FOUNTAIN SQUARE FUNDS
PROSPECTUS
Fountain Square Funds (the "Trust") is an open-end, management investment
company (a mutual fund). This combined prospectus offers investors interests in
the following six separate investment portfolios (the "Funds"), each having a
distinct investment objective and policies:
- Fountain Square U.S. Government Securities Fund;
- Fountain Square Quality Bond Fund;
- Fountain Square Ohio Tax Free Bond Fund;
- Fountain Square Quality Growth Fund;
- Fountain Square Mid Cap Fund; and
- Fountain Square Balanced Fund.
This combined prospectus contains the information you should read and know
before you invest in any of the Funds. Keep this prospectus for future
reference.
Additional information about the Funds is contained in the Funds' Combined
Statement of Additional Information, dated September 30, 1994, which has also
been filed with the Securities and Exchange Commission. The information
contained in the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined Statement
of Additional Information free of charge, obtain other information, or make
inquiries about any of the Funds by writing to or calling the Trust.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION , THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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.
Prospectus dated September 30, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- ------------------------------------------------------
Risk Factors 1
EXPENSES OF THE FUNDS 2
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- ------------------------------------------------------
OBJECTIVE OF EACH FUND 10
- ------------------------------------------------------
U.S. Government Securities Fund 10
Acceptable Investments 10
Investment Limitations 10
Quality Bond Fund 11
Acceptable Investments 11
Collateralized Mortgage Obligations 11
Investment Limitations 12
Ohio Tax Free Bond Fund 12
Acceptable Investments 12
Characteristics 12
Participation Interests 12
Variable Rate Municipal Securities 12
Municipal Leases 12
Temporary Investments 13
Ohio Municipal Securities 13
Investment Risks 13
Non Diversification 13
Investment Limitations 14
Quality Growth Fund 14
Acceptable Investments 14
Convertible Securities 14
Investment Limitations 15
Mid Cap Fund 15
Acceptable Investments 15
Investment Limitations 15
Balanced Fund 15
Acceptable Investments 15
Money Market Instruments 16
Investment Limitations 16
PORTFOLIO INVESTMENTS AND STRATEGIES 16
- ------------------------------------------------------
Borrowing Money 16
Diversification 16
Restricted and Illiquid Securities 16
Repurchase Agreements 17
When-Issued and Delayed Delivery
Transactions 17
Lending of Portfolio Securities 17
Options and Futures 17
Put and Call Options 17
Futures and Options on Futures 18
Risks 18
Bond Ratings 18
Foreign Investments 19
Equity Investment Considerations 19
Temporary Investments 19
Variable Rate Demand Notes 19
Commercial Paper 20
Bank Instruments 20
FOUNTAIN SQUARE FUNDS INFORMATION 20
- ------------------------------------------------------
Management of the Trust 20
Board of Trustees 20
Investment Adviser 20
Advisory Fees 20
Adviser's Background 20
Portfolio Managers' Backgrounds 21
Distribution of Shares of the Funds 21
Distribution Plan 21
Other Payments to Financial Institutions 22
Administration of the Funds 22
Administrative Services 22
Custodian, Transfer Agent and Dividend
Disbursing Agent 22
Legal Counsel 22
Independent Auditors 22
Brokerage Transactions 23
NET ASSET VALUE 23
- ------------------------------------------------------
INVESTING IN THE FUNDS 23
- ------------------------------------------------------
Share Purchases 23
Through Fifth Third Bank or
Fifth Third Securities 23
Minimum Investment Required 23
What Shares Cost 24
Purchases at Net Asset Value 24
Dealer Concessions 24
Reducing/Eliminating the Sales Charge 24
Quantity Discounts and Accumulated
Purchases 24
Letter of Intent 25
Fifth Third Bank Club 53, One Account
Plus or One Account Gold Programs 25
Purchases with Proceeds from Redemptions
of Unaffiliated Mutual Fund Shares 25
Purchases with Proceeds from Distributions
of Qualified Retirement Plans or
Other Trusts Administered by
Fifth Third Bank 25
Concurrent Purchases 26
Exchanging Securities for Fund Shares 26
Systematic Investment Program 26
Certificates and Confirmations 26
Dividends and Capital Gains 26
EXCHANGES 26
- ------------------------------------------------------
REDEEMING SHARES 27
- ------------------------------------------------------
Through Fifth Third Bank or Fifth
Third Securities 27
By Telephone 27
By Mail 28
Receiving Payment 28
Systematic Withdrawal Program 28
Accounts with Low Balances 28
SHAREHOLDER INFORMATION 29
- ------------------------------------------------------
Voting Rights 29
Massachusetts Law 29
EFFECT OF BANKING LAWS 29
- ------------------------------------------------------
TAX INFORMATION 30
- ------------------------------------------------------
Federal Income Tax 30
ADDITIONAL TAX INFORMATION FOR
OHIO TAX FREE BOND FUND 30
- ------------------------------------------------------
State of Ohio Income Taxes 30
Other State and Local Taxes 30
- ------------------------------------------------------
PERFORMANCE INFORMATION 31
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SYNOPSIS
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. This prospectus relates only to the six Funds
described herein. The Funds are designed for individuals and institutions as a
convenient means of accumulating interests in professionally managed portfolios.
The following six Funds are offered in this prospectus:
- Fountain Square U.S. Government Securities Fund ("Government Securities
Fund")--seeks to provide a high level of current income by investing
primarily in U.S. government securities, including U.S. Treasury and
government agency issues;
- Fountain Square Quality Bond Fund ("Quality Bond Fund")--seeks to provide
a high level of current income with capital growth as a secondary
objective by investing in investment grade debt securities of U.S.
corporations, U.S. dollar-denominated issues of foreign corporations,
U.S. government securities, and collateralized mortgage obligations;
- Fountain Square Ohio Tax Free Bond Fund ("Ohio Tax Free Fund")--seeks to
provide current income exempt from federal income tax and the personal
income taxes imposed by the state of Ohio and Ohio municipalities by
investing primarily in Ohio municipal securities. The Fund is not likely
to be a suitable investment for non-Ohio taxpayers or retirement plans
since it intends to invest in Ohio municipal securities;
- Fountain Square Quality Growth Fund ("Quality Growth Fund")--seeks to
provide growth of capital by investing primarily in common stocks of
high-quality companies, generally leaders in their industries, with
minimum market capitalization of $100 million;
- Fountain Square Mid Cap Fund ("Mid Cap Fund")--seeks to provide growth of
capital with income as a secondary objective by investing primarily in
common stocks of companies with superior long-term growth opportunities
and maximum market capitalizations of approximately $3 billion; and
- Fountain Square Balanced Fund ("Balanced Fund")--seeks to provide capital
appreciation and income and by investing primarily in common stocks of
high quality companies, generally leaders in their industries, and in
investment grade debt securities of U.S. corporations, U.S.
dollar-denominated issues of foreign corporations, U.S. government
securities, and collateralized mortgage obligations.
For information on how to purchase shares of any of the Funds, please refer to
"Investing in the Funds." A minimum initial investment of $2,500 is required for
each Fund, except for investments by individual retirement accounts ("IRAs").
Subsequent investments must be in amounts of at least $100. Shares of each Fund
are sold at net asset value plus any applicable sales charge, and are redeemed
at net asset value. Information on redeeming shares may be found under
"Redeeming Shares." The Funds are advised by Fifth Third Bank (the "Adviser").
RISK FACTORS
Investors should be aware of the following general considerations: market values
of fixed-income securities, which constitute a major part of the investments of
some Funds, may vary inversely in response to changes in prevailing interest
rates. The foreign securities in which some Funds may invest may be subject to
certain risks in addition to those inherent in U.S. investments. One or more
Funds may make certain investments and employ certain investment techniques that
involve other risks, including entering into repurchase agreements, lending
portfolio securities and entering into financial futures contracts and related
options as hedges. These risks and those associated with investing in
mortgage-backed securities, when-issued securities, options and variable rate
securities are described under "Objective of Each Fund" and "Portfolio
Investments and Strategies."
EXPENSES OF THE FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................. 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)...... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)....................................................... None
Redemption Fees (as a percentage of amount redeemed, if applicable)......................... None
Exchange Fee................................................................................ None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Government Quality Ohio
Securities Bond Tax Free
Fund Fund Fund
---------- ------- ---------
<S> <C> <C> <C>
Management Fees (after waivers)................................. 0.41%(1) 0.48%(1) 0.55%
12b-1 Fees(2)................................................... 0.00% 0.00% 0.00%
Other Expenses (after waivers and/or reimbursements)(3)......... 0.34% 0.27% 0.20%
Total Fund Operating Expenses(4)............................ 0.75% 0.75% 0.75%
</TABLE>
(1) The management fee of the Government Securities Fund and Quality Bond Fund
have been reduced to reflect the voluntary waiver of the investment advisory
fee by the investment adviser. The adviser can terminate this voluntary
waiver at any time at its sole discretion. With respect to each of the
above-mentioned Funds, the maximum management fee is 0.55%.
(2) As of the date of this prospectus, the Funds are not paying or accruing
12b-1 fees. A Fund will not accrue or pay 12b-1 fees until it has created a
separate class of shares for certain institutional investors. The Funds can
pay up to 0.35% as a 12b-1 fee to the distributor.
(3) Other expenses have been reduced to reflect the voluntary waivers by the
custodian and administrator. In addition, other expenses of the Ohio Tax
Free Fund have been further reduced to reflect the anticipated voluntary
reimbursement of other expenses by the investment adviser. Other expenses of
the Ohio Tax Free Fund are estimated to be 0.58% absent the anticipated
voluntary reimbursement.
(4) Total Fund Operating Expenses for the Government Securities Fund and the
Quality Bond Fund would have been 0.93% and 0.86%, respectively, absent the
voluntary waivers by the investment adviser, custodian and administrator.
Total Fund Operating Expenses for the Ohio Tax Free Fund would have been
1.33% absent the voluntary reimbursement by the investment adviser, and the
voluntary waiver by the custodian and administrator. The Annual Fund
Operating Expenses of the Ohio Tax Free Fund were 0.00% for the fiscal year
ended July 31, 1994.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN EACH FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND "INVESTING IN THE FUNDS."
WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL
FEES.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return; (2) redemption at the end of each time period and (3) payment of
the maximum sales charge. The Funds charge no redemption fees.
<TABLE>
<CAPTION>
Government Ohio
Securities Quality Tax Free
Fund Bond Fund Fund
---------- --------- ---------
<S> <C> <C> <C>
1 Year........................... $ 52 $ 52 $ 52
3 Years.......................... $ 68 $ 68 $ 68
5 Years.......................... $ 85 $ 85 $ 85
10 Years......................... $134 $ 134 $ 134
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
EXPENSES OF THE FUNDS
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................. 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)....................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)....................................................... None
Redemption Fees (as a percentage of amount redeemed, if applicable)......................... None
Exchange Fee................................................................................ None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Quality
Growth Mid Cap Balanced
Fund Fund Fund
---------- -------- --------
<S> <C> <C> <C>
Management Fees (after waivers)(1)..................... 0.79% 0.53% 0.76%
12b-1 Fees(2).......................................... 0.00% 0.00% 0.00%
Other Expenses (after waivers)(3)...................... 0.21% 0.47% 0.24%
Total Fund Operating Expenses(4)................... 1.00% 1.00% 1.00%
</TABLE>
(1) The management fee of each Fund has been reduced to reflect the voluntary
waiver of the investment advisory fee by the investment adviser. The adviser
can terminate this voluntary waiver at any time at its sole discretion. With
respect to each of the above-mentioned Funds, the maximum management fee is
0.80%.
(2) As of the date of this prospectus, the Funds are not paying or accruing
12b-1 fees. A Fund will not accrue or pay 12b-1 fees until it has created a
separate class of shares for certain institutional investors. The Funds can
pay up to 0.35% as a 12b-1 fee to the distributor.
(3) Other expenses have been reduced to reflect the voluntary waivers by the
custodian and administrator.
(4) Total Fund Operating Expenses for the Quality Growth Fund, the Mid Cap Fund,
and the Balanced Fund would have been 1.03%, 1.33%, and 1.06%, respectively,
absent the voluntary waivers by the investment adviser, custodian, and
administrator.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN EACH FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND "INVESTING IN THE FUNDS."
WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL
FEES.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
You would pay the following expenses on a 1,000 investment assuming (1) 5%
annual return; (2) redemption at the end of each time period and (3) payment of
the maximum sales charge. The Funds charge no redemption fees.
<TABLE>
<CAPTION>
Quality
Growth Mid Cap Balanced
Fund Fund Fund
---------- ------- --------
<S> <C> <C> <C>
1 Year........................... $ 55 $ 55 $ 55
3 Years.......................... $ 75 $ 75 $ 75
5 years.......................... $ 98 $ 98 $ 98
10 years......................... $162 $ 162 $162
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FOUNTAIN SQUARE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young, LLP, the Trust's
independent auditors. Their report dated September 2, 1994 on the Trust's
financial statements for the year ended July 31, 1994 is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Trust's financial statements and notes thereto, which may
be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------
1994 1993*
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.21 $10.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.51 0.35
- ----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.49) 0.13
- ---------------------------------------------------------------------- ------ ------
Total from investment operations 0.02 0.48
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.51) (0.27)
- ----------------------------------------------------------------------
Distributions to shareholders in excess of net investment
income (a) (0.06) --
- ----------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment
transactions (0.02) --
- ---------------------------------------------------------------------- ------ ------
Total distributions (0.59) (0.27)
- ---------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $9.64 $10.21
- ---------------------------------------------------------------------- ------ ------
TOTAL RETURN** 0.11% 4.87%
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 0.75% 0.74%(c)
- ----------------------------------------------------------------------
Net investment income 5.17% 5.36%(c)
- ----------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.18% 0.33%(c)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $29,107 $29,603
- ----------------------------------------------------------------------
Portfolio turnover rate 55% 23%
- ----------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
** Based on asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) These distributions do not represent a return of capital for federal tax
purposes for the fiscal year ended July 31, 1994.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4)
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated July 31, 1994, which can be obtained free of charge.
FOUNTAIN SQUARE QUALITY BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young, LLP, the Trust's
independent auditors. Their report dated September 2, 1994 on the Trust's
financial statements for the year ended July 31, 1994 is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Trust's financial statements and notes thereto, which may
be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------
1994 1993*
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.29 $10.00
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.57 0.41
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.69) 0.26
- ------------------------------------------------------------------------ ------ ------
Total from investment operations (0.12) 0.67
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.57) (0.38)
- ------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment
transactions (0.03) --
- ------------------------------------------------------------------------
Distributions in excess of net investment income (a) (0.02) --
- ------------------------------------------------------------------------ ------ ------
Total distributions (0.62) (0.38)
- ------------------------------------------------------------------------ ------ ------
NET ASSET VALUE, END OF PERIOD $9.55 $10.29
- ------------------------------------------------------------------------ ------ ------
TOTAL RETURN** (1.25%) 6.78%
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.75% 0.74%(c)
- ------------------------------------------------------------------------
Net investment income 5.76% 6.07%(c)
- ------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.11% 0.23%(c)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $47,272 $37,962
- ------------------------------------------------------------------------
Portfolio turnover rate 112% 19%
- ------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) These distributions do not represent a return of capital for federal tax
purposes for the year ended July 31, 1994.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated July 31, 1994, which can be obtained free of charge.
FOUNTAIN SQUARE OHIO TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young, LLP, the Trust's
independent auditors. Their report dated September 2, 1994 on the Trust's
financial statements for the year ended July 31, 1994 is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Trust's financial statements and notes thereto, which may
be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------
1994 1993*
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.95 $10.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.40 0.05
- ----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.21) (0.05)
- ---------------------------------------------------------------------- ------ ------
Total from investment operations 0.19 0.00
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.39) (0.05)
- ---------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $9.75 $9.95
- ---------------------------------------------------------------------- ------ ------
TOTAL RETURN** 1.95% (0.01%)
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 0.00% 0.00%
- ----------------------------------------------------------------------
Net investment income 4.18% 3.53%(b)
- ----------------------------------------------------------------------
Expense waiver/reimbursement (a) 1.33% 2.21%(b)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $23,854 $8,163
- ----------------------------------------------------------------------
Portfolio turnover rate 94% 31%
- ----------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 27, 1993 (date of initial public
investment) to July 31, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated July 31, 1994, which can be obtained free of charge.
FOUNTAIN SQUARE QUALITY GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young, LLP, the Trust's
independent auditors. Their report dated September 2, 1994 on the Trust's
financial statements for the year ended July 31, 1994 is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Trust's financial statements and notes thereto, which may
be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------
1994 1993*
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.54 $10.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.13 0.10
- ----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.17 (0.47)
- ---------------------------------------------------------------------- ------ ------
Total from investment operations 0.30 (0.37)
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.13) (0.09)
- ----------------------------------------------------------------------
Distributions in excess of net investment income (a) (0.01) --
- ----------------------------------------------------------------------
Total distributions (0.14) (0.09)
- ---------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $9.70 $9.54
- ---------------------------------------------------------------------- ------ ------
TOTAL RETURN** 3.17% (3.73%)
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 1.00% 0.99%(c)
- ----------------------------------------------------------------------
Net investment income 1.42% 1.47%(c)
- ----------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.03% 0.05%(c)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $69,648 $67,681
- ----------------------------------------------------------------------
Portfolio turnover rate 37% 28%
- ----------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) These distributions do not represent a return of capital for federal tax
purposes for the year ended July 31, 1994.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated July 31, 1994, which can be obtained free of charge.
FOUNTAIN SQUARE MID CAP FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young, LLP, the Trust's
independent auditors. Their report dated September 2, 1994 on the Trust's
financial statements for the year ended July 31, 1994 is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Trust's financial statements and notes thereto, which may
be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------
1994 1993*
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.68 $10.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.06 0.06
- ----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.43 (0.33)
- ---------------------------------------------------------------------- ------ ------
Total from investment operations 0.49 (0.27)
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.06) (0.05)
- ----------------------------------------------------------------------
Distributions in excess of net investment income (a) (0.01) --
- ---------------------------------------------------------------------- ------ ------
Total distributions (0.07) (0.05)
- ---------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $10.10 $9.68
- ---------------------------------------------------------------------- ------ ------
TOTAL RETURN** 5.07% (2.73%)
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 1.00% 0.99%(b)
- ----------------------------------------------------------------------
Net investment income 0.60% 0.88%(b)
- ----------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.33% 0.40%(b)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $30,210 $24,019
- ----------------------------------------------------------------------
Portfolio turnover rate 44% 20%
- ----------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1992 (date of initial
public investment), to July 31, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) These distributions did not represent a return of capital for federal tax
purposes for the year ended July 31, 1994.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated July 31, 1994, which can be obtained free of charge.
FOUNTAIN SQUARE BALANCED FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young, LLP, the Trust's
independent auditors. Their report dated September 2, 1994 on the Trust's
financial statements for the year ended July 31, 1994 is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Trust's financial statements and notes thereto, which may
be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------
1994 1993*
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.78 $10.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.26 0.20
- ----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.06) (0.25)
- ---------------------------------------------------------------------- ------ ------
Total from investment operations 0.20 (0.05)
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.26) (0.17)
- ----------------------------------------------------------------------
Distributions in excess of net investment income (a) (0.02) --
- ---------------------------------------------------------------------- ------ ------
Total distributions (0.28) (0.17)
- ---------------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $9.70 $9.78
- ---------------------------------------------------------------------- ------ ------
TOTAL RETURN** 2.02% (0.51%)
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 1.00% 1.00%(c)
- ----------------------------------------------------------------------
Net investment income 2.64% 3.04%(c)
- ----------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.06% 0.08%(c)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $59,363 $60,168
- ----------------------------------------------------------------------
Portfolio turnover rate 53% 30%
- ----------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) These distributions do not represent a return of capital for federal tax
purposes for the year ended July 31, 1994.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated July 31, 1994, which can be obtained free of charge.
OBJECTIVE OF EACH FUND
- --------------------------------------------------------------------------------
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
Unless indicated otherwise, the investment policies and limitations of a Fund
may be changed by the Board of Trustees ("Trustees") without approval of
shareholders. Shareholders will be notified before any material change in these
policies becomes effective.
Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below, appears in
the "Portfolio Investments and Strategies" section of this Prospectus and in the
Combined Statement of Additional Information.
U.S. GOVERNMENT SECURITIES FUND
The investment objective of the Government Securities Fund is to provide a high
level of current income. Capital growth is a secondary objective. The Fund
pursues its investment objective by investing in a diversified portfolio of U.S.
government securities, including both U.S. Treasury and government agency
issues. The Fund will purchase only securities with remaining maturities of
seven years or less. In managing the portfolio, the Adviser seeks to minimize
fluctuations in the value of the Fund's shares.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund invests
are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities include, but are not limited to:
- direct obligations of the U.S. Treasury such as U.S. Treasury bills,
notes and bonds; and
- obligations of U.S. government agencies or instrumentalities such as
Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Banks for Cooperatives
(including Central Bank for Cooperatives), Federal Land Banks, Federal
Intermediate Credit Banks, Tennessee Valley Authority, Export-Import Bank
of the United States, Farmers Home Administration, Federal Farm Credit
Banks, Housing and Urban Development, Private Export Funding Corporation,
Commodity Credit Corporation, Federal Financing Bank, Student Loan
Marketing Association, Federal Home Loan Mortgage Corporation, or
National Credit Union Administration. Some of these obligations may be in
the form of collateralized mortgage obligations, which are generally
described below for the Quality Bond Fund.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government 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. The
instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities, enter into repurchase agreements, and engage
in put and call options, futures and options on futures, and when-issued and
delayed delivery transactions. (See "Portfolio Investments and Strategies.")
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money" and "Restricted and Illiquid Securities."
QUALITY BOND FUND
The investment objective of the Bond Fund is to achieve high current income.
Capital growth is a secondary objective. The Fund pursues its investment
objectives by investing in the bonds and other instruments described below.
Under normal market conditions, the Fund will invest at least 65% of its assets
in quality bonds. As used herein, the Fund considers bonds rated Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard &
Poor's Ratings Group ("S&P") to be quality bonds.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in a professionally managed,
diversified portfolio of investment grade securities which include:
- domestic issues of corporate debt obligations rated Baa or higher by
Moody's or BBB or higher by S&P. Downgrades will be evaluated on a case
by case basis by the Adviser. The Adviser will determine whether or not
the security continues to be an acceptable investment. If not, the
security will be sold;
- U.S. dollar denominated issues of foreign corporations, governments and
government agencies that meet the same quality standards as stated for
domestic issuers. The Fund may not invest more than 25% of its assets in
foreign investments. (See "Foreign Investments");
- obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, of the types eligible for purchase by the Government
Fund, as described above; and
- collateralized mortgage obligations.
Bond maturities or average lives will be less than 15 years.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities, invest in repurchase agreements, engage in
options and futures transactions and participate in when-issued and delayed
delivery transactions. (See "Portfolio Investments and Strategies.")
COLLATERALIZED MORTGAGE OBLIGATIONS. The Fund may invest in collateralized
mortgage obligations ("CMOs") which are rated Baa or better by Moody's or BBB or
higher by S&P and which are issued by private entities such as investment
banking firms and companies related to the construction industry. The CMOs in
which the Fund may invest may be: (i) privately issued securities which are
collateralized by pools of mortgages in which each mortgage is guaranteed as to
payment of principal and interest by an agency or instrumentality of the U.S.
government; (ii) privately issued securities which are collateralized by pools
of mortgages in which payment of principal and interest is guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities; (iii)
other privately issued securities in which the proceeds of the issuance are
invested in mortgage-backed securities and payment of the principal and interest
is supported by the credit of an agency or instrumentality of the U.S.
government; and (iv) privately issued securities in which each mortgage is
secured by the underlying real estate and payment is guaranteed by the
mortgagee. The mortgage-related securities provide for a periodic payment
consisting of both interest and principal. The interest portion of these
payments will be distributed by the Fund as income, and the capital portion will
be reinvested.
Because the mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium, mortgage-backed securities are generally subject to
higher prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance their mortgages to
take advantage of the more favorable rates. Depending upon market conditions,
the yield that the Fund receives from the reinvestment of such prepayments, or
any scheduled principal payments, may be lower than the yield on the original
mortgage security. As a consequence, mortgage securities may be a less effective
means of 'locking in' interest rates than other types of debt securities having
the same stated maturity and may also have less potential for capital
appreciation. For certain types of asset pools, such as collateralized mortgage
obligations, prepayments may be allocated to one tranche of securities ahead of
other tranches, in order to reduce the risk of prepayment for the other
tranches. Prepayments may result in a capital loss to the Fund to the extent
that the prepaid mortgage securities were purchased at a market premium over
their stated principal amount. Conversely, the prepayment of mortgage securities
purchased at a market discount from their stated principal amount will
accelerate the recognition of
interest income by the Fund, which would be taxed as ordinary income when
distributed to the shareholders.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
OHIO TAX FREE BOND FUND
The investment objective of the Fund is to provide current income exempt from
federal income tax and the personal income taxes imposed by the state of Ohio
and Ohio municipalities. The Fund pursues its investment objective by investing
primarily in Ohio municipal securities. Interest income of the Fund that is
exempt from the income taxes described above retains its exempt status when
distributed to the Fund's shareholders. Income distributed by the Fund may not
necessarily be exempt from state or municipal taxes in states other than Ohio.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are:
- obligations issued by or on behalf of the state of Ohio, its political
subdivisions, or agencies;
- debt obligations of any state, territory, or possession of the United
States, including the District of Columbia, or any political subdivision
of any of these; and
- participation interests, as described below, in any of the above
obligations,
the interest from which is, in the opinion of bond counsel for the issuers or in
the opinion of officers of the Fund and/or the Adviser to the Fund, exempt from
both federal income tax and the personal income tax imposed by the state of Ohio
and Ohio municipalities. As a matter of investment policy, which may not be
changed without shareholder approval, under normal market conditions at least
80% of the value of the Fund's net assets will be invested in Ohio municipal
securities, as defined above, or at least 80% of the Fund's income will be
derived from such securities.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted securities, enter into repurchase agreements, and engage in
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies.")
CHARACTERISTICS. The Ohio municipal securities which the Fund buys are
investment grade bonds rated Aaa, Aa, A or Baa by Moody's, or AAA, AA, A or BBB
by S&P or Fitch Investors Service, Inc. In certain cases, the Fund's Adviser may
choose bonds which are unrated if it judges the bonds to have the same
characteristics as the investment grade bonds described above. A description of
the rating categories is contained in the Appendix to the Combined Statement of
Additional Information. As a matter of investment policy, under normal market
conditions, the Fund will invest at least 65% of its assets in bonds.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings and loan associations,
and insurance companies. These participation interests give the Fund an
undivided interest in Ohio municipal securities. The financial institutions from
which the Fund purchases participation interests frequently provide or secure
irrevocable letters of credit or guarantees to assure that the participation
interests are of high quality.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the Ohio municipal securities which
the Fund purchases may have variable interest rates. Variable interest rates are
normally based on a published interest rate or interest rate index or a similar
standard, such as the 91-day U.S. Treasury bill rate. Many variable rate
municipal securities are subject to payment of principal on demand by the Fund
in not more than seven days. All variable rate municipal securities will meet
the quality standards for the Fund. The Fund's Adviser has been instructed by
the Trustees to monitor the pricing, quality, and liquidity of the variable rate
municipal securities, including participation interests held by the Fund on the
basis of published financial information and reports of the rating agencies and
other analytical services.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities. They may take the form of a lease, an installment purchase contract,
a conditional sales contract, or a participation certificate on any of the
above.
TEMPORARY INVESTMENTS. The Fund normally invests its assets so that at least
80% of its annual interest income is exempt from federal income tax and the
personal income taxes imposed by the state of Ohio and Ohio municipalities, or
at least 80% of its net assets are invested in obligations the interest from
which is exempt from such taxes. However, from time to time, during periods of
other than normal market conditions, the Fund may invest in non-Ohio municipal
tax-exempt obligations or taxable temporary investments. These temporary
investments include: notes issued by or on behalf of municipal or corporate
issuers; obligations issued or guaranteed by the U.S. government, its agencies,
or instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements.
There are no rating requirements applicable to temporary investments. However,
the Adviser will limit temporary investments to those rated within the
investment grade categories described under "Acceptable
Investments--Characteristics" (if rated) or (if unrated) those which the Adviser
judges to have the same characteristics as such investment grade securities.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal income tax or
personal income taxes imposed by the state of Ohio or Ohio municipalities.
OHIO MUNICIPAL SECURITIES. Ohio municipal securities are generally issued to
finance public works, such as airports, bridges, highways, housing, hospitals,
mass transportation projects, schools, streets, and water and sewer works. They
are also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Ohio municipal securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS. Yields on Ohio municipal securities depend on a variety of
factors, including: the general conditions of the municipal bond market; the
size of the particular offering; the maturity of the obligations; and the rating
of the issue. Further, any adverse economic conditions or developments affecting
the state of Ohio or its municipalities could impact the Fund's portfolio. The
state of Ohio and certain underlying municipalities face potential economic
problems over the longer term. The state economy has grown more slowly than that
of the nation as a whole, resulting in a gradual erosion of its relative
economic affluence. The causes of this relative decline are varied and complex,
involving in many cases national and international demographic and economic
trends beyond the influence of the state. The ability of the Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
Ohio municipal securities and participation interests, or the guarantors of
either, to meet their obligations for the payment of interest and principal when
due. Investing in Ohio municipal securities which meet the Fund's quality
standards may not be possible if the state of Ohio or its municipalities do not
maintain their current credit ratings. In addition, certain Ohio constitutional
amendments, legislative measures, executive orders, administrative regulations,
and voter initiatives could result in adverse consequences affecting Ohio
municipal securities.
NON-DIVERSIFICATION. The Fund is a non-diversified investment portfolio. As
such, there is no limit on the percentage of assets which can be invested in any
single issuer. An investment in the Fund, therefore, will entail greater risk
than would exist in a diversified portfolio of securities because the higher
percentage of investments among fewer issuers may result in greater fluctuation
in the total market value of the Fund's portfolio. Any economic, political, or
regulatory developments affecting the
value of the securities in the Fund's portfolio will have a greater impact on
the total value of the portfolio than would be the case if the portfolio were
diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year: (a)
with regard to at least 50% of the Fund's total assets, no more than 5% of its
total assets are invested in the securities of a single issuer and (b) no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money" and "Restricted and Illiquid Securities."
QUALITY GROWTH FUND
The investment objective of the Quality Growth Fund is to provide growth of
capital. Income is a secondary objective. The Fund pursues its investment
objective by investing primarily in a professionally managed and diversified
portfolio of common stocks of high-quality companies. The Fund intends to invest
in industries and companies which, in the opinion of the Adviser, have potential
primarily for capital growth. These companies generally are leaders in their
industries and are characterized by sound management and the ability to finance
expected growth. Among other things, the Adviser would look for strength in the
following areas: historical and five year projected dividend growth and earnings
growth, debt to capital ratio, and quality of management. The Fund's investment
approach is based on the conviction that over the long term the economy will
continue to expand and develop, which will be reflected in the growth of the
revenues and earnings of major corporations. Under normal market conditions, at
least 65% of the Fund's assets will be invested in the types of quality common
stocks as described above.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to the following:
- common stock of U.S. companies with at least $100 million in market
capitalization which are listed on the New York or American Stock
Exchanges or traded in over-the-counter markets and preferred stock which
is convertible into common stock of such companies;
- American Depositary Receipts ("ADRs") of foreign companies traded on the
New York Stock Exchange or in the over-the-counter market. The Fund may
not invest more than 25% of its assets in ADRs. (See "Foreign
Investments."); and
- convertible bonds rated at least BBB by S&P, or at least Baa by Moody's,
or if not rated, are determined to be of comparable quality by the
adviser.
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities, warrants,
and engage in put and call options, futures and options on futures, and
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies.")
CONVERTIBLE SECURITIES. Convertible securities are securities which may be
exchanged or converted into a predetermined number of the issuer's underlying
common stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible bonds, convertible
preferred stock or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives.
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which entitle the holder to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bonds' maturity. Convertible securities are senior to equity securities, and
therefore have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stocks when, in the adviser's opinion, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. Otherwise, the Fund will hold or trade
the convertible securities. In selecting convertible securities for the Fund,
the Fund's adviser evaluates the investment characteristics of the convertible
security as a fixed income instrument, and the investment potential of the
underlying equity security for capital appreciation. In evaluating these matters
with respect to a particular convertible security, the Adviser considers
numerous factors, including the economic and political outlook, the value of the
security relative to other investment alternatives, trends in the determinants
of the issuer's profits, and the issuer's management capability and practices.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed under
"Borrowing Money," "Diversification," and "Restricted and Illiquid Securities."
MID CAP FUND
The investment objective of the Mid Cap Fund is to provide growth of capital.
Income is a secondary objective. The Fund invests primarily in equity securities
of companies selected by the Adviser on the basis of traditional research
techniques, including assessment of earnings and dividend growth prospects and
the risk and volatility of the company's business. Under normal market
conditions, at least 65% of the Fund's assets will be invested in common stocks
of companies meeting the market capitalization criteria set forth below.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to the following:
- common stock of U.S. companies with at least $100 million in market
capitalization and a maximum of approximately $3 billion in market
capitalization which are listed on the New York or American Stock
Exchanges or traded in over-the-counter markets, preferred stock of such
companies, and preferred stock convertible into common stock of such
companies. The Fund intends to invest in industries and companies which,
in the opinion of the adviser, have potential primarily for capital
growth and secondarily for income;
- American Depositary Receipts ("ADRs") of foreign companies traded on the
New York Stock Exchange or in the over-the-counter market. The Fund may
not invest more than 25% of its assets in ADRs. (See "Foreign
Investments."); and
- Convertible securities rated at least BBB by S&P, or at least Baa by
Moody's, or if not rated are determined to be of comparable quality by
the Adviser. Downgrades will be evaluated on a case by case basis by the
Adviser. The Adviser will determine whether or not the security continues
to be an acceptable investment. If not, the security will be sold.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities, warrants, enter into repurchase agreements,
and engage in put and call options, futures and options on futures, and
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies.")
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed under
"Borrowing Money," "Diversification," and "Restricted and Illiquid Securities."
BALANCED FUND
The investment objective of the Fund is to pursue capital appreciation and
income. The Fund invests primarily in a diversified portfolio of common and
preferred stocks, U.S. government securities, convertible securities, investment
grade corporate bonds, and prime money market instruments.
