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Rule 497(c)
File No. 33-11905
THE MONITOR FLORIDA TAX-FREE MONEY FUND
INVESTMENT SHARES
The Monitor Funds, a Massachusetts business trust (the "Trust"), consists of
separate series (the "Funds") which have different investment objectives and
policies. The Monitor Florida Tax-Free Money Fund (the "Fund") is a non-
diversified open end management company (a "mutual fund") that offers two
classes of shares: Investment Shares and Trust Shares. Investment Shares of
the Fund 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.
This Prospectus relates only to Investment Shares of the Fund. This
Prospectus sets forth concisely what a shareholder should know before
investing in Investment Shares of the Fund 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 an Internet website
(http://www.sec.gov) that contains the Combined Statement of Additional
Information, material incorporated by reference and other information relating
to the Fund. FOR A FREE COPY OF THE COMBINED STATEMENT OF ADDITIONAL
INFORMATION DATED APRIL 30, 1998, AS SUPPLEMENTED, CALL MONITORDIRECT AT 800-
253-0412.
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 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 THE 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. THE FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE; HOWEVER, THERE CAN BE NO ASSURANCE
THAT THE FUND WILL BE ABLE TO DO SO.
IN ADDITION, THE FUND IS CONCENTRATED IN SECURITIES ISSUED BY THE STATE OF
FLORIDA OR OTHER GOVERNMENTAL ENTITIES WITHIN THE STATE OF FLORIDA AND
THEREFORE AN INVESTMENT IN THE FUND MAY BE RISKIER THAN AN INVESTMENT IN OTHER
TYPES OF MONEY MARKET FUNDS.
PROSPECTUS dated December 10, 1998
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TABLE OF CONTENTS
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PRINCIPAL RISK FACTORS...................................................... 1
FEE TABLE AND EXAMPLE....................................................... 2
Annual Operating Expenses.................................................. 2
Expense Example............................................................ 2
INVESTMENT OBJECTIVE AND
POLICIES................................................................... 3
Florida Tax-Free Money Fund................................................ 3
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS AND STRATEGIES.............. 5
Florida Obligations........................................................ 5
Credit Enhancement......................................................... 6
Non-Diversification........................................................ 6
Defensive Investment Strategies............................................ 7
Repurchase Agreements...................................................... 7
When-Issued and Delayed Delivery Transactions.............................. 7
Lending of Portfolio Securities............................................ 8
U.S. Government Securities................................................. 8
INVESTMENT RESTRICTIONS..................................................... 9
HOW THE FUND VALUES ITS SHARES.............................................. 9
HOW TO BUY INVESTMENT SHARES................................................ 10
To Place an Order.......................................................... 10
Minimum Investment Required................................................ 11
Systematic Investment Program.............................................. 11
HOW TO EXCHANGE INVESTMENT SHARES AMONG THE FUNDS........................... 11
By Telephone............................................................... 12
By Mail.................................................................... 12
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HOW TO REDEEM INVESTMENT
SHARES..................................................................... 13
Redeeming By Telephone..................................................... 13
Redeeming By Mail.......................................................... 13
Redeeming by Check......................................................... 14
Redeeming by Fax........................................................... 14
SYSTEMATIC WITHDRAWAL PROGRAM............................................... 15
ACCOUNTS WITH LOW BALANCES.................................................. 15
MANAGEMENT OF THE TRUST..................................................... 15
Distribution of Investment Shares.......................................... 16
Distribution Plan.......................................................... 16
Administration of the Fund................................................. 17
Custodian, Recordkeeper, Transfer Agent, and Dividend Disbursing Agent..... 18
Independent Auditors....................................................... 18
DISTRIBUTIONS AND TAXES..................................................... 18
The Fund................................................................... 18
Distribution Options....................................................... 18
Federal Income Taxes....................................................... 18
Florida Tax Matters........................................................ 20
ORGANIZATION OF THE TRUST................................................... 21
Voting Rights.............................................................. 21
PERFORMANCE DATA AND COMPARISONS............................................ 22
SHAREHOLDER INQUIRIES....................................................... 22
OTHER CLASSES OF SHARES..................................................... 23
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PRINCIPAL RISK FACTORS
Investors should be aware of the following general observations. There can
be no assurance that the Fund will achieve its investment objective. The
Fund's yield will fluctuate due to changes in interest rates, economic
conditions, quality ratings and other factors beyond the control of the
Adviser. In addition, the financial condition of an issuer or adverse changes
in general economic conditions, or both, may impair the issuer's ability to
make payments of interest and principal. There is no limit on the percentage
of a single issue of municipal obligations that the Fund may own. If the Fund
holds a significant portion of the obligations of an issuer, there may not be
a readily available market for the obligations. Reduced diversification could
involve an increased risk to the Fund should an issuer be unable to make
interest or principal payments or should the market value of municipal
obligations decline.
There are also risks of reduced diversification because the Fund invests
primarily in obligations of issuers within a single state. The Fund is more
likely to invest its assets in the securities of fewer issuers because of the
relatively smaller number of issuers of Florida obligations. The Fund's
performance is closely tied to conditions within the State of Florida and to
the financial condition of the State and its authorities and municipalities.
Under current law, the State of Florida is required to maintain a balanced
budget such that current expenses are met from current revenues. Florida does
not currently impose a tax on personal income but does impose taxes on
corporate income derived from activities within the State. In addition,
Florida imposes an ad valorem tax on intangible personal property as well as
sales and use taxes. These taxes are the principal source of funds to meet
State expenses, including repayment of, and interest on, obligations backed
solely by the full faith and credit of the State, without recourse to any
specific project.
YEAR 2000 RISK. Like other mutual funds, financial and business
organizations around the world, the Fund 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 the Fund's 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 Fund's other
major service providers. There can be no assurances, however, that these steps
will be sufficient to avoid any adverse impact on the Fund.
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FEE TABLE AND EXAMPLE
The following Fee Table and Example summarize the various costs and expenses
that a shareholder of Investment Shares in the Fund will bear, either directly
or indirectly.
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
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MANAGEMENT 12B-1 OTHER TOTAL OPERATING
FEE(1) FEE(2) EXPENSES(3) EXPENSES(4)
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0.20% 0.10% 0.30% 0.60%
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(1) Fee paid by the Fund for investment advisory services. See "Management of
the Trust." The management fee has been reduced to reflect a voluntary
waiver of a portion of the fee by the Adviser. The Adviser may terminate
this voluntary waiver at any time in its sole discretion. The maximum
management fee payable by the Fund is 0.50% of average net assets.
(2) Fee paid by the Fund for distribution/shareholder servicing assistance.
See "Management of the Trust--Distribution Plan." The 12b-1 fee has been
reduced to reflect a voluntary waiver of a portion of the fee by the
Distributor. The Distributor may terminate this voluntary waiver at any
time in its sole discretion. The maximum 12b-1 fee payable by the Fund is
0.25% of average net assets.
(3) Other expenses are based on estimated amounts for the current year and
include administration fees. See "Management of the Trust--Administration
of the Fund."
(4) Total Operating Expenses for the Fund are shown after taking into account
any fee waivers or expense reimbursements. Total Operating Expenses would
be 1.05% of average net assets, absent the voluntary waivers of a portion
of the Fund's management fee and 12b-1 fee described above.
EXPENSE 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.
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1 YEAR 3 YEARS
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$6 $19
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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.
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described below. There
can, of course, be no guarantee that the Fund will achieve its investment
objective.
The Fund's investment objective is fundamental and may be changed only by a
vote of a majority of the outstanding shares of the Fund. Unless otherwise
noted in this Prospectus or in the Combined Statement of Additional
Information, the investment policies of the Fund are not fundamental and may
be changed by the Trust's Board of Trustees without shareholder approval.
Except with respect to borrowing money, investing in illiquid securities or
downgrades of securities in the Fund, any percentage limitation on the 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 Fund's investments, see the Appendix to the Combined Statement of
Additional Information.
Money Market Funds, in general, are designed for investors seeking current
income with stability of principal. The Fund intends to limit its 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 Combined
Statement of Additional Information entitled "Determination of Net Asset
Value"). Rule 2a-7 imposes certain risk limiting conditions on the Fund which
in some instances restricts the Fund's investment policies. These risk
limiting conditions include the following:
. The Fund must limit its investments to "Eligible Securities" which
Huntington has determined present minimal credit risks under guidelines
adopted by the Trustees. Generally, "Eligible Securities" are those which
have received a rating from an NRSRO in one of the two highest short term
rating categories for debt obligations (an explanation of some of the
other terms defined by Rule 2a-7 is contained in the Combined Statement
of Additional Information).
. The Fund may invest without limit in "First Tier Securities", which are
Eligible Securities that have received a rating in the highest short term
rating category for debt obligations. In addition, the portfolio
investments of the Fund must be deemed to have a maturity of 397 days or
less from the time of purchase by the 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 the Fund's portfolio must not exceed 90 days. Of course, the
Fund's yield, and under unusual circumstances, the value of its portfolio
securities, will be affected by changes in interest rates.
FLORIDA TAX-FREE MONEY FUND
The objective of the Fund is to seek the highest level of interest income
exempt from federal income tax, consistent with liquidity and stability of
principal. The Fund seeks to achieve its investment objective by investing
primarily in high quality, short-term Florida obligations determined by the
Adviser, under the direction of the Board of Trustees, to present minimal
credit risks. Florida
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obligations are debt obligations issued by the State of Florida and its
political subdivisions, agencies, authorities and instrumentalities and other
qualifying issuers which pay interest that is, in the opinion of qualified
legal counsel, exempt from federal income tax, including the alternative
minimum tax, and the value of which is exempt from the Florida Intangible
Personal Property Tax. Examples of Florida obligations 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 obligations;
. 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 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 and Guarantees." The 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 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 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 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 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 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.
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The 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. Under normal market conditions, the Fund will invest
at least 80% of the value of its net assets in short-term obligations the
interest on which is exempt from federal income tax, including the alternative
minimum tax. Under normal market conditions, at least 65% of the value of the
Fund's total assets will be invested in Florida obligations and the remainder
may be invested in obligations that are not Florida obligations. From time to
time, when Huntington determines that market conditions call for a temporary
defensive posture, the 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 Florida 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).
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS AND STRATEGIES
The Fund may also engage in the following investment techniques, each of
which may involve certain risks:
FLORIDA OBLIGATIONS
The Florida obligations in which the Fund may invest include general
obligation bonds, revenue bonds and industrial development bonds. 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. Revenue bonds
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.
Florida has been and continues to be one of the fastest growing of the
largest states. In 1980 Florida ranked seventh among the fifty states in
population. The State has grown dramatically and as of April 1, 1997, ranked
fourth among the fifty states, with an estimated population of 14.7 million.
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Over the years, Florida's total personal income has grown at a strong pace
and outperformed both the U.S. and other southeastern states. The increase in
Florida's total personal income directly reflects the State's population
increase. Florida's per capita personal income has been closely tracking the
national average for many years. From 1991 to 1996, Florida's total nominal
personal income grew by 34.2% and per capita income expanded approximately
23.8%. For the nation, total and per capita personal income increased by 30.6%
and 24.1% respectively.
Sources of personal income differ in Florida from that of the nation and the
southeast. Because Florida has an older and proportionally larger retirement
population, property income (dividends, interest and rent) and transfer
payments (social security, retirement, disability, unemployment insurance,
workers' compensation, veterans and miscellaneous) are a relatively more
important source of income. A positive aspect of greater reliance on property
income and transfer payments is that they are less sensitive to the business
cycle and act as a stabilizing force in weak economic periods.
In spite of Florida's rapid population growth, employment has grown even
faster. Contributing to Florida's rapid rate of growth in employment and
income are international trade and structural changes to the economy. The
State is gradually becoming less dependent on employment related to
construction, agriculture and manufacturing, and more dependent on employment
related to trade and services. Presently, services constitute 34.9% and trade
25.6% of the State's total nonfarm jobs. For additional information, see
"Special Risk-Factors Applicable to the Florida Tax-Free Money Fund" in the
Combined Statement of Additional Information.
