASSET NET REALIZED SHAREHOLDERS FROM NET
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET REALIZED GAIN
YEAR ENDED BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT ON INVESTMENT
NOVEMBER 30, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME TRANSACTIONS
- ----------------------------------------------------------------------------------------------
TRUST SHARES
MICHIGAN TAX-FREE
<S> <C> <C> <C> <C> <C> <C>
1992* $10.00 $0.48 $0.24 $0.72 $(0.48) --
1993 10.24 0.49 0.37 0.86 (0.49) --
1994 10.61 0.47 (0.63) (0.16) (0.47) (0.01)
1995 9.97 0.49 0.82 1.31 (0.49) --
1996 10.79 0.50 -- 0.50 (0.50) --
1997 10.79 0.50 0.10 0.60 (0.50) --
<CAPTION>
INTERMEDIATE GOVERNMENT INCOME
<S> <C> <C> <C> <C> <C> <C>
1992* $10.00 $0.60 0.10 0.70 (0.60) --
1993 10.10 0.59 0.36 0.95 (0.59) --
1994 10.46 0.57 (0.80) (0.23) (0.57) --
1995 9.68 0.61 0.58 1.19 (0.61) --
1996 10.24 0.59 (0.10) 0.49 (0.60) --
1997 10.13 0.59 0.02 0.61 (0.58) --
</TABLE>
- -------------------------------------------------------------------------------
* Reflects operations for the period from December 2, 1991 (date of initial
public investment) to November 30, 1992.
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a)Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
10
<PAGE>
<TABLE>
<CAPTION>
NET ASSET NET ASSETS,
VALUE, NET END OF PORTFOLIO
TOTAL END OF TOTAL INVESTMENT EXPENSE WAIVER/ PERIOD (000 TURNOVER
DISTRIBUTIONS PERIOD RETURN+ EXPENSES INCOME REIMBURSEMENT(B) OMITTED) RATE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.48) $10.24 7.29% 0.29%(a) 4.68%(a) 2.26% $ 6,043 30%
(0.49) 10.61 8.53% 0.35% 4.59% 1.03% 11,779 13%
(0.48) 9.97 (1.49%) 0.51% 4.50% 0.68% 15,495 22%
(0.49) 10.79 13.21% 0.70% 4.62% 0.48% 20,700 35%
(0.50) 10.79 4.78% 0.68% 4.72% 0.37% 23,082 16%
(0.50) 10.89 5.73% 0.73% 4.66% 0.27% 24,954 7%
$(0.60) $10.10 7.10% 0.43%(a) 5.85%(a) 0.47% $ 81,371 29%
(0.59) 10.46 9.60% 0.50% 5.66% 0.28% 105,820 17%
(0.57) 9.66 (2.23%) 0.83% 6.45% 0.02% 115,449 20%
(0.61) 10.24 12.64% 0.78% 6.09% -- 114,646 27%
(0.60) 10.13 4.97% 0.79% 5.89% -- 108,047 16%
(0.58) 10.16 6.27% 0.79% 5.91% -- 115,064 28%
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the various Funds are described
below. There can, of course, be no guarantee that a Fund will achieve its
investment objective.
Each Fund's investment objective is fundamental and may be changed only by a
vote of a majority of the outstanding shares of that Fund. Unless otherwise
noted in this Prospectus or in the Statement of Additional Information, the
investment policies of the Funds are not fundamental and may be changed by the
Trust's Board of Trustees (the "Trustees"). Except with respect to borrowing
money or downgrades of securities in the Money Market Funds, any percentage
limitation on a Fund's investments (or other activities) will be considered to
be violated only if such limitation is exceeded immediately after, and is
caused by, an acquisition of an investment (or the taking of such other
action).
For a description of the ratings of nationally recognized statistical rating
organizations (individually, an "NRSRO") utilized by Huntington in managing
the Funds' investments, see the Appendix to the Statement of Additional
Information.
MONEY MARKET FUNDS
Each of the Money Market Funds described below is designed for investors
seeking current income with stability of principal. The Money Market Funds
intend to limit their investments by operating in a manner consistent with
Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940
Act"). Rule 2a-7 permits funds to utilize the amortized cost method of
valuation in order to offer their shares at a net asset value of $1.00 per
share (see also the section of the Statement of Additional Information
entitled "Determination of Net Asset Value"). Rule 2a-7 imposes certain risk
limiting conditions on the Money Market Funds which in some instances restrict
a Money Market Fund's investment policies. These risk limiting conditions
include the following:
. The Money Market Funds must limit their investments to "Eligible Securities"
as defined under Rule 2a-7, and which Huntington has determined present
minimal credit risks under guidelines adopted by the Trustees. (An
explanation of some of the terms defined by Rule 2a-7 is contained in the
Statement of Additional Information.)
. Each Money Market Fund (except the Ohio Municipal Money Market Fund) must
limit investments in "Second Tier Securities" to 5% of total assets and the
greater of 1% of total assets or $1 million in the securities of a single
Second Tier issuer.
. The Money Market Funds may invest without limit in "First Tier Securities"
subject to a 5% of total assets issuer diversification limitation where
applicable. In addition, the portfolio investments of each Money Market Fund
must be deemed to have a maturity of 397 days or less from the time of
purchase by a Money Market Fund, although securities owned pursuant to a
repurchase agreement and certain adjustable interest rate instruments may
bear longer maturities. The dollar-weighted average maturity of each Money
Market Fund's portfolio must not exceed 90 days. Of course, a Money Market
Fund's yield, and under unusual circumstances, the value of its portfolio
securities, will be affected by changes in interest rates.
MONEY MARKET FUND
The objective of the Money Market Fund is to maximize current income while
preserving capital and maintaining liquidity by investing in a portfolio of
high quality money market instruments. The Money Market Fund's portfolio
investments may include:
12
<PAGE>
(a)obligations, such as notes, bills or bonds, issued by or guaranteed as
to principal and interest by the U.S. Government or its agencies or
instrumentalities;
(b)commercial paper, including U.S. dollar denominated eurodollar
commercial paper, considered under Rule 2a-7 to be rated in the highest
category by an NRSRO(s) or, if not rated, of comparable quality as
determined by Huntington pursuant to guidelines established by the
Trustees;
(c)negotiable certificates of deposit and bankers' acceptances issued by
domestic banks and U.S. branches of foreign banks which are subject to
the same regulation as U.S. banks and which, at the time of purchase,
have capital, surplus, and undivided profits in excess of $100,000,000
(as of the bank's most recently published financial statements);
(d)corporate debt obligations, including bonds, notes and debentures
considered under Rule 2a-7 to be rated in the two highest categories by
an NRSRO(s) or, if not rated, of comparable quality as determined by
Huntington pursuant to guidelines established by the Trustees; and
(e)repurchase agreements and master demand notes.
RESTRICTED AND ILLIQUID SECURITIES. The Money Market Fund intends to invest
in restricted securities. Restricted securities are any securities in which
the Money Market Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restriction on resale under
federal securities law. However, the Money Market Fund will limit investments
in illiquid securities, including certain restricted securities not determined
by the Trustees to be liquid, non-negotiable time deposits, and repurchase
agreements providing for settlement in more than seven days after notice, to
10% of its net assets.
The Money Market Fund may invest in commercial paper issued in reliance on
the exemption from registration afforded by Section 4(2) of the Securities Act
of 1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law, and is generally sold to institutional investors, such
as the Money Market Fund, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Money Market Fund
through or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. The Money
Market Fund believes that Section 4(2) commercial paper and possibly certain
other restricted securities which meet the criteria for liquidity established
by the Trustees are quite liquid. The Money Market Fund intends, therefore, to
treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) commercial paper, as
determined by Huntington, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section
4(2) commercial paper is liquid, the Money Market Fund intends to not subject
such paper to the limitation applicable to restricted securities.
OHIO MUNICIPAL MONEY MARKET FUND
The objective of the Ohio Municipal Money Market Fund is to provide income
exempt from both federal regular income tax and Ohio personal income taxes
while preserving capital and maintaining liquidity. As a fundamental policy,
the Ohio Municipal Money Market Fund invests its assets so that at
13
<PAGE>
least 80% of its annual interest income is exempt from federal regular income
tax. The Ohio Municipal Money Market Fund invests primarily in Ohio tax-exempt
securities which, under normal market conditions, will comprise at least 65%
of its assets. Ohio tax-exempt securities are debt obligations issued by or on
behalf of the State of Ohio, its political subdivisions, or agencies, or
financing authorities of any of these, the income from which is, in the
opinion of qualified legal counsel, exempt from both federal regular income
tax and the personal income taxes imposed by the State of Ohio. Examples of
tax-exempt securities include, but are not limited to:
.tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
.bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
.municipal commercial paper and other short-term notes;
.variable rate demand notes;
.municipal bonds (including bonds having serial maturities and pre-funded
bonds); and
.participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND OBLIGATIONS. Variable rate demand obligations are long-
term tax-exempt securities that have variable or floating interest rates and
provide the Ohio Municipal Money Market Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause
the securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally
established by the remarketing agent of the respective securities. Most
variable rate demand obligations allow the holder to demand the repurchase of
the security on not more than seven days prior notice. Other obligations only
permit the holder to tender the security at the time of each interest rate
adjustment or at other fixed intervals. See "Demand Features." The Ohio
Municipal Money Market Fund treats variable rate demand obligations as
maturing on the later of the date of the next interest adjustment or the date
on which it may next tender the security for redemption.
PARTICIPATION INTERESTS. The Ohio Municipal Money Market Fund may purchase
interests in tax-exempt securities from financial institutions such as
commercial and investment banks, savings and loan associations and insurance
companies. These interests may take the form of participations, beneficial
interests in a trust, partnership interests or any other form of indirect
ownership that allows the holder to treat the income from the investment as
exempt from federal income tax. The Ohio Municipal Money Market Fund invests
in these participation interests in order to obtain credit enhancement or
demand features that would not be available through direct ownership of the
underlying tax-exempt securities.
DEMAND FEATURES AND GUARANTEES. The Ohio Municipal Money Market Fund may
acquire securities which are subject to puts and standby commitments ("demand
features") to purchase the securities at their principal amounts (usually with
accrued interest) within a fixed period (usually seven days) following a
demand by the Fund. In addition, certain of the portfolio investments of the
Ohio Municipal Money Market Fund may be credit enhanced by a guarantee,
including, letter of credit, insurance or unconditional demand feature. The
bankruptcy, receivership or default of the credit enhancer will adversely
affect the quality and marketability of the underlying security. Except as
14
<PAGE>
permitted under Rule 2a-7 of the 1940 Act, the Ohio Municipal Money Market
Fund will not invest, with respect to 75% of its total assets, more than 10%
of its total assets in securities issued by or subject to guarantees or demand
features from the issuing institution.
The Ohio Municipal Money Market Fund uses demand features to provide
liquidity and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership or default by the issuer
of the demand feature, or a default on the underlying security or other event
that terminates the demand feature before its exercise, will adversely affect
the liquidity of the underlying security. Demand features that are exercisable
even after a payment default on the underlying security may be treated as a
form of credit enhancement.
TEMPORARY INVESTMENTS. The Ohio Municipal Money Market Fund invests its
assets so that at least 80% of its annual interest income is exempt from
federal regular income taxes and at least 65% of its assets are invested in
securities the income from which is exempt from Ohio personal income taxes.
However, from time to time, when Huntington determines that market conditions
call for a temporary defensive posture, the Ohio Municipal Money Market Fund
may invest in temporary investments with remaining maturities of 13 months or
less at the time of purchase, or hold assets in cash. Interest income from
temporary investments may be taxable to shareholders as ordinary income. These
temporary investments include: obligations issued by or on behalf of municipal
or corporate issuers having the same quality characteristics as Ohio tax-
exempt securities purchased by the Fund; marketable obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities;
instruments issued by a U.S. branch of a domestic bank or other depository
institutions having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment; repurchase agreements (arrangements in
which the organization selling a temporary investment agrees at the time of
sale to repurchase it at a mutually agreed upon time and price); and
commercial paper rated in one of the two highest short-term rating categories
by an NRSRO(s).
Although the Ohio Municipal Money Market Fund is permitted to make taxable,
temporary investments that may have Ohio state tax implications, there is no
current intention of generating income subject to federal regular or Ohio
personal income taxes.
U.S. TREASURY MONEY MARKET FUND
The objective of the U.S. Treasury Money Market Fund is to maximize current
income while preserving capital and maintaining liquidity by investing
exclusively in obligations issued by the U.S. Government and backed by its
full faith and credit and in repurchase agreements with respect to such
obligations. At least 65% of the U.S. Treasury Money Market Fund's total
assets will be invested in Treasury bills, notes and bonds which are direct
obligations of the U.S. Treasury, and repurchase agreements with respect to
such obligations.
15
<PAGE>
EQUITY FUNDS
GROWTH FUND
The objective of the Growth Fund is to achieve long-term capital
appreciation primarily through investments in equity securities. Current
income will be only an incidental consideration in the selection of
investments. Equity securities in which the Growth Fund may invest include
common stocks, preferred stocks, securities convertible into or exchangeable
for common stocks, and other securities which Huntington believes have common
stock characteristics, such as rights and warrants. The Growth Fund may invest
in foreign securities and, subject to its investment restrictions, securities
restricted as to resale under federal securities laws. The Growth Fund's
common stock selection emphasizes those companies which Huntington believes
have characteristics such as above average earnings and dividend growth,
superior balance sheets, and potential for capital gains, but its investment
policy recognizes that securities of other companies may be attractive for
capital appreciation purposes by virtue of special developments or depression
in price believed to be temporary. The Growth Fund will invest in large and
medium-sized capitalization growth companies which provide these financial and
growth characteristics. In managing the investments of the Growth Fund,
Huntington seeks to purchase equity securities whose potential for capital
gains is balanced by an ability to better withstand overall downward market
movements. As a matter of fundamental policy, under normal market conditions,
the Growth Fund will invest at least 65% of its total assets in the equity
securities described in this paragraph. The Growth Fund may also, under normal
market conditions, invest a portion of its assets in cash equivalents,
including repurchase agreements and the shares of money market mutual funds,
for liquidity purposes.
INCOME EQUITY FUND
The objective of the Income Equity Fund is to achieve high current income
and moderate appreciation of capital primarily through investment in income-
producing equity securities. Consistent with this objective, the Income Equity
Fund may invest in preferred stocks, in securities convertible into or
exchangeable for common stocks and securities which Huntington believes have
common stock characteristics, such as rights and warrants. The Income Equity
Fund may invest in foreign securities and, subject to its investment
restrictions, in securities restricted as to resale under federal securities
laws. As a matter of fundamental policy, under normal market conditions, the
Income Equity Fund will invest at least 65% of its total assets in the equity
securities described in this paragraph. The Income Equity Fund may invest up
to 35% of its assets in debt securities rated investment grade or better. The
Income Equity Fund may also, under normal market conditions, invest a portion
of its assets in cash equivalents, including repurchase agreements and the
shares of money market mutual funds, for liquidity purposes.
INCOME FUNDS
The investment objectives and policies of the Income Funds are described
below. Each of the Income Funds invests primarily in debt securities. The
prices of fixed income securities generally fluctuate inversely to the
direction of interest rates. Thus, a decrease in interest rates will generally
result in an increase in the values of debt securities held by an Income Fund.
Conversely, during periods of rising interest rates, the values of an Income
Fund's assets will generally decline. The values of such securities are also
affected by changes in the financial condition of their issuers. Changes in
the values of an Income Fund's securities will not generally affect the income
derived from such securities but will affect an Income Fund's net asset value.
16
<PAGE>
MORTGAGE SECURITIES FUND
The investment objective of the Mortgage Securities Fund is current income.
The Mortgage Securities Fund seeks to achieve this investment objective by
investing at least 65% of the value of its total assets in mortgage-related
securities issued by the U.S. Government, government-related entities, and
private entities. These mortgage-related securities include derivative
mortgage securities. For a further description of these securities and other
investment activities, see "Additional Information on Portfolio Investments
and Strategies" below.
The Mortgage Securities Fund may invest up to 35% of the value of its total
assets in:
(i) non-mortgage related securities issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities;
(ii) certificates of deposit, bankers' acceptances and interest-bearing
savings deposits of banks having total assets of more than $1 billion and
which are members of the Federal Deposit Insurance Corporation (the
"FDIC"); and
(iii) commercial paper rated A-1 by Standard & Poor's Ratings Group
("S&P") or P-1 by Moody's Investors Service, Inc. ("Moody's") or, if not
rated, issued by companies which have an outstanding debt issue rated AAA
by S&P or Aaa by Moody's.
The Mortgage Securities Fund will attempt to maintain a dollar-weighted
average portfolio life of more than three years but no more than ten years. In
order to maintain a dollar-weighted average portfolio life, Huntington will
monitor the prepayment experience of the underlying mortgage pools of the
mortgage-related securities and will purchase and sell securities in the
portfolio to shorten or lengthen the average life of the portfolio, as
appropriate.
It is important to understand that, while a valuable measure, average life
is based on certain assumptions and has several limitations. It is most useful
as a measure of the repayment of principal when interest rate changes are
small. In addition, average life is difficult to calculate precisely for bonds
with prepayment options, such as mortgage-related securities, because the
calculation requires assumptions about prepayment rates. For example, when
interest rates go down, homeowners may prepay their mortgages at a higher rate
than assumed in the initial average life calculation, thereby shortening the
average life of the Fund's mortgage-related securities. Conversely, if rates
increase, prepayments may decrease to a greater extent than assumed, extending
the average life of such securities. For these reasons, the average lives of
funds which invest a significant portion of their assets in mortgage-related
securities can be greatly affected by changes in interest rates.
The portfolio turnover rate of the Mortgage Securities Fund may exceed 100%,
which is higher than the portfolio turnover rate of most mutual funds.
However, the Adviser does not expect the portfolio turnover rate of the
Mortgage Securities Fund to exceed 200%. To the extent that short-term trading
results in the realization of short-term capital gains, shareholders will be
taxed on such gains at ordinary income tax rates. However, certain tax rules
may restrict the Mortgage Securities Fund's ability to sell securities in some
circumstances when the security has been held for less than three (3) months.
Increased portfolio turnover necessarily results in higher costs, including
brokerage commissions, dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities, and may result in the
acceleration of capital gains.
17
<PAGE>
Short-Term Trading. The Mortgage Securities Fund will use short-term trading
to benefit from yield disparities among different issues of securities or
otherwise to achieve its investment objective. To the extent that the Mortgage
Securities Fund engages in short-term trading, such activities will cause it
to pay greater mark-up charges. The Mortgage Securities Fund's portfolio
turnover rate is set forth in "Financial Highlights."
Investment Risks. The Mortgage Securities Fund is subject to interest rate
risk, which is the potential for a decline in bond prices due to rising
interest rates. In general, bond prices vary inversely with interest rates.
When interest rates rise, bond prices generally fall. Conversely, when
interest rates fall, bond prices generally rise. Interest rate risk applies to
U.S. Government securities as well as other bonds. U.S. Government securities
are guaranteed only as to the payment of interest and principal. The current
market prices for such securities are not guaranteed and will fluctuate.
The Mortgage Securities Fund invests a significant portion of its assets in
mortgage-related securities and, as a result, is subject to prepayment risk.
Prepayment risk results because, as interest rates fall, homeowners are more
likely to refinance their home mortgages. When home mortgages are refinanced,
the principal on mortgage-related securities held is prepaid earlier than
expected. The Mortgage Securities Fund must then reinvest the unanticipated
principal payments, just at a time when interest rates on new mortgage
investments are falling. Prepayment risk has two important effects on the
Fund:
. When interest rates fall and additional mortgage prepayments must be
reinvested at lower interest rates, Mortgage Securities Fund's income
will be reduced; and
. When interest rates fall, prices on mortgage-backed securities may not
rise as much as comparable Treasury bonds because bond market investors
may anticipate an increase in mortgage prepayments and a likely decline
in income.
The Mortgage Securities Fund's investments in mortgage-related securities
also subject it to extension risk. Extension risk is the possibility that
rising interest rates may cause prepayments to occur at a slower than expected
rate. This particular risk may effectively change a security which was
considered short- or intermediate-term at the time of purchase into a long-
term security. Long-term securities generally fluctuate more widely in
response to changes in interest rates than short- or intermediate-term
securities.
The Mortgage Securities Fund's investments in mortgage-related securities
include derivative mortgage securities such as CMOs and stripped mortgage-
backed securities which, as discussed below, may involve risks in addition to
those found in other mortgage-related securities. Past market experience has
shown that certain derivative mortgage securities may be highly sensitive to
changes in interest and prepayment rates and, as a result, the prices of such
securities may be highly volatile. In addition, recent market experience has
shown that during periods of rising interest rates, the market for certain
derivative mortgage securities may become more unstable and such securities
may become more difficult to sell as market makers either choose not to
repurchase such securities or offer prices, based on current market
conditions, which are unacceptable to the Fund.
18
<PAGE>
OHIO TAX-FREE FUND
The objective of the Ohio Tax-Free Fund is to provide current income exempt
from federal income tax and Ohio personal income taxes. The Ohio Tax-Free Fund
will attempt to achieve its objective by investing in Ohio tax-exempt
securities. "Ohio tax-exempt securities" are debt obligations which (i) are
issued by or on behalf of the State of Ohio or its respective authorities,
agencies, instrumentalities and political subdivisions, and (ii) produce
interest which, in the opinion of bond counsel at the time of issuance, is
exempt from federal income tax and Ohio personal income taxes. As a matter of
fundamental policy, under normal market conditions at least 80% of the Ohio
Tax-Free Fund's net assets will be invested in Ohio tax-exempt securities. In
addition, the Ohio Tax-Free Fund will not, as a matter of fundamental policy,
invest in securities the income from which is treated as a preference item for
purposes of the federal alternative minimum tax. This policy will restrict the
Ohio Tax-Free Fund's ability to invest in certain private activity bonds
issued after August 7, 1986.
The Ohio Tax-Free Fund will only invest in Ohio tax-exempt securities that
are rated at the time of purchase in one of the top four categories by an
NRSRO(s) or, if not rated, are determined by Huntington to be of comparable
quality under guidelines established by the Trustees. Based on current market
conditions, it is anticipated that the dollar-weighted average portfolio
maturity will be between four and ten years. Under normal market conditions,
the Ohio Tax-Free Fund will not invest in obligations with a remaining
maturity of more than 15 years at the time of purchase.
The Ohio Tax-Free Fund may also invest in numerous types of short-term tax-
exempt instruments, which may be used to fund short-term cash requirements
such as interim financing in anticipation of tax collections, revenue receipts
or bond sales to finance various public purposes.
From time to time, the Ohio Tax-Free Fund may invest in obligations the
interest on which is subject to federal income tax or Ohio personal income
taxes pending investment in Ohio tax-exempt securities or for liquidity
purposes. The Ohio Tax-Free Fund may also hold a portion of its assets in cash
or money market instruments, the interest on which may not be exempt from
federal or Ohio income taxes.
MICHIGAN TAX-FREE FUND
The investment objective of the Michigan Tax-Free Fund is to provide
investors with current income exempt from both federal and Michigan personal
income taxes. The Michigan Tax-Free Fund will attempt to achieve this
objective by investing primarily in debt obligations with short-to-
intermediate remaining maturities (less than 15 years) issued by or on behalf
of the State of Michigan and its political subdivisions, agencies, and
instrumentalities or by other issuers outside the State of Michigan if such
obligations pay interest that, in the opinion of counsel to the issuer, is
exempt from both federal and Michigan personal income tax ("Michigan tax-
exempt securities"). The Michigan Tax-Free Fund may also invest in numerous
types of short-term Michigan tax-exempt securities that may be used to fund
short-term cash requirements such as interim financing in anticipation of the
collections, revenue receipts or bond sales to finance various public
purposes. As a matter of fundamental policy, under normal market conditions at
least 65% of the Michigan Tax-Free Fund's net assets will be invested in
Michigan tax-exempt securities. In addition, the Michigan Tax-Free Fund will
not, as a matter of fundamental policy, invest more than 20% of its net assets
in Michigan tax-exempt securities the income from which is treated as a
preference item for purposes of the federal alternative minimum tax. This
policy will restrict the Michigan Tax-Free Fund's ability to invest in certain
private activity bonds issued after August 7, 1986.
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Bank and Savings and Loan Obligations. These obligations include negotiable
certificates of deposit, fixed time deposits, bankers' acceptances, and
interest bearing demand accounts. The Michigan Tax-Free Fund limits its bank
investments to dollar-denominated obligations of U.S., Canadian, Asian or
European banks which have more than $500 million in total assets at the time
of investment or of United States savings and loan associations which have
more than $1 billion in total assets at the time of investment and, in the
case of U.S. banks, are members of the Federal Reserve System or are examined
by the Comptroller of the Currency or whose deposits are insured by the FDIC.
Commercial Paper. Commercial paper includes short-term unsecured promissory
notes, and variable floating rate demand notes issued by domestic and foreign
bank holding companies, corporations and financial institutions as well as
similar taxable and tax-exempt instruments issued by government agencies and
instrumentalities.
Variable and Floating Rate Demand and Master Demand Notes. The Michigan Tax-
Free Fund may, from time to time, buy variable or floating rate demand notes
issued by corporations, bank holding companies and financial institutions and
similar taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities typically will have a nominal maturity of
over one year but will give the holder the right to "put" the securities to a
remarketing agent or other entity at designated time intervals and on
specified notice. The obligation of the issuer of the put to repurchase the
securities may be backed by a letter of credit or other obligation issued by a
financial institution. The purchase price is ordinarily par plus accrued and
unpaid interest. Generally the remarketing agent will adjust the interest rate
every seven days (or at other specified intervals) in order to maintain the
interest rate at the prevailing rate for securities with a seven-day or other
designated maturity.
The Michigan Tax-Free Fund also may buy variable rate master demand notes.
The terms of these obligations permit the Fund to invest fluctuating amounts
at varying rates of interest pursuant to direct arrangements between the
Michigan Tax-Free Fund, as lender, and the borrower. These instruments permit
weekly and, in some instances, daily changes in the amounts borrowed. The
Michigan Tax-Free Fund has the right to increase the amount under the note at
any time up to the full amount provided by the note agreement, or to decrease
the amount, and the borrower may repay up to the full amount of the note
without penalty. The notes may or may not be backed by bank letters of credit.
Because the notes are direct lending arrangements between the Michigan Tax-
Free Fund and borrower, it is not generally contemplated that they will be
traded, and there is no secondary market for them, although they are
redeemable (and, thus, immediately repayable by the borrower) at principal
amount, plus accrued interest, at any time. In connection with any such
purchase and on an ongoing basis, Huntington will consider the earning power,
cash flow and other liquidity ratios of the issuer, and its ability to pay
principal and interest on demand, including situations in which all holders of
such notes make demand simultaneously. While master demand notes, as such, are
not typically rated by NRSROs, if not so rated, the Michigan Tax-Free Fund
may, under its minimum rating standards, invest in them only if, at the time
of an investment, the issuer meets the criteria set forth in this Prospectus
for commercial paper obligations.
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FIXED INCOME SECURITIES FUND
The objective of the Fixed Income Securities Fund is to achieve high current
income through investment in fixed income securities where the average
maturity of the Fixed Income Securities Fund will not exceed 10 years. The
Fixed Income Securities Fund may purchase obligations of the U.S. Government
and its agencies and instrumentalities, corporate bonds, debentures,
nonconvertible fixed income preferred stocks, mortgage pass-through
securities, eurodollar certificates of deposit and eurodollar bonds. The Fixed
Income Securities Fund may also invest up to 10% of its net assets in non-U.S.
dollar denominated bonds. Both fixed and variable rate issues may be
purchased. Debt securities will be rated at the time of purchase in one of the
top four categories by an NRSRO(s) or, if not rated, of comparable quality as
determined by Huntington under guidelines established by the Trustees. As a
matter of fundamental policy, under normal market conditions, the Fixed Income
Securities Fund will invest at least 65% of its assets in fixed income
securities. The Fixed Income Securities Fund may also, under normal market
conditions, invest a portion of its assets in cash equivalents, including
repurchase agreements and the shares of money market mutual funds, for
liquidity purposes.
INTERMEDIATE GOVERNMENT INCOME FUND
The investment objective of the Intermediate Government Income Fund is to
provide investors with high level of current income. The Intermediate
Government Income Fund invests primarily in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities in the form of U.S.
Treasury bills, notes and bonds, mortgage-backed securities and collateralized
mortgage obligations having a dollar-weighted average maturity of not less
than three nor more than ten years. The mortgage-related securities in which
the Intermediate Government Income Fund invests include derivative mortgage
securities. For a further description of these securities and other investment
activities, see "Additional Information on Portfolio Investments and
Strategies" below. As a fundamental policy, under normal market conditions,
the Intermediate Government Income Fund invests at least 65% of its assets in
such securities. Certain of these securities may be subject to repurchase
agreements and the Intermediate Government Income Fund also may engage in
transactions in interest rate futures contracts and options thereon.
Investment Risks. The Intermediate Government Income Fund invests portion of
its assets in mortgage-related securities, and, as a result, is subject to
prepayment risk. Prepayment risk results because, as interest rates fall,
homeowners are more likely to refinance their home mortgages. When home
mortgages are refinanced, the principal on mortgage-related securities held is
prepaid earlier than expected. The Intermediate Government Income Fund must
then reinvest the unanticipated principal payments just at a time when
interest rates on new mortgage investments are falling. Prepayment risk has
two important effects on the Fund:
.When interest rates fall and additional mortgage prepayments must be
reinvested at lower interest rates, the Intermediate Government Income
Fund's income will be reduced; and
.When interest rates fall, prices on mortgage-backed securities may not
rise as much as comparable Treasury bonds because bond market investors may
anticipate an increase in mortgage prepayments and a likely decline in
income.
The Intermediate Government Income Fund's investments in mortgage-related
securities also subject it to extension risk. Extension risk is the
possibility that rising interest rates may cause prepayments to occur at a
slower than expected rate. This particular risk may effectively change a
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security which was considered short- or intermediate-term at the time of
purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short- or
intermediate-term securities.
The Intermediate Government Income Fund's investments in mortgage-related
securities may include derivative mortgage securities such as CMOs and
stripped mortgage-backed securities, as discussed below, which may involve
risks in addition to those found in other mortgage-related securities. Recent
market experience has shown that certain derivative mortgage securities may be
highly sensitive to changes in interest and prepayment rates and, as a result,
the prices of such securities may be highly volatile. In addition, recent
market experience has shown that during periods of rising interest rates, the
market for certain derivative mortgage securities may become more unstable and
such securities may become more difficult to sell as market makers either
choose not to repurchase such securities or offer prices, based on current
market conditions, which are unacceptable to the Fund.
SHORT/INTERMEDIATE FIXED INCOME SECURITIES FUND
The objective of the Short/Intermediate Fixed Income Securities Fund is to
achieve current income through investment in fixed income securities with a
maximum maturity or average life for individual issues of 5 years or less at
the time of purchase and a dollar-weighted average portfolio maturity of more
than 2 but less than 5 years. The Short/Intermediate Fixed Income Fund may
purchase obligations of the U.S. Government and its agencies and
instrumentalities, corporate bonds, debentures, non-convertible fixed income
preferred stocks, mortgage pass-through securities, eurodollar certificates of
deposit and eurodollar bonds. The Short/Intermediate Fixed Income Fund may
also invest up to 10% of its net assets in non-U.S. dollar denominated bonds
and non-convertible fixed-income European Currency Unit bonds. Both fixed and
variable rate issues may be purchased. Debt securities will be rated at the
time of purchase in one of the top four categories by an NRSRO(s) or, if not
rated, of comparable quality as determined by Huntington. As a matter of
fundamental policy, under normal market conditions the Short/Intermediate
Fixed Income Fund will invest at least 65% of its assets in fixed income
securities. The Short/Intermediate Fixed Income Fund may also, under normal
market conditions, invest a portion of its assets in cash equivalents,
including repurchase agreements and the shares of money market mutual funds,
for liquidity purposes.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS AND STRATEGIES
OHIO TAX-EXEMPT SECURITIES
The two principal classifications of Ohio tax-exempt securities are general
obligation and limited obligation (or revenue) securities. General obligation
securities involve the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. The characteristics
and methods of enforcement of general obligation securities vary according to
the law applicable to the particular issuer. Limited obligation securities are
payable only from the revenues derived from a particular facility or class of
facilities, or a specific revenue source, and generally are not payable from
the unrestricted revenues of the issuer. Private activity bonds and industrial
development bonds generally are limited obligation securities, the credit and
quality of which are usually directly related to the credit of the private
user of the facilities.