ACCEPTABLE INVESTMENTS. Those income and equity securities acceptable for
investment in this Fund are outlined under the "Acceptable Investments" sections
of the Quality Bond Fund, the Quality
Growth Fund, and the Mid Cap Fund. In addition, the Balanced Fund may invest in
money market instruments that are either rated in the highest short-term rating
category by a nationally recognized statistical rating organization or are of
comparable quality to securities having such ratings.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities, warrants, repurchase agreements, and engage
in put and call options, futures and options on futures, and when-issued and
delayed delivery transactions. (See "Portfolio Investments and Strategies.")
The asset mix of the Fund will normally range between 40-75 percent in common
stock and convertible securities, 25-50 percent in preferred stock and bonds,
and 0-25 percent in money market instruments. Moderate shifts between assets
classes are made in order to maximize returns or reduce risk. The Fund will
maintain at least 25% of its assets in fixed income senior securities (including
the value of convertible senior securities attributable to their fixed income
characteristics).
MONEY MARKET INSTRUMENTS. The money market instruments in which the Fund
invests include but are not limited to:
- prime commercial paper including master demand notes;
- securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies, or instrumentalities; and
- repurchase agreements.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------
BORROWING MONEY
The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which a Fund sells a money market or other portfolio
instrument, as applicable, for a percentage of its cash value with an agreement
to buy it back on a set date) or pledge securities except, under certain
circumstances, a Fund may borrow money up to one-third of the value of its total
assets and pledge assets as necessary to secure such borrowings. This policy
cannot be changed without the approval of holders of a majority of a Fund's
shares.
DIVERSIFICATION
With respect to 75% of the value of total assets, all of the Funds (with the
exception of the Ohio Tax Free Fund) will not invest more than 5% in securities
of any one issuer or acquire more than 10% of the outstanding voting securities
of any one issuer, other than cash, cash items or securities issued or
guaranteed by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by U.S. government
securities. This policy cannot be changed without the approval of holders of a
majority of a Fund's shares.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in restricted securities. Restricted securities are any
securities in which a Fund may invest pursuant to its investment objective and
policies but which are subject to restriction on resale under federal securities
law. A Fund will limit investments in illiquid securities (including, as
applicable, certain restricted securities not determined by the Trustees to be
liquid, non-negotiable time deposits, over-the-counter options, and repurchase
agreements providing for settlement in more than seven days after notice) to no
more than 15% of its net assets.
All of the Funds (with the exception of the Ohio Tax Free Fund) may invest in
commercial paper issued in reliance on the exemption from registration afforded
by Section 4(2) of the Securities Act of 1933. Section 4(2) commercial paper is
restricted as to disposition under federal securities law, and is generally sold
to institutional investors, such as one of these Funds, who agree that they are
purchasing the paper for investment purposes and not with a view to public
distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors through or with the assistance
of the issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Funds believe that Section 4(2) commercial
paper and certain other restricted securities, which meet the criteria for
liquidity established by the Trustees, are quite liquid. Therefore, the Funds
intend to treat these securities as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because these
securities are liquid, the Funds will not subject such securities to the
limitation otherwise applicable to restricted securities.
REPURCHASE AGREEMENTS
The securities in which each Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to a Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from a Fund, that Fund could
receive less than the repurchase price on any sale of such securities. The Funds
will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Adviser to
be creditworthy pursuant to guidelines established by the Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each 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 a Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may vary
from the purchase prices. Accordingly, a Fund may pay more/less than the market
value of the securities on the settlement date. A Fund may dispose of a
commitment prior to settlement if the Adviser deems it appropriate to do so. In
addition, a Fund may enter into transactions to sell its purchase commitments to
third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. A Fund may realize
short-term profits or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Funds may lend portfolio securities
on a short-term or long-term basis, up to one-third of the value of their total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Funds will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Board of Trustees and will receive collateral in
the form of cash or U.S. government securities equal to at least 100% of the
value of the securities loaned.
OPTIONS AND FUTURES
The Funds (with the exception of the Ohio Tax Free Fund) may engage in options
and futures transactions as described below.
PUT AND CALL OPTIONS. Each Fund (with the exception of the Ohio Tax Free Fund)
may purchase put options on their portfolio securities. These options will be
used as a hedge to attempt to protect securities which a Fund holds against
decreases in value. Each of the Funds (with the exception of the Ohio Tax Free
Fund) may also write covered call options on all or any portion of its portfolio
to generate income. A Fund will write call options on securities either held in
its portfolio, for which it has the right to obtain without payment of further
consideration, or for which it has segregated cash or U.S. government securities
in the amount of any additional consideration.
A Fund may purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange. A Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.
FUTURES AND OPTIONS ON FUTURES. The Funds (with the exception of the Ohio Tax
Free Fund) may purchase and sell financial futures contracts to hedge against
the effects of changes in the value of portfolio securities due to anticipated
changes in interest rates and market condition. The Quality Growth Fund, the Mid
Cap Fund and the Balanced Fund may also purchase and sell stock index futures to
hedge against changes in prices.
The Funds will not engage in futures transactions for speculative purposes.
Futures contracts call for the delivery of particular securities at a certain
time in the future. The seller of the contract agrees to make delivery of the
type of instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the firms included in the indexes. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
A Fund may also write call options and purchase put options on futures contracts
as a hedge to attempt to protect securities in its portfolio against decreases
in value. When a Fund writes a call option on a futures contract, it is
undertaking the obligation of selling a futures contract at a fixed price at any
time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, a Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option.
A Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on a Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of a Fund's total assets. When a Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contract is unleveraged. When a Fund sells futures
contracts, it will either own or have the right to receive the underlying future
or security, or will make deposits to collateralize the position as discussed
above.
RISKS. When a Fund uses futures and options on futures as hedging devices,
there is a risk that the prices of the securities subject to the futures
contracts may not correlate perfectly with the prices of the securities in a
Fund's portfolio. This may cause the futures contract and any related options to
react differently than the portfolio securities to market changes. In addition,
the Adviser could be incorrect in its expectations about the direction or extent
of market factors such as stock price movements. In these events, the Fund may
lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. A Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
BOND RATINGS
Bonds rated BBB by S&P or Baa by Moody's have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than higher rated
bonds. If a security's rating is reduced below the required minimum after a Fund
has purchased it, the Fund is not required to sell the security, but may
consider doing so.
FOREIGN INVESTMENTS
There may be certain risks associated with investing in foreign securities.
These include risks of adverse political and economic developments (including
possible governmental seizure or nationalization of assets), the possible
imposition of exchange controls or other governmental restrictions, including
less uniformity in accounting and reporting requirements, and the possibility
that there will be less information on such securities and their issuers
available to the public. In addition, there are restrictions on foreign
investments in other jurisdictions and there tends to be difficulty in obtaining
judgments from abroad and affecting repatriation of capital invested abroad.
Delays could occur in settlement of foreign transactions, which could adversely
effect shareholder equity. Foreign securities may be subject to foreign taxes,
which reduce yield, and may be less marketable than comparable U.S. securities.
Different risks may also exist for Eurodollar Certificates of Deposit,
Eurodollar Time Deposits and Yankee Certificates of Deposit because the banks
issuing these instruments, or their domestic or foreign branches, are not
necessarily subject to the same regulatory requirements that apply to domestic
banks, such as reserve requirements, loan limitations, examinations, accounting,
auditing, recordkeeping and the public availability of information.
EQUITY INVESTMENT CONSIDERATIONS
With respect to the Quality Growth, Mid Cap and Balanced Funds, as with other
mutual funds that invest primarily in equity securities, the Funds are subject
to market risks. Since equity markets tend to be cyclical, the possibility
exists that common stocks could decline over short or even extended periods of
time. With respect to the Mid Cap Fund, because this Fund invests primarily in
medium capitalization stocks, there are some additional risk factors associated
with investments in this Fund. In particular, stocks in the medium
capitalization sector of the United States equity market tend to be slightly
more volatile in price than larger capitalization stocks, such as those included
in the S&P 500 Index. This is because, among other things, medium-sized
companies have less certain growth prospects than larger companies, have a lower
degree of liquidity in the equity market, and tend to have a greater sensitivity
to changing economic conditions. Further, in addition to exhibiting slightly
higher volatility, the stocks of medium-sized companies may, to some degree,
fluctuate independently of the stocks of large companies. That is, the stocks of
medium-sized companies may decline in price as the price of large company stocks
rises or vice versa. Therefore, investors should expect that the Fund will be
slightly more volatile than, and may fluctuate independently of, broad stock
market indices such as the Standard & Poor's 500 Index.
TEMPORARY INVESTMENTS
For defensive purposes only, the Government Securities Fund, Quality Bond Fund,
Quality Growth Fund, Mid Cap Fund, and Balanced Fund may also invest temporarily
in cash and money market instruments during times of unusual market conditions
and to maintain liquidity as described below. Temporary investments may include
obligations such as:
- domestic issues of corporate debt obligations including variable rate
demand notes;
- commercial paper and other money market instruments;
- securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies, or instrumentalities;
- instruments of domestic and foreign banks; and
- repurchase agreements.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term corporate
debt instruments that have variable or floating interest rates and provide the
Funds 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 based on published interest rate or interest rate
index. Most variable rate demand notes allow a Fund to demand the repurchase of
the security on not more than seven days prior notice. Other notes only permit a
Fund to tender the security at the time of each interest rate adjustment or at
other fixed intervals. A
Fund treats variable rate demand notes as maturing on the later of the date of
the next interest adjustment or the date on which a Fund may next tender the
security for repurchase.
COMMERCIAL PAPER. The Funds may acquire commercial paper rated A-1 by S&P,
Prime-1 by Moody's, or F-1 by Fitch Investors Service, and money market
instruments (including commercial paper) which are not rated but are determined
by the Trustees to be of comparable quality to other bank or corporate
obligations.
BANK INSTRUMENTS. The Funds may acquire instruments of domestic banks and
foreign banks (such as certificates of deposit, demand and time deposits, saving
shares, and bankers' acceptances) if those banks have capital, surplus, and
undivided profits of over $100,000,000 and/or if their deposits are insured by
the Federal Deposit Insurance Corporation ("FDIC"). These instruments may
include Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of
Deposit ("Yankee CDs"), and Eurodollar Time Deposits ("ETDs") which are subject
to the same risks as detailed previously under "Foreign Investments."
In addition, each Fund may purchase shares of other investment companies,
primarily for the purpose of investing its short-term cash on a temporary basis.
FOUNTAIN SQUARE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Funds are made by Fifth Third Bank, the Funds'
adviser, subject to direction by the Trustees. The Adviser continually conducts
investment research and supervision for each Fund and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the assets of each Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee at
annual rates equal to percentages of the relevant Fund's average net assets
as follows: the Government Securities Fund, the Quality Bond Fund, and the
Ohio Tax Free Fund--0.55%; the Quality Growth Fund, the Mid Cap Fund and
the Balanced Fund--0.80%. The fees paid by the Quality Growth, the Mid Cap
and the Balanced Funds, while higher than the advisory fee paid by other
mutual funds in general, are comparable to fees paid by many mutual funds
with similar objectives and policies. The investment advisory contract
provides for the voluntary waiver of expenses by the Adviser from time to
time. The Adviser has undertaken to waive up to the amount of the advisory
fee, for operating expenses, in excess of limitations established by
certain states. The Adviser may voluntarily choose to waive a portion of
its fees or reimburse the Funds for certain other expenses, but reserves
the right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank, is a
wholly-owned subsidiary of Fifth Third Bancorp, a bank holding company
organized under the laws of Ohio. Fifth Third Bank is a commercial bank
offering a wide range of banking services to its customers. As of July 31,
1994, Fifth Third Bank and its affiliates managed assets in excess of $6.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $41.4 billion.
As part of its regular banking operations, Fifth Third Bank 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 Fifth Third Bank. The lending relationship will not be a factor
in the selection of securities.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages 14 such pools with
total assets of over $1.1 billion. Fifth Third Bank has managed mutual
funds since 1988.
PORTFOLIO MANAGERS' BACKGROUND. Steven E. Folker is the Chief Equity
Strategist for Fifth Third Trust and Investments and is a Chartered
Financial Analyst. He is an Assistant Vice President and Senior Trust
Officer of Fifth Third Bank. Mr. Folker has over 14 years of investment
experience and has been the portfolio manager for the Growth and Balanced
Funds since February of 1993 and manager of the Mid Cap Fund since June of
1993. He earned a B.B.A. in Finance and Accounting and an M.S. in Finance,
Investments, and Banking from the University of Wisconsin. He is also a
member of the Cincinnati Society of Financial Analysts. Prior to joining
Fifth Third Bank in July of 1992, Mr. Folker was Director of Research with
Central Trust Bank/PNC Bank in Cincinnati for six years.
John B. Schmitz heads the Institutional Investment Group for Fifth Third
Trust and Investment Services and is a Chartered Financial Analyst. He is a
Vice President and Trust Officer of Fifth Third Bank. Mr. Schmitz graduated
with a B.B.A. in Finance and Real Estate from the University of Cincinnati.
He is also a member of the Cincinnati Society of Financial Analysts. Mr.
Schmitz has over ten years of investment experience and has been with Fifth
Third Bank for over eight years. Mr. Schmitz has assisted Mr. Folker in the
management of the Quality Growth, Balanced and Mid Cap Funds from time to
time since their inception and assumes primary responsibility for these
Funds in his absence.
Thomas H. Atteberry is the Chief Fixed Income Strategist for Fifth Third
Trust and Investment Services and is a Chartered Financial Analyst. He is a
Vice President and Trust Officer of Fifth Third Bank. Mr. Atteberry
graduated from Texas Christian University with a B.B.A. and a minor in
radio, television, and film. Mr. Atteberry has over 12 years of investment
experience and has been the portfolio manager for the Balanced, Quality
Bond, and Government Securities Funds since their inception in November of
1992, and manager of the Ohio Tax Free Fund since its inception in May of
1993. Prior to joining Fifth Third Bank in September of 1990, Mr. Atteberry
was the Chief Investment Officer for Mercantile Bank in Joplin, Missouri.
Carla C. Sanders is a Charted Financial Analyst and an Assistant Vice
President and Senior Trust Officer of Fifth Third Bank. She earned a B.S.
in Information Systems from Maryville University and an M.B.A. in Finance
from Saint Louis University. Prior to joining Fifth Third Bank in 1992 she
was a portfolio manager with Boatmen's Bank in St. Louis, Missouri. She has
eight years of investment experience. Ms. Sanders has assisted Mr.
Atteberry in the management of the Bond, Government Securities, and Ohio
Tax Free Funds from time to time and assumes primary responsibility for
these Funds in his absence.
DISTRIBUTION OF SHARES OF THE FUNDS
Federated Securities Corp. serves as the principal distributor for shares of the
Funds. It is a Pennsylvania corporation organized on November 14, 1969, and is
the distributor for a number of investment companies. Federated Securities Corp.
is a subsidiary of Federated Investors.
DISTRIBUTION PLAN
Pursuant to the provisions of a distribution plan adopted in accordance with
Rule 12b-1 (the "Plan"), under the Investment Company Act of 1940, the Funds
will pay to Federated Securities Corp. an amount computed at an annual rate of
up to 0.35% of the Fund's average daily net assets to finance any activity which
is principally intended to result in the sale of shares subject to the Plan. The
Funds will not accrue or pay any distribution expenses pursuant to the Plan
until a separate class of shares has been created for certain institutional
investors.
Federated Securities Corp. may from time to time and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the shares exceed such lower expense
limitation as the distributor may, by notice to the Trust, voluntarily declare
to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales and/or administrative services as agents for their clients or customers
who beneficially own shares. Administrative services may include, but are not
limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel including clerical, supervisory, and
computer as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries regarding the Funds; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Funds reasonably request.
Financial institutions will receive fees from the distributor based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the Adviser, or
their affiliates may also offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include initiating customer accounts, providing
sales literature, or participating in sales, educational and training seminars
(including those held at recreational facilities). Such assistance will be
predicated upon the amount of shares the financial institution sells or may sell
and/or upon the type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be reimbursed by
the Adviser or its affiliates.
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 services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate each Fund, such as legal and accounting
services. Federated Administrative Services provides these at an annual rate as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- ---------------------- -------------------------
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Funds,
transfer agent for the shares of the Funds, and dividend disbursing agent for
the Funds.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P., Washington,
D.C.
INDEPENDENT AUDITORS. The independent auditors for the Funds are Ernst & Young,
LLP, Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling shares of a Fund. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each Fund fluctuates daily and is determined by
dividing the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Funds are sold on days on which the New York Stock Exchange and
the Federal Reserve Bank of Cleveland are open for business. Customers of the
Fifth Third Trust and Investment Division may purchase shares of the Funds
through their Trust Officer. Customers of Fifth Third Securities may purchase
shares through their Fifth Third Securities representative. All other investors
should purchase shares directly from the distributor. In connection with the
sale of shares of the Funds, the distributor may from time to time offer certain
items of nominal value to any shareholder or investor. The Funds reserve the
right to reject any purchase request. Purchases through Fifth Third Bank may not
be available to investors in all states.
THROUGH FIFTH THIRD BANK OR FIFTH THIRD SECURITIES. To place an order for
shares, a customer of the Trust and Investment Division may telephone their
Fifth Third Trust Officer. Customers other than those of the Trust and
Investment Division may telephone Fifth Third Securities at (513) 744-8888 in
Cincinnati or toll-free (800) 334-0483. Texas residents should purchase shares
through Federated Securities Corp.
Purchase orders must be received by Fifth Third Bank by 4:00 p.m. (Cincinnati
time) in order for shares to be purchased at that day's price. Payment may be
made to Fifth Third Bank either by check or federal funds. Purchases by check
are considered received after payment by check is converted into federal funds
and received by Fifth Third Bank. This is normally the next business day after
Fifth Third Bank receives the check. When payment is made with federal funds,
the order is considered received when federal funds are received by Fifth Third
Bank. Federal funds should be wired to Fifth Third Bank as follows: ABA No. 042
000 314 Fifth Third Cincinnati. Attention: Fountain Square Funds Department; For
Credit to: (shareholder name and account number); For Further Credit to:
Fountain Square (Name of Fund). Investors not purchasing through Fifth Third
Bank should consult their financial institutions for wiring instructions. Orders
placed through financial institutions other than Fifth Third Bank must be
received by the financial institution and transmitted to Fifth Third Bank before
4:00 p.m. (Cincinnati time) in order for shares to be purchased at that day's
price. It is the financial institution's responsibility to transmit orders
promptly, and investors should allow sufficient time for orderly processing and
transmission.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in a Fund by an investor is $2,500 unless the
investment is for an IRA, in which case the minimum initial investment is
$1,000. Subsequent investments must be in amounts of at least $100.
WHAT SHARES COST
Shares of the Funds are sold at their net asset value next determined after an
order is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
- ------------------------------------------------------------------------ -------------------
<S> <C> <C>
Less than $50,000.................................. 4.50% 4.71%
$50,000 but less than $100,000..................... 4.00% 4.17%
$100,000 but less than $150,000.................... 3.00% 3.09%
$150,000 but less than $250,000.................... 2.00% 2.04%
$250,000 but less than $500,000.................... 1.00% 1.01%
$500,000 or more................................... 0.00% 0.00%
</TABLE>
The net asset value for the Funds is determined at the close of trading on the
New York Stock Exchange, currently 4:00 p.m. (New York time) Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of a Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day, and Christmas Day.
PURCHASES AT NET ASSET VALUE
Shares of the Funds may be purchased at net asset value, without a sales charge,
by current and retired Employees and Directors of Fifth Third Bancorp and their
spouses and children under 21, Fountain Square Fund Trustees, and clients of
Fifth Third Bank who make purchases through the Trust and Investment Division.
DEALER CONCESSIONS
For sales of shares of a Fund, a dealer will normally receive up to 85% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor, in its
sole discretion, may uniformly offer to pay to all dealers selling shares of the
Funds, all or a portion of the sales charge it normally retains. If accepted by
the dealer, such additional payments will be predicated upon the amount of Fund
shares sold.
The sales charge for shares sold other than through registered broker/dealers
will be retained by the distributor. The distributor may pay fees to banks out
of the sales charge in exchange for sales and/or administrative services
performed on behalf of the bank's customers in connection with the initiation of
customer accounts and purchases of shares.
REDUCING/ELIMINATING THE SALES CHARGE
The sales charge can be reduced or eliminated on the purchase of shares through:
- quantity discounts and accumulated purchases;
- signing a 13-month letter of intent;
- Fifth Third Bank's Club 53, One Account Plus or One Account Gold
Programs;
- purchases with proceeds from redemptions of unaffiliated mutual fund
shares;
- purchases with proceeds from distributions of qualified retirement plans
or other trusts administered by Fifth Third Bank; or
- concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases of a Fund's shares reduce the sales charge paid. The
distributor will combine purchases made on the same day by the investors, their
spouses, and the investor's children under age 21 when it calculates the
sales charge. In addition, the sales charge, if applicable, is reduced for
purchases made at one time by a trustee or fiduciary for a single trust estate
or a single fiduciary account.
If an additional purchase of shares of a Fund is made, the distributor will
aggregate such additional purchases with previous purchases of shares of the
Funds provided the prior purchase is still invested in either of these Funds.
For example, if a shareholder already owns shares having a current value at the
public offering price of $40,000 and he purchases $10,000 more at the current
public offering price, the sales charge on the additional purchase according to
the schedule now in effect would be 4.00%, not 4.50%.
To receive the sales charge reduction, an investor should complete the
appropriate section of the account application at the time the purchase is made
indicating that shares of a Fund have been purchased and are still invested or
that such purchases are being combined. The distributor will reduce the sales
charge after it confirms the purchase.
LETTER OF INTENT. If a shareholder intends to purchase at least $50,000 of Fund
shares over the next 13 months, the sales charge may be reduced by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales charge adjustment depending on the amount actually purchased within the
13-month period and a provision for the Fund's custodian to hold up to 4.50% of
the total amount intended to be purchased in escrow (in shares of the Fund)
until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent,
which must be $50,000 or more of Fund shares, is not purchased. In this event,
an appropriate number of escrowed shares may be redeemed in order to realize the
difference in the sales charge.
This letter of intent will not oblige the shareholder to purchase shares, but if
he does, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. The letter may be dated as of a
prior date to include any purchases made within the past 90 days; however, these
previous purchases will not receive the reduced sales charge.
FIFTH THIRD BANK CLUB 53, ONE ACCOUNT PLUS OR ONE ACCOUNT GOLD PROGRAMS. All
shareholders who have a Club 53 Account, One Account Plus, or One Account Gold
through Fifth Third Bank are eligible for a reduced sales charge on the purchase
of shares of the Funds. Shareholders should consult their local Fifth Third
Banking Center or Fifth Third Securities Representative for details.
The reduced sales charges applicable to the accounts are as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
- ------------------------------------------------------------------------ -------------------
<S> <C> <C>
Less than $50,000.................................. 2.75% 2.83%
$50,000-$99,999.................................... 2.50% 2.56%
$100,000-$149,999.................................. 2.00% 2.04%
$150,000-$249,999.................................. 1.50% 1.52%
$250,000-$499,999.................................. 0.75% 0.76%
$500,000 or more................................... 0.00% 0.00%
</TABLE>
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED MUTUAL FUND SHARES.
Investors may purchase shares of the Funds at net asset value, without a sales
charge, with the proceeds from the redemption of shares of a mutual fund which
was sold with a sales charge or commission. The purchase must be made within 60
days of the redemption, and Fifth Third Securities must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made.
PURCHASES WITH PROCEEDS FROM DISTRIBUTIONS OF QUALIFIED RETIREMENT PLANS OR
OTHER TRUSTS ADMINISTERED BY FIFTH THIRD BANK. Investors may purchase shares of
the Funds at net asset value, without a sales charge, with the proceeds from the
distribution of a qualified retirement plan or other trust administered by Fifth
Third Bank.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
Funds in the Trust, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $20,000 in shares of one of the
Funds of the Trust with a sales charge, and $30,000 in shares of another Fund
with a sales charge, the sales charge would be reduced on both purchases.
To receive this sales charge reduction, Fifth Third Bank or Federated Securities
Corp. must be notified by the shareholder in writing or by their financial
institution at the time the concurrent purchases are made. The Funds will reduce
the sales charge after they confirm the purchases.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain securities
and cash for Fund shares. The securities and any cash must have a market value
of at least $25,000. The Funds reserve the right to determine the acceptability
of securities to be exchanged. On the day securities are accepted by a Fund,
they are valued in the same manner as a Fund values its assets. Investors
wishing to exchange securities should first contact Fifth Third Bank.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received by Fifth Third Bank, plus any applicable sales charge. The minimum
investment requirement does not apply for those shareholders who participate in
the Systematic Investment Program. A shareholder may apply for participation in
this program through Fifth Third Securities.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Funds, Fifth Third Bank maintains a share account for
each shareholder of record. Share certificates are not issued. Detailed
statements that include account balances, information on each purchase or
redemption, and a report of dividends paid are sent to shareholders.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared just prior to determining net asset value. Capital gains
realized by a Fund, if any, will be distributed at least once every 12 months.
Dividends and capital gains will be reinvested in additional shares on payment
dates at the ex-dividend date net asset value without a sales charge unless cash
payments are requested by shareholders by writing to the appropriate Fund or
Fifth Third Bank as appropriate.
Dividends are paid to all shareholders who are invested in a Fund on that Fund's
record date. With respect to the Government Securities Fund, the Quality Bond
Fund, and the Ohio Tax Free Fund, dividends are declared and paid monthly. With
respect to the Quality Growth Fund, the Mid Cap Fund, and the Balanced Fund,
dividends are declared and paid quarterly.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder who is a customer of the Fifth Third Bank Trust and Investment
Division may exchange shares of one Fund for shares of any of the other funds in
the Trust by calling or sending a written request to their Fifth Third Bank
Trust Officer.
Shareholders who are clients of Fifth Third Securities may exchange shares of
one Fund for shares of any of the other funds in the Trust by calling Fifth
Third Securities at (513) 744-8888 in Cincinnati or toll-free (800) 334-0483 or
sending a written request to Fifth Third Securities. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by the
Funds, they may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Orders to exchange shares of one Fund for shares of any of the other Funds will
be executed by redeeming the shares owned at net asset value and purchasing
shares of any of the other Funds at the
net asset value determined after the exchange request is received. Orders for
exchanges received by a Fund prior to 4:00 p.m. (Cincinnati time) on any day
that Fund is open for business will be executed as of the close of business that
day. Orders for exchanges received after 4:00 p.m. (Cincinnati time) on any
business day will be executed at the close of the next business day.
When exchanging into and out of shares of the Funds in the Trust, shareholders
who have paid a sales load once upon purchasing shares of any Fund will not have
to pay a sales load again on an exchange.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time. Shareholders would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Each Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which a
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form as described below and can be made through the
Fifth Third Trust and Investment Division or Fifth Third Securities by their
respective customers or directly through the Fund by all other investors. Orders
placed through financial institutions other than Fifth Third Bank must be
received by the financial institution and transmitted to Fifth Third Bank before
4:00 p.m. (Cincinnati time) in order for shares to be redeemed at that day's
price. It is the financial institution's responsibility to transmit orders
promptly, and investors should allow sufficient time for orderly processing and
transmission.
THROUGH FIFTH THIRD BANK OR FIFTH THIRD SECURITIES
BY TELEPHONE. Shareholders who are customers of Fifth Third Trust and
Investment Division may telephone their Fifth Third Bank Trust Officer.
Shareholders other than those of the Fifth Third Trust and Investment Division
may telephone Fifth Third Securities at (513) 744-8888 in Cincinnati or toll-
free (800) 334-0483. Telephone redemption instructions may be recorded. If
reasonable procedures are not followed by the Funds, they may be liable for
losses due to unauthorized or fraudulent telephone instructions.
For calls received before 4:00 p.m. (Cincinnati time), proceeds will normally be
disbursed the next day to the shareholder's account at Fifth Third Bank or Fifth
Third Securities, or a check will be sent to the address of record. In no event
will proceeds be disbursed more than seven days after a proper request for
redemption has been received. If at any time a Fund shall determine it necessary
to terminate or modify this method of redemption, shareholders would be promptly
notified.
An authorization form permitting a Fund to accept telephone requests must first
be completed. Authorization forms and information on this service are available
from the Fifth Third Trust and Investment Division, Fifth Third Securities, or
the distributor.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. A shareholder who is a customer of the Fifth Third Trust and
Investment Division may redeem shares by sending a written request to:
Fifth Third Bank
Trust and Investment Division
Fountain Square Redemptions 1090E5
38 Fountain Square Plaza
Cincinnati, OH 45263
Shareholders other than those of the Fifth Third Bank Trust and Investment
Division may redeem shares by sending a written request to:
Fifth Third Securities, Inc.
Fountain Square Redemptions
P.O. Box 1639
Cincinnati, OH 45201
The written request should include the shareholder's name, the Fund name, the
account number, the share or dollar amount requested and the proper endorsement.
Shareholders should call their Trust Officer or their Fifth Third Securities
representative for assistance in redeeming by mail.
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 appropriate
Fund, 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
FDIC;
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings and loan association or a savings bank whose deposits are
insured by the Savings Association Insurance Fund, which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Funds and their transfer agent reserve the
right to amend these standards at any time without notice.
RECEIVING PAYMENT. 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.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Fund
shares, and the fluctuation of the net asset value of Fund shares redeemed under
this program, redemptions may reduce, and eventually exhaust, the shareholder's
investment in a Fund. For this reason, payments under this program should not be
considered as yield or income on the shareholder's investment in a Fund. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through Fifth Third Securities. Due to the fact that shares are sold
with a sales charge, it is not advisable for shareholders to be purchasing
shares while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $2,500.
Before redeeming shares to close an account, a Fund will notify the shareholder
in writing and allow the shareholder 30 days to purchase additional shares to
meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund in the
Trust have equal voting rights, except that in matters affecting only a
particular Fund, only shares of that Fund are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or a Fund's operation and for the election of Trustees
under certain circumstances.
As of July 31, 1994, Fifth Third Bank, may for certain purposes be deemed to
control the Funds because it is owner of record of certain shares of the Funds.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of a Fund. To
protect shareholders of a Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of a Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign on behalf of a Fund.
In the unlikely event a shareholder of a Fund is held personally liable for the
Trust's obligations on behalf of a Fund, the Trust is required by the
Declaration of Trust to use the property of a Fund to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of a Fund for any act or obligation of the Trust
on behalf of a Fund. Therefore, financial loss resulting from liability as a
shareholder of a Fund will occur only if the Trust cannot meet its obligations
to indemnify shareholders and pay judgments against them from the assets of a
Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956 or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of their customers. The Funds' Adviser, Fifth Third Bank, is
subject to such banking laws and regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for any Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or a Fund. In such event, changes in the operation of a
Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment or redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisers
and other means of continuing available investment services. It is not expected
that an existing Fund's shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Fifth Third Bank
is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Funds will pay no federal income tax because each Fund expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a Fund
will not be combined for tax purposes with those realized by any of the other
Funds.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
ADDITIONAL TAX INFORMATION FOR OHIO TAX FREE BOND FUND
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
Distributions representing net long-term capital gains realized by the Fund, if
any, will be taxable as long-term capital gains regardless of the length of time
shareholders have held their shares.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
STATE OF OHIO INCOME TAXES. Dividends of the Fund representing interest from
obligations held by the Fund which are issued by the state of Ohio or its
subdivisions, which interest is exempt from federal income tax when received by
a shareholder, should also be exempt from the Ohio individual income tax.
Dividends of the Fund representing interest from obligations held by the Fund
which are issued by the state of Ohio or its subdivisions should also be exempt
from any Ohio municipal income tax even if the municipality is permitted under
current Ohio law to levy a tax on intangible income.
OTHER STATE AND LOCAL TAXES. Income from the Fund is not necessarily free from
state income taxes in states other than Ohio or from personal property taxes.
State laws differ on this issue, and shareholders are urged to consult their own
tax advisers regarding the status of their accounts under state and local tax
laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Funds advertise total return and yield. In addition, the
Ohio Tax Free Fund may advertise tax-equivalent yield.
Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of each Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by each Fund
over a thirty-day period by the maximum offering price per share of each Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
each Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The tax-equivalent yield of the Ohio Tax Free Fund is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that would have to be
earned to equal the Fund's actual yield, assuming a specific tax rate. The yield
and tax-equivalent yield do not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return, yield, and tax-equivalent yield.
From time to time, the Funds may advertise their performance using certain
financial publications and/or compare their performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square U.S. Government Federated Investors Tower
Securities Fund Pittsburgh, Pennsylvania 15222-3779
Fountain Square Quality Bond Fund
Fountain Square Ohio Tax Free Bond Fund
Fountain Square Quality Growth Fund
Fountain Square Mid Cap Fund
Fountain Square Balanced Fund
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- ------------------------------------------------------------------------------------------------
Custodian, Transfer Agent, and Dividend Disbursing Agent
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young, LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
65-0918 Federated Securities Corp. is the distributor of the Funds.
2090403A (9/94)
FOUNTAIN SQUARE FUNDS
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information relates only to the following
six portfolios (the "Funds")
of Fountain Square Funds (the "Trust"):
- Fountain Square U.S. Government Securities Fund;
- Fountain Square Quality Bond Fund;
- Fountain Square Ohio Tax Free Bond Fund;
- Fountain Square Quality Growth Fund;
- Fountain Square Mid Cap Fund; and
- Fountain Square Balanced Fund.
This Combined Statement of Additional Information should be read with the
combined prospectus of
the Funds dated September 30, 1994. This Statement is not a prospectus itself.
To receive a copy of the
prospectus, customers of Fifth Third Bank Trust and Investment Division may
write the Trust or call
(513) 579-6039 in Cincinnati, Ohio or toll-free (800) 654-5372; customers of
Fifth Third Securities may
write the Trust or call (513) 744-8888 in Cincinnati, Ohio or toll-free (800)
334-0483.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated September 30, 1994
FIFTH THIRD BANK
Investment Adviser
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
OF THE FUNDS 1
- ---------------------------------------------------------------
Types of Investments 1
Repurchase Agreements 4
Reverse Repurchase Agreements 5
When-Issued and Delayed Delivery
Transactions 5
Lending of Portfolio Securities 5
Portfolio Turnover 5
Investment Limitations 5
Investment Risks (Ohio Tax Free Fund) 8
FOUNTAIN SQUARE FUNDS MANAGEMENT 9
- ---------------------------------------------------------------
Officers and Trustees 9
Fund Ownership 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 10
- ---------------------------------------------------------------
Adviser to the Trust 10
Advisory Fees 10
ADMINISTRATIVE SERVICES 10
- ---------------------------------------------------------------
ADMINISTRATIVE ARRANGEMENTS 10
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 11
- ---------------------------------------------------------------
PURCHASING SHARES 11
- ---------------------------------------------------------------
Distribution Plan 11
Conversion to Federal Funds 12
Exchanging Securities for Fund Shares 12
DETERMINING NET ASSET VALUE 12
- ---------------------------------------------------------------
Determining Market Value of Securities 12
Valuing Municipal Bonds 12
Use of Amortized Cost 12
REDEEMING SHARES 13
- ---------------------------------------------------------------
Redemption in Kind 13
TAX STATUS 13
- ---------------------------------------------------------------
The Funds' Tax Status 13
Shareholders' Tax Status 13
Capital Gains 13
TOTAL RETURN 14
- ---------------------------------------------------------------
YIELD 14
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 14
- ---------------------------------------------------------------
Tax-Equivalency Table 15
PERFORMANCE COMPARISONS 15
- ---------------------------------------------------------------
FINANCIAL STATEMENTS 17
- ---------------------------------------------------------------
APPENDIX 18
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. This Combined Statement of Additional
Information relates only to the following six Funds: Fountain Square U.S.