CREDIT ENHANCEMENT
Certain of the portfolio investments of the Fund may have been credit
enhanced by a guarantee, letter of credit or insurance. The Fund typically
evaluates 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 Fund is a non-diversified Fund under the 1940 Act, which means that it
may invest its assets in the obligations of fewer issuers than would be the
case if it were "diversified." The Fund's ability to invest a relatively high
percentage of its assets in the securities of a limited number of issuers
involves an increased risk of loss to the 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 Fund intends to comply with
Subchapter M of the Internal Revenue Code. This undertaking requires, among
other things, that at the end of each
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quarter of the taxable year, with regard to at least 50% of the 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 the 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 the Fund's assets. In implementing these
temporary "defensive" strategies, the 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 to be
of comparable quality to the acceptable investments of the Fund and other
investments which Huntington considers consistent with such strategies. The
Fund's alternative strategies may give rise to income which is not exempt from
federal or state taxes.
REPURCHASE AGREEMENTS
Certain securities in which the 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 the Fund and agree at the time of
sale to repurchase them at a mutually agreed upon time and price. The 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 the Fund, the
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 the Fund might be delayed
pending court action. The Trustees believe that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor
of the Fund and allow retention or disposition of such securities. The 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
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities
with payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the 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, the Fund may pay
more or less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
Adviser deems it appropriate to do so.
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LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend its portfolio
securities on a short-term basis to brokers, dealers or other financial
institutions. The 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 the 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 the Fund on a timely basis and the 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.
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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INVESTMENT RESTRICTIONS
The 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 only by a vote of a
majority of the outstanding shares of the Fund.
The Fund will not:
(1) 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) 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. Examples of such developments would be
the loss of taxing power for a county or municipality due to a vote by
its citizens, or a natural disaster or other catastrophe that affects a
region of several counties or municipalities. While such concentration
may occur as a result of changes in the market value of the Fund's
portfolio securities, such concentration may not be the result of an
investment at the time it is made;
(2) Invest more than 10% of the value of its net assets in illiquid
securities, including restricted securities, repurchase agreements of
over seven days' duration and Over The Counter ("OTC") options; or
(3) 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 the Fund may borrow from banks up to 10% of the current value of
its total net assets for temporary or emergency purposes and those
borrowings may be secured by a pledge of not more than 10% of the
current value of its total net assets (but investments may not be
purchased by the Fund while any such borrowings are outstanding).
HOW THE FUND VALUES ITS SHARES
The 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
the Fund, subtracting the interest of the Investment Shares in the liabilities
of the Fund and those attributable to Investment Shares, and dividing the
remainder by the total number of Investment Shares outstanding. The Fund
cannot guarantee that its net asset value will always remain at $1.00 per
share.
The Fund calculates 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 the 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,
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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 INVESTMENT SHARES
Investment Shares of the Fund may be purchased through The Huntington
Investment Company, Huntington Personal Banker or MONITORdirect, part of
Investor Services (collectively, the "Huntington Group"), pursuant to
agreements between The Huntington Investment Company or Huntington and the
Distributor. Investors may purchase Investment Shares of the Fund on all
Business Days. Investment Shares of the Fund are sold at their net asset value
per share next determined after an order is received. There is no sales charge
imposed by the Fund. Investment Shares in the 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.
From time to time, the Trust may temporarily suspend the offering of shares
of the Fund 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 the 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.
TO PLACE AN ORDER
To purchase Investment Shares of the Fund, 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 Fund's 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 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 the Fund to be purchased at that day's price. Prior to
purchasing by wire, investors should call the applicable member
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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 No. 01891160404, Monitor Retail,
Attention: Shareholder Services.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Investment Shares of the Fund is $1,000.
Subsequent investments in the Fund may be made at any time in amounts of at
least $50.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, holders of Investment Shares of the Fund
may add to their investment on a regular basis in minimum amounts of at least
$50. The Fund 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 the 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.
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 INVESTMENT SHARES AMONG THE FUNDS
Shareholders may exchange Investment Shares in the Fund for Investment
Shares in any other Fund of the Trust 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. If a shareholder seeks to exchange Investment
Shares of the Fund for Investment Shares of a Fund that imposes a sales
charge, the shareholder will be required to pay the applicable sales charge of
the Fund into which the shares are exchanged. Shareholders will only be
required to pay a sales charge 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
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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").
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. 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.
Investment Shares may be exchanged by telephone only between Fund accounts
having identical shareholder registration. 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 the Fund may have difficulty in
making exchanges by telephone during times of extreme economic or market
conditions. If the shareholder cannot make contact by telephone, it is
recommended that an exchange request by 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 Trust, it 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
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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
for 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, the 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 the Fund by calling The
Huntington Investment Company at 800-322-4600, their Personal Banker directly
or MONITORdirect at 800-253-0412.
Shareholders of the Fund who request a redemption before 10:30 a.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 10:30 a.m.
(Eastern Time) will receive that day's dividend and the proceeds will normally
be wired the following Business Day.
Members of the Huntington Group are responsible for promptly submitting
redemption requests and providing proper written redemption instructions to
the Fund. If at any time 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 Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
REDEEMING BY MAIL
Shareholders may redeem Investment Shares of the Fund by sending a written
request to the appropriate member of the Huntington Group. The written request
should include the shareholder's
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name, Fund name (designating Investment Shares), the account number, and the
number of Investment Shares 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 Fund does not accept signatures guaranteed by a notary public.
The Fund and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Fund 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.
REDEEMING BY CHECK
At the shareholder's request, the appropriate member of the Huntington Group
will establish a checking account for redeeming Investment Shares of the Fund.
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
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
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"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 the 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 distribution 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 the 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 the 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 automatic 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, the Fund may
redeem Investment Shares in any account, except retirement plans, and pay the
proceeds to the shareholder if the account balances falls below the required
minimum value of $1,000 due to shareholder redemption. This requirement does
not apply, however, if the balance falls below $1,000 because of changes in
the 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 the Fund's business. Huntington, Huntington Center, 41 South High
Street, Columbus, Ohio 43287, serves as investment adviser to the Fund
pursuant to an investment advisory agreement with the Trust. Pursuant to a
sub-investment advisory agreement with Huntington, Countrywide Investments,
Inc., 312 Walnut Street, Cincinnati, Ohio 45202, serves as sub-adviser to the
Fund.
Subject to the supervision of the Trustees, Huntington and Countrywide
provide a continuous investment program for the Fund, including investment
research and management with respect to all securities, instruments, cash and
cash equivalents in the Fund. The Trust pays Huntington management fees,
computed daily and payable monthly, for the Fund based on average daily net
assets at the annual rate of 0.50%. Huntington, in turn, pays Countrywide
management fees, computed daily and payable monthly, for the Fund at the
annual rate of 0.20%. Huntington may
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<PAGE>
periodically waive all or a portion of its management fee with respect to the
Fund to increase the net income of the Fund available for distribution as
dividends. Similarly, Countrywide may periodically waive all or a portion of
its management fee.
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 over $27 billion in assets as of September 30,
1998, 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
over $27 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.
Sub-Adviser's Background. Countrywide is an indirect wholly-owned subsidiary
of Countrywide Credit Industries, Inc. Organized in 1974, Countrywide serves
as the investment adviser to eighteen mutual fund portfolios of Countrywide
Tax-Free Trust, Countrywide Investment Trust and Countrywide Strategic Trust.
DISTRIBUTION OF INVESTMENT SHARES
SEI Investments Distribution Co., One Freedom Valley Road, Oaks,
Pennsylvania 19456, is the principal distributor for shares of the Fund. It is
a Delaware corporation and is the principal distributor for a number of
investment companies.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act ("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 Fund's Investment Shares.
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 Fund. 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
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<PAGE>
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 purchased Investment Shares of the Fund.
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 the Fund,
amounts paid by the Distributor for services rendered with respect to the
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. Fees under
the Distribution Plan with respect to the 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
Huntington and not the Fund.
ADMINISTRATION OF THE FUND
Huntington is the administrator of the Fund, providing certain
administrative personnel and services necessary to operate the Fund. For these
services, the Fund pays a fee, computed and payable daily, to Huntington at an
annual rate of 0.11% of its 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 Fund. The fees paid to SEI
Fund Resources under this agreement are paid by Huntington and not by the
Fund.
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CUSTODIAN, RECORDKEEPER, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Huntington acts as custodian and recordkeeper of the Fund's investments and
other assets. Huntington receives custody and recordkeeping fees of 5.6 basis
points (0.056%) for the Fund. State Street Bank and Trust Company is the
Fund's transfer agent and dividend disbursing agent.
INDEPENDENT AUDITORS
The independent auditors for the Fund are KPMG Peat Marwick LLP, Columbus,
Ohio.
DISTRIBUTIONS AND TAXES
THE FUND
All of the net income of both classes of shares of the Fund is declared each
Business Day as a dividend to shareholders of record at the time of the
declaration. The 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 Fund's
securities, less amortization of premium and the estimated expenses of each
class of shares of the Fund. Shares of the Fund purchased prior to 10:30 a.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 the Fund does not expect to realize long-term capital gains, any
net long-term capital gains that may be realized will be paid annually. The
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 the Fund at $1.00 per share.
DISTRIBUTION OPTIONS
Shareholders of the Fund may choose to receive all distributions in cash or
to reinvest all distributions in additional Trust Shares of the Fund.
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.
FEDERAL INCOME TAXES
Additional information regarding federal income and certain taxes is
contained in the Combined Statement of Additional Information. The following
is a general and abbreviated summary of certain applicable provisions of state
law and the Internal Revenue Code and Treasury regulations currently in
effect. State law, the Code and regulations are subject to change by
legislative or administrative action. Shareholders should consult their own
tax advisor to determine the precise effect of an investment in the Fund on
their particular tax situation.
The 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, the
Fund must, among other things, distribute substantially all of its ordinary
income (and net short-term
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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 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. Qualification as "exempt-interest dividends" means that the Fund may
pass on to shareholders the federal tax-exempt status of its investment
income.
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. For noncorporate
shareholders, a preferred rate (generally 20%) applies to net gains on capital
assets held for more than one year. Distributions of net capital gains will be
treated in the hands of shareholders as long-term gains to the extent
designated by a Fund as deriving from net gains from assets held for more than
one year. Distributions will be taxable as described above whether received in
cash or in shares through the reinvestment of distributions.
The Fund's 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 advisor to determine what effect, if any, an investment in the
Fund may have on the taxation of such benefits. In addition, an investment in
the Fund may result in liability for federal alternative minimum tax, for both
individual and corporate shareholders.
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.
Interest on "specified private activity bonds," as defined by the Tax Reform
Act of 1986, is an item of tax preference possibly subject to the alternative
minimum tax (at the rate of 26% to 28% for individuals and 20% for
corporations). The Fund may invest in such "specified private activity bonds"
subject to the requirement that it invest at least 80% of its net assets in
obligations the interest on which is exempt from federal income tax, including
the alternative minimum tax. The Tax Reform Act of 1986 also created a tax
preference for corporations equal to one-half of the excess of adjusted net
book income over alternative minimum taxable income. As a result, one-half of
tax-exempt interest income received from the Fund may be a tax preference for
corporate investors.
The redemption, sale or exchange of shares of the 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 the
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 the Fund before holding
them for more than six months, any loss on the sale or other disposition of
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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.
Issuers of tax-exempt securities issued after August 31, 1986 are required
to comply with various restrictions on the use and investment of proceeds of
sales of the securities. Any failure by the issuer to comply with these
restrictions would cause interest on such securities to become taxable to the
security holders as of the date the securities were issued.
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 Fund will notify shareholders of the amount and the
federal income tax status of the distributions paid or deemed paid by the Fund
during the preceding year.
FLORIDA TAX MATTERS
The State of Florida does not currently impose an income tax on individuals.
Thus, individual shareholders of the funds will not be subject to any Florida
income tax on distributions received from the Fund. However, Florida does
currently impose an income tax on corporations. Consequently, distributions
may be taxable to corporate shareholders (including limited liability company
shareholders that are taxed as corporations for federal income tax purposes).