The economy of Ohio, while diversifying more into the service area,
continues to rely in part on durable goods manufacturing, which is largely
concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity in Ohio, as in
many
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other industrially-developed states, tends to be more cyclical than in some
other states and in the nation as a whole. Agriculture also is an important
segment of the economy in the State, and the State has instituted several
programs to provide financial assistance to farmers. Ohio's economy, including
particularly an unemployment rate usually somewhat higher than the national
average, has had varying effects on the different geographic areas of the
State and the political subdivisions located in such geographic areas.
Although revenue obligations of the State or its political subdivisions may be
payable from a specific source or project, there can be no assurance that
future economic difficulties and the resulting impact on state and local
government finances will not adversely affect the market value of the Ohio
tax-exempt securities in an Ohio Fund, as defined below, or the ability of the
respective obligors to make timely payment of interest and principal on such
obligations. See the Statement of Additional Information for further
discussion of special considerations regarding investments in Ohio tax-exempt
securities.
MICHIGAN TAX-EXEMPT SECURITIES
The tax-exempt securities which the Michigan Tax-Free Fund may purchase
include fixed and floating rate and variable rate municipal obligations,
participation interests in municipal bonds, tax-exempt commercial paper,
short-term municipal notes, and stand-by commitments. The Michigan Tax-Free
Fund's concentration in investments in Michigan tax-exempt securities will
subject the Fund to greater risk with respect to its portfolio securities than
an investment company that is permitted to invest in a broader range of
investments, because changes in the financial condition or market assessment
of issuers of Michigan tax-exempt securities generally may cause substantial
fluctuations in the Michigan Tax-Free Fund's yield and price of Fund shares.
Also, political or economic developments that affect one such security might
affect the other securities. See "Investment Objectives and Policies of the
Trust--Michigan Tax-Exempt Securities" in the Statement of Additional
Information.
The performance of the Michigan Tax-Free Fund is closely tied to conditions
within the State of Michigan. The economy of Michigan is principally dependent
on three sectors--manufacturing (particularly durable goods, automotive
products and office equipment), tourism and agriculture. Michigan encountered
financial difficulties during the late 1980s, largely as a result of poor
conditions in the automotive industry, but recovered from the prolonged
downturn in production levels in this sector in the early 1990s. Structural
changes in the automotive industry have given the Michigan economy greater
financial stability. The State's finances continue to be in excellent
condition, and a Budget Stabilization Fund that exceeds $1 billion should help
the state weather any potential economic recessions. At the end of 1997, after
several years of rapid growth, the Michigan economy was evidencing continued
growth and unemployment levels which were lower than they had been for the
past several years. The market value and the marketability of bonds issued by
local units of government in the state may be affected adversely by the same
factors that affect Michigan's economy generally. The ability of the State and
its local units of government to pay the principal of and interest on their
bonds may also be affected by such factors and by certain constitutional,
statutory and charter limitations. See "Investment Objectives and Policies of
the Trust--Michigan Tax-Exempt Securities" in the Statement of Additional
Information.
CREDIT ENHANCEMENT
Certain of the portfolio investments of the Ohio Tax-Free Fund and the
Michigan Tax-Free Fund may have been credit enhanced by a guarantee, letter of
credit or insurance. These Funds typically evaluate the credit quality and
ratings of credit enhanced securities based upon the financial condition
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and ratings of the party providing the credit enhancement (the "credit
enhancer"), rather than the issuer. However, credit enhanced securities will
not be treated as having been issued by the credit enhancer for
diversification purposes, unless the Fund has invested more than 10% of its
assets in securities issued, guaranteed or otherwise credit enhanced by the
credit enhancer, in which case the securities will be treated as having been
issued both by the issuer and the credit enhancer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the
quality and marketability of the underlying security.
NON-DIVERSIFICATION
The Ohio Municipal Money Market Fund, the Ohio Tax-Free Fund and the
Michigan Tax-Free Fund (the "Single State Funds") are non-diversified Funds
under the 1940 Act, which means that they may invest their assets in the
obligations of fewer issuers than would be the case if they were
"diversified". The Single State Funds' ability to invest a relatively high
percentage of their assets in the securities of a limited number of issuers
involves an increased risk of loss to a Single State Fund if any one issuer is
unable to make interest or principal payments or if the market value of the
issuer's securities declines.
Although non-diversified under the 1940 Act, the Single State Funds intend
to comply with Subchapter M of the Internal Revenue Code. This undertaking
requires, among other things, that at the end of each quarter of the taxable
year, with regard to at least 50% of each Single State Fund's total assets, no
more than 5% of its total assets are invested in the assets of a single
issuer; beyond that, no more than 25% of its total assets are invested in the
securities of a single issuer.
DEFENSIVE INVESTMENT STRATEGIES
At times Huntington may judge that conditions in securities markets may make
pursuing a Fund's basic investment strategy inconsistent with the best
interests of the Fund's shareholders. At such times, Huntington may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of a Fund's assets. In implementing these temporary
"defensive" strategies, a Fund may temporarily place all or a portion of its
assets in cash, U.S. Government securities, debt securities which Huntington
considers to be of comparable quality to the acceptable investments of the
Fund and other investments which Huntington considers consistent with such
strategies. In the case of the Single State Funds, a Fund's alternative
strategies may give rise to income which is not exempt from federal or state
taxes.
OPTIONS AND FUTURES CONTRACTS (ALL FUNDS OTHER THAN THE MONEY MARKET FUNDS)
A Fund may seek to increase its current return by writing covered call
options and covered put options on its portfolio securities or other
securities in which it may invest. A Fund receives a premium from writing a
call or put option, which increases a Fund's return if the option expires
unexercised or is closed out at a net profit. A Fund may also buy and sell put
and call options on its securities for hedging purposes. When a Fund writes a
call option on a portfolio security, it gives up the opportunity to profit
from any increases in the price of the security above the exercise price of
the option. When it writes a put option, a Fund takes the risk that it will be
required to purchase a security from the option holder at a price above the
current market price of the security. A Fund may terminate an option that it
has written prior to expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms as the
option written.
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A Fund may purchase and sell futures contracts and related options to hedge
against changes in the value of securities it owns or expects to purchase.
Futures contracts on a variety of stock and bond indices are currently
available. An index is intended to represent a numerical measure of market
performance by the securities making up the index. A Fund may purchase and
sell futures contracts on any index approved for trading by the Commodity
Futures Trading Commission to hedge against general changes in market values
of securities which a Fund owns or expects to purchase. A Fund may also
purchase and sell put and call options on index futures or directly on the
underlying indices for hedging purposes. In addition, a Fund may purchase and
sell futures contracts and related options on individual debt securities which
a Fund owns or expects to purchase, if and when such futures contracts and
options become available.
In connection with its futures transactions, a Fund will be required to
deposit as "initial margin" an amount of cash and/or securities. Thereafter,
subsequent payments (referred to as "variation margin") are made to and from
the broker to reflect changes in the value of the futures contract. A Fund
will not generally purchase or sell futures contracts or purchase or sell
options on futures contracts if as a result the sum of initial margin deposits
on a Fund's existing futures contracts and options written by a Fund plus
premiums paid for outstanding options on futures contracts purchased by a
Fund, would exceed 5% of a Fund's net assets.
Options and futures transactions involve various risks, including the risk
that a Fund may be unable at times to close out its positions, that such
transactions may not accomplish their purposes because of imperfect market
correlations, or that Huntington or its Subadviser may not forecast market
movements correctly. Options and futures transactions involve costs and may
result in losses. The effective use of options and futures strategies by a
Fund is dependent upon, among other things, a Fund's ability to terminate
options and futures positions at times when Huntington or its Subadviser deems
it desirable to do so. Although a Fund will enter into an options or futures
contract position only if Huntington or its Subadviser believes that a liquid
secondary market exists for such options or futures contract, there is no
assurance that a Fund will be able to effect closing transactions at a
particular time or at an acceptable price.
The Funds generally expect that their options and futures transactions will
be conducted on recognized exchanges. In certain instances, however, a Fund
may purchase and sell options in the over-the-counter ("OTC") market. A Fund's
ability to terminate options in the OTC market may be more limited than for
exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would be unable to meet their obligations
to a Fund. A Fund will, however, engage in OTC market transactions only when
appropriate exchange-traded transactions are unavailable and when, in the
opinion of Huntington, the pricing mechanism and liquidity of the OTC market
is satisfactory and the participants are responsible parties likely to meet
their contractual obligations.
The use of options and futures strategies also involves the risk of
imperfect correlation between movements in the prices of options and futures
contracts and movements in the value of the underlying securities that are the
subject of a hedge. The successful use of these strategies further depends on
the ability of Huntington to forecast market movements correctly.
For more information about any of the options or futures portfolio
transactions described above, see the Statement of Additional Information.
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FOREIGN INVESTMENTS
Except as otherwise limited in this Prospectus, a Fund may invest some or
all of its assets in securities principally traded in foreign markets. Since
foreign securities are normally denominated and traded in foreign currencies,
the value of a Fund's assets may be affected favorably or unfavorably by
currency exchange rates and exchange control regulation. Exchange rates with
respect to certain currencies may be particularly volatile. There may be less
information publicly available about a foreign company than about a U.S.
company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those
in the United States. The securities of some foreign companies are less liquid
and at times more volatile than securities of comparable U.S. companies.
Foreign brokerage commissions and other fees are also generally higher than in
the United States. Foreign settlement procedures and trade regulations may
involve certain risks (such as delays in payment or delivery of securities or
in the recovery of a Fund's assets held abroad) and expenses not present in
the settlement of domestic investments.
In addition, with respect to certain foreign countries, there is a
possibility of nationalization or expropriation of assets, confiscatory
taxation, political or financial instability and diplomatic developments which
could affect the value of investments in those countries. In certain
countries, legal remedies available to investors may be more limited than
those available with respect to investments in the United States or other
countries. The laws of some foreign countries may limit a Fund's ability to
invest in securities of certain issuers located in those countries. Special
tax considerations apply to foreign securities.
A Fund may buy or sell foreign currencies and forward foreign currency
exchange contracts for hedging purposes in connection with its foreign
investments.
A more detailed explanation of foreign investments, and the risks associated
with them, is included in the Statement of Additional Information.
REPURCHASE AGREEMENTS
Certain securities in which a Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S.
Government securities or other securities to a Fund and agree at the time of
sale to repurchase them at a mutually agreed upon time and price. A Fund or
its custodian will take possession of the securities subject to repurchase
agreements and these securities will be marked to market daily. To the extent
that the original seller does not repurchase the securities from a Fund, a
Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by a Fund might be delayed
pending court action. The Trustees believe that under the regular procedures
normally in effect for custody of a Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor
of a Fund and allow retention or disposition of such securities. A Fund will
only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are found by Huntington
to be creditworthy pursuant to guidelines established by the Trustees.
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WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
A Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which a Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause a Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, a Fund may pay more
or less than the market value of the securities on the settlement date.
A Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so.
In connection with its ability to purchase securities on a when-issued or
delayed delivery basis, the Mortgage Securities Fund may enter into mortgage
"dollar rolls" in which it sells securities for delivery in the current month
and simultaneously contracts with the same counterparty to repurchase similar
(same type, coupon and maturity) but not identical securities on a specified
future date. The Mortgage Securities Fund gives up the right to receive
principal and interest paid on the securities sold. However, the Mortgage
Securities Fund would benefit to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase plus any fee income received. Unless such benefits exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the mortgage dollar
roll, the use of this technique will diminish the investment performance of
the Mortgage Securities Fund compared with what such performance would have
been without the use of mortgage dollar rolls. The Mortgage Securities Fund
will hold and maintain in a segregated account until the settlement date, cash
or liquid high-grade debt securities in an amount equal to the forward
purchase price. The benefits derived from the use of mortgage dollar rolls may
depend upon Piper's ability to predict correctly mortgage prepayments and
interest rates. There is no assurance that mortgage dollar rolls can be
successfully employed. In addition, the use of mortgage dollar rolls by the
Mortgage Securities Fund while remaining substantially fully invested
increases the amount of its assets that are subject to market risk to an
amount that is greater than its net asset value, which could result in
increased volatility of the price of its shares. The Mortgage Securities Fund
may invest up to 35% of its total assets in securities purchased on a when-
issued or delayed delivery basis.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, a Fund may lend its portfolio
securities on a short-term basis to brokers, dealers or other financial
institutions. A Fund will only enter into loan arrangements with brokers,
dealers or other financial institutions which Huntington has determined are
creditworthy under guidelines established by the Trustees and must receive
collateral equal to at least 102% of the current market value of the
securities loaned. The collateral received when a Fund lends portfolio
securities must be valued daily and, should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. As a matter of fundamental policy, the aggregate value of all securities
loaned by a Fund may not exceed 20% of the Fund's total assets.
There is the risk that, when lending portfolio securities, the securities
may not be available to a Fund on a timely basis and a Fund may, therefore,
lose the opportunity to sell the securities at a
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desirable price. In addition, in the event that a borrower of securities would
file for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities in which the Mortgage Securities Fund and the
Intermediate Government Income Fund invest are securities that, directly or
indirectly, represent participations in, or are secured by and payable from,
loans secured by real property. Mortgage-related securities, as the term is
used in this Prospectus, include mortgage pass-through securities, adjustable
rate mortgage securities, collateralized mortgage obligations and stripped
mortgage-backed securities. These mortgage-related securities include
derivative mortgage securities. Mortgage-related securities fall into three
categories: (a) those issued or guaranteed by the U.S. Government or one of
its agencies or instrumentalities, such as Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"); (b) those issued by non-
governmental issuers that represent interests in, or are collateralized by,
mortgage-related securities issued or guaranteed by the United States
Government or one of its agencies or
instrumentalities; and (c) those issued by non-governmental issuers that
represent an interest in, or are collateralized by, whole mortgage loans or
mortgage-related securities without a government guarantee but usually with
over-collateralization or some other form of private credit enhancement. Non-
governmental issuers referred to in (b) and (c) above include originators of
and investors in mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.
MORTGAGE PASS-THROUGH SECURITIES
The mortgage pass-through securities in which the Mortgage Securities Fund
and the Intermediate Government Income Fund invest provide for the pass-
through to investors of their pro-rata share of monthly payments (including
any prepayments) made by the individual borrowers on the pooled mortgage
loans, net of any fees paid to the guarantor of such securities and the
servicer of the underlying mortgage loans. The Mortgage Securities Fund
invests both in U.S. Government pass-through securities issued by GNMA, FNMA
and FHLMC, and in pass-through securities issued by non-governmental issuers.
Each of GNMA, FNMA and FHLMC guarantee timely distributions of interest to
certificate holders. GNMA and FNMA guarantee timely distributions of scheduled
principal. FHLMC generally guarantees only ultimate collection of principal of
the underlying mortgage loans.
ADJUSTABLE RATE MORTGAGE SECURITIES
The Mortgage Securities Fund and the Intermediate Government Income Fund may
also invest in adjustable rate mortgage securities ("ARMS"). ARMS are pass-
through mortgage securities collateralized by mortgages with interest rates
that are adjusted from time to time. The adjustments usually are determined in
accordance with a predetermined interest rate index and may be subject to
certain limits. While the values of ARMS, like other debt securities,
generally vary inversely with changes in market interest rates (increasing in
value during periods of declining interest rates and decreasing in value
during periods of increasing interest rates), the values of ARMS should
generally be more resistant to price swings than other debt securities because
the interest rates of ARMS move with market interest rates. The adjustable
rate feature of ARMS will not, however, eliminate fluctuations in the prices
of ARMS, particularly during periods of extreme fluctuations in interest
rates. Also, since
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many adjustable rate mortgages only reset on an annual basis, it can be
expected that the prices of ARMS will fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable rate mortgages.
ARMS typically have caps which limit the maximum amount by which the
interest rate may be increased or decreased at periodic intervals or over the
life of the loan. To the extent that interest rates increase in excess of the
caps, ARMS can be expected to behave more like traditional debt securities and
to decline in value to a greater extent than would be the case in the absence
of such caps. Also, since many adjustable rate mortgages only reset on an
annual basis, it can be expected that the prices of ARMS will fluctuate to the
extent that changes in prevailing interest rates are not immediately reflected
in the interest rates payable on the underlying adjustable rate mortgages. The
extent to which the prices of ARMS fluctuate with changes in interest rates
will also be affected by the indices underlying the ARMS. Some indices, such
as the one-year constant maturity Treasury note rate, closely mirror changes
in market interest rate levels. Others, such as the 11th District Federal
Reserve Cost of Funds Index (often related to ARMS issued by FNMA), tend to
lag changes in market levels and tend to be somewhat less volatile.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Mortgage Securities Fund and the Intermediate Government Income Fund may
invest in CMOs (collateralized mortgage obligations and multi-class pass-
through securities unless the context otherwise indicates), which are
derivative mortgage securities. Collateralized mortgage obligations are debt
instruments issued by special purpose entities which are secured by pools of
mortgage loans or other mortgage-related securities. Multi-class pass-through
securities are equity interests in a trust composed of mortgage loans or other
mortgage-related securities. Payments of principal and interest on underlying
collateral provide the funds to pay debt service on the collateralized
mortgage obligation or make scheduled distributions on the multi-class pass-
through security. The Intermediate Government Income Fund will invest only in
CMOs which are issued by agencies or instrumentalities of the U.S. Government.
The Mortgage Securities Fund may also invest in CMOs issued by private
organizations which are rated AAA by an NRSRO.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMO, often referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on collateral underlying a CMO may cause it to be retired
substantially earlier than the stated maturities or final distribution dates.
The principal and interest on the underlying mortgages may be allocated
among the several tranches of a CMO in many ways. For example, certain
tranches may have variable or floating interest rates and others may be
stripped securities which provide only the principal or interest feature of
the underlying security. See "Stripped Mortgage-Backed Securities," below.
Generally, the purpose of the allocation of the cash flow of a CMO to the
various tranches is to obtain a more predictable cash flow to certain of the
individual tranches than exists with the underlying collateral of the CMO. As
a general rule, the more predictable the cash flow is on a CMO tranche, the
lower the anticipated yield will be on that tranche at the time of issuance
relative to prevailing market yields on mortgage-related securities. As part
of the process of creating more predictable cash flows on most of the tranches
of a CMO, one or more tranches generally must be created that absorb most of
the volatility in the cash flows on the underlying mortgage loans. The yields
on these tranches, which may include inverse floaters, IOs,
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POs, and Z tranches, discussed below, are generally higher than prevailing
market yields on mortgage-related securities with similar maturities. As a
result of the uncertainty of the cash flows of these tranches, the market
prices of and yield on these tranches generally are more volatile.
The Mortgage Securities Fund and the Intermediate Government Income Fund may
invest in any CMO tranche, including "inverse floaters" and "Z tranches." An
inverse floater is a CMO tranche with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Inter-Bank Offered Rate) or COFI (Cost
of Funds Index). Like most other fixed-income securities, the value of inverse
floaters will decrease as interest rates increase. Inverse floaters, however,
exhibit greater price volatility than the majority of mortgage pass-through
securities or CMOs. Coupon rates on inverse floaters typically change at a
multiple of the changes in the relevant index rate. Thus, any rise in the
index rate (as a consequence of an increase in interest rates) causes a
correspondingly greater drop in the coupon rate of an inverse floater while
any drop in the index rate causes a correspondingly greater increase in the
coupon of an inverse floater. Some inverse floaters also exhibit extreme
sensitivity to changes in prepayments. Inverse floaters would be purchased to
attempt to protect against a reduction in the income earned on investments due
to a decline in interest rates.
Z tranches of CMOs defer interest and principal payments until one or more
other classes of the CMO have been paid in full. Interest accretes on the Z
tranche, being added to principal, and is compounded through the accretion
period. After the other classes have been paid in full, interest payments
begin and continue through maturity. Z tranches have characteristics similar
to zero coupon bonds. Like a zero coupon bond, during its accretion period a Z
tranche has the advantage of eliminating the risk of reinvesting interest
payments at lower rates during a period of declining market interest rates. At
the same time, however, and also like a zero coupon bond, the market value of
a Z tranche can be expected to fluctuate more widely with changes in market
interest rates than would the market value of a tranche which pays interest
currently. In addition, changes in prepayment rates on the underlying mortgage
loans will affect the accretion period of a Z tranche, and therefore also will
influence its market value.
STRIPPED MORTGAGE-BACKED SECURITIES
Some of the mortgage-related securities purchased by the Mortgage Securities
Fund or the Intermediate Government Income Fund may represent an interest
solely in the principal repayments or solely in the interest payments on
mortgage-backed securities (stripped mortgage-backed securities or "SMBSs").
SMBSs are derivative multi-class securities. SMBSs are usually structured with
two classes and receive different proportions of the interest and principal
distributions on the pool of underlying mortgage-backed securities. Due to the
possibility of prepayments on the underlying mortgages, SMBSs may be more
interest-rate sensitive than other securities purchased. If prevailing
interest rates fall below the level at which SMBSs were issued, there may be
substantial prepayments on the underlying mortgages, leading to the relatively
early prepayments of principal-only SMBSs (the principal-only or "PO" class)
and a reduction in the amount of payments made to holders of interest-only
SMBSs (the interest-only or "IO" class). Therefore, interest-only SMBSs
generally increase in value as interest rates rise and decrease in value as
interest rates fall, counter to changes in value experienced by most fixed
income securities. If the underlying mortgages experience slower than
anticipated prepayments of principal, the yield on a PO class will be affected
more severely than would be the case with a traditional mortgage-related
security. Because the yield to maturity of an IO class is extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying
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mortgage-backed securities, it is possible that the Mortgage Securities Fund
or the Intermediate Government Income Fund might not recover its original
investment on interest-only SMBSs if there are substantial prepayments on the
underlying mortgages. A Fund's inability to fully recoup its investment in
these securities as a result of a rapid rate of principal prepayments may
occur even if the securities are rated by an NRSRO. In view of these
considerations, Huntington intends to use these characteristics of interest-
only SMBSs to reduce the effects of interest rate changes on the value of the
Fund's portfolio, while continuing to pursue current income.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are securities that are either issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies, or instrumentalities. THE CURRENT MARKET PRICES FOR SUCH SECURITIES
ARE NOT GUARANTEED AND WILL FLUCTUATE. Investments in U.S. Government
securities are limited to:
(a)direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
(b)notes, bonds, and discount notes of U.S. Government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives and Banks for Cooperatives; Federal Home
Loan Banks; Federal Home Loan Mortgage Corporation; Federal National
Mortgage Association; Government National Mortgage Association; Export-
Import Bank of the United States; Commodity Credit Corporation; Federal
Financing Bank; The Student Loan Marketing Association; National Credit
Union Administration; and Tennessee Valley Authority.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government, such as Government National Mortgage Association
participation certificates, are backed by the full faith and credit of the
U.S. Treasury. No assurances can be given that the U.S. Government will
provide financial support to other agencies or instrumentalities, since it is
not obligated to do so. These instruments are supported by:
(a)the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
(b)the discretionary authority of the U.S. Government to purchase certain
obligations of an agency or instrumentality; or
(c)the credit of the agency or instrumentality.
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions and limitations for
the purpose of reducing its exposure in specific situations. These investment
limitations are fundamental policies and may be changed with respect to any
Fund only by a vote of a majority of the outstanding shares of that Fund.
No Fund will:
(1)Except for the Single State Funds, invest more than 5% of the value of
its total assets in the securities of any one issuer (this limitation
does not apply to securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities or to repurchase
agreements secured by such obligations);
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(2)Invest 25% or more of the value of its total assets (i) in securities
of companies primarily engaged in any one industry (other than the U.S.
Government, its agencies and instrumentalities), and (ii) with respect
to the Single State Funds, in municipal obligations of one issuer or
which are related in such a way that, in the opinion of Huntington, an
economic, business or political development (other than a state-wide,
national or international development) affecting one such municipal
obligation would also affect the others in a similar manner. Such
concentration may occur as a result of changes in the market value of
portfolio securities, but such concentration may not result from
investment;
(3)Except for investments by the Money Market Fund in commercial paper
issued under Section 4(2) of the Securities Act of 1933 and certain
other restricted securities which meet the criteria for liquidity as
established by the Trustees, invest more than 10% (15% in the case of
the Intermediate Government Income Fund) of the value of its total
assets in illiquid securities, including restricted securities,
repurchase agreements of over seven days' duration and OTC options; and
(4)Borrow in excess of 5% of its total assets (borrowings are permitted
only as a temporary measure for extraordinary or emergency purposes) or
pledge (mortgage) its assets as security for any indebtedness, except
that each of the Michigan Tax-Free Fund and the Intermediate Government
Income Fund may borrow from banks up to 10% of the current value of its
total net assets for temporary or defensive purposes and those
borrowings may be secured by the pledge of not more than 15% of the
current value of its total net assets (but investments may not be
purchased by these Funds while any such borrowings are outstanding).
In addition, neither the Michigan Tax-Free Fund nor the Intermediate
Government Income Fund will make loans, except loans of portfolio securities
and except that each Fund may enter into purchase agreements with respect to
its portfolio securities and may purchase the types of debt instruments
described in this Prospectus. To increase current income, the Michigan Tax-
Free Fund may lend portfolio securities comprising up to 5% of total assets
and the Intermediate Government Income may lend portfolio securities
comprising up to 20% of total assets to brokers, dealers and financial
institutions, provided certain conditions are met, including the condition
that each loan is secured continuously by collateral maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned.
HOW THE FUNDS VALUE THEIR SHARES
Each Money Market Fund attempts to stabilize the net asset value of its
Trust Shares at $1.00 by valuing its portfolio securities using the amortized
cost method. The net asset value per Trust Share is determined by adding the
interest of the Trust Shares in the value of all securities and other assets
of a Money Market Fund, subtracting the interest of the Trust Shares in the
liabilities of a Money Market Fund and those attributable to Trust Shares, and
dividing the remainder by the total number of Trust Shares outstanding. A
Money Market Fund cannot guarantee that its net asset value will always remain
at $1.00 per share.
The net asset value for Trust Shares of each of the other Funds is
determined by adding the interest of the Trust Shares in the market value of
all securities and other assets of a Fund, subtracting the interest of the
Trust Shares in the liabilities of a Fund and those attributable to Trust
Shares, and
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dividing the remainder by the total number of Trust Shares outstanding. The
net asset value of a Fund's Trust Shares will differ from that of Investment
Shares due to the expense of the Rule 12b-1 fee applicable to a Fund's
Investment Shares.
Securities for which market quotations are readily available are stated at
market value. Short-term investments with remaining maturities of 60 days or
less at the time of purchase are stated at amortized cost, which approximates
market value. Debt securities for which market quotations are not readily
available will be valued on the basis of valuations provided by pricing
services approved by the Trustees. Pricing services often use information with
respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities, and various relationships between
securities in determining value. All other Fund assets are valued at their
fair value following procedures approved by the Trustees.
The Money Market Funds calculate net asset value per Trust Share as of the
close of the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on
each Business Day. The other Funds calculate net asset value per Trust Share
as of the close of the New York Stock Exchange (currently 4:00 p.m. Eastern
Time) on each Business Day. As used herein, a "Business Day" constitutes
Monday through Friday except (i) days on which there are not sufficient
changes in the value of a Fund's portfolio securities that its net asset value
might be materially affected; (ii) days during which no shares are tendered
for redemption and no orders to purchase shares are received; (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day and (iv)
other civil holidays, such as Veteran's Day and Martin Luther King Day, when
the Federal Reserve Banks or the financial markets are closed.
HOW TO BUY TRUST SHARES
Investors may purchase Trust Shares in each of the Funds through procedures
established by the Distributor in connection with the requirements of
fiduciary, advisory, agency and other similar accounts maintained by or on
behalf of customers of Huntington or its affiliates or correspondent banks
(collectively, the "Banks"). State securities laws may require banks and
financial institutions purchasing shares for their customers to register as
brokers pursuant to such laws. Trust Shares of each Fund are purchased at the
appropriate net asset value per Trust Share next determined after the order is
transmitted to the Funds' transfer agent, State Street Bank and Trust Company
(the "Transfer Agent"). Trust Shares in each Money Market Fund other than the
Ohio Municipal Money Market Fund purchased prior to 1:00 p.m. (Eastern Time)
begin earning dividends that day; Trust Shares in the Ohio Municipal Money
Market Fund purchased prior to 10:30 a.m. (Eastern Time) begin earning
dividends that day; Trust Shares purchased after such time begin earning
dividends on the following day.
Trust Shares will normally be held in the name of the Bank effecting the
purchase on the shareholder's behalf, and it is the Bank's responsibility to
transmit purchase or redemption orders to the Transfer Agent. Shareholders
will receive a confirmation of each transaction in their account, which will
show the total number of Trust Shares of each Fund owned. The Funds will not
issue certificates representing Trust Shares.
If a shareholder pays for Trust Shares by check and the check does not
clear, the purchase will be cancelled, and such shareholder may be charged a
fee and will be liable for any losses incurred.
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Neither initial nor subsequent investments will be made by third party check.
If a shareholder pays for Trust Shares with a check drawn from a bank outside
the United States, the check will be sent to the bank for collection prior to
placing the trade in the shareholder's account, and approximately four to five
weeks will be required before the trade will be processed. For more
information or assistance regarding the purchase of Trust Shares of any Fund,
call MONITORdirect at 800-253-0412.
From time to time, the Trust may temporarily suspend the offering of shares
of one or more of the Funds or any class thereof. During the period of any
such suspension and depending on the reasons for the suspension, persons who
are already shareholders of any such Fund or class may be permitted to
continue to purchase additional shares and to have dividends reinvested. The
Trust or the Distributor may refuse any order to purchase shares or waive any
minimum purchase requirements.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Trust Shares of a Fund is $1,000.
Subsequent investments in a Fund may be made at any time in amounts of at
least $500.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, holders of Trust Shares of a Fund may add
to their investment on a regular basis in minimum amounts of at least $50.
Under this program, funds will be automatically withdrawn periodically from
the shareholder's banking account and invested in Trust Shares of a Fund at
the applicable public offering price per share next determined after an order
is received by the Transfer Agent. Shareholders may apply for participation in
this program by contacting the Mutual Fund Services Center.
If the shareholder's automatic investment program payment does not clear,
the purchase will be cancelled and the shareholder may be charged a fee and
will be liable for any losses incurred. Any subsequent such occurrences may
result in the cancellation of the automatic investment program feature of the
shareholder's account.
HOW TO EXCHANGE TRUST SHARES AMONG THE FUNDS
Shareholders may exchange Trust Shares in any Fund for Trust Shares in any
other Fund at the respective net asset values per Trust Share next determined
after receipt of the request in good order. This privilege is available to
shareholders resident in any state in which the Fund shares being acquired may
be sold. Exchange requests received prior to 4:00 p.m. (Eastern Time) will be
effected at the next determined net asset value per Trust Share as of that
Business Day. Exchange requests received after 4:00 p.m. (Eastern Time) will
be effected at the next determined net asset value per Trust Share on the
following Business Day. Holders of Trust Shares automatically receive the
Trust's telephone exchange service unless they have instructed their Bank to
the contrary. Exchange instructions given by telephone may be electronically
recorded and will be binding upon the shareholder. Because telephone exchange
requests will be honored from anyone who provides the correct information
(described below), this service involves a possible risk of loss if someone
uses the service without the shareholder's permission.
1.By Telephone:MONITORdirect
800-253-0412
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2.By Mail: The Huntington National Bank
41 South High Street (HC 1116)
Columbus, OH 43287 Attn:
Investor Services
In order to make an exchange, shareholders will be required to maintain the
applicable minimum account balance in each Fund in which shares are owned and
must satisfy the minimum initial and subsequent purchase amounts of the Fund
into which shares are exchanged.
To exchange by letter or by telephone, a shareholder must state (1) the name
of the Fund from which the exchange is to be made (and designating that Trust
Shares are involved), (2) the name(s) and address on the shareholder account,
(3) the account number, (4) the dollar amount or number of Trust Shares to be
exchanged, and (5) the Fund into which the Trust Shares are to be exchanged.
Written exchange requests must be endorsed by the shareholder, and it may be
necessary to have the shareholder's signature guaranteed by a member firm of a
national securities exchange or by a commercial bank, savings and loan
association or trust company. Further documentation may be required, and a
signature guarantee is generally required from corporations, executors,
administrators, trustees and guardians. (See "Redeeming By Mail" below.)
An exchange is treated as a sale for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may
be realized.
The Trust's exchange privileges may be terminated or modified. Except as
indicated below, shareholders will be given 60 days' prior notice of any such
termination or any material amendment of existing exchange privileges. No
notice will be given when the only material effect of an amendment is to
reduce or eliminate any charges payable at the time of an exchange or under
certain extraordinary circumstances, such as in connection with the suspension
of the sale or redemption of Fund shares. If reasonable procedures are not
followed by the Funds, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.
HOW TO REDEEM TRUST SHARES
Shareholders may redeem all or any portion of the Trust Shares in their
account on any Business Day at the appropriate net asset value per Trust Share
next determined after a redemption request in proper form is received by the
Transfer Agent. As described below, shareholders may redeem Trust Shares by
telephone or in writing, and may receive redemption proceeds by wire.