Government Securities Fund ("Government Securities Fund"), Fountain Square
Quality Bond Fund ("Quality Bond Fund"), Fountain Square Ohio Tax Free Bond Fund
("Ohio Tax Free Fund"), Fountain Square Quality Growth Fund ("Quality Growth
Fund"), Fountain Square Mid Cap Fund ("Mid Cap Fund"), and Fountain Square
Balanced Fund ("Balanced Fund").
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
- --------------------------------------------------------------------------------
The combined prospectus discusses the objective of each Fund and the policies
employed to achieve those objectives. The following discussion supplements the
description of the Funds' investment policies in the prospectus. The Funds'
respective investment objectives cannot be changed without approval of
shareholders. Unless otherwise indicated, the investment policies described
below may be changed by the Board of Trustees ("Trustees") without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
TYPES OF INVESTMENTS
BANK INSTRUMENTS
The Quality Bond Fund, the Quality Growth Fund, the Mid Cap Fund and the
Balanced Fund may invest in the instruments of banks and savings and
loans whose deposits are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund, both of which are administered by the
Federal Deposit Insurance Corporation, such as certificates of deposit,
demand and time deposits, savings shares, and bankers' acceptances.
However, these instruments are not necessarily guaranteed by those
organizations.
FUTURES AND OPTIONS TRANSACTIONS
All of the Funds may engage in futures and options transactions as
described below to the extent consistent with their investment objectives
and policies.
As a means of reducing fluctuations in the net asset value of shares of
the Funds, the Funds may attempt to hedge all or a portion of their
portfolio through the purchase of put options on portfolio securities and
put options on financial futures contracts for portfolio securities. The
Funds may attempt to hedge all or a portion of their portfolio by buying
and selling financial futures contracts and writing call options on
futures contracts. The Funds may also write covered call options on
portfolio securities to attempt to increase current income.
The Funds will maintain their position in securities, options, and
segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position may be closed out
over-the-counter or on an exchange which provides a secondary market for
options of the same series.
FUTURES CONTRACTS. The Funds may enter into futures contracts. A futures
contract is a firm commitment by two parties: the seller who agrees to
sell a specific type of security called for in the contract ("going
short") and the buyer who agrees to purchase the security ("going long")
at a certain time in the future.
Financial futures contracts call for the delivery of particular debt
instruments issued or guaranteed by the U.S. Treasury or by specified
agencies or instrumentalities of the U.S. government at a certain time in
the future. Stock index futures contracts are similar to financial
futures contracts, but their price is based upon fluctuations in a
particular index of stock prices during a specified period, such as the
S&P 500 Index. No physical delivery of the underlying securities in the
index is made.
The purpose of the acquisition or sale of a futures contract by a Fund is
to protect it from fluctuations in the value of securities caused by
unanticipated changes in interest rates or stock prices without
necessarily buying or selling securities. For example, in the fixed
income securities market, price moves inversely to interest rates. A rise
in rates means a drop in price. Conversely, a drop in rates means a rise
in price. In order to hedge its holdings of fixed income securities
against a rise in market interest rates, a Fund could enter into
contracts to "go short" to protect itself against the possibility that
the prices of its fixed income securities may decline during the Fund's
anticipated holding period. The Fund would "go long" to hedge against a
decline in market interest rates.
STOCK INDEX OPTIONS. The Funds may purchase put options on stock indexes
listed on national securities exchanges or traded in the over-the-counter
market. A stock index fluctuates with changes in the market values of the
stocks included in the index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Funds' portfolio correlate with
price movements of the stock index selected. Because the value of an
index option depends upon movements in the level of the index rather than
the price of a particular stock,
- --------------------------------------------------------------------------------
whether the Funds will realize a gain or loss from the purchase of
options on an index depends upon movements in the level of stock prices
in the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Funds of options on
stock indexes will be subject to the ability of Fifth Third Bank to
predict correctly movements in the direction of the stock market
generally or of a particular industry. This requires different skills and
techniques than predicting changes in the price of individual stocks.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Funds may purchase
listed put options on financial futures contracts. The Funds would use
these options only to protect portfolio securities against decreases in
value resulting from market factors such as anticipated increase in
interest rates.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price. Generally, if
the hedged portfolio securities decrease in value during the term of an
option, the related futures contracts will also decrease in value and the
option will increase in value. In such an event, a Fund will normally
close out its option by selling an identical option. If the hedge is
successful, the proceeds received by a Fund upon the sale of the second
option will be large enough to offset both the premium paid by a Fund for
the original option plus the realized decrease in value of the hedged
securities.
Alternatively, a Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. A Fund would then deliver the
futures contract in return for payment of the strike price. If a Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS. In addition to purchasing
put options on futures, a Fund may write listed call options on financial
futures contracts or over-the-counter call options on futures contracts,
to hedge their portfolios against an increase in market interest rates.
When a Fund writes a call option on a futures contract, it is undertaking
the obligation of assuming a short futures position (selling a futures
contract) at the fixed strike price at any time during the life of the
option if the option is exercised. As market interest rates rise and
cause the price of futures to decrease, a Fund's obligation under a call
option on a future (to sell a futures contract) costs less to fulfill,
causing the value of a Fund's call option position to increase.
In other words, as the underlying future's price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that a Fund keeps the premium received for the option. This premium
can help substantially offset the drop in value of a Fund's portfolio
securities.
Prior to the expiration of a call written by a Fund, or exercise of it by
the buyer, a Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less
than the premium received by a Fund for the initial option. The net
premium income of a Fund will then substantially offset the realized
decrease in value of the hedged securities.
A Fund will not maintain open positions in futures contracts it has sold
or call options it has written on financial futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, a Fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS. Unlike the purchase or sale of a
security, the Funds do not pay or receive money upon the purchase or sale
of a futures contract. Rather, the Funds are required to deposit an
amount of "initial margin" in cash or U.S. Treasury bills with its
custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in
securities transactions in that a futures contract's initial margin does
not involve the borrowing by a Fund to finance the transactions. Initial
margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to a Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day a Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by a Fund but is instead settlement between a Fund and the broker of
the
- --------------------------------------------------------------------------------
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, a Fund will mark to market its open
futures positions.
The Funds are also required to deposit and maintain margin when they
write call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES. The Funds may purchase
put options on portfolio securities to protect against price movements in
particular securities in their respective portfolios. A put option gives
a Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of
the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES. The Funds may also
write covered call options to generate income. As the writer of a call
option, a Fund has the obligation, upon exercise of the option during the
option period, to deliver the underlying security upon payment of the
exercise price. A Fund may sell call options either on securities held in
its portfolio or on securities which it has the right to obtain without
payment of further consideration (or securities for which it has
segregated cash in the amount of any additional consideration).
OVER-THE-COUNTER OPTIONS. The Funds may purchase and write
over-the-counter options on portfolio securities in negotiated
transactions with the buyers or writers of the options for those options
on portfolio securities held by a Fund and not traded on an exchange.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
The Quality Bond Fund and the Balanced Fund may invest in CMOs. Privately
issued CMOs generally represent an ownership interest in a pool of
federal agency mortgage pass-through securities such as those issued by
the Government National Mortgage Association. The terms and
characteristics of the mortgage instruments may vary among pass-through
mortgage loan pools.
The market for such CMOs has expanded considerably since its inception.
The size of the primary issuance market and the active participation in
the secondary market by securities dealers and other investors make
government-related pools highly liquid.
CONVERTIBLE SECURITIES
The Quality Growth Fund, the Mid Cap Fund and the Balanced Fund may
invest in convertible securities. Each of these Funds will exchange or
convert the convertible securities held in its portfolio into shares of
the underlying common stock when, in the investment adviser's opinion,
the investment characteristics of the underlying common shares will
assist the Fund in achieving its investment objectives. Otherwise the
Fund may hold or trade convertible securities. In selecting convertible
securities for the Fund, the Fund's adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument
and the investment potential of the underlying equity security for
capital appreciation. In evaluating these matters with respect to a
particular convertible security, a Fund's adviser considers numerous
factors, including the economic and political outlook, the value of the
security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management
capability and practices.
WARRANTS
The Quality Growth Fund, the Mid Cap Fund and the Balanced Fund may
invest in warrants. Warrants are basically options to purchase common
stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of
time. Warrants may have a life ranging from less than a year to twenty
years or may be perpetual. However, most warrants have expiration dates
after which they are worthless. In addition, if the market price of the
common stock does not exceed the warrant's exercise price during the life
of the warrant, the warrant will expire as worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the
assets of the corporation issuing them. The percentage increase or
decrease in the market price of the warrant may tend to be greater than
the percentage increase or decrease in the market price of the optioned
common stock.
OHIO MUNICIPAL SECURITIES
The Ohio Tax Free Fund may invest in Ohio municipal securities which have
the characteristics set forth in the prospectus. If a high-rated bond
loses its ratings or has its rating reduced after the Fund has purchased
it, the Fund is not required to drop the bond from the portfolio, but
will consider doing so. If ratings made by Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service, Inc. ("Fitch") change because of changes in those
organizations or in their rating systems, the Fund will try to use
comparable ratings as standards in accordance with the investment
policies described in the Fund's prospectus.
- --------------------------------------------------------------------------------
Examples of Ohio Municipal Securities are:
- governmental lease certificates of participation issued by state or
municipal authorities where payment is secured by installment payments
for equipment, buildings, or other facilities being leased by the state
or municipality. Government lease certificates purchased by the Fund
will not contain nonappropriation clauses;
- municipal notes and tax-exempt commercial paper;
- serial bonds;
- tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes at a later date;
- bond anticipation notes sold in anticipation of the issuance of
long-term bonds in the future;
- pre-refunded municipal bonds whose timely payment of interest and
principal is ensured by an escrow of U.S. government obligations; and
- general obligation bonds.
PARTICIPATION INTERESTS. The Ohio Tax Free Fund may invest in
participation interests. The financial institutions from which the Ohio
Tax Free Fund purchases participation interests frequently provide or
secure from another financial institution irrevocable letters of credit
or guarantees and give the Fund the right to demand payment of the
principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days).
VARIABLE RATE MUNICIPAL SECURITIES. The Ohio Tax Free Fund may invest in
variable rate municipal securities. Variable interest rates generally
reduce changes in the market value of municipal securities from their
original purchase prices. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or depreciation is less
for variable rate municipal securities than for fixed income obligations.
Many municipal securities with variable interest rates purchased by the
Fund are subject to repayment of principal (usually within seven days) on
the Fund's demand. The terms of these variable-rate demand instruments
require payment of principal and accrued interest from the issuer of the
municipal obligations, the issuer of the participation interests, or a
guarantor of either issuer.
MUNICIPAL LEASES. The Ohio Tax Free Fund may purchase municipal
securities in the form of participation interests which represent
undivided proportional interests in lease payments by a governmental or
non-profit entity. The lease payments and other rights under the lease
provide for and secure the payments on the certificates. Lease
obligations may be limited by municipal charter or the nature of the
appropriation for the lease. In particular, lease obligations may be
subject to periodic appropriation. If the entity does not appropriate
funds for future lease payments, the entity cannot be compelled to make
such payments. Furthermore, a lease may provide that the certificate
trustee cannot accelerate lease obligations upon default. The trustee
would only be able to enforce lease payments as they become due. In the
event of a default or failure of appropriation, it is unlikely that the
trustee would be able to obtain an acceptable substitute source of
payment. In determining the liquidity of municipal lease securities, the
adviser, under the authority delegated by the Board of Trustees, will
base its determination on the following factors: (a) whether the lease
can be terminated by the lessee; (b) the potential recovery, if any, from
a sale of the leased property upon termination of the lease; (c) the
lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and, prospects); (d) the
likelihood that the lessee will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to its
operations (e.g., the potential for an "event of nonappropriation"); and
(e) any credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
TEMPORARY INVESTMENTS. The Ohio Tax Free Fund may also invest in
temporary investments, such as repurchase agreements and reverse
repurchase agreements, during times of unusual market conditions for
defensive purposes.
From time to time, such as when suitable Ohio municipal bonds are not
available, the Fund may invest a portion of its assets in cash. Any
portion of the Fund's assets maintained in cash will reduce the amount of
assets in Ohio municipal bonds and thereby reduce the Fund's yield.
REPURCHASE AGREEMENTS
The Funds require their custodian to take possession of the securities subject
to repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from a
Fund, a Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by a Fund might be delayed
- --------------------------------------------------------------------------------
pending court action. The Funds believe that under the regular procedures
normally in effect for custody of a Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
a Fund and allow retention or disposition of such securities. The Funds will
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the adviser to be
creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, a Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future it will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable a Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that a Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on a Fund's records at the trade date. These securities are
marked to market daily and maintained until the transaction is settled.
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. 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. 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. The Funds do 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 their
assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when a Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of a Fund or the borrower. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. A Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
PORTFOLIO TURNOVER
The Funds will not attempt to set or meet portfolio turnover rates since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Funds' investment objectives. The portfolio turnover rates for the Mid Cap
Fund, the Government Securities Fund, the Balanced Fund, the Quality Bond Fund,
the Ohio Tax Free Fund and the Quality Growth Fund for the year ended July 31,
1994 and for the period ended July 31, 1993 were 44%, 55%, 53%, 112%, 94%, 37%,
and 20%, 23%, 30%, 19%, 31% and 28%, respectively.
Turnover during the last year for the Quality Bond Fund was 112%. Given the
unprecedented rise in interest rates during the first calender quarter of the
year, the decision was made to reposition the portfolio to benefit from this new
interest rate environment. Specifically, the portfolio was restructured to be
significantly more sensitive to a rise in short term interest rates while also
being exposed to attractive long term interest rates. Portfolio turnover during
the last year for the Ohio Tax Free Fund was 94%. The sole reason for this is
the use of floating bonds that reset weekly as money market substitutes. These
bonds are treated like long term holdings for turnover calculation.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that a Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount
borrowed; and except to the extent that a Fund may enter into futures
contracts, as applicable. The Funds will not borrow money or engage in
reverse repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling a
- --------------------------------------------------------------------------------
Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. A Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any securities
on margin, but may obtain such short-term credits as are necessary for
clearance of purchases and sales of securities.
The deposit or payment by the Funds (with the exception of the Ohio Tax
Free Fund) of initial or variation margin in connection with futures
contracts or related options transactions is not considered the purchase
of a security on margin.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets, except to
secure permitted borrowings. In these cases, the Funds may pledge assets
as necessary to secure such borrowings. For purposes of this limitation,
where applicable, (a) the deposit of assets in escrow in connection with
the writing of covered put or call options and the purchase of securities
on a when-issued basis and (b) collateral arrangements with respect to:
(i) the purchase and sale of stock options (and options on stock indexes)
and (ii) initial or variation margin for futures contracts, will not be
deemed to be pledges of a Fund's assets.
LENDING CASH OR SECURITIES
The Funds will not lend any of their respective assets except portfolio
securities up to one-third of the value of total assets. This shall not
prevent a Fund from purchasing or holding U.S. government obligations,
money market instruments, publicly or non-publicly issued municipal
bonds, variable rate demand notes, bonds, debentures, notes, certificates
of indebtedness, or other debt securities, entering into repurchase
agreements, or engaging in other transactions where permitted by a Fund's
investment objective, policies, and limitations or the Trust's
Declaration of Trust.
The Ohio Tax Free Fund may, however, acquire temporary investments or
enter into repurchase agreements in accordance with its investment
objective, policies and limitations or its Declaration of Trust.
INVESTING IN COMMODITIES
None of the Funds will purchase or sell commodities, commodity contracts,
or commodity futures contracts except to the extent that the Funds, other
than the Ohio Tax Free Fund, may engage in transactions involving futures
contracts or options on futures contracts.
INVESTING IN REAL ESTATE
None of the Funds will purchase or sell real estate, including limited
partnership interests, although the Funds (with the exception of the
Government Securities Fund) may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of their respective total assets, a Fund
(with the exception of the Ohio Tax Free Fund) will not purchase
securities issued by any one issuer (other than cash, cash items or
securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements
collateralized by such securities), if as a result more than 5% of the
value of their total assets would be invested in the securities of that
issuer. A Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer.
DEALING IN PUTS AND CALLS
The Ohio Tax Free Fund will not buy or sell puts, calls, straddles,
spreads, or any combination of these.
CONCENTRATION OF INVESTMENTS
The Government Securities Fund, the Quality Bond Fund, the Quality Growth
Fund, the Mid Cap Fund and the Balanced Fund will not invest 25% or more
of the value of their respective total assets in any one industry, except
that these Funds may invest more than 25% of the value of its total
assets in securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities and repurchase agreements collateralized
by such securities.
The Ohio Tax Free Fund will not purchase securities if, as a result of
such purchase, 25% or more of the value of its total assets would be
invested in any one industry or in industrial development bonds or other
securities, the interest upon which is paid from revenues of similar
types of projects. However, the Fund may
- --------------------------------------------------------------------------------
invest as temporary investments more than 25% of the value of its assets
in cash or cash items, securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or instruments secured by
these money market instruments, i.e., repurchase agreements.
UNDERWRITING
A Fund will not underwrite any issue of securities, except as a Fund may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
The above limitations cannot be changed with respect to a Fund without approval
of the holders of a majority of that Fund's shares. The following limitations
may be changed by the Trustees without shareholder approval. Shareholders will
be notified before any material change in these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Funds will not invest more than 10% of the value of their respective
net assets in securities that are subject to restrictions on resale under
federal securities law.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of the value of their respective
net assets in illiquid securities, including, as applicable, repurchase
agreements providing for settlement more than seven days after notice,
over-the-counter options, certain restricted securities not determined by
the Trustees to be liquid, and non-negotiable time deposits with
maturities over seven days.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their respective investment in other investment
companies to no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of their respective total
assets in any one investment company, and will invest no more than 10% of
their respective total assets in investment companies in general. The
Funds will purchase securities of closed-end investment companies only in
open market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization, or acquisition of
assets. It should be noted that investment companies incur certain
expenses such as management fees and, therefore, any investment by a Fund
in shares of another investment company would be subject to such
expenses. The Fund will invest in other investment companies primarily
for the purpose of investing its short-term cash on a temporary basis.
The adviser will waive its investment advisory fee on assets invested in
securities of open-end investment companies.
INVESTING IN NEW ISSUERS
The Government Securities Fund, the Quality Bond Fund, the Quality Growth
Fund, the Mid Cap Fund, and the Balanced Fund will not invest more than
5% of the value of their respective total assets in securities of issuers
which have records of less than three years of continuous operations,
including the operation of any predecessor.
The Ohio Tax Free Fund will not invest more that 5% of the value of its
total assets in industrial development bonds where the principal and
interest are the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations,
including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
A Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser, owning
individually more than 1/2 of 1% of the issuer's securities, together own
more than 5% of the issuer's securities.
INVESTING IN MINERALS
A Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except they may purchase
the securities of issuers which invest in or sponsor such programs.
ARBITRAGE TRANSACTIONS
A Fund will not enter into transactions for the purpose of engaging in
arbitrage.
PURCHASING SECURITIES TO EXERCISE CONTROL
A Fund will not purchase securities of a company for the purpose of
exercising control or management.
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INVESTING IN WARRANTS
The Quality Growth Fund, the Mid Cap Fund and the Balanced Fund may not
invest more than 5% of their net assets in warrants, including those
acquired in units or attached to other securities. To comply with certain
state restrictions, a Fund will limit its investment in such warrants not
listed on the New York or American Stock Exchanges to 2% of its net
assets. (If state restrictions change, this latter restriction may be
revised without notice to shareholders.) For purposes of this investment
restriction, warrants will be valued at the lower of cost or market,
except that warrants acquired by a Fund in units with or attached to
securities may be deemed to be without value.
Except with respect to the Funds' policy of borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not result
in a violation of such restriction. For purposes of its policies and
limitations, the Funds consider certificates of deposit and demand and time
deposits issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
The Ohio Tax Free Fund does not expect to borrow money or pledge securities in
excess of 5% of the value of its net assets during the coming fiscal year.
To comply with registration requirements in certain states, the Government
Securities Fund, the Quality Bond Fund, the Quality Growth Fund, the Mid Cap
Fund, and the Balanced Fund: (1) will limit the aggregate value of the assets
underlying covered call options or put options written by a Fund to not more
than 25% of its net assets, (2) will limit the premiums paid for options
purchased by a Fund to 5% of its net assets, (3) will limit the margin deposits
on futures contracts entered into by a Fund to 5% of its net assets, (4) will
limit their investment in restricted securities to 10% of their net assets, and
(5) will not engage in portfolio lending. To comply with restrictions in certain
states, the Growth Fund, the Mid Cap Fund and the Balanced Fund will limit their
investment in restricted securities to 5% of their net assets. (If state
requirements change, these restrictions may be revised without shareholder
notification.)
INVESTMENT RISKS (OHIO TAX FREE FUND)
The economy of the state of Ohio is reliant in part on durable goods
manufacturing, largely concentrated in motor vehicles and equipment, steel,
rubber products and household appliances. During the past decade, competition in
various industries in the state of Ohio has changed from being domestic to
international in nature. In addition, these industries may be characterized as
having excess capacity in particular product segments. The steel industry, in
particular, and the automobile industry, to a lesser extent, share these
characteristics. Because the state of Ohio and certain underlying municipalities
have large exposure to these industries and their respective aftermarkets,
trends in these industries may, over the long term, impact the demographic and
financial position of the state of Ohio and its municipalities. To the degree
that domestic manufacturers in industries to which Ohio municipalities have
exposure fail to make competitive adjustments, employment statistics and
disposable income of residents in Ohio may deteriorate, possibly leading to
population declines and erosion of municipality tax bases.
Both the economic trends above and the political climate in various
municipalities may have contributed to the decisions of various businesses and
individuals to relocate outside the state. A municipality's political climate in
particular may affect its own credit standing. For both the state of Ohio and
underlying Ohio municipalities, adjustment of credit ratings by the rating
agencies may affect the ability to issue securities and thereby affect the
supply of obligations meeting the quality standards for investment by the Fund.
The state ended fiscal year 1993 with a positive budgetary fund balance of over
$100 million. The 1994-1995 biennial budget was formulated with reasonable
revenue assumptions. The state implemented a revenue enhancement package in
January of 1993 that increased the cigarette tax and the income tax bracket for
incomes over $200,000, broadened the sales tax base and capped tax distributions
to local governments. These and other minor revenue enhancements are budgeted to
add $912 million of additional revenue to the 1994-1995 biennial budget. The
state's fund balance reserve levels continue to be minimal but the state has
demonstrated its ability to manage with limited financial flexibility.
The state has established procedures for municipal fiscal emergencies under
which joint state/local commissions are established to monitor the fiscal
affairs of a financially troubled municipality. When these procedures are
invoked, the municipality must develop a financial plan to eliminate deficits
and cure any defaults. Since their adoption in 1979, these procedures have been
applied to approximately twenty-two cities and villages, including the city of
Cleveland; in sixteen of these communities, the fiscal situation has been
resolved and the procedures terminated.
The foregoing discussion only highlights some of the significant financial
trends and problems affecting the state of Ohio and underlying municipalities.
FOUNTAIN SQUARE FUNDS MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, principal
occupations, and present positions. Except as listed below, none of the Trustees
or officers are affiliated with Fifth Third Bank (the "Adviser"), Fifth Third
Bancorp, Federated Investors, Federated Securities Corp., or Federated
Administrative Services.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue*+ Chairman of President and Trustee, Federated Investors, Federated Advisers, Federated
Federated Investors the Board of Management, and Federated Research; President and Director, Federated
Tower Trustees, Research Corp., President, Passport Research, Ltd., Trustee, Federated
Pittsburgh, PA President and Administrative Services, Federated Services Company, and Federated
Treasurer Shareholder Services; President and Vice President of certain investment
companies organized or advised by Federated Investors and its affiliates
(Federated Funds); Director, Trustee, or Managing General Partner of some of
the Federated Funds.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Edward Burke Carey Member of President of Carey Leggett Realty Advisors.
395 East Town St. Board of Trustees
Columbus, Ohio
- --------------------------------------------------------------------------------------------------------------------------------
Lee A. Carter+ Member of Formerly President, Local Marketing Corporation (retired December, 1993)
Cincinnati Commerce Board of
Center Trustees
600 Vine Street
Suite 2020
Cincinnati, Ohio
- --------------------------------------------------------------------------------------------------------------------------------
Albert E. Harris Member of Formerly Chairman of the Board EDB Holdings, Inc. (retired July, 1993);
5905 Graves Road Board of Formerly Senior Vice President, The Procter & Gamble Company (retired
Cincinnati, Ohio Trustees October, 1987).
- --------------------------------------------------------------------------------------------------------------------------------
Margaret P. Tessaro Vice President Vice President of Federated Administrative Services.
Federated Investors and Assistant
Tower Treasurer
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Jay S. Neuman Secretary Corporate Counsel, Federated Investors; prior to January, 1991, Associate
Federated Investors Counsel, The Boston Company Advisors, Inc.
Tower
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
+ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding shares of each Fund.
Fifth Third Bank, as nominee for numerous trust and agency accounts, was the
owner of record of more than 5% of the outstanding shares of each Portfolio as
of September 16, 1994. The following list indicates the extent of its ownership
for each Fund:
<TABLE>
<S> <C> <C>
Government Securities Fund: 2,988,505 shares 85.0%
Quality Bond Fund: 5,047,518 shares 80.8%
Ohio Tax Free Fund: 2,680,412 shares 37.3%
Quality Growth Fund: 6,970,618 shares 87.1%
Mid Cap Fund: 3,054,755 shares 83.3%
Balanced Fund: 6,022,380 shares 86.9%
</TABLE>
As of September 16, 1994, Joan C. Bernard of Cincinnati, Ohio, was the owner of
record of 203,797 shares (7.6%) of the Ohio Tax Free Fund.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE TRUST
The Trust's adviser is Fifth Third Bank. It provides investment advisory
services through its Trust and Investment Division. Fifth Third Bank is a
wholly-owned subsidiary of Fifth Third Bancorp.
The Adviser shall not be liable to the Trust, a Fund, or any shareholder of any
of the Funds for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Fifth Third Bank to restrict the
flow of non-public information, a Fund's investments are typically made without
any knowledge of Fifth Third Bank's or affiliates' lending relationship with an
issuer.
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the prospectus.
For the fiscal year ended July 31, 1994 and the period from November 20, 1992
(date of initial public investment) to July 31, 1993 the Adviser earned fees
from Quality Growth Fund, Mid Cap Fund, Balanced Fund, Government Securities
Fund, and Quality Bond Fund of $575,044, $220,198, $501,193, $184,118, $251,563
and $343,745, $104,664, $287,907, $88,059, $103,014, respectively, of which
$10,880, $74,740, $25,861, $45,042, $33,221, and $12,890, $7,850, $15,179,
$11,967, $5,125 respectively, was waived. For the fiscal year ended July 31,
1994 and the period from May 26, 1993 (date of initial public investment) to
July 31, 1993 the Adviser earned fees from Ohio Tax Free Fund of $109,659 and
$4,181 respectively, of which $7,912 and $4,181 respectively, were waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If a Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the Adviser has agreed to
reimburse the Fund for its expenses over the limitation up to the amount
of the advisory fee in any single fiscal year.
If a Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, which is a subsidiary of Federated Investors,
provides administrative personnel and services to the Funds for the fees set
forth in the prospectus.
For the fiscal year ended July 31, 1994 and for the period from November 20,
1992 (date of initial public investment) to July 31, 1993 Federated
Administrative Services earned fees from Quality Growth Fund, Mid Cap Fund,
Balanced Fund, Government Securities Fund, and Quality Bond Fund of $82,765,
$50,000, $72,146, $50,002, $53,076 and $52,614, $34,384, $44,044, $34,384,
$34,385 respectively, of which $0, $4,247, $0, $4,247, $4,247 and $0, $34,384,
$0, $34,384, $34,385 respectively, was waived. For the fiscal year ended July
31, 1994 and for the period from May 26, 1993 (date of initial public
investment) to July 31, 1993, Federated Administrative Services earned fees from
Ohio Tax Free Fund of $50,002, and $9,041, respectively, of which $0 and all was
waived.
Under the custodian agreement, Fifth Third Bank holds each Fund's portfolio
securities and keeps all necessary records and documents relating to its duties.
Fifth Third Bank's fees for custody services are based upon the market value of
Fund securities held in custody plus certain securities transaction charges.
ADMINISTRATIVE ARRANGEMENTS
- --------------------------------------------------------------------------------
The distributor pays fees to brokers and dealers for distribution and
administrative services and to administrators for administrative services. The
administrative services include, but are not limited to, providing office space,
equipment, telephone facilities, and various personnel, including clerical,
supervisory, and computer, as is necessary or beneficial to establish and
maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding a Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as a Fund may reasonably request.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Funds or to the
Adviser and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser in advising the
Funds and other accounts. To the extent that receipt of these services may
supplant services for which the Adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
Although investment decisions for the Funds are made independently from those of
the other accounts managed by the Adviser, investments of the type a Fund may
make may also be made by those other accounts. When a Fund and one or more other
accounts managed by the Adviser are prepared to invest in, or desire to dispose
of, the same security, available investments or opportunities for sales will be
allocated in a manner believed by the Adviser to be equitable to each. In some
cases, this procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or disposed of by a Fund. In other cases,
however, it is believed that coordination and the ability to participate in
volume transactions will be to the benefit of the Funds.
For the fiscal year ended July 31, 1994 and for the period from November 20,
1992 (date of initial public investment) to July 31, 1993, the Quality Growth
Fund, the Mid Cap Fund and the Balanced Fund paid $58,123, $32,444, $43,250 and
$80,480, $28,647 and $74,546, respectively, in commissions on brokerage
transactions.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares of the Funds are sold at their net asset value with a sales charge on
days the New York Stock Exchange and the Federal Reserve Bank of Cleveland are
open for business. The procedure for purchasing shares of the Funds is explained
in the prospectus under "Investing in the Funds."
DISTRIBUTION PLAN
With respect to the Funds, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940. The Plan provides for payment of fees to
Federated Securities Corp. to finance any activity which is principally intended
to result in the sale of a Fund's shares subject to the Plan. Such activities
may include the advertising and marketing of shares; preparing, printing, and
distributing prospectuses and sales literature to prospective shareholders,
brokers, or administrators; and implementing and operating the Plan. Pursuant to
the Plan, Federated Securities Corp. may pay fees to brokers for distribution
and administrative services and to administrators for administrative services as
to shares. The administrative services are provided by a representative who has
knowledge of the shareholder's particular circumstances and goals, and include,
but are not limited to: communicating account openings; communicating account
closings; entering purchase transactions; entering redemption transactions;
providing or arranging to provide accounting support for all transactions,
wiring funds and receiving funds for share purchases and redemptions, confirming
and reconciling all transactions, reviewing the activity in Fund accounts, and
providing training and supervision of broker personnel; posting and reinvesting
dividends to Fund accounts or arranging for this service to be performed by the
Funds' transfer agent; and maintaining and distributing current copies of
prospectuses and shareholder reports to the beneficial owners of shares and
prospective shareholders.
The Trustees expect that the Plan will result in the sale of a sufficient number
of shares so as to allow a Fund to achieve economic viability. It is also
anticipated that an increase in the size of a Fund will facilitate more
efficient portfolio management and assist a Fund in seeking to achieve its
investment objective.
- --------------------------------------------------------------------------------
CONVERSION TO FEDERAL FUNDS
It is the Funds' policy to be as fully invested as possible so that maximum
interest or dividends may be earned. To this end, all payments from shareholders
must be in federal funds or be converted into federal funds. Fifth Third Bank
acts as the shareholder's agent in depositing checks and converting them to
federal funds.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange securities they already own for shares of a Fund or they
may exchange a combination of securities and cash for Fund shares. Any
securities to be exchanged must meet the investment objective and policies of
each Fund, must have a readily ascertainable market value, must be liquid, and
must not be subject to restrictions on resale. An investor should forward the
securities in negotiable form with an authorized letter of transmittal to Fifth
Third Bank. A Fund will notify the investor of its acceptance and valuation of
the securities within five business days of their receipt by the adviser.
A Fund values such securities in the same manner as a Fund values its assets.
The basis of the exchange will depend upon the net asset value of shares of a
Fund on the day the securities are valued. One share of a Fund will be issued
for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, conversion, or
other rights attached to the securities become the property of a Fund, along
with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for shares of a Fund, a gain or loss may be realized by the
investor.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset values of the Funds generally change each day. The days on which the
net asset value is calculated by these Funds are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
The market value of the Funds' portfolio securities (with the exception of the
Ohio Tax Free Fund) are determined as follows:
- - for equity securities, according to the last sale price on a national
securities exchange, if available;
- - in the absence of recorded sales for listed equity securities, according to
the mean between the last closing bid and asked prices;
- - for unlisted equity securities, the latest bid prices;
- - for bonds and other fixed income securities, as determined by an independent
pricing service;
- - for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost; or
- - for all other securities, at fair value as determined in good faith by the
Board of Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Funds will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges unless the Board of Trustees determine in good
faith that another method of valuing option positions is necessary to appraise
their fair value.
VALUING MUNICIPAL BONDS
With respect to the Ohio Tax Free Fund, the Trustees use an independent pricing
service to value municipal bonds. The independent pricing service takes into
consideration yield, stability, risk, quality, coupon rate, maturity, type of
issue, trading characteristics, special circumstances of a security or trading
market, and any other factors or market data it considers relevant in
determining valuations for normal institutional size trading units of debt
securities, and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized to
be purchased by the Fund with remaining maturities of 60 days or less at the
time of purchase may be their amortized cost value, unless the
- --------------------------------------------------------------------------------
particular circumstances of the security indicate otherwise. Under this method,
portfolio instruments and assets are valued at the acquisition cost as adjusted
for amortization of premium or accumulation of discount rather than at current
market value. The Executive Committee continually assesses this method of
valuation and recommends changes where necessary to assure that the Fund's
portfolio instruments are valued at their fair value as determined in good faith
by the Trustees.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at the next computed net asset value after a Fund receives
the redemption request. Redemption procedures are explained in the prospectus
under "Redeeming Shares." Although Fifth Third Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of a Fund's net
asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, each Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
With respect to the Government Securities Fund, the Quality Bond Fund, the
Quality Growth Fund, the Mid Cap Fund and the Balanced Fund, shareholders are
subject to federal income tax on dividends received as cash or additional
shares. No portion of any income dividend paid by a Fund is eligible for the
dividends received deduction available to corporations. These dividends, and any
short-term capital gains, are taxable as ordinary income.