The State of Florida currently imposes an "intangible tax" at the annual
rate of two mills, or .20% on certain securities and other intangible personal
property owned by Florida residents. Notes, bonds and other obligations issued
by the state of Florida or its municipalities, counties and other taxing
districts, or by the U.S. government, its agencies and certain U.S.
territories and possessions (such as Guam, Puerto Rico and the Virgin Islands)
are exempt from this intangible tax. If on the last business day of any year,
the fund consists solely of such exempt assets, then the fund's shares will be
exempt from the Florida intangible tax payable in the following year.
In order to take advantage of the exemption from the intangible tax in any
year, a fund must sell any non-exempt assets held in its portfolio during the
year and reinvest the proceeds in exempt assets on or before the last business
day of the calendar year. Transactions costs involved in restructuring a fund
in this fashion would likely reduce investment return and might exceed any
increased investment return the fund achieved by investing in non-exempt
assets during the year.
The foregoing is a general and abbreviated summary of certain provisions of
Florida law. You should consult your tax adviser to determine the precise
application of Florida or other state law to your particular situation.
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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 Monitor Money
Market Fund, The Monitor Ohio Municipal Money Market Fund, The Monitor Florida
Tax-Free Money 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 and The Monitor Short/Intermediate Fixed Income Securities Fund.
Investment Shares of The Monitor 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 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
Combined 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 Combined 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
21
<PAGE>
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 Fund.
The Fund may show its yield and effective yield for both classes of shares.
The 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 Fund's yield.
The Fund's tax-equivalent yield of each class of shares shows the effect on
performance of the tax-exempt status of distributions received from the 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 the 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. 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 the 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 the
Fund's portfolio, and the operating expenses of the 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 the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the 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.
22
<PAGE>
OTHER CLASSES OF SHARES
The Fund 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 of the Fund are sold at net
asset value and are subject to a minimum initial investment of $1,000.
Investment Shares and Trust Shares of the 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 the 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 614/480-5580 (in Ohio) or 800/253-0412 (outside the 614 Area
Code).
23
<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 the Fund or
the Distributor. This Prospectus does not constitute an offering by the Fund or
by the Distributor in any jurisdiction in which such offering may not lawfully
be made.
M logo FPO
The Monitor Funds
MARBLE SCREEN F.P.O.
Investment Shares
FLORIDA TAX-FREE MONEY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 10, 1998
ART
<PAGE>
Rule 497(c)
File No. 33-11905
THE MONITOR FLORIDA TAX-FREE MONEY FUND
TRUST SHARES
The Monitor Funds, a Massachusetts business trust (the "Trust"), consists of
separate series (the "Funds") which have different investment objectives and
policies. The Monitor Florida Tax-Free Money Fund (the "Fund") is a non-
diversified open end management company (a "mutual fund") that offers two
classes of shares: Trust Shares and Investment Shares. Investors may purchase
Trust Shares of the Fund 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.
This Prospectus relates only to Trust Shares of the Fund. This Prospectus
sets forth concisely what a shareholder should know before investing in Trust
Shares of the Fund 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 an Internet website (http://www.sec.gov) that contains the
Combined Statement of Additional Information, material incorporated by
reference and other information relating to the Fund. FOR A FREE COPY OF THE
COMBINED STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1998, AS
SUPPLEMENTED, CALL MONITORDIRECT AT 800-253-0412.
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 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 THE 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. THE FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE; HOWEVER, THERE CAN BE NO ASSURANCE
THAT THE FUND WILL BE ABLE TO DO SO.
IN ADDITION, THE FUND IS CONCENTRATED IN SECURITIES ISSUED BY THE STATE OF
FLORIDA OR OTHER GOVERNMENTAL ENTITIES WITHIN THE STATE OF FLORIDA AND
THEREFORE AN INVESTMENT IN THE FUND MAY BE RISKIER THAN AN INVESTMENT IN OTHER
TYPES OF MONEY MARKET FUNDS.
PROSPECTUS dated December 10, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
PRINCIPAL RISK FACTORS...................................................... 1
FEE TABLE AND EXAMPLE....................................................... 2
Annual Operating Expenses.................................................. 2
Expense Example............................................................ 2
INVESTMENT OBJECTIVE AND POLICIES........................................... 3
Florida Tax-Free Money Fund................................................ 3
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS AND STRATEGIES.............. 5
Florida Obligations........................................................ 5
Credit Enhancement......................................................... 6
Non-Diversification........................................................ 6
Defensive Investment Strategies............................................ 7
Repurchase Agreements...................................................... 7
When-Issued and Delayed Delivery Transactions.............................. 7
Lending of Portfolio Securities............................................ 8
U.S. Government Securities................................................. 8
INVESTMENT RESTRICTIONS..................................................... 9
HOW THE FUND VALUES ITS SHARES.............................................. 10
HOW TO BUY TRUST SHARES..................................................... 10
Minimum Investment Required................................................ 11
Systematic Investment Program.............................................. 11
</TABLE>
PAGE
<TABLE>
<S> <C>
HOW TO EXCHANGE TRUST SHARES AMONG THE FUNDS................................ 11
HOW TO REDEEM TRUST SHARES.................................................. 12
Redeeming By Telephone..................................................... 12
Redeeming By Mail.......................................................... 13
MANAGEMENT OF THE TRUST..................................................... 14
Distribution of Trust Shares............................................... 15
Administration of the Fund................................................. 15
Custodian, Recordkeeper, Transfer Agent, and Dividend Disbursing Agent..... 15
Independent Auditors....................................................... 15
DISTRIBUTIONS AND TAXES..................................................... 15
The Fund................................................................... 15
Distribution Options....................................................... 16
Federal Income Taxes....................................................... 16
Florida Tax Matters........................................................ 18
ORGANIZATION OF THE TRUST................................................... 18
Voting Rights.............................................................. 18
PERFORMANCE DATA AND
COMPARISONS................................................................ 19
SHAREHOLDER INQUIRIES....................................................... 20
OTHER CLASSES OF SHARES..................................................... 20
</TABLE>
<PAGE>
PRINCIPAL RISK FACTORS
Investors should be aware of the following general observations. There can
be no assurance that the Fund will achieve its investment objective. The
Fund's yield will fluctuate due to changes in interest rates, economic
conditions, quality ratings and other factors beyond the control of the
Adviser. In addition, the financial condition of an issuer or adverse changes
in general economic conditions, or both, may impair the issuer's ability to
make payments of interest and principal. There is no limit on the percentage
of a single issue of municipal obligations that the Fund may own. If the Fund
holds a significant portion of the obligations of an issuer, there may not be
a readily available market for the obligations. Reduced diversification could
involve an increased risk to the Fund should an issuer be unable to make
interest or principal payments or should the market value of municipal
obligations decline.
There are also risks of reduced diversification because the Fund invests
primarily in obligations of issuers within a single state. The Fund is more
likely to invest its assets in the securities of fewer issuers because of the
relatively smaller number of issuers of Florida obligations. The Fund's
performance is closely tied to conditions within the State of Florida and to
the financial condition of the State and its authorities and municipalities.
Under current law, the State of Florida is required to maintain a balanced
budget such that current expenses are met from current revenues. Florida does
not currently impose a tax on personal income but does impose taxes on
corporate income derived from activities within the State. In addition,
Florida imposes an ad valorem tax on intangible personal property as well as
sales and use taxes. These taxes are the principal source of funds to meet
State expenses, including repayment of, and interest on, obligations backed
solely by the full faith and credit of the State, without recourse to any
specific project.
YEAR 2000 RISK. Like other mutual funds, financial and business
organizations around the world, the Fund 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 the Fund's 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 Fund's other
major service providers. There can be no assurances, however, that these steps
will be sufficient to avoid any adverse impact on the Fund.
1
<PAGE>
FEE TABLE AND EXAMPLE
The following Fee Table and Example summarize the various costs and expenses
that a shareholder of Trust Shares in the Fund will bear, either directly or
indirectly.
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER TOTAL OPERATING
FEE(1) FEE EXPENSES(2) EXPENSES(3)
---------- ----- ----------- ---------------
<S> <C> <C> <C>
0.20% None 0.30% 0.50%
</TABLE>
- --------
(1) Fee paid by the Fund for investment advisory services. See "Management of
the Trust." The management fee has been reduced to reflect a voluntary
waiver of a portion of the fee by the Adviser. The Adviser may terminate
this voluntary waiver at any time in its sole discretion. The maximum
management fee payable by the Fund is 0.50% of average net assets.
(2) Other expenses are based on estimated amounts for the current year and
include administration fees. See "Management of the Trust--Administration
of the Fund."
(3) Total Operating Expenses for the Fund are shown after taking into account
any fee waivers or expense reimbursements. Total Operating Expenses would
be 0.80% of average net assets, absent the voluntary waiver of a portion
of the Fund's management fee described above.
EXPENSE 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
------ -------
<S> <C>
$5 $16
</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.
2
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described below. There
can, of course, be no guarantee that the Fund will achieve its investment
objective.
The Fund's investment objective is fundamental and may be changed only by a
vote of a majority of the outstanding shares of the Fund. Unless otherwise
noted in this Prospectus or in the Combined Statement of Additional
Information, the investment policies of the Fund are not fundamental and may
be changed by the Trust's Board of Trustees without shareholder approval.
Except with respect to borrowing money, investing in illiquid securities or
downgrades of securities in the Fund, any percentage limitation on the 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 Fund's investments, see the Appendix to the Combined Statement of
Additional Information.
Money Market Funds, in general, are designed for investors seeking current
income with stability of principal. The Fund intends to limit its 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 Combined
Statement of Additional Information entitled "Determination of Net Asset
Value"). Rule 2a-7 imposes certain risk limiting conditions on the Fund which
in some instances restricts the Fund's investment policies. These risk
limiting conditions include the following:
. The Fund must limit its investments to "Eligible Securities" which
Huntington has determined present minimal credit risks under guidelines
adopted by the Trustees. Generally, "Eligible Securities" are those which
have received a rating from an NRSRO in one of the two highest short term
rating categories for debt obligations (an explanation of some of the
other terms defined by Rule 2a-7 is contained in the Combined Statement
of Additional Information).
. The Fund may invest without limit in "First Tier Securities", which are
Eligible Securities that have received a rating in the highest short term
rating category for debt obligations. In addition, the portfolio
investments of the Fund must be deemed to have a maturity of 397 days or
less from the time of purchase by the 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 the Fund's portfolio must not exceed 90 days. Of course, the
Fund's yield, and under unusual circumstances, the value of its portfolio
securities, will be affected by changes in interest rates.
FLORIDA TAX-FREE MONEY FUND
The objective of the Fund is to seek the highest level of interest income
exempt from federal income tax, consistent with liquidity and stability of
principal. The Fund seeks to achieve its investment objective by investing
primarily in high quality, short-term Florida obligations determined by the
Adviser, under the direction of the Board of Trustees, to present minimal
credit risks. Florida
3
<PAGE>
obligations are debt obligations issued by the State of Florida and its
political subdivisions, agencies, authorities and instrumentalities and other
qualifying issuers which pay interest that is, in the opinion of qualified
legal counsel, exempt from federal income tax, including the alternative
minimum tax, and the value of which is exempt from the Florida Intangible
Personal Property Tax. Examples of Florida obligations 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 obligations;
. 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 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 and Guarantees." The 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 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 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 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 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 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.
4
<PAGE>
The 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. Under normal market conditions, the Fund will invest
at least 80% of the value of its net assets in short-term obligations the
interest on which is exempt from federal income tax, including the alternative
minimum tax. Under normal market conditions, at least 65% of the value of the
Fund's total assets will be invested in Florida obligations and the remainder
may be invested in obligations that are not Florida obligations. From time to
time, when Huntington determines that market conditions call for a temporary
defensive posture, the 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 Florida 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).
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS AND STRATEGIES
The Fund may also engage in the following investment techniques, each of
which may involve certain risks:
FLORIDA OBLIGATIONS
The Florida obligations in which the Fund may invest include general
obligation bonds, revenue bonds and industrial development bonds. 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. Revenue bonds
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.