If an investor purchases Trust Shares by check and wishes to redeem those
Trust Shares before the check has cleared, the Trust may delay payment of any
redemption proceeds until the check clears. Under unusual circumstances, a
Fund may suspend redemptions or postpone payment for more than seven days, as
permitted by federal securities law.
REDEEMING BY TELEPHONE
Telephone requests for redemption may be made by calling MONITORdirect at
800-253-0412.
Shareholders of the Money Market Fund and U.S. Treasury Money Market Fund
who request a redemption before 1:00 p.m. (Eastern Time) will usually have the
proceeds wired the same day but
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will not be entitled to that day's dividend; redemption requests received
after 1:00 p.m. (Eastern Time) will receive that day's dividend and the
proceeds will normally be wired the following Business Day. The applicable
cut-off time for the Ohio Municipal Money Market Fund is 10:30 a.m. (Eastern
Time). Telephone requests for redemptions in the Income and Equity Funds must
be received prior to 4:00 p.m. (Eastern Time) to receive that day's net asset
value and the redemption proceeds will be paid in federal funds, normally on
the next Business Day.
Holders of Trust Shares automatically receive the Trust's telephone
redemption service unless they have instructed their Bank to the contrary.
Because telephone redemption requests will be honored from anyone who provides
the correct information (described below), this service involves a possible
risk of loss if someone uses the service without the shareholder's permission.
Anyone making a telephone redemption request must furnish (1) the name and
address of record of the registered owner(s), (2) the account number, (3) the
amount to be withdrawn, and (4) the name of the person making the request.
Checks for telephone redemptions will be issued only to the registered
shareholder(s) and mailed to the last address of record. If at anytime the
Trust shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified. Telephone redemption
instructions may be recorded.
In the event of extreme economic or market conditions, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption, such as through written request, should be
considered. If reasonable procedures are not followed by the Funds, they may
be liable for losses due to unauthorized or fraudulent telephone instructions.
REDEEMING BY MAIL
Redemption requests may be made by writing Huntington, 41 South High Street
(HC 1116), Columbus, Ohio 43287, Attention: Investor Services. Written
redemption requests must be signed by the shareholder, and it may be necessary
to have the shareholder's signature guaranteed. Further documentation may be
required, and a signature guarantee is generally required from corporations,
executors, administrators, trustees, and guardians.
Signatures on written redemption requests must be guaranteed by:
--a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the FDIC;
--a member of the New York, American, Midwest, or Pacific Stock Exchanges;
--a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
--any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Funds and the Transfer Agent reserve the
right to amend these standards at any time without notice.
Shares will be redeemed at the net asset value determined as of the end of
the Business Day on which the written redemption request is received by the
Transfer Agent.
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Redemptions with a value of up to $100,000 will be wired at a shareholder's
request, and a separate charge for this service may apply. Redemption proceeds
may be wired to any bank account specified by the shareholder in writing. If a
shareholder requests a wire transfer by telephone, redemption proceeds may be
wired only to the bank previously designated by the shareholder or otherwise
designated by the shareholder in writing as described below. If a shareholder
has authorized expedited wire redemption, Trust Shares will be redeemed at the
appropriate net asset value per Trust Share next determined after receipt of
the request, and the proceeds normally will be sent to the designated bank
account the following Business Day. In other circumstances, redemption
proceeds will normally be wired within seven days. The proceeds from the
redemption of Shares purchased by check are not available, and the shares may
not be exchanged, until the check has cleared. To change the name of the bank
account to which redemption proceeds will be wired, a shareholder should send
a written request (and, if necessary, with the shareholder's signature
guaranteed) to Huntington National Bank, 41 South High Street (HC 1131),
Columbus, Ohio 43287, Attention: Investor Services.
If a shareholder owns fewer shares of a Fund than the minimum amount set by
the Trustees due to shareholder redemptions (presently, shares with a value of
$1,000 or less), the Trust may redeem those shares and forward the redemption
proceeds to the shareholder. A shareholder will receive at least 30 days'
written notice before the Trust redeems shares, and an additional purchase of
shares of the appropriate Fund can be made to avoid redemption. This
requirement does not apply because of changes to the Fund's net asset value.
MANAGEMENT OF THE TRUST
The Trustees of the Trust are responsible for generally overseeing the
conduct of each Fund's business. Huntington, Huntington Center, 41 South High
Street, Columbus, Ohio 43287, serves as investment adviser to the Funds
pursuant to investment advisory agreements with the Trust.
Subject to the supervision of the Trustees, Huntington provides a continuous
investment program for the Funds, including investment research and management
with respect to all securities, instruments, cash and cash equivalents in the
Funds. The Trust pays Huntington management fees, computed daily and payable
monthly, for each of the Funds at the following annual rates: Money Market
Fund and Ohio Municipal Money Market Fund: 0.30% of the first $500 million of
average daily net assets of the Fund, 0.25% of the next $500 million, and
0.20% of any amount over $1 billion; U.S. Treasury Money Market Fund: 0.20% of
the Fund's average daily net assets; Growth Fund and Income Equity Fund: 0.60%
of the Fund's average daily net assets; and Mortgage Securities Fund, Ohio
Tax-Free Fund, Michigan Tax-Free Fund, Fixed Income Securities Fund,
Intermediate Government Income Fund and Short/Intermediate Fixed Income
Securities Fund: 0.50% of the Fund's average daily net assets. Huntington may
periodically waive all or a portion of its management fee with respect to any
Fund to increase the net income of the Fund available for distribution as
dividends. Formerly, Huntington had entered into a sub-advisory contract with
Piper Capital Management Incorporated, a wholly-owned subsidiary of Piper
Jaffray Companies, Inc. ("Piper"), to assist in the management of the Mortgage
Securities Fund. That contract was automatically terminated upon the
acquisition of Piper by U.S. Bancorp.
Adviser's Background. Huntington is an indirect, wholly-owned subsidiary of
Huntington Bancshares Incorporated ("HBI"), a registered bank holding company
with executive offices located at
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Huntington Center, 41 South High Street, Columbus, Ohio 43287. With $26
billion in assets as of December 31, 1997, HBI is a major Midwest regional
bank holding company. Through its subsidiaries and affiliates, HBI offers a
full range of services to the public, including: commercial lending,
depository services, cash management, brokerage services, retail banking,
international services, mortgage banking, investment advisory services, and
trust services. Huntington, a recognized investment advisory and fiduciary
services subsidiary of HBI, provides investment advisory services for
corporate, charitable, governmental, institutional, personal trust and other
assets. Huntington is responsible for $12.0 billion of assets, and has
investment discretion over approximately $2.8 billion of that amount.
Huntington has served as investment adviser to mutual funds since 1987 and
has over 75 years of experience providing investment advisory services to
fiduciary accounts.
As part of its regular banking operations, Huntington may make loans to
public companies. Thus, it may be possible, from time to time, for the Funds
to hold or acquire the securities of issuers which are also lending clients of
Huntington. The lending relationship will not be a factor in the selection of
securities for the Funds.
James M. Buskirk, Chief Investment Officer of Huntington, has been the
portfolio manager of the Income Equity Fund since January of 1991. As Chief
Investment Officer of Huntington, Mr. Buskirk has ultimate responsibility for
all investment management activities. He brings more than 15 years of
investment experience to Huntington. His background includes extensive
experience in managing both personal and employee benefit balanced portfolios
for a major investment advisory company and bank holding company. Mr. Buskirk
is a Chartered Financial Analyst. He received his undergraduate degree in
Finance from the Ohio State University and his MBA from the University of
Oregon.
Duane J. Carpenter, an Assistant Vice President of Huntington, has been a
portfolio manager of the Intermediate Government Income Fund, previously FMB
Intermediate Government Income Fund, since December, 1991; and the Michigan
Tax-Free Fund, previously FMB Michigan Tax-Free Bond Fund, since July, 1997.
Mr. Carpenter began co-managing the Mortgage Securities Fund in April 1998.
Mr. Carpenter has more than 14 years of investment management experience, and
has been employed by Huntington or First Michigan Bank since 1984. Mr.
Carpenter is a graduate of Hope College, Holland, Michigan.
William G. Doughty, a Vice President of Huntington, has been the portfolio
manager of the Ohio Tax-Free Fund since its inception. Mr. Doughty has more
than 25 years of experience in the investment field. He is responsible for
fixed income portfolio management and heads the fixed income trading operation
at Huntington. Mr. Doughty is a graduate of Franklin University with a degree
in Business Administration and has an MBA from the University of Dayton.
Philip H. Farrington, a Vice President of Huntington, has been a co-
portfolio manager of the Growth Fund since April of 1994. Mr. Farrington has
more than 30 years of investment management experience. He has held the
positions of Chief Investment Officer, Portfolio Manager, and Director of
Research for major banks and asset management companies. He is a member of the
equity management team at Huntington. Mr. Farrington is a graduate of Harvard
University.
Stephen M. Geis, a Vice President of Huntington, has been the portfolio
manager of the Short/Intermediate Fixed Income Securities Fund and the Fixed
Income Securities Fund since October
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1989. Mr. Geis began co-managing the Mortgage Securities Fund in April 1998.
Mr. Geis, a Chartered Financial Analyst, serves as Huntington's senior fixed
income manager. Prior to joining Huntington in 1988, he spent nearly ten years
as a fixed income manager for a major insurance company and treasurer of a
regional bank. Mr. Geis received his undergraduate degree from the College of
Wooster, his MBA from the University of Dayton, and his Juris Doctorate from
Capital University.
James Gibboney, Jr., a Vice President of Huntington, has been a co-portfolio
manager of the Growth Fund since November of 1993. Mr. Gibboney, a Chartered
Financial Analyst, serves as one of Huntington's balanced portfolio managers.
Prior to joining Huntington in 1989, he gained more than 12 years of
investment management experience as portfolio manager for a major investment
firm, a trust company, and a state government agency. He received his
undergraduate degree in Finance from the Ohio State University and an MBA from
Xavier University.
DISTRIBUTION OF TRUST SHARES
SEI Investments Distribution Co., One Freedom Valley Road, Oaks,
Pennsylvania 19456, is the principal distributor for shares of each Fund. It
is a Delaware corporation and is the principal distributor for a number of
investment companies.
ADMINISTRATION OF THE FUNDS
Effective January 12, 1998, Huntington became the administrator of the
Funds, providing certain administrative personnel and services necessary to
operate the Funds. For these services, each of the Funds pays a fee, computed
and payable daily, to Huntington at an annual rate of 0.11% of their average
daily net assets. SEI Fund Resources has entered into an agreement with
Huntington pursuant to which SEI Fund Resources provides certain
administrative services to the Funds. The fees paid to SEI Fund Resources
under this agreement are paid by Huntington and not by the Funds.
CUSTODIAN, RECORDKEEPER, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Huntington acts as custodian and recordkeeper of the Trust's investments and
other assets, except for the Mortgage Securities Fund, where Huntington acts
only as custodian. Huntington receives custody and recordkeeping fees of 5.6
basis points (0.056%) for each Fund except the Mortgage Securities Fund, for
which Huntington receives 2.6 basis points (0.026%) for custody services only.
American Data Services, Inc., acts as recordkeeper for the Mortgage Securities
Fund for which it receives an annual fee of $35,000. Effective January 1,
1998, State Street Bank and Trust Company began serving as the Trust's
transfer agent and dividend disbursing agent.
INDEPENDENT ACCOUNTANTS
The independent accountants for the Trust are KPMG Peat Marwick, LLP,
Columbus, Ohio.
DISTRIBUTIONS AND TAXES
MONEY MARKET FUNDS
All of the net income of both classes of shares of each Money Market Fund is
declared each Business Day as a dividend to shareholders of record at the time
of the declaration. A Money Market Fund's net income from the time of the
immediately preceding dividend declaration consists of interest accrued or
discount earned during such period (including both original issue and market
discount) on
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the Money Market Fund's securities, less amortization of premium and the
estimated expenses of each class of shares of the Money Market Fund. Shares of
the Ohio Municipal Money Market Fund purchased prior to 10:30 a.m. (Eastern
Time) and shares of the Money Market Fund and U.S. Treasury Money Market Fund
purchased prior to 1:00 p.m. (Eastern Time) begin earning dividends that day.
Shares purchased after such time begin earning dividends on the following day.
Dividends are declared daily and payable monthly.
Although none of the Money Market Funds expects to realize long-term capital
gains, any net long-term capital gains that may be realized will be paid
annually. Each Money Market Fund expects to distribute any net realized short-
term gains once each year, although it may distribute them more frequently if
necessary in order to maintain the net asset value of each Money Market Fund
at $1.00 per share.
OTHER FUNDS
Dividends, if any, from the investment income of each Fund other than the
Money Market Funds are declared and paid monthly to both classes of shares.
Distributions resulting from any net realized capital gains of any Fund will
be paid at least annually.
DISTRIBUTION OPTIONS
Shareholders of the Money Market Funds may choose to receive all
distributions in cash or to reinvest all distributions in additional Trust
Shares of a Fund. Shareholders of other Funds may choose to receive all
distributions in cash, to reinvest all distributions in additional Trust
Shares, or to reinvest all capital gains distributions in additional Trust
Shares and to receive all other distributions in cash. Shareholders may choose
a distribution option by notifying the Mutual Fund Services Center of their
selection. If a shareholder fails to choose a distribution option, all
distributions will be reinvested in additional Trust Shares of the Fund making
the distribution.
FEDERAL INCOME TAXES
Additional information regarding federal income and certain taxes is
contained in the Statement of Additional Information. The following is a
general and abbreviated summary of certain applicable provisions of state law
and the Code and Treasury regulations currently in effect. State law, the Code
and regulations are subject to change by legislative or administrative action.
A Fund's distributions may also be subject to state and local taxes.
Shareholders should consult their own tax adviser to determine the precise
effect of an investment in a Fund on their particular tax situation.
Each Fund intends to qualify as a "regulated investment company" for federal
income tax purposes and to meet all other requirements that are necessary for
it to be relieved of federal taxes on income (and gains, if any) paid to
shareholders in the form of dividends. In order to accomplish this goal, each
Fund must, among other things, distribute substantially all of its ordinary
income (and net short-term capital gains, if any) on a current basis and
maintain a portfolio of investments which satisfies certain diversification
criteria. In addition, in order for each of the Single State Fund's
distributions to qualify as "exempt interest dividends", at least 50% of each
Fund's assets must consist of obligations described in Section 103(a) of the
Internal Revenue Code at the end of each quarter.
Shareholders should note that in certain cases (i) the Single State Funds
will be required to withhold 31% of dividends or sale proceeds otherwise due
to a shareholder and (ii) in addition to federal taxes, state and local taxes
may apply to transactions in shares. The exemption of interest on
40
<PAGE>
municipal bonds for federal income tax purposes does not necessarily result in
exemption under the income, corporate or personal property tax laws of any
state or city. Generally, shareholders are afforded tax-exempt treatment at
the state and local levels for distributions derived from interest on
municipal securities of the shareholder's state of residency.
For federal income tax purposes, distributions (other than exempt-interest
dividends) will be taxable as ordinary income to the extent derived from the
Fund's investment income and net short-term gains. Pursuant to the Taxpayer
Relief Act of 1997, two different tax rates apply to distributions of net
capital gains. One rate (generally 28%) applies to net gains on capital assets
held for more than one year but not more than 18 months ("mid-term gains") and
a second, preferred rate (generally 20%) applies to the balance of such net
capital gains ("adjusted net capital gains"). Distributions of net capital
gains will be treated in the hands of shareholders as mid-term gains to the
extent designated by a Fund as deriving from net gains from assets held for
more than one year but not more than 18 months, and the balance will be
treated as adjusted net capital gains. Distributions of mid-term gains and
adjusted net capital gains will be taxable as such, regardless of how long
shares have been held. Distributions will be taxable as described above
whether received in cash or in shares through the reinvestment of
distributions.
Single State Fund distributions designated as exempt-interest dividends are
not generally subject to federal income tax. However, if a shareholder
receives social security or railroad retirement benefits, the shareholder
should consult a tax adviser to determine what effect, if any, an investment
in any of the Single State Funds may have on the taxation of such benefits. In
addition, an investment in any of the Single State Funds may result in
liability for federal alternative minimum tax, for both individual and
corporate shareholders.
If a shareholder receives an exempt-interest dividend with respect to a
share and holds the share for six months or less, any loss on the sale or
exchange of the share will be disallowed to the extent of the amount of such
exempt-interest dividend. The Treasury Department is authorized to issue
regulations reducing the period to not less than 31 days for regulated
investment companies that regularly distribute at least 90% of their net tax-
exempt interest. No such regulations have been issued as of the date of this
Prospectus.
In addition, any loss (not already disallowed as provided in the preceding
paragraph) realized upon a taxable disposition of shares held for six months
or less will be treated as long-term, rather than short-term, to the extent of
any long-term capital gain distributions received by the shareholder with
respect to the shares.
For all Funds other than the Single State Funds, all dividends and capital
gains dividends are taxable whether they are reinvested in a Fund or received
in cash, unless a shareholder is exempt from taxation or entitled to tax
deferral. Each year, shareholders will be notified as to the amount and
federal tax status of all dividends and capital gains paid during the prior
year. Distributions of net capital gains designated by a Fund as a capital
gain dividend will be taxable as long-term capital gains, regardless of how
long a shareholder has held the Fund shares, and regardless of whether the
distributions are reinvested in additional shares or received in cash.
Dividends paid from a Fund's net investment income which includes the Fund's
net realized short-term capital gains, are taxable to shareholders as ordinary
income.
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<PAGE>
Generally, shareholders will be taxed, where applicable, on dividends or
distributions in the year of receipt; however, dividends declared in October,
November or December, payable to shareholders of record on a specified date in
one of those months and paid during the following January, will be treated as
having been distributed by the Fund (and received by the shareholders) on
December 31 of the year in which declared.
The redemption, sale or exchange of shares of a Fund for shares of another
Monitor Fund is a taxable event and may result in a gain or loss. Gain or
loss, if any, recognized on the sale or other disposition of shares of a Fund
will be taxed as capital gain or loss if the shares are capital assets in the
shareholder's hands. Generally, a shareholder's gain or loss will be a long-
term gain or loss if the shares have been held for more than one year. If a
shareholder sells or otherwise disposes of shares of a Fund before holding
them for more than six months, any loss on the sale or other disposition of
such shares shall be (i) treated as a long-term capital loss to the extent of
any capital gain dividends received by the shareholder with respect to such
shares or (ii) disallowed to the extent of any exempt-interest dividends
received by the shareholder with respect to such shares. A loss realized on a
sale or exchange of shares may be disallowed if other shares are acquired
within a 61-day period beginning 30 days before and ending 30 after the date
that the shares are disposed of.
If a shareholder has not furnished a certified correct TIN (generally the
shareholder's social security number) or has not certified that withholding
does not apply, or if the Internal Revenue Service has notified the Funds that
the TIN listed on the shareholder's account is incorrect according to their
records or that the shareholder is subject to backup withholding, federal law
generally requires the Funds to withhold 31% from any dividends and/or
redemptions (including exchange redemptions). Backup withholding is not an
additional tax and any amounts withheld may be credited against the
shareholder's federal income tax liability; a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of federal
income taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain non-resident alien,
non-U.S. partnership, non-U.S. trust, non-U.S. estate and non-U.S. corporation
shareholder accounts. Certain non-resident aliens will be subject to non-
resident alien tax withholding. The amount withheld is dependent on the
country of citizenship.
Dividends and distributions may be subject to state and local income taxes.
Shareholders are advised to consult with their own tax advisors about state
and local tax matters.
Early in each year the Funds will notify shareholders of the amount and the
federal income tax status of the distributions paid or deemed paid by the
Funds during the preceding year.
OHIO PERSONAL INCOME TAXES
Dividends received from the Ohio Municipal Money Market Fund and the Ohio
Tax-Free Fund (the "Ohio Funds") that are derived from interest on Ohio tax-
exempt securities are exempt from the Ohio personal income tax. Specific state
statutes authorizing the issuance of certain Ohio tax-exempt securities
provide that the interest on and gain from the sale or other disposition of
such obligations are exempt from all taxation in the State. Dividends on
shares of an Ohio Fund which are attributable to interest on or gain from the
sale of obligations issued pursuant to such statutes should be exempt from the
Ohio personal income tax. Ohio municipalities may not impose income taxes on
dividends or any intangible property including shares of the Ohio Funds,
except that municipalities that taxed the
42
<PAGE>
types of intangible income which were not exempt from municipal income
taxation on or before April 1, 1986, may tax such intangible income if such a
tax was approved by the electors of the municipality in an election held on
November 8, 1988. Ohio residents should consult their own tax adviser
regarding potential municipal income tax liability in connection with their
investment in an Ohio Fund. The description in this paragraph, which is only a
summary of the Ohio tax treatment of dividends paid by the Ohio Funds, is
based upon current statutes and regulations and upon current policies of the
Ohio Department of Taxation, all of which are subject to change.
MICHIGAN PERSONAL INCOME TAXES
Individual shareholders of the Michigan Tax-Free Fund residing in Michigan
will not be subject to Michigan personal income tax or personal income taxes
imposed by cities in Michigan, and corporate shareholders will not be subject
to the Michigan single business tax, on distributions received from the Fund
to the extent such distributions are attributable to interest on tax-exempt
obligations of the State of Michigan or any municipality, political
subdivision or governmental agency or instrumentality thereof or on
obligations issued by the Governments of Puerto Rico, the Virgin Islands and
Guam, provided that the Michigan Tax-Free Fund complies with the requirement
of the Internal Revenue Code that at least 50% of the value of its assets at
the close of each quarter of its taxable year is invested in state, municipal
or other obligations the interest on which is exempt from federal income tax
under Section 103(a) of the Internal Revenue Code.
Other distributions from the Michigan Tax-Free Fund, including those related
to long-term and short-term capital gains, will generally not be exempt from
the Michigan personal income tax or single business tax.
Income from the Michigan Tax-Free Fund, to the extent attributable to
interest on obligations issued by Michigan or its political subdivisions, will
be excluded for purposes of determining yield under the Michigan intangibles
tax.
The Michigan Department of Treasury has issued rulings which confirm these
state tax consequences for Michigan resident individuals and corporations.
Shareholders of the Michigan Tax-Free Fund should consult their tax advisers
about other state and local tax consequences of their investments in the
Michigan Tax-Free Fund.
ORGANIZATION OF THE TRUST
The Trust was organized as a Massachusetts business trust on February 10,
1987. A copy of the Trust's Declaration of Trust, which is governed by
Massachusetts law, is on file with the Secretary of State of The Commonwealth
of Massachusetts.
The Trust is an open-end management investment company, whose Declaration of
Trust permits the Trust to offer separate series of shares of beneficial
interest representing interests in separate portfolios of securities. The
shares in any one portfolio may be offered in two or more separate classes. As
of the date of this Prospectus, the Trustees have established two classes of
shares, known as Trust Shares and Investment Shares, in the Money Market Fund,
the Ohio Municipal Money Market Fund, the U.S. Treasury Money Market Fund, the
Growth Fund, the Income Equity Fund, the Mortgage
43
<PAGE>
Securities Fund, the Ohio Tax-Free Fund, the Michigan Tax-Free Fund, the Fixed
Income Securities Fund, the Intermediate Government Income Fund and the
Short/Intermediate Fixed Income Securities Fund. Investment Shares of the
Short/Intermediate Fixed Income Securities Fund are not presently being
offered to the public.
Trust Shares and Investment Shares of a Fund are fully transferable. Each
class is entitled to dividends from the respective class assets of the Fund as
declared by the Trustees, and if the Trust (or the Fund) were liquidated, the
shareholders of each class would receive the net assets of the Fund
attributable to each respective class.
VOTING RIGHTS
Shareholders are entitled to one vote for each share held on the record date
for any action requiring a vote by the shareholders, and a proportionate
fractional vote for each fractional share held. Shareholders of the Trust will
vote in the aggregate and not by Fund or class except (i) as otherwise
expressly required by law or when the Trustees determine that the matter to be
voted upon affects only the interests of the shareholders of a particular Fund
or class, and (ii) only holders of Investment Shares will be entitled to vote
on matters submitted to shareholder vote with respect to the Rule 12b-1 Plan
applicable to such class.
As of April 17, 1998, Huntington, acting in various capacities for numerous
accounts, was the owner of record of approximately 491,801,453 shares (99.3%)
of the Trust Shares of the Money Market Fund; 90,438,076 shares (100.0%) of
the Trust Shares of the Ohio Municipal Money Market Fund; 473,180,392 shares
(99.6%) of the Trust Shares of the U.S. Treasury Money Market Fund; 6,549,389
shares (99.2%) of the Trust Shares of the Growth Fund; 5,876,675 shares
(98.4%) of the Trust Shares of the Income Equity Fund; 4,506,045 shares
(98.2%) of the Trust Shares of the Mortgage Securities Fund; 2,847,068 shares
(94.5%) of the Trust Shares of the Ohio Tax-Free Fund; 2,370,918 shares
(95.1%) of the Trust Shares of the Michigan Tax-Free Fund; 7,263,858 shares
(99.3%) of the Trust Shares of the Fixed Income Securities Fund; 11,349,354
shares (99.8%) of the Trust Shares of the Intermediate Government Income Fund;
and 6,373,256 shares (99.1%) of the Trust Shares of the Short/Intermediate
Fixed Income Securities Fund, and therefore, may, for certain purposes, be
deemed to control the respective Funds and be able to affect the outcome of
certain matters presented for a vote of shareholders.
As of April 17, 1998, National Financial Services Corp., New York, NY, was
the owner of record of approximately 82,210,532 shares (33.9%) and Huntington,
acting in various capacities for numerous accounts, was the owner of record of
approximately 98,757,116 shares (40.7%) of the Investment Shares of the Money
Market Fund; Telamon, Indianapolis, IN, was the owner of 7,353,945 shares
(6.1%) and Huntington, acting in various capacities for numerous accounts, was
the owner of record of approximately 106,302,205 shares (88.1%) of the
Investment Shares of the Ohio Municipal Money Market Fund; John B. and
Donaldeen A. Payne, Columbus, OH, were the owners of 2,055 shares (17.5%),
Joseph E. Segna, Columbus, OH, was the owner of 1,374 shares (11.7%), John M.
(a Trustee of the Trust) and Claire Shary, Columbus, OH, were the owners of
1,364 shares (11.6%), Deborah M. and Adam B. Maximoff, Indianapolis, IN, were
the owners of 874 shares (7.4%), Lucille R. Weiss, Wooster, OH, was the owner
of 754 shares (6.4%), William R. and Nancy R. Wise, Westerville, OH, were the
owners of 648 shares (5.5%), and Gretchen Sheridan and Robert G. White,
Carmel, IN, were the owners of 614 shares (5.2%) of the Investment Shares of
the Income Equity
44
<PAGE>
Fund; William J. Umberg, Cincinnati, OH, was the owner of 5,660 shares (7.7%)
and Cincinnati Institute of Fine Arts, Cincinnati, OH, was the owner of 4,615
shares (6.3%) of the Investment Shares of the Fixed Income Securities Fund;
James E. Dill, Lockbourne, OH, was the owner of 7,357 shares (5.6%) of the
Investment Shares of the Mortgage Securities Fund; Huntington, acting in
various capacities for numerous accounts, was the owner of record of
approximately 33,818,787 shares (56.2%) and Allied Fidelity Insurance Co.,
Indianapolis, IN, was the owner of record of approximately 3,973,828 shares
(6.6%) of the Investment Shares of the U.S. Treasury Money Market Fund; Ursula
E.M. and William J. Umberg, Cincinnati, OH, were the owners of 8,814 shares
(12.6%), John W. and Arlene J. Warbritton, Westerville, OH, were the owners of
6,332 shares (9.1%), and Michael M. and Mary Ann Machowsky, Jr., Rossford, OH,
were the owners of 4,612 shares (6.6%) and Evelyn V. Culbertson, Columbus, OH,
was the owner of 4,523 shares (6.5%) of the Investment Shares of the Ohio Tax-
Free Fund; Advanced Clearing, Omaha, NE, was the owner of record of
approximately 28,209 shares (8.7%) of Investment Shares of the Intermediate
Government Income Fund. Such persons or entities may, for certain purposes, be
deemed to control the respective Funds and be able to affect the outcome of
certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
meetings of shareholders, but may hold special meetings from time to time.
Trustees may be removed by the Trustees or by shareholders at a meeting
called for that purpose. For information about how shareholders may call such
a meeting and communicate with other shareholders for that purpose, see the
Statement of Additional Information.
To the extent that matters arise requiring a shareholder vote in which
Huntington may have a conflict of interest, Huntington will engage in a voting
practice known as reflexive voting, whereby the votes of those shares over
which it exercises discretion will be voted in proportion to the votes cast by
the other record owners.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Trust or a particular
Fund or a particular class of shares of the Trust or a Fund means the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares
of the Trust or such Fund or such class, or (b) 67% or more of the shares of
the Trust or such Fund or such class present at a meeting at which the holders
of more than 50% of the outstanding shares of the Trust or such Fund or such
class are represented in person or by proxy.
PERFORMANCE DATA AND COMPARISONS
Yield and total return data for both classes of shares may, from time to
time, be included in advertisements about the Funds.
Each of the Money Market Funds may show its yield and effective yield for
both classes of shares. A Money Market Fund's yield represents an
annualization of the change in value of a shareholder account excluding any
capital changes in the Fund for a specific seven-day period. Effective yield
compounds the Money Market Fund's yield for a year and is, for that reason,
greater than the Money Market Fund's yield.
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<PAGE>
Yield for both classes of shares of each of the other Funds is calculated by
dividing the Fund's annualized net investment income per share during a recent
30-day period by the maximum public offering price per share on the last day
of that period. With respect to the Single State Funds, the tax-equivalent
yield of each class of shares shows the effect on performance of the tax-
exempt status of distributions received from a Single State Fund. Tax-
equivalent yield reflects the approximate yield that a taxable investment must
earn for shareholders at stated income levels to produce an after-tax yield
equivalent to a Single State Fund's tax-exempt yield. Total return for the
one-year period and for the life of a Fund through the most recent calendar
quarter represents the average annual compounded rate of return on a $1,000
investment in each class of the Fund. Total return may also be presented for
other periods.
Yield, effective yield, tax-equivalent yield, and total return will be
calculated separately for Trust Shares and Investment Shares. Because
Investment Shares are subject to 12b-1 fees, the yield, effective yield, tax-
equivalent yield, and total return for Investment Shares will be lower than
that of Trust Shares for the same period. In addition, the sales load
applicable to Investment Shares of the Growth Fund, Income Equity Fund,
Mortgage Securities Fund, Ohio Tax-Free Fund, Michigan Tax-Free Fund, Fixed
Income Securities Fund and Intermediate Government Income Fund also
contributes to a lower total return for such Funds' Investment Shares. The
total return figures quoted in advertisements will normally reflect the effect
of the maximum sales load. However, from time to time, these advertisements
may include total returns which do not reflect the effect of an applicable
sales load.
All data is based on a Fund's past investment results and is not intended to
indicate future performance. Investment performance for both classes is based
on many factors, including market conditions, the composition of a Fund's
portfolio, and the operating expenses of a Fund or a particular class.
Investment performance also often reflects the risks associated with the
Fund's investment objective and policies. These factors should be considered
when comparing a Fund's investment results to those of other mutual funds and
other investment vehicles.
From time to time, advertisements for a Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare a
Fund's performance to certain indices.
SHAREHOLDER INQUIRIES
Shareholder inquiries regarding the Funds should be directed to The
Huntington National Bank, Huntington Center, 41 South High Street, Columbus,
Ohio 43287, Attn: Investor Services.
OTHER CLASSES OF SHARES
Each of the Funds also offers another class of shares called Investment
Shares, although the Short/Intermediate Fixed Income Securities Fund is not
presently offering such shares to the public. Investment Shares are sold
primarily through The Huntington Investment Company, Huntington Personal
Bankers or MONITORdirect pursuant to respective agreements between The
Huntington Investment Company or Huntington and the Distributor. Investment
Shares are sold at net asset value plus, in the case of the Growth Fund, the
Income Equity Fund, the Mortgage Securities Fund, the Ohio Tax-Free Fund, the
Michigan Tax-Free Fund, the Fixed Income Securities Fund, the Intermediate
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<PAGE>
Government Income Fund and the Short/Intermediate Fixed Income Securities
Fund, an applicable sales charge. Purchases of Investment Shares are subject
to a minimum initial investment of $1,000.
Trust Shares and Investment Shares of any Fund are subject to certain of the
same expenses; however, Investment Shares are distributed under a Rule 12b-1
Plan pursuant to which the Distributor is paid a fee based upon a percentage
of the average daily net assets attributable to a Fund's Investment Shares.