With respect to the Ohio Tax Free Fund, no portion of any income dividend paid
by the Fund is eligible for the dividends received deduction available to
corporations.
CAPITAL GAINS
With respect to the Government Securities Fund, the Quality Bond Fund, the
Quality Growth Fund, the Mid Cap Fund and the Balanced Fund, long-term capital
gains distributed to shareholders will be treated as long-term capital gains
regardless of how long shareholders have held shares.
With respect to the Ohio Tax Free Fund, capital gains or losses may be realized
by the Fund on the sale of portfolio securities and as a result of discounts
from par value on securities held to maturity. Sales would generally be made
because of:
- - the availability of higher relative yields;
- - differentials in market values;
- - new investment opportunities;
- - changes in creditworthiness of an issuer; or
- - an attempt to preserve gains or limit losses.
- --------------------------------------------------------------------------------
Distributions of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested, and regardless of the length of time the
shareholder has owned shares. Any loss by a shareholder on shares held for less
than six months and sold after a capital distribution will be treated as a
long-term capital loss to the extent of the capital gains distribution.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total returns for the Government Securities Fund, the Quality
Bond Fund, the Quality Growth Fund, the Mid Cap Fund and the Balanced Fund for
the fiscal year ended July 31, 1994 and for the period from November 20, 1992
(date of initial public investment) through July 31, 1994 were -4.38%, -5.65%,
- -1.48%, 0.30%, -2.56% and 0.17%, 0.43%, -3.06%, -1.44% and -1.84%, respectively.
The average annual total returns for the Ohio Tax Free Fund for the fiscal year
ended July 31, 1994 and for the period from May 26, 1993 (date of initial public
investment) through July 31, 1994 were -2.65% and -2.44%, respectively. The
average annual total return for the Funds 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 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 reinvestment of
all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The SEC yields for the Government Securities Fund, the Quality Bond Fund, the
Ohio Tax Free Fund, the Quality Growth Fund, the Mid Cap Fund and the Balanced
Fund for the thirty-day period ended July 31, 1994 were 5.07%, 6.25%, 4.83%,
1.32%, 0.67% and 2.94%, respectively.
The yield for the Funds is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments required by
the Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
the performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The tax-equivalent yield for the Ohio Tax Free Fund for the thirty-day period
ended July 31, 1994 was 7.78%. The tax-equivalent yield of the Fund is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that the Fund would have had to earn to equal its actual yield, assuming a
37.90% tax rate and assuming that income is 100% tax-exempt.
- --------------------------------------------------------------------------------
TAX-EQUIVALENCY TABLE
The Ohio Tax Free Fund may also use a tax-equivalency table in advertising and
sales literature. The interest earned by the municipal obligations in the Fund's
portfolio generally remains free from federal regular income tax and is free
from income taxes imposed by the state of Ohio. As the table below indicates, a
"tax-free" investment is an attractive choice for investors, particularly in
times of narrow spreads between "tax-free" and taxable yields.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF OHIO
- ----------------------------------------------------------------------------------------------------------------
TAX BRACKET:
- ----------------------------------------------------------------------------------------------------------------
FEDERAL 15.00% 28.00% 31.00% 36.00% 39.60%
- ----------------------------------------------------------------------------------------------------------------
COMBINED
FEDERAL
AND STATE 20.201% 34.900% 37.900% 43.500% 47.100%
- ----------------------------------------------------------------------------------------------------------------
JOINT RETURN: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000
SINGLE RETURN: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000
- ----------------------------------------------------------------------------------------------------------------
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- ----------------------------------------------------------------------------------------------------------------
1.50% 1.88% 2.30% 2.42% 2.65% 2.84%
2.00% 2.51% 3.07% 3.22% 3.54% 3.78%
2.50% 3.13% 3.84% 4.03% 4.42% 4.73%
3.00% 3.76% 4.61% 4.83% 5.31% 5.67%
3.50% 4.39% 5.38% 5.64% 6.19% 6.62%
4.00% 5.01% 6.14% 6.44% 7.08% 7.56%
4.50% 5.64% 6.91% 7.25% 7.96% 8.51%
5.00% 6.27% 7.68% 8.05% 8.85% 9.45%
5.50% 6.89% 8.45% 8.86% 9.73% 10.40%
6.00% 7.52% 9.22% 9.66% 10.62% 11.34%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
Taxable Yield Equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The charts above are for illustrative purposes only. They are not an indicator
of past or future performance of the Ohio Tax Free Fund.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
Each Fund's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in each Fund's expenses; and
- - various other factors.
Each Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return as
described above.
- --------------------------------------------------------------------------------
Investors may use financial publications and/or indices to obtain a more
complete view of the 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 the Funds use in advertising may include:
- - LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
approximately 5,000 issues which include non-convertible bonds publicly issued
by the U.S. government or its agencies; corporate bonds guaranteed by the U.S.
government and quasi-federal corporations; and publicly issued, fixed rate,
non-convertible domestic bonds of companies in industry, public utilities and
finance. The average maturity of these bonds approximates nine years. Tracked
by Shearson Lehman Brothers, Inc., the index calculates total returns for one
month, three month, twelve month and ten year periods and year-to-date.
(Government Securities, Balanced, and Quality Bond Funds)
- - MERRILL LYNCH COMPOSITE 1-5 YEAR TREASURY INDEX is comprised of approximately
66 issues of U.S. Treasury securities maturing between 1 and 4.99 years, with
coupon rates of 4.25% or more. These total return figures are calculated for
one, three, six, and twelve month periods and year-to-date and include the
value of the bond plus income and any price appreciation or depreciation.
(Government Securities Fund)
- - SALOMON BROTHERS 3-5 YEAR GOVERNMENT INDEX quotes total returns for U.S.
Treasury issues (excluding flower bonds) which have maturities of three to
five years. These total returns are year-to-date figures which are calculated
each month following January 1. (Government Securities Fund)
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the applicable
funds category in advertising and sales literature. (All of the Funds)
- - MERRILL LYNCH 3-5 YEAR TREASURY INDEX is comprised of approximately 24 issues
of intermediate-term U.S. government and U.S. Treasury securities with
maturities between 3 and 4.99 years and coupon rates above 4.25%. Index
returns are calculated as total returns for periods of one, three, six and
twelve months as well as year-to-date. (Government Securities Fund)
- - MERRILL LYNCH 3-YEAR TREASURY YIELD CURVE INDEX is an unmanaged index
comprised of the most recently issued 3-year U.S. Treasury notes. Index
returns are calculated as total returns for periods of one, three, six, and
twelve months as well as year-to-date. (Government Securities Fund)
- - LEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included. (Government Securities, Balanced, and Quality Bond Funds)
- - LEHMAN BROTHERS AGGREGATE BOND INDEX is a total return index measuring both
the capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index is
comprised of the Lehman Brothers Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index and the Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Federal Farm Credit Bank, Federal Land
Bank and the Bank for Co-Operatives; foreign obligations, U.S.
investment-grade corporate debt and mortgage-backed obligations. All corporate
debt included in the Aggregate Bond Index has a minimum S&P rating of BBB, a
minimum Moody's rating of Baa, or a Fitch rating of BBB. (Balanced and Bond
Funds)
- - MERRILL LYNCH CORPORATE AND GOVERNMENT INDEX includes issues which must be in
the form of publicly placed, nonconvertible, coupon-bearing domestic debt and
must carry a term of maturity of at least one year. Par amounts outstanding
must be no less than $10 million at the start and at the close of the
performance measurement period. Corporate instruments must be rated by S&P or
by Moody's as investment grade issues (i.e., BBB/Baa or better). (Balanced and
Bond Funds)
- - MERRILL LYNCH DOMESTIC MASTER INDEX includes issues which must be in the form
of publicly placed, nonconvertible, coupon-bearing domestic debt and must
carry a term to maturity of at least one year. Par amounts outstanding must be
no less than $10 million at the start and at the close of the performance
measurement period. The Domestic Master Index is a broader index than the
Merrill Lynch Corporate and Government Index and includes, for example,
mortgage related securities. The mortgage market is divided by agency, type of
mortgage and coupon and the amount outstanding in each agency/type/coupon
subdivision must be no less than
- --------------------------------------------------------------------------------
$200 million at the start and at the close of the performance measurement
period. Corporate instruments must be rated by S&P or by Moody's as investment
grade issues (i.e. BBB/Baa or better). (Balanced and Bond Funds)
- - DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for
the stock market as a whole. (Quality Growth, Balanced, and Mid Cap Funds)
- - STANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEXES OF 500 AND 400
COMMON STOCKS are composite indices of common stocks in industry,
transportation, and financial and public utility companies that can be used to
compare to the total returns of funds whose portfolios are invested primarily
in common stocks. In addition, the S&P indices assume reinvestment of all
dividends paid by stocks listed on its indices. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated in
the S&P figures. (Quality Growth, Balanced, and Mid Cap Funds)
- - S&P MID CAP 400 INDEX is comprised of the 400 common stocks issued by
medium-sized domestic companies whose market capitalizations range from $200
million to $5 billion. The stocks are selected on the basis of the issuer's
market size, liquidity and industry group representation.
- - S&P/BARRA GROWTH INDEX is a sub-index of the S&P 500 composite index of common
stocks. The index represents approximately fifty percent of the S&P 500 market
capitalization and is comprised of those companies with higher price-to-book
ratios (one distinction associated with "growth stocks"). The index is
maintained by Standard and Poor's in conjunction with BARRA, an investment
technology firm.
- - WILSHIRE MID CAP 750 INDEX is a subset of the Wilshire 5000 index of common
stocks. The Mid Cap 750 index consists of those Wilshire 5000 companies ranked
between 501 and 1,250 according to market capitalization. The index ranges in
market capitalization from $400 million to $1.7 billion.
- - SALOMON BROTHERS AAA-AA CORPORATE INDEX calculates total returns of
approximately 775 issues which include long-term, high-grade domestic
corporate taxable bonds, rated AAA-AA with maturities of twelve years or more
and companies in industry, public utilities, and finance. (Balanced and
Quality Bond Funds)
- - LEHMAN BROTHERS 5 YEAR MUNICIPAL BOND INDEX is comprised of 2,900 issues which
include fixed-rate debt obligations of state and local government entities.
The securities have maturities not less than four years but no more than six
years, have been issued within the last five years, and have a minimum Moody's
debt rating of BAA.
- - LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX: An unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years.
Total return is based on price appreciation/depreciation and income as a
percentage of the original investment. Indices are rebalanced monthly by
market capitalization. (Balanced, Quality Bond and Government Securities
Funds)
- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Funds may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Funds based
on monthly/quarterly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for Fountain Square U.S. Government Securities Fund,
Fountain Square Quality Bond Fund, Fountain Square Ohio Tax Free Bond Fund,
Fountain Square Quality Growth Fund, Fountain Square Mid Cap Fund, and Fountain
Square Balanced Fund for the fiscal year ended July 31, 1994 are incorporated
herein by reference to the Annual Report to Shareholders of the Fountain Square
Equity and Income Mutual Funds dated July 31, 1994. (File Nos. 33-24848 and
811-5669.) A copy of the Annual Report may be obtained without charge by
contacting the Trust at the address located on the back cover of the prospectus.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S RATINGS GROUP CORPORATE AND MUNICIPAL BOND RATING
DEFINITIONS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. 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 effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. 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.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT 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 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 issuers is generally rated F-1+.
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.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
- --------------------------------------------------------------------------------
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE 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
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
SP-3--Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE SHORT-TERM LOAN RATING DEFINITIONS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased 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.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS
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 F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is 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
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will often be evidenced by 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. This 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.
2090403B (9/94)
FOUNTAIN SQUARE GOVERNMENT
CASH RESERVES FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT SHARES
PROSPECTUS
The Investment Shares of Fountain Square Government Cash Reserves Fund (the
"Fund") offered by this prospectus represent interests in a diversified
portfolio of securities which is one of a series of investment portfolios in
Fountain Square Funds (the "Trust"), an open-end management investment company
(a mutual fund).
The Fund is a money market fund which invests in short-term U.S. government
securities to achieve high current income consistent with stability of principal
and liquidity. The Fund intends to limit its investments to those U.S.
government securities whose interest is generally exempt from personal income
tax in the various states if owned directly. Please see the "Tax Information"
section of this prospectus.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. THE FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in Investment Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for
Investment Shares, dated September 30, 1994, with the Securities and Exchange
Commission. The information contained in the Combined Statement of Additional
Information is incorporated by reference into this prospectus. You may request a
copy of the Combined Statement of Additional Information free of charge, obtain
other information or make inquiries about the Fund by writing to the Fund or
calling (513) 744-8888 in Cincinnati or toll-free (800) 334-0483.
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.
Prospectus dated September 30, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
When-Issued and Delayed Delivery
Transactions 4
Investment Limitations 4
FOUNTAIN SQUARE FUNDS INFORMATION 4
- ------------------------------------------------------
Management of the Trust 4
Board of Trustees 4
Investment Adviser 4
Advisory Fees 5
Adviser's Background 5
Distribution of Investment Shares 5
Distribution Plan 5
Other Payments to Financial
Institutions 6
Administration of the Fund 6
Administrative Services 6
Custodian, Transfer Agent, and
Dividend Disbursing Agent 6
Legal Counsel 6
Independent Auditors 6
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN INVESTMENT SHARES 7
- ------------------------------------------------------
Share Purchases 7
Through Fifth Third Securities 7
Minimum Investment Required 7
What Shares Cost 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 8
EXCHANGES 8
- ------------------------------------------------------
REDEEMING INVESTMENT SHARES 9
- ------------------------------------------------------
Through Fifth Third Securities 9
By Telephone 9
By Mail 10
Receiving Payment 10
Accounts with Low Balances 10
SHAREHOLDER INFORMATION 11
- ------------------------------------------------------
Voting Rights 11
Massachusetts Law 11
EFFECT OF BANKING LAWS 11
- ------------------------------------------------------
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 12
PERFORMANCE INFORMATION 12
- ------------------------------------------------------
OTHER CLASSES OF SHARES 13
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
TRUST SHARES 14
- ------------------------------------------------------
FINANCIAL STATEMENTS 15
- ------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 22
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)......... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)............................................... None
Redemption Fees (as a percentage of amount redeemed, if applicable)................. None
Exchange Fee........................................................................ None
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1).................................................... 0.27%
12b-1 Fee (after waiver)(2)......................................................... 0.00%
Other Expenses...................................................................... 0.23%
Total Investment Shares Operating Expenses(3).................................. 0.50%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.40%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver by the
distributor. The distributor can terminate this voluntary waiver at any time at
its sole discretion. The maximum 12b-1 fee is 0.35%.
(3) Total Investment Shares operating expenses would have been 0.98% absent the
voluntary waiver by the investment adviser and the distributor.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT SHARES WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND "INVESTING IN INVESTMENT
SHARES." Wire-transferred redemptions of less than $10,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
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. The Fund charges no redemption fees
for Investment Shares...................................... $5 $16 $28 $63
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only
to Investment Shares of the Fund. The Fund also offers another class of shares
called Trust Shares. Trust Shares and Investment Shares are subject to the same
expenses, however, Investment Shares are subject to a 12b-1 fee. See "Other
Classes of Shares."
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 22.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
1994 1993 1992*
- -------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- --------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------
Net investment income 0.03 0.03 0.03
- -------------------------------------------------------- ------ ------ ------
LESS DISTRIBUTIONS
- --------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.03) (0.03)
- -------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- -------------------------------------------------------- ------ ------ ------
TOTAL RETURN** 3.03% 2.76% 2.61%
- --------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------
Expenses 0.50% 0.50% 0.50%(b)
- --------------------------------------------------------
Net investment income 2.96% 3.22% 3.68%(b)
- --------------------------------------------------------
Expense waiver/reimbursement(a) 0.48% 0.50% 0.50%(b)
- --------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------
Net assets, end of period (000 omitted) $11,073 $10,923 $8,726
- --------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 25, 1991 (date of initial
public investment) to July 31, 1992.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Trust Shares and Investment Shares. This prospectus relates only to the
Investment Shares of the Fund.
Investment Shares ("Shares") are designed for investors who are not clients of
the Trust Department of The Fifth Third Bank ("Fifth Third Bank") or its
affiliates as a convenient means of accumulating an interest in a professionally
managed, diversified portfolio limited to U.S. government obligations. A minimum
initial investment of $2,500 is required, except for investments by individual
retirement accounts ("IRAs").
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is high current income consistent with
stability of principal and liquidity. This investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
short-term U.S. government securities maturing in 13 months or less. The average
maturity of U.S. government securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may be changed by the Trustees without approval of
shareholders. Shareholders will be notified before any material changes in these
policies become effective.
The Fund intends to limit its investments to those U.S. government securities
whose interest is generally exempt from personal income tax in the various
states if owned directly. However, from time to time, the Fund may also invest
in other U.S. government securities if the adviser deems it advantageous to do
so. Please see the "Tax Information" section of this prospectus.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund invests
are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities include, but are not limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as Federal Farm Credit Banks, Federal Home Loan
Banks, and Student Loan Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government 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
agencies and instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
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 adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or pledge securities except, under
certain circumstances, the Fund may borrow up to one-third of the value of its
total assets and pledge up to 10% of the value of its total assets to secure
such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not commit more than 10% of its net assets to illiquid
obligations.
FOUNTAIN SQUARE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Fifth Third Bank, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40 of 1% of the Fund's average daily net assets. The adviser has
undertaken to waive up to the amount of the advisory fee, for operating
expenses in excess of limitations established by certain states. The
adviser may voluntarily choose to waive a portion of its fee or reimburse
other expenses of the Fund, but reserves the right to terminate such waiver
or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank, is a
wholly-owned subsidiary of Fifth Third Bancorp, a bank holding company
organized under the laws of Ohio. Fifth Third Bank is a commercial bank
offering a wide range of banking services to its customers. As of July 31,
1994, Fifth Third Bank and its affiliates managed assets in excess of $6.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $41.4 billion. Fifth Third Bank has managed
mutual funds since 1988.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages 14 such pools with
total assets of over $1.1 billion.
DISTRIBUTION OF INVESTMENT SHARES
Federated Securities Corp. serves as the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is
the distributor for a number of investment companies. Federated Securities Corp.
is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with Rule 12b-1 (the "Plan") under the Investment Company Act of
1940, the Fund will pay to Federated Securities Corp. an amount computed at an
annual rate of up to 0.35% of the average daily net asset value of the Shares to
finance any activity which is principally intended to result in the sale of
Shares subject to the Plan.
Federated Securities Corp. may from time to time and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the Shares exceed such lower expense
limitation as the distributor may, by notice to the Trust, voluntarily declare
to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and brokers/dealers to provide
sales and/or administrative services as agents for their clients or customers
who beneficially own Shares. Administrative services may include, but are not
limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel including clerical, supervisory, and
computer as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries regarding the Fund; assisting clients in changing dividend options;
account designations, and addresses; and providing such other services as the
Fund reasonably requests.
Financial institutions will receive fees from the distributor based upon Shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the Adviser, or their
affiliates may also offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include initiating customer accounts, providing
sales literature, or participating in sales, educational and training seminars
(including those held at recreational facilities). Such assistance will be
predicated upon the amount of shares the financial institution sells or may sell
and/or upon the type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be reimbursed by
the Adviser or its affiliates.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund, such as legal and accounting services.
Federated Administrative Services provides these at an annual rate as specified
below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- ---------------------
<C> <S>
of the first $250
.150% million
.125% of the next $250 million
.100% of the next $250 million
in excess of $750
.075% million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Fund, transfer
agent for the shares of the Fund, and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P.,
Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in liabilities of the Fund and those attributable to Shares, and dividing the
remainder by the total number of Shares outstanding. The Fund cannot guarantee
that its net asset value will always remain at $1.00 per Share.
INVESTING IN TRUST SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Bank of Cleveland are open for business. Customers of Fifth Third
Securities may purchase Investment Shares through Fifth Third Securities. All
other investors should purchase Investment Shares directly from the distributor.
In connection with the sale of Investment Shares, the distributor may from time
to time offer certain items of nominal value to any shareholder or investor. The
Fund reserves the right to reject any purchase request. Purchasing through Fifth
Third Bank may not be available to investors in all states.
THROUGH FIFTH THIRD SECURITIES. A customer of Fifth Third Securities may
telephone Fifth Third Securities at (513) 744-8888 in Cincinnati or toll-free
(800) 334-0483 to place an order to purchase Investment Shares. All other
investors must place their purchase orders through the distributor. Texas
residents must purchase Shares through Federated Securities Corp.
Payment may be made to the Fund either by check or federal funds. Orders are
considered received after payment by check is converted into federal funds and
received by Fifth Third Bank. This is normally the next business day after Fifth
Third Bank receives the check. When payment is made with federal funds, the
order is considered received when federal funds are received by Fifth Third
Bank. Federal funds should be wired to Fifth Third Bank as follows: ABA No. 042
000 314 Fifth Third Cincinnati. Attention: Fountain Square Funds Department; For
Credit to: (shareholder name and account number); For Further Credit to:
Fountain Square Government Cash Reserves Fund--Investment Shares. Investors not
purchasing through Fifth Third Bank should consult their financial institution
for wiring instructions.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $2,500, unless the investment is by
an IRA, in which case the minimum initial investment is $1,000. Subsequent
investments must be in amounts of at least $100. For customers of Fifth Third
Bank, an institutional investor's minimum investment will be calculated by
combining all accounts it maintains with Fifth Third Bank and investments in the
Fund.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. The Fund does not impose a sales charge.
The net asset value is determined at 4:00 p.m. (Cincinnati time), Monday through
Friday, except on: (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; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Fifth Third Bank maintains a share account for
each shareholder of record. Share certificates are not issued.
Detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends paid during the month are sent to each
shareholder monthly and will serve as confirmations of all transactions in the
shareholder's account for the statement period.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested on
payment dates in additional Shares unless cash payments are requested by writing
to the Fund or Fifth Third Bank, as appropriate. Share purchase orders received
by Fifth Third Bank before 12:00 noon (Cincinnati time) earn dividends that day.
CAPITAL GAINS
If the Fund experiences capital gains, it could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, the Fund realizes net long-term capital gains, it will
distribute them at least once every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
Shareholders who are clients of Fifth Third Securities may exchange shares of
one Fund for shares of any of the other funds in the Trust by calling Fifth
Third Securities at (513) 744-8888 in Cincinnati or toll free (800) 334-0483 or
sending a written request to Fifth Third Securities. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by the
Funds, they may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Shares of Funds with a sales charge may be exchanged at net asset value for
shares of other Funds with an equal sales charge or no sales charge. Shares of
Funds with no sales charge acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for shares of Funds with a sales
charge at net asset value plus the applicable sales charge. When exchanging into
and out of shares of the Funds in the Trust, shareholders who have paid a sales
load once upon purchasing shares of any Fund will not have to pay a sales load
again on an exchange.
Orders for exchanges of shares of money market funds must be received by 12:00
noon (Cincinnati time). Orders for exchanges of the International Equity Fund,
Government Fund, Bond Fund, Ohio Tax Free Fund, Growth Fund, Mid Cap Fund, and
Balanced Fund must be received by 4:00 p.m. (Cincinnati time). Orders for
exchanges are taken on any day that the Funds are open for business. Orders
which are received prior to the cut-off times listed above will be executed as
of the close of business that day. Orders received after the respective cut-off
times will be executed at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time. Shareholders would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING INVESTMENT SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after Fifth
Third Bank receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemption must be received in proper form and can be made through Fifth Third
Bank or Fifth Third Securities by their respective customers or directly through
the Fund by all other investors.
THROUGH FIFTH THIRD SECURITIES
BY TELEPHONE. A shareholder who is a customer of Fifth Third Securities may
redeem shares by telephoning Fifth Third Securities at (513) 744-8888 in
Cincinnati or toll-free (800) 334-0483. All other investors may redeem through
the distributor by calling 1-800-358-2801.
For calls received by Fifth Third Securities before 12:00 noon (Cincinnati
time), proceeds will normally be dispersed the same day to the shareholder's
account at Fifth Third Bank or Fifth Third Securities, or a check will be sent
to the address of record. Those Shares will not be entitled to the dividend
declared that day. For calls received after 12:00 noon (Cincinnati time),
proceeds will normally be dispersed the following business day. Those Shares
will be entitled to the dividend declared on the day the redemption request was
received. In no event will proceeds be dispersed more than seven days after a
proper request for redemption has been received. If at any time the Fund shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Fifth Third Securities or the distributor.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. A shareholder who is a customer of Fifth Third Securities may redeem
Shares by sending a written request to Fifth Third Securities.
The written request should include the shareholder's name, the Fund name and
class of shares, the account number, and the share or dollar amount requested.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call Fifth Third Bank or Fifth Third Securities for
assistance in redeeming by mail.
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 Fund, 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, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings and loan association or a savings bank whose deposits are
insured by the Savings Association Insurance Fund, which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined by the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its 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 its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. 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.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $2,500.
Before redeeming Shares to close an account, the Fund will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each Fund in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust or the Fund's operation and for the election of
Trustees under certain circumstances. As of July 31, 1994, Fifth Third Bank may
for certain purposes be deemed to control the Funds because it is owner of
record of certain shares of the Funds.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of the Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer to be given in each agreement, obligation, or instrument the
Trust or its Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or to compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of the Fund for any act or obligation of the
Trust on behalf of the Fund. Therefore, financial loss resulting from liability
as a shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and to pay judgments against them from the
assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956 or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of their customer. The Fund's investment adviser, Fifth Third
Bank, is subject to such banking laws and regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for the Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or the Fund. In such event, changes in the operation of
the Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment and redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisers and other means of continuing available investment services.
It is not expected that Fund shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Fifth Third Bank
is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
The Fund intends to limit its investments to U.S. government securities paying
interest which, if owned directly by shareholders of the Fund, would generally
be exempt from state personal income tax. However, from time to time, the Fund
may also invest in other U.S. government securities if the adviser deems it
advantageous to do so. Moreover, under the laws of some states, the net
investment income generally distributed by the Fund may be taxable to
shareholders. State laws differ on this issue, and shareholders are urged to
consult their own tax advisers regarding the status of their accounts under
state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield and effective yield for
Investment Shares.
The yield of Investment Shares represents the annualized rate of income earned
on an investment in Investment Shares over a seven-day period. It is the
annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to
the yield, but, when annualized, the income earned by an investment in
Investment Shares is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Investment Shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
Yield and effective yield will be calculated separately for Trust Shares and
Investment Shares. Because Investment Shares are subject to 12b-1 fees, the
yield and effective yield of Trust Shares, for the same period, will exceed that
of Investment Shares.
From time to time, the Fund may advertise its performance for Investment Shares
using certain financial publications and/or compare its performance for
Investment Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Trust Shares are sold to trust customers of Fifth Third Bank and are subject to
a minimum initial investment of $10,000. Trust Shares are sold at net asset
value and are distributed without a Rule 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares than from
another class of shares.
The amount of dividends payable to Trust Shares will exceed those payable to
Investment Shares by the difference between class expenses and distribution
expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
FINANCIAL HIGHLIGHTS
TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 22.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------
1994 1993 1992 1991*
-------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------
Net investment income 0.03 0.03 0.04 0.003
- ---------------------------------------------- ------ ------ ------ -------
LESS DISTRIBUTIONS
- ----------------------------------------------
Dividends to shareholders from net
investment income (0.03) (0.03) (0.04) (0.003)
- ---------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------- ------ ------ ------ -------
TOTAL RETURN** 3.03% 2.76% 4.19% 0.33%
- ----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------
Expenses 0.50% 0.50% 0.50% 0.30%(b)
- ----------------------------------------------
Net investment income 3.01% 3.22% 4.14% 5.49%(b)
- ----------------------------------------------
Expense waiver/reimbursement(a) 0.13% 0.15% 0.15% 0.53%(b)
- ----------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------
Net assets, end of period (000 omitted) $106,632 $92,993 $82,888 $87,097
- ----------------------------------------------
</TABLE>
* Reflects operations for the period from July 10, 1991 (date of initial public
investment) to July 31, 1991.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-TERM OBLIGATIONS--100.3%
- ------------------------------------------------------------------------------------
$24,000,000 * Federal Farm Credit Bank Discount Notes
4.32%-4.54%, 8/3/94-10/3/94 $ 23,892,937
----------------------------------------------------------------
63,500,000 * Federal Home Loan Bank Discount Notes
3.96%-4.69%, 8/9/94-11/7/94 63,068,219
----------------------------------------------------------------
2,000,000 * Student Loan Marketing Association Discount Note
4.52%, 10/26/94 1,978,404
----------------------------------------------------------------
5,000,000 ** Student Loan Marketing Association Floating Rate Notes
4.54%-4.84%, 12/8/94-12/30/94 5,002,412
----------------------------------------------------------------
24,100,000 * Student Loan Marketing Association Master Note
4.54%, 8/1/94 24,100,000
---------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $118,041,972+
---------------------------------------------------------------- ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase.
** Denotes variable rate obligation for which the current yields and next reset
dates are shown.
+ Also represents cost for federal tax purposes.
Note: The category of investments is shown as a percentage of net assets
($117,705,132) at
July 31, 1994.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $118,041,972
- -------------------------------------------------------------------------------
Cash 12,509
- -------------------------------------------------------------------------------
Interest receivable 109,252
- -------------------------------------------------------------------------------
Deferred expenses (Note 2F) 11,651
- ------------------------------------------------------------------------------- ------------
Total assets 118,175,384
- -------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------
Dividends payable $399,125
- --------------------------------------------------------------------
Payable to Administrator (Note 4) 11,747
- --------------------------------------------------------------------
Accrued expenses 59,380
- -------------------------------------------------------------------- --------
Total liabilities 470,252
- ------------------------------------------------------------------------------- ------------
NET ASSETS for 117,705,132 shares of beneficial interest outstanding $117,705,132
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
Trust Shares ($106,632,448 / 106,632,448 shares of beneficial interest
outstanding) $1.00
- ------------------------------------------------------------------------------- ------------
Investment Shares ($11,072,684 / 11,072,684 shares of beneficial interest
outstanding) $1.00
- ------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest income (Note 2C) $4,085,487
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee* $466,283
- -----------------------------------------------------------------------
Administrative personnel and services fees* 134,133
- -----------------------------------------------------------------------
Custodian fee* 10,355
- -----------------------------------------------------------------------
Portfolio accounting, transfer and dividend disbursing agent fees and
expenses* 35,558
- -----------------------------------------------------------------------
Fund share registration costs 31,936
- -----------------------------------------------------------------------
Auditing fees 13,975
- -----------------------------------------------------------------------
Legal fees 8,915
- -----------------------------------------------------------------------
Printing and postage 15,639
- -----------------------------------------------------------------------
Distribution services fees* 31,295
- -----------------------------------------------------------------------
Miscellaneous 18,465
- ----------------------------------------------------------------------- --------
Total expenses 766,554
- -----------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------------
Waiver of investment advisory fee* $152,426
- ------------------------------------------------------------
Waiver of distribution services fees* 31,295 183,721
- ------------------------------------------------------------ -------- --------
Net expenses 582,833
- ----------------------------------------------------------------------------------- ----------
Net investment income $3,502,654
- ----------------------------------------------------------------------------------- ----------
</TABLE>
* See Note 4
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------
1994 1993
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------
Net investment income $ 3,502,654 $ 2,818,684
- ----------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- -----------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------
Trust Shares (3,237,670) (2,418,082)
- -----------------------------------------------------------------
Investment Shares (264,984) (400,602)
- ----------------------------------------------------------------- ------------ ------------
Change in net assets from distributions to shareholders (3,502,654) (2,818,684)
- ----------------------------------------------------------------- ------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- -----------------------------------------------------------------
Proceeds from sale of shares 248,288,040 182,097,485
- -----------------------------------------------------------------
Cost of shares redeemed (234,498,643) (169,795,958)
- ----------------------------------------------------------------- ------------ ------------
Change in net assets from Fund share transactions 13,789,397 12,301,527
- ----------------------------------------------------------------- ------------ ------------
Change in net assets 13,789,397 12,301,527
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 103,915,735 91,614,208
- ----------------------------------------------------------------- ------------ ------------
End of period $117,705,132 $103,915,735
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Fountain Square Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company. The Trust consists of eight diversified portfolios and one
non-diversified portfolio. The financial statements included herein are only
those of Fountain Square Government Cash Reserves Fund (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
The Fund offers two classes of shares: Trust Shares and Investment Shares.
Investment Shares are identical in all respects to Trust Shares except that
Investment Shares are sold pursuant to a distribution plan ("the Plan") adopted
in accordance with the Acts Rule 126-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A.INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
B.REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure that the value of collateral at least equals
the principal amount of the repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Fund could receive less than the repurchase price on the sale
of collateral securities.
C.INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
- --------------------------------------------------------------------------------
D.FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income. Accordingly,
no provisions for federal tax are necessary.
E.WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
F.DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering the shares, have been deferred and are being amortized using the
straight-line method over a period of five years from the Fund's commencement
date.
G.OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At July 31, 1994, capital paid-in aggregated $117,705,132.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------
TRUST SHARES 1994 1993
------------ ------------
<S> <C> <C>
- ---------------------------------------------------------------
Shares sold 226,131,178 143,671,427
- ---------------------------------------------------------------
Shares redeemed (212,491,332) (133,567,288)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Trust share transactions 13,639,846 10,104,139
- --------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SHARES
<S> <C> <C>
- ---------------------------------------------------------------
Shares sold 22,156,862 38,426,058
- ---------------------------------------------------------------
Shares redeemed (22,007,311) (36,228,670)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Investment share transactions 149,551 2,197,388
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Fund share transactions 13,789,397 12,301,527
- --------------------------------------------------------------- ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Fifth Third Bank, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
- --------------------------------------------------------------------------------
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Investment Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.35 of 1% of the average daily net assets of the
Investment Shares, annually, to compensate FSC. The distributor may voluntarily
choose to waive a portion of its fee. The distributor can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING, AND CUSTODY FEES--Fifth
Third Bank serves as transfer and dividend disbursing agent for the Fund. Fifth
Third Bank has sub-contracted the execution of the transfer and dividend
disbursing agent functions to a non-affiliated entity. The fee is based on the
level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
Fifth Third Bank maintains the Fund's accounting records. Fifth Third Bank has
sub-contracted the execution of the accounting services function to a
non-affiliated entity. The fee is based on the level of the Fund's average net
assets for the period, plus out-of-pocket expenses.