Florida has been and continues to be one of the fastest growing of the
largest states. In 1980 Florida ranked seventh among the fifty states in
population. The State has grown dramatically and as of April 1, 1997, ranked
fourth among the fifty states, with an estimated population of 14.7 million.
Over the years, Florida's total personal income has grown at a strong pace
and outperformed both the U.S. and other southeastern states. The increase in
Florida's total personal income directly reflects
5
<PAGE>
the State's population increase. Florida's per capita personal income has been
closely tracking the national average for many years. From 1991 to 1996.
Florida's total nominal personal income grew by 34.2% and per capita income
expanded approximately 23.8%. For the nation, total and per capita personal
income increased by 30.6% and 24.1% respectively.
Sources of personal income differ in Florida from that of the nation and the
southeast. Because Florida has an older and proportionally larger retirement
population, property income (dividends, interest and rent) and transfer
payments (social security, retirement, disability, unemployment insurance,
workers' compensation, veterans and miscellaneous) are a relatively more
important source of income. A positive aspect of greater reliance on property
income and transfer payments is that they are less sensitive to the business
cycle and act as a stabilizing force in weak economic periods.
In spite of Florida's rapid population growth, employment has grown even
faster. Contributing to Florida's rapid rate of growth in employment and
income are international trade and structural changes to the economy. The
State is gradually becoming less dependent on employment related to
construction, agriculture and manufacturing, and more dependent on employment
related to trade and services. Presently, services constitute 34.9% and trade
25.6% of the State's total nonfarm jobs. For additional information, see
"Special Risk-Factors Applicable to the Florida Tax-Free Money Fund" in the
Combined Statement of Additional Information.
CREDIT ENHANCEMENT
Certain of the portfolio investments of the Fund may have been credit
enhanced by a guarantee, letter of credit or insurance. The Fund typically
evaluates 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 Fund is a non-diversified Fund under the 1940 Act, which means that it
may invest its assets in the obligations of fewer issuers than would be the
case if it were "diversified." The Fund's ability to invest a relatively high
percentage of its assets in the securities of a limited number of issuers
involves an increased risk of loss to the Fund if any one issuer is unable to
make interest or principal payments or if the market value of the issuer's
securities declines.
6
<PAGE>
Although non-diversified under the 1940 Act, the Fund intends 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 the 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 the 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 the Fund's assets. In implementing these
temporary "defensive" strategies, the 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 to be
of comparable quality to the acceptable investments of the Fund and other
investments which Huntington considers consistent with such strategies. The
Fund's alternative strategies may give rise to income which is not exempt from
federal or state taxes.
REPURCHASE AGREEMENTS
Certain securities in which the 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 the Fund and agree at the time of
sale to repurchase them at a mutually agreed upon time and price. The 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 the Fund, the
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 the Fund might be delayed
pending court action. The Trustees believe that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor
of the Fund and allow retention or disposition of such securities. The 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
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities
with payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the 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, the Fund may pay
more or less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
Adviser deems it appropriate to do so.
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LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend its portfolio
securities on a short-term basis to brokers, dealers or other financial
institutions. The 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 the 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 the Fund on a timely basis and the 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.
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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INVESTMENT RESTRICTIONS
The 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 only by a vote of a
majority of the outstanding shares of the Fund.
The Fund will not:
(1) 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) 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. Examples of such developments would be
the loss of taxing power for a county or municipality due to a vote by
its citizens, or a natural disaster or other catastrophe that affects a
region of several counties or municipalities. While such concentration
may occur as a result of changes in the market value of the Fund's
portfolio securities, such concentration may not be the result of an
investment at the time it is made;
(2) Invest more than 10% of the value of its net assets in illiquid
securities, including restricted securities, repurchase agreements of
over seven days' duration and Over The Counter ("OTC") options; or
(3) 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 the Fund may borrow from banks up to 10% of the current value of
its total net assets for temporary or emergency purposes and those
borrowings may be secured by a pledge of not more than 10% of the
current value of its total net assets (but investments may not be
purchased by the Fund while any such borrowings are outstanding).
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HOW THE FUND VALUES ITS SHARES
The 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 the Fund,
subtracting the interest of the Trust Shares in the liabilities of the Fund
and those attributable to Trust Shares, and dividing the remainder by the
total number of Trust Shares outstanding. The Fund cannot guarantee that its
net asset value will always remain at $1.00 per share. The net asset value of
the Fund's Trust Shares will differ from that of Investment Shares due to the
expense of the Rule 12b-1 fee applicable to the Fund's Investment Shares.
The Fund calculates 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 the 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 the Fund 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 the Fund are sold at their net
asset value per share next determined after a purchase order is transmitted to
the Fund's transfer agent, State Street Bank and Trust Company (the "Transfer
Agent"). There is no sales charge imposed by the Fund. Trust Shares in the
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 Fund 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. 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.
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From time to time, the Trust may temporarily suspend the offering of shares
of the Fund 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 the 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 the Fund is $1,000.
Subsequent investments in the Fund may be made at any time in amounts of at
least $500.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, holder of Trust Shares of the 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 the 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 the Fund for Trust Shares in any
other Fund of the Trust 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
2. By Mail: The Huntington National Bank
41 South High Street (HC 1116)
Columbus, OH 43287
Attn: Investor Services
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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 exchanges.
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 designate 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").
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 Trust, it 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, the
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 Fund who request a redemption before 10:30 a.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 10:30 a.m.
(Eastern Time) will receive that day's dividend and the proceeds will normally
be wired the following Business Day.
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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 Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
REDEEMING BY MAIL
Redemption requests may be made in 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 Fund does not accept signatures guaranteed by a notary public.
The Fund and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Fund 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.
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,
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<PAGE>
redemption proceeds may be wired only to the bank previously 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 the 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 the Fund's business. Huntington, Huntington Center, 41 South High
Street, Columbus, Ohio 43287, serves as investment adviser to the Fund
pursuant to an investment advisory agreement with the Trust. Pursuant to a
sub-investment advisory agreement with Huntington, Countrywide Investments,
Inc., 312 Walnut Street, Cincinnati, Ohio 45202, serves as sub-adviser to the
Fund.
Subject to the supervision of the Trustees, Huntington and Countrywide
provide a continuous investment program for the Fund, including investment
research and management with respect to all securities, instruments, cash and
cash equivalents in the Fund. The Trust pays Huntington management fees,
computed daily and payable monthly, for the Fund based on average daily net
assets at the annual rate of 0.50%. Huntington, in turn, pays Countrywide
management fees, computed daily and payable monthly, for the Fund at the
annual rate of 0.20%. Huntington may periodically waive all or a portion of
its management fee with respect to the Fund to increase the net income of the
Fund available for distribution as dividends. Similarly, Countrywide may
periodically waive all or a portion of its management fee.
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 over $27 billion in assets as of September 30,
1998, 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
over $27 billion of assets, and has investment discretion over approximately
$2.8 billion of that amount.
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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.
Sub-Adviser's Background. Countrywide is an indirect wholly-owned subsidiary
of Countrywide Credit Industries, Inc. Organized in 1974, Countrywide serves
as the investment adviser to eighteen mutual fund portfolios of Countrywide
Tax-Free Trust, Countrywide Investment Trust and Countrywide Strategic Trust.
DISTRIBUTION OF TRUST SHARES
SEI Investments Distribution Co., One Freedom Valley Road, Oaks,
Pennsylvania 19456, is the principal distributor for shares of the Fund. It is
a Delaware corporation and is the principal distributor for a number of
investment companies.
ADMINISTRATION OF THE FUND
Huntington is the administrator of the Fund, providing certain
administrative personnel and services necessary to operate the Fund. For these
services, the Fund pays a fee, computed and payable daily, to Huntington at an
annual rate of 0.11% of its 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 Fund. The fees paid to SEI
Fund Resources under this agreement are paid by Huntington and not by the
Fund.
CUSTODIAN, RECORDKEEPER, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Huntington acts as custodian and recordkeeper of the Fund's investments and
other assets. Huntington receives custody and recordkeeping fees of 5.6 basis
points (0.056%) for the Fund. State Street Bank and Trust Company is the
Fund's transfer agent and dividend disbursing agent.
INDEPENDENT AUDITORS
The independent auditors for the Fund are KPMG Peat Marwick LLP, Columbus,
Ohio.
DISTRIBUTIONS AND TAXES
THE FUND
All of the net income of both classes of shares of the Fund is declared each
Business Day as a dividend to shareholders of record at the time of the
declaration. The 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 Fund's
securities, less amortization of premium and the estimated expenses of each
class of shares of the Fund. Shares of
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the Fund purchased prior to 10:30 a.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 the Fund does not expect to realize long-term capital gains, any
net long-term capital gains that may be realized will be paid annually. The
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 the Fund at $1.00 per share.
DISTRIBUTION OPTIONS
Shareholders of the Fund may choose to receive all distributions in cash or
to reinvest all distributions in additional Trust Shares of the Fund.
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.
FEDERAL INCOME TAXES
Additional information regarding federal income and certain taxes is
contained in the Combined Statement of Additional Information. The following
is a general and abbreviated summary of certain applicable provisions of state
law and the Internal Revenue Code and Treasury regulations currently in
effect. State law, the Code and regulations are subject to change by
legislative or administrative action. Shareholders should consult their own
tax advisor to determine the precise effect of an investment in the Fund on
their particular tax situation.
The 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, the
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 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. Qualification as "exempt-interest
dividends" means that the Fund may pass on to shareholders the federal tax-
exempt status of its investment income.
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. For noncorporate
shareholders, a preferred rate (generally 20%) applies to net gains on capital
assets held for more than one year. Distributions of net capital gains will be
treated in the hands of shareholders as long-term gains to the extent
designated by a Fund as deriving from net gains from assets held for more than
one year. Distributions will be taxable as described above whether received in
cash or in shares through the reinvestment of distributions.
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<PAGE>
The Fund's 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 advisor to determine what effect, if any, an investment in the
Fund may have on the taxation of such benefits. In addition, an investment in
the Fund may result in liability for federal alternative minimum tax, for both
individual and corporate shareholders.
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.
Interest on "specified private activity bonds," as defined by the Tax Reform
Act of 1986, is an item of tax preference possibly subject to the alternative
minimum tax (at the rate of 26% to 28% for individuals and 20% for
corporations). The Fund may invest in such "specified private activity bonds"
subject to the requirement that it invest at least 80% of its net assets in
obligations the interest on which is exempt from federal income tax, including
the alternative minimum tax. The Tax Reform Act of 1986 also created a tax
preference for corporations equal to one-half of the excess of adjusted net
book income over alternative minimum taxable income. As a result, one-half of
tax-exempt interest income received from the Fund may be a tax preference for
corporate investors.
The redemption, sale or exchange of shares of the 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 the
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 the 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.
Issuers of tax-exempt securities issued after August 31, 1986 are required
to comply with various restrictions on the use and investment of proceeds of
sales of the securities. Any failure by the issuer to comply with these
restrictions would cause interest on such securities to become taxable to the
security holders as of the date the securities were issued.
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 Fund will notify shareholders of the amount and the
federal income tax status of the distributions paid or deemed paid by the Fund
during the preceding year.
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FLORIDA TAX MATTERS
The State of Florida does not currently impose an income tax on individuals.
Thus, individual shareholders of the funds will not be subject to any Florida
income tax on distributions received from the Fund. However, Florida does
currently impose an income tax on corporations. Consequently, distributions
may be taxable to corporate shareholders (including limited liability company
shareholders that are taxed as corporations for federal income tax purposes).
The State of Florida currently imposes an "intangible tax" at the annual
rate of two mills, or .20% on certain securities and other intangible personal
property owned by Florida residents. Notes, bonds and other obligations issued
by the state of Florida or its municipalities, counties and other taxing
districts, or by the U.S. government, its agencies and certain U.S.
territories and possessions (such as Guam, Puerto Rico and the Virgin Islands)
are exempt from this intangible tax. If on the last business day of any year,
the fund consists solely of such exempt assets, then the fund's shares will be
exempt from the Florida intangible tax payable in the following year.