Expense differences between a Fund's Trust Shares and Investment Shares may
affect the performance of each class.
Investors may obtain information about Investment Shares by contacting The
Huntington Investment Company, Huntington Personal Bankers or the Investor
Services at 614/480-5580 (in Ohio) or 800/253-0412 (outside the 614 Area
Code).
47
<PAGE>
Investment Adviser
- -------------------------------------------------------------------------------
The Huntington National Bank
Huntington Center
Columbus, OH 43287
1-800-253-0412
Administrator
- -------------------------------------------------------------------------------
The Huntington National Bank
Huntington Center
Columbus, OH 43287
1-800-253-0412
Distributor
- -------------------------------------------------------------------------------
SEI Investments Distribution Co.
One Freedom Valley Road
Oaks, PA 19456
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations may not be relied upon as having been authorized by a Fund or
the Distributor. This Prospectus does not constitute an offering by a Fund or by
the Distributor in any jurisdiction in which such offering may not lawfully be
made.
14-000-14
[RECYCLE LOGO APPEARS HERE]
M
logo
FPO
The Monitor Funds
MARBLE SCREEN F.P.O.
Trust Shares
MONEY MARKET FUNDS
- -------------------------------------------------------------------------------
The Monitor Money Market Fund
The Monitor Ohio Municipal Money Market Fund
The Monitor U.S. Treasury Money Market Fund
EQUITY FUNDS
- -------------------------------------------------------------------------------
The Monitor Growth Fund
The Monitor Income Equity Fund
INCOME FUNDS
- -------------------------------------------------------------------------------
The Monitor Mortgage Securities Fund
The Monitor Ohio Tax-Free Fund
The Monitor Michigan Tax-Free Fund
The Monitor Fixed Income Securities Fund
The Monitor Intermediate Government Income Fund
The Monitor Short/Intermediate
Fixed Income Securities Fund
April 30, 1998
ART
<PAGE>
THE MONITOR FUNDS
INVESTMENT SHARES AND TRUST SHARES
OF
THE MONITOR MONEY MARKET FUND
THE MONITOR OHIO MUNICIPAL MONEY MARKET FUND
THE MONITOR U.S. TREASURY MONEY MARKET FUND
THE MONITOR GROWTH FUND
THE MONITOR INCOME EQUITY FUND
THE MONITOR MORTGAGE SECURITIES FUND
THE MONITOR OHIO TAX-FREE FUND
THE MONITOR MICHIGAN TAX-FREE FUND
THE MONITOR FIXED INCOME SECURITIES FUND
THE MONITOR INTERMEDIATE GOVERNMENT INCOME FUND
THE MONITOR SHORT/INTERMEDIATE FIXED INCOME SECURITIES FUND
FORM N-1A
(PART B)
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information contains information which may be of
interest to investors in The Monitor Funds (the "Trust") but which is not
included in the applicable Prospectuses for Trust Shares or Investment Shares.
This Statement is not a prospectus and is only authorized for distribution when
accompanied or preceded by the respective Prospectus for Trust Shares or
Investment Shares of the Trust dated April 30, 1998. This Statement should be
read together with the applicable Prospectus. Investors may obtain a free copy
of a Prospectus by calling MONITORdirect at 800/253-0412.
April 30, 1998
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
<S> <C>
DEFINITIONS................................................................ 1
Investment Objectives and Policies of the Trust............................ 2
Foreign Securities......................................................... 2
Shares of Other Mutual Funds............................................... 2
Securities Loans........................................................... 3
When-Issued and Delayed Delivery Transactions.............................. 3
Ohio Tax-Exempt Securities................................................. 3
Michigan Tax-Exempt Securities............................................. 5
Mortgage-Related Securities................................................ 7
Options on Securities...................................................... 8
Risk Factors in Options Transactions....................................... 9
Futures Contracts.......................................................... 10
Special Risks of Transactions in Futures Contracts
and Related Options....................................................... 13
Foreign Currency Transactions.............................................. 14
Zero-Coupon Securities..................................................... 16
INVESTMENT RESTRICTIONS.................................................... 17
Portfolio Turnover......................................................... 19
MANAGEMENT OF THE TRUST.................................................... 20
Trustees and Officers...................................................... 20
Fund Ownership............................................................. 22
Trustees Compensation...................................................... 24
Investment Adviser......................................................... 24
Glass-Steagall Act......................................................... 26
Portfolio Transactions..................................................... 26
Brokerage and Research Services............................................ 27
Administrator.............................................................. 28
Sub-Administrator.......................................................... 29
Distributor................................................................ 29
The Distribution Plan...................................................... 30
DETERMINATION OF NET ASSET VALUE........................................... 31
ADDITIONAL PURCHASE INFORMATION-PAYMENT IN
KIND....................................................................... 34
TAXES...................................................................... 34
Federal Income Taxation.................................................... 34
Ohio and Michigan Income Taxation.......................................... 36
DIVIDENDS AND DISTRIBUTIONS................................................ 36
Money Market Funds......................................................... 37
Other Funds................................................................ 37
PERFORMANCE INFORMATION.................................................... 37
Money Market Funds......................................................... 38
Other Funds................................................................ 38
Tax-Equivalent Yield....................................................... 41
Tax-Equivalency Tables..................................................... 42
Michigan Tax-Free Fund..................................................... 43
CUSTODIAN.................................................................. 44
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT............................... 45
INDEPENDENT ACCOUNTANTS.................................................... 45
ADDITIONAL INFORMATION ABOUT THE TRUST AND ITS
SHARES..................................................................... 45
Shareholder Inquiries...................................................... 45
FINANCIAL STATEMENTS....................................................... 46
APPENDIX................................................................... 47
</TABLE>
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DEFINITIONS
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"Funds" -- Each of the eleven separate investment
portfolios of the Trust.
"Trust" -- The Monitor Funds.
"Huntington" -- The Huntington National Bank, the Trust's
investment adviser and administrator.
"1940 Act" -- The Investment Company Act of 1940, as
amended.
"SEI Administrative" -- SEI Fund Resources, the Trust's sub-
administrator.
"Prospectus" -- Each of the separate Prospectuses for the
Trust Shares and the investment Shares of the
Funds.
"SEI Investments" -- SEI Investments Distribution Co., the Trust's
distributor.
The Trust consists of eleven separate Funds with separate investment objectives
and policies. All of the Funds may be offered in two classes, Investment Shares
and Trust Shares. The investment objectives and policies of each of the Funds of
the Trust are described in the applicable Prospectuses for Trust Shares or
Investment Shares. This Statement relates to both Trust Shares and Investment
Shares. A Fund's Trust Shares and Investment Shares may be hereinafter referred
to collectively as "shares." Capitalized terms used but not defined herein have
the meanings as set forth in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST
- --------------------------------------------------------------------------------
Except as described below under "Investment Restrictions" or as otherwise
indicated, the investment policies described in the Prospectus and in this
Statement are not fundamental.
The investment practices and techniques described below may be used by certain
of the Funds. See the Prospectus to determine whether a particular Fund may
engage in any such practice or technique.
FOREIGN SECURITIES
Except as otherwise limited by a Fund's investment objective and policies as
described in the Prospectus, a Fund may invest in securities principally traded
in markets outside the United States. Foreign investments can be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations. There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies are less liquid or more volatile than securities of U.S. companies,
and foreign brokerage commissions and custodian fees are generally higher than
in the United States. Investments in foreign securities can involve other risks
different from those affecting U.S. investments, including local political or
economic developments, expropriation or nationalization of assets and imposition
of withholding taxes on dividend or interest payments. Foreign securities, like
other assets of a Fund, will be held
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by the Trust's custodian or by a sub-custodian. For information regarding
transactions relating to foreign currency exchange rates, see "Foreign Currency
Transactions" below.
SHARES OF OTHER MUTUAL FUNDS
Each of the Growth Fund, the Fixed Income Securities Fund, the Mortgage
Securities Fund, and the Short/ Intermediate Fixed Income Securities Fund may
invest up to 5% of its total assets in the shares of money market mutual funds
(other than the Trust's Money Market Funds) for liquidity purposes. The Ohio
Municipal Money Market Fund may also invest up to 5% of its total assets in the
shares of one or more tax-exempt money market mutual funds for liquidity
purposes. When a Fund invests in the shares of other mutual funds, investment
advisory and other fees will apply, and the investment's yield will be reduced
accordingly. Under the 1940 Act, a Fund may not invest more than 5% of its total
assets in the shares of any one mutual fund, nor may a Fund own more than 3% of
the shares of any one fund; in addition, although each Fund intends to limit its
investments in mutual funds to no more than 5% of total assets, under the 1940
Act, no more than 10% of a Fund's total assets may be invested at any one time
in the shares of other funds.
SECURITIES LOANS
In order to generate additional income, a Fund may make secured loans of its
portfolio securities amounting to not more than 20% of its total assets. The
risks in lending portfolio securities, as with other extensions of credit,
consist of possible delay in recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. Securities loans
may be made to brokers, dealers or financial institutions pursuant to agreements
requiring that loans be continuously secured by collateral in cash or U.S.
Government obligations at least equal at all times to 102% of the value of the
securities on loan. The borrower pays to the Fund an amount equal to any
dividends or interest received on securities loaned. The Fund retains all or a
portion of the interest received on investment of the collateral or receives a
fee from the borrower. Although voting rights, or rights to consent, with
respect to the loaned securities pass to the borrower, a Fund retains the right
to call the loans at any time on reasonable notice, and it will do so to enable
a Fund to exercise voting rights on any matters materially affecting the
investment. A Fund may also call such loans in order to sell the securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for a Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of a Fund sufficient to
make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. With the exception of the
Mortgage Securities Fund, which may invest a percentage of its total assets in
securities purchased on a when-issued or delayed delivery basis which is
disclosed in the Prospectus, a Fund does not intend to engage in when-issued and
delayed delivery transactions to an extent that would cause the segregation of
more than 20% of the total value of its assets.
OHIO TAX-EXEMPT SECURITIES
As used in this Statement, the term "Ohio tax-exempt securities" refers to debt
obligations which (i) are issued by or on behalf of the State of Ohio or its
respective authorities, agencies, instrumentalities, and political subdivisions,
and (ii) produce interest which, in the opinion of bond counsel at the time of
issuance, is exempt from federal income tax and Ohio personal income taxes. Ohio
tax-exempt securities are issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as bridges,
highways, roads, schools, water and sewer works, and other utilities. Other
public purposes for which Ohio tax-exempt securities may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to other public institutions and
facilities.
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In addition, the Ohio Municipal Money Market Fund and the Ohio Tax-Free Fund
(the "Ohio Funds") may invest in certain debt obligations known as "private
activity bonds" (or "industrial development bonds" under prior federal law) so
long as, in the case of the Ohio Tax-Free Fund, the interest therefrom is not
treated as a preference item for purposes of the federal alternative minimum
tax. Private activity bonds and industrial development bonds may be issued by or
on behalf of public authorities to obtain funds to provide certain privately
owned or operated facilities. The Ohio Funds may not be a desirable investment
for "substantial users" of facilities financed by private activity bonds or
industrial development bonds or for "related persons" of substantial users, for
whom dividends attributable to interest on such bonds may not be tax exempt.
Shareholders should consult their own tax adviser regarding the potential effect
on them (if any) of any investment in the Ohio Funds.
The two principal classifications of Ohio tax-exempt securities are general
obligation securities and limited obligation (or revenue) securities. General
obligation securities are obligations involving the credit of an issuer
possessing taxing power and are payable from the issuer's general unrestricted
revenues and not from any particular fund or source. The characteristics and
method of enforcement of general obligation securities vary according to the law
applicable to the particular issuer. Limited obligation securities are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise or other specific
revenue source. Private activity bonds and industrial development bonds
generally are revenue securities and thus not payable from the unrestricted
revenues of the issuer. The credit and quality of such bonds is usually directly
related to the credit of the private user of the facilities. Payment of
principal of and interest on industrial development revenue bonds is the
responsibility of the private user (and any guarantor). The Ohio Funds may also
invest in numerous types of short-term tax-exempt instruments, which may be used
to fund short-term cash requirements such as interim financing in anticipation
of tax collection, revenue receipts or bond sales to finance various public
purposes.
Prices and yields on Ohio tax-exempt securities are dependent on a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions in the market for tax-exempt obligations, the
size of a particular offering, the maturity of the obligation and ratings of
particular issues, and are subject to change from time to time. Information
about the financial condition of an issuer of tax-exempt bonds or notes may not
be as extensive as that which is made available by corporations whose securities
are publicly traded.
The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Ratings Group ("S&P") represent their opinions and are not absolute standards of
quality. Ohio tax-exempt securities with the same maturity, interest rate and
rating may have different yields while tax-exempt obligations of the same
maturity and interest rate with different ratings may have the same yield.
Obligations of issuers of Ohio tax-exempt securities and notes are subject to
the provisions of bankruptcy, insolvency and other laws, such as the Federal
Bankruptcy Code, affecting the rights and remedies of creditors.
Congress or state legislatures may seek to extend the time for payment of
principal or interest, or both, or to impose other constraints upon enforcement
of such obligations. There is also the possibility that, as a result of
litigation or other conditions, the power or ability of issuers to meet their
obligations to pay interest on and principal of their tax-exempt bonds or notes
may be materially impaired or their obligations may be found to be invalid or
unenforceable. Such litigation or conditions may from time to time have the
effect of introducing uncertainties in the market for tax exempt obligations or
certain segments thereof, or may materially affect the credit risk with respect
to particular bonds or notes. Adverse economic, business, legal or political
developments might affect all or a substantial portion of the Ohio Funds' Ohio
tax-exempt securities in the same manner.
The Internal Revenue Code of 1986, as amended (the "Code"), imposes certain
continuing requirements on issuers of tax-exempt bonds regarding the use,
expenditure and investment of bond proceeds and the payment of rebates to the
United States of America. Failure by the issuer to comply subsequent to the
issuance of tax-exempt bonds with certain of these requirements could cause
interest on the bonds to become includable in gross income retroactive to the
date of issuance.
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<PAGE>
The Ohio Funds may invest in Ohio tax-exempt securities either by purchasing
them directly or by purchasing certificates of accrual or similar instruments
evidencing direct ownership of interest payments or principal payments, or both,
on Ohio tax-exempt securities, provided that, in the opinion of counsel to the
initial seller of each such certificate or instrument, any discount accruing on
such certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related Ohio tax-exempt securities will to the
same extent as interest on such Ohio tax-exempt securities be exempt from
federal regular income tax and Ohio personal income taxes and as to the Ohio
Tax-Free Fund not treated as a preference item for purposes of the federal
alternative minimum tax. The Ohio Funds may also invest in Ohio tax-exempt
securities by purchasing from banks participation interests in all or part of
specific holdings of Ohio tax-exempt securities. Such participations may be
backed in whole or in part by an irrevocable letter of credit or guarantee of
the selling bank. The selling bank may receive a fee from the Ohio Funds in
connection with the arrangement. The Ohio Funds will not purchase participation
interests unless it receives an opinion of counsel or a ruling of the Internal
Revenue Service that interest earned by it on Ohio tax-exempt securities in
which it holds such participation interest is exempt from federal regular income
tax and Ohio personal income taxes and as to the Ohio Tax-Free Fund not treated
as a preference item for purposes of the federal alternative minimum tax.
Risk considerations. Since the Ohio Funds invest primarily in Ohio tax-exempt
securities, the value of the Funds' shares may be especially affected by factors
pertaining to the economy of Ohio and other factors specifically affecting the
ability of issuers of Ohio tax-exempt securities to meet their obligations. As
a result, the value of the Funds' shares may fluctuate more widely than the
value of shares of a fund investing in securities relating to a number of
different states. The ability of Ohio state, county, or local governments to
meet their obligations will depend primarily on the availability of tax and
other revenues to those governments and on their fiscal conditions generally.
The amounts of tax and other revenues available to issuers of Ohio tax-exempt
securities may be affected from time to time by economic, political and
demographic conditions within the State. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state, and local aid to issuers of
Ohio tax-exempt securities may also affect the ability to meet their
obligations. Payments of principal and interest on limited obligation securities
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political, and demographic conditions in the State. Any reduction
in the actual or perceived ability to meet obligations on the part of either an
issuer of an Ohio tax-exempt security or a provider of credit enhancement for
such security (including a reduction in the rating of its outstanding
securities) would likely affect adversely the market value and marketability of
that Ohio tax-exempt security and could affect adversely the values of other
Ohio tax-exempt securities as well. The Ohio Municipal Money Market Fund may
have more than 40% of its total assets invested in securities that are credit-
enhanced by domestic or foreign banks. Changes in credit quality of these
banking institutions could cause losses to this Fund and affect its share price.
MICHIGAN TAX-EXEMPT SECURITIES
The Michigan Tax-Free Fund may invest in municipal bonds. Municipal bonds are
principally classified as "general obligation" bonds, which are secured by the
pledge of the municipality's faith, credit and taxing power for the payment of
principal and interest, or as "revenue" bonds, which are payable only from the
revenues derived from a particular project or facility and are generally
dependent solely on a specific revenue source. Municipal bonds are debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities such as bridges, highways,
housing, hospitals, mass transportation, schools, streets and water and sewer
works. Other purposes for which municipal bonds may be issued include the
refunding of outstanding obligations and obtaining funds for general operating
expenses or to loan to other public institutions and facilities. Private
activity bonds are a specific type of revenue bond backed by the credit and
security of a private user. Certain types of private activity bonds are issued
by or on behalf of public authorities to obtain funds to provide privately-
operated housing facilities, sports facilities, convention or trade show
facilities, airport, mass transit, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Assessment bonds, wherein a
specially created district or project area
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<PAGE>
reviews a tax (generally on its taxable property) to pay for an improvement or
project may be considered a variant of either category of municipal bonds. There
are, of course, other variations in the types of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors.
Because the Michigan Tax-Free Fund will invest primarily in municipal
obligations issued by or on behalf of the State of Michigan, its authorities,
agencies, instrumentalities or political subdivisions ("Michigan municipal
obligations"), its investment performance is especially dependent on Michigan's
prevailing economic conditions. To provide somewhat greater investment
flexibility, the Michigan Tax-Free Fund is a "non-diversified" fund and, as
such, is not required to meet any diversification requirements under the 1940
Act. The Fund may use its ability as a non-diversified fund to concentrate its
assets in the securities of a smaller number of issuers which the Adviser deems
to be attractive investments, rather than invest in a larger number of
securities merely to satisfy non-tax diversification requirements. While the
Adviser believes that the ability to concentrate its investments in particular
issuers is an advantage when investing in Michigan municipal obligations, such
concentration also involves a risk of loss should the issuer be unable to make
interest or principal payments or should the market value of such securities
decline. Investment in a non-diversified fund could therefore entail greater
risks than investment in a "diversified" fund, including a risk of greater
fluctuations in yield and share price. The Michigan Tax-Free Fund must
nevertheless meet certain diversification tests to qualify as a "regulated
investment company" under the Code.
Michigan municipal obligations may become subject to laws enacted in the future
by Congress or the Michigan Legislature, or by referenda, extending the time for
payment of principal and/or interest, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. The
information set forth below is derived from official statements prepared in
connection with the issuance of Michigan municipal obligations and other sources
that are generally available to investors, and is provided as general background
to give a recent historical description and not to indicate future or continuing
trends in the financial or other positions of the State of Michigan. This
information has not been independently verified.
The budget of the State of Michigan is a complete financial plan and encompasses
the revenues and expenditures, both operating and capital outlay, of the State's
General Fund and its special revenue funds. The budget is prepared on a basis
consistent with generally accepted accounting principles. The State's fiscal
year begins on October 1 and ends on September 30 of each year. Under Michigan
law, the executive budget recommendations for any fund may not exceed the
estimated revenue of the fund, and an itemized statement of estimated revenues
in each operating fund must be contained in an appropriation bill as passed by
the Legislature, the total of which may not be less than the total of all
appropriations made from the fund for that fiscal year. The Michigan
Constitution provides that proposed expenditures from and revenues of any fund
must be in balance and that any prior year's surplus or deficit in any fund must
be included in the succeeding year's budget for that fund.
The Michigan Constitution limits the amount of total revenues that may be
raised from taxes and other sources. State revenues (excluding federal aid and
revenues for payment of principal and interest on general obligation bonds) in
any fiscal year are limited to a fixed percentage of State personal income in
the prior calendar year or an average of the prior three calendar years,
whichever is greater. The State may raise taxes in excess of this limit in
emergency situations. The State finances its operations through the General
Fund and special revenue funds. The General Fund receives revenues of the State
that are not specifically required to be included in the special revenue fund.
The majority of the revenues from State taxes are from the personal income tax,
the single business tax, the State's use and sales tax. In addition, the State
levies various other taxes.
The Michigan Constitution limits State general obligation debt to (i) short-term
debt for State operating purposes, (ii) short and long-term debt for the purpose
of making loans to school districts, and (iii) long-term debt for the purpose of
voter-approved purposes. Short-term debt for operating purposes is limited to
an amount not in excess of 15% of undedicated revenues received during the
preceding fiscal year. Under the Michigan Constitution as implemented by
statutory provisions, such debt must be authorized by the State Administration
Board and issued
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<PAGE>
only to meet obligations incurred pursuant to appropriation and must be repaid
during the fiscal year in which incurred. Such debt does not require voter
approval.
There are number of state agencies, instrumentalities and political subdivisions
that issue municipal obligations, some of which may be conduit obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from obligations backed by the
full faith and credit of the State.
The principal sectors of Michigan's economy are manufacturing of durable goods
(including automobiles, vehicle components and office equipment), tourism and
agriculture. The State's economy continues to be dependent upon manufacturing,
particularly the automotive industry. Layoffs and plant closings in the
automotive industry may adversely affect the State and there can be no assurance
that Michigan's overall trend in recent years of improved fiscal and economic
conditions will continue. The value of revenue or general obligations of local
governments or authorities may be independently affected by economic matters not
directly impacting the State as a whole. The State of Michigan is a party to
various legal proceedings seeking damages or injunctive or other relief. In
addition to routine litigation, certain proceedings could substantially affect
the State's programs or finances. These lawsuits generally involve programs in
the areas of corrections, highway maintenance, social services, tax collection,
commerce and budgetary reductions to school districts and governmental units and
court funding. The ultimate outcome of these proceedings is not determinable.
Municipal Notes. The Michigan Tax-Free Fund may invest in municipal notes,
which include (but are not limited to) tax anticipation notes ("TANs"), bond
anticipation notes ("BANs"), revenue anticipation notes ("RANs") and
construction loan notes. Notes sold as interim financing in anticipation of
other revenues are usually general obligations of the governmental issuer."
MORTGAGE-RELATED SECURITIES
A Fund may invest in mortgage-related securities issued by the Government
National Mortgage Association ("GNMA") representing GNMA Mortgage Pass-Through
Certificates (also known as "Ginnie Maes"), in other mortgage-related securities
issued or guaranteed by the U.S. Government, its agencies, or its
instrumentalities or those issued by nongovernmental entities, and in
collateralized mortgage obligations.
Mortgage-related securities represent pools of mortgage loans assembled for sale
to investors by various governmental agencies such as the GNMA or by government-
related organizations such as the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. Mortgage-related securities may also be
assembled and sold by nongovernment entities such as commercial banks, savings
and loan institutions, mortgage bankers, and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured. If a Fund purchases a mortgage-related
security at a premium, that portion may be lost if there is a decline in the
market value of the security whether resulting from changes in interest rates or
prepayments in the underlying mortgage collateral. As with other interest-
bearing securities, the prices of mortgage-related securities are inversely
affected by changes in interest rates. However, though the value of a mortgage-
related security may decline when interest rates rise, the converse is not
necessarily true, since in periods of declining interest rates the mortgages
underlying the security are prone to prepayment. For this and other reasons, a
mortgage-related security's effective maturity may be shortened by unscheduled
prepayments on the underlying mortgages and, therefore, it is not possible to
predict accurately the security's return to the Fund. In addition, regular
payments received in respect of mortgage-related securities include both
interest and principal. No assurance can be given as to the return a Fund will
receive when these amounts are reinvested.
There are a number of important differences both among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities themselves. As noted above, Ginnie Maes are issued
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<PAGE>
by GNMA, which is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. Ginnie Maes are guaranteed as to
the timely payment of principal and interest by GNMA and GNMA's guarantee is
backed by the full faith and credit of the U.S. Treasury. In addition, Ginnie
Maes are supported by the authority of GNMA to borrow funds from the U.S.
Treasury to make payments under GNMA's guarantee. Mortgage-related securities
issued by the Federal National Mortgage Association ("FNMA") include FNMA
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of the FNMA. The FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to timely payment of principal and interest by FNMA but are not backed by or
entitled to the full faith and credit of the U.S. Treasury. Mortgage-related
securities issued by the Federal Home Loan Mortgage Corporation ("FHLMC")
include FHLMC Mortgage Participation Certificates (also known as "Freddie Macs"
or "PCs"). The FHLMC is a corporate instrumentality of the U.S. Government,
created pursuant to an Act of Congress, which is owned entirely by Federal Home
Loan Banks. Freddie Macs are not guaranteed by the U.S. Treasury or by any
Federal Home Loan Banks and do not constitute a debt or obligation of the U.S.
Government or of any Federal Home Loan Bank. Freddie Macs entitle the holder to
timely payment of interest, which is guaranteed by the FHLMC. The FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When the FHLMC does not guarantee
timely payment of principal, FHLMC may remit the amount due on account of its
guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.
OPTIONS ON SECURITIES
Writing covered options. A Fund may write covered call options and covered put
options on optionable securities held in its portfolio, when in the opinion of
Huntington such transactions are consistent with the Fund's investment
objectives and policies. Call options written by a Fund give the purchaser the
right to buy the underlying securities from the Fund at a stated exercise price;
put options give the purchaser the right to sell the underlying securities to
the Fund at a stated price.
A Fund may write only covered options, which means that, so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, a Fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, a Fund will be considered to have
covered a put or call option if and to the extent that it holds an option that
offsets some or all of the risk of the option it has written. A Fund may write
combinations of covered puts and calls on the same underlying security.
A Fund will receive a premium from writing a put or call option, which increases
the Fund's return on the underlying security in the event that option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, a Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
a Fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then current market value,
resulting in a potential capital loss unless the security substantially
appreciates in value.
A Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction, in which it purchases an
offsetting option. A Fund realizes a profit or loss from a closing transaction
if the cost of the transaction (option premium plus transaction costs) is less
or more than the premium received from writing the option. Because increases in
the market price of a call option generally reflect increases in the market
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<PAGE>
price of the security underlying the option, any loss resulting from a closing
purchase transaction may be offset in whole or in part by unrealized
appreciation of the underlying security owned by a Fund.
Purchasing put options. A Fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such protection is provided during the life of the put option since the Fund, as
holder of the option, is able to sell the underlying security at the option's
exercise price regardless of any decline in the underlying security's market
price. In order for a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner a Fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
Purchasing call options. A Fund may purchase call options to hedge against an
increase in the price of securities that the Fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the Fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of a Fund's options strategies depends on the ability of
Huntington to forecast interest rate and market movements. For example, if a
Fund were to write a call option based on Huntington's expectation that the
price of the underlying security would fall, but the price were to rise instead,
the Fund could be required to sell the security upon exercise at a price below
the current market price. Similarly, if a Fund were to write a put option based
on Huntington's expectations that the price of the underlying security would
rise, but the price were to fall instead, the Fund could be required to purchase
the security upon exercise at a price higher than the current market price.
When it purchases an option, a Fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the Fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, a Fund
will lose part or all of its investment in the option. This contrasts with an
investment by a Fund in the underlying security, since the Fund will not lose
any of its investment in such security if the price does not change.
The effective use of options also depends on the Fund's ability to terminate
option positions at times when Huntington deems it desirable to do so. Although
a Fund will take an option position only if Huntington believes there is a
liquid secondary market for the option, there is no assurance that the Fund will
be able to effect closing transaction at any particular time or at an acceptable
price.
If a secondary trading market in options were to become unavailable, a Fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A market may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if
unusual events-such as volume in excess of trading or clearing capability-were
to interrupt its normal operations.
A market may at times find it necessary to impose restrictions on particular
types of options transactions, such as opening transactions. For example, if an
underlying security ceases to meet qualifications imposed by the market or the
Options Clearing Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening transactions in
existing series may be prohibited. If an options market were to become
unavailable, a Fund as a holder of an option would be able to realize profits or
limit losses only by exercising the option, and the Fund, as option writer,
would remain obligated under the option until expiration.
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Disruptions in the markets for the securities underlying options purchased or
sold by a Fund could result in losses on the options. If trading is interrupted
in an underlying security, the trading of options on that security is normally
halted as well. As a result, a Fund as purchaser or writer of an option will be
unable to close out its positions until options trading resumes, and it may be
faced with considerable losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation or
other options markets may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has also been halted,
a Fund as a purchaser or writer of an option will be locked into its position
until one of the two restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an underlying
security appears insufficient to permit delivery by the writers of all
outstanding calls in the event of exercise, it may prohibit indefinitely the
exercise of put options by holders who would be unable to deliver the underlying
interest. A Fund, as holder of such a put option, could lose its entire
investment if the prohibition remained in effect until the put option's
expiration and the Fund was unable either to acquire the underlying security or
to sell the put option in the market.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed.
As a result, option premium may not reflect the current prices of the underlying
interest in the United States.
Risks involved in the sale of options. Options transactions involve certain
risks, including the risks that Huntington will not forecast interest rate or
market movements correctly, that a Fund may be unable at times to close out such
positions, or that hedging transactions may not accomplish their purpose because
of imperfect market correlations. The successful use of these strategies
depends on the ability of Huntington to forecast market and interest rate
movements correctly.
An exchange-listed option may be closed out only on an exchange which provides a
secondary market for an option of the same series. There is no assurance that a
liquid secondary market on an exchange will exist for any particular option or
at any particular time. If no secondary market were to exist, it would be
impossible to enter into a closing transaction to close out an option position.
As a result, a Fund may be forced to continue to hold, or to purchase at a fixed
price, a security on which it has sold an option at a time when Huntington
believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause the Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict a Fund's use of
options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or group
of investors acting in concert. It is possible that the Trust and other clients
of Huntington may be considered such a group. These position limits may restrict
the Trust's ability to purchase or sell options on particular securities.
Options which are not traded on national securities exchanges may be closed out
only with the other party to the option transaction. For that reason, it may be
more difficult to close out unlisted options than listed options. Furthermore,
unlisted options are not subject to the protection afforded purchasers of listed
options by the Options Clearing Corporation.
FUTURES CONTRACTS
Futures on debt securities and related options. A futures contract on a debt
security is a binding contractual commitment which, if held to maturity, will
result in an obligation to make or accept delivery, during a particular month,
of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- a Fund
will legally obligate itself to accept the future delivery of the underlying
security and pay the agreed price. By selling futures on debt securities --
assuming a "short" position-it will legally obligate itself to make the future
delivery of the security against payment of the agreed price. Open futures
positions on debt securities will be valued at the most recent settlement price,
unless that price does not in the
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judgment of the Trustees reflect the fair value of the contract, in which case
the positions will be valued by or under the direction of the Trustees.
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures positions taken by a Fund will usually be
liquidated in this manner, a Fund may instead make or take delivery of the
underlying securities whenever it appears economically advantageous to the Fund
to do so. A clearing corporation associated with the exchange on which futures
are traded assumes responsibility for such closing transactions and guarantees
that the Fund's sale and purchase obligations under closed-out positions will be
performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more certainly
than would otherwise be possible the effective rate of return on portfolio
securities. A Fund may, for example, take a "short" position in the futures
market by selling contracts for the future delivery of debt securities held by
the Fund (or securities having characteristics similar to those held by the
Fund) in order to hedge against an anticipated rise in interest rates that would
adversely affect the value of the Fund's portfolio securities. When hedging of
this character is successful, any depreciation in the value of portfolio
securities may be offset by appreciation in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures on
debt securities. This would be done, for example, when Huntington expects to
purchase for a Fund particular securities when it has the necessary cash, but
expects the rate of return available in the securities markets at that time to
be less favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Fund of purchasing
the securities may be offset by the rise in the value of the futures position
taken in anticipation of the subsequent securities purchase.
Successful use by a Fund of futures contracts on debt securities is subject to
Huntington's ability to predict correctly movements in the direction of interest
rates and other factors affecting markets for debt securities. For example, if
a Fund has hedged against the possibility of an increase in interest rates which
would adversely affect the market prices of debt securities held by it and the
prices of such securities increase instead, the Fund will lose part or all of
the benefit of the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities to
meet daily margin maintenance requirements. A Fund may have to sell securities
at a time when it may be disadvantageous to do so.