Fifth Third Bank is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period. All other charges, such as trades and
wires, are based on similar size and types of funds. Fifth Third Bank
voluntarily chose to waive all fees for custody services for each of the Funds.
Fifth Third Bank can modify or terminate this voluntary waiver at any time at
its sole discretion.
ORGANIZATIONAL EXPENSES--Organizational expenses of $30,604 were borne initially
by FAS. The Fund has agreed to reimburse FAS, for the organizational expenses
during the five year period following July 10, 1991. For the year ended July 31,
1994, the Fund paid $5,963, pursuant to this agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
FOUNTAIN SQUARE FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Fountain Square Government Cash Reserves Fund
(one of the portfolios comprising Fountain Square Funds), as of July 31, 1994,
and the related statement of operations for the year then ended, and statement
of changes in net assets and financial highlights for the periods presented
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fountain Square Government Cash Reserves Fund at July 31, 1994, the results of
its operations for the year then ended, and the changes in its net assets and
financial highlights for the periods presented therein, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
September 2, 1994
(THIS PAGE INTENTIONALLY LEFT BLANK)
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square Government Federated Investors Tower
Cash Reserves Fund Pittsburgh, Pennsylvania 15222-3779
Investment Shares
- -------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Investment Adviser
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Custodian, Transfer Agent, and Dividend Disbursing Agent
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- -------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- -------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young, LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------------
</TABLE>
350756508
1041201A-R (9/94)
FOUNTAIN SQUARE GOVERNMENT
CASH RESERVES FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
TRUST SHARES
PROSPECTUS
The Trust Shares of Fountain Square Government Cash Reserves Fund (the "Fund")
offered by this prospectus represent interests in a diversified portfolio of
securities which is one of a series of investment portfolios in Fountain Square
Funds (the "Trust"), an open-end management investment company (a mutual fund).
The Fund is a money market fund which invests in short-term U.S. government
securities to achieve high current income consistent with stability of principal
and liquidity. The Fund intends to limit its investments to those U.S.
government securities whose interest is generally exempt from personal income
tax in the various states if owned directly. Please see the "Tax Information"
section of this prospectus.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED, OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. THE FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in Trust Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Trust
Shares and Investment Shares, dated September 30, 1994, with the Securities and
Exchange Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Combined Statement of Additional Information free of
charge, obtain other information or make inquiries about the Fund by writing to
the Fund or calling (513) 579-6039 in Cincinnati or toll-free (800) 654-5372.
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.
Prospectus dated September 30, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
TRUST SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
When-Issued and Delayed Delivery
Transactions 4
Investment Limitations 4
FOUNTAIN SQUARE FUNDS INFORMATION 4
- ------------------------------------------------------
Management of the Trust 4
Board of Trustees 4
Investment Adviser 4
Advisory Fees 5
Adviser's Background 5
Distribution of Trust Shares 5
Payments to Financial Institutions 5
Administration of the Fund 5
Administrative Services 5
Custodian, Transfer Agent, and
Dividend Disbursing Agent 6
Legal Counsel 6
Independent Auditors 6
NET ASSET VALUE 6
- ------------------------------------------------------
INVESTING IN TRUST SHARES 6
- ------------------------------------------------------
Share Purchases 6
Through Fifth Third Bank 6
Minimum Investment Required 7
What Shares Cost 7
Certificates and Confirmations 7
Dividends 7
Capital Gains 8
EXCHANGES 8
- ------------------------------------------------------
REDEEMING TRUST SHARES 8
- ------------------------------------------------------
Through Fifth Third Bank 9
By Telephone 9
By Mail 9
Receiving Payment 10
Accounts with Low Balances 10
SHAREHOLDER INFORMATION 10
- ------------------------------------------------------
Voting Rights 10
Massachusetts Law 10
EFFECT OF BANKING LAWS 11
- ------------------------------------------------------
TAX INFORMATION 11
- ------------------------------------------------------
Federal Income Tax 11
State and Local Taxes 12
PERFORMANCE INFORMATION 12
- ------------------------------------------------------
OTHER CLASSES OF SHARES 13
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES 14
- ------------------------------------------------------
FINANCIAL STATEMENTS 15
- ------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 22
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
TRUST SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)..................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or
redemption proceeds, as applicable)........................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)........... None
Exchange Fee................................................................. None
ANNUAL TRUST SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.27%
12b-1 Fee.................................................................... None
Total Other Expenses......................................................... 0.23%
Total Trust Shares Operating Expenses(2)................................. 0.50%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.40%.
(2) Total Trust Shares operating expenses would have been 0.63% absent the
voluntary waiver by the investment adviser.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF TRUST SHARES WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND "INVESTING IN TRUST
SHARES." Wire-transferred redemptions of less than $10,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
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. The Fund
charges no redemption fees for Trust Shares............. $5 $16 $28 $63
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only
to Trust Shares of the Fund. The Fund also offers another class of shares called
Investment Shares. Investment Shares and Trust Shares are subject to the same
expenses, however, Trust Shares are not subject to a 12b-1 fee. See "Other
Classes of Shares."
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
FINANCIAL HIGHLIGHTS
TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 22.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------
1994 1993 1992 1991*
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 0.03 0.03 0.04 0.003
- ----------------------------------------------- ------ ------ ------ -------
LESS DISTRIBUTIONS
- -----------------------------------------------
Dividends to shareholders from net investment
income (0.03) (0.03) (0.04) (0.003)
- ----------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------- ------ ------ ------ -------
TOTAL RETURN** 3.03% 2.76% 4.19% 0.33%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 0.50% 0.50% 0.50% 0.30%(b)
- -----------------------------------------------
Net investment income 3.01% 3.22% 4.14% 5.49%(b)
- -----------------------------------------------
Expense waiver/reimbursement (a) 0.13% 0.15% 0.15% 0.53%(b)
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $106,632 $92,993 $82,888 $87,097
- -----------------------------------------------
</TABLE>
* Reflects operations for the period from July 10, 1991 (date of initial public
investment) to July 31, 1991.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Trust Shares and Investment Shares. This prospectus relates only to the Trust
Shares of the Fund.
Trust Shares ("Shares") are designed for Trust clients of The Fifth Third Bank
("Fifth Third Bank") and its affiliates as a convenient means of accumulating an
interest in a professionally managed, diversified portfolio limited to U.S.
government obligations. A minimum initial investment of $10,000 is required,
except for investments by individual retirement accounts ("IRAs").
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is high current income consistent with
stability of principal and liquidity. This investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
short-term U.S. government securities maturing in 13 months or less. The average
maturity of U.S. government securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may be changed by the Trustees without approval of
shareholders. Shareholders will be notified before any material changes in these
policies become effective.
The Fund intends to limit its investments to those U.S. government securities
whose interest is generally exempt from personal income tax in the various
states if owned directly. However, from time to time, the Fund may also invest
in other U.S. government securities if the adviser deems it advantageous to do
so. Please see the "Tax Information" section of this prospectus.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund invests
are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities include, but are not limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as Federal Farm Credit Banks, Federal Home Loan
Banks, and Student Loan Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government 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
agencies and instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
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 adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or pledge securities except, under
certain circumstances, the Fund may borrow up to one-third of the value of its
total assets and pledge up to 10% of the value of its total assets to secure
such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not commit more than 10% of its net assets to illiquid
obligations.
FOUNTAIN SQUARE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Fifth Third Bank, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to 0.40 of 1% of the Fund's average daily net assets. The adviser has
undertaken to waive up to the amount of the advisory fee, for operating
expenses in excess of limitations established by certain states. The
adviser may voluntarily choose to waive a portion of its fee or reimburse
other expenses of the Fund, but reserves the right to terminate such waiver
or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank, is a
wholly-owned subsidiary of Fifth Third Bancorp, a bank holding company
organized under the laws of Ohio. Fifth Third Bank is a commercial bank
offering a wide range of banking services to its customers. As of July 31,
1994, Fifth Third Bank and its affiliates managed assets in excess of $6.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $41.4 billion. Fifth Third Bank has managed
mutual funds since 1988.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages 14 such pools with
total assets of over $1.1 billion.
DISTRIBUTION OF TRUST SHARES
Federated Securities Corp. serves as the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is
the distributor for a number of investment companies. Federated Securities Corp.
is a subsidiary of Federated Investors.
PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the Adviser, or their
affiliates may offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include initiating customer accounts, providing
sales literature, or participating in sales, educational and training seminars
(including those held at recreational facilities). Such assistance will be
predicated upon the amount of shares the financial institution sells or may sell
and/or upon the type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be reimbursed by
the Adviser or its affiliates.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund,
such as legal and accounting services. Federated Administrative Services
provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- ---------------------
<C> <S>
of the first $250
.150% million
.125% of the next $250 million
.100% of the next $250 million
in excess of $750
.075% million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Fund, transfer
agent for the shares of the Fund, and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P.,
Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per Share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in liabilities of the Fund and those attributable to Shares, and dividing the
remainder by the total number of Shares outstanding. The Fund cannot guarantee
that its net asset value will always remain at $1.00 per Share.
INVESTING IN TRUST SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Bank of Cleveland are open for business. A customer of Fifth Third Bank
may purchase Trust Shares of the Fund through Fifth Third Bank. All other
investors should purchase Trust Shares directly from the distributor. In
connection with the sale of Trust Shares, the distributor may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. Purchases through Fifth Third
Bank may not be available to investors in all states.
THROUGH FIFTH THIRD BANK. A customer of Fifth Third Bank may telephone Fifth
Third Bank at
(513) 579-6039 in Cincinnati or toll-free (800) 654-5372 to place an order to
purchase Trust Shares. All
other investors must place their purchase orders through the distributor. Texas
residents must purchase Shares through Federated Securities Corp.
Payment may be made to Fifth Third Bank either by check or federal funds. Orders
are considered received after payment by check is converted into federal funds
and received by Fifth Third Bank. This is normally the next business day after
Fifth Third Bank receives the check. When payment is made with federal funds,
the order is considered received when federal funds are received by Fifth Third
Bank. Federal funds should be wired to Fifth Third Bank as follows: ABA No. 042
000 314 Fifth Third Cincinnati. Attention: Fountain Square Funds Department; For
Credit to: (shareholder name and account number); For Further Credit to:
Fountain Square Government Cash Reserves Fund--Trust Shares. Investors not
purchasing through Fifth Third Bank should consult their financial institutions
for wiring instructions.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $10,000, unless the investment is by
an IRA, in which case the minimum initial investment is $1,000. Subsequent
investments must be in amounts of at least $100. For customers of Fifth Third
Bank, an institutional investor's minimum investment will be calculated by
combining all accounts it maintains with Fifth Third Bank and investments in the
Fund.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. The Fund does not impose a sales charge.
The net asset value is determined at 4:00 p.m. (Cincinnati time), Monday through
Friday, except on:
(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; or (iii) the following holidays: New Year's Day,
Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, and Christmas
Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Fifth Third Bank maintains a share account for
each shareholder of record. Share certificates are not issued.
Detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends paid during the month are sent to each
shareholder monthly and will serve as confirmations of all transactions in the
shareholder's account for the statement period.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested on
payment dates in additional Shares unless cash payments are requested by writing
to the Fund or Fifth Third Bank, as appropriate. Share purchase orders received
by Fifth Third Bank before 12:00 noon (Cincinnati time) earn dividends that day.
CAPITAL GAINS
If the Fund experiences capital gains, it could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, the Fund realizes net long-term capital gains, it will
distribute them at least once every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder who is a customer of the Fifth Third Bank Trust and Investment
Division may exchange shares of one Fund for shares of any of the other funds in
the Trust by calling or sending a written request to their Fifth Third Bank
Trust Officer. Telephone exchange instructions may be recorded. If reasonable
procedures are not followed by the Fund, they may be liable for losses due to
unauthorized or fraudulent telephone instructions.
Shares of Funds with a sales charge may be exchanged at net asset value for
shares of other Funds with an equal sales charge or no sales charge. Shares of
Funds with no sales charge acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for shares of Funds with a sales
charge at net asset value plus the applicable sales charge. When exchanging into
and out of shares of the Funds in the Trust, shareholders who have paid a sales
load once upon purchasing shares of any Fund will not have to pay a sales load
again on an exchange.
Orders for exchanges of shares of money market funds must be received by 12:00
noon (Cincinnati time). Orders for exchanges of the International Equity Fund,
Government Fund, Bond Fund, Ohio Tax-Free Fund, Growth Fund, Mid Cap Fund, and
Balanced Fund must be received by 4:00 p.m. (Cincinnati time). Orders for
exchanges are taken on any day that the Funds are open for business. Orders
which are received prior to the cut-off times listed above will be executed as
of the close of business that day. Orders received after the respective cut-off
times will be executed at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time. Shareholders would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING TRUST SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after Fifth
Third Bank receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset
value. Telephone or written requests for redemption must be received in proper
form and can be made through Fifth Third Bank by its customers or directly
through the Fund by all other investors.
THROUGH FIFTH THIRD BANK
BY TELEPHONE. A shareholder who is a customer of Fifth Third Bank may redeem
Shares by telephoning Fifth Third Bank at (513) 579-6039 in Cincinnati or
toll-free (800) 654-5372. For calls received by Fifth Third Bank before 12:00
noon (Cincinnati time), proceeds will normally be dispersed the same day to the
shareholder's account at Fifth Third Bank or a check will be sent to the address
of record. Those Shares will not be entitled to the dividend declared that day.
For calls received by Fifth Third Bank after 12:00 noon (Cincinnati time),
proceeds will normally be dispersed the following business day. Those Shares
will be entitled to the dividend declared on the day the redemption request was
received. In no event will proceeds be dispersed more than seven days after a
proper request for redemption has been received. If at any time the Fund shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Fifth Third Bank or the distributor.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. A shareholder who is a customer of Fifth Third Bank may redeem Shares
by sending a written request to Fifth Third Bank at the following address: 38
Fountain Square Plaza, Cincinnati, Ohio, 45263, Attn: Fountain Square Funds
Department. The written request should include the shareholder's name, the Fund
name and class of shares, the account number, and the share or dollar amount
requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request. Shareholders should call Fifth Third Bank for assistance in redeeming
by mail.
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 Fund, 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, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings and loan association or a savings bank whose deposits are
insured by the Savings Association Insurance Fund, which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined by the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its 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 its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. 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 redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $10,000.
Before redeeming Shares to close an account, the Fund will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each Fund in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust or the Fund's operation and for the election of
Trustees under certain circumstances. As of July 31, 1994, Fifth Third Bank may
for certain purposes be deemed to control the Funds because it is owner of
record of certain shares of the Funds.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of the Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer to be given in each agreement, obligation, or instrument the
Trust or its Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or to compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of the Fund for any act or obligation of the
Trust on behalf of the
Fund. Therefore, financial loss resulting from liability as a shareholder of the
Fund will occur only if the Trust cannot meet its obligations to indemnify
shareholders and to pay judgments against them from the assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956 or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of their customer. The Fund's investment adviser, Fifth Third
Bank, is subject to such banking laws and regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for the Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or the Fund. In such event, changes in the operation of
the Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment and redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisers and other means of continuing available investment services.
It is not expected that Fund shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Fifth Third Bank
is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
The Fund intends to limit its investments to U.S. government securities paying
interest which, if owned directly by shareholders of the Fund, would generally
be exempt from state personal income tax. However, from time to time, the Fund
may also invest in other U.S. government securities if the adviser deems it
advantageous to do so. Moreover, under the laws of some states, the net
investment income generally distributed by the Fund may be taxable to
shareholders. State laws differ on this issue, and shareholders are urged to
consult their own tax advisers regarding the status of their accounts under
state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield and effective yield for Trust
Shares.
The yield of Trust Shares represents the annualized rate of income earned on an
investment in Trust Shares over a seven-day period. It is the annualized
dividends earned during the period on the investment shown as a percentage of
the investment. The effective yield is calculated similarly to the yield, but,
when annualized, the income earned by an investment in Trust Shares is assumed
to be reinvested daily. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Trust Shares after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
Yield and effective yield will be calculated separately for Trust Shares and
Investment Shares. Because Investment Shares are subject to 12b-1 fees, the
yield and effective yield of Trust Shares, for the same period, will exceed that
of Investment Shares.
From time to time, the Fund may advertise its performance for Trust Shares using
certain financial publications and/or compare its performance for Trust Shares
to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Investment Shares are sold to investors who are not clients of the Trust
Department of Fifth Third Bank and are subject to a minimum initial investment
of $2,500. Investment Shares are sold at net asset value and are distributed
pursuant to a Rule 12b-1 Plan whereby the distributor is paid a fee of up to
0.35 of 1% of the Investment Shares' average daily net assets. Trust Shares are
distributed without a Rule 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares than from
another class of shares.
The amount of dividends payable to Trust Shares will exceed those payable to
Investment Shares by the difference between class expenses and distribution
expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 22.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------
1994 1993 1992*
- ----------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- -----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------
Net investment income 0.03 0.03 0.03
- ----------------------------------------------------------- ------ ------ ------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.03) (0.03)
- ----------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- ----------------------------------------------------------- ------ ------ ------
TOTAL RETURN** 3.03% 2.76% 2.61%
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 0.50% 0.50% 0.50%(b)
- -----------------------------------------------------------
Net investment income 2.96% 3.22% 3.68%(b)
- -----------------------------------------------------------
Expense waiver/reimbursement (a) 0.48% 0.50% 0.50%(b)
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $11,073 $10,923 $8,726
- -----------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 25, 1991 (date of initial
public investment) to July 31, 1992.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-TERM OBLIGATIONS--100.3%
- ----------------------------------------------------------------------------------
$24,000,000 * Federal Farm Credit Bank Discount Notes
4.32%-4.54%, 8/3/94-10/3/94 $ 23,892,937
-----------------------------------------------------------------
63,500,000 * Federal Home Loan Bank Discount Notes
3.96%-4.69%, 8/9/94-11/7/94 63,068,219
-----------------------------------------------------------------
2,000,000 * Student Loan Marketing Association Discount Note
4.52%, 10/26/94 1,978,404
-----------------------------------------------------------------
5,000,000 ** Student Loan Marketing Association Floating Rate Notes
4.54%-4.84%, 12/8/94-12/30/94 5,002,412
-----------------------------------------------------------------
24,100,000 * Student Loan Marketing Association Master Note
4.54%, 8/1/94 24,100,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $118,041,972+
----------------------------------------------------------------- ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase.
** Denotes variable rate obligation for which the current yields and next reset
dates are shown.
+ Also represents cost for federal tax purposes.
Note: The category of investments is shown as a percentage of net assets
($117,705,132) at July 31, 1994.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $118,041,972
- -------------------------------------------------------------------------------
Cash 12,509
- -------------------------------------------------------------------------------
Interest receivable 109,252
- -------------------------------------------------------------------------------
Deferred expenses (Note 2F) 11,651
- ------------------------------------------------------------------------------- ------------
Total assets 118,175,384
- -------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------
Dividends payable $399,125
- --------------------------------------------------------------------
Payable to Administrator (Note 4) 11,747
- --------------------------------------------------------------------
Accrued expenses 59,380
- -------------------------------------------------------------------- --------
Total liabilities 470,252
- ------------------------------------------------------------------------------- ------------
NET ASSETS for 117,705,132 shares of beneficial interest outstanding $117,705,132
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
Trust Shares ($106,632,448 / 106,632,448 shares of beneficial interest
outstanding) $1.00
- ------------------------------------------------------------------------------- ------------
Investment Shares ($11,072,684 / 11,072,684 shares of beneficial interest
outstanding) $1.00
- ------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest income (Note 2C) $4,085,487
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------
Investment advisory fee* $466,283
- -----------------------------------------------------------------------
Administrative personnel and services fees* 134,133
- -----------------------------------------------------------------------
Custodian fee* 10,355
- -----------------------------------------------------------------------
Portfolio accounting, transfer and dividend disbursing
agent fees and expenses* 35,558
- -----------------------------------------------------------------------
Fund share registration costs 31,936
- -----------------------------------------------------------------------
Auditing Fees 13,975
- -----------------------------------------------------------------------
Legal fees 8,915
- -----------------------------------------------------------------------
Printing and postage 15,639
- -----------------------------------------------------------------------
Distribution services fees* 31,295
- -----------------------------------------------------------------------
Miscellaneous 18,465
- ----------------------------------------------------------------------- --------
Total expenses 766,554
- -----------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------------
Waiver of investment advisory fee* $152,426
- ------------------------------------------------------------
Waiver of distribution services fees* 31,295 183,721
- ------------------------------------------------------------ -------- --------
Net expenses 582,833
- ----------------------------------------------------------------------------------- ----------
Net investment income $3,502,654
- ----------------------------------------------------------------------------------- ----------
</TABLE>
*See Note 4
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1994 1993
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------
Net investment income $ 3,502,654 $ 2,818,684
- --------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ---------------------------------------------------------------
Dividends to shareholders from net investment income:
- ---------------------------------------------------------------
Trust Shares (3,237,670) (2,418,082)
- ---------------------------------------------------------------
Investment Shares (264,984) (400,602)
- --------------------------------------------------------------- ------------- -------------
Change in net assets from distributions to shareholders (3,502,654) (2,818,684)
- --------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- ---------------------------------------------------------------
Proceeds from sale of shares 248,288,040 182,097,485
- ---------------------------------------------------------------
Cost of shares redeemed (234,498,643) (169,795,958)
- --------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 13,789,397 12,301,527
- --------------------------------------------------------------- ------------- -------------
Change in net assets 13,789,397 12,301,527
- ---------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------
Beginning of period 103,915,735 91,614,208
- --------------------------------------------------------------- ------------- -------------
End of period $ 117,705,132 $ 103,915,735
- --------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Fountain Square Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act") as an open-end management investment
company. The Trust consists of eight diversified portfolios and one
non-diversified portfolio. The financial statements included herein are only
those of Fountain Square Government Cash Reserves Fund (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated, and a shareholder's interest is limited
to the portfolio in which shares are held.
The Fund offers two classes of shares: Trust Shares and Investment Shares.
Investment Shares are identical in all respects to Trust Shares except that
Investment Shares are sold pursuant to a distribution plan (the "plan") adopted
in accordance with the Acts's Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure that the value of collateral at least equals
the principal amount of the repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Fund could receive less than the repurchase price on the
sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
- --------------------------------------------------------------------------------
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income. Accordingly,
no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being amortized
using the straight-line method over a period of five years from the Fund's
commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At July 31, 1994, capital paid-in aggregated $117,705,132.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------
TRUST SHARES 1994 1993
- ----------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 226,131,178 143,671,427
- -----------------------------------------------------------------
Shares redeemed (212,491,332) (133,567,288)
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from Trust share transactions 13,639,846 10,104,139
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SHARES
- -------------------------------------------------------------------
<S> <C> <C>
Shares sold 22,156,862 38,426,058
- -------------------------------------------------------------------
Shares redeemed (22,007,311) (36,228,670)
- ------------------------------------------------------------------- ----------- -----------
Net change resulting from Investment share transactions 149,551 2,197,388
- ------------------------------------------------------------------- ----------- -----------
Net change resulting from Fund share transactions 13,789,397 12,301,527
- ------------------------------------------------------------------- ----------- -----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Fifth Third Bank, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
- --------------------------------------------------------------------------------
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Investment Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.35 of 1% of the average daily net assets of the
Investment Shares, annually, to compensate FSC. The distributor may voluntarily
choose to waive a portion of its fee. The distributor can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING, AND CUSTODY FEES--Fifth
Third Bank serves as transfer and dividend disbursing agent for the Fund. Fifth
Third Bank has sub-contracted the execution of the transfer and dividend
disbursing agent functions to a non-affiliated entity. The fee is based on the
level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
Fifth Third Bank maintains the Fund's accounting records. Fifth Third Bank has
sub-contracted the execution of the accounting services function to a
non-affiliated entity. The fee is based on the level of the Fund's average net
assets for the period, plus out-of-pocket expenses.
Fifth Third Bank is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period. All other charges, such as trades and
wires, are based on similar size types of funds. Fifth Third Bank voluntarily
chose to waive all fees for custody services for each of the Funds. Fifth Third
Bank can modify or terminate this voluntary waiver at any time at its sole
discretion.
ORGANIZATIONAL EXPENSES--Organizational expenses of $30,604 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following July 10, 1991. For the year ended July 31,
1994, the Fund paid $5,963, pursuant to this agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
FOUNTAIN SQUARE FUNDS:
We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of Fountain Square Government Cash Reserves Fund
(one of the portfolios comprising Fountain Square Funds), as of July 31, 1994,
and the related statement of operations for the year then ended, and statement
of changes in net assets and financial highlights for the periods presented
therein. These Financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fountain Square Government Cash Reserves Fund at July 31, 1994, the results of
its operations for the year then ended, and the changes in its net assets and
financial highlights for the periods presented therein, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
September 2, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square Government Federated Investors Tower
Cash Reserves Fund Pittsburgh, Pennsylvania 15222-3779
Trust Shares
- -------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Investment Adviser
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Custodian, Transfer Agent, and Dividend Disbursing Agent
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- -------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin,L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- -------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young, LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------------
</TABLE>
350756409
1041201A-I (9/94)
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
PROSPECTUS
The shares of Fountain Square U.S. Treasury Obligations Fund (the "Fund")
offered by this prospectus represent interests in a diversified portfolio of
securities which is one of a series of investment portfolios in Fountain Square
Funds (the "Trust"), an open-end management investment company (a mutual fund).
The Fund is a money market fund which invests in short-term U.S. Treasury
obligations to achieve stability of principal and current income consistent with
stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. THE FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information, dated September
30, 1994, with the Securities and Exchange Commission. The information contained
in the Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Statement of Additional
Information free of charge, obtain other information or make inquiries about the
Fund by writing to the Fund or calling (513) 579-6039 in Cincinnati or toll-free
(800) 654-5372.
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.
Prospectus dated September 30, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Repurchase Agreements 3
When-Issued and Delayed Delivery
Transactions 4
Investment Limitations 4
FOUNTAIN SQUARE FUNDS INFORMATION 4
- ------------------------------------------------------
Management of the Trust 4
Board of Trustees 4
Investment Adviser 4
Advisory Fees 4
Adviser's Background 4
Distribution of Fund Shares 5
Payments to Financial Institutions 5
Administration of the Fund 5
Administrative Services 5
Custodian, Transfer Agent, and
Dividend Disbursing Agent 5
Legal Counsel 5
Independent Auditors 6
NET ASSET VALUE 6
- ------------------------------------------------------
INVESTING IN THE FUND 6
- ------------------------------------------------------
Share Purchases 6
Through Fifth Third Bank 6
Minimum Investment Required 6
What Shares Cost 7
Certificates and Confirmations 7
Dividends 7
Capital Gains 7
EXCHANGES 7
- ------------------------------------------------------
REDEEMING SHARES 8
- ------------------------------------------------------
Through Fifth Third Bank 8
By Telephone 8
By Mail 9
Receiving Payment 9
Accounts with Low Balances 9
SHAREHOLDER INFORMATION 10
- ------------------------------------------------------
Voting Rights 10
Massachusetts Law 10
EFFECT OF BANKING LAWS 10
- ------------------------------------------------------
TAX INFORMATION 11
- ------------------------------------------------------
Federal Income Tax 11
PERFORMANCE INFORMATION 12
- ------------------------------------------------------
FINANCIAL STATEMENTS 13
- ------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 20
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)..................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)...................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........... None
Exchange Fee................................................................. None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.26%
12b-1 Fee.................................................................... None
Other Expenses............................................................... 0.18%
Total Fund Operating Expenses(2)........................................ 0.44%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.40%.
(2) Total operating expenses would have been 0.58% absent the voluntary waiver
by the investment adviser.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND "INVESTING IN THE FUND."
Wire-transferred redemptions of less than $10,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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. The Fund
charges no redemption fees for Trust Shares............. $ 5 $ 14 $ 25 $ 55
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 20.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------
1994 1993 1992 1991 1990 1989*
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------
Net investment income 0.03 0.03 0.04 0.07 0.08 0.06
- -------------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- --------------------------------------------
Dividends to shareholders from net
investment income (0.03) (0.03) (0.04) (0.07) (0.08) (0.06)
- -------------------------------------------- ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------- ------ ------ ------ ------ ------ ------
TOTAL RETURN** 3.02% 2.82% 4.32% 6.74% 8.15% 5.65%
- --------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------
Expenses 0.44% 0.44% 0.45% 0.49% 0.54% 0.56%(b)
- --------------------------------------------
Net investment income 2.99% 2.79% 4.18% 6.33% 7.84% 8.71%(b)
- --------------------------------------------
Expense waiver/reimbursement (a) 0.14% 0.15% 0.15% 0.15% 0.15% 0.15%(b)
- --------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------
Net assets, end of period (000 omitted) $336,229 $290,408 $339,924 $242,247 $138,368 $141,743
- --------------------------------------------
</TABLE>
* Reflects operations for the period from December 1, 1988 (date of initial
public offering) to July 31, 1989.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. This prospectus relates only to the
short-term U.S. Treasury obligations portfolio of the Trust, known as Fountain
Square U.S. Treasury Obligations Fund. The Fund is designed for individuals and
institutions as a convenient means of participating in a professionally managed,
diversified portfolio limited to U.S. Treasury obligations. A minimum initial
investment of $10,000 is required, except for investments by individual
retirement accounts ("IRAs").
The Fund attempts to stabilize the value of a share at $1.00. Fund shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is stability of principal and current
income consistent with stability of principal. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus. The investment
objective and the policies and limitations described below cannot be changed
without approval of shareholders.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio consisting
exclusively of short-term U.S. Treasury obligations. The average maturity of the
Fund's portfolio, computed on a dollar weighted basis, will be 120 days or less.
As a matter of operating policy, the Fund will limit the average maturity of its
portfolio to 90 days or less, in order to meet current regulatory requirements.
ACCEPTABLE INVESTMENTS. The short-term U.S. Treasury obligations in which the
Fund invests are issued by the U.S. government and are fully guaranteed as to
principal and interest by the United States. All U.S. Treasury obligations in
which the Fund invests mature in one year or less from the date of acquisition
unless they are purchased under a repurchase agreement that provides for
repurchase by the seller within one year from the date of acquisition. The Fund
may also retain Fund assets in cash.
REPURCHASE AGREEMENTS. The Fund may invest in U.S. Treasury obligations pursuant
to repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers and other recognized financial institutions sell U.S. Treasury
obligations to the Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price within one year from the date of
acquisition.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase short-term
U.S. Treasury obligations on a when-issued or delayed delivery basis. In
when-issued and delayed delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
or pledge securities except, under certain circumstances, the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to one-third of
the value of its total assets and pledge up to 10% of the value of its total
assets to secure such borrowings.
As a matter of investment practice, which can be changed without shareholder
approval, repurchase agreements providing for settlement in more than seven days
after notice, along with illiquid obligations, will be limited to not more than
10% of the Fund's net assets.
FOUNTAIN SQUARE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees ("Trustees"). The
Trustees are responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by The Fifth Third Bank ("Fifth Third
Bank"), the Fund's investment adviser, subject to direction by the Trustees. The
adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40 of 1% of the Fund's average daily net assets. The adviser has
undertaken to waive up to the amount of the advisory fee, for operating
expenses in excess of limitations established by certain states. The
adviser may voluntarily choose to waive a portion of its fee or reimburse
other expenses of the Fund but reserves the right to terminate such waiver
or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank, is a
wholly-owned subsidiary of Fifth Third Bancorp, a bank holding company
organized under the laws of Ohio. Fifth Third Bank is a commercial bank
offering a wide range of banking services to its customers. As of July 31,
1994, Fifth Third Bank and its affiliates managed assets in excess of $6.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $41.4 billion. Fifth Third Bank has managed
mutual funds since 1988.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages 14 such pools with
total assets of over $1.1 billion.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. serves as the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is
the distributor for a number of investment companies. Federated Securities Corp.
is a subsidiary of Federated Investors.
PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the Adviser, or their
affiliates may offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include initiating customer accounts, providing
sales literature, or participating in sales, educational and training seminars
(including those held at recreational facilities). Such assistance will be
predicated upon the amount of shares the financial institution sells or may sell
and/or upon the type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be reimbursed by
the Adviser or its affiliates.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund, such as legal and accounting services.
Federated Administrative Services provides these at an annual rate as specified
below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- --------------------- ---------------------------
<C> <S>
.150% of the first $250 million
.125% of the next $250 million
.100% of the next $250 million
.075% in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Fund, transfer
agent for the shares of the Fund, and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P.,
Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Fund cannot
guarantee that its net asset value will always remain at $1.00 per share.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Bank of Cleveland are open for business. A customer of Fifth
Third Bank may purchase shares of the Fund through Fifth Third Bank. All other
investors should purchase Fund shares directly from the distributor. In
connection with the sale of Fund shares, the distributor may, from time to time,
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. Purchases through Fifth Third
Bank may not be available to investors in all states.
THROUGH FIFTH THIRD BANK. A customer of Fifth Third Bank may telephone Fifth
Third Bank at (513) 579-6039 in Cincinnati or toll-free (800) 654-5372 to place
an order to purchase shares of the Fund. All other investors must place their
purchase orders through the distributor. Texas residents must purchase Fund
shares through Federated Securities Corp.
Payment may be made to Fifth Third Bank either by check or federal funds. Orders
are considered received after payment by check is converted into federal funds
and received by Fifth Third Bank. This is normally the next business day after
Fifth Third Bank receives the check. When payment is made with federal funds,
the order is considered received when federal funds are received by Fifth Third
Bank. Federal funds should be wired to Fifth Third Bank as follows: ABA No. 042
000 314 Fifth Third Cincinnati. Attention: Fountain Square Funds Department; For
Credit to: (shareholder's name and account number); For Further credit to:
Fountain Square U.S. Treasury Obligations Fund. Investors not purchasing through
Fifth Third Bank should consult their financial institution for wiring
instructions.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $10,000, unless the
investment is by an IRA, in which case the minimum initial investment is $1,000.
Subsequent investments must be in amounts of at least $100. For customers of
Fifth Third Bank, an institutional investor's minimum investment will be
calculated by combining all accounts it maintains with Fifth Third Bank and
investments in the Fund.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received. The Fund does not impose a sales charge.
The net asset value is determined at 4:00 p.m. (Cincinnati time), Monday through
Friday, except on: (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; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Fifth Third Bank maintains a share account for
each shareholder of record. Share certificates are not issued.
Detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends paid during the month are sent to each
shareholder monthly and will serve as confirmations of all transactions in the
shareholder's account for the statement period.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested on
payment dates in additional shares of the Fund unless cash payments are
requested by writing to the Fund or Fifth Third Bank, as appropriate. Share
purchase orders received by Fifth Third Bank before 12:00 noon (Cincinnati time)
earn dividends that day.