In order to take advantage of the exemption from the intangible tax in any
year, a fund must sell any non-exempt assets held in its portfolio during the
year and reinvest the proceeds in exempt assets on or before the last business
day of the calendar year. Transactions costs involved in restructuring a fund
in this fashion would likely reduce investment return and might exceed any
increased investment return the fund achieved by investing in non-exempt
assets during the year.
The foregoing is a general and abbreviated summary of certain provisions of
Florida law. You should consult your tax adviser to determine the precise
application of Florida or other state law to your particular situation.
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 Monitor Money
Market Fund, The Monitor Ohio Municipal Money Market Fund, The Monitor Florida
Tax-Free Money 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 and The Monitor Short/Intermediate Fixed Income Securities Fund.
Investment Shares of The Monitor 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
18
<PAGE>
(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 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
Combined 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 Combined 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 Fund. The Fund may show its
yield and effective yield for both classes of shares. The 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 Fund's yield.
The Fund's tax-equivalent yield of each class of shares shows the effect on
performance of the tax-exempt status of distributions received from the 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 the 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.
19
<PAGE>
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. 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 the 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 the
Fund's portfolio, and the operating expenses of the 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 the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the 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
The Fund also offers another class of shares called Investment Shares.
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 of the Fund are sold at net asset value.
Purchases of Investment Shares are subject to a minimum initial investment of
$1,000.
Trust Shares and Investment Shares of the 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 the 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).
20
<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 the Fund or the
Distributor. This Prospectus does
not constitute an offering by the
Fund or by the Distributor in any
jurisdiction in which such offering
may not lawfully be made.
M logo FPO
The Monitor Funds
MARBLE SCREEN F.P.O.
Trust Shares
FLORIDA TAX-FREE MONEY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 10, 1998
ART
<PAGE>
Rule 497 (c)
File No. 33-11905
THE MONITOR FUNDS
INVESTMENT SHARES AND TRUST SHARES
OF
THE MONITOR MONEY MARKET FUND
THE MONITOR OHIO MUNICIPAL MONEY MARKET FUND
THE MONITOR FLORIDA TAX-FREE MONEY 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 applicable Prospectus for Trust Shares or
Investment Shares of Monitor Florida Tax-Free Money Fund dated December 10,
1998, or the applicable Prospectus dated April 30, 1998, for Trust Shares or
Investment Shares of the other Funds of the Trust. This Statement should be
read together with the applicable Prospectus. Investors may obtain a free copy
of a Prospectus by calling Huntington at 800-253-0412.
April 30, 1998
As supplemented December 10, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Definitions.................................................................... 1
Investment Objectives and Policies............................................. 1
Foreign Securities........................................................ 1
Shares of Other Mutual Funds.............................................. 2
Securities Loans.......................................................... 2
When-Issued and Delayed Delivery Transactions............................. 2
Tax-Exempt Securities..................................................... 3
Special Risk Factors Applicable to the Ohio Tax-Exempt Funds.............. 5
Special Risk Factors Applicable to the Michigan Tax-Free Fund............. 7
Special Risk Factors Applicable to the Florida Tax-Free Money Fund........ 9
Mortgage-Related Securities...............................................10
Options on Securities.....................................................11
Risk Factors in Options Transactions......................................12
Futures Contracts.........................................................13
Special Risks of Transactions in Futures Contracts and Related Options....17
Foreign Currency Transactions.............................................18
Zero-Coupon Securities....................................................20
Investment Restrictions........................................................21
Portfolio Turnover........................................................23
Management of the Trust........................................................24
Trustees and Officers.....................................................24
Fund Ownership............................................................25
Trustees Compensation.....................................................28
Investment Adviser........................................................28
Glass-Steagall Act........................................................30
Portfolio Transactions....................................................30
Brokerage and Research Services...........................................31
Administrator.............................................................32
Sub-Administrator.........................................................33
Distributor...............................................................33
The Distribution Plan.....................................................33
Determination of Net Asset Value...............................................34
Additional Purchase Information-Payment in Kind................................38
Taxes..........................................................................38
Federal Income Taxation...................................................38
State Taxation............................................................40
Dividends and Distributions....................................................42
Money Market Funds........................................................42
Other Funds...............................................................43
Performance Information........................................................43
Money Market Funds........................................................44
Other Funds...............................................................44
Tax-Equivalent Yield......................................................46
Tax-Equivalency Tables....................................................48
Custodian......................................................................51
Transfer Agent and Dividend Disbursing Agent...................................51
Independent Auditors...........................................................52
Additional Information.........................................................52
Shareholder Meetings......................................................52
Shareholder Inquiries.....................................................52
Financial Statements...........................................................53
Appendix--Description of Bond Ratings..........................................54
</TABLE>
i
<PAGE>
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
"Funds" -- Each of the separate investment portfolios of the Trust.
"Single State Funds" -- Ohio Municipal Money Market Fund, Ohio Tax-Free Fund, Michigan Tax-Free Fund and
Florida Tax-Free Money Fund.
"Money Market Funds" -- Money Market Fund, Ohio Municipal Money Market Fund, U.S. Treasury Money Market
Fund and Florida Tax-Free Money Fund.
"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.
</TABLE>
The Trust consists of twelve separate Funds with separate investment objectives
and policies. All of the Funds offer two classes of shares known as Investment
Shares and Trust Shares. The investment objectives and policies of each of the
Funds of the Trust are described in the applicable Prospectus for either Trust
Shares or Investment Shares. This Combined Statement of Additional Information
(the "Statement") relates to both Trust Shares and Investment Shares. A Fund's
Trust Shares and Investment Shares are sometimes referred to as "shares."
Capitalized terms used but not defined herein have the meanings as set forth in
the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
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
1
<PAGE>
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 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.
2
<PAGE>
TAX-EXEMPT SECURITIES
The Ohio Tax-Free Fund, The Michigan Tax-Free Fund, the Ohio Municipal Money
Market Fund and the Florida Tax-Free Money Fund (the "Tax-Exempt Funds") will
invest primarily in debt obligations the interest on which is, in the opinion of
bond counsel for the issuing governmental entity or agency, excluded from gross
income for federal income tax purposes. The types of securities are frequently
referred to as "tax-exempt securities". Tax-exempt securities are issued to
obtain monies 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 tax-exempt
securities may be issued include refunding outstanding obligations, obtaining
monies for general operating expenses and to lend to other public institutions
and facilities.
In addition, the Tax-Exempt Funds may invest in certain debt obligations known
as "private activity bonds" (sometimes called "industrial development bonds").
In the case of the Ohio Tax-Free Fund, private activity bonds may be purchased
only if the interest is not treated as a preference item for purposes of the
federal alternative minimum tax. Private activity bonds may be issued by or on
behalf of public authorities to obtain funds to provide certain privately owned
or operated facilities. The Tax-Exempt Funds may not be a desirable investment
for "substantial users" of facilities which are 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 Tax-Exempt Funds.
The two principal classifications of 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 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).
Tax-exempt securities include tax-exempt notes and tax-exempt commerical paper.
These kinds of securities are generally used to provide for short-term capital
needs, seasonal working capital needs of municipalities or to provide interim
construction financing, and generally have maturities of one year or less. Tax-
exempt notes include tax anticipation notes ("TANs"), revenue anticipation notes
("RANs") and bond anticipation notes ("BANs"). TANs are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenues, such as income, sales, use and
business taxes, and are payable from these specific future taxes. RANs are
issued in expectation of receipt of other kinds of revenue, such as federal
revenues available under the federal revenue sharing programs. BANs are issued
to provide interim financing until long-term financing can be arranged. In most
cases, the long-term bonds then provide the money for the repayment of the
notes. In most cases, tax-exempt commercial paper is backed by letters of
credit, lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions and is actively traded.
Prices and yields on 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
3
<PAGE>
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.
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 tax-exempt securities. 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 securities 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 tax-exempt securities
in the same manner. Obligations of issuers of tax-exempt securities are subject
to the provisions of bankruptcy, insolvency and other laws, such as the Federal
Bankruptcy Code, affecting the rights and remedies of creditors.
The Internal Revenue Code of 1986, as amended (the "Code"), imposes certain
continuing requirements on issuers of tax-exempt securities 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.
The Tax-Exempt Funds may invest in 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 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 tax-exempt securities will to the same
extent as interest on such tax-exempt securities be exempt from federal income
tax and applicable state income taxes and, as to the Ohio Tax-Free Fund only,
that the interest will not be treated as a preference item for purposes of the
federal alternative minimum tax.
The Tax-Exempt Funds may also invest in tax-exempt securities by purchasing from
banks participation interests in all or part of specific holdings of 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. A Fund will have
the right to sell the interest back to the bank or other financial institutions
and draw on the letter of credit on demand, generally on seven days' notice, for
all or any part of the Fund's participation interest in the par value of the
municipal obligation plus accrued interest. The Funds will generally intend to
exercise the demand on a letter of credit only under the following
circumstances: (1) default of any of the terms of the documents of the
municipal obligation, (2) as needed to provide liquidity in order to meet
redemptions, or (3) to maintain a high quality investment portfolio. The
selling bank may receive a fee in connection with the arrangement. Banks and
financial institutions are subject to extensive governmental regulations which
may limit the amounts and types of loans and other financial commitments that
may be made and interest rates and fees which may be charged. The profitability
of banks and financial institutions is largely dependent upon the availability
and cost of capital funds to finance lending operations under prevailing money
market conditions. General economic conditions also play an important part in
the operations of these entities and exposure to credit losses arising from
possible financial difficulties of borrowers may affect the ability of a bank or
financial institution to meet its obligations with respect to a participation
interest. A Tax-Exempt Fund will not purchase participation interests unless
it receives an opinion of counsel or a ruling of the Internal Revenue Service
that
4
<PAGE>
interest earned by it on the tax-exempt securities in which it holds such
participation interest is exempt from federal regular income tax and applicable
state income taxes and, as to the Ohio Tax-Free Fund only, that interest will
not be treated as a preference item for purposes of the federal alternative
minimum tax.
SPECIAL RISK FACTORS APPLICABLE TO THE OHIO TAX-EXEMPT FUNDS
"Ohio tax-exempt securities" refer to tax-exempt securities issued by or on
behalf of the State of Ohio or its authorities, agencies, instrumentalities, and
political subdivisions, the interest on which, in the opinion of bond counsel at
the time of issuance, is exempt from both federal income tax and Ohio personal
income taxes. Since the Ohio Tax-Free Fund and the Ohio Municipal Money Market
Fund invest primarily in Ohio tax-exempt securities, the value of these 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 Ohio
Municipal Money Market Fund may invest in Ohio tax-exempt securities only if
rated at the time of purchase within the two highest grades assigned by any two
nationally recognized statistical rating organizations ("NRSROs") (or by any one
NRSRO if the obligation is rated by only that NRSRO). In addition, 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.
Generally, the creditworthiness of Ohio tax-exempt securities of local issuers
is unrelated to that of obligations of the State of Ohio itself, and the state
has no responsibility to make payments on those local obligations. There may be
specific factors that at particular times apply in connection with investment in
particular Ohio tax-exempt securities or in those obligations of particular Ohio
issuers. It is possible that the investment may be in particular Ohio tax-
exempt securities, or in those of particular issuers, as to which those factors
apply. However, the information below is intended only as a general summary, and
is not intended as a discussion of any specific factors that may affect any
particular obligation or issuer.
While diversifying more into the service and other non-manufacturing areas, the
Ohio economy continues to rely in part on durable goods manufacturing largely
concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity, 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 is an important segment of the
economy, with over half of the state's area devoted to farming and approximately
16% of total employment in agribusiness.
In prior years, Ohio's overall unemployment rate was commonly somewhat higher
than the national figure. For example, the reported 1990 average monthly rate
for Ohio was 5.7%, compared to the 5.5% national figure. However, for the last
seven years Ohio's rates have been below the national rates (4.6% versus 4.9% in
1997). The unemployment rate and its effects vary among geographic areas of
Ohio.