A Fund may purchase and write put and call options on debt futures contracts, as
they become available. Such options are similar to options on securities except
that options on futures contracts give the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. As with options on
securities, the holder or writer of an option may terminate its position by
selling or purchasing an option of the same series. There is no guarantee that
such closing transactions can be effected. A Fund will be required to deposit
initial margin and variation margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements, and, in
addition, net option premiums received will be included as initial margin
deposits. See "Margin Payments" below. Compared to the purchase or sale of
futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to a Fund because the maximum amount at risk is the
premium paid for the options plus transactions costs. However, there may be
circumstances when the purchases of call or put options on a futures contract
would result in a loss to a Fund when the purchase or sale of the futures
contracts would not, such as when there is no movement in the prices of debt
securities. The writing of a put or call option on a futures contract involves
risks similar to those risks relating to the purchase or sale of futures
contracts.
U.S. Treasury security futures contracts and options. If a Fund invests in tax-
exempt securities issued by a governmental entity, the Fund may purchase and
sell futures contracts and related options on US. Treasury securities when, in
the opinion of Huntington, price movements in Treasury security futures and
related options will
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correlate closely with price movements in the tax-exempt securities which are
the subject of the hedge. U.S. Treasury security futures contracts require the
seller to deliver, or the purchaser to take delivery of, the type of U.S.
Treasury security called for in the contract at a specified date and price.
Options on U.S. Treasury securities futures contracts give the purchaser the
right in return for the premium paid to assume a position in a U.S. Treasury
security futures contract at the specified option exercise price at anytime
during the period of the option. Successful use of U.S. Treasury security
futures contracts by a Fund is subject to Huntington's ability to predict
movements in the direction of interest rates and other factors affecting markets
for debt securities. For example, if a Fund has sold U.S. Treasury security
futures contracts in order to hedge against the possibility of an increase in
interest rates which would adversely affect tax-exempt securities held in its
portfolio, and the prices of the Fund's tax-exempt securities increase instead
as a result of a decline in interest rates, the Fund will lose part or all of
the benefit of the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities to
meet daily maintenance margin requirements at a time when it may be
disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury security futures
contracts and related options will not correlate closely with price movements in
markets for tax-exempt securities. For example, if a Fund has hedged against a
decline in the values of tax-exempt securities held by it by selling Treasury
securities futures and the values of Treasury securities subsequently increase
while the values of its tax-exempt securities decrease, the Fund would incur
losses on both the Treasury security futures contracts written by it and the
tax-exempt securities held in its portfolio. Huntington will seek to reduce
this risk by monitoring movements in Markets for US. Treasury security futures
and options and for tax-exempt securities closely. A Fund will only purchase or
sell Treasury security futures or related options when, in the opinion of
Huntington, price movements in Treasury security futures and related options
will correlate closely with price movements in tax-exempt securities in which
the Fund invests.
Index futures contracts and options. A Fund may invest in debt index futures
contracts and stock index futures contracts, and in related options. A debt
index futures contract is a contract to buy or sell units of a specified debt
index at a specified future date at a price agreed upon when the contract is
made. A unit is the current value of the index. A stock index futures contract
is a contract to buy or sell units of a stock index at a specified future date
at a price agreed upon when the contract is made. A unit is the current value
of the stock index.
The following example illustrates generally the manner in which index futures
contracts operate. The Standard & Poor's 100 Stock Index is composed of 100
selected common stocks, most of which are listed on the New York Stock Exchange.
The S&P 100 Index assigns relative weightings to the common stocks included in
the Index, and the Index fluctuates with changes in the market values of those
common stocks. In the case of the S&P 100 Index, contracts are to buy or sell
100 units. Thus, if the value of the S&P 100 Index were $180, one contract
would be worth $18,000 (100 units X $180). The stock index futures contract
specifies that no delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if a Fund enters into a futures contract to buy 100 units of the S&P
100 Index at a specified future date at a contract price of $180 and the S&P 100
Index is at $184 on that future date, the Fund will gain $400 (100 units X gain
of $4). If the Fund enters into a futures contract to sell 100 units of the
stock index at a specified future date at a contract price of $180 and the S&P
100 Index is at $182 on that future date, the Fund will lose $200 (100 units X
loss of $2). A Fund may purchase or sell futures contracts with respect to any
stock index. Positions in index futures may be closed out only on an exchange
or board of trade which provides a secondary market for such futures.
A Fund will purchase and sell index futures in order to hedge its investments.
To hedge its investments successfully, however, a Fund must invest in futures
contracts with respect to indexes or sub-indexes the movements of which will, in
its judgment, have a significant correlation with movements in the prices of the
Fund's securities.
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Options on index futures contracts are similar to options on securities except
that options on index futures contracts give the purchaser the right, in return
for the premium paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option. Upon
exercise of the option, the holder would assume the underlying futures position
and would receive a variation margin payment of cash or securities approximating
the increase in the value of the holder's option position. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash based on the difference between the
exercise price of the option and the closing level of the index on which the
futures contract is based on the expiration date. Purchasers of options who fail
to exercise their options prior to the exercise date suffer a loss of the
premium paid.
As an alternative to purchasing call and put options on index futures contracts,
a Fund may purchase call and put options on the underlying indexes themselves to
the extent that such options are traded on national securities exchanges. Index
options are similar to options on individual securities in that the purchaser of
an index option acquires the right to buy, and the writer undertakes the
obligation to sell, an index at a stated exercise price during the term of the
option. Instead of giving the right to take or make actual delivery of
securities, the holder of an index option has the right to receive a cash
"exercise settlement amount". This amount is equal to the amount by which the
fixed exercise price of the option exceeds (in the case of a put) or is less
than (in the case of a call) the closing value of the underlying index on the
date of the exercise, multiplied by a fixed "index multiplier".
Margin payments. When a Fund purchases or sells a futures contract, it is
required to deposit with its custodian an amount of cash, US. Treasury bills, or
other permissible collateral equal to a small percentage of the amount of the
futures contract. This amount is known as "initial margin". The nature of
initial margin is different from that of in security transactions in that it
does not involve borrowing money to finance transactions. Rather, initial margin
is similar to a performance bond or good faith deposit that is returned to the
Fund upon termination of the contract, assuming the Fund satisfies its
contractual obligations. Subsequent payments to and from the broker occur on a
daily basis in a process known as "marking to market". These payments are called
"variation margin" and are made as the value of the underlying futures contract
fluctuates. For example, when a Fund sells a futures contract and the price of
the underlying debt security rises above the delivery price, the Fund's position
declines in value. The Fund then pays the broker a variation margin payment
equal to the difference between the delivery price of the futures contract and
the market price of the securities underlying the futures contract. Conversely,
if the price of the underlying security falls below the delivery price of the
contract, the Fund's futures position increases in value. The broker then must
make a variation margin payment equal to the difference between the delivery
price of the futures contract and the market price of the securities underlying
the futures contract.
When a Fund terminates a position in a futures contract, a final determination
of variation margin is made, additional cash is paid by or to the Fund, and the
Fund realizes a loss or a gain. Such closing transactions involve additional
commission costs.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
Liquidity risks. Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
Although the Trust intends to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event financial futures are used to hedge
portfolio securities, such securities will not generally be sold until the
financial futures can be terminated. In such circumstances, an increase in the
price of the portfolio securities, if any, may partially or completely offset
losses on the financial futures.
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In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Fund generally will purchase only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options, with the result that the Fund would have to exercise the
options in order to realize any profit.
Hedging risks. There are several risks in connection with the use by a Fund of
futures contracts and related options as a hedging device. One risk arises
because of the imperfect correlation between movements in the prices of the
futures contracts and options and movements in the prices of securities which
are the subject of the hedge. Huntington will, however, attempt to reduce this
risk by purchasing and selling, to the extent possible, futures contracts and
related options on securities and indexes the movements of which will, in its
judgment, correlate closely with movements in the prices of the portfolio
securities sought to be hedged.
Successful use of futures contracts and options by a Fund for hedging purposes
is also subject to Huntington's ability to predict correctly movements in the
direction of the market. It is possible that, where a Fund has purchased puts on
futures contracts to hedge its portfolio against a decline in the market, the
securities or index on which the puts are purchased may increase in value and
the value of securities held in the portfolio may decline. If this occurred, the
Fund would lose money on the puts and also experience a decline in value in its
portfolio securities. In addition, the prices of futures, for a number of
reasons, may not correlate perfectly with movements in the underlying securities
or index due to certain market distortions. First, all participants in the
futures market are subject to margin deposit requirements. Such requirements may
cause investors to close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying security or index
and futures markets. Second, the margin requirements in the futures markets are
less onerous than margin requirements in the securities markets in general, and
as a result the futures markets may attract more speculators than the securities
markets do. Increased participation by speculators in the futures markets may
also cause temporary price distortions. Due to the possibility of price
distortion, even a correct forecast of general market trends by Huntington may
still not result in a successful hedging transaction over a very short time
period.
Other risks. Funds will incur brokerage fees in connection with their futures
and options transactions. In addition, while futures contracts and options on
futures will be purchased and sold to reduce certain risks, those transactions
themselves entail certain other risks. Thus, while a Fund may benefit from the
use of futures and related options, unanticipated changes in interest rates or
stock price movements may result in a poorer overall performance for the Fund
than if it had not entered into any futures contracts or options transactions.
Moreover, in the event of an imperfect correlation between the futures position
and the portfolio position which is intended to be protected, the desired
protection may not be obtained and the Fund may be exposed to risk of loss.
FOREIGN CURRENCY TRANSACTIONS
A Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. A Fund may engage in both "transaction hedging" and
"position hedging".
When it engages in transaction hedging, a Fund enters into foreign currency
transactions with respect to specific receivables or payables generally arising
in connection with the purchase or sale of its portfolio securities. A Fund
will engage in transaction hedging when it desires to "lock in" the U.S. dollar
price of a security it has agreed to purchase or sell, or the US. dollar
equivalent of a dividend or interest payment in a foreign currency. By
transaction hedging a Fund will attempt to protect against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the applicable foreign currency during the period between the date on
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which the security is purchased or sold or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.
A Fund may purchase or sell a foreign currency on a spot (or cash) basis at the
prevailing spot rate in connection with transaction hedging. A Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts') and purchase and sell foreign currency futures contracts.
For transaction hedging purposes a Fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. A put option on a futures contract gives a Fund the right
to assume a short position in the futures contract until expiration of the
option. A put option on currency gives a Fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives a Fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives a
Fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which securities held by it are denominated or are quoted in their
principle trading markets or an increase in the value of currency for securities
which the Fund expects to purchase. In connection with position hedging, a Fund
may purchase put or call options on foreign currency and foreign currency
futures contracts and buy or sell forward contracts and foreign currency futures
contracts. The Trust may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the values of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of a Fund's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security or securities being hedged is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security or securities and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security or securities
of a Fund if the market value of such security or securities exceeds the amount
of foreign currency the Fund is obligated to deliver.
To offset some of the costs of hedging against fluctuations in currency exchange
rates, a Fund may write covered call options on those currencies. Transaction
and position hedging do not eliminate fluctuations in the underlying prices of
the securities which a Fund owns or intends to purchase or sell. They simply
establish a rate of exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they tend to limit any potential
gain which might result from the increase in the value of such currency.
A Fund may also seek to increase its current return by purchasing and selling
foreign currency on a spot basis, and by purchasing and selling options on
foreign currencies and on foreign currency futures contracts, and by purchasing
and selling foreign currency forward contracts.
Forward foreign currency exchange contracts and foreign currency futures
contracts. A forward foreign currency exchange contract involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract as agreed by the parties, at a
price set at the time of the contract. In the case of a cancelable forward
contract, the holder has the unilateral right to cancel the contract at maturity
by paying a specified fee. The contracts are traded in the interbank market
conducted directly between currency
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traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the Commodity Futures Trading Commission (the "CFTC"), such as the
New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency futures
contracts in certain respects. For example, the maturity date of a forward
contract may be any fixed number of days from the date of the contract agreed
upon by the parties, rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although it is intended that a Fund will
purchase or sell foreign currency futures contracts and related options only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or option or at any particular
time. Ln such event, it may not be possible to close a futures or related option
position and, in the event of adverse price movements, a Fund would continue to
be required to make daily cash payments of variation margin on its futures
positions.
Foreign currency options. Options on foreign currencies operate similarly to
options on securities, and are traded primarily in the over-the-counter market,
although options on foreign currencies have recently been listed on several
exchanges. Such options will be purchased or written only when Huntington
believes that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specific time. Options on foreign currencies are affected by all of those
factors which influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(less than $1 million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To the extent that
the US. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the U.S. options markets.
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Foreign currency conversion. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(the "spread') between prices at which they buy and sell various currencies.
Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should a Fund desire to resell that currency
to the dealer.
ZERO-COUPON SECURITIES
Zero-coupon securities in which a Fund may invest are debt obligations which are
generally issued at a discount and payable in full at maturity, and which do not
provide for current payments of interest prior to maturity. Zero-coupon
securities usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. As a result, the net asset value of shares of a Fund investing in
zero-coupon securities may fluctuate over a greater range than shares of other
Funds and other mutual funds investing in securities making current
distributions of interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by the
U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus') of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the U.S. Treasury has facilitated transfers of ownership of zero-
coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on U.S. Treasury securities
through the Federal Reserve book-entry record-keeping system. The Federal
Reserve program, as established by the U.S. Treasury Department, is known as
"STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities.' Under the STRIPS program, a Fund will be able to have its
beneficial ownership of U.S. Treasury zero-coupon securities recorded directly
in the book-entry record-keeping system in lieu of having to hold certificates
or other evidence of ownership of the underlying U.S. Treasury securities. When
debt obligations have been stripped of their unmatured interest coupons by the
holder, the stripped coupons are sold separately. The principal or corpus is
sold at a deep discount because the buyer receives only the right to receive a
future fixed payment on the security and does not receive any rights to periodic
cash interest payments. Once stripped or separated, the corpus and coupons may
be sold separately. Typically, the coupons are sold separately or grouped with
other coupons with like maturity dates and sold in such bundled form. Purchasers
of stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero-coupon securities issued directly by the
obligor.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
Without a vote of a majority of the outstanding shares of a Fund, the Trust
shall not take any of the following actions with respect to such Fund:
(1) Except for the Single State Funds, invest more than 5% of the value of its
total assets in the securities of any one issuer (this limitation does not
apply to securities issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities or to repurchase agreements secured by
such obligations).
(2) Purchase more than 10% of the voting securities of any issuer.
16
<PAGE>
(3) Invest 25% or more of the value of its total assets (i) in securities of
companies primarily engaged in any one industry (other than the U.S.
Government, its agencies and instrumentalities), and (ii) with respect to
the Single State Funds, in municipal obligations of one issuer or which are
related in such a way that, in the opinion of Huntington, an economic,
business or political development other than state-wide, national or
international development) affecting one such municipal obligation would
also affect others in a similar manner. Such concentration may occur as a
result of changes in the market value of portfolio securities, but such
concentration may not result from investment.
(4) Loan more than 20% of the Funds' portfolio securities to brokers, dealers
or other financial organizations. All such loans will be collateralized by
cash or U.S. Government obligations that are maintained at all times in an
amount equal to at least 102% of the current value of the loaned
securities.
(5) Except for investments by the Money Market Fund in commercial paper issued
under Section 4(2) of the Securities Act of 1933 and certain other
restricted securities which meet the criteria for liquidity as established
by the Trustees, invest more than 10% (15% in the case of the Government
Income Fund) of the value of its total assets in illiquid securities
including restricted securities, repurchase agreements of over seven days'
duration and OTC options.
(6) Borrow in excess of 5% of its total assets (borrowings are permitted only
as a temporary measure for extraordinary or emergency purposes) or pledge
(mortgage) its assets as security for an indebtedness, except that each of
the Michigan Tax-Free Fund and the Intermediate Government Income Fund may
borrow from banks up to 10% of the current value of its total net assets
for temporary or defensive purposes and those borrowings may be secured by
the pledge of not more than 15% of the current value of its total net
assets (but investments may not be purchased by these Funds while any such
borrowings are outstanding).
(7) Invest more than 5% of its total assets in securities of any issuer which,
together with any predecessor, has been in operation for less than three
years.
(8) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Funds may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein.
(9) Purchase or sell commodities or commodities contracts, or interests in oil,
gas, or other mineral exploration or development programs provided,
however, that the Funds may invest in futures contracts for bona fide
hedging transactions, as defined in the General Regulations under the
Commodity Exchange Act, or for other transactions permitted to entities
exempt from the definition of the term commodity pool operator, as long as,
immediately after entering a futures contract no more than 5% of the fair
market value of the Funds' assets would be committed to initial margins.
(10) Purchase securities on margin or effect short sales (except that the Funds
may obtain such short-term credits as may be necessary for the clearance
of purchases or sales of securities).
(11) Engage in the business of underwriting securities issued by others or
purchase securities, other than time deposits and restricted securities
(i.e., securities which cannot be sold without registration or an exemption
from registration), subject to legal or contractual restrictions on
disposition.
(12) Make loans to any person or firm except as provided below; provided,
however, that the making of a loan shall not be construed to include (i)
the acquisition for investment of bonds, debentures, notes or other
evidences of indebtedness of any corporation or government which are
publicly distributed or of a type customarily purchased by institutional
investors (which are debt securities, generally rated not less than A by
Moody's or S&P, or the equivalent, privately issued and purchased by such
entities as banks, insurance
17
<PAGE>
companies and investment companies), or (ii) the entry into repurchase
agreements. However, the Funds may lend their portfolio securities to
brokers, dealers or other institutional investors deemed by Huntington, the
Trust's manager, pursuant to criteria adopted by the Trustees, to be
creditworthy if, as a result thereof, the aggregate value of all securities
loaned does not exceed 20% of the value of the total assets of the Funds
and the loan is collateralized by cash or U.S. Government obligations that
are maintained at all times in an amount equal to at least 102% of the
current market value of the loaned securities. Such transactions will
comply with all applicable laws and regulations.
(13) Purchase from or sell portfolio securities to officers, Trustees or other
"interested persons" (as defined in the 1940 Act) of the Funds,
including its investment manager and its affiliates, except as permitted
by the Investment Company Act of 1940 and exemptive Rules or Orders
thereunder.
(14) Issue senior securities.
(15) Purchase or retain the securities of any issuer if, to the Funds'
knowledge, one or more of the officers, directors or Trustees of the Trust,
the investment adviser or the administrator, individually own beneficially
more than one-half of one percent of the securities of such issuer and
together own beneficially more than 5% of such securities.
(16) Purchase the securities of other investment companies except by purchase in
the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission or
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition and except as permitted pursuant to
Section 12(d)(1) of the Investment Company Act of 1940.
All percentage limitations on investments will apply at the time of the making
of an investment and should not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment.
PORTFOLIO TURNOVER
The portfolio turnover rate of a Fund is defined by the Securities and Exchange
Commission as the ratio of the lesser of annual sales or purchases to the
monthly average value of the portfolio, excluding from both the numerator and
the denominator securities with maturities at the time of acquisition of one
year or less. Under that definition, the Money Market Funds will have no
portfolio turnover. Portfolio turnover generally involves some expense to a
Fund, including brokerage commissions or dealer mark-ups and other transactions
costs on the sale of securities and reinvestment in other securities.
For the fiscal years ended December 31, 1996 and 1997, the portfolio turnover
rates for each of the following Funds were as follows:
18
<PAGE>
<TABLE>
<CAPTION>
FUND 1996 1997
<S> <C> <C>
Growth Fund...................................... 21% 12%
Income Equity Fund............................... 25% 24%
Mortgage Securities Fund......................... 90% 63%
Ohio Tax-Free Fund............................... 6% 14%
Fixed Income Securities Fund..................... 16% 116%
Short/Intermediate Fixed Income Securities Fund.. 39% 160%
</TABLE>
The Adviser estimates that the portfolio turnover rate for the Michigan Tax-Free
Fund will not exceed 35% during its first fiscal year and that the portfolio
turnover rate for the Intermediate Government Income Fund will not exceed 25%
during its first fiscal year. During the fiscal year ended December 31, 1997,
portfolio turnover for each of the Fixed Income Securities Fund and the
Short/Intermediate Fixed Income Securities Fund increased due to a decision by
the Adviser to increase corporate exposure in both Funds. Portfolio turnover in
excess of 100% is not expected to continue for either Fund. The increase in
portfolio turnover in 1997 over 1996 for the Ohio Tax-Free Fund was primarily
due to increased trading in order to extend the average life of the portfolio. A
decrease in portfolio turnover for the Growth Fund resulted principally from
management of the impact of capital gains on shareholders. For the Mortgage
Securities Fund, decreased portfolio turnover resulted primarily from movement
towards management of the portfolio as a more traditional mortgage fund.
Increased portfolio turnover necessarily results in higher costs, including
brokerage commissions, dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities, and may result in the
acceleration of capital gains.
MANAGEMENT OF THE TRUST
________________________________________________________________________________
TRUSTEES AND OFFICERS
Trustees and officers of the Trust and their principal occupations during the
past five years are as set forth below.
<TABLE>
<CAPTION>
=====================================================================================================
NAME POSITIONS HELD PRINCIPAL OCCUPATIONS WITH THE TRUST
WITH THE TRUST DURING PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
David S. Schoedinger Trustee Chairman of the Board, Schoedinger Funeral
229 East State Street Service; President Schoedinger Financial
Columbus, Ohio Services, Inc.; Past President, Board of
Birthdate: November 27, 1942 Directors of National Selected (1992-1993)
- -----------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
John M. Shary Trustee Former Member, Business Advisory Board,
3097 Walden Ravine DPEC-Data Processing Education Corp.;
Columbus, Ohio 43321 Member, Business Advisory Board, Hublink,
Birthdate: November 30, 1930 Inc.; Former Member, Business Advisory
Board, Miratel Corporation; Member, Board of
Directors, Applied Information Technology
Research Center (1988-1992); Member, Board
of Directors, AIT (1987-1992); Chief Financial
Officer of OCLC Online Computer Library
Center, Inc. (1972-1992).
William R. Wise Trustee Formerly, Corporate Director of Financial
613 Valley Forge Court Services and Treasurer, Childrens Hospital,
Westerville, Ohio Columbus, Ohio; Associate Executive Director
Birthdate: October 20, 1931 and Treasurer, Childrens Hospital, Columbus,
Ohio (1985-1989).
Mark Nagle President Vice President, Fund Accounting and Administration
One Freedom Valley Road and Chief of SEI Fund Resources since 1996; Vice President,
Oaks, Pennsylvania 19456 Executive Accounting Services of BISYS Fund Services from 1995
Birthdate: October 20, 1959 Officer to 1996; Senior Vice President, Fidelity Investments
from 1981-1995.
Robert DellaCroce Treasurer, Director, Funds Administration and Accounting
One Freedom Valley Road Controller and of SEI since 1994. Senior Audit Manager,
Oaks, Pennsylvania 19456 Chief Financial Arthur Andersen LLP, from 1986 to 1994.
Birthdate: December 17, 1963 Officer
Kathryn L. Stanton Vice President Vice President and Assistant Secretary of SEI
One Freedom Valley Road and Secretary Corporation since 1994; Associate attorney with
Oaks, Pennsylvania 19456 Morgan, Lewis and Bockius (1989-1994).
Birthdate: November 19, 1958
Todd Cipperman Vice President Vice President and Assistant Secretary of SEI
One Freedom Valley Road and Assistant Corporation since 1995; Associate attorney with
Oaks, Pennsylvania 19456 Secretary Dewey Ballantine (1994-1995); Associate
Birthdate: February 14, 1966 attorney with Winston & Strawn (1991-1994).
Joseph M. Lydon Vice President Director of Business Administration-Fund
One Freedom Valley Road and Assistant Resources, a division of SEI Corporation since
Oaks, Pennsylvania 19456 Secretary 1995; Vice President of Fund Group, Vice
Birthdate: September 27, 1959 President of the Advisor-Dremen Value
Management, L.P., and President of Dremen
Financial Services, Inc. (1989-1995).
- ------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Joseph M. O'Donnell Vice President Vice President and Assistant Secretary of SEI
One Freedom Valley Road and Assistant since 1998; Vice President and General Counsel,
Oaks, Pennsylvania 19456 Secretary FPS Service, Inc. (1993-1997)
Birthdate: November 13, 1951
Kevin P. Robins Vice President Senior Vice President, General Counsel and
One Freedom Valley Road and Assistant Secretary of SEI Corporation since 1994. Vice
Oaks, Pennsylvania 19456 Secretary President and Assistant Secretary (1992-1994);
Birthdate: April 15, 1961 Associate attorney with Morgan, Lewis &
Bockius (1988-1992).
Bradley J. Schram Secretary President and shareholder, Hertz, Schram &
1760 S. Telegraph Road Saretsky, P.C. (attorneys)
Bloomfield Hills, Michigan 48302
Birthdate: July 10, 1950
=========================================================================================================
</TABLE>
Except as stated above, the principal occupations of the officers and Trustees
for the last five years have been with the employers as shown above, although in
some cases they have held different positions with such employers.
FUND OWNERSHIP
As of April 17, 1998, the Trustees and officers as a group owned less than 1% of
the shares of the Trust.
As of April 17, 1998, the following shareholders of record owned 5% or more of
the outstanding Investment Shares of The Monitor Money Market Fund: National
Financial Services Corp., New York, NY, owned approximately 82,210,532 shares
(33.9%); Huntington, acting in various capacities for numerous accounts, owned
approximately 98,757,116 shares (40.7%).
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Trust Shares of The Monitor Money Market Fund: Huntington,
acting in various capacities for numerous accounts, owned approximately
491,801,453 shares (99.3%).
As of April 17, 1998, the following shareholders of record owned 5% or more of
the outstanding Investment Shares of The Monitor Ohio Municipal Money Market
Fund: Telamon, Indianapolis, IN, owned approximately 7,353,945 shares (6.1%);
Huntington, acting in various capacities for numerous accounts, owned
approximately 106,302,205 shares (88.1%).
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Trust Shares of The Monitor Ohio Municipal Money Market Fund:
Huntington, acting in various capacities for numerous accounts, owned
approximately 90,438,076 shares (100%).
As of April 17, 1998, the following shareholders of record owned 5% or more of
the outstanding Investment Shares of The Monitor U.S. Treasury Money Market
Fund: Huntington, acting in various capacities for numerous accounts, owned
approximately 33,818,787 shares (56.2%); and Allied Fidelity Insurance Co.,
Indianapolis, IN, owned approximately 3,973,828 shares (6.6%).
21
<PAGE>
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Trust Shares of The Monitor U.S. Treasury Money Market Fund:
Huntington, acting in various capacities for numerous accounts, owned
approximately 473,180,392 shares (99.6%).
As of April 17, 1998, no shareholders of record owned 5% or more of the
outstanding Investment Shares of The Monitor Growth Fund.
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Trust Shares of The Monitor Growth Fund: Huntington, acting in
various capacities for numerous accounts, owned approximately 6,549,839 shares
(99.2%).
As of April 17, 1998, the following shareholders of record owned 5% or more of
the outstanding Investment Shares of The Monitor Income Equity Fund: John B.
and Donaldeen A. Payne, Columbus, OH, owned approximately 2,055 shares (17.5%);
Joseph E. Segna, Columbus, OH, owned approximately 1,374 shares (11.7%); John M.
(a Trustee of the Trust) and Claire Shary, Columbus, OH, owned approximately
1,364 shares (11.6%); Deborah M. and Adam B. Maximoff, Indianapolis, IN, owned
approximately 874 shares (7.4%); Lucille R. Weiss, Wooster, OH, owned
approximately 754 shares (6.4%); William R. and Nancy R. Wise, Westerville, OH,
owned approximately 648 shares (5.5%); Gretchen Sheridan and Robert G. White,
Carmel, IN, owned approximately 614 shares (5.2%).
As of April 17, 1998, the following shareholders of record owned 5% or more of
the outstanding Trust Shares of The Monitor Income Equity Fund: Huntington,
acting in various capacities for numerous accounts, owned approximately
5,876,675 shares (98.4%).
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Investment Shares of The Monitor Mortgage Securities Fund:
James E. Dill, Lockbourne, OH, owned approximately 7,357 shares (5.6%).
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Trust Shares of The Monitor Mortgage Securities Fund:
Huntington, acting in various capacities for numerous accounts, owned
approximately 4,506,045 shares (98.2%).
As of April 17, 1998, the following shareholders of record owned 5% or more of
the outstanding Investment Shares of The Monitor Ohio Tax-Free Fund: John W. and
Arlene J. Warbritton, Westerville, OH, owned approximately 6,332 shares (9.1%);
Ursula E.M. and William J. Umberg, Cincinnati, OH, owned approximately 8,814
shares (12.6%); Evelyn V. Culbertson, Columbus, OH, owned approximately 4,523
shares (6.5%); Mary Ann and Michael M. Machowsky, Jr., Rossford, OH, owned
approximately 4,612 shares (6.6%).
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Trust Shares of The Monitor Ohio Tax-Free Fund: Huntington,
acting in various capacities for numerous accounts, owned approximately
2,847,068 shares (94.5%).
As of April 17, 1998, no shareholders of record owned 5% or more of the
outstanding Investment Shares of The Monitor Michigan Tax-Free Fund.
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Trust Shares of The Monitor Michigan Tax-Free Fund: Huntington,
acting in various capacities for numerous accounts, owned approximately
2,370,918 shares (95.1%).
22
<PAGE>
As of April 17, 1998, the following shareholders of record owned 5% or more of
the outstanding Investment Shares of The Monitor Fixed Income Securities Fund:
William J. Umberg, Cincinnati, OH, owned approximately 5,660 shares (7.7%); and
the Cincinnati Institute of Fine Arts, Cincinnati, OH, owned approximately 4,615
shares (6.3%).
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Trust Shares of The Monitor Fixed Income Securities Fund:
Huntington, acting in various capacities for numerous accounts, owned
approximately 7,263,858 shares (99.3%).
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Investment Shares of The Monitor Intermediate Government Income
Fund: Advanced Clearing, Omaha, NE, owned approximately 28,209 shares
(8.7%).
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Trust Shares of The Monitor Intermediate Government Income Fund:
Huntington, acting in various capacities for numerous accounts, owned
approximately 11,349,354 shares (99.8%).
As of April 17, 1998, the following shareholder of record owned 5% or more of
the outstanding Trust Shares of The Monitor Short/Intermediate Fixed Income
Securities Fund: Huntington, acting in various capacities for numerous accounts,
owned approximately 6,373,256 shares (99.1%).
The Declaration of Trust of the Trust provides that the Trust will, to the
fullest extent permitted by law, indemnify its Trustees and officers against all
liabilities and against all expenses reasonably incurred in connection with any
claim, action, suit or proceeding in which they may be involved because of their
offices with the Trust, except if it is determined in the manner specified in
the Declaration of Trust that they have not acted in good faith in the
reasonable belief that their actions were in the best interests of the Trust or
that such indemnification would relieve any officer or Trustee of any liability
to the Trust or its shareholders by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of his or her duties. The Trust, at its
expense, may provide liability insurance for the benefit of its Trustees and
officers.
TRUSTEES COMPENSATION
During the fiscal year ended December 31, 1997, the Trustees received the
following total compensation from the Trust for their services with respect to
all of the Funds:
NAME AND POSITION COMPENSATION
----------------- ------------
David S. Schoedinger, Trustee $13,000
John M. Shary, Trustee and Chairman $17,000
William R. Wise, Trustee $13,000
Richard Sisson, Trustee* $ 3,500
* Mr. Sisson resigned from serving as Trustee effective April 15, 1997 in order
to serve on the Board of Directors of HBI.
There are no pension or retirement plans or programs in effect for Trustees of
the Trust. No officers of the Trust or of any other Fund receive compensation
from the Trust or the Funds as officers or employees of the Trust of any such
Fund.
INVESTMENT ADVISER
Huntington National Bank, is an indirect, wholly-owned subsidiary of Huntington
Bancshares Incorporated ("HBI"). With $26 billion in assets as of December 31,
1997, HBI is a major Midwest regional bank holding company.
23
<PAGE>
Under the investment advisory agreements between the Trust and Huntington (the
"Investment Advisory Agreements"), Huntington, at its expense, furnishes
continuously an investment program for the various Funds and makes investment
decisions on their behalf, all subject to such policies as the Trustees may
determine.
In providing investment advisory services to the various Funds, Huntington
regularly provides the Funds with investment research, advice, and supervision
and continuously furnishes investment programs consistent with the investment
objectives and policies of the various Funds, and determines, for the various
Funds, what securities shall be purchased, what securities shall be held or
sold, and what portion of a Fund's assets shall be held uninvested, subject
always to the provisions of the Trust's Declaration of Trust and By-laws, and of
the 1940 Act, and to a Fund's investment objectives, policies, and restrictions,
and subject further to such policies and instructions as the Trustees may, from
time to time, establish.