CAPITAL GAINS
If the Fund experiences capital gains, it could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, the Fund realizes net long-term capital gains, it will
distribute them at least once every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder who is a customer of the Fifth Third Bank Trust and Investment
Division may exchange shares of one Fund for shares of any of the other funds in
the Trust by calling or sending a written request to their Fifth Third Bank
Trust Officer. Telephone exchange instructions may be recorded. If reasonable
procedures are not followed by the Fund, they may be liable for losses due to
unauthorized or fraudulent telephone instructions.
Shares of the Funds with a sales charge may be exchanged at net asset value for
shares of other Funds with an equal sales charge or no sales charge. Shares of
Funds with no sales charge acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for shares of Funds with a sales
charge at net asset value plus the applicable sales charge. When exchanging into
and out of shares of the Funds in the Trust, shareholders who have paid a sales
load once upon purchasing shares of any Fund will not have to pay a sales load
again on an exchange.
Orders for exchanges of shares of money market funds must be received by 12:00
noon (Cincinnati time). Orders for exchanges of the International Equity Fund,
Government Fund, Bond Fund, Ohio Tax-Free Fund, Growth Fund, Mid Cap Fund, and
Balanced Fund must be received by 4:00 p.m. (Cincinnati time). Orders for
exchanges are taken on any day that the Funds are open for business. Orders
which are received prior to the cut-off times listed above will be executed as
of the close of business that day. Orders received after the respective cut-off
times will be executed at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time. Shareholders would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after Fifth
Third Bank receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemption must be received in proper form and can be made through Fifth Third
Bank by its customers or directly through the Fund by all other investors.
THROUGH FIFTH THIRD BANK
BY TELEPHONE. A shareholder who is a customer of Fifth Third Bank may redeem
shares of the Fund by telephoning Fifth Third Bank at (513) 579-6039 in
Cincinnati or toll-free (800) 654-5372. For calls received by Fifth Third Bank
before 12:00 noon (Cincinnati time), proceeds will normally be dispersed the
same day to the shareholder's account at Fifth Third Bank or a check will be
sent to the address of record. Those shares will not be entitled to the dividend
declared that day. For calls received by Fifth Third Bank after 12:00 noon
(Cincinnati time), proceeds will normally be dispersed the following business
day. Those shares will be entitled to the dividend declared on the day the
redemption request was received. In no event will proceeds be dispersed more
than seven days after a proper request for redemption has been received. If at
any time the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Fifth Third Bank or the distributor.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. A shareholder who is a customer of Fifth Third Bank may redeem Fund
shares by sending a written request to Fifth Third Bank at the following
address: 38 Fountain Square Plaza, Cincinnati, Ohio, 45263, Attn: Fountain
Square Funds Department. The written request should include the shareholder's
name, the Fund name, the account number, and the share or dollar amount
requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request. Shareholders should call Fifth Third Bank for assistance in redeeming
by mail.
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 Fund, 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, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings and loan association or a savings bank whose deposits are
insured by the Savings Association Insurance Fund, 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 its 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 its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. 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.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $10,000.
Before redeeming shares to close an account, the Fund will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the Trust have equal voting rights, except that only shares of the Fund are
entitled to vote on matters affecting the Fund. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust or the
Fund's operation and for the election of Trustees under certain circumstances.
As of July 31, 1994, Fifth Third Bank may for certain purposes be deemed to
control the Funds because it is owner of record of certain shares of the Funds.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of the Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer to be given in each agreement, obligation, or instrument the
Trust or its Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or to compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of the Fund for any act or obligation of the
Trust on behalf of the Fund. Therefore, financial loss resulting from liability
as a shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and to pay judgments against them from the
assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956 or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of their customer. The Fund's investment adviser, Fifth Third
Bank, is subject to such banking laws and regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for the Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable bank ing laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or the Fund. In such event, changes in the operation of
the Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment and redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisers and other means of continuing available investment services.
It is not expected that Fund shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Fifth Third Bank
is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield and effective yield.
The yield of the Fund represents the annualized rate of income earned on an
investment in the Fund over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Fund after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1994
- --------------------------------------------------------------------------------
The obligations listed below are issued or guaranteed by the U.S. government,
its agencies or instrumentalities or secured by such obligations.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <C> <S> <C>
- ----------- ----------------------------------------------------------------------- ------------
U.S. TREASURY OBLIGATIONS--27.2%
- ---------------------------------------------------------------------------------------
U.S. TREASURY BILLS--16.8%
-----------------------------------------------------------------------
$57,000,000 8/4/94-12/15/94 $ 56,642,327
----------------------------------------------------------------------- ------------
U.S. TREASURY NOTES--10.4%
-----------------------------------------------------------------------
35,000,000 3.875%-5.875%, 8/31/94-6/30/95 34,881,575
----------------------------------------------------------------------- ------------
TOTAL U.S. TREASURY OBLIGATIONS 91,523,902
----------------------------------------------------------------------- ------------
</TABLE>
<TABLE>
<C> <C> <S> <C>
*REPURCHASE AGREEMENTS--73.0%
- ---------------------------------------------------------------------------------------
16,000,000 Bear, Stearns & Co., Inc., 4.14%, dated 7/29/94, due 8/1/94 16,000,000
-----------------------------------------------------------------------
16,000,000 BT Securities Corp., 4.18%, dated 7/29/94, due 8/1/94 16,000,000
-----------------------------------------------------------------------
38,000,000 Deutsche Bank Government Securities, 4.18%, dated 7/29/94, due 8/1/94 38,000,000
-----------------------------------------------------------------------
16,000,000 Goldman, Sachs & Co., 4.10%, dated 7/29/94, due 8/1/94 16,000,000
-----------------------------------------------------------------------
40,406,000 Harris, Nesbitt, Thomson Securities, Inc., 4.22%, dated 7/29/94, due
8/1/94 40,406,000
-----------------------------------------------------------------------
39,000,000 Kidder, Peabody & Co., Inc., 4.18%, dated 7/29/94, due 8/1/94 39,000,000
-----------------------------------------------------------------------
16,000,000 Merrill Lynch, Pierce, Fenner & Smith, Inc., 4.10%, dated 7/29/94, due
8/1/94 16,000,000
-----------------------------------------------------------------------
16,000,000 Sanwa-BGK Securities Co., 4.15%, dated 7/29/94, due 8/1/94 16,000,000
-----------------------------------------------------------------------
48,000,000 UBS Securities, Inc., 4.20%, dated 7/29/94, due 8/1/94 48,000,000
----------------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 245,406,000
----------------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $336,929,902+
----------------------------------------------------------------------- ------------
</TABLE>
* Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($336,228,580) at July 31, 1994.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements (Note 2B) $245,406,000
- -----------------------------------------------------------------
Investments in other securities (Note 2A) 91,523,902
- ----------------------------------------------------------------- ------------
Total investments, at amortized cost and value $336,929,902
- --------------------------------------------------------------------------------
Cash 717
- --------------------------------------------------------------------------------
Interest receivable 532,422
- -------------------------------------------------------------------------------- ------------
Total assets 337,463,041
- --------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------
Dividends payable 1,067,843
- -----------------------------------------------------------------
Accrued expenses 166,618
- ----------------------------------------------------------------- ------------
Total liabilities 1,234,461
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 336,228,580 shares of beneficial interest outstanding $336,228,580
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
($336,228,580 / 336,228,580 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income (Note 2C) $11,491,862
- ---------------------------------------------------------------------------------
EXPENSES--
- ---------------------------------------------------------------------------------
Investment advisory fee* $1,341,031
- --------------------------------------------------------------------
Administrative personnel and services fees* 385,743
- --------------------------------------------------------------------
Custodian fee* 47,093
- --------------------------------------------------------------------
Portfolio accounting, transfer and dividend disbursing agent fees
and
expenses* 59,517
- --------------------------------------------------------------------
Auditing fees 13,975
- --------------------------------------------------------------------
Legal fees 14,312
- --------------------------------------------------------------------
Printing and postage 12,266
- --------------------------------------------------------------------
Fund share registration costs 29,226
- --------------------------------------------------------------------
Miscellaneous 45,087
- -------------------------------------------------------------------- ----------
Total expenses 1,948,250
- --------------------------------------------------------------------
Deduct--Waiver of investment advisory fee* 473,109
- -------------------------------------------------------------------- ----------
Net expenses 1,475,141
- --------------------------------------------------------------------------------- -----------
Net investment income $10,016,721
- --------------------------------------------------------------------------------- -----------
</TABLE>
* See Note 4.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
1994 1993
-------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------
Net investment income $ 10,016,721 $ 8,643,280
- ------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- -------------------------------------------------------------
Dividends to shareholders from net investment income (10,016,721) (8,643,280)
- ------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- -------------------------------------------------------------
Proceeds from sale of shares 813,333,646 829,048,015
- -------------------------------------------------------------
Cost of shares redeemed (767,513,323) (878,563,498)
- ------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 45,820,323 (49,515,483)
- ------------------------------------------------------------- ------------- -------------
Change in net assets 45,820,323 (49,515,483)
- -------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------
Beginning of period 290,408,257 339,923,740
- ------------------------------------------------------------- ------------- -------------
End of period $ 336,228,580 $ 290,408,257
- ------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Fountain Square Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company. The Trust consists of eight diversified portfolios and one
non-diversified portfolio. The financial statements included herein present only
those of Fountain Square U.S. Treasury Obligations Fund (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure that the value of collateral at least equals
the principal amount of the repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income. Accordingly,
no provisions for federal tax are necessary.
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
- --------------------------------------------------------------------------------
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At July
31, 1994, capital paid-in aggregated $336,228,580. Transactions in Fund shares
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------
1994 1993
- --------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 813,333,646 829,048,015
- ---------------------------------------------------------------
Shares redeemed (767,513,323) (878,563,498)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Fund share transactions 45,820,323 (49,515,483)
- --------------------------------------------------------------- ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Fifth Third Bank, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40 of 1% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fee and reimburse certain operating expenses of
the Fund. The adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Fifth Third
Bank serves as transfer and dividend disbursing agent for the Funds. Fifth Third
Bank has sub-contracted the execution of the transfer and dividend disbursing
agent functions to a non-affiliated entity. The fee is based on the level of the
Fund's average net assets for the period, plus out-of-pocket expenses.
Fifth Third Bank maintains the Fund's accounting records. Fifth Third Bank has
sub-contracted the execution of the accounting services function to a
non-affiliated entity. The fee is based on the level of the Fund's average net
assets for the period, plus out-of-pocket expenses.
Fifth Third Bank is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period. All other charges, such as trades and
wires, are based on similar size and types of funds.
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
- --------------------------------------------------------------------------------
ORGANIZATIONAL EXPENSES--Organizational expenses ($51,096) were borne initially
by FAS. The Fund has agreed to reimburse FAS, for the organizational expenses
during the five year period following December 1, 1988. For the year ended July
31, 1994, the Fund paid $6,577, completing its obligation pursuant to this
agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
FOUNTAIN SQUARE FUNDS:
We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of Fountain Square U.S. Treasury Obligations Fund
(one of the portfolios comprising Fountain Square Funds), as of July 31, 1994,
and the related statement of operations for the year then ended and the
statement of changes in net assets and financial highlights for the periods
presented therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fountain Square U.S. Treasury Obligations Fund at July 31, 1994, the results of
its operations for the year then ended, and the changes in its net assets and
financial highlights for the periods presented therein, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
September 2, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square U.S. Treasury Federated Investors Tower
Obligations Fund Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Investment Adviser
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Custodian, Transfer Agent, and Dividend Disbursing Agent
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- -------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- -------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young, LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------------
</TABLE>
65-0923
350756102
8120101A (9/94)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
TRUST SHARES
PROSPECTUS
The Trust Shares of Fountain Square Commercial Paper Fund (the "Fund") offered
by this prospectus represent interests in a diversified portfolio of securities
which is one of a series of investment portfolios in Fountain Square Funds (the
"Trust"), an open-end management investment company (a mutual fund).
The Fund is a money market fund which invests in money market instruments,
consisting primarily of commercial paper, to achieve current income consistent
with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. THE FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in Trust Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Trust
Shares and Investment Shares, dated September 30, 1994, with the Securities and
Exchange Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Combined Statement of Additional Information free of
charge, obtain other information or make inquiries about the Fund by writing to
the Fund or calling (513) 579-6039 in Cincinnati or toll-free (800) 654-5372.
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.
Prospectus dated September 30, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
TRUST SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Bank Instruments 4
Short-Term Credit Facilities 5
Ratings 5
Credit Enhancement 5
Demand Features 5
Repurchase Agreements 5
When-Issued and Delayed Delivery
Transactions 5
Concentration of Investments 6
Investment Limitations 6
Regulatory Compliance 6
FOUNTAIN SQUARE FUNDS INFORMATION 7
- ------------------------------------------------------
Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Distribution of Trust Shares 7
Payments to Financial Institutions 7
Administration of the Fund 8
Administrative Services 8
Custodian, Transfer Agent, and
Dividend Disbursing Agent 8
Legal Counsel 8
Independent Auditors 8
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN TRUST SHARES 9
- ------------------------------------------------------
Share Purchases 9
Through Fifth Third Bank 9
Minimum Investment Required 9
What Shares Cost 10
Certificates and Confirmations 10
Dividends 10
Capital Gains 10
EXCHANGES 10
- ------------------------------------------------------
REDEEMING TRUST SHARES 11
- ------------------------------------------------------
Through Fifth Third Bank 11
By Telephone 11
By Mail 12
Receiving Payment 12
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Law 13
EFFECT OF BANKING LAWS 14
- ------------------------------------------------------
TAX INFORMATION 14
- ------------------------------------------------------
Federal Income Tax 14
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 27
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
TRUST SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)...................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or
redemption proceeds, as applicable)...................................... None
Redemption Fees (as a percentage of amount redeemed, if applicable)........ None
Exchange Fee............................................................... None
ANNUAL TRUST SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)........................................... 0.30%
12b-1 Fee.................................................................. None
Other Expenses............................................................. 0.19%
Total Trust Shares Operating Expenses(2).............................. 0.49%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.40%.
(2) Total Operating Expenses would have been, 0.59% absent the voluntary waiver
by the investment adviser.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE TRUST SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND "INVESTING IN
TRUST SHARES." Wire-transferred redemptions of less than $10,000 may be subject
to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
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. The Fund
charges no redemption fees for Trust Shares........... $5 $16 $27 $62
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only
to Trust Shares of the Fund. The Fund also offers another class of shares called
Investment Shares. Investment Shares and Trust Shares are subject to the same
expenses, however, Trust Shares are not subject to a 12b-1 fee. See "Other
Classes of Shares."
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
FINANCIAL HIGHLIGHTS
TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 27.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------
1994 1993 1992 1991 1990 1989*
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.03 0.03 0.04 0.07 0.08 0.01
- ---------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- ----------------------------------------
Dividends to shareholders from net in-
vestment income (0.03) (0.03) (0.04) (0.07) (0.08) (0.01)
- ---------------------------------------- ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------- ------ ------ ------ ------ ------ ------
TOTAL RETURN** 3.02% 2.78% 4.27% 6.89% 8.22% 1.19%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 0.49% 0.48% 0.46% 0.50% 0.53% 0.45%(b)
- ----------------------------------------
Net investment income 2.97% 2.75% 4.19% 6.61% 7.86% 8.95%(b)
- ----------------------------------------
Expense waiver/reimbursement(a) 0.10% 0.12% 0.14% 0.14% 0.16% 0.35%(b)
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period
(000 omitted) $213,243 $180,065 $194,308 $213,889 $174,727 $62,225
- ----------------------------------------
</TABLE>
* Reflects operations for the period from June 14, 1989 (date of initial public
offering) to July 31, 1989.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Trust Shares and Investment Shares. This prospectus relates only to the Trust
Shares ("Shares") of the Fund.
Trust Shares are designed for Trust clients of The Fifth Third Bank ("Fifth
Third Bank") and its affiliates as a convenient means of accumulating an
interest in a professionally managed, diversified portfolio limited to money
market instruments, consisting primarily of commercial paper, maturing in 13
months or less. A minimum initial investment of $10,000 is required, except for
investments by individual retirement accounts ("IRAs").
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income consistent with stability
of principal. The investment objective cannot be changed without approval of
shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues this investment objective by investing exclusively in a
portfolio of money market instruments maturing in 13 months or less, with at
least 65% of its assets invested in commercial paper. The average maturity of
money market instruments in the Fund's portfolio, computed on a dollar weighted
basis, will be 90 days or less.
Unless indicated otherwise, the investment policies may be changed by the
Trustees without the approval of shareholders. Shareholders will be notified
before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
nationally recognized statistical rating organizations ("NRSROs") or of
comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments issued by domestic and foreign banks and other
deposit institutions ("Bank Instruments");
- short-term credit facilities, such as demand notes;
- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities
("Government Securities"); and
- other money market instruments.
The Fund invests only in instruments denominated and payable in U.S. dollars.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments 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 based on
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
The Staff of the Securities and Exchange Commission has taken the position
that variable rate demand notes are not commercial paper; although the Fund
disagrees with this determination, variable rate demand notes will not be
included in the 65% of Fund assets which will be invested in commercial
paper. In the event that the Staff of the Securities and Exchange
Commission changes its position on this matter, the Fund may include
variable rate demand notes in the 65% minimum commercial paper investment
without notifying shareholders.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat
securities credit enhanced with a bank's letter of credit as Bank
Instruments.
ECDs, ETDs, Yankee CDs, and Europaper are subject to different risks than
domestic obligations of domestic banks or corporations. Examples of these
risks include international, economic and political developments, foreign
governmental restrictions that may adversely affect the payment of
principal or interest, foreign withholdings or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the
issuing entity, and the possible impact of interruptions in the flow of
international currency transactions. Different risks may also exist for
ECDs, ETDs, and Yankee CDs because the banks issuing these instruments, or
their domestic or foreign branches, are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing, and
recordkeeping, and the public availability of information. These factors
will be carefully considered by the Fund's adviser in selecting investments
for the Fund.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Fund may also enter into, or acquire participation in,
short-term revolving credit facilities with corporate borrowers. Demand
notes and other short-term credit arrangements usually provide for floating
or variable rates of interest.
RATINGS. An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 or A-1+ by
Standard & Poor's Ratings Group ("S&P"), Prime-1 by Moody's Investors Service,
Inc. ("Moody's"), or F-1 (+ or -) by Fitch Investors Service, Inc. ("Fitch") are
all considered rated in the highest short-term rating category. The Fund will
follow applicable regulations in determining whether a security rated by more
than one NRSRO can be treated as being in the highest short-term rating
category; currently such securities must be rated by two NRSROs in their highest
rating category. See "Regulatory Compliance."
CREDIT ENHANCEMENT. The Fund may acquire securities that have been credit
enhanced by a guaranty, 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. Generally, the Fund
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances,
applicable regulations may require the Fund to treat the securities as having
been issued by both 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.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with 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.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities to the Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price within one year from the date of
acquisition.
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 adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market value and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
CONCENTRATION OF INVESTMENTS. The Fund will invest at least 65% of its total
assets in commercial paper and in excess of 25% of the Fund's assets will be
comprised of commercial paper issued by finance companies unless the Fund is in
a temporary defensive position as a result of economic conditions. Concentration
of the Fund's portfolio in such obligations may entail additional risks which
are not encountered by funds with more diversified portfolios.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money except, under certain circumstances, the Fund may borrow up
to one-third of the value of its total assets;
- invest more than 10% of its net assets in securities subject to
restrictions on resale; or
- with respect to 75% of the value of its total assets, invest more than 5%
of its total assets in securities of one issuer (except repurchase
agreements collateralized by U.S. government securities and U.S.
government obligations). The remaining 25% of its total assets may be
invested in a single issuer if the investment adviser believes such a
strategy to be prudent.
The above investment limitations cannot be changed without shareholder approval.
As a matter of investment practice, which can be changed by the Trustees without
shareholder approval, the Fund will not invest more than 10% of its net assets
in securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. For example, with limited exceptions, Rule 2a-7
prohibits the investment of more than 5% of the Fund's total assets in the
securities of any one issuer, although the Fund's investment limitation only
requires such 5% diversification with respect to 75% of its assets. The Fund
will invest more than 5% of its assets in any one issuer only under
circumstances permitted by Rule 2a-7. The Fund will also determine the effective
maturity of its investments, as well as its ability to consider a security as
having received the requisite short-term ratings by NRSROs, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
FOUNTAIN SQUARE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Fifth Third Bank, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to .40 of 1% of the Fund's average daily net assets. The adviser has
undertaken to waive up to the amount of the advisory fee, for operating
expenses in excess of limitations established by certain states. The
adviser may voluntarily choose to waive a portion of its fee or reimburse
the Fund for certain other expenses of the Fund, but reserves the right to
terminate such waiver or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank, is a
wholly-owned subsidiary of Fifth Third Bancorp, a bank holding company
organized under the laws of Ohio. Fifth Third Bank is a commercial bank
offering a wide range of banking services to its customers. As of July 31,
1994, Fifth Third Bank and its affiliates managed assets in excess of $6.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $41.4 billion. Fifth Third Bank has managed
mutual funds since 1988.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages 14 such pools with
total assets of over $1.1 billion.
As part of its regular banking operations, Fifth Third Bank may make loans
to public companies. Thus, it may be possible, from time to time, for the
Fund to hold or acquire the securities of issuers which are also lending
clients of Fifth Third Bank. The lending relationship will not be a factor
in the selection of securities.
DISTRIBUTION OF TRUST SHARES
Federated Securities Corp. serves as the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is
the distributor for a number of investment companies. Federated Securities Corp.
is a subsidiary of Federated Investors.
PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the Adviser, or their
affiliates may offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include initiating customer accounts, providing
sales literature, or participating in sales, educational and training seminars
(including those held at recreational facilities). Such assistance will be
predicated upon the amount of shares the financial
institution sells or may sell and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Adviser or its affiliates.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund, such as legal and accounting services.
Federated Administrative Services provides these at an annual rate as specified
below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- ---------------------
<C> <S>
.150% of the first $250 million
.125% of the next $250 million
.100% of the next $250 million
.075% in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Fund, transfer
agent for the shares of the Fund, and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P.,
Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The Fund cannot
guarantee that its net asset value will always remain at $1.00 per Share.
INVESTING IN TRUST SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Bank of Cleveland are open for business. A customer of Fifth Third Bank
may purchase Trust Shares of the Fund through Fifth Third Bank. All other
investors should purchase Trust Shares directly from the distributor. In
connection with the sale of Trust Shares, the distributor may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. Purchases through Fifth Third
Bank may not be available to investors in all states.
THROUGH FIFTH THIRD BANK. A customer of Fifth Third Bank may telephone Fifth
Third Bank at (513) 579-6039 in Cincinnati or toll-free (800) 654-5372 to place
an order to purchase Trust Shares. All other investors must place their purchase
orders through the distributor. Texas residents must purchase Shares through
Federated Securities Corp.
Payment may be made to Fifth Third Bank either by check or federal funds. Orders
are considered received after payment by check is converted into federal funds
and received by Fifth Third Bank. This is normally the next business day after
Fifth Third Bank receives the check. When payment is made with federal funds,
the order is considered received when federal funds are received by Fifth Third
Bank. Federal funds should be wired to Fifth Third Bank as follows: ABA No. 042
000 314 Fifth Third Cincinnati. Attention: Fountain Square Funds Department; For
Credit to: (shareholder name and account number); For Further Credit to:
Fountain Square Commercial Paper Fund--Trust Shares. Investors not purchasing
through Fifth Third Bank should consult their financial institutions for wiring
instructions.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $10,000, unless the
investment is by an IRA, in which case the minimum initial investment is $1,000.
Subsequent investments must be in amounts of at least $100. For customers of
Fifth Third Bank, an institutional investor's minimum investment will be
calculated by combining all accounts it maintains with Fifth Third Bank and
investments in the Fund.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. The Fund does not impose a sales charge.
The net asset value is determined at 4:00 p.m. (Cincinnati time), Monday through
Friday, except on: (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; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Fifth Third Bank maintains a share account for
each shareholder of record. Share certificates are not issued.
Detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends paid during the month are sent to each
shareholder monthly and will serve as confirmations of all transactions in the
shareholder's account for the statement period.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested on
payment dates in additional Shares unless cash payments are requested by writing
to the Fund or Fifth Third Bank, as appropriate. Share purchase orders received
by Fifth Third Bank before 12:00 noon (Cincinnati time) earn dividends that day.
CAPITAL GAINS
If the Fund experiences capital gains, it could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, the Fund realizes net long-term capital gains, it will
distribute them at least once every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder who is a customer of the Fifth Third Bank Trust and Investment
Division may exchange shares of one Fund for shares of any of the other funds in
the Trust by calling or sending a written request to their Fifth Third Bank
Trust Officer. Telephone exchange instructions may be recorded. If reasonable
procedures are not followed by the Fund, they may be liable for losses due to
unauthorized or fraudulent telephone instructions.
Shares of Funds with a sales charge may be exchanged at net asset value for
shares of other Funds with an equal sales charge or no sales charge. Shares of
Funds with no sales charge acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for shares of Funds with a sales
charge at net asset value plus the applicable sales charge. When exchanging into
and out of shares of the Funds in the Trust, shareholders who have paid a sales
load once upon purchasing shares of any Fund will not have to pay a sales load
again on an exchange.
Orders for exchanges of shares of money market funds must be received by 12:00
noon (Cincinnati time). Orders for exchanges of the International Equity Fund,
Government Fund, Bond Fund, Ohio Tax Free Fund, Growth Fund, Mid Cap Fund, and
Balanced Fund must be received by 4:00 p.m. (Cincinnati time). Orders for
exchanges are taken on any day that the Funds are open for business. Orders
which are received prior to the cut-off times listed above will be executed as
of the close of business that day. Orders received after the respective cut-off
times will be executed at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time. Shareholders would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING TRUST SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after Fifth
Third Bank receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemption must be received in proper form and can be made through Fifth Third
Bank by its customers or directly through the Fund by all other investors.
THROUGH FIFTH THIRD BANK
BY TELEPHONE. A shareholder who is a customer of Fifth Third Bank may redeem
Shares by telephoning Fifth Third Bank at (513) 579-6039 in Cincinnati or
toll-free (800) 654-5372. For calls received before 12:00 noon (Cincinnati
time), proceeds will normally be dispersed the same day to the shareholder's
account at Fifth Third Bank or a check will be sent to the address of record.
Those Shares will not be entitled to the dividend declared that day. For calls
received after 12:00 noon (Cincinnati time) proceeds will normally be dispersed
the following business day. Those Shares will be entitled to the dividend
declared on the day the redemption request was received. In no event will
proceeds be dispersed more than seven days after a proper request for redemption
has been received. If at any time, the Fund shall determine it necessary to
terminate or modify this method of redemption, shareholders would be promptly
notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Fifth Third Bank or the distributor.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. A shareholder who is a customer of Fifth Third Bank may redeem Shares
by sending a written request to Fifth Third Bank at the following address: 38
Fountain Square Plaza, Cincinnati, Ohio, 45263, Attn: Fountain Square Funds
Department. The written request should include the shareholder's name, the Fund
name and class of shares, the account number, and the share or dollar amount
requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request. Shareholders should call Fifth Third Bank for assistance in redeeming
by mail.
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 Fund, 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 BIF,
which is administered by the Federal Deposit Insurance Corporation
("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings and loan association or a savings bank whose deposits are
insured by the 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 its 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 its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. 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 redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $10,000.
Before redeeming Shares to close an account, the Fund will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each Fund in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust or the Fund's operation and for the election of
Trustees under certain circumstances. As of July 31, 1994, Fifth Third Bank may
for certain purposes be deemed to control the Funds because it is owner of
record of certain shares of the Funds.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of the Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer to be given in each agreement, obligation, or instrument the
Trust or its Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or to compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of the Fund for any act or obligation of the
Trust on behalf of the Fund. Therefore, financial loss resulting from liability
as a shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and to pay judgments against them from the
assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956 or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of their customer. The Fund's investment adviser, Fifth Third
Bank, is subject to such banking laws and regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for the Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or the Fund. In such event, changes in the operation of
the Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment and redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisers and other means of continuing available investment services.
It is not expected that Fund shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Fifth Third Bank
is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield and effective yield for Trust
Shares.
The yield of Trust Shares represents the annualized rate of income earned on an
investment in Trust Shares over a seven-day period. It is the annualized
dividends earned during the period on the investment, shown as a percentage of
the investment. The effective yield is calculated similarly to the yield, but,
when annualized, the income earned by an investment in Trust Shares is assumed
to be reinvested daily. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Trust Shares of the Fund after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
Yield and effective yield will be calculated separately for Trust Shares and
Investment Shares. Because Investment Shares are subject to 12b-1 fees, the
yield and effective yield of Trust Shares for the same period will exceed that
of Investment Shares.
From time to time, the Fund may advertise its performance for Trust Shares using
certain financial publications and/or compare its performance for Trust Shares
to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Investment Shares of the Fund are sold to investors who are not clients of the
Trust Department of Fifth Third Bank and are subject to a minimum initial
investment of $2,500. Investment Shares are sold at net asset value and are
distributed pursuant to a Rule 12b-1 Plan whereby the distributor is paid a fee
of up to .35 of 1% of the Investment Shares' average daily net assets. Trust
shares are distributed without a Rule 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares than from
another class of shares.
The amount of dividends payable to Trust Shares will exceed those payable to
Investment Shares by the difference between class expenses and distribution
expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 27.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1994 1993*
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.03 0.03
- ------------------------------------------------------------------ ------ ------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.03)
- ------------------------------------------------------------------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
- ------------------------------------------------------------------ ------ ------
TOTAL RETURN** 3.02% 2.70%
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 0.49% 0.48%(b)
- ------------------------------------------------------------------
Net investment income 2.97% 2.69%(b)
- ------------------------------------------------------------------
Expense waiver/reimbursement(a) 0.45% 0.47%(b)
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $6,030 $4,714
- ------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from August 11, 1992 (date of initial
public investment) to July 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
*COMMERCIAL PAPER--70.2%
- ---------------------------------------------------------------------------------
BANKING--15.9%
------------------------------------------------------------------
$10,000,000 Banc One Corp.
------------------------------------------------------------------
4.425%-4.511%, 8/12/94-9/14/94 $ 9,969,104
------------------------------------------------------------------
7,000,000 Morgan (J.P.) & Co.
------------------------------------------------------------------
4.661%-4.749%, 10/5/94-10/7/94 6,941,265
------------------------------------------------------------------
7,000,000 Rabobank Nederland
------------------------------------------------------------------
4.823%-4.491%, 9/19/94-10/11/94 6,941,729
------------------------------------------------------------------
3,000,000 Societe Generale N.A., Inc.
------------------------------------------------------------------
4.729%, 10/20/94 2,969,267
------------------------------------------------------------------
8,000,000 Wachovia Corp.
------------------------------------------------------------------
4.594%-4.635%, 8/15/94-8/17/94 7,985,471
------------------------------------------------------------------ ------------
Total 34,806,836
------------------------------------------------------------------ ------------
</TABLE>
<TABLE>
<C> <S> <C>
CHEMICALS--2.7%
------------------------------------------------------------------
6,000,000 duPont (E.I.) deNemours and Co.
------------------------------------------------------------------
4.713%, 9/28/94 5,955,533
------------------------------------------------------------------ ------------
CONSUMER PRODUCTS--4.1%
------------------------------------------------------------------
6,000,000 Hewlett-Packard Co.
------------------------------------------------------------------
4.499%-4.54%, 9/8/94-9/12/94 5,970,607
------------------------------------------------------------------
3,000,000 Procter & Gamble Co.
------------------------------------------------------------------
4.53%, 9/16/94 2,983,057
------------------------------------------------------------------ ------------
Total 8,953,664
------------------------------------------------------------------ ------------
</TABLE>
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
COMMERCIAL PAPER--CONTINUED
- ---------------------------------------------------------------------------------
FINANCE--AUTOMOTIVE--4.5%
------------------------------------------------------------------
$ 8,000,000 Associates Corp. of North America
------------------------------------------------------------------
4.543%-4.614%, 8/30/94-9/21/94 $ 7,957,529
------------------------------------------------------------------
2,000,000 Toyota Motor Credit Corp.
------------------------------------------------------------------
3.432%, 10/3/94 1,988,380
------------------------------------------------------------------ ------------
Total 9,945,909
------------------------------------------------------------------ ------------
FINANCE--COMMERCIAL--9.8%
------------------------------------------------------------------
8,000,000 A.I. Credit Corp.
------------------------------------------------------------------
4.48%-4.542%, 8/16/94-9/19/94 7,967,636
------------------------------------------------------------------
6,000,000 General Electric Capital Corp.
------------------------------------------------------------------
4.533%-4.688%, 9/20/94-10/17/94 5,952,259
------------------------------------------------------------------
7,750,000 Pitney Bowes Credit Corp.
------------------------------------------------------------------
4.394%-4.768%, 8/17/94-10/17/94 7,714,453
------------------------------------------------------------------ ------------
Total 21,634,348
------------------------------------------------------------------ ------------
FOOD AND BEVERAGE--10.0%
------------------------------------------------------------------
4,000,000 Anheuser Busch Corp.
------------------------------------------------------------------
4.608%, 10/6/94 3,967,000
------------------------------------------------------------------
6,000,000 Coca-Cola Co.
------------------------------------------------------------------
4.484%-4.498%, 9/2/94-10/4/94 5,968,800
------------------------------------------------------------------
4,000,000 Kellogg Co.
------------------------------------------------------------------
4.429%, 8/3/94 3,999,033
------------------------------------------------------------------
8,000,000 Sara Lee Corp.
------------------------------------------------------------------
4.536%-4.666%, 8/19/94-10/18/94 7,951,667
------------------------------------------------------------------ ------------
Total 21,886,500
------------------------------------------------------------------ ------------
</TABLE>
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
COMMERCIAL PAPER--CONTINUED
- ---------------------------------------------------------------------------------
OIL & GAS--5.0%
------------------------------------------------------------------
$ 7,000,000 Chevron USA, Inc.
------------------------------------------------------------------
4.511%-4.625%, 8/29/94-10/19/94 $ 6,950,146
------------------------------------------------------------------
4,000,000 Shell Oil Co.
------------------------------------------------------------------
4.62%, 9/15/94 3,977,400
------------------------------------------------------------------ ------------
Total 10,927,546
------------------------------------------------------------------ ------------
PHARMACEUTICALS AND HEALTH CARE--12.3%
------------------------------------------------------------------
3,000,000 Abbott Laboratories
------------------------------------------------------------------
4.371%, 8/9/94 2,997,147
------------------------------------------------------------------
4,000,000 Lilly (Eli) & Co.