Ohio operates on the basis of a fiscal biennium for its appropriations and
expenditures, and is precluded by law from ending its July 1 to June 30 fiscal
year or fiscal biennium in a deficit position. Most state operations are
financed through the General Revenue Fund, for which the personal income and
sales-use taxes are the major sources. Growth and depletion of General Revenue
Fund ending fund balances show a consistent pattern related to national economic
conditions, with the ending fiscal year balance reduced during less favorable
and increased during more favorable economic periods. Ohio has well-established
procedures for, and has timely taken, necessary actions to ensure
resource/expenditure balances during less favorable economic
5
<PAGE>
periods. Those procedures included general and selected reductions in
appropriations spending. The General Revenue Fund appropriations act for the
1998-99 biennium was passed on June 25, 1997, and promptly signed (after
selective vetoes) by the Governor. All necessary General Revenue Fund
appropriations for State debt service and lease rental payments then projected
for the biennium were included in that act.
The incurrence or assumption of debt by the State of Ohio without a vote of the
people is, with limited exceptions, prohibited by current state constitutional
provisions. The State of Ohio may incur debt, limited in amount to $750,000, to
cover casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the state from assuming the
debts of any local government or corporation, with certain limited exceptions.
By constitutional amendments, Ohio voters have authorized the incurrence of
State of Ohio debt and the pledge of taxes or excises to its payment. At
September 26, 1998, $1.12 billion (excluding certain highway bonds payable
primarily from highway use receipts) of this debt was outstanding. The only
such state debt at that date still authorized to be incurred were portions of
the highway bonds, and the following: (a) up to $100 million of obligations for
coal research and development may be outstanding at any one time ($26.7 million
outstanding); (b) $240 million of obligations previously authorized for local
infrastructure improvements, no more than $120 million of which may be issued in
any calendar year ($1 billion outstanding or awaiting delivery); and (c) up to
$200 million in general obligation bonds for parks, recreation and natural
resource purposes which may be outstanding at any one time ($88.6 million
outstanding, with no more than $50 million to be issued in any one year).
State of Ohio and local agencies issue obligations that are payable from
revenues from or relating to certain facilities (but not from taxes). By
judicial interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.
Local school districts in Ohio receive a major portion (state-wide aggregate
approximately 44% in recent years) of their operating moneys from state
subsidies, but are dependent on local property taxes, and in 119 districts (as
of September 17, 1998) from voter-authorized income taxes, for significant
portions of their budgets. Litigation, similar to that in other states, has been
pending questioning the constitutionality of Ohio's system of school funding.
The Ohio Supreme Court has recently concluded that aspects of the system
(including basic operating assistance and the loan program referred to below)
are unconstitutional, and ordered the state to provide for and fund a system
complying with the Ohio Constitution, staying its order for a year (to March
1998) to permit time for responsive corrective actions. A small number of the
state's 612 local school districts have in any year required special assistance
to avoid year-end deficits. A program has provided for school district cash
need borrowing directly from commercial lenders, with diversion of state subsidy
distributions to repayment if needed. Recent borrowings under this program
totalled $41.1 million for 28 districts in fiscal 1994, $71.1 million for 29
districts in fiscal 1995 (including $29.5 million for one district), $87.2
million for 20 districts in fiscal 1996 (including $42.1 million for one
district), and $113.2 million for 12 districts in fiscal 1997 (including $90
million to one district for restructuring its prior loans), and $23.4 million
for 10 districts in fiscal 1998.
For those few municipalities and school districts that on occasion have faced
significant financial problems, there are statutory procedures for a joint
state/local commission to monitor the fiscal affairs and for development of a
financial plan to eliminate deficits and cure any defaults. Similar procedures
have recently been extended to counties and townships. Since inception for
municipalities in 1979, these "fiscal emergency"
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procedures have been applied to 25 cities and villages; for 18 of them the
fiscal situation was resolved and the procedures terminated (one village and
three cities are in preliminary "fiscal watch" status). As of September 17,
1998, the 1996 school district "fiscal emergency" provision had been applied to
six districts, and ten districts were on preliminary "fiscal watch" status.
At present the State of Ohio itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political subdivisions
and other local taxing districts. The Ohio Constitution has since 1934 limited
to 1% of true value in money the amount of the aggregate levy (including a levy
for unvoted general obligations) of property taxes by all overlapping
subdivisions, without a vote of the electors or a municipal charter provision,
and statutes limit the amount of that aggregate levy to 10 mills per $1 of
assessed valuation (commonly referred to as the "ten-mill limitation"). Voted
general obligations of subdivisions are payable from property taxes that are
unlimited as to amount or rate.
Although the State of Ohio's revenue obligations or its political subdivisions
may be payable from a specific project or source, including lease rentals, there
can be no assurance that economic difficulties and the resulting impact on state
and local governmental finances will not adversely affect the market value of
Ohio tax-exempt securities held in the portfolios of the Ohio Tax-Free Fund or
the Ohio Municipal Money Market Fund, or the ability of the obligors of such
Ohio tax-exempt securities to make required payments on or leases relating to
such obligations.
SPECIAL RISK FACTORS APPLICABLE TO THE MICHIGAN TAX-FREE FUND
"Michigan tax-exempt securities" refer to tax-exempt securities issued by or on
behalf of the State of Michigan or its authorities, agencies, instrumentalities,
and political subdivisions, the interest on which, in the opinion of bond
counsel at the time of issuance, is exempt from both federal income tax and
Michigan personal income taxes. Because the Michigan Tax-Free Fund will invest
primarily in Michigan tax-exempt securities, its investment performance is
especially dependent on Michigan's prevailing economic conditions. As a result,
the value of this Fund's shares may fluctuate more widely than the value of
shares of a fund investing in securities relating to a number of states. In
addition, to provide somewhat greater investment flexibility, the Michigan Tax-
Free Fund is also a "non-diversified" fund and, as such, is not required to meet
any diversification requirements under the 1940 Act. The Michigan Tax-Free 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 tax-exempt securities, 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 is a highly industrialized state with an economy principally dependent
upon three sectors: manufacturing (particularly durable goods, automotive
products and office equipment), tourism and agriculture. According to the State
Department of Management and Budget, the U.S. Bureau of Economic Analysis and
the U.S. Bureau of Census, Michigan's population has grown since the 1990 Census
by 5.2%, to approximately 9,774,000 people, while its civilian labor force over
16 years of age has grown by 8.3% and personal income of its residents has grown
by over 43% during that time. Legislation in Michigan requires that the
administration prepare two economic forecasts each year, which are presented
each January and May of
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a given year. The state's economic forecast for calendar years 1998 and 1999
projects healthy growth in the national economy, and it assumes moderate
inflation accompanied by steady interest rates. Real gross domestic product is
projected to grow 3.1% in calendar 1998 and 2.0% in calendar 1999. Nationally,
car and light truck sales are expected to total 14.9 million units in both
calendar 1998 and 1999.
The state's forecast for the Michigan economy reflects the national outlook.
Total wage and salary employment is projected to grow 1.7% in 1998 and 0.8% in
1999. This growth reflects the ongoing diversification of the Michigan
economy. The unemployment rate is projected to average 4.1% in 1998 and 4.4% in
1999, continuing the recent trend of Michigan's unemployment rate being below
the national average for six consecutive years.
The principal revenue sources for the state's General Fund are state taxes from
sales, personal income, single business, and excise taxes (approximately 56% of
total General Fund revenues) and federal and non-tax revenues (approximately 44%
of total revenues). Under the Michigan Constitution, expenditures from the
General Fund are not permitted to exceed available revenues. The principal
expenditures from the General Fund are directed towards education, public
protection, mental and public health, and social services. Improvements in the
Michigan economy have resulted in increased revenue collections, which, together
with restraint on the expenditure side of the budget, have produced General Fund
surpluses of $81.9 million in fiscal 1995, $196.5 million in fiscal 1996 and
$12.7 million in fiscal 1997. Fiscal year 1998 General Fund revenues are
expected to be $8,590.0 million, an increase of 3.2% over the previous year.
Fiscal year 1998 expenditures are projected at $8,601.7 million, an increase
over fiscal 1997 of 3.5%, principally due to projected increases in expenditures
for education and public protection.
The Michigan Constitution limits the amount of total state revenues that can be
raised from taxes and certain 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 average of the prior three calendar years,
whichever is greater, and this fixed percentage equals the ratio of the 1978-79
fiscal year revenues to total calendar 1977 state personal income. If any
fiscal years' revenues exceed the revenue limitation of one percent or more, the
entire amount of the excess must be related in the following fiscal year's
personal income tax or single business tax. Any excess of less than one percent
may be transferred to the state's Budget Stabilization Fund. The unreserved
balance of this Budget Stabilization Fund on September 30, 1997, was estimated
to be $646.3 million.
Since 1994, Michigan has financed the principal portion of the costs of local
public school operations as a state budget item, and has shifted the
responsibility for financing such costs away from local school units. To
provide funding for these additional state budget obligations, the Legislature
has enacted a series of taxes and tax increases, and has exempted all property
in Michigan from millages levied for local and intermediate school district
operating purposes, other than millages levied for community colleges. These
additional state revenues are included within the state's constitutional revenue
limitations and may impact the state's ability to raise additional revenues in
the future.
Although revenue obligations of Michigan or its political subdivisions may be
payable from a specific project or source, including lease rentals, there can be
no assurance that further economic difficulties will not adversely affect the
market value of municipal obligations held in the portfolio of the Michigan Tax-
Free Fund or the ability of the respective obligors to make required payments on
such obligations.
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SPECIAL RISK FACTORS APPLICABLE TO THE FLORIDA TAX-FREE MONEY FUND
"Florida tax-exempt securities" refer to tax-exempt securities issued by the
state of Florida and its political subdivisions, agencies, authorities and
instrumentalities and other qualifying issuers, the value of which is exempt
from the Florida intangible personal property tax, and which pay interest that
is, in the opinion of bond counsel to the issuer, excluded from gross income for
federal income tax purposes. Because the Florida Tax-Free Money Fund will invest
primarily in Florida tax-exempt securities, its investment performance is
especially dependent on Florida's prevailing economic conditions. The Florida
Tax-Free Money Fund may invest in Florida tax-exempt securities only if rated at
the time of purchase within the two highest grades assigned by any two NRSROs
(or by any one NRSRO if the obligation is rated by only that NRSRO).
In 1980, Florida ranked seventh in population among the fifty states, having a
population of 9.7 million people. The state has grown dramatically since 1980
and, as of April 1, 1997, Florida ranked fourth in the nation, with an estimated
population of 14.7 million. The service and trade sectors constitute Florida's
largest employment sectors, with services currently accounting for 34.9% and
trade accounting for 25.6% of the state's of total non-farm employment.
Florida's manufacturing jobs exist in the high-tech and high value-added
sectors, such as electrical and electronic equipment, as well as printing and
publishing. The job creation rate for the state is almost twice that of the
nation's rate as a whole. Since 1995, Florida's unemployment rate has again
been below the nation's average. In 1997, Florida's unemployment rate was 4.8%,
while the nation's was 4.9%.
South Florida, because of its location and involvement with foreign trade,
tourism and investment capital, is particularly susceptible to international
trade and currency imbalances and economic dislocations in Central and South
America. The central and northern portions of the state are affected by
problems in the agricultural sector, particularly in the citrus and sugar
industries. Short-term adverse economic conditions may be experienced by the
central and northern section of Florida, and in the state as a whole, due to
crop failures, severe weather conditions or other agriculture-related problems.
In addition, the state economy has historically been somewhat dependent on the
tourism and construction industries and is therefore sensitive to trends in
those sectors.
The State operates under an annual budget. Under the State Constitution and
aplicable statutes, the budget as a whole and each separate fund within the
State budget must be kept in balance from currently available revenues during
each State fiscal year (July 1 through June 30). Moneys are expended pursuant
to appropriations acts. In fiscal year 1996-97, an estimated 67 percent of
total direct revenues were derived from State taxes and fees. Federal funds and
other special revenues accounted for the remaining revenues. The largest single
source of tax receipts in Florida is the 6% sales and use tax and the second
largest source of tax receipts (including those distributed to local
governments) is the tax on motor fuels. Other tax receipts sources include an
alcoholic beverage tax (an excise tax), a corporate income tax, a documentary
stamp tax, a gross receipts tax, intangible personal property tax and and estate
tax. The Florida Lottery produced sales of $2.09 billion of which $792.3
million dollars was used for education in fiscal year 1996-97. Estimated
revenues of $16,877.6 million for 1997-98 represent an increase of 7.2% over
revenues for 1996-1997. Esimated revenues for 1988-99 of $17,627.0 million
represent an increase of 4.4% over 1997-1998.