During the fiscal years ended 1995, 1996 and 1997, each of the Funds in
operation during such periods paid fees to Huntington pursuant to the Investment
Advisory Agreements as follows:
<TABLE>
<CAPTION>
FUND 1995 1996 1997
<S> <C> <C> <C>
Money Market Fund................................ $1,080,916 $1,267,812 $1,438,732
Ohio Municipal Money Market Fund................. $ 157,618* $ 213,103* $ 315,663*
U.S. Treasury Money Market Fund.................. $ 648,805 $ 904,683 $1,103,305
Growth Fund...................................... $ 790,352 $1,028,360 $1,249,265
Income Equity Fund............................... $ 764,733 $ 958,682 $1,175,011
Mortgage Securities Fund......................... $ 20,000* $ 101,228* $ 122,798*
Ohio Tax-Free Fund............................... $ 307,084 $ 313,954 $ 327,550
Fixed Income Securities Fund..................... $ 672,320 $ 697,359 $ 745,513
Short/Intermediate Fixed Income Securities Fund.. $ 660,192 $ 627,097 $ 622,863
</TABLE>
* During the fiscal year ended December 31, 1995, gross investment advisory fees
for the Ohio Municipal Money Market Fund and the Mortgage Securities Fund were,
respectively, $284,343 and $289,413, of which $126,725 and $269,413 were
voluntarily waived. In addition, the Mortgage Securities Fund was reimbursed for
other operating expenses in the amount of $15,000. During the fiscal year ended
December 31, 1996, gross investment advisory fees for the Ohio Municipal Money
Market Fund and the Mortgage Securities Fund were, respectively, $355,171 and
$236,184, of which $142,068 and $134,956 were voluntarily waived. During the
fiscal year ended December 31, 1997, gross investment advisory fees for the Ohio
Municipal Money Market Fund and the Mortgage Securities Fund were, respectively,
$414,395 and $204,663, of which $98,732 and $81,865 were voluntarily
waived.
During the fiscal years ended 1995, 1996 and 1997, Huntington paid $61,400,
$69,922, and $86,734, respectively, to Piper Capital Management Incorporated
("Piper"), as sub-adviser to the Mortgage Securities Fund. The Sub-Investment
Advisory Agreement between Huntington and Piper was automatically terminated
under the Investment Company Act of 1940 upon the acquisition of Piper's parent
company, Piper Jaffray Companies Inc., by U.S. Bancorp.
24
<PAGE>
The Investment Advisory Agreements provide that Huntington shall not be subject
to any liability for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which the Investment
Advisory Agreements relate, except a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services or a loss
resulting from willful misfeasance, bad faith, gross negligence, or reckless
disregard of its obligations and duties on the part of Huntington.
The Investment Advisory Agreements may be terminated without penalty with
respect to any Fund at any time by the vote of the Trustees or by the
shareholders of that Fund upon 60 days' written notice, or by Huntington on 90
days' written notice. An Investment Advisory Agreement may be amended only by a
vote of the shareholders of the affected Fund(s). The Agreements also terminate
without payment of any penalty in the event of its assignment. The Investment
Advisory Agreements provide that they will continue in effect from year to year
only so long as such continuance is approved at least annually with respect to
each Fund by the vote of either the Trustees or the shareholders of the Fund,
and, in either case, by a majority of the Trustees who are not "interested
persons" of Huntington.
Because of the internal controls maintained by Huntington to restrict the flow
of non-public information, the Funds' investments are typically made without any
knowledge of Huntington's or its affiliates' lending relationships with an
issuer. In January 1998, Huntington also began serving as a administrator to the
Trust. See "Administrator" below.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company Institute v.
Camp that the federal statute commonly referred to as the Glass-Steagall Act
prohibits a national bank from operating a mutual fund for the collective
investment of managing agency accounts. Subsequently, the Board of Governors of
the Federal Reserve System (the "Board") issued a regulation and interpretation
to the effect that the Glass-Steagall Act and such decision: (a) forbid a bank
holding company registered under the Federal Bank Holding Company Act of 1956
(the "Holding Company Act) or any non-bank affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complies with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
Huntington believes that it possesses the legal authority to perform the
services for the Trust contemplated by the Investment Advisory Agreements.
Future changes in either federal or state statutes and regulations relating to
the permissible activities of banks or bank holding companies and the
subsidiaries or affiliates of those entities, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could prevent or restrict Huntington from continuing to perform such
services for the Trust. Depending upon the nature of any changes in the services
which could be provided by Huntington, the Board of Trustees of the Trust would
review the Trust's relationship with Huntington and consider taking all action
necessary in the circumstances.
Should further legislative, judicial, or administrative action prohibit or
restrict the activities of Huntington, its affiliates, and its correspondent
banks in connection with customer purchases of shares of the Trust, such banks
might be required to alter materially or discontinue the services offered by
them to customers. It is not anticipated,
25
<PAGE>
however, that any change in the Funds' method of operations would affect their
net asset values per share or result in financial losses to any customer.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
PORTFOLIO TRANSACTIONS
Huntington may place portfolio transactions with broker-dealers which furnish,
without cost, certain research, statistical, and quotation services of value to
Huntington and its affiliates in advising the Trust and other clients, provided
that they shall always seek best price and execution with respect to the
transactions. Certain investments may be appropriate for the Trust and for other
clients advised by Huntington. Investment decisions for the Trust and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment, and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients of an investment
adviser on the same day. In such event, such transactions will be allocated
among the clients in a manner believed by Huntington to be equitable to each. In
some cases, this procedure could have an adverse effect on the price or amount
of the securities purchased or sold by the Trust. Purchase and sale orders for
the Trust may be combined with those of other clients of Huntington in the
interest of achieving the most favorable net results for the Trust.
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by a Fund of negotiated brokerage commissions. Such commissions vary
among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities often involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid by a Fund usually includes
an undisclosed dealer commission or mark-up. In underwritten offerings, the
price paid by a Fund includes a disclosed, fixed commission or discount retained
by the underwriter or dealer.
Huntington places all orders for the purchase and sale of portfolio securities
for a Fund and buys and sells securities for a Fund through a substantial number
of brokers and dealers. In so doing, it uses its best efforts to obtain for a
Fund the best price and execution available. In seeking the best price and
execution, Huntington, having in mind a Fund's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience, and financial stability of the broker-dealer
involved, and the quality of service rendered by the broker-dealer in other
transactions.
It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive research, statistical, and quotation services from broker-dealers that
execute portfolio transactions for the clients of such advisers. Consistent with
this practice, Huntington receives research, statistical, and quotation services
from many broker-dealers with which it places a Fund's portfolio transactions.
These services, which in some cases may also be purchased for cash, include such
matters as general economic and security market reviews, industry and company
reviews, evaluations of securities, and
recommendations as to the purchase and sale of securities. Some of these
services are of value to Huntington and its affiliates in advising various of
their clients (including the Trust), although not all of these services are
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<PAGE>
necessarily useful and of value in managing the Trust. The fee paid by a Fund
to Huntington is not reduced because Huntington and its affiliates receive such
services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended, and by the Investment Advisory Agreement, Huntington may cause a Fund
to pay a broker-dealer that provides brokerage and research services to
Huntington an amount of disclosed commission for effecting a securities
transaction for the Fund in excess of the commission which another broker-dealer
would have charged for effecting that transaction. Huntington's authority to
cause a Fund to pay any such greater commissions is also subject to such
policies as the Trustees may adopt from time to time.
In the fiscal years ended December 31, 1995, 1996 and 1997, the Funds named
below paid the following brokerage commissions:
<TABLE>
<CAPTION>
FUND 1995 1996 1997
<S> <C> <C> <C>
Growth Fund.............................. $88,688 $ 76,783 $71,100
Income Equity Fund....................... $53,998 $107,966 $36,858
</TABLE>
ADMINISTRATOR
Effective January 12, 1998, Huntington began serving as administrator to the
Trust pursuant to an Administration Agreement with the Trust (the
"Administration Agreement"). Pursuant to the Administration Agreement,
Huntington provides the Trust with administrative services, regulatory
reporting, fund accounting and related portfolio accounting services, all
necessary office space, equipment, personnel, compensation and facilities for
handling the affairs of the Funds and such other services as the Trustees may,
from time to time, reasonably request and Huntington shall, from time to time,
reasonably determine to be necessary to perform its obligations under the
Administration Agreement. In addition, Huntington coordinates with other service
providers and legal counsel to provide other services to the Trust. The
Administration Agreement became effective on January 12, 1998, and will continue
in effect for a period of two years, and thereafter will continue for successive
one year periods, unless terminated by either party on not less than 60 days'
prior written notice. Under certain circumstances, the Administration Agreement
may be terminated on 45 days' prior written notice or immediately by the Trust
without prior notice.
The Administration Agreement provides that Huntington shall not be liable for
any error of judgment or mistake of law or any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or negligence in
the performance of its duties, or from the disregard by Huntington of its
obligations and duties thereunder.
Prior to January 12, 1998, the Trust had retained SEI Administrative as its
administrator since January 11, 1996. Prior to that time, the Trust had
retained Federated Administrative Services ("Federated") as administrator.
For the fiscal years ended December 31, 1995, 1996 and 1997, the Funds paid the
following fees pursuant to its administration agreement with Federated or SEI
Administrative, as the case may be:
27
<PAGE>
<TABLE>
<CAPTION>
FUND 1995 1996 1997
<S> <C> <C> <C>
Money Market Fund................................ $436,919* $465,136 $528,872
Ohio Municipal Money Market Fund................. $ 73,144* $129,904 $151,945
U.S. Treasury Money Market Fund.................. $392,753* $495,079 $606,818
Growth Fund...................................... $128,230* $188,542 $229,032
Income Equity Fund............................... $132,530 $175,636 $215,419
Mortgage Securities Fund......................... $ 9,502* $ 52,094 $ 45,016
Ohio Tax-Free Fund............................... $ 45,020* $ 68,973 $ 72,061
Fixed Income Securities Fund..................... $134,965* $153,157 $164,031
Short/Intermediate Fixed Income Securities Fund.. $136,602 $137,753 $137,030
</TABLE>
_______________
* During the fiscal year ended December 31, 1995, gross administrator fees for
the Money Market Fund, Ohio Municipal Money Market Fund, U.S. Treasury Money
Market Fund, Growth Fund, Mortgage Securities Fund, Ohio Tax-Free Fund, and
Fixed Income Securities Fund were, respectively, $536,546, $141,152, $483,058,
$196,498, $84,644, $91,463, and $200,254, of which $99,627, $68,008, $90,305,
$68,268, $75,142, $46,443, and $65,289 were voluntarily waived,
respectively.
SUB-ADMINISTRATOR
Huntington has entered into a Sub-Administration Agreement with SEI
Administrative pursuant to which SEI Administrative provides certain
administrative services to the Trust. Under this Agreement, Huntington will pay
to SEI Administrative a periodic fee at an annual rate of 0.05% of the average
daily net assets of all Funds. During the fiscal year ended December 31, 1997,
Huntington served as sub-administrator and received from SEI Administrative (and
not the Trust) a periodic fee at the annual rate of 0.05% of the average daily
net assets of all Funds.
DISTRIBUTOR
The Trust also has a Distribution Agreement with SEI Distribution (formerly SEI
Financial Services Co.), under which the Distributor sells and distributes
shares of each of the Funds. The Distributor is not obligated to sell any
specific amount of shares of any Fund. The Distribution Agreement may be
terminated at any time as to any Fund on not more than 60 days' notice by vote
of a majority of the Trustees who are not parties to such agreement or
"interested persons" of any such party or by the vote of a majority of the
outstanding voting securities of the Fund.
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<PAGE>
THE DISTRIBUTION PLAN
The services provided and the fees payable under the Distribution Plan to which
Investment Shares are subject are described in the Prospectus for Investment
Shares under "Distribution of Investment Shares-Distribution Plan."
The Distribution Plan for all Funds other than the Income Equity Fund, the
Short/Intermediate Fixed Income Securities Fund, the Michigan Tax-Free Fund and
the Intermediate Government Income Fund was initially approved by the Trustees
on November 8, 1995, including a majority of the Trustees who are not interested
persons of the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the Distribution Plan (the "Independent
Trustees"). It was similarly approved for the Income Equity Fund and the
Short/Intermediate Fixed Income Securities Fund on October 23, 1996, for the
Michigan Tax-Free Fund and the Intermediate Government Income Fund on March 18,
1998.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan may be
terminated with respect to any Fund by a vote of a majority of the Independent
Trustees, or by a vote of a majority of the outstanding Investment Shares of
that Fund. The Distribution Plan may be amended by vote of the Trustees,
including a majority of the Independent Trustees, cast in person at a meeting
called for such purpose, except that any change in the Distribution Plan that
would materially increase the fee payable thereunder with respect to a Fund
requires the approval of the holders of that Fund's Investment Shares. The
Trustees will review on a quarterly and annual basis written reports of the
amounts received and expended under the Distribution Plan (including amounts
expended by the Distributor to brokers, dealers and administrators pursuant to
the agreement entered into under the Distribution Plan) indicating the purposes
for which such expenditures were made.
The Distribution Plan provides that it will continue in effect with respect to
each Fund for successive one-year periods, provided that each such continuance
is specifically approved (i) by the vote of a majority of the Independent
Trustees and (ii) by the vote of a majority of all the Trustees, cast in person
at a meeting called for such purpose. For so long as the Distribution Plan
remains in effect, the selection and nomination of those Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) shall be committed
to the discretion of such disinterested persons.
For the fiscal years ended December 31, 1995, 1996 and 1997, the Funds named
below paid the following fees pursuant to the Distribution Plan:
<TABLE>
<CAPTION>
FUND 1995 1996 1997
<S> <C> <C> <C>
Money Market Fund.............................. $70,305 $95,463 $115,933*
Ohio Municipal Money Market Fund............... $43,700 $64,977 $ 72,632*
U.S. Treasury Money Market Fund................ $30,675* $43,791* $ 50,978*
Growth Fund.................................... $ 8,749 $10,181 $ 12,150
Mortgage Securities Fund....................... $ 5,345 $ 4,596* $ 6,827*
Income Equity Fund............................. N/A N/A $ 206
Ohio Tax-Free Fund............................. $ 5,634 $ 5,106 $ 4,358
Fixed Income Securities Fund................... $ 5,079 $ 5,032 $ 4,289
</TABLE>
29
<PAGE>
_______________________
* For the fiscal year ended December 31, 1995, gross distribution fees for the
U.S. Treasury Money Market Fund and the Mortgage Securities Fund were,
respectively, $76,912 and $10,690, of which $46,237 and $5,345 were voluntarily
waived. For the fiscal year ended December 31, 1996, gross distribution fees
for the U.S. Treasury Money Market Fund, and the Mortgage Securities Fund were,
respectively, $109,476 and $9,189, of which $65,686 and $4,593 were voluntarily
waived. For the fiscal year ended December 31, 1997, gross distribution fees
for the Money Market Fund, Ohio Municipal Money Market Fund, U.S. Treasury Money
Market Fund and Mortgage Securities Fund were, respectively, $289,833, $181,580,
$125,950 and $10,240, of which $173,900, $108,948, $74,972 and $3,413 were
voluntarily waived.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The times and days on which the net asset value of each of the Funds is
calculated is described in the Prospectus.
The Money Market Funds have elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. The amortized cost method
involves valuing an instrument at its cost initially and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
This method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price a Fund would receive if it sold the
instrument. The value of securities in a Fund can be expected to vary inversely
with changes in prevailing interest rates. Pursuant to Rule 2a-7, each of the
Money Market Funds will maintain a dollar-weighted average portfolio maturity
appropriate to maintaining a stable net asset value per share, provided that no
Fund will purchase any security with a remaining maturity of more than 397 days
(except as described below) nor maintain a dollar-weighted average maturity of
greater than 90 days. Repurchase agreements involving the purchase of
securities with remaining maturities of greater than 397 days will be treated as
having a maturity equal to the period remaining until the date on which the
repurchase is scheduled to occur or, where no date is specified and the
agreement is subject to a demand feature, the notice period applicable to the
demand to repurchase those securities. A variable rate instrument, the
principal amount of which is scheduled to be repaid in more than 397 days but
which is subject to a demand feature, shall be deemed to have a maturity equal
to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount may be
recovered through exercise of the demand feature. A floating rate instrument,
the principal amount of which is scheduled to be repaid in more than 397 days
but which is subject to a demand feature, shall be deemed to have a maturity
equal to the period remaining until the principal amount can be recovered
through demand.
The Trustees have undertaken to establish procedures reasonably designed, taking
into account current market conditions and each of the Money Market Funds'
investment objective, to stabilize the net asset value per share of each Money
Market Fund for purposes of sales and redemptions at $1.00. These procedures
include a review by the Trustees, at such intervals as they deem appropriate, to
determine the extent, if any, to which the net asset value per share of each
Fund, calculated by using available market quotations, deviates from $1.00 per
share. In the event such deviation exceeds one-half of one percent, Rule 2a-7
requires that the Trustees promptly consider what action, if any, should be
initiated. If the Trustees believe that the extent of any deviation from a
Fund's $1.00 amortized cost price per share may result in material dilution or
other unfair results to investors, the Trustees will take such steps as they
deem appropriate to eliminate or reduce to the extent reasonably practicable any
such dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity, shortening the Fund's average portfolio maturity,
withholding or reducing dividends, reducing the number of a Fund's outstanding
shares
30
<PAGE>
without monetary consideration, or utilizing a net asset value per share
based on available market quotations. In addition, if Huntington becomes aware
that any Second Tier Security or Unrated Security held by a Fund has received a
rating from any NRSRO below the NRSRO's two highest rating categories, the
procedures adopted by the Trustees in accordance with Rule 2a-7 require
Huntington to dispose of such security unless (i) the sale would cause the
deviation between the Fund's amortized cost and market-determined values per
share to exceed 0.40 of 1% (in which case the Trustees will meet to determine
what action to take) or (ii) the Trustees reassess the credit quality of the
security and determine that it is in the best interests of shareholders to
retain the investment. In the event a Fund holds a defaulted security, a
security that has ceased to be an Eligible Security, or a security that has been
determined to no longer present minimal credit risks, Rule 2a-7 requires the
Fund to dispose of the security unless the Trustees determine that such action
is not in the best interest of shareholders. The Rule requires each Fund to
limit its investments to securities determined to present minimal credit risks
based on factors in addition to ratings assigned a security by an NRSRO and
which are at the time of acquisition Eligible Securities. See photocopy.
Rule 2a-7, as amended, defines the terms NRSRO, Requisite NRSROs, Eligible
Securities, Rated Securities, Unrated Securities, Demand Features, Guarantees,
Unconditional Demand Features, First Tier Securities and Second Tier Securities
in establishing risk limiting conditions for money market mutual funds.
A summary of those definitions follows:
NRSRO is any nationally recognized statistical rating organization as that term
is used in the Securities Exchange Act of 1934, that is not an affiliated person
of the issuer, guarantor or provider of credit support for the instrument.
(While the Appendix to the Statement of Additional Information identifies each
NRSRO, examples include Standard & Poor's Ratings Group ("Standard & Poor's"),
Moody's Investors Service, Inc. ("Moody's") and Fitch Investors Service,
Inc.)
REQUISITE NRSROS means (i) any two NRSROs that have issued a rating with respect
to a security or class of debt obligations of an issuer, or (ii) if only one
NRSRO has issued a rating with respect to such security or class of debt
obligations of an issuer at the time the fund acquired the security, that
NRSRO.
ELIGIBLE SECURITIES are defined as (i) Rated Securities with a remaining
maturity of 397 or less days and which have received rating in one of the two
highest rating categories; (ii) Unrated Securities that are of comparable
quality, provided that an Unrated Security is not an Eligible Security if the
security has received a long-term rating from any NRSRO that is not within the
NRSRO's three highest long-term rating categories, unless the security has
received a long-term rating from an NRSRO in one of the three highest rating
categories, and provided that certain asset backed securities shall not be
Eligible Securities unless they have received a rating from an NRSRO; and (iii)
a security that is subject to a Demand Feature or Guarantee whether the
Guarantee has received a rating from an NRSRO or the Guarantee is issued by a
guarantor that has received a rating from an NRSRO with respect to a class of
debt obligations (or any debt obligation within that class) that is comparable
in priority and security to the Guarantee, or another institution, has
undertaken promptly to notify the holder of the security in the event the Demand
Feature or Guarantee is substituted with another Demand Feature or
Guarantee.
RATED SECURITIES include (i) securities that have received a short-term rating
from an NRSRO, or have been issued by an issuer that has received a short-term
rating from an NRSRO with respect to a class of debt obligations (or any debt
obligation within that class) that is comparable in priority and security, or
(ii) securities that are subject to a Guarantee that has received a short-term
rating from an NRSRO, or a Guarantee issued by a guarantor that has received a
short-term rating from an NRSRO with respect to a class of debt obligations (or
any debt obligation within that class) that is comparable in priority and a
security with the Guarantee. In either case, a security is not a Rated Security
if it is subject to an external credit support agreement that was no in effect
when the security was
31
<PAGE>
assigned its rating, unless the security has received a short-term rating
reflecting the existence of the credit support or the credit support itself has
received a short-term rating.
UNRATED SECURITIES are any securities that are not Rated Securities.
DEMAND FEATURE is (i) a feature permitting the holder of a security to sell the
security at an exercise price equal to the approximate amortized cost of the
security plus accrued interest, if any, at the time of exercise, provided that
such feature must be exercisable either at any time on no more than 30 calendar
days' notice or at specified intervals not exceeding 397 calendar days and upon
no more than 30 calendar days' notice; or (ii) a feature permitting the holder
of certain asset backed securities unconditionally to receive principal and
interest within 397 calendar days of making demand.
GUARANTEE is an unconditional obligation of a person other than the issuer of
the security to undertake to pay, upon presentment by the holder of the
Guarantee (if required), the principal amount of the underlying security plus
accrued interest when due or upon default, or, in the case of an Unconditional
Demand Feature, an obligation that entitles the holder to receive upon exercise
the approximate amortized cost of the underlying security or securities, plus
accrued interest, if any. A Guarantee includes a letter of credit, financial
guaranty (bond) insurance, and an Unconditional Demand Feature (other than an
Unconditional Demand Feature provided by the issuer of the security).
UNCONDITIONAL DEMAND FEATURE means a Demand Feature that by its terms would be
readily exercisable in the event of a default in payment of principal or
interest on the underlying security or securities.
FIRST TIER SECURITY means any (i) Rated Security which has received the highest
short-term rating by the Requisite NRSROs for debt obligations, (ii) any Unrated
Security that is of comparable quality, (iii) any security issued by a
registered investment company that is a money market fund, or (iv) certain
government securities.
SECOND TIER SECURITY means any Eligible Security that is not a First Tier
Security.
Securities traded on a national securities exchange or quoted on the NASDAQ
National Market System are valued at their last-reported sale price on the
principal exchange or reported by NASDAQ or, if there is no reported sale, and
in the case of over-the-counter securities not included in the NASDAQ National
Market System, at a bid price estimated by a broker or dealer. Debt securities,
including zero-coupon securities, and certain foreign securities will be valued
by a pricing service. Other foreign securities will be valued by the Trust's
custodian. Securities for which current market quotations are not readily
available and all other assets are valued at fair value as determined in good
faith by the Trustees, although the actual calculations may be made by persons
acting pursuant to the direction of the Trustees.
If any securities held by a Fund are restricted as to resale, their fair value
is generally determined as the amount which the Fund could reasonably expect to
realize from an orderly disposition of such securities over a reasonable period
of time. The valuation procedures applied in any specific instance are likely
to vary from case to case. However, consideration is generally given to the
financial position of the issuer and other fundamental analytical data relating
to the investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by the Fund
in connection with such disposition). In addition, specific factors are also
generally considered, such as the cost of the investment, the market value of
any unrestricted securities of the same class (both at the time of purchase and
at the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities, and any available
analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of these securities used in determining the net
asset value of the Fund's shares are computed as of such times. Also, because
of the amount of time required
32
<PAGE>
to collect and process trading information as to large numbers of securities
issues, the values of certain securities (such as convertible bonds and U.S.
Government securities) are determined based on market quotations collected
earlier in the day at the latest practicable time prior to the close of the
Exchange. Occasionally, events affecting the value of such securities may occur
between such times and the close of the Exchange which will not be reflected in
the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value, in the manner described above.
The proceeds received by each Fund for each issue or sale of its shares, and all
income, earnings, profits, and proceeds thereof, subject only to the rights of
creditors, will be specifically allocated to such Fund, and constitute the
underlying assets of that Fund. The underlying assets of each Fund will be
segregated on the Trust's books of account, and will be charged with the
liabilities in respect of such Fund and with a share of the general liabilities
of the Trust. Expenses with respect to any two or more Funds are to be
allocated in proportion to the net asset values of the respective Funds except
where allocations of direct expenses can otherwise be fairly made.
ADDITIONAL PURCHASE INFORMATION-PAYMENT IN KIND
- --------------------------------------------------------------------------------
In addition to payment by check, shares of a Fund may be purchased by customers
of Huntington in exchange for securities held by an investor which are
acceptable to that Fund. Investors interested in exchanging securities must
first telephone Huntington at (800) 253-0412 for instructions regarding
submission of a written description of the securities the investor wishes to
exchange. Within five business days of the receipt of the written description,
Huntington will advise the investor by telephone whether the securities to be
exchanged are acceptable to the Fund whose shares the investor desires to
purchase and will instruct the investor regarding delivery of the securities.
There is no charge for this review.
Securities accepted by a Fund are valued in the manner and on the days described
in the section entitled "Determination of Net Asset Value" as of 4:00 p.m.
(Eastern Time). Acceptance may occur on any day during the five day period
afforded Huntington to review the acceptability of the securities. Securities
which have been accepted by a Fund must be delivered within five days following
acceptance.
The value of the securities to be exchanged and of the shares of the Fund may be
higher or lower on the day Fund shares are offered than on the date of receipt
by Huntington of the written description of the securities to be exchanged. The
basis of the exchange of such securities for shares of the Fund will depend on
the value of the securities and the net asset value of Fund shares next
determined following acceptance on the day Fund shares are offered. Securities
to be exchanged must be accompanied by a transmittal form which is available
from Huntington.
A gain or loss for federal income tax purposes may be realized by the investor
upon the securities exchange depending upon the cost basis of the securities
tendered. All interest, dividends, subscription or other rights with respect to
accepted securities which go "ex" after the time of valuation become the
property of the Fund and must be delivered to the Fund by the investor forthwith
upon receipt from the issuer. Further, the investor must represent and agree
that all securities offered to the Fund are not subject to any restrictions upon
their sale by the Fund under the Securities Act of 1933, or otherwise.
TAXES
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXATION
It is intended that each Fund qualifies each year as a regulated investment
company under Subchapter M of the Code. In order to qualify for the special tax
treatment accorded regulated investment companies and their shareholders, a Fund
must, among other things:
33
<PAGE>
(a) derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale or other
disposition of stock, securities and foreign currencies, or other income
(including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such stock,
securities, or currencies;
(b) distribute with respect to each taxable year at least 90% of its
"investment company taxable income" (as that term is defined in the Code)
and tax-exempt income (less deductions attributable to that income) for
such year; and
(c) diversify its holdings so that, at the end of each fiscal quarter (i) at
least 50% of the market value of the Fund's assets is represented by cash
or cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities limited in respect of any one
issuer to a value not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the
securities (other than those of the U.S. Government or other regulated
investment companies) of any one issuer or of two or more issuers which the
Fund controls and which are engaged in the same, similar, or related trades
or businesses.
If a Fund qualifies as a regulated investment company that is accorded special
tax treatment, the Fund will not be subject to federal income tax on income paid
to its shareholders in the form of dividends (including capital gain dividends).
If a Fund fails to qualify as a regulated investment company accorded special
tax treatment in any taxable year, the Fund would be subject to tax on its
income at corporate rates, and could be required to recognize unrealized gains,
pay substantial taxes and interest and make substantial distributions before
requalifying as a regulated investment company that is accorded special tax
treatment. In addition, all distributions by the Fund would be taxed as if made
by a regular corporation thus a Fund could not pay exempt-interest or capital
gains dividends.
If a Fund fails to distribute in a calendar year substantially all of its
ordinary income for such year and substantially all of its net capital gains for
the year ending October 31 (or later if the Fund is permitted so to elect and so
elects), plus any retained amount from the prior year, the Fund will be subject
to a 4% excise tax on the undistributed amounts. Each Fund intends generally to
make distributions sufficient to avoid imposition of the 4% excise tax.
Return of capital distributions. If a Fund makes a distribution in excess of
its current and accumulated "earnings and profits" in any taxable year, the
excess distribution will be treated as a non-taxable return of capital to the
extent of a shareholder's tax basis in his shares. If the shareholder's basis
has been reduced to zero, any additional return of capital distributions will be
taxable as capital gain.
Exempt-interest dividends. A Fund will be qualified to pay exempt-interest
dividends to its shareholders only if, at the close of each quarter of the
Fund's taxable year, at least 50% of the total value of the Fund's assets
consists of obligations the interest on which is exempt from federal income tax.
If a Fund intends to pay only exempt-interest dividends, the Fund may be limited
in its ability to engage in such taxable transactions as forward commitments,
repurchase agreements, financial futures, and options contracts on financial
futures, tax-exempt bond indices, and other assets. In general, exempt-interest
dividends, if any, attributable to interest received on certain private activity
bonds and certain industrial development bonds will not be tax-exempt to any
shareholders who are "substantial users" of the facilities financed by such
bonds or who are "related persons" of such substantial users (within the meaning
of Section 147(a) of the Code). Recipients of certain Social Security and
Railroad Retirement benefits may have to take into account exempt-interest
dividends from the Fund in determining the taxability of such
34
<PAGE>
benefits. Shareholders should consult their own tax adviser regarding the
potential effect on them (if any) of any investment in the Fund. A Fund which is
qualified to pay exempt-interest dividends will inform investors within 60 days
of the Fund's fiscal year end of the percentage of its income distributions
designated as tax-exempt. The percentage is applied uniformly to all
distributions made during the year.
Hedging transactions. Certain investment and hedging activities of a Fund,
including transactions in options, futures contracts, straddles, forward
contracts, foreign currencies, foreign securities, or other similar
transactions, will be subject to special tax rules. In a given case, these
rules may accelerate income to the Fund, defer losses to the Fund, cause
adjustments in the holding periods of the Fund's assets, or convert short-term
capital losses into long-term capital losses. These rules could therefore
affect the amount, timing, and character of the Fund's income and distributions
to shareholders. Income earned as a result of these transactions would, in
general, not be eligible for the dividends received deduction or for treatment
as exempt-interest dividends when distributed to shareholders. Each Fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund. Under the 30% of gross
income test described above (see "Federal Income Taxation"), a Fund will be
restricted in selling assets held or considered under Code rules to have been
held for less than three months, and in engaging in certain hedging transactions
(including hedging transactions in options and futures) that could cause certain
Fund assets to be treated as held for less than three months.
Foreign currency-denominated securities and related hedging transactions. A
Fund's transactions in foreign currency-denominated debt securities, certain
foreign currency options, futures contracts, and forward contracts may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
Foreign Tax Credit. If more than 50% of a Fund's assets at year end consists of
the debt and equity securities of foreign corporations, that Fund intends to
qualify for and make the election permitted under Section 853 of the Code so
that shareholders will be able to claim a credit or deduction on their income
tax returns for, and will be required to treat as part of the amount distributed
to them, their pro rata portion of qualified taxes paid by the Fund to foreign
countries (which taxes relate primarily to investment income). Shareholders who
do not itemize on their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes. A shareholder's ability to claim such a
foreign tax credit will be subject to certain limitations imposed by the Code,
as a result of which shareholders may not get a full credit or deduction for the
amount of foreign taxes so paid by the Fund. A Fund's investments in foreign
securities may be subject to withholding taxes at the source on dividends or
interest payments.
Backup Withholding. In general, a Fund is required to withhold 31% of the
taxable dividends and other distributions paid to any shareholder who fails to
furnish the Fund with a correct taxpayer identification number, who has
underreported dividends or interest income, or who fails to certify to the Fund
that he or she is not subject to such withholding.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting purchases of shares of a Fund. No attempt is
made to present a detailed explanation of the federal income tax treatment of
each Fund or its shareholders, and this discussion is not intended as a
substitute for careful tax planning. Accordingly, investors are urged to
consult their tax advisers with specific reference to their own tax situation.
OHIO AND MICHIGAN INCOME TAXATION
For a summary of the Ohio and Michigan income tax treatment of dividends paid by
the Single State Funds, see "Distributions and Taxes" in the Prospectus.