------------------------------------------------------------------
4.379%, 8/16/94 3,992,850
------------------------------------------------------------------
7,000,000 Schering-Plough Corp.
------------------------------------------------------------------
4.391%-4.41%, 8/1/94-8/5/94 6,998,089
------------------------------------------------------------------
8,000,000 SmithKline Beecham Corp.
------------------------------------------------------------------
4.482%-4.485%, 8/18/94-9/1/94 7,978,368
------------------------------------------------------------------
5,000,000 Warner-Lambert Co.
------------------------------------------------------------------
4.443%-4.575%, 8/22/94-9/22/94 4,975,512
------------------------------------------------------------------ ------------
Total 26,941,966
------------------------------------------------------------------ ------------
TELECOMMUNICATIONS--5.9%
------------------------------------------------------------------
8,000,000 Ameritech Corp.
------------------------------------------------------------------
4.515%-4.731%, 9/19/94-10/13/94 7,938,732
------------------------------------------------------------------
5,000,000 BellSouth Telecommunications
------------------------------------------------------------------
4.355%-4.38%, 8/2/94-8/15/94 4,996,306
------------------------------------------------------------------ ------------
Total 12,935,038
------------------------------------------------------------------ ------------
TOTAL COMMERCIAL PAPER 153,987,340
------------------------------------------------------------------ ------------
</TABLE>
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
**REPURCHASE AGREEMENTS--30.1%
- ---------------------------------------------------------------------------------
$ 8,000,000 B.T. Securities Corp, 4.18%, dated 7/29/94, due 8/1/94 $ 8,000,000
------------------------------------------------------------------
8,000,000 Deutsche Bank Capital Corp, 4.18%, dated 7/29/94, due 8/1/94 8,000,000
------------------------------------------------------------------
21,075,000 Harris, Nesbitt, Thomson Securities, Inc., 4.22%, dated 7/29/94,
due 8/1/94 21,075,000
------------------------------------------------------------------
21,000,000 Kidder, Peabody & Co., Inc., 4.18%, dated 7/29/94, due 8/1/94 21,000,000
------------------------------------------------------------------
8,000,000 UBS Securities, Inc., 4.20%, dated 7/29/94, due 8/1/94 8,000,000
------------------------------------------------------------------ ------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 66,075,000
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $220,062,340+
------------------------------------------------------------------ ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** Repurchase agreements are fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($219,272,782) at July 31, 1994.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------
Investments in repurchase agreements (Note 2B) $ 66,075,000
- -----------------------------------------------------------------
Investments in other securities (Note 2A) 153,987,340
- ----------------------------------------------------------------- ------------
Total investments, at amortized cost and value $220,062,340
- --------------------------------------------------------------------------------
Cash 889
- --------------------------------------------------------------------------------
Interest receivable 23,100
- -------------------------------------------------------------------------------- ------------
Total assets 220,086,329
- --------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------
Dividends payable 714,455
- -----------------------------------------------------------------
Payable to Adviser (Note 4) 56,806
- -----------------------------------------------------------------
Accrued expenses 42,286
- ----------------------------------------------------------------- ------------
Total liabilities 813,547
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 219,272,782 shares of beneficial interest outstanding $219,272,782
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
- --------------------------------------------------------------------------------
Trust Shares ($213,242,744 / 213,242,744 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
Investment Shares ($6,030,038 / 6,030,038 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest income (Note 2C) $7,728,803
- ------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------
Investment advisory fee* $ 891,943
- ----------------------------------------------------------------------
Administrative personnel and services fees* 256,533
- ----------------------------------------------------------------------
Custodian fee* 22,575
- ----------------------------------------------------------------------
Portfolio accounting, transfer and dividend disbursing agent fees and
expenses* 64,231
- ----------------------------------------------------------------------
Legal fees 5,913
- ----------------------------------------------------------------------
Auditing fees 14,244
- ----------------------------------------------------------------------
Printing and postage 21,326
- ----------------------------------------------------------------------
Fund share registration costs 36,968
- ----------------------------------------------------------------------
Distribution services fee* 22,330
- ----------------------------------------------------------------------
Miscellaneous 28,838
- ---------------------------------------------------------------------- ----------
Total expenses 1,364,901
- ----------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------
Waiver of investment advisory fee* $224,244
- -----------------------------------------------------------
Waiver of distribution services fee* 22,330
- -----------------------------------------------------------
Waiver of custodian fee* 22,575 269,149
- ----------------------------------------------------------- -------- ----------
Net expenses 1,095,752
- ------------------------------------------------------------------------------------ ----------
Net investment income $6,633,051
- ------------------------------------------------------------------------------------ ----------
</TABLE>
* See Note 4.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1994 1993
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------
Net investment income $ 6,633,051 $ 5,481,504
- --------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ---------------------------------------------------------------
Dividends to shareholders from net investment income:
- ---------------------------------------------------------------
Trust Shares (6,444,903) (5,400,274)
- ---------------------------------------------------------------
Investment Shares (188,148) (81,230)
- --------------------------------------------------------------- ------------- -------------
Change in net assets from distributions to shareholders (6,633,051) (5,481,504)
- --------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- ---------------------------------------------------------------
Proceeds from sale of shares 868,472,344 780,791,408
- ---------------------------------------------------------------
Cost of shares redeemed (833,978,799) (790,320,524)
- --------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 34,493,545 (9,529,116)
- --------------------------------------------------------------- ------------- -------------
Change in net assets 34,493,545 (9,529,116)
- ---------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------
Beginning of period 184,779,237 194,308,353
- --------------------------------------------------------------- ------------- -------------
End of period $ 219,272,782 $ 184,779,237
- --------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Fountain Square Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company. The Trust currently consists of eight diversified portfolios and one
non-diversified portfolio. The financial statements included herein present only
those of Fountain Square Commercial Paper Fund (the "Fund"). The financial
statements of the other portfolios are presented separately. The assets of each
portfolio are segregated and a shareholders interest is limited to the portfolio
in which shares are held.
The Fund offers two classes of shares: Trust Shares and Investment Shares.
Investment Shares are identical in all respects to Trust Shares except that
Investment Shares are sold pursuant to a distribution plan (the "Plan") adopted
in accordance with the Act's Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure that the value of collateral at least equals
the principal amount of the repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreement's with banks and other
recognized financial institutions such as broker/dealers which are deemed by
the Fund's adviser to be creditworthy pursuant to guidelines established by
the Board of Trustees (the "Trustees").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income. Accordingly,
no provisions for federal tax are necessary.
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement
date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At July 31, 1994, capital paid-in aggregated $219,272,782.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------
TRUST SHARES 1994 1993
- --------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 848,152,195 763,105,620
- ---------------------------------------------------------------
Shares redeemed (814,974,172) (777,349,152)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Trust share transactions 33,178,023 (14,243,532)
- --------------------------------------------------------------- ------------ ------------
INVESTMENT SHARES
- ---------------------------------------------------------------
Shares sold 20,320,149 17,685,788
- ---------------------------------------------------------------
Shares redeemed (19,004,627) (12,971,372)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Investment share transactions 1,315,522 4,714,416
- --------------------------------------------------------------- ------------ ------------
Total net change resulting from Fund share transactions 34,493,545 (9,529,116)
- --------------------------------------------------------------- ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Fifth Third Bank, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
in the sale of the Fund's Investment Shares. The Plan provides that the Fund may
incur distribution expenses up to 0.35 of 1% of the average daily net assets of
the Investment Shares, annually, to compensate FSC. The distributor may
voluntarily choose to waive its fee. The distributor can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Fifth Third
Bank serves as transfer and dividend disbursing agent for the Fund. Fifth Third
Bank has sub-contracted the execution of the transfer and dividend disbursing
agent functions to a non-affiliated entity. The fee is based on the level of the
Fund's average net assets for the period, plus out-of-pocket expenses.
Fifth Third Bank maintains the Fund's accounting records. Fifth Third Bank has
sub-contracted the execution of the accounting services function to a
non-affiliated entity. The fee is based on the level of the Fund's average net
assets for the period, plus out-of-pocket expenses.
Fifth Third Bank is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period. All other charges, such as trades and
wires, are based on similar size and types of funds.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
FOUNTAIN SQUARE FUNDS:
We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of Fountain Square Commercial Paper Fund (one of
the portfolios comprising Fountain Square Funds), as of July 31, 1994, and the
related statement of operations for the year then ended and the statements of
changes in net assets and financial highlights for the periods presented
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fountain Square Commercial Paper Fund at July 31, 1994, the results of its
operations for the year then ended, and the changes in its net assets and
financial highlights for the periods presented therein, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
September 2, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square Commercial Paper Fund Federated Investors Tower
Trust Shares Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Investment Adviser
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Custodian, Transfer Agent, and Dividend Disbursing Agent
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- -------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- -------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young, LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------------
</TABLE>
350756201
9052205A-I (9/94)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT SHARES
PROSPECTUS
The Investment Shares of Fountain Square Commercial Paper Fund (the "Fund")
offered by this prospectus represent interests in a diversified portfolio of
securities which is one of a series of investment portfolios in Fountain Square
Funds (the "Trust"), an open-end management investment company (a mutual fund).
The Fund is a money market fund which invests in money market instruments,
consisting primarily of commercial paper, to achieve current income consistent
with stability of principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. THE FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in Investment Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for Trust
Shares and Investment Shares, dated September 30, 1994, with the Securities and
Exchange Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Combined Statement of Additional Information free of
charge, obtain other information or make inquiries about the Fund by writing to
the Fund or calling (513) 744-8888 in Cincinnati or toll-free (800) 334-0483.
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.
Prospectus dated September 30, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Bank Instruments 4
Short-Term Credit Facilities 5
Ratings 5
Credit Enhancement 5
Demand Features 5
Repurchase Agreements 5
When-Issued and Delayed Delivery
Transactions 5
Concentration of Investments 6
Investment Limitations 6
Regulatory Compliance 6
FOUNTAIN SQUARE FUNDS INFORMATION 7
- ------------------------------------------------------
Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Distribution of Investment Shares 7
Distribution Plan 7
Other Payments to Financial Institutions 8
Administration of the Fund 8
Administrative Services 8
Custodian, Transfer Agent, and
Dividend Disbursing Agent 9
Legal Counsel 9
Independent Auditors 9
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN INVESTMENT SHARES 9
- ------------------------------------------------------
Share Purchases 9
Through Fifth Third Securities 9
Minimum Investment Required 10
What Shares Cost 10
Certificates and Confirmations 10
Dividends 10
Capital Gains 11
EXCHANGES 11
- ------------------------------------------------------
REDEEMING INVESTMENT SHARES 12
- ------------------------------------------------------
Through Fifth Third Securities 12
By Telephone 12
By Mail 12
Receiving Payment 13
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Law 13
EFFECT OF BANKING LAWS 14
- ------------------------------------------------------
TAX INFORMATION 15
- ------------------------------------------------------
Federal Income Tax 15
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 16
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS
TRUST SHARES 17
- ------------------------------------------------------
FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 28
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)........................................... None
Redemption Fees (as a percentage of amount redeemed, if applicable)............. None
Exchange Fee.................................................................... None
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)................................................ 0.30%
12b-1 Fee (after waiver)(2)..................................................... 0.00%
Other Expenses.................................................................. 0.19%
Total Investment Shares Operating Expenses(3)............................... 0.49%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.40%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver by the
distributor. The distributor can terminate this voluntary waiver at any time at
its sole discretion. The maximum 12b-1 fee is 0.35%.
(3) Total Operating Expenses would have been 0.94% absent the voluntary waivers
by the investment adviser and the distributor.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE INVESTMENT SHARES WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND
"INVESTING IN INVESTMENT SHARES." Wire-transferred redemptions of less than
$10,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
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. The Fund charges no redemption fees for
Investment Shares............................................ $5 $16 $27 $62
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Investment Shares of the Fund. The Fund also offers another class of shares
called Trust Shares. Trust Shares and Investment Shares are subject to the same
expenses, however, Investment Shares are subject to a 12b-1 fee. See "Other
Classes of Shares."
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
FINANCIAL HIGHLIGHTS
INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 28.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------
1994 1993*
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
- --------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------
Net Investment income 0.03 0.03
- -------------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS
- --------------------------------------------------------------
Dividends to shareholders from net investment income (0.03) (0.03)
- -------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
- -------------------------------------------------------------- ------ ------
TOTAL RETURN** 3.02% 2.70%
- --------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------
Expenses 0.49% 0.48%(b)
- --------------------------------------------------------------
Net investment income 2.97% 2.69%(b)
- --------------------------------------------------------------
Expense waiver/reimbursement(a) 0.45% 0.47%(b)
- --------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------
Net assets, end of period (000 omitted) $6,030 $4,714
- --------------------------------------------------------------
</TABLE>
* Reflects operations for the period from August 11, 1992 (date of initial
public investment) to July 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Trust Shares and Investment Shares. This prospectus relates only to the
Investment Shares ("Shares") of the Fund.
Investment Shares are designed for investors who are not clients of the Trust
Department of The Fifth Third Bank ("Fifth Third Bank") and its affiliates as a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio limited to money market instruments, consisting primarily
of commercial paper, maturing in 13 months or less. A minimum initial investment
of $2,500 is required, except for investments by individual retirement accounts
("IRAs").
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is current income consistent with stability
of principal. The investment objective cannot be changed without approval of
shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues this investment objective by investing exclusively in a
portfolio of money market instruments maturing in 13 months or less, with at
least 65% of its assets invested in commercial paper. The average maturity of
money market instruments in the Fund's portfolio, computed on a dollar weighted
basis, will be 90 days or less.
Unless indicated otherwise, the investment policies may be changed by the
Trustees without the approval of shareholders. Shareholders will be notified
before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
nationally recognized statistical rating organizations ("NRSROs") or of
comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments issued by domestic and foreign banks and other
deposit institutions ("Bank Instruments");
- short-term credit facilities, such as demand notes;
- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities
("Government Securities"); and
- other money market instruments.
The Fund invests only in instruments denominated and payable in U.S. dollars.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments 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 based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
The Staff of the Securities and Exchange Commission has taken the position
that variable rate demand notes are not commercial paper; although the Fund
disagrees with this determination, variable rate demand notes will not be
included in the 65% of Fund assets which will be invested in commercial
paper. In the event that the Staff of the Securities and Exchange
Commission changes its position on this matter, the Fund may include
variable rate demand notes in the 65% minimum commercial paper investment
without notifying shareholders.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat
securities credit enhanced with a bank's letter of credit as Bank
Instruments.
ECDs, ETDs, Yankee CDs, and Europaper are subject to different risks than
domestic obligations of domestic banks or corporations. Examples of these
risks include international, economic and political developments, foreign
governmental restrictions that may adversely affect the payment of
principal or interest, foreign withholdings or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the
issuing entity, and the possible impact of interruptions in the flow of
international currency transactions. Different risks may also exist for
ECDs, ETDs, and Yankee CDs because the banks issuing these instruments, or
their domestic or foreign branches, are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing, and
recordkeeping, and the public availability of information. These factors
will be carefully considered by the Fund's adviser in selecting investments
for the Fund.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Fund may also enter into, or acquire participations
in, short-term revolving credit facilities with corporate borrowers. Demand
notes and other short-term credit arrangements usually provide for floating
or variable rates of interest.
RATINGS. An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 or A-1+ by
Standard & Poor's Ratings Group ("S&P"), Prime-1 by Moody's Investors Service,
Inc. ("Moody's"), or F-1 (+ or -) by Fitch Investors Service, Inc. ("Fitch") are
all considered rated in the highest short-term rating category. The Fund will
follow applicable regulations in determining whether a security rated by more
than one NRSRO can be treated as being in the highest short-term rating
category; currently such securities must be rated by two NRSROs in their highest
rating category. See "Regulatory Compliance."
CREDIT ENHANCEMENT. The Fund may acquire securities that have been credit
enhanced by a guaranty, 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. Generally, the Fund
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances,
applicable regulations may require the Fund to treat the securities as having
been issued by both 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.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with 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.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price within one year from
the date of acquisition.
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 adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
CONCENTRATION OF INVESTMENTS. The Fund will invest at least 65% of its total
assets in commercial paper and in excess of 25% of the Fund's assets will be
comprised of commercial paper issued by finance companies unless the Fund is in
a temporary defensive position as a result of economic conditions. Concentration
of the Fund's portfolio in such obligations may entail additional risks which
are not encountered by funds with more diversified portfolios.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money except, under certain circumstances, the Fund may borrow up
to one-third of the value of its total assets;
- invest more than 10% of its net assets in securities subject to
restrictions on resale; or
- with respect to 75% of the value of its total assets, invest more than 5%
of its total assets in securities of one issuer (except repurchase
agreements collateralized by U.S. government securities and U.S.
government obligations). The remaining 25% of its total assets may be
invested in a single issuer if the investment adviser believes such a
strategy to be prudent.
The above investment limitations cannot be changed without shareholder approval.
As a matter of investment practice, which can be changed by the Trustees without
shareholder approval, the Fund will not invest more than 10% of its net assets
in securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Fund will comply with the various requirements of Rule 2a-7, which regulates
money market mutual funds. For example, with limited exceptions, Rule 2a-7
prohibits the investment of more than 5% of the Fund's total assets in the
securities of any one issuer, although the Fund's investment limitation only
requires such 5% diversification with respect to 75% of its assets. The Fund
will invest more than 5% of its assets in any one issuer only under
circumstances permitted by Rule 2a-7. The Fund will also determine the effective
maturity of its investments, as well as its ability to consider a security as
having received the requisite short-term ratings by NRSROs, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
FOUNTAIN SQUARE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Fifth Third Bank, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to .40 of 1% of the Fund's average daily net assets. The adviser has
undertaken to waive up to the amount of the advisory fee, for operating
expenses in excess of limitations established by certain states. The
adviser may voluntarily choose to waive a portion of its fee or reimburse
the Fund for certain other expenses of the Fund, but reserves the right to
terminate such waiver or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank, is a
wholly-owned subsidiary of Fifth Third Bancorp, a bank holding company
organized under the laws of Ohio. Fifth Third Bank is a commercial bank
offering a wide range of banking services to its customers. As of July 31,
1994, Fifth Third Bank and its affiliates managed assets in excess of $6.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $41.4 billion. Fifth Third Bank has managed
mutual funds since 1988.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages 14 such pools with
total assets of over $1.1 billion.
As part of its regular banking operations, Fifth Third Bank may make loans
to public companies. Thus, it may be possible, from time to time, for the
Fund to hold or acquire the securities of issuers which are also lending
clients of Fifth Third Bank. The lending relationship will not be a factor
in the selection of securities.
DISTRIBUTION OF INVESTMENT SHARES
Federated Securities Corp. serves as the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is
the distributor for a number of investment companies. Federated Securities Corp.
is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with Rule 12b-1 (the "Plan"), under the Investment Company Act of
1940, the Fund will pay to Federated Securities Corp. an amount computed at an
annual rate of up to 0.35% of the average daily net asset value of the Shares to
finance any activity which is principally intended to result in the sale of
Shares subject to the Plan.
Federated Securities Corp. may from time to time and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the Shares exceed such lower expense
limitation as the distributor may, by notice to the Trust, voluntarily declare
to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales and/or administrative services as agents for their clients or customers
who beneficially own Shares. Administrative services may include, but are not
limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel including clerical, supervisory, and
computer as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries regarding the Fund; assisting clients in changing dividend options;
account designations, and addresses; and providing such other services as the
Fund reasonably requests.
Financial institutions will receive fees from the distributor based upon Shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the Adviser, or
their affiliates may also offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include initiating customer accounts, providing
sales literature, or participating in sales, educational and training seminars
(including those held at recreational facilities). Such assistance will be
predicated upon the amount of shares the financial institution sells or may sell
and/or upon the type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be reimbursed by
the Adviser or its affiliates.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become 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.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund,
such as legal and accounting services. Federated Administrative Services
provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- --------------------- --------------------------
<C> <S>
.150% of the first $250 million
.125% of the next $250 million
.100% of the next $250 million
.075% in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee at any time.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Fund, transfer
agent for the shares of the Fund, and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P.,
Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
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The Fund attempts to stabilize the net asset value of Shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by adding the interest of the Shares in the value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The Fund cannot
guarantee that its net asset value will always remain at $1.00 per Share.
INVESTING IN INVESTMENT SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Bank of Cleveland are open for business. Customers of Fifth Third
Securities may purchase Investment Shares through Fifth Third Securities. All
other investors should purchase Investment Shares directly from the distributor.
In connection with the sale of Investment Shares, the distributor may from time
to time offer certain items of nominal value to a shareholder or investor. The
Fund reserves the right to reject any purchase request. Purchases through Fifth
Third Bank may not be available to investors in all states.
THROUGH FIFTH THIRD SECURITIES. A customer of Fifth Third Securities may
telephone Fifth Third Securities at (513) 744-8888 in Cincinnati or toll-free
(800) 334-0483 to place an order to purchase
Investment Shares. All other investors must place their purchase orders through
the distributor. Texas residents must purchase Shares through Federated
Securities Corp.
Payment may be made to the Fund either by check or federal funds. Orders are
considered received after payment by check is converted into federal funds and
received by Fifth Third Bank. This is normally the next business day after Fifth
Third Bank receives the check. When payment is made with federal funds, the
order is considered received when federal funds are received by Fifth Third
Bank. Federal funds should be wired to Fifth Third Bank as follows: ABA No. 042
000 314 Fifth Third Cincinnati. Attention: Fountain Square Funds Department; For
Credit to: (shareholder name and account number); For Further Credit to:
Fountain Square Commercial Paper Fund--Investment Shares. Investors not
purchasing through Fifth Third Bank should consult their financial institutions
for wiring instructions.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $2,500, unless the
investment is by an IRA, in which case the minimum initial investment is $1,000.
Subsequent investments must be in amounts of at least $100. For customers of
Fifth Third Bank, an institutional investor's minimum investment will be
calculated by combining all accounts it maintains with Fifth Third Bank and
investments in the Fund.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. The Fund does not impose a sales charge.
The net asset value is determined at 4:00 p.m. (Cincinnati time), Monday through
Friday, except on: (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; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Fifth Third Bank maintains a share account for
each shareholder of record. Share certificates are not issued.
Detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends paid during the month are sent to each
shareholder monthly and will serve as confirmations of all transactions in the
shareholder's account for the statement period.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested on
payment dates in additional Shares unless cash payments are requested by writing
to the Fund or Fifth Third Bank, as appropriate. Share purchase orders received
by Fifth Third Bank before 12:00 noon (Cincinnati time) earn dividends that day.
CAPITAL GAINS
If the Fund experiences capital gains, it could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, the Fund realizes net long-term capital gains, it will
distribute them at least once every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
Shareholders who are clients of Fifth Third Securities may exchange shares of
one Fund for shares of any of the other Funds in the Trust by calling Fifth
Third Securities at (513) 744-8888 in Cincinnati or toll-free (800) 334-0483 or
sending a written request to Fifth Third Securities. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by the
Funds, they may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Shares of Funds with a sales charge may be exchanged at net asset value for
shares of other Funds with an equal sales charge or no sales charge. Shares of
Funds with no sales charge acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for shares of Funds with a sales
charge at net asset value plus the applicable sales charge. When exchanging into
and out of shares of the Funds in the Trust, shareholders who have paid a sales
load once upon purchasing shares of any Fund will not have to pay a sales load
again on an exchange.
Orders for exchanges of shares of money market funds must be received by 12:00
noon (Cincinnati time). Orders for exchanges of the International Equity Fund,
Government Fund, Bond Fund, Ohio Tax Free Fund, Growth Fund, Mid Cap Fund, and
Balanced Fund must be received by 4:00 p.m. (Cincinnati time). Orders for
exchanges are taken on any day that the Funds are open for business. Orders
which are received prior to the cut-off times listed above will be executed as
of the close of business that day. Orders received after the respective cut-off
times will be executed at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time. Shareholders would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING INVESTMENT SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after Fifth
Third Bank receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemption must be received in proper form and can be made through Fifth Third
Bank or Fifth Third Securities by their respective customers or directly through
the Fund by all other investors.
THROUGH FIFTH THIRD SECURITIES
BY TELEPHONE. A shareholder who is a customer of Fifth Third Securities may
redeem shares by telephoning Fifth Third Securities at (513) 744-8888 in
Cincinnati or toll-free (800) 334-0483. All other investors may redeem through
the distributor by calling 1-800-358-2801.
For calls received by Fifth Third Securities before 12:00 noon (Cincinnati
time), proceeds will normally be dispersed the same day to the shareholder's
account at Fifth Third Bank or Fifth Third Securities, or a check will be sent
to the address of record. Those Shares will not be entitled to the dividend
declared that day. For calls received after 12:00 noon (Cincinnati time),
proceeds will normally be dispersed the following business day. Those Shares
will be entitled to the dividend declared on the day the redemption request was
received. In no event will proceeds be dispersed more than seven days after a
proper request for redemption has been received. If at any time, the Fund shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Fifth Third Securities or the distributor.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. A shareholder who is a customer of Fifth Third Securities may redeem
shares by sending a written request to Fifth Third Securities.
The written request should include the shareholder's name, the Fund name and
class of shares, the account number, and the share or dollar amount requested.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call Fifth Third Bank or Fifth Third Securities for
assistance in redeeming by mail.
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 Fund, 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 BIF,
which is administered by the Federal Deposit Insurance Corporation
("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings and loan association or a savings bank whose deposits are
insured by the 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 its 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 its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. 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 redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $2,500.
Before redeeming Shares to close an account, the Fund will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each Fund in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust or the Fund's operation and for the election of
Trustees under certain circumstances. As of July 31, 1994, Fifth Third Bank may
for certain purposes be deemed to control the Funds because it is owner of
record of certain shares of the Funds.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of the Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or to compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of the Fund for any act or obligation of the
Trust on behalf of the Fund. Therefore, financial loss resulting from liability
as a shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and to pay judgments against them from the
assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956 or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of their customer. The Fund's investment adviser, Fifth Third
Bank, is subject to such banking laws and regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for the Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or the Fund. In such event, changes in the operation of
the Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment and redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisers and other means of continuing available investment services.
It is not expected that Fund shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Fifth Third Bank
is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its yield and effective yield for
Investment Shares.
The yield of Investment Shares represents the annualized rate of income earned
on an investment in Investment Shares over a seven-day period. It is the
annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in Investment
Shares is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Investment Shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
Yield and effective yield will be calculated separately for Trust Shares and
Investment Shares. Because Investment Shares are subject to 12b-1 fees, the
yield and effective yield of Trust Shares for the same period will exceed that
of Investment Shares.
From time to time, the Fund may advertise its performance for Investment Shares
using certain financial publications and/or compare its performance for
Investment Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Trust Shares of the Fund are sold to Trust clients of Fifth Third Bank and are
subject to a minimum initial investment of $10,000. Trust Shares are sold at net
asset value and are distributed without a Rule 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares than from
another class of shares.
The amount of dividends payable to Trust Shares will exceed those payable to
Investment Shares by the difference between class expenses and distribution
expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
FINANCIAL HIGHLIGHTS
TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 28.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------------
1994 1993 1992 1991 1990 1989*
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------
Net investment income 0.03 0.03 0.04 0.07 0.08 0.01
- --------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- ---------------------------------------
Dividends to shareholders from net
investment income (0.03) (0.03) (0.04) (0.07) (0.08) (0.01)
- --------------------------------------- ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------- ------ ------ ------ ------ ------ ------
TOTAL RETURN** 3.02% 2.78% 4.27% 6.89% 8.22% 1.19%
- ---------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------
Expenses 0.49% 0.48% 0.46% 0.50% 0.53% 0.45%(b)
- ---------------------------------------
Net investment income 2.97% 2.75% 4.19% 6.61% 7.86% 8.95%(b)
- ---------------------------------------
Expense waiver/reimbursement(a) 0.10% 0.12% 0.14% 0.14% 0.16% 0.35%(b)
- ---------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------
Net assets, end of period (000
omitted) $213,243 $180,065 $194,308 $213,889 $174,727 $62,225
- ---------------------------------------
</TABLE>
* Reflects operations for the period from June 14, 1989 (date of initial public
offering) to July 31, 1989.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
*COMMERCIAL PAPER--70.2%
- ---------------------------------------------------------------------------------
BANKING--15.9%
------------------------------------------------------------------
$10,000,000 Banc One Corp.
------------------------------------------------------------------
4.425%-4.511%, 8/12/94-9/14/94 $ 9,969,104
------------------------------------------------------------------
7,000,000 Morgan (J.P.) & Co.
------------------------------------------------------------------
4.661%-4.749%, 10/5/94-10/7/94 6,941,265
------------------------------------------------------------------
7,000,000 Rabobank Nederland
------------------------------------------------------------------
4.823%-4.491%, 9/19/94-10/11/94 6,941,729
------------------------------------------------------------------
3,000,000 Societe Generale N.A., Inc.
------------------------------------------------------------------
4.729%, 10/20/94 2,969,267
------------------------------------------------------------------
8,000,000 Wachovia Corp.
------------------------------------------------------------------
4.594%-4.635%, 8/15/94-8/17/94 7,985,471
------------------------------------------------------------------ ------------
Total 34,806,836
------------------------------------------------------------------ ------------
</TABLE>
<TABLE>
<C> <S> <C>
CHEMICALS--2.7%
------------------------------------------------------------------
6,000,000 duPont (E.I.) deNemours and Co.
------------------------------------------------------------------
4.713%, 9/28/94 5,955,533
------------------------------------------------------------------ ------------
CONSUMER PRODUCTS--4.1%
------------------------------------------------------------------
6,000,000 Hewlett-Packard Co.
------------------------------------------------------------------
4.499%-4.54%, 9/8/94-9/12/94 5,970,607
------------------------------------------------------------------
3,000,000 Procter & Gamble Co.
------------------------------------------------------------------
4.53%, 9/16/94 2,983,057
------------------------------------------------------------------ ------------
Total 8,953,664
------------------------------------------------------------------ ------------
</TABLE>
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
COMMERCIAL PAPER--CONTINUED
- ---------------------------------------------------------------------------------
FINANCE--AUTOMOTIVE--4.5%
------------------------------------------------------------------
$ 8,000,000 Associates Corp. of North America
------------------------------------------------------------------
4.543%-4.614%, 8/30/94-9/21/94 $ 7,957,529
------------------------------------------------------------------
2,000,000 Toyota Motor Credit Corp.
------------------------------------------------------------------
3.432%, 10/3/94 1,988,380
------------------------------------------------------------------ ------------
Total 9,945,909
------------------------------------------------------------------ ------------
FINANCE--COMMERCIAL--9.8%
------------------------------------------------------------------
8,000,000 A.I. Credit Corp.
------------------------------------------------------------------
4.48%-4.542%, 8/16/94-9/19/94 7,967,636
------------------------------------------------------------------
6,000,000 General Electric Capital Corp.
------------------------------------------------------------------
4.533%-4.688%, 9/20/94-10/17/94 5,952,259
------------------------------------------------------------------
7,750,000 Pitney Bowes Credit Corp.
------------------------------------------------------------------
4.394%-4.768%, 8/17/94-10/17/94 7,714,453
------------------------------------------------------------------ ------------
Total 21,634,348
------------------------------------------------------------------ ------------
FOOD AND BEVERAGE--10.0%
------------------------------------------------------------------
4,000,000 Anheuser Busch Corp.
------------------------------------------------------------------
4.608%, 10/6/94 3,967,000
------------------------------------------------------------------
6,000,000 Coca-Cola Co.
------------------------------------------------------------------
4.484%-4.498%, 9/2/94-10/4/94 5,968,800
------------------------------------------------------------------
4,000,000 Kellogg Co.
------------------------------------------------------------------
4.429%, 8/3/94 3,999,033
------------------------------------------------------------------
8,000,000 Sara Lee Corp.
------------------------------------------------------------------
4.536%-4.666%, 8/19/94-10/18/94 7,951,667
------------------------------------------------------------------ ------------
Total 21,886,500
------------------------------------------------------------------ ------------
</TABLE>
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
COMMERCIAL PAPER--CONTINUED
- ---------------------------------------------------------------------------------
OIL & GAS--5.0%
------------------------------------------------------------------
$ 7,000,000 Chevron USA, Inc.
------------------------------------------------------------------
4.511%-4.625%, 8/29/94-10/19/94 $ 6,950,146
------------------------------------------------------------------
4,000,000 Shell Oil Co.
------------------------------------------------------------------
4.62%, 9/15/94 3,977,400
------------------------------------------------------------------ ------------
Total 10,927,546
------------------------------------------------------------------ ------------
PHARMACEUTICALS AND HEALTH CARE--12.3%
------------------------------------------------------------------
3,000,000 Abbott Laboratories
------------------------------------------------------------------
4.371%, 8/9/94 2,997,147
------------------------------------------------------------------
4,000,000 Lilly (Eli) & Co.
------------------------------------------------------------------
4.379%, 8/16/94 3,992,850
------------------------------------------------------------------
7,000,000 Schering-Plough Corp.
------------------------------------------------------------------
4.391%-4.41%, 8/1/94-8/5/94 6,998,089
------------------------------------------------------------------
8,000,000 SmithKline Beecham Corp.
------------------------------------------------------------------
4.482%-4.485%, 8/18/94-9/1/94 7,978,368
------------------------------------------------------------------
5,000,000 Warner-Lambert Co.
------------------------------------------------------------------
4.443%-4.575%, 8/22/94-9/22/94 4,975,512
------------------------------------------------------------------ ------------
Total 26,941,966
------------------------------------------------------------------ ------------
TELECOMMUNICATIONS--5.9%
------------------------------------------------------------------
8,000,000 Ameritech Corp.