Pursuant to a constitutional amendment which was ratified by the voters on
November 8, 1994, the rate of growth in state revenues in a given fiscal year is
limited to no more than the average annual growth rate in Florida personal
income over the previous five years. Revenues collected in excess of the
limitation are to be deposited into the Budget Stabilization Fund unless 2/3 of
the members of both houses of the Legislature vote to raise the limit. The
revenue limit is determined by multiplying the average annual growth rate in
Florida personal income over the previous five years by the maximum amount of
revenue permitted under the cap for the previous year. State revenues are
defined as taxes, licenses, fees and charges for services imposed by the
Legislature as well as revenue from the sale of lottery tickets. Included among
the categories of revenues which are exempt from the proposed revenue limitation
are revenues pledged to state bonds.
Many factors, including national, economic, social and environmental policies
and conditions, most of which are not within the control of the state or local
government, could affect or adversely impact on Florida's financial condition.
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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 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.
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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
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,
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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.
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
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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 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
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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 U.S. Treasury securities when, in
the opinion of Huntington, price movements in Treasury security futures and
related options
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will 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 any time
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 U.S. 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.
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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.
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, U.S. 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.
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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.
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
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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 U.S. 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 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
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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 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. In such event, it may not be possible to close a futures or related
option position and, in the event of adverse price
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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
maybe 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 U.S. 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.
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
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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
maybe 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.
(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
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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, Intermediate Government Income Fund and Florida
Tax-Free Money 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% (10% for the
Florida Tax-Free Money Fund) 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 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.
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(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:
FUND 1996 1997
---- ---- ----
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%
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
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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>
POSITION(S)
HELD WITH PRINCIPAL OCCUPATION(S)
NAME, AGE AND ADDRESS 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)
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
Birthdate: October 20, 1959 Director and Treasurer, Childrens Hospital,
Columbus, Ohio (1985-1989).
Mark Nagle President and Vice President, Fund Accounting and
One Freedom Valley Road Chief Executive Administration of SEI Fund Resources since
Oaks, Pennsylvania 19456 Officer BISYS Fund Services from 1995 to 1996;
Birthdate: October 20, 1959 Senior Vice President, Fidelity
Investments from 1981-1995.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Robert DellaCroce Treasurer, Director, Funds Administration and
One Freedom Valley Road Controller and Accounting of SEI since 1994. Senior Audit
Oaks, Pennsylvania 19456 Chief Financial Manager, Arthur Anderson LLP, from 1986
Birthdate: December 17, 1963 Officer to 1994.
Kathryn L. Stanton Vice President and Vice President and Assistant Secretary of
One Freedom Valley Road Secretary SEI Corporation since 1994; Associate
Oaks, Pennsylvania 19456 attorney with Morgan, Lewis and Bockius
Birthdate: November 19, 1958 (1989-1994).
Todd Cipperman Vice President and Vice President and Assistant Secretary of
One Freedom Valley Road Assistant Secretary SEI Corporation since 1995; Associate
Oaks, Pennsylvania 19456 attorney with Dewey Ballantine (1994-
Birthdate: February 14, 1966 1995); Associate attorney with Winston &
Strawn (1991-1994).
Joseph M. Lydon Vice President and Director of Business Administration-Fund
One Freedom Valley Road Assistant Secretary Resources, a division of SEI Corporation
Oaks, Pennsylvania 19456 since 1995; Vice President of Fund Group,
Birthdate: September 27, 1959 Vice President of the Advisor-Dremen Value
Management, L.P., and President of Dremen
Financial Services, Inc. (1993-1997).
Joseph M. O'Donnell Vice President and Vice President and Assistant Secretary of
One Freedom Valley Road Assistant Secretary SEI since 1998, Vice President and General
Oaks, Pennsylvania 19456 Counsel, FPS Service, Inc. (1993-1997).
Birthdate: November 13, 1951
Kevin P. Robbins Vice President and Senior Vice President, General Counsel and
One Freedom Valley Road Assistant Secretary Secretary of SEI Corporation since 1994.
Oaks, Pennsylvania 19456 Vice President and Assistant Secretary
Birthdate: April 15, 1961 (1992-1994); 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 September 10, 1998, the Trustees and officers as a group owned less than
1% of the shares of the Trust.
25
<PAGE>
As of September 10, 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 79,992,493 shares
(32.75%); and Huntington, acting in various capacities for numerous accounts,
owned approximately 110,533,088 shares (45.26%).
As of September 10, 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
560,873,786 shares (99.54%).
As of September 10, 1998, the following shareholder of record owned 5% or more
of the outstanding Investment Shares of The Monitor Ohio Municipal Money Market
Fund: Huntington, acting in various capacities for numerous accounts, owned
approximately 123,729,274 shares (88.18%).
As of September 10, 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 76,287,245 shares (100%).
As of September 10, 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 36,911,554 shares (66.90%); Allied Fidelity Insurance Co.,
Indianapolis, IN, owned approximately 4,055,684 shares (7.35%); and Frank E.
Murphy, Wadsworth, OH, owned approximately 4,023,147 shares (7.29%).
As of September 10, 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 459,885,153 shares (99.62%).
As of September 10, 1998, no shareholders of record owned 5% or more of the
outstanding Investment Shares of The Monitor Growth Fund.
As of September 10, 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 6,466,440
shares (99.18%).
As of September 10, 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 2,072 shares (9.24%);
Carol C. Hagemeier, Columbus, OH, owned approximately 1,809 shares (8.07%);
Joseph E. Segna, Columbus, OH, owned approximately 1,371 shares (6.12%); John M.
(a Trustee of the Trust) and Claire Shary, Columbus, OH, owned approximately
1,376 shares (6.14%); Larry McLernon, Dublin, OH owned approximately 1,315
shares (5.87%); William R. (a Trustee of the Trust) and Nancy R. Wise,
Westerville, OH, owned approximately 1,160 shares (5.17%); and Gretchen Sheridan
and Robert G. White, Carmel, IN, owned approximately 1,197 shares (5.34%).
As of September 10, 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
5,910,700 shares (98.23%).
26
<PAGE>
As of September 10, 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 (5.66%).
As of September 10, 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 4,341,795 shares (97.94%).
As of September 10, 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 6,423 shares
(8.89%); Ursula E.M. and William J. Umberg, Cincinnati, OH, owned approximately
8,616 shares (11.93%); Evelyn V. Culbertson, Columbus, OH, owned approximately
4,523 shares (6.26%); and Mary Ann and Michael M. Machowsky, Jr., Rossford, OH,
owned approximately 4,612 shares (6.39%).
As of September 10, 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
3,024,443 shares (98.91%).
As of September 10, 1998, the following shareholder of record owned 5% or more
of the outstanding Investment Shares of The Monitor Michigan Tax-Free Fund:
Donald B. and Joyce E. Dobb, Muskegon, MI, owned approximately 48,586 shares
(5.02%).
As of September 10, 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 2,332,432 shares (100%).
As of September 10, 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 5,766 shares
(8.10%); and the Cincinnati Institute of Fine Arts, Cincinnati, OH, owned
approximately 4,615 shares (6.48%).
As of September 10, 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 7,629,590 shares (99.37%).
As of September 10, 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 27,682 shares
(8.89%).
As of September 10, 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 11,141,122 shares (100%).
As of September 10, 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 6,360,103 shares (99.16%).
27
<PAGE>
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 over $27 billion in assets as of
September 30, 1998, HBI is a major Midwest regional bank holding company.
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.
28
<PAGE>
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.
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.
29
<PAGE>
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, 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 maybe
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
30
<PAGE>
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 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 Agreements, 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.
31
<PAGE>
In the fiscal years ended December 31, 1995, 1996 and 1997, the Funds named
below paid the following brokerage commissions:
FUND 1995 1996 1997
- ---- ------- -------- -------
Growth Fund.......................... $88,688 $ 76,783 $71,100
Income Equity Fund................... $53,998 $107,966 $36,858
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:
<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,
32
<PAGE>
$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.
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, and for the Florida Tax-Free Money Fund on October 21, 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.
33
<PAGE>
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:
FUND 1995 1996 1997
---- -------- -------- ---------
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* $ 3,414*
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
- ----------
* 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 $6,827, 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
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repurchase those securities. A variable rate instrument, theprincipal 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 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.
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.
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"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
equality, 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 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.
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"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 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.
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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:
(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
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(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 (including receivables), 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 net unrealized
gains and make distributions of any accumulated earnings and profits 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 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.
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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 stock or securities in 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 under
reported 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.
STATE TAXATION
Florida. Florida does not impose an income tax on individuals. Thus,
individual shareholders of the Florida Tax-Free Money Fund will not be subject
to any Florida state or local income taxes on distributions received from the
Florida Tax-Free Money Fund.
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Florida does impose a state income tax on the income of corporations, limited
liability companies (that are subject to federal income taxation) and certain
trusts (excluding probate and testamentary trusts), and this tax is allocated or
apportioned to Florida. For those types of shareholders, in determining income
subject to Florida corporate income tax, Florida generally "piggy-backs" federal
taxable income concepts, subject to adjustments that are applicable to all
corporations and some adjustments that are applicable to certain classes of
corporations. In regard to the Florida Tax-Free Money Fund, the most
significant adjustment is for interest income from state and local bonds that is
exempt from tax under Section 103 of the Code. Provided that the Florida Tax-
Free Money Fund qualifies as a regulated investment company under the Code and
complies with the requirement that at least 50% of the value of its assets at
the close of each quarter of its taxable year be invested in state, municipal or
other obligations the interest on which is exempt from tax under Section 103 of
the Code, corporate shareholders of the Florida Tax-Free Money Fund may receive
Section 103 interest income from Florida Tax-Free Money Fund distributions.
While Section 103 interest income is generally excluded from taxable income for
federal income tax purposes, it is added back to taxable income for Florida
corporate income tax purposes (only 40% of such income is added back for
corporate taxpayers subject to Florida alternative minimum tax). Consequently,
the portion of the Section 103 interest income (or 40% of that amount for
corporate taxpayers subject to the Florida alternative minimum tax) allocated or
apportioned to Florida of a corporate Florida Tax-Free Money Fund shareholder
arising from Florida Tax-Free Money Fund distributions is subject to Florida
corporate income taxes. Other distributions from the Florida Tax-Free Money
Fund to corporate shareholders, to the extent allocated or apportioned to
Florida, may also be subject to Florida income tax.
Provided that on January 1 of a given year the portfolio of assets of the
Florida Tax-Free Money Fund is comprised exclusively of notes, bonds, and other
obligations issued by the State of Florida or its municipalities, counties and
other taxing districts, the U.S. Government and its agencies, Puerto Rico, Guam
and the Virgin Islands, and other investments exempt from Florida intangible
personal property tax, shares of the Florida Tax-Free Money Fund will not be
subject to Florida intangible personal property taxes for that year. If the
Florida Tax-Free Money Fund holds any other type of asset on that date, then the
entire value of the Florida Tax-Free Money Fund shares (except for that portion
of the value attributable to U.S. government obligations) will be subject to the
Florida intangible personal property tax.
Shareholders of the Florida Tax-Free Money Fund should consult their tax
advisers about other state and local tax consequences of their investments in
the Florida Tax-Free Money Fund.
Michigan. Provided that the Michigan Tax-Free Fund qualifies as a regulated
investment company under the Code and complies with the requirement that at
least 50% of the value of its assets at the close of each quarter of its taxable
year be invested in state, municipal or other obligations the interest on which
is exempt from tax under Section 103 of the Code, 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 Michigan Tax-Free 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. 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. 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.