35
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
The net investment income of each class of shares of each Money Market Fund is
determined as of 4:00 p.m. (Eastern Time) each Business Day. All of the net
investment income so determined normally will be declared as a dividend daily to
shareholders of record of each class as of the close of business and prior to
the determination of net asset value. Unless the Business Day before a weekend
or holiday is the last day of an accounting period, the dividend declared on
that day will include an amount in respect of the Fund's income for the
subsequent non-business day or days. No daily dividend will include any amount
of net income in respect of a subsequent semiannual accounting period.
Dividends declared during any month will be invested as of the close of business
on the last calendar day of that month (or the next Business Day after the last
calendar day of the month if the last calendar day of the month is a non-
business day) in additional shares of the same class of the Fund at the net
asset value per share, normally $1.00, determined as of the close of business on
that day, unless payment of the dividend in cash has been requested.
Net income of a class of shares of a Money Market Fund consists of all interest
income accrued on portfolio assets less all expenses of the Fund and the class
and amortized market premium. Amortized market discount is included in interest
income. None of the Money Market Funds anticipates that it will normally realize
any long-term capital gains with respect to its portfolio securities.
Normally each class of shares of the Money Market Funds will have a positive net
income at the time of each determination thereof. Net income may be negative if
an unexpected liability must be accrued or a loss realized. If the net income
of a class or classes of shares of a Money Market Fund determined at any time is
a negative amount, the net asset value per share of such class or classes will
be reduced below $1.00 unless one or more of the following steps, for which the
Trustees have authority, are taken: (1) reduce the number of shares in each
shareholder's account of the applicable class or classes, (2) offset each
shareholder's pro rata portion of negative net income against the shareholder's
accrued dividend account or against future dividends with regard to the
applicable class or classes, or (3) combine these methods in order to seek to
obtain the net asset value per share of the applicable class or classes at
$1.00. The Trustees may endeavor to restore a Fund's net asset value per share
to $1.00 by not declaring dividends from net income on subsequent days until
restoration, with the result that the net asset value per share will increase to
the extent of positive net income which is riot declared as a dividend.
Should a Money Market Fund incur or anticipate, with respect to its portfolio,
any unusual or unexpected significant expense or loss which would affect
disproportionately the Fund's income for a particular period, the Trustees would
at that time consider whether to adhere to the dividend policy described above
or to revise it in light of the then prevailing circumstances in order to
ameliorate, to the extent possible, the disproportionate effect of such expense
or loss on then existing shareholders. Such expenses or losses may nevertheless
result in a shareholder's receiving no dividends for the period during which the
shares are held and receiving upon redemption a price per share lower than that
which was paid.
OTHER FUNDS
Each of the Funds other than the Money Market Funds will declare and distribute
dividends from net investment income of each class of shares, if any, and will
distribute its net realized capital gains, with respect to each class of shares,
if any, at least annually.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
36
<PAGE>
Investors may use financial publications and/or indices to obtain a more
complete view of a Fund's performance. When comparing performance, investors
should consider all relevant factors, such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which a Fund uses in advertising may include:
Morningstar, Inc., Lipper Analytical Services, Inc., CDA Investment
Technologies, Wisenberger Dealer Services, Computer Directions Advisor Services,
Inc., Moody's Bond Survey Index, Salomon Brothers Corporate Bond Rate-of-Return
Index, Lehman Brothers Municipal Bond Index, Bond-20 Index, Standard & Poor's
Daily Stock Price Index of 500 Common Stocks, Dow Jones Industrial Average,
Lehman Brothers Government/Corporate (Total) Index, Merrill Lynch 2-Year
Treasury Index, Merrill Lynch 3-Year Treasury Index, Donaghue's Money Fund
Report, Lehman Brothers Intermediate Government/Corporate Index, Lehman Brothers
5-Year Bond Index, and Lehman Brothers Government (LT) Index. Advertisements
may quote performance information which does not reflect the effect of the sales
load. In addition, data may be used comparing the differences between the
yields of income funds, Ginnie Maes and U.S. Treasury notes. All data is based
on past performance and is not intended to indicate future results.
MONEY MARKET FUNDS
Based on the seven-day period ended December 31, 1997 (the "base period"), the
yield and effective yield of the Trust Shares of each of the Money Market Funds
were as follows:
<TABLE>
<CAPTION>
FUND-TRUST SHARES YIELD EFFECTIVE YIELD
<S> <C> <C>
Money Market Fund................. 5.26% 5.40%
Ohio Municipal Money Market Fund.. 3.53% 3.59%
U.S. Treasury Money Market Fund... 5.05% 5.18%
</TABLE>
Based on the seven-day period ended December 31, 1997 (the "base period"), the
yield and effective yield of the Investment Shares of the Money Market Funds
listed below were as follows:
<TABLE>
<CAPTION>
FUND-INVESTMENT SHARES YIELD EFFECTIVE YIELD
<S> <C> <C>
Money Market Fund................. 5.16% 5.30%
Ohio Municipal Money Market Fund.. 3.43% 3.48%
U.S. Treasury Money Market Fund... 4.95% 5.08%
</TABLE>
The yield for each class of shares of a Fund is computed by determining the
percentage net change, excluding capital changes, in the value of an investment
in one share of the class over the base period, and multiplying the net change
by 365/7 (or approximately 52 weeks). The effective yield for each class of
shares of a Fund represents a compounding of the yield by adding 1 to the number
representing the percentage change in value of the investment during the base
period, raising the sum to a power equal to 365/7, and subtracting 1 from the
result.
OTHER FUNDS
A Fund's yield for each class of shares is presented for a specified 30-day
period (the "base period"). Yield is based on the amount determined by (i)
calculating the aggregate of dividends and interest earned by the class during
the base period less expenses accrued for that period by the class, and (ii)
dividing that amount by the product of (A) the average daily number of shares of
the class outstanding during the base period and entitled to receive dividends
and (B) the maximum offering price per share of the class on the last day of the
base period. The result
37
<PAGE>
is annualized on a compounding basis to determine the yield of the class of
shares of the Fund. For this calculation, interest earned on debt obligations
held by a Fund is generally calculated using the yield to maturity (or first
expected call date) of such obligations based on their market values (or, in the
case of receivables-backed securities such as Ginnie Maes, based on cost).
Dividends on equity securities are accrued daily at their stated dividend rates.
The yield of Trust Shares of each of the following Funds for the 30-day period
ended December 31, 1997, was as follows:
<TABLE>
<CAPTION>
FUND-TRUST SHARES YIELD
<S> <C>
Growth Fund...................................... 0.61%
Income Equity Fund............................... 2.85%
Mortgage Securities Fund......................... 6.16%
Ohio Tax-Free Fund............................... 3.68%
Michigan Tax-Free/*/............................. 3.94%
Fixed Income Securities Fund..................... 5.73%
Intermediate Government Income Fund/*/........... 5.44%
Short/Intermediate Fixed Income Securities Fund.. 5.51%
</TABLE>
* Performance shown is for the applicable predecessor FMB Fund.
The yield of Investment Shares of each of the following Funds based on the
maximum offering price per share of the Funds for the 30-day period ended
December 31, 1997, was as follows:
<TABLE>
<CAPTION>
FUND-INVESTMENT SHARES YIELD
<S> <C>
Growth Fund........................... 0.35%
Income Equity Fund.................... 2.45%
Mortgage Securities Fund.............. 5.88%
Ohio Tax-Free Fund.................... 3.37%
Michigan Tax-Free Fund/*/............. 3.52%
Fixed Income Securities Fund.......... 5.39%
Intermediate Government Income Fund/*/ 5.30%
</TABLE>
* Performance shown is for the applicable predecessor FMB Fund.
The average annual total returns for Trust Shares of each of the following Funds
for the one-year and five-year periods and for the life of the respective Fund
through December 31, 1997, were as follows:
38
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FIVE YEARS ENDED INCEPTION THROUGH
FUND-TRUST SHARES DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
Growth Fund............... 35.37% 16.95% 14.37%
Income Equity Fund........ 25.99% 15.68% 11.83%
Mortgage Securities Fund.. 8.77% 5.28% 6.39%
Ohio Tax-Free Fund........ 6.11% 5.18% 6.00%
Michigan Tax-Free Fund/*/. 7.18% 6.11% 6.35%
Fixed Income Securities
Fund..................... 8.83% 6.73% 7.85%
Intermediate Government
Income Fund/*/........... 7.52% 6.02% 6.34%
Short/Intermediate Fixed
Income Securities Fund... 6.56% 5.88% 7.22%
</TABLE>
* Performance shown is for the applicable predecessor FMB Fund.
The average annual total returns for Investment Shares of each of the following
Funds for the one-year and five-year periods and for the life of the respective
Fund through December 31, 1997, were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FIVE YEARS ENDED INCEPTION THROUGH
FUND-INVESTMENT SHARES DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
- ---------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
Growth Fund............... 29.62% 15.72% 14.29%
Income Equity Fund........ N/A N/A 18.88%
Ohio Tax-Free Fund........ 3.75% 4.50% 5.11%
Michigan Tax-Free Fund/*/... 1.88% 5.00% 5.40%
Fixed Income Securities
Fund..................... 6.35% 6.03% 7.27%
Mortgage Securities Fund.. 6.44% 4.67% 5.82%
Intermediate Government
Income Fund/*/............. 2.16% 4.89% 5.38%
</TABLE>
* Performance shown is for the applicable predecessor FMB Fund.
The average annual total return for each Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price value per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the
monthly/quarterly reinvestment of all dividends and distributions.
39
<PAGE>
Any applicable redemption fee is deducted from the ending value of the
investment based on the lesser of the original purchase price or the net asset
value of shares redeemed.
From time to time, Huntington and/or SEI may reduce its compensation or assume
expenses of a Fund in order to reduce the Fund's expenses, as described in the
Prospectus. Any such waiver or assumption would increase a Fund's yield and
total return during the period of the waiver or assumption.
TAX-EQUIVALENT YIELD
With respect to the Single State Funds, the Funds' tax-equivalent yield (or
effective yield) for each class of shares during the applicable base period may
be presented for shareholders in one or more stated tax brackets. Tax-
equivalent yield is calculated by adjusting a Fund's tax-exempt yield with
respect to the class by a factor designed to show the approximate yield that a
taxable investment would have to earn to produce the same after-tax yield for
that period. A Fund's tax-equivalent yield with respect to each class will
differ for shareholders in different tax brackets. In calculating the yields
shown below, additional state and local taxes paid on comparable taxable
investments were not used to increase federal deductions.
The tax-equivalent yield for Trust Shares of the Ohio Municipal Money Market
Fund for the seven-day period ended December 31, 1997, was 6.79% (assuming a
39.6% federal income tax bracket and a 7.5% Ohio income tax bracket).
The tax-equivalent yield for the Trust Shares of the Ohio Tax-Free Fund for the
thirty-day period ended December 31, 1997, was 6.96% (assuming a 39.6%
federal income tax bracket and a 7.5% Ohio income tax bracket).
The tax-equivalent yield for the Trust Shares of the Michigan Tax-Free
Fund* for the thirty-day period ended December 31, 1997, was 7.04% (assuming a
39.6% federal income tax bracket and a 4.4% Michigan income tax bracket).
The tax-equivalent yield for Investment Shares of the Ohio Municipal Money
Market Fund for the seven-day period ended December 31, 1997, was 6.58%
(assuming a 39.6% federal income tax bracket and a 7.5% Ohio income tax
bracket).
The tax-equivalent yield for the Investment Shares of the Ohio Tax-Free Fund for
the thirty-day period ended December 31, 1997, was 6.37% (assuming a 39.6%
federal income tax bracket and a 7.5% Ohio income tax bracket).
The tax-equivalent yield for Investment Shares of the Michigan Tax-Free Fund*
for the thirty-day period ended December 31, 1997, was 6.29% (assuming a 39.6%
federal income tax bracket and a 4.4% Michigan income tax bracket).
* Performance shown is for the predecessor FMB Michigan Tax-Free Bond Fund.
40
<PAGE>
TAX-EQUIVALENCY TABLES
OHIO MUNICIPAL MONEY MARKET FUND AND OHIO TAX-FREE FUND
The Ohio Municipal Money Market Fund and the Ohio Tax-Free Fund, with respect to
both classes of shares, may use a tax equivalency table in advertising and sales
literature. The interest earned on tax-exempt securities in a Fund's portfolio
generally remains free from federal regular income tax and is free from Ohio
personal income taxes. Some portion of a Fund's income may result in liability
under the federal alternative minimum tax and may be subject to state and local
taxes. The table below provides tax-equivalent yields for selected tax-exempt
yields. As the table below indicates, a "tax-free" investment is an attractive
choice for investors, particularly in times of narrow spreads between tax-free
and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF OHIO
- --------------------------------------------------------------------------------
FEDERAL TAX BRACKET:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET:
19.457% 33.201% 37.900% 43.500% 47.100%
- ----------------------------------------------------------------------------
$ 1- $24,001- $58,151- $121,301- OVER
Single Return $24,000 $ 58,150 $121,300 $ 263,750 $263,750
- ----------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.86% 2.25% 2.42% 2.65% 2.84%
2.00% 2.48% 2.99% 3.22% 3.54% 3.78%
2.50% 3.10% 3.74% 4.03% 4.42% 4.73%
3.00% 3.72% 4.49% 4.83% 5.31% 5.67%
3.50% 4.35% 5.24% 5.64% 6.19% 6.62%
4.00% 4.97% 5.99% 6.44% 7.08% 7.56%
4.50% 5.59% 6.74% 7.25% 7.96% 8.51%
5.00% 6.21% 7.49% 8.05% 8.85% 9.45%
5.50% 6.83% 8.23% 8.86% 9.73% 10.40%
6.00% 7.45% 8.98% 9.66% 10.62% 11.34%
</TABLE>
NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN CALCULATING
THE TAXABLE YIELD EQUIVALENT. FURTHERMORE, ADDITIONAL STATE AND LOCAL TAXES
PAID ON COMPARABLE TAXABLE INVESTMENTS WERE NOT USED TO INCREASE FEDERAL
DEDUCTIONS.
41
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF OHIO
<TABLE>
<CAPTION>
FEDERAL TAX BRACKET:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET:
20.201% 33.943% 37.900% 43.500% 47.100%
- ----------------------------------------------------------------------------
$1- $40,001- $96,901- $147,701- OVER
Joint Return $40,100 $96,900 $147,700 $263,750 $263,750
- ----------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.88% 2.27% 2.42% 2.65% 2.84%
2.00% 2.51% 3.03% 3.22% 3.54% 3.78%
2.50% 3.13% 3.78% 4.03% 4.42% 4.73%
3.00% 3.76% 4.54% 4.83% 5.31% 5.67%
3.50% 4.39% 5.30% 5.64% 6.19% 6.62%
4.00% 5.01% 6.06% 6.44% 7.08% 7.56%
4.50% 5.64% 6.81% 7.25% 7.96% 8.51%
5.00% 6.27% 7.57% 8.05% 8.85% 9.45%
5.50% 6.89% 8.33% 8.86% 9.73% 10.40%
6.00% 7.52% 9.08% 9.66% 10.62% 11.34%
</TABLE>
NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN CALCULATING
THE TAXABLE YIELD EQUIVALENT. FURTHERMORE, ADDITIONAL STATE AND LOCAL TAXES
PAID ON COMPARABLE TAXABLE INVESTMENTS WERE NOT USED TO INCREASE FEDERAL
DEDUCTIONS.
The above charts, which are based on the federal income tax schedule effective
January 1, 1998, are for illustrative purposes only. They are not indicators of
past or future performance of a Fund.
OHIO AND MICHIGAN INCOME TAXATION
MICHIGAN TAX-FREE FUND
The Michigan Tax-Free Fund, with respect to both classes of shares, may use a
tax equivalency table in advertising and sales literature. The interest earned
on tax-exempt securities in this Fund's portfolio generally remains free from
federal regular income tax and is free from Michigan personal income taxes.
Some portion of this Fund's income may result in liability under the federal
alternative minimum tax and may be subject to state and local taxes. The table
below provides tax-equivalent yields for selected tax-exempt yields. As the
table below indicates, a "tax-free" investment is an attractive choice for
investors, particularly in times of narrow spreads between tax-free and taxable
yields.
42
<PAGE>
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF MICHIGAN
<TABLE>
<CAPTION>
FEDERAL TAX BRACKET:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET:
19.4% 32.4% 35.4% 40.4% 44.0%
- --------------------------------------------------------------------------------
$ 1- $24,651- $59,751- $124,651- OVER
Single Return: $24,650 $ 59,750 $124,650 $ 271,050 $271,050
$ 1- $41,201- $99,601- $151,751- OVER
Joint Return: $41,200 $ 99,600 $151,750 $ 271,050 $271,051
- --------------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.87% 2.22% 2.32% 2.52% 2.68%
2.00% 2.49% 2.96% 3.10% 3.36% 3.57%
2.50% 3.11% 3.70% 3.87% 4.19% 4.46%
3.00% 3.73% 4.44% 4.64% 5.03% 5.36%
3.50% 4.35% 5.18% 5.42% 5.87% 6.25%
4.00% 4.98% 5.92% 6.19% 6.71% 7.14%
4.50% 5.60% 6.66% 6.97% 7.55% 8.04%
5.00% 6.22% 7.40% 7.74% 8.39% 8.93%
5.50% 6.84% 8.14% 8.51% 9.23% 9.82%
6.00% 7.46% 8.88% 9.29% 10.07% 10.71%
</TABLE>
NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN CALCULATING
THE TAXABLE YIELD EQUIVALENT. ADDITIONAL STATE AND LOCAL TAXES PAID ON
COMPARABLE TAXABLE INVESTMENTS WERE NOT USED TO INCREASE FEDERAL DEDUCTIONS.
FURTHERMORE, NO ADJUSTMENT WAS MADE TO REFLECT AVAILABLE STATE TAX DEDUCTIONS ON
FEDERAL RETURNS.
CUSTODIAN
- --------------------------------------------------------------------------------
Huntington is the custodian of the Trust's assets. The custodian's
responsibilities include safeguarding and controlling the Trust's cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on the Trust's investments. The custodian does not
determine the investment policies of the Funds or decide which securities the
Funds will buy or sell. The custodian's fees for custody and record keeping
services are based on a percentage of the average daily net assets of the
Funds.
43
<PAGE>
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
- --------------------------------------------------------------------------------
State Street Bank and Trust Company ("State Street"), Two Heritage Drive,
Quincy, MA 02171, serves as transfer agent and dividend disbursing agent for the
Funds. The fee paid to the transfer agent is based upon the size, type and
number of accounts and transactions made by shareholders. State Street also
maintains the Funds' accounting records. The fee paid for this service is based
upon the level of the Funds' average net assets for the period plus out-of-
pocket expenses.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The independent accountants for the Trust were Price Waterhouse LLP, Columbus,
Ohio, through December 31, 1996. Effective January 1, 1997, the independent
accountants for the Trust are KPMG Peat Marwick LLP, Columbus, Ohio.
ADDITIONAL INFORMATION ABOUT THE TRUST AND ITS SHARES
- --------------------------------------------------------------------------------
The Trust is not required to hold annual meetings of shareholders for the
purpose of electing Trustees except that (i) the Trust is required to hold a
shareholders' meeting for the election of Trustees at such time as less than a
majority of the Trustees holding office have been elected by shareholders and
(ii) if, as a result of a vacancy on the Board of Trustees, less than two-thirds
of the Trustees holding office have been elected by the shareholders, that
vacancy may only be filled by a vote of the shareholders. In addition, Trustees
may be removed from office by a written consent signed by the holders of shares
representing two-thirds of the outstanding shares of the Trust at a meeting duly
called for the purpose, which meeting must be held upon written request of not
less than 10% of the outstanding shares of the Trust. Upon written request by
the holders of shares representing 1% of the outstanding shares of the Trust
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a Trustee, the Trust will provide a list of shareholders or
disseminate appropriate materials (at the expense of the requesting
shareholders). Except as set forth above, the Trustees may continue to hold
office and may appoint successor Trustees.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Trust or
the Trustees. The Declaration of Trust provides for indemnification out of a
Fund's property for all loss and expense of any shareholder held personally
liable for the obligations of a Fund. Thus the risk of a shareholder's
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund would be unable to meet its obligations.
SHAREHOLDER INQUIRIES
Shareholder inquiries regarding those Funds offering Trust Shares should be
directed to Huntington, 41 South High Street, Columbus, Ohio 43215, Attn:
Investor Services.
44
<PAGE>
Shareholder inquiries regarding those Funds offering Investment Shares should be
directed to The Huntington Investment Company, 41 South High Street, Columbus,
Ohio 43287.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The report of KPMG Peat Marwick LLP, independent accountants, and the audited
financial statements of The Monitor Funds for the year ended December 31, 1997,
are incorporated herein by reference from the Trust's Annual Report to
Shareholders for the year ended December 31, 1997, which has been previously
sent to shareholders of each Fund pursuant to Section 30(d) of the 1940 Act and
previously filed with the Securities and Exchange Commission. In addition, the
report of Price Waterhouse LLP, independent accountants, and the audited
financial statements for the FMB Michigan Tax-Free Bond Fund and FMB
Intermediate Government Income Fund for the year ended November 30, 1997, are
incorporated by reference from the Annual Report to Shareholders of the FMB
Funds for the year ended November 30, 1997. A copy of either Annual Report to
Shareholders may be obtained without charge by contacting the Trust.
45
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S RATINGS GROUP CORPORATE AND MUNICIPAL BOND RATING DEFINITIONS
AAA-Debt rated 'AAA' has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
S&P may apply a plus (+) or minus (-) to the above rating classifications to
show relative standing within the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE AND MUNICIPAL BOND RATING DEFINITIONS
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
DUFF & PHELPS, INC. CORPORATE BOND RATING DEFINITIONS
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- High credit quality protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A, A- -Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
FITCH INVESTORS SERVICE, INC. CORPORATE BOND RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt
46
<PAGE>
of these issues is generally rated 'F-I+.' A-Bonds considered to be investment
grade and of high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with higher
ratings.
IBCA LONG-TERM RATING DEFINITIONS
AAA - Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly.
AA - Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic or financial conditions may increase investment
risk albeit not very significantly.
A-Obligations for which there is a low expectation of investment risk. Capacity
for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATING
DEFINITIONS
SP-1-Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2-Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATING
DEFINITIONS
MIG1/VMIG1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG2/VMIG2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
IBCA SHORT-TERM RATING DEFINITIONS
A1+ - Obligations supported by the highest capacity for timely repayment.
A1 - Obligations supported by a very strong capacity for timely repayment.
A2 - Obligations supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic or
financial conditions.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1-This designation indicates that the degree of safety regarding timely
payment strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus (+) sign.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
47
<PAGE>
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
P-1-Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior
capacity for repayment of senior short-term promissory obligations. P-1
repayment capacity will normally be evidenced by many of the following
characteristics:
. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
. Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2-Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
capacity for repayment of senior short-term debt obligations. n& will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
NR indicates the bonds are not currently rated by Moody's or S&P. However,
management considers them to be of good quality.
DUFF & PHELPS, INC. COMMERCIAL PAPER RATING DEFINITIONS
Duff 1+ - Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1 - Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Duff 1-High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
Duff 2-Good certainty of timely payment Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
Plus or minus signs are used with a rating symbol to indicate the relative
portion of the credit within the rating category:
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F1+.
F-2.- Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is riot as
great as for issues assigned F-1 + or F-1 ratings.
48
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: The following financial statements have been
incorporated into the Combined Statement of Additional Information by reference
to the Trust's Combined Annual Report to Shareholders, dated December 31, 1997:
Statements of Operations for the year ended December 31, 1997
Statements of Assets and Liabilities as of December 31, 1997
Statements of Changes in Net Assets for the year ended December 31, 1997
Statements of Cash Flows for the year ended December 31, 1997
Portfolios of Investments as of December 31, 1997
Financial Highlights for the years ended December 31, 1997
Combined Notes to Financial Statements as of and for the year ended
December 31, 1997
Report of KPMG Peat Marwick LLP, Independent Accountants
Report of Price Waterhouse LLP, Independent Accountants
(b) Exhibits (except as otherwise noted, all Exhibits incorporated by reference
relate to File Nos. 33-11905 and 811-5010):
(1) Amended and Restated Declaration of Trust of the Registrant
(previously filed as Exhibit 1 to Post-Effective Amendment No. 19 and
incorporated herein by reference)
(2) By-Laws of the Registrant (previously filed as Exhibit 2 to Post-
Effective Amendment No. 19 and incorporated herein by reference)
(3) Not applicable
(4) Not applicable
(5) (i) Investment Advisory Agreement, dated September 15, 1988, between
the Registrant and The Huntington National Bank, as successor to The
Huntington Trust Company, N.A., relating to The Monitor Money Market
Fund, Ohio Municipal Money Market Fund (formerly Tax-Free Money Market
Fund) and Ohio Tax-Free Fund (filed herewith)
(ii) Investment Advisory Agreement, dated April 25, 1989, between the
Registrant and The Huntington National Bank, as successor to The
Huntington Trust Company, N.A., relating to The Monitor U.S. Treasury
Money Market Fund, Growth Fund, Income Equity Fund, Fixed Income
Securities Fund and Short/Intermediate Fixed Income Securities
Fund (filed herewith)
(iii) Investment Advisory Agreement, dated April 24, 1992, between
the Registrant and The Huntington National Bank, as successor to The
Huntington Trust Company, N.A., relating to The Monitor Mortgage
Securities Fund (previously filed as Exhibit 5(i) to Post-Effective
Amendment No. 19 and incorporated herein by reference)
C-1
<PAGE>
(iv) Investment Advisory Agreement, dated September 5, 1997, between
the Registrant and The Huntington National Bank relating to The
Monitor Michigan Tax-Free Fund (previously filed as Exhibit 5(iii) to
Post-Effective Amendment No. 23 and incorporated herein by
reference)
(v) Investment Advisory Agreement, dated November 21, 1997, between
the Registrant and The Huntington National Bank relating to The
Monitor Intermediate Government Income Fund (previously filed as
Exhibit 5(iv) to Post-Effective Amendment No. 24 and incorporated
herein by reference)
(6) Distribution Agreement, dated January 11, 1996, between the Registrant
and SEI Investments Distribution Co. (formerly SEI Financial Services
Company) (previously filed as Exhibit 6 to Post-Effective Amendment
No. 20 and incorporated herein by reference)
(7) Not applicable
(8) Custodian Contract, dated January 27, 1993, between the Registrant and
The Huntington National Bank, as successor to The Huntington Trust
Company, N.A. (previously filed as Exhibit 8 to Post-Effective
Amendment No. 19 and incorporated herein by reference)
(9) (i) Transfer Agency Agreement, dated January 1, 1998, between the
Registrant and State Street Bank and Trust Company (previously filed
as Exhibit 9(i) to the Registration Statement on Form N-14, File No.
333-44511)
(ii) Administration Agreement, dated January 12, 1998, between the
Registrant and Huntington National Bank (previously filed as Exhibit
9(ii) to the Registration Statement on Form N-14, File No. 333-44511)
(iii) Sub-Administration Agreement, dated January 12, 1998, between
SEI Fund Resources and Huntington National Bank (previously filed as
Exhibit 9(iii) to the Registration Statement on Form N-14, File No.
333-44511)
(10) Opinion and Consent of Counsel as to legality of shares being
registered (previously filed as Exhibit 10 to Post-Effective Amendment
No. 22 and incorporated herein by reference)
(11) (i) Consent of KPMG Peat Marwick LLP (filed herewith)
(ii) Consent of Price Waterhouse LLP (filed herewith)
(12) Not applicable
(13) Initial Capital Understanding (previously filed as Exhibit 13 to Post-
Effective
C-2
<PAGE>
Amendment No. 20 and incorporated herein by reference)
(14) Not applicable
(15) Distribution and Shareholder Services Plan, adopted on November 8,
1995 (previously filed as Exhibit 15 to Post-Effective Amendment No.
24 and incorporated herein by reference)
(16) Not applicable
(17) Financial Data Schedules (filed herewith)
(18) Multiple Class Plan (previously filed as Exhibit 18 to Post-Effective
Amendment No. 24 and incorporated herein by reference)
(24) Powers of Attorney (previously filed as Exhibit 24 to Post-Effective
Amendment No. 25 and incorporated herein by reference).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF RECORD
TITLE OF CLASS HOLDERS
AS OF APRIL 1, 1998
<S> <C>
Shares of Beneficial Interest of:
The Monitor Money Market Fund
Trust Shares............................. 40
Investment Shares........................ 3,356
The Monitor Ohio Municipal Money Market Fund
Trust Shares............................. 6
Investment Shares........................ 155
The Monitor U.S. Treasury Money Market Fund
Trust Shares............................. 8
Investment Shares........................ 259
The Monitor Growth Fund
Trust Shares............................. 80
Investment Shares........................ 1,673
The Monitor Income Equity Fund
Trust Shares............................. 70
Investment Shares........................ 46
The Monitor Mortgage Securities Fund
Trust Shares............................. 33
Investment Shares........................ 126
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C>
The Monitor Ohio Tax-Free Fund
Trust Shares............................. 14
Investment Shares........................ 101
The Monitor Michigan Tax-Free Fund
Trust Shares............................. 7
Investment Shares........................ 307
The Monitor Fixed Income Securities Fund
Trust Shares............................. 40
Investment Shares........................ 157
The Monitor Intermediate Government Income
Fund
Trust Shares............................. 8
Investment Shares........................ 255
The Monitor Short/Intermediate Fixed Income
Securities Fund
Trust Shares............................. 47
Investment Shares........................ 5
</TABLE>
ITEM 27. INDEMNIFICATION
The response to this Item is incorporated by reference to Registrant's
Post-Effective Amendment No. 25 on Form N-1A filed February 3, 1998.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
THE ADVISER. Huntington National Bank ("Huntington") serves as investment
adviser to the Registrant. Huntington is a wholly-owned subsidiary of
Huntington Bancshares Incorporated ("Bancshares"). Huntington conducts a
variety of trust activities. To the knowledge of Registrant, none of the
directors or executive officers of Huntington, except those set forth below, is
or has been at any time during the past two fiscal years engaged in any other
business, profession, vocation or employment of a substantial nature, except
that certain directors and executive officers also hold various positions with
and engage in business for Bancshares. Set forth below are the names and
principal businesses of the directors and executive officers of Huntington who
are or during the past two fiscal years have been engaged in any other business,
profession, vocation or employment of a substantial nature for their own account
or in the capacity of director, officer, employee, partner or trustee.
C-4
<PAGE>
<TABLE>
<CAPTION>
NAME OF PRINCIPAL OTHER BUSINESS(ES) DURING
OFFICERS AND DIRECTORS OF HUNTINGTON AT LEAST THE LAST TWO FISCAL YEARS
- ------------------------------------ -----------------------------------
<S> <C>
Friedrich K.M. Bohm................... Managing Partner and Chief Executive
Officer,
NBBJ East Limited Partnership
Douglas G. Borror..................... President and Chief Executive Officer,
Dominion Corporation
William E. Conway..................... Chairman, Fairmont Minerals, Ltd.
Maurice A. Cox, Jr.................... Chief Executive Officer, The Ohio Partners,
LLC
Peter H. Edwards...................... Chairman, Edwards Companies
Douglas E. Fairbanks.................. Retired Vice President, Ameritech
John B. Gerlach, Jr................... Chairman, President and Chief Executive
Officer, Lancaster Colony Corporation
Elaine H. Hairston.................... Chancellor, Ohio Board of Regents
Edgar W. Ingram III................... Chairman, President and Chief Executive
Officer, White Castle System, Inc.
Pete A. Klisares...................... Executive Vice President, Worthington
Industries, Inc.
William M. Osborne, Jr................ Secretary, Riley Gear Corp.
Robert W. Rahal....................... President, Bobby Rahal, Inc.
John B. Schulze....................... Chairman, President and Chief Executive
Officer, The Lamson & Sessions Co.
J. Richard Sisson..................... Senior Vice President and Provost, The Ohio
State University
Rodney Wasserstrom.................... President and Chief Executive Officer, The
Wasserstrom Company
William J. Williams................... Retired Chairman, Huntington National Bank
William S. Williams................... Vice Chairman, Chief Executive Officer and
Chief Financial Officer, The W.W. Williams
Co., Inc.
Helen K. Wright....................... Investor
</TABLE>
C-5
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing securities of the
Registrant also acts as a principal underwriter, distributor or investment
adviser:
SEI Investments Distribution Co. ("SEI") is the Distributor of the
Registrant's shares. SEI also acts as distributor for the following other
investment companies:
The Achievement Funds Trust
The Advisors' Inner Circle Fund
The Arbor Fund
ARK Funds
Armada Funds
Bishop Street Funds
Boston 1784 Funds(R)
CoreFunds, Inc.
CrestFunds, Inc.
CUFUND
The Expedition Funds
First American Funds, Inc.
First American Investment Funds, Inc.
First American Strategy Funds, Inc.
High Mark Funds
Marquis Funds (R)
Morgan Grenfell Investment Trust
The PBHG Funds, Inc.
PBHG Insurance Series Fund, Inc.