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Ohio. Distributions with respect to shares of the Ohio Municipal Money Market
Fund and the Ohio Tax-Free Fund that are property attributable to interest on,
or profit made on the sale, exchange, or other disposition of, obligations
issued by or on behalf of the State of Ohio, its agencies, instrumentalities and
political subdivisions, are exempt from the Ohio personal income tax and
municipal and school district income taxes in Ohio, provided that the Ohio
Municipal Money Market Fund or the Ohio Tax-Free Fund, as the case may be,
continues to qualify as a regulated investment company for federal income tax
purposes and complies with the requirement that at least 50% of the value of its
assets at the close of each quarter of its taxable year be invested in state,
municipal or other obligations the interest on which is exempt from tax under
Section 103 of the Code and (ii) it is assumed that the regulated investment
company and 50% requirements described above are satisfied.
Distributions are excluded from the net income base of the Ohio corporation
franchise tax to the extent that such Distributions are either excluded from
gross income for federal income tax purposes or are properly attributable to
interest on, or profit made on the sale, exchange or other disposition of, Ohio
tax-exempt securities. However, shares of the Ohio Municipal Money Market Fund
and the Ohio Tax-Free Fund will be includable in the computation of net worth
for purposes of such tax.
Distributions that are properly attributable to interest on obligations of the
U.S. or its territories or possessions or of any authority, commission or
instrumentality of the U.S. the interest on which is exempt from state income
taxes under the laws of the U.S. (including the obligations of the Governments
of Puerto Rico, the Virgin Islands and Guam) are exempt from the Ohio personal
income tax and municipal and school district income taxes in Ohio, and,
provided, in the case of such territorial obligations such interest is excluded
from gross income for federal income tax purposes, are excluded from the net
income base of the Ohio corporation franchise tax.
Other Distributions will generally not be exempt from Ohio income tax.
Shareholders of the Ohio Municipal Money Market Fund and the Ohio Tax-Free Fund
should consult their tax advisers about other state and local tax consequences
of their investments in the Ohio Municipal Money Market Fund and the Ohio Tax-
Free Fund.
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.
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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 not 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
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,
43
<PAGE>
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:
FUND-TRUST SHARES YIELD EFFECTIVE YIELD
----------------- ------ ----------------
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%
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:
FUND-INVESTMENT SHARES YIELD EFFECTIVE YIELD
---------------------- ------ ----------------
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%
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 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.
44
<PAGE>
The yield of Trust Shares of each of the following Funds for the 30-day period
ended December 31, 1997, was as follows:
FUND--TRUST SHARES YIELD
------------------ -----
Growth Fund....................................... 0.61%
Income Equity Fund................................ 2.85%
Mortgage Securities Fund.......................... 6.16%
Ohio Tax-Free Fund................................ 3.68%
Michigan Tax-Free Fund*........................... 3.94%
Fixed Income Securities Fund...................... 5.73%
Intermediate Government Income Fund*.............. 5.44%
Short/Intermediate Fixed Income Securities Fund... 5.51%
__________
*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:
FUND--INVESTMENT SHARES YIELD
----------------------- -----
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%
__________
* 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:
<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.
45
<PAGE>
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. 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
maybe 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).
46
<PAGE>
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). This
performance is for the predecessor FMB Michigan Tax-Free Bond Fund.
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).
47
<PAGE>
TAX-EQUIVALENCY TABLES
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 either Fund's
portfolio generally remains free from federal regular income tax and is free
from Ohio personal income taxes. The tables below provide tax-equivalent yields
for selected tax-exempt yields. Some portion of either Fund's income may result
in liability under the federal alternative minimum tax and may be subject to
state and local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
COMBINED FEDERAL AND STATE OF OHIO INCOME TAXES
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Tax Rate:
15.00% 28.00% 28.00% 31.00% 31.00% 31.00% 36.00% 36.0% 39.60%
Combined Federal and State Tax Rate:
18.43% 30.91% 31.40% 34.25% 34.72% 35.32% 40.00% 40.35% 43.71%
Taxable Income
Brackets: $ 1- $25,351- $40,001- $61,401- $80,001- $100,000- $128,101- $200,001- Over
$25,350 $ 40,000 $ 61,400 $ 80,000 $100,000 $ 128,100 $ 200,000 $ 278,450 $278,450
</TABLE>
<TABLE>
<CAPTION>
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.50%....................... 1.84% 2.17% 2.19% 2.28% 2.30% 2.32% 2.50% 2.52% 2.67%
2.00%....................... 2.45% 2.89% 2.91% 3.04% 3.06% 3.10% 3.33% 3.35% 3.55%
2.50%....................... 3.06% 3.62% 3.64% 3.80% 3.83% 3.87% 4.17% 4.19% 4.44%
3.00%....................... 3.68% 4.34% 4.37% 4.56% 4.60% 4.64% 5.00% 5.03% 5.33%
3.50%....................... 4.29% 5.07% 5.10% 5.32% 5.36% 5.41% 5.83% 5.87% 6.22%
4.00%....................... 4.90% 5.79% 5.83% 6.08% 6.13% 6.18% 6.67% 6.71% 7.11%
4.50%....................... 5.52% 6.51% 6.56% 6.84% 6.89% 6.96% 7.50% 7.54% 7.99%
5.00%....................... 6.13% 7.24% 7.29% 7.60% 7.66% 7.73% 8.33% 8.38% 8.88%
5.50%...................... 6.74% 7.96% 8.02% 8.37% 8.42% 8.50% 9.17% 9.22% 10.06%
6.00%...................... 7.36% 8.68% 8.75% 9.13% 9.19% 9.28% 10.00% 10.06% 10.66%
</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 chart above is for illustrative purposes only. It is not an indicator of
past or future performance.
48
<PAGE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1998
COMBINED FEDERAL AND STATE OF OHIO INCOME TAXES (continued)
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Tax Rate:
15.00% 15.00% 28.00% 28.00% 28.00% 31.00% 36.00% 36.0% 39.60%
Combined Federal and State
Tax Rate:
18.43% 19.01% 31.40% 31.88% 32.50% 35.32% 40.00% 40.35% 43.71%
Taxable Income
Brackets: $1- $40,001- $42,351- $80,001- $100,001- $102,301- $155,951- $200,001- Over
$40,000 $42,350 $80,000 $100,000 $102,300 $155,950 $200,000 $278,450 $278,450
</TABLE>
<TABLE>
<CAPTION>
TAX-EXEMPT YIELD AXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.50%...................... 1.84% 1.85% 2.19% 2.20% 2.22% 2.32% 2.50% 2.52% 2.67%
2.00%...................... 2.45% 2.47% 2.91% 2.94% 2.96% 3.10% 3.33% 3.35% 3.55%
2.50%...................... 3.06% 3.09% 3.64% 3.67% 3.70% 3.87% 4.17% 4.19% 4.44%
3.00%...................... 3.68% 3.70% 4.37% 4.40% 4.44% 4.64% 5.00% 5.03% 5.33%
3.50%...................... 4.29% 4.32% 5.10% 5.14% 5.18% 5.41% 5.83% 5.87% 6.22%
4.00%...................... 4.90% 4.94% 5.83% 5.87% 5.93% 6.18% 6.67% 6.71% 7.11%
4.50%...................... 5.52% 5.56% 6.56% 6.61% 6.67% 6.96% 7.50% 7.54% 7.99%
5.00%...................... 6.13% 6.17% 7.29% 7.34% 7.41% 7.73% 8.33% 8.38% 8.88%
5.50%...................... 6.74% 6.79% 8.02% 8.07% 8.15% 8.50% 9.17% 9.22% 9.78%
6.00%...................... 7.36% 7.41% 8.75% 8.81% 8.89% 9.28% 10.00% 10.06% 10.66%
</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 chart above is for illustrative purposes only. It is not an indicator of
past or future performance.
49
<PAGE>
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.
TAXABLE YIELD EQUIVALENT FOR 1998
COMBINED FEDERAL AND STATE OF MICHIGAN INCOME TAXES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Federal Tax Rate:
15.0% 28.0% 31.0% 36.0% 39.6%
Combined Federal and State Tax Rate:
19.4% 32.4% 35.4% 40.4% 44.0%
Taxable Income
Brackets--
SINGLE RETURN: $1- $25,351- $61,401- $128,101- Over
$25,350 $61,400 $128,100 $278,450 $278,450
JOINT RETURN: $1- $42,351- $102,301- $155,951- Over
$42,350 $102,300 $155,950 $278,450 $278,450
</TABLE>
<TABLE>
<CAPTION>
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50%................. 1.86% 2.22% 2.32% 2.52% 2.68%
2.00%................. 2.48% 2.96% 3.10% 3.36% 3.57%
2.50%................. 3.10% 3.70% 3.87% 4.19% 4.46%
3.00%................. 3.72% 4.44% 4.64% 5.03% 5.36%
3.50%................. 4.34% 5.18% 5.42% 5.87% 6.25%
4.00%................. 4.96% 5.92% 6.19% 6.71% 7.14%
4.50%................. 5.58% 6.66% 6.97% 7.55% 8.04%
5.00%................. 6.20% 7.40% 7.74% 8.39% 8.93%
5.50%................. 6.82% 8.14% 8.51% 9.23% 9.82%
6.00%................. 7.44% 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.
50
<PAGE>
FLORIDA TAX-FREE MONEY FUND
The Florida Tax-Free Money 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. Some portion of this Fund's income may result
in liability under the federal alternative minimum tax. The table below
provides tax-equivalent yields for selected tax-exempt yields.
TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF FLORIDA--FEDERAL INCOME TAXES ONLY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Federal Tax Rates:
15.0% 28.0% 31.0% 36.0% 39.6%
Taxable Income Brackets--
SINGLE RETURN: $1- $25,351- $61,401- $128,101- Over
$25,350 $61,400 $128,100 $278,450 $278,450
JOINT RETURN: $1- $42,351- $102,301- $155,951- Over
$42,350 $102,300 $155,950 $278,450 $278,450
</TABLE>
<TABLE>
<CAPTION>
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
1.50%................. 1.76% 2.08% 2.17% 2.34% 2.48%
2.00%................. 2.35% 2.78% 2.90% 3.13% 3.31%
2.50%................. 2.94% 3.47% 3.62% 3.91% 4.14%
3.00%................. 3.53% 4.17% 4.35% 4.69% 4.97%
3.50%................. 4.12% 4.86% 5.07% 5.47% 5.79%
4.00%................. 4.71% 5.56% 5.80% 6.25% 6.62%
4.50%................. 5.29% 6.25% 6.52% 7.03% 7.45%
5.00%................. 5.88% 6.94% 7.25% 7.81% 8.28%
5.50%................. 6.47% 7.64% 7.97% 8.59% 9.11%
6.00%................. 7.06% 8.33% 8.70% 9.38% 9.93%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating
the taxable yield equivalent.
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.
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
51
<PAGE>
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 AUDITORS
The independent auditors for the Trust were Price Waterhouse LLP, Columbus,
Ohio, through December 31, 1996. Effective January 1, 1997, the independent
auditors for the Trust are KPMG Peat Marwick LLP, Columbus, Ohio.
ADDITIONAL INFORMATION
SHAREHOLDER MEETINGS
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, beheld
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.
Shareholder inquiries regarding those Funds offering Investment Shares should be
directed to The Huntington Investment Company, 41 South High Street, Columbus,
Ohio 43287.
52
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements of The Monitor Funds (except Michigan Tax-Free
Fund and Intermediate Government Income Fund) for the year ended December 31,
1997, and the report of KPMG Peat Marwick LLP, independent auditors, 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
audited financial statements for Michigan Tax-Free Fund and Intermediate
Government Income Fund for the six months ended May 31, 1998, and the report of
KPMG Peat Marwick LLP, independent auditors, are incorporated by reference from
the Annual Report to Shareholders of such Funds for the six months ended May 31,
1998, which has been previously sent to shareholders of such Funds pursuant to
Section 30(d) of the 1940 Act and previously filed with the Securities and
Exchange Commission. A copy of either Annual Report to Shareholders may be
obtained without charge by contacting the Trust.
53
<PAGE>
APPENDIX--DESCRIPTION OF BOND RATINGS
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.
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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 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.
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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".
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. P-2 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.
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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.
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