The Pillar Funds
SEI Asset Allocation Trust
SEI Daily Income Trust
SEI Index Funds
SEI Institutional Investments Trust
SEI Institutional Managed Trust
SEI International Trust
SEI Liquid Asset Trust
SEI Tax Exempt Trust
STI Classic Funds
STI Classic Variable Trust
TIP Funds
TIP Institutional Funds
C-6
<PAGE>
SEI provides numerous financial services to investment managers, pension plan
sponsors and bank trust departments. These services include portfolio
evaluation, performance measurement and consulting services and automated
execution, clearing and settlement of securities transactions.
(b) Furnish the information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B. Unless otherwise noted, the business address of
each director or officer is One Freedom Valley Road, Oaks, Pennsylvania 19456:
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITION AND OFFICE
NAME WITH UNDERWRITER WITH REGISTRANT
- ---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman and CEO None
Henry H. Greer Director None
Carmen V. Romeo Director None
Mark J. Held President and COO None
Gilert L. Beebower Executive Vice President None
Richard B. Lieb Executive Vice President None
Dennis J. McGonigle Executive Vice President None
Robert M. Silvestri CFO and Treasurer None
Leo J. Dolan, Jr. Senior Vice President None
Carl A. Guarino Senior Vice President None
Larry Hutchison Senior Vice President None
Jack May Senior Vice President None
Hartland J. McKeown Senior Vice President None
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITION AND OFFICE
NAME WITH UNDERWRITER WITH REGISTRANT
- ---- ---------------- ---------------
<S> <C> <C>
Barbara J. Moore Senior Vice President None
Kevin P. Robins Senior Vice President and Vice President and
General Counsel Assistant Secretary
Patrick K. Walsh Senior Vice President None
Robert Aller Vice President None
Gordon W. Carpenter Vice President None
Todd Cipperman Vice President and Vice President and
Assistant Secretary Assistant Secretary
Robert Crudup Vice President and None
Managing Director
Barbara Doyne Vice President None
Jeff Drennen Vice President None
Vic Galef Vice President and None
Managing Director
Kathy Heilig Vice President None
Samuel King Vice President None
Kim Kirk Vice President and None
Managing Director
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITION AND OFFICE
NAME WITH UNDERWRITER WITH REGISTRANT
- ---- ---------------- ---------------
<S> <C> <C>
John Krzeminski Vice President and None
Managing Director
Carolyn McLaurin Vice President and None
Managing Director
W. Kelso Morrill Vice President None
Mark Nagle Vice President None
Joanne Nelson Vice President None
Joseph O'Donnell Vice President and None
Assistant Secretary
Sandra K. Orlow Vice President and Vice President and
Assistant Secretary Assistant Secretary
Cynthia M. Parish Vice President and None
Assistant Secretary
Donald Pepin Vice President and None
Managing Director
Kim Rainey Vice President None
Rob Redican Vice President None
Maria Rinehart Vice President None
Mark Samuels Vice President and None
Managing Director
Steve Smith Vice President None
Daniel Spaventa Vice President None
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITION AND OFFICE
NAME WITH UNDERWRITER WITH REGISTRANT
- ---- ---------------- ---------------
<S> <C> <C>
Kathryn L. Stanton Vice President and Vice President and
Assistant Secretary Assistant Secretary
Lori L. White Vice President and None
Assistant
Secretary
Wayne M. Withrow Vice President and None
Managing Director
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
SEI Investments Distribution Co. One Freedom Valley Road
(Distributor and Sub-Administrator) Oaks, PA 19456
Huntington National Bank Huntington Center
(Adviser, Administrator, Custodian and 41 South High Street
Portfolio Recordkeeper) Columbus, OH 43287
State Street Bank and Trust Two Heritage Drive
Company (Transfer Agent and Quincy, MA 02171
Dividend Disbursing Agent)
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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
C-10
<PAGE>
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 director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, 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 and will be governed by the final adjudication of
such issue.
(b) Registrant hereby undertakes to comply with the provisions of Section 16(c)
of the 1940 Act with respect to the removal of Trustees and the calling of
special shareholder meetings by shareholders.
(c) 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.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the Investment Company Act of 1940, as amended, the
Registrant certifies that it meets all of the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933, as amended, and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Oaks, Commonwealth of Pennsylvania, on the
30th day of April, 1998.
THE MONITOR FUNDS
By: /s/ KEVIN P. ROBINS
-------------------
Kevin P. Robins, Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ Mark Nagle President and Chief April 30, 1998
- ----------------------- Executive Officer
Mark Nagle
/s/ Robert DellaCroce Controller, Treasurer and April 30, 1998
- ----------------------- Chief Financial Officer
Robert DellaCroce
* Trustee April 30, 1998
- -----------------------
David S. Schoedinger
* Trustee April 30, 1998
- -----------------------
William R. Wise
* Trustee April 30, 1998
- -----------------------
John M. Shary
</TABLE>
*Executed on behalf of the indicated person by the undersigned, pursuant to
power of attorney previously filed and incorporated herein by reference.
C-12
<PAGE>
By: /s/ Kevin P. Robins
----------------------
Attorney-In-Fact
C-13
<PAGE>
EXHIBIT INDEX
5 (i) Investment Advisory Agreement relating to the Money Market Fund, Ohio
Municipal Money Market Fund and Ohio Tax-Free Fund
5 (ii) Investment Advisory Agreement relating to the U.S. Treasury Money
Market Fund, Growth Fund, Income Equity Fund, Fixed Income Securities
Fund and Short/Intermediate Fixed income Securities Fund
(11) (i) Consent of KPMG Peat Marwick LLP
(ii) Consent of Price Waterhouse LLP
(27) Financial Data Schedules
<PAGE>
EXHIBIT 5(I)
THE MONITOR FUNDS
INVESTMENT ADVISORY AGREEMENT
This Agreement is made this 15th day of September, 1988 by and between The
Monitor Funds, a business trust organized under the laws of the Commonwealth of
Massachusetts (herein called the "Trust"), and The Huntington Trust Company,
Inc., N.A., a national banking association limited to trust powers (herein
called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940; and
WHEREAS, the Trust desires to retain the Investment Adviser to render
investment advisory and other services to the Trust for its Money Market Fund,
U.S. Government Money Market Fund, Tax-Free Money Market Fund and Ohio Tax-Free
Fund portfolios (each a "Fund" and collectively the "Funds"), and the Investment
Adviser is willing to render such services as a discretionary investment adviser
on the terms and conditions hereinafter set forth;
<PAGE>
-2-
WITNESSETH: That in consideration of the promises and mutual convenants
hereinafter contained, the parties hereto agree as follows:
1. Appointment. The Trust being duly authorized hereby appoints the
Investment Adviser to act as discretionary investment adviser to the Trust for
the Funds for the period and on the terms set forth in this Agreement. The
Investment Adviser accepts such appointment and agrees to render the services
herein set forth for the compensation herein provided.
2. Management. Subject to the supervision of the Board of Trustees of the
Trust (the "Trustees"), the Investment Adviser will provide a continuous
investment program for each of the Funds, including investment research and
management with respect to all securities, investments, cash and cash
equivalents in the Funds. The investment Adviser will determine from time to
time what securities and other instruments will be purchased, retained or sold
by the Trust for the Funds. The Investment Adviser will provide the services
rendered by it hereunder in accordance with the Funds' respective investment
objectives and policies as stated in the Prospectus which is a part of the
Trust's effective Registration Statement as amended from time to time. The
Investment Adviser agrees that it:
<PAGE>
-3-
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission (herein called the "Rules") and with the
Securities Act of 1933, the Securities Exchange Act of 1934, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, all as amended, and
will in addition conduct its activities under this Agreement in accordance with
all applicable Rules and Regulations of the Comptroller of the Currency
pertaining to the investment advisery activities of national banks;
(b) will place orders pursuant to its investment determinations for
each of the Funds either directly with the issuer of the instrument to be
purchased or with any broker or dealer selected by it. In placing orders with
brokers and dealers, the Investment Adviser will use its reasonable best efforts
to obtain the best net price and execution of its orders, after taking into
account all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. However, this
responsibility shall not be deemed to obligate the Investment Adviser to solicit
competitive bids for each transaction. Consistent with this obligation, the
Investment Adviser may, to the extent permitted by law, purchase
<PAGE>
-4-
and sell portfolio securities to and from brokers and dealers who provide
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934), statistical quotations, specifically the
quotations necessary to determine a Fund's net asset value, and other
information provided to the applicable Fund or to the Investment Adviser or its
affiliates to or for the benefit of any Fund and/or other accounts over which
the Investment Adviser or any of its affiliates exercises investment discretion.
Subject to the review of the Trustees from time to time with respect to the
extent and continuation of the policy, the Investment Adviser is authorized to
pay to a broker or dealer who provides such brokerage and research services a
commission for effecting a securities transaction for any Fund which is in
excess of the amount of commission another broker or dealer would have charged
for effecting the transaction if the Investment Adviser determines in good faith
that such commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the overall responsibilities of the
Investment Adviser with respect to the accounts as to which it or its affiliates
exercise investment discretion; and
<PAGE>
-5-
(c) will maintain books and records with respect to the securities
transactions of each Fund and will render to the Trustees such periodic and
special reports as the Trustees may reasonably request.
3. Services Not Exclusive. The investment management services rendered by
the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to render similar services to others so long
as its services under this Agreement are not impaired thereby. The Investment
Adviser shall provide fair and equitable treatment to the Funds in the selection
of portfolio instruments and the allocation of investment opportunities; the
Investment Adviser is not required to give the Funds preferential treatment.
4. Books and Records. In compliance with the requirements of Rule 31a-3
promulgated under the Investment Company Act of 1940, as amended, the Investment
Adviser hereby agrees that all records which it maintains for the Funds are the
property of the Trust and further agrees to surrender promptly to the Trust any
of such records upon the Trust's request. The Investment Adviser further agrees
to preserve for the periods prescribed by Rule 31a-2 the records required to be
maintained by Rule 31a-1 and to comply in full with the requirements of Rule
204-2 under the Investment Advisers Act of 1940 pertaining to the maintenance of
books and records.
<PAGE>
-6-
5. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions and taxes, if any) or other investment instruments purchased for the
Funds.
In addition, if the expenses borne by any Fund (including fees payable
pursuant to this Agreement and the Administration Agreement but excluding
interest, taxes, brokerage and, if permitted by the relevant state securities
commissions, extraordinary expenses) in any fiscal year of such Fund exceed
the applicable expense limitations imposed by the securities regulations of any
state in which the shares of any such Fund are registered or qualified for sale
to the public, the Investment Adviser shall reimburse such Fund monthly for a
portion of any such excess in an amount equal to the proportion that the fees
otherwise payable to the Investment Adviser bear to the total amount of
investment advisery and administration fees otherwise payable to the Investment
Adviser during such fiscal year pursuant to paragraph 6 hereof.
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement with respect to each
<PAGE>
-7-
Fund other than the Ohio Tax-Free Fund, the Trust will pay the Investment
Adviser, and the Investment Adviser will accept as full compensation therefore,
a fee, computed daily and payable monthly at the following annual rates: 0.30 of
one percent of the average daily net assets ("Net Assets") of each such Fund
separately up to $500 million, 0.25 of one percent of Net Assets in excess of
$500 million up to $1.0 billion, and 0.20 of one percent of Net Assets in excess
of $1.0 billion. For the services provided and the expenses assumed pursuant to
this Agreement with respect to the Ohio Tax-Free Fund, the Trust will pay the
Investment Adviser, and the Investment Adviser will accept as full compensation
therefore, a fee, computed daily and payable monthly at the annual rate of 0.50
of one percent of such Fund's Net Assets:
7. Limitation of Liability of the Investment Adviser; Indemnification.
(a) The Investment Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which this Agreement relates, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
<PAGE>
-8-
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
(b) Subject to the limitations contained in Section 7(c) below:
(i) the Trust shall indemnify and hold harmless the Investment
Adviser, its directors, officers and employees and each person who controls the
Investment Adviser (hereinafter referred to as "Covered Persons") to the fullest
extent permitted by law, against any and all claims, demands and liabilities
(and all reasonable expenses in connection therewith) to which the Investment
Adviser or any of its directors, officers, employees or controlling persons may
become subject by virtue of the Investment Adviser being or having been the
Investment Adviser of the Trust;
(ii) the words "claims," "actions," "suits," or "proceedings"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or thereafter,
and the words "liabilities and "expenses" shall include, without limitation,
attorneys' fees and expenses, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
<PAGE>
-9-
(c) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before
which the proceedings was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of its office or (B)
not to have acted in good faith in the reasonable belief that its action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office,
(A) by the court or other body approving the settlement;
or
(B) by at least a majority of those Trustees who are
neither Interested Persons of the Trust (as defined in the Investment Company
Act of 1940, as amended) nor are parties to the matter, based upon a review of
readily available facts (as opposed to a full trial-type inquiry); or
<PAGE>
-10-
(C) by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full trial-type
inquiry).
(d) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the personal representatives,
successors and assigns of each such person. Nothing contained herein shall
affect any rights to indemnification to which Trust personnel and any other
persons, other than a Covered Person, may be entitled by contract or
otherwise under law.
(e) Expenses in connection with the investigation, preparation and
presentation of a defense to any claim, suit or proceeding of the character
described in subsection (b) of this Section 7 shall be paid by the Trust or any
Fund from time to time prior to final disposition thereof, upon receipt of an
undertaking by or on behalf of such Covered Person that such amount will be paid
over by him to the Trust or any such Fund if
<PAGE>
-11-
it is ultimately determined that he is not entitled to indemnification under
this Section 7; provided, however, that either (i) such Covered Person shall
have provided appropriate security for such undertaking, (ii) the Trust shall be
insured against losses arising out of any such advance payments, or (iii) either
a majority of the Trustees who are neither Interested Persons of the Trust nor
parties to the matter, or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
trial-type inquiry), that there is reason to believe that such Covered Person
will be entitled to indemnification under this Section 7.
8. Duration and Termination. This Agreement shall be effective as of the
date on which the Trust commences operations and, unless sooner terminated as
provided herein, shall continue until September 1, 1990. Thereafter, if not
terminated, this Agreement shall continue in effect as to a particular Fund for
successive periods of 12 months each, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those Trustees who
are not parties to this Agreement or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(b) by the Trustees or, with respect to any Fund, by vote of a
<PAGE>
-12-
majority of the outstanding voting securities of such Fund; provided, however,
that this Agreement may be terminated by the Trust as to any Fund or all of the
Funds at any time, without the payment of any penalty, by the Trustees or, with
respect any Fund, by vote of a majority of the outstanding voting securities of
such Fund on 60 days' written notice to the Investment Adviser, or by the
Investment Adviser as to any Fund at any time, without payment of any penalty,
on 90 days' written notice to the Trust. This Agreement will immediately
terminate in the event of its assignment by either party hereto or by operation
of law. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meanings as such terms have in the Investment Company Act of 1940, as amended).
9. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective with respect to any Fund until approved by vote of a majority of such
Fund's outstanding voting securities.
10. (A) Representations and Warranties. The Investment Adviser hereby
represents and warrants as follows:
<PAGE>
-13-
(1) The Investment Adviser is exempt from registration under the
Investment Advisers Act of 1940, as amended;
(2) The Investment Adviser has all requisite authority to enter
into, execute, deliver and perform its obligations under this
Agreement;
(3) This Agreement is the legal, valid and binding obligation of
the Investment Adviser, and is enforceable in accordance with
its terms; and
(4) The performance by the Investment Adviser of its obligations
under this Agreement does not conflict with any law or
regulation to which it is subject.
(B) Covenants. The Investment Adviser hereby covenants and agrees
that, so long as this Agreement shall remain in effect,
(1) The Investment Adviser shall remain exempt from registration
or shall become registered under the Investment Advisers Act
of 1940; and
<PAGE>
-14-
(2) the performance by the Investment Adviser of its obligations
under this Agreement shall not conflict with any law to which
it is then subject.
(C) The Trust hereby covenants and agrees that, so long as this
Agreement shall remain in effect, it shall furnish the Investment Adviser from
time to time with copies of the following documents, if and when effective,
pertaining to the Trust or the Funds and all amendments and supplements thereto:
Declaration of Trust, By-laws, Registration Statement (including Prospectus and
Statement of Additional Information), Custodial Agreement, Transfer Agency
Agreement, Administration Agreement, Distribution Agreement, Rule 12b-1 Service
Plan, Proxy Statement and any other documents filed with the Securities and
Exchange Commission, State securities law administrators or other governmental
agencies, and any other documents the Investment Adviser may reasonably request.
11. Notices. Any notice required to be given pursuant to this Agreement
shall be deemed duly given if delivered or mailed by registered mail, postage
prepaid, (1) to the Investment Adviser at 41 South High Street, Columbus, Ohio
43287, or (2) to the Trust at 200 Connecticut Avenue, Norwalk, Connecticut
06854.
<PAGE>
-15-
12. Waiver. With full knowledge of the circumstances and the effect of its
action, the Investment Adviser hereby waives any and all rights which it may
acquire in the future against the property of any shareholder of the Trust,
other than shares of the Trust at their net asset value; which arise out of any
action or inaction of the Trust under this Agreement.
13. Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
14. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
15. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors.
16. Governing Law. This Agreement is executed in the state of Ohio and
shall be governed by the laws of such State, without reference to conflict of
laws principles.
<PAGE>
-16-
IN WITNESS WHEREOF, each of the parties hereto has caused this instrument
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed as of the date first above
written.
Attest: THE MONITOR FUNDS
/s/ John E. Rosati By: /s/ Joseph P. Campbell
- ------------------------- ----------------------------
Attest: THE HUNTINGTON TRUST COMPANY,
INC., NA.
/s/ John E. Rosati By: /s/ [Illegible]
- ------------------------- ----------------------------
<PAGE>
EXHIBIT 5(II)
THE MONITOR FUNDS
INVESTMENT ADVISORY AGREEMENT
This Agreement is made this 25th day of April, 1989 by and between The
Monitor Funds, a business trust organized under the laws of the Commonwealth of
Massachusetts (herein called the "Trust"), and The Huntington Trust Company,
Inc., N.A., a national banking association limited to trust powers (herein
called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940; and
WHEREAS, the Trust has retained the Investment Adviser to render
investment advisory and other services to the Trust for its Money Market Fund,
U.S. Government Money Market Funds Tax-Free Money Market Fund and Ohio Tax-Free
Fund portfolios pursuant to a separate investment advisory agreement dated
September 15, 1998; and
<PAGE>
-2-
WHEREAS, the Trust desires to retain the Investment Adviser to render
investment advisory and other services to the Trust for its U.S. Treasury Money
Market Fund, Growth Fund, Income Equity Fund, Fixed Income Securities Fund and
Short/Intermediate Fixed Income Securities Fund (each a "Fund" and collectively
the "Funds"), and the Investment Adviser is willing to render such services as a
discretionary investment adviser on the terms and conditions hereinafter set
forth;
WITNESSETH: That in consideration of the promises and mutual convenants
hereinafter contained, the parties hereto agree as follows:
1. Appointment. The Trust being duly authorized hereby appoints the
Investment Adviser to act as discretionary investment adviser to the Trust for
the Funds for the period and on the terms set forth in this Agreement. The
Investment Adviser accepts such appointment and agrees to render the services
herein set forth for the compensation herein provided.
2. Management. Subject to the supervision of the Board of Trustees of the
Trust (the "Trustees"), the Investment Adviser will provide a continuous
investment program for each of the Funds, including investment research and
management with
<PAGE>
-3-
respect to all securities, investments, cash and cash equivalents in the Funds.
The investment Adviser will determine from time to time what securities and
other instruments will be purchased, retained or sold by the Trust for the
Funds. The Investment Adviser will provide the services rendered by it hereunder
in accordance with the Funds' respective investment objectives and policies as
stated in the Prospectus which is a part of the Trust's effective Registration
Statement as amended from time to time. The Investment Adviser agrees that it:
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission (herein called the "Rules") and with the
Securities Act of 1933, the Securities Exchange Act of 1934, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, all as amended, and
will in addition conduct its activities under this Agreement in accordance with
all applicable Rules and Regulations of the Comptroller of the Currency
pertaining to the investment advisery activities of national banks;
(b) will place orders pursuant to its investment determinations for
each of the Funds either directly with the issuer of the instrument to be
purchased or with any broker or dealer selected by it. In placing orders with
brokers and
<PAGE>
-4-
dealers, the Investment Adviser will use its reasonable best efforts to obtain
the best net price and execution of its orders, after taking into account all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. However, this responsibility
shall not be deemed to obligate the Investment Adviser to solicit competitive
bids for each transaction. Consistent with this obligation, the Investment
Adviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers and dealers who provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934), statistical quotations, specifically the quotations necessary to
determine a Fund's net asset value, and other information provided to the
applicable Fund or to the Investment Adviser or its affiliates to or for the
benefit of any Fund and/or other accounts over which the Investment Adviser or
any of its affiliates exercises investment discretion. Subject to the review of
the Trustees from time to time with respect to the extent and continuation of
the policy, the Investment Adviser is authorized to pay to a broker or dealer
who provides such brokerage and research services a commission for effecting a
<PAGE>
-5-
securities transaction for any Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction if the Investment Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Investment Adviser
with respect to the accounts as to which it or its affiliates exercise
investment discretion; and
(c) will maintain books and records with respect to the securities
transactions of each Fund and will render to the Trustees such periodic and
special reports as the Trustees may reasonably request.
3. Services Not Exclusive. The investment management services rendered by
the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to render similar services to others so long
as its services under this Agreement are not impaired thereby. The Investment
Adviser shall provide fair and equitable treatment to the Funds in the selection
of portfolio instruments and the allocation of investment opportunities; the
Investment Adviser is not required to give the Funds preferential treatment.
<PAGE>
-6-
4. Books and Records. In compliance with the requirements of Rule 31a-3
promulgated under the Investment Company Act of 1940, as amended, the Investment
Adviser hereby agrees that all records which it maintains for the Funds are the
property of the Trust and further agrees to surrender promptly to the Trust any
of such records upon the Trust's request. The Investment Adviser further agrees
to preserve for the periods prescribed by Rule 31a-2 the records required to be
maintained by Rule 31a-1 and to comply in full with the requirements of Rule
204-2 under the Investment Advisers Act of 1940 pertaining to the maintenance of
books and records.
5. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions and taxes, if any) or other investment instruments purchased for the
Funds.
In addition, if the expenses borne by any Fund (including fees payable
pursuant to this Agreement and the Administration Agreement but excluding
interest, taxes, brokerage and, if permitted by the relevant state securities
commissions, extraordinary expenses) in any fiscal year of such Fund exceed
<PAGE>
-7-
the applicable expense limitations imposed by the securities regulations of any
state in which the shares of any such Fund are registered or qualified for sale
to the public, the Investment Adviser shall reimburse such Fund monthly for a
portion of any such excess in an amount equal to the proportion that the fees
otherwise payable to the Investment Adviser bear to the total amount of
investment advisery and administration fees otherwise payable to the Investment
Adviser during such fiscal year pursuant to paragraph 6 hereof.
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement with respect to each Fund, the Trust will pay the
Investment Adviser, and the Investment Adviser will accept as full compensation
therefore, a fee representing the percentage of the average daily net asset
value of such Fund, computed daily and payable monthly at the annual rate set
forth opposite each such Fund's name below:
U.S. Treasury Money Market Fund .20 of 1%
Growth Fund .60 of 1%
Income Equity Fund .60 of 1%
Fixed Income Securities Fund .50 of 1%
<PAGE>
-8-
Short/Intermediate Fixed .50 of 1%
Income Securities Fund
The Investment Adviser hereby waives such fee with respect to the U.S.
Treasury Fund until such Fund's net assets equal or exceed $50,000,000.
7. Limitation of Liability of the Investment Adviser; Indemnification.
(a) The Investment Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which this Agreement relates, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
(b) Subject to the limitations contained in Section 7(c) below:
<PAGE>
-9-
(i) the Trust shall indemnify and hold harmless the Investment
Adviser, its directors, officers and employees and each person who controls the
Investment Adviser (hereinafter referred to as "Covered Persons") to the fullest
extent permitted by law, against any and all claims, demands and liabilities
(and all reasonable expenses in connection therewith) to which the Investment
Adviser or any of its directors, officers, employees or controlling persons may
become subject by virtue of the Investment Adviser being or having been the
Investment Adviser of the Trust;
(ii) the words "claims," "actions," "suits," or "proceedings"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or thereafter,
and the words "liabilities and "expenses" shall include, without limitation,
attorneys' fees and expenses, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(c) No indemnification shall be provided hereunder to a Covered
Person:
<PAGE>
-10-
(i) who shall have been adjudicated by a court or body before
which the proceedings was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of its office or (B)
not to have acted in good faith in the reasonable belief that its action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office,
(A) by the court or other body approving the settlement;
or
(B) by at least a majority of those Trustees who are
neither Interested Persons of the Trust (as defined in the Investment Company
Act of 1940, as amended) nor are parties to the matter, based upon a review of
readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full trial-type
inquiry).
<PAGE>
-11-
(d) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the personal representatives,
successors and assigns of each such person. Nothing contained herein shall
affect any rights to indemnification to which Trust personnel and any other
persons, other than a Covered Person, may be entitled by contract or
otherwise under law.
(e) Expenses in connection with the investigation, preparation and
presentation of a defense to any claim, suit or proceeding of the character
described in subsection (b) of this Section 7 shall be paid by the Trust or any
Fund from time to time prior to final disposition thereof, upon receipt of an
undertaking by or on behalf of such Covered Person that such amount will be paid
over by him to the Trust or any such Fund if it is ultimately determined that he
is not entitled to indemnification under this Section 7; provided, however, that
either (i) such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust shall be insured
<PAGE>
-12-
against losses arising out of any such advance payments, or (iii) either a
majority of the Trustees who are neither Interested Persons of the Trust nor
parties to the matter, or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
trial-type inquiry), that there is reason to believe that such Covered Person
will be entitled to indemnification under this Section 7.
8. Duration and Termination. This Agreement shall be effective as of the
date on which the Trust commences operations and, unless sooner terminated as
provided herein, shall continue until September 1, 1990. Thereafter, if not
terminated, this Agreement shall continue in effect as to a particular Fund for
successive periods of 12 months each, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those Trustees who
are not parties to this Agreement or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(b) by the Trustees or, with respect to any Fund, by vote of a majority of the
outstanding voting securities of such Fund; provided, however, that this
Agreement may be terminated by the Trust as to any Fund or all of the Funds at
any time, without the payment of any penalty, by the Trustees or, with respect
to
<PAGE>
-13-
any Fund, by vote of a majority of the outstanding voting securities of such
Fund on 60 days' written notice to the Investment Adviser, or by the Investment
Adviser as to any Fund at any time, without payment of any penalty, on 90 days'
written notice to the Trust. This Agreement will immediately terminate in the
event of its assignment by either party hereto or by operation of law. (As used
in this Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such terms
have in the Investment Company Act of 1940, as amended).
9. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective with respect to any Fund until approved by vote of a majority of such
Fund's outstanding voting securities.
10. (A) Representations and Warranties. The Investment Adviser hereby
represents and warrants as follows:
(1) The Investment Adviser is exempt from registration under the
Investment Advisers Act of 1940, as amended;
<PAGE>
-14-
(2) The Investment Adviser has all requisite authority to enter
into, execute, deliver and perform its obligations under this
Agreement;
(3) This Agreement is the legal, valid and binding obligation of
the Investment Adviser, and is enforceable in accordance with
its terms; and
(4) The performance by the Investment Adviser of its obligations
under this Agreement does not conflict with any law or
regulation to which it is subject.
(B) Covenants. The Investment Adviser hereby covenants and agrees
that, so long as this Agreement shall remain in effect,
(1) The Investment Adviser shall remain exempt from registration
or shall become registered under the Investment Advisers Act
of 1940; and
(2) the performance by the Investment Adviser of its obligations
under this Agreement shall not
<PAGE>
-15-
conflict with any law to which it is then subject.
(C) The Trust hereby covenants and agrees that, so long as this
Agreement shall remain in effect, it shall furnish the Investment Adviser from
time to time with copies of the following documents, if and when effective,
pertaining to the Trust or the Funds and all amendments and supplements thereto:
Declaration of Trust, By-laws, Registration Statement (including Prospectus and
Statement of Additional Information), Custodial Agreement, Transfer Agency
Agreement, Administration Agreement, Distribution Agreement, Rule 12b-1 Service
Plan, Proxy Statement and any other documents filed with the Securities and
Exchange Commission, State securities law administrators or other governmental
agencies, and any other documents the Investment Adviser may reasonably request.
11. Notices. Any notice required to be given pursuant to this Agreement
shall be deemed duly given if delivered or mailed by registered mail, postage
prepaid, (1) to the Investment Adviser at 41 South High Street, Columbus, Ohio
43287, or (2) to the Trust at 200 Connecticut Avenue, Norwalk, Connecticut
06854.
<PAGE>
-16-
12. Waiver. With full knowledge of the circumstances and the effect of its
action, the Investment Adviser hereby waives any and all rights which it may
acquire in the future against the property of any shareholder of the Trust,
other than shares of the Trust at their net asset value; which arise out of any
action or inaction of the Trust under this Agreement.
13. Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
14. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
15. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors.
16. Governing Law. This Agreement is executed in the state of Ohio and
shall be governed by the laws of such State, without reference to conflict of
laws principles.
<PAGE>
-17-
IN WITNESS WHEREOF, each of the parties hereto has caused this instrument
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed as of the date first above
written.
Attest: THE MONITOR FUNDS
By: /s/ [Illegible]
------------------------
Attest: THE HUNTINGTON TRUST COMPANY,
INC., NA.
By: /s/ [Illegible]
------------------------
<PAGE>
Exhibit 11(i)
Independent Auditors' Consent
The Board of Trustees
of The Monitor Funds:
We consent to use of our report dated February 13, 1998, and incorporated by
reference in Post-Effective Amendment No. 26, on the financial statements and
financial highlights of The Monitor Funds, and to the reference to our firm
under the headings "Financial Highlights" and "Independent Accountants" in the
Prospectuses and "Independent Accountants" and "Financial Highlights" in the
Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
Columbus, Ohio
April 30, 1998
<PAGE>
Exhibit 11(ii)
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 26 to the Registration Statement on Form N-1A (File No. 33-11905)
(the "Registration Statement") of our report dated January 13, 1998, relating to
the financial statements and financial highlights appearing in the November 30,
1997 Annual Report to Shareholders of FMB Funds, Inc., which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights - Income Funds,"
relating to FMB Michigan Tax-Free Bond and FMB Intermediate Government Income
Fund, in the Prospectuses.
/s/ Price Waterhouse LLP
Philadelphia, Pennsylvania
April 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
<NUMBER> 010
<NAME> MONEY MARKET FUND TRUST SHARES
<MULTIPLIER> 1,000
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
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<NUMBER> 011
<NAME> MONEY MARKET FUND INVESTMENT SHARES
<MULTIPLIER> 1,000
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
<NUMBER> 020
<NAME> OHIO MUNICIPAL MONEY MARKET TRUST SHARES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
<NUMBER> 021
<NAME> OHIO MUNICIPAL MONEY MARKET INVESTMENT SHARES
<MULTIPLIER> 1,000
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
<NUMBER> 030
<NAME> U.S. TREASURY MONEY MARKET FUND TRUST SHARES
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<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
<NUMBER> 031
<NAME> U.S. TREASURY MONEY MARKET FUND INVESTMENT SHARES
<MULTIPLIER> 1,000
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
<NUMBER> 050
<NAME> GROWTH FUND TRUST SHARES
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<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
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<NAME> GROWTH FUND INVESTMENT SHARES
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<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
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<NAME> INCOME EQUITY FUND TRUST SHARES
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
<NUMBER> 061
<NAME> INCOME EQUITY FUND INVESTMENT SHARES
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
<NUMBER> 070
<NAME> OHIO TAX FREE FUND TRUST SHARES
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
<NUMBER> 071
<NAME> OHIO TAX FREE FUND INVESTMENT SHARES
<MULTIPLIER> 1,000
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
<NUMBER> 080
<NAME> FIXED INCOME SECURITIES FUND TRUST SHARES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
<NUMBER> 081
<NAME> FIXED INCOME SECURITIES FUND INVESTMENT SHARES
<MULTIPLIER> 1,000
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
<SERIES>
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<NAME> SHORT/INTERMEDIATE FIXED INCOME FUND TRUST SHARES
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<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000810695
<NAME> MONITOR
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<NAME> MORTGAGE SECURITIES FUND TRUST SHARES
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<S> <C>
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<PAGE>
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<CIK> 0000810695
<NAME> MONITOR
<SERIES>
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<NAME> MORTGAGE SECURITIES FUND INVESTMENT SHARES
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<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> FMB FUNDS, INC.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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