------------------------------------------------------------------
4.515%-4.731%, 9/19/94-10/13/94 7,938,732
------------------------------------------------------------------
5,000,000 BellSouth Telecommunications
------------------------------------------------------------------
4.355%-4.38%, 8/2/94-8/15/94 4,996,306
------------------------------------------------------------------ ------------
Total 12,935,038
------------------------------------------------------------------ ------------
TOTAL COMMERCIAL PAPER 153,987,340
------------------------------------------------------------------ ------------
</TABLE>
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
**REPURCHASE AGREEMENTS--30.1%
- ---------------------------------------------------------------------------------
$ 8,000,000 B.T. Securities Corp, 4.18%, dated 7/29/94, due 8/1/94 $ 8,000,000
------------------------------------------------------------------
8,000,000 Deutsche Bank Capital Corp, 4.18%, dated 7/29/94, due 8/1/94 8,000,000
------------------------------------------------------------------
21,075,000 Harris, Nesbitt, Thomson Securities, Inc., 4.22%, dated 7/29/94,
due 8/1/94 21,075,000
------------------------------------------------------------------
21,000,000 Kidder, Peabody & Co., Inc., 4.18%, dated 7/29/94, due 8/1/94 21,000,000
------------------------------------------------------------------
8,000,000 UBS Securities, Inc., 4.20%, dated 7/29/94, due 8/1/94 8,000,000
------------------------------------------------------------------ ------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 66,075,000
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $220,062,340+
------------------------------------------------------------------ ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** Repurchase agreements are fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($219,272,782) at July 31, 1994.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------
Investments in repurchase agreements (Note 2B) $ 66,075,000
- -----------------------------------------------------------------
Investments in other securities (Note 2A) 153,987,340
- ----------------------------------------------------------------- ------------
Total investments, at amortized cost and value $220,062,340
- --------------------------------------------------------------------------------
Cash 889
- --------------------------------------------------------------------------------
Interest receivable 23,100
- -------------------------------------------------------------------------------- ------------
Total assets 220,086,329
- --------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------
Dividends payable 714,455
- -----------------------------------------------------------------
Payable to Adviser (Note 4) 56,806
- -----------------------------------------------------------------
Accrued expenses 42,286
- ----------------------------------------------------------------- ------------
Total liabilities 813,547
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 219,272,782 shares of beneficial interest outstanding $219,272,782
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
- --------------------------------------------------------------------------------
Trust Shares ($213,242,744 / 213,242,744 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
Investment Shares ($6,030,038 / 6,030,038 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest income (Note 2C) $7,728,803
- ------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------
Investment advisory fee* $ 891,943
- ----------------------------------------------------------------------
Administrative personnel and services fees* 256,533
- ----------------------------------------------------------------------
Custodian fee* 22,575
- ----------------------------------------------------------------------
Portfolio accounting, transfer and dividend disbursing agent fees and
expenses* 64,231
- ----------------------------------------------------------------------
Legal fees 5,913
- ----------------------------------------------------------------------
Auditing fees 14,244
- ----------------------------------------------------------------------
Printing and postage 21,326
- ----------------------------------------------------------------------
Fund share registration costs 36,968
- ----------------------------------------------------------------------
Distribution services fee* 22,330
- ----------------------------------------------------------------------
Miscellaneous 28,838
- ---------------------------------------------------------------------- ----------
Total expenses 1,364,901
- ----------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------
Waiver of investment advisory fee* $224,244
- -----------------------------------------------------------
Waiver of distribution services fee* 22,330
- -----------------------------------------------------------
Waiver of custodian fee* 22,575 269,149
- ----------------------------------------------------------- -------- ----------
Net expenses 1,095,752
- ------------------------------------------------------------------------------------ ----------
Net investment income $6,633,051
- ------------------------------------------------------------------------------------ ----------
</TABLE>
* See Note 4.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1994 1993
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 6,633,051 $ 5,481,504
- -------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- --------------------------------------------------------------
Dividends to shareholders from net investment income:
- --------------------------------------------------------------
Trust Shares (6,444,903) (5,400,274)
- --------------------------------------------------------------
Investment Shares (188,148) (81,230)
- -------------------------------------------------------------- ------------- -------------
Change in net assets from distributions to shareholders (6,633,051) (5,481,504)
- -------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- --------------------------------------------------------------
Proceeds from sale of shares 868,472,344 780,791,408
- --------------------------------------------------------------
Cost of shares redeemed (833,978,799) (790,320,524)
- -------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 34,493,545 (9,529,116)
- -------------------------------------------------------------- ------------- -------------
Change in net assets 34,493,545 (9,529,116)
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 184,779,237 194,308,353
- -------------------------------------------------------------- ------------- -------------
End of period $ 219,272,782 $ 184,779,237
- -------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Fountain Square Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company. The Trust consists of eight diversified portfolios and one
non-diversified portfolio. The financial statements included herein present only
those of Fountain Square Commercial Paper Fund (the "Fund"). The financial
statements of the other portfolios are presented separately. The assets of each
portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held.
The Fund offers two classes of shares: Trust Shares and Investment Shares.
Investment Shares are identical in all respects to Trust Shares except that
Investment Shares are sold pursuant to a distribution plan (the "Plan") adopted
in accordance with the Act's Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure that the value of collateral at least equals
the principal amount of the repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"),
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income. Accordingly,
no provisions for federal tax are necessary.
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At July 31, 1994, capital paid-in aggregated $219,272,782.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------
TRUST SHARES 1994 1993
- ---------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 848,152,195 763,105,620
- ----------------------------------------------------------------
Shares redeemed (814,974,172) (777,349,152)
- ---------------------------------------------------------------- ------------ ------------
Net change resulting from Trust share transactions 33,178,023 (14,243,532)
- ---------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SHARES
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold 20,320,149 17,685,788
- ----------------------------------------------------------------
Shares redeemed (19,004,627) (12,971,372)
- ---------------------------------------------------------------- ------------ ------------
Net change resulting from Investment share transactions 1,315,522 4,714,416
- ---------------------------------------------------------------- ------------ ------------
Total net change resulting from Fund share
transactions 34,493,545 (9,529,116)
- ---------------------------------------------------------------- ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Fifth Third Bank, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
result in the sale of the Fund's Investment Shares. The Plan provides that the
Fund may incur distribution expenses up to 0.35 of 1% of the average daily net
assets of the Investment Shares, annually, to compensate FSC. The distributor
may voluntarily choose to waive its fee. The distributor can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Fifth Third
Bank serves as transfer and dividend disbursing agent for the Fund. Fifth Third
Bank has sub-contracted the execution of the transfer and dividend disbursing
agent functions to a non-affiliated entity. The fee is based on the level of the
Fund's average net assets for the period, plus out-of-pocket expenses.
Fifth Third Bank maintains the Fund's accounting records. Fifth Third Bank has
sub-contracted the execution of the accounting services function to a
non-affiliated entity. The fee is based on the level of the Fund's average net
assets for the period, plus out-of-pocket expenses.
Fifth Third Bank is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period. All other charges, such as trades and
wires, are based on similar size and types of funds.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
FOUNTAIN SQUARE FUNDS:
We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of Fountain Square Commercial Paper Fund (one of
the portfolios comprising Fountain Square Funds), as of July 31, 1994, and the
related statement of operations for the year then ended and the statements of
changes in net assets and financial highlights for the periods presented
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fountain Square Commercial Paper Fund at July 31, 1994, the results of its
operations for the year then ended, and the changes in its net assets and
financial highlights for the periods presented therein, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
September 2, 1994
(THIS PAGE INTENTIONALLY LEFT BLANK)
(THIS PAGE INTENTIONALLY LEFT BLANK)
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square Commercial Paper Fund Federated Investors Tower
Investment Shares Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Investment Adviser
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Custodian, Transfer Agent, and Dividend Disbursing Agent
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- -------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- -------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young, LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------------
</TABLE>
350756300
9052205A-R (9/94)
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
the Fund dated September 30, 1994. This Statement is not a prospectus itself. To
receive a copy of the prospectus, write to the Fountain Square U.S. Treasury
Obligations Fund or call (513) 579-6039 in Cincinnati, Ohio or toll-free (800)
654-5372.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated September 30, 1994
FIFTH THIRD BANK
Investment Adviser
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
When-Issued and Delayed
Delivery Transactions 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
Investment Limitations 1
FOUNTAIN SQUARE FUNDS MANAGEMENT 2
- ---------------------------------------------------------------
Officers and Trustees 2
Fund Ownership 3
Trustee Liability 3
INVESTMENT ADVISORY SERVICES 3
- ---------------------------------------------------------------
Adviser to the Fund 3
Advisory Fees 3
BROKERAGE TRANSACTIONS 4
- ---------------------------------------------------------------
ADMINISTRATIVE ARRANGEMENTS 4
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 4
- ---------------------------------------------------------------
PURCHASING SHARES 4
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Conversion to Federal Funds 5
DETERMINING NET ASSET VALUE 5
- ---------------------------------------------------------------
Use of the Amortized Cost Method 5
REDEEMING SHARES 5
- ---------------------------------------------------------------
Redemption in Kind 6
TAX STATUS 6
- ---------------------------------------------------------------
The Fund's Tax Status 6
Shareholders' Tax Status 6
YIELD 6
- ---------------------------------------------------------------
EFFECTIVE YIELD 6
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 7
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GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
Fountain Square U.S. Treasury Obligations Fund (the "Fund") is a portfolio in
the Fountain Square Funds (the "Trust"). The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated September 15,
1988.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide stability of principal and current
income consistent with stability of principal.
The investment objective and policies cannot be changed without approval of
shareholders.
TYPES OF INVESTMENTS
The Fund invests in U.S. Treasury obligations maturing in one year or less. U.S.
Treasury obligations as used herein refers to evidences of indebtedness issued
by the United States, which are fully guaranteed as to principal and interest by
the United States maturing in one year or less from the date of acquisition. The
Fund may also retain Fund assets in cash.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. 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. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the 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. The 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.
REPURCHASE AGREEMENTS
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 Fund believes 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 deemed by the Fund's adviser to be
creditworthy pursuant to guidelines established by the Board of Trustees (the
"Trustees").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These securities are
marked to market daily and maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, the Fund
will restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse repurchase agreements,
but only to the extent necessary to assure completion of the reverse repurchase
agreements.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of shareholders.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any portfolio instruments short or purchase any
portfolio instruments on margin but may obtain such short-term credits as
may be necessary for clearance of purchases and sales of portfolio
instruments.
- --------------------------------------------------------------------------------
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements as a temporary
measure for extraordinary or emergency purposes and then only in amounts
not in excess of 5% of the value of its total assets or in an amount up
to one-third of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without immediately
selling portfolio instruments. Any direct borrowings need not be
collateralized.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage purposes.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets at the time of the borrowing.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or
hold U.S. Treasury obligations, including repurchase agreements,
permitted by its investment objective and policies.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund can acquire up to 3 percent of the total outstanding securities
of other investment companies with similar investment objectives and
policies. The Fund will limit its investments in the securities of other
investment companies to those of money market funds having investment
objectives and policies similar to its own. The Fund will purchase
securities of other investment companies only in open-market transactions
involving no more than customary broker's commissions. However, there is
no limitation applicable to securities of any investment company acquired
in a merger, consolidation, or acquisition of assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. In connection with investing in shares of other investment
companies, it should be noted that investment companies incur certain expenses
such as management fees, and, therefore, any investment by the Fund in such
shares would be subject to customary expenses.
FOUNTAIN SQUARE FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, principal
occupations, and present positions. Except as listed below, none of the Trustees
or Officers are affiliated with The Fifth Third Bank ("Fifth Third Bank"), Fifth
Third Bancorp, Federated Investors, Federated Securities Corp., or Federated
Administrative Services.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue*+ Chairman of the President and Trustee, Federated Investors, Federated Advisers, Federated
Federated Investors Board of Trustees, Management, and Federated Research; President and Director, Federated
Tower President and Research Corp.; President, Passport Research, Ltd.; Trustee, Federated
Pittsburgh, PA Treasurer Administrative Services, Federated Services Company, and Federated
Shareholder Services; President or Vice President of certain investment
companies organized or advised by Federated Investors and its affiliates
(Federated Funds); Director, Trustee, or Managing General Partner of some of
the Federated Funds.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Edward Burke Carey Member of President of Carey Leggett Realty Advisors.
394 East Town St. Board of
Columbus, Ohio Trustees
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Lee A. Carter+ Member of Board of Formerly, President, Local Marketing Corporation (retired December 31,
Cincinnati Commerce Trustees 1994).
Center
Suite 2020
Cincinnati, Ohio
- --------------------------------------------------------------------------------------------------------------------------------
Albert E. Harris Member of Board of Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993)
5905 Graves Road Trustees formerly, Senior Vice President, The Procter & Gamble Company (retired
Cincinnati, Ohio October, 1987).
- --------------------------------------------------------------------------------------------------------------------------------
Margaret P. Tessaro Vice President Vice President of Federated Administrative Services.
Federated Investors and Assistant
Tower Treasurer
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Jay S. Neuman Secretary Corporate Counsel, Federated Investors; prior to January, 1991, Associate
Federated Investors Counsel, The Boston Company Advisors, Inc.
Tower
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Fund or the Trust
as defined in the Investment Company Act of 1940, as amended.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of September 16, 1994, Fifth Third Bank as nominee for numerous trust and
agency accounts, was the owner of record of 336,228,580 shares (100%) of the
Fund.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Fifth Third Bank. It provides investment
advisory services through its Trust and Investment Division. Fifth Third Bank is
a wholly-owned subsidiary of Fifth Third Bancorp.
The adviser shall not be liable to the Trust, the Fund or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the prospectus.
For the fiscal years ended July 31, 1994, 1993, and 1992, the Fund's adviser
earned $1,341,031, $1,238,063, and $986,729, respectively, of which $473,109,
$464,273, and $370,023, were voluntarily waived, respectively, because of
undertakings to limit the Fund's expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of
- --------------------------------------------------------------------------------
the next $70 million of average net assets, and 1 1/2% per year of the
remaining average net assets, the adviser has agreed to reimburse the
Fund for its expenses over the limitation up to the amount of the
advisory fee in any single fiscal year.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced, in any
single fiscal year, by the amount of the excess, subject to an annual
adjustment.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers and dealers may be used by the adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the adviser or its affiliates might
otherwise have paid, it would tend to reduce expenses.
For the fiscal years ended July 31, 1994, 1993, and 1992, the Fund did not pay
any commissions on brokerage transactions.
ADMINISTRATIVE ARRANGEMENTS
- --------------------------------------------------------------------------------
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the fiscal years ended July 31, 1994, 1993, and 1992, the Fund
incurred administrative service fees of $385,743, $386,565, and $331,489,
respectively.
Under the custodian agreement, Fifth Third Bank holds the Fund's portfolio
securities and keeps all necessary records and documents relating to its duties.
Fifth Third Bank's fees for custody services are based upon the market value of
Fund securities held in custody plus certain securities transaction charges.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Bank of Cleveland are open for
business. The procedure for purchasing shares of the Fund is explained in the
prospectus under "Investing in the Fund."
- --------------------------------------------------------------------------------
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Fifth Third Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
.50 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and if
rated, have received the requisite rating from one or more nationally
recognized statistical rating organizations. If the instruments are not
rated, the Trustees must determine that they are of comparable quality.
Shares of investment companies purchased by the Fund will meet these same
criteria and will have investment policies consistent with the Rule. The
Rule also requires the Fund to maintain a dollar weighted average
portfolio maturity (not more than 90 days) appropriate to the objective
of maintaining a stable net asset value of $1.00 per share. In addition,
no instruments with a remaining maturity of more than 397 days can be
purchased by the Fund.
Should the disposition of a portfolio security result in a dollar
weighted average portfolio maturity of more than 90 days, the Fund will
invest its available cash to reduce the average maturity to 90 days or
less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to
take advantage of short-term market variations. This policy may, from
time to time, result in high portfolio turnover. Under the amortized cost
method of valuation, neither the amount of daily income nor the net asset
value is affected by any unrealized appreciation or depreciation of the
portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of the Fund computed by dividing the annualized daily income on
the Fund's portfolio by the net asset value computed as above may tend to
be higher than a similar computation made by using a method of valuation
based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on shares
of the Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market
prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at the next computed net asset value after Fifth Third Bank
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although Fifth Third Bank does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $10,000.
- --------------------------------------------------------------------------------
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of a Fund's net
asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends and any short-term capital gains are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for the seven-day period ended July 31, 1994 was 3.84%. The
Fund calculates its yield daily, based upon the seven days ending on the day of
the calculation, called the "base period." This yield is computed by:
- - determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and all dividends
declared on the original and any purchased shares;
- - dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- - multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for the seven-day period ended July 31, 1994 was
3.91%. The Fund's effective yield is computed by compounding the unannualized
base period return by:
- - adding 1 to the base period return;
- - raising the sum to the 365/7th power; and
- - subtracting 1 from the result.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio invested;
- - changes in interest rates on money market instruments;
- - changes in Fund expenses; and
- - the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the 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 the Fund uses in advertising may include:
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "short-term
U.S. government funds" category in advertising and sales literature.
- - SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities issued by the U.S. Treasury,
maturing in 30 days.
- - DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of money
market funds on a weekly basis and through its Money Market Insight
publication reports monthly and 12-month-to-date investment results for the
same money funds.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
8120101B (9/94)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT SHARES
TRUST SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
The Trust Shares and Investment Shares of Fountain Square Commercial Paper Fund
(the "Fund") represent interests in a diversified portfolio of securities. This
Combined Statement of Additional Information should be read with the respective
prospectuses for Trust Shares and Investment Shares dated September 30, 1994.
This Statement is not a prospectus itself. To receive a copy of the Trust Shares
prospectus, customers of Fifth Third Bank may write to the Fountain Square
Commercial Paper Fund or call (513) 579-6039 in Cincinnati, Ohio or toll-free
(800) 654-5372. To receive a copy of the Investment Shares prospectus, customers
of Fifth Third Securities may write to the Fountain Square Commercial Paper Fund
or call (513) 744-8888 in Cincinnati, Ohio or toll-free (800) 334-0483.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated September 30, 1994
FIFTH THIRD BANK
Investment Adviser
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Investment Limitations 2
FOUNTAIN SQUARE FUNDS MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Trustees 4
Fund Ownership 4
Trustee Liability 4
INVESTMENT ADVISORY SERVICES 5
- ---------------------------------------------------------------
Adviser to the Fund 5
Advisory Fees 5
BROKERAGE TRANSACTIONS 5
- ---------------------------------------------------------------
ADMINISTRATIVE ARRANGEMENTS 6
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 6
- ---------------------------------------------------------------
PURCHASING SHARES 6
- ---------------------------------------------------------------
Distribution Plan (Investment Shares) 6
Conversion to Federal Funds 6
DETERMINING NET ASSET VALUE 6
- ---------------------------------------------------------------
Use of the Amortized Cost Method 7
REDEEMING SHARES 7
- ---------------------------------------------------------------
Redemption in Kind 7
TAX STATUS 8
- ---------------------------------------------------------------
The Fund's Tax Status 8
Shareholders' Tax Status 8
YIELD 8
- ---------------------------------------------------------------
EFFECTIVE YIELD 8
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 9
- ---------------------------------------------------------------
APPENDIX 10
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
Fountain Square Commercial Paper Fund (the "Fund") is a portfolio in the
Fountain Square Funds (the "Trust"). The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated September 15,
1988.
Shares of the Fund are offered in two classes, Trust Shares and Investment
Shares (individually and collectively referred to as "Shares"). This combined
Statement of Additional Information relates to the above-mentioned Shares of the
Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income consistent with
stability of principal. The investment objective cannot be changed without
approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests in money market instruments which mature in 13 months or less.
At least 65% of the assets of the Fund will be invested in commercial paper. The
remaining portion of Fund assets will be invested in money market instruments
which include, but are not limited to, bank instruments and U.S. government
obligations.
The instruments of banks and savings and loans whose deposits are insured by
Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"),
such as certificates of deposit, demand and time deposits, and bankers'
acceptances, are not necessarily guaranteed by that organization.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are
backed by:
- the full faith and credit of the U.S. Treasury;
- the issuer's right to borrow from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
- the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
- Federal Farm Credit Banks;
- Federal Home Loan Banks;
- Federal National Mortgage Association;
- Student Loan Marketing Association; and
- Federal Home Loan Mortgage Corporation.
BANK INSTRUMENTS
In addition to domestic bank obligations such as certificates of deposit,
demand and time deposits, and bankers' acceptances, the Fund may invest
in:
- Eurodollar Certificates of Deposit issued by foreign branches of U.S.
or foreign banks;
- Eurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks; and
- Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and
held in the United States.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. 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. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the 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. The 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.
- --------------------------------------------------------------------------------
These securities are marked to market daily and maintained until the transaction
is settled. The Fund may engage in these transactions to an extent that would
cause the segregation of an amount up to 20% of the total value of its assets.
REPURCHASE AGREEMENTS
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 Fund believes 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 deemed by the Fund's adviser to
be creditworthy, pursuant to guidelines established by the Board of Trustees
(the "Trustees").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These securities are
marked to market daily and maintained until the transaction is settled.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any money market instruments short or purchase any
money market instruments on margin but may obtain such short-term credits
as may be necessary for clearance of purchases and sales of money market
instruments.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements as a temporary
measure for extraordinary or emergency purposes and then only in amounts
not in excess of 5% of the value of its total assets or in an amount up
to one-third of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without immediately
selling portfolio instruments. Any direct borrowings need not be
collateralized.
PLEDGING SECURITIES
The Fund will not pledge securities.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE
The Fund will not invest in commodities, commodity contracts, or real
estate, except that it may purchase money market instruments issued by
companies that invest in real estate or sponsor such interests.
UNDERWRITING
The Fund will not engage in underwriting of securities issued by others.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or
hold money market instruments, including repurchase agreements and
variable rate demand notes, permitted by its investment objective and
policies.
ACQUIRING SECURITIES
The Fund will not acquire the voting securities of any issuer. It will
not invest in securities of a company for the purpose of exercising
control or management.
- --------------------------------------------------------------------------------
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the Fund will not
purchase securities issued by any one issuer having a value of more than
5% of the value of its total assets except repurchase agreements and U.S.
government obligations. The total amount of the remaining 25% of the
value of the Fund's total assets may be invested in a single issuer if
the investment adviser believes such a strategy to be prudent.
The Fund considers the type of bank obligations it purchases cash items.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of the value of its total assets
in any one industry except commercial paper of finance companies.
However, the Fund reserves the right to invest more than 25% of its net
assets in domestic bank instruments (such as time and demand deposits and
certificates of deposit), U.S. government obligations or instruments
secured by these money market instruments, such as repurchase agreements.
The Fund will not invest more than 25% of its net assets in instruments
of foreign banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund can acquire up to 3% of the total outstanding securities of
other investment companies. The Fund will limit its investments in the
securities of other investment companies to those of money market funds
having investment objectives and policies similar to its own. The Fund
will purchase securities of other investment companies only in
open-market transactions involving no more than customary broker's
commissions. However, there is no limitation applicable to securities of
any investment company acquired in a merger, consolidation, or
acquisition of assets. It should be noted that investment companies incur
certain expenses, such as management fees, and, therefore, any investment
by the Fund in such shares would be subject to customary expenses.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities which are subject to restrictions on resale under federal
securities laws.
The above investment limitations cannot be changed without shareholder approval.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following investment limitations, however, may
be changed by Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may purchase
the securities of issuers which invest in or sponsor such programs.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
In order to permit the sale of the Fund's shares in certain states, the Fund may
make commitments more restrictive than the investment limitations described
above. Accordingly, the Fund has undertaken not to invest in: real estate
limited partnerships; oil, gas, or other mineral leases; warrants; or the
securities of any issuer if the officers, directors, or trustees of the Fund or
its investment adviser owning beneficially more than 0.5% of the securities of
such issuer together own beneficially more than 5% of such securities. Should
the Fund determine that any such commitment is no longer in the best interest of
the Fund and its shareholders, the Fund will revoke the commitment by
terminating the sale of its shares in the state involved.
FOUNTAIN SQUARE FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, principal
occupations, and present positions. Except as listed below, none of the Trustees
or Officers are affiliated with The Fifth Third Bank ("Fifth Third Bank"), Fifth
Third Bancorp, Federated Investors, Federated Securities Corp., or Federated
Administrative Services.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue*+ Chairman of President and Trustee, Federated Investors, Trustee, Federated Advisers,
Federated Investors the Board of Federated Management, and Federated Research; President and Director,
Tower Trustees, Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Pittsburgh, PA President and Federated Administrative Services, Federated Services Company, and Federated
Treasurer Shareholder Services; President or Vice President of certain investment
companies organized or advised by Federated Investors and its affiliates
(Federated Funds); Director, Trustee, or Managing General Partner of some of
the Federated Funds.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Edward Burke Carey Member of President of Carey Leggett Realty Advisors.
395 East Town St. Board of Trustees
Columbus, Ohio
- --------------------------------------------------------------------------------------------------------------------------------
Lee A. Carter+ Member of Formerly, President, Local Marketing Corporation (retired December 31,
Cincinnati Commerce Board of 1993).
Center Trustees
Suite 2020
Cincinnati, Ohio
- --------------------------------------------------------------------------------------------------------------------------------
Albert E. Harris Member of Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993);
5905 Graves Road Board of formerly, Senior Vice President, The Procter & Gamble Company (retired
Cincinnati, Ohio Trustees October, 1987).
- --------------------------------------------------------------------------------------------------------------------------------
Margaret P. Tessaro Vice President Vice President of Federated Administrative Services.
Federated Investors and Assistant
Tower Treasurer
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Jay S. Neuman Secretary Corporate Counsel, Federated Investors; prior to January, 1991, Associate
Federated Investors Counsel, The Boston Company Advisors, Inc.
Tower
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Fund or the Trust
as defined in the Investment Company Act of 1940.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares.
As of September 16, 1994, Fifth Third Bank as nominee for numerous trust and
agency accounts, was the owner of record of 213,242,744 Trust Shares (100%) of
the Fund.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Fifth Third Bank. It provides investment
advisory services through its Trust and Investment Division. Fifth Third Bank is
a wholly-owned subsidiary of Fifth Third Bancorp.
The adviser shall not be liable to the Trust, the Fund or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Fifth Third Bank to restrict the
flow of non-public information, Fund investments are typically made without any
knowledge of Fifth Third Bank's or its affiliates' lending relationships with an
issuer.
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended July 31,
1994, 1993, and 1992, the Fund's adviser earned $891,943, $796,334, and
$825,020, respectively, of which $224,244, $243,753, and $288,757, were
voluntarily waived, respectively, because of undertakings to limit the Fund's
expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the adviser has agreed to
reimburse the Fund for its expenses over the limitation up to the amount
of the advisory fee in any single fiscal year.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced, in any
single fiscal year, by the amount of the excess, subject to an annual
adjustment.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser in advising the
Fund and other accounts. To the extent that receipt of these services may
supplant services for which the adviser or its affiliates might otherwise have
paid, it would tend to reduce expenses.
For the fiscal years ended July 31, 1994, 1993, and 1992, the Fund did not pay
any commissions on brokerage transactions.
ADMINISTRATIVE ARRANGEMENTS
- --------------------------------------------------------------------------------
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services ("FAS"), a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the fiscal years ended July 31, 1994, 1993, and
1992, the Fund incurred administrative service fees of $256,533, $248,161, and
$277,436, respectively.
Under the custodian agreement, Fifth Third Bank holds the Fund's portfolio
securities and keeps all necessary records and documents relating to its duties.
Fifth Third Bank's fees for custody services are based upon the market value of
Fund securities held in custody plus certain securities transaction charges.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Bank of Cleveland are open for
business. The procedure for purchasing Shares is explained in the respective
prospectuses under "Investing in Investment Shares" and "Investing in Trust
Shares."
DISTRIBUTION PLAN (INVESTMENT SHARES)
For the fiscal year ended July 31, 1994, distribution fees paid to Federated
Securities Corp. amounted to $22,330, all of which was voluntarily waived. For
the period from August 11, 1992 (date of initial public investment) to July 31,
1993, fees paid to Federated Securities Corp. amounted to $10,590, all of which
was voluntarily waived. For the fiscal year ended July 31, 1992, there were no
distribution fees paid applicable to Investment Shares.
With respect to the Investment Shares class of the Fund, the Trust has adopted a
Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange
Commission pursuant to the Investment Company Act of 1940. The Plan provides for
payment of fees to Federated Securities Corp. to finance any activity which is
principally intended to result in the sale of Investment Shares of the Fund
subject to the Plan. Such activities may include the advertising and marketing
of Investment Shares; preparing, printing, and distributing prospectuses and
sales literature to prospective shareholders, brokers, or administrators; and,
implementing and operating the Plan. Pursuant to the Plan, Federated Securities
Corp. may pay fees to brokers for distribution and administrative services and
to administrators for administrative services as to Investment Shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to: communicating account openings; communicating account closings;
entering purchase transactions; entering redemption transactions; providing or
arranging to provide accounting support for all transactions, wiring funds and
receiving funds for Investment Share purchases and redemptions, confirming and
reconciling all transactions, reviewing the activity in Fund accounts, and
providing training and supervision of broker personnel; posting and reinvesting
dividends to Fund accounts or arranging for this service to be performed by the
Fund's transfer agent; and maintaining and distributing current copies of
prospectuses and shareholder reports to the beneficial owners of Investment
Shares and prospective shareholders.
The Board of Trustees expects that the Plan will result in the sale of
sufficient number of Investment Shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Fifth Third Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
- --------------------------------------------------------------------------------
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
.50 of 1% between the two values.
The Trustees will take any steps they consider appropriate (such as
redemption in kind or shortening the average portfolio maturity) to
minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and if
rated, have received the requisite rating from one or more nationally
recognized statistical rating organizations. If the instruments are not
rated, the Trustees must determine that they are of comparable quality.
Shares of investment companies purchased by the Fund will meet these same
criteria and will have investment policies consistent with the Rule. The
Rule also requires the Fund to maintain a dollar weighted average
portfolio maturity (not more than 90 days) appropriate to the objective
of maintaining a stable net asset value of $1.00 per share. In addition,
no instruments with a remaining maturity of more than 397 days can be
purchased by the Fund.
Should the disposition of a portfolio security result in a dollar
weighted average portfolio maturity of more than 90 days, the Fund will
invest its available cash to reduce the average maturity to 90 days or
less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to
take advantage of short-term market variations. This policy may, from
time to time, result in high portfolio turnover. Under the amortized cost
method of valuation, neither the amount of daily income nor the net asset
value is affected by any unrealized appreciation or depreciation of the
portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of the Fund computed by dividing the annualized daily income on
the Fund's portfolio by the net asset value computed as above may tend to
be higher than a similar computation made by using a method of valuation
based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on shares
of the Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market
prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fifth
Third Bank receives the redemption request. Redemption procedures are explained
in the respective prospectuses under "Redeeming Investment Shares" and
"Redeeming Trust Shares." Although Fifth Third Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $10,000.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of a Fund's net
asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
- --------------------------------------------------------------------------------
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends and any short-term capital gains are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
YIELD
- --------------------------------------------------------------------------------
The yield for Investment Shares for the seven-day period ended July 31, 1994 was
3.96%. The yield for Trust Shares was 3.96% for the same period.
The Fund calculates the yield for both classes of Shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
- - determining the net change in the value of a hypothetical account with a
balance of one Share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional Shares
purchased with dividends earned from the original one Share and all dividends
declared on the original and any purchased Shares;
- - dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- - multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of Shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The effective yield for Investment Shares and Trust Shares were 4.03% and 4.03%,
respectively, for the seven-day period ended July 31, 1994.
The Fund's effective yield for both classes of Shares is computed by compounding
the unannualized base period return by:
- - adding 1 to the base period return;
- - raising the sum to the 365/7th power; and
- - subtracting 1 from the result.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of both classes of shares depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in the expenses of the Fund or of either class of shares; and
- - the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the compositions 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 the Fund uses in advertising may include.
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the money market
instruments category in advertising and sales literature.
- - BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading bank and
thrift institution money market deposit accounts. The rates published in the
index are averages of the personal account rates offered on the Wednesday
prior to the date of publication by ten of the largest banks and thrifts in
each of the five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution, and compounding methods
vary. If more than one rate is offered, the lowest rate is used. Rates are
subject to change at any time specified by the institution.
- - DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of money
market funds on a weekly basis and through its Money Market Insight
publication reports monthly and 12-month-to-date investment results for the
same money funds.
Advertisements and other sales literature for either class of shares may refer
to total return. Total return is the historic change in the value of an
investment in either class of shares based on the reinvestment of dividends over
a specified period of time.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
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
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of
short-term promissory obligations. PRIME-1 repayment capacity will normally be
evidenced by 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 earning 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.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
FITCH INVESTORS SERVICE, INC. SHORT-TERM RATING DEFINITIONS
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 F-1+.
F-2--GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA", or "D" categories.
9052205B (9/94)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT SHARES
TRUST SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
The Trust Shares and Investment Shares of Fountain Square Government Cash
Reserves Fund (the "Fund") represent interests in a diversified portfolio of
securities. This Combined Statement of Additional Information should be read
with the respective prospectuses for Trust Shares and Investment Shares dated
September 30, 1994. This Statement is not a prospectus itself. To receive a copy
of the Trust Shares prospectus, customers of Fifth Third Bank may write to the
Fountain Square Government Cash Reserves Fund or call (513) 579-6039 in
Cincinnati, Ohio or
toll-free (800) 654-5372. To receive a copy of the Investment Shares prospectus,
customers of Fifth Third Securities
may write to the Fountain Square Government Cash Reserves Fund or call (513)
744-8888 in Cincinnati, Ohio or toll-free (800) 334-0483.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated September 30, 1994
FIFTH THIRD BANK
Investment Adviser
TABLE OF CONTENTS,
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
When-Issued and Delayed
Delivery Transactions 1
Investment Limitations 1
FOUNTAIN SQUARE FUNDS MANAGEMENT 2
- ---------------------------------------------------------------
Officers and Trustees 2
Fund Ownership 3
Trustee Liability 3
INVESTMENT ADVISORY SERVICES 3
- ---------------------------------------------------------------
Adviser to the Fund 3
Advisory Fees 3
BROKERAGE TRANSACTIONS 4
- ---------------------------------------------------------------
ADMINISTRATIVE ARRANGEMENTS 4
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 4
- ---------------------------------------------------------------
PURCHASING SHARES 4
- ---------------------------------------------------------------
Distribution Plan (Investment Shares) 4
Conversion to Federal Funds 5
DETERMINING NET ASSET VALUE 5
- ---------------------------------------------------------------
Use of the Amortized Cost Method 5
REDEEMING SHARES 6
- ---------------------------------------------------------------
Redemption in Kind 6
TAX STATUS 6
- ---------------------------------------------------------------
The Fund's Tax Status 6
Shareholders' Tax Status 6
State and Local Taxes 6
YIELD 7
- ---------------------------------------------------------------
EFFECTIVE YIELD 7
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 7
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
Fountain Square Government Cash Reserves Fund (the "Fund") is a portfolio in the
Fountain Square Funds (the "Trust"). The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated September 15,
1988.
Shares of the Fund are offered in two classes, Trust Shares and Investment
Shares (individually and collectively known as "Shares"). This combined
statement of additional information relates to the above-mentioned Shares of the
Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide high current income consistent
with stability of principal and liquidity. The investment objective cannot be
changed without approval of shareholders. The Fund intends to limit its
investments to those U.S. government securities whose interest is generally
exempt from personal income tax in the various states if owned directly.
However, from time to time, the Fund may also invest in other U.S. government
securities if the adviser deems it advantageous to do so. Please see the "Tax
Status" section of this statement of additional information.
TYPES OF INVESTMENTS
The Fund invests primarily in short-term U.S. government securities.
VARIABLE RATE U.S. GOVERNMENT SECURITIES
Some of the short-term U.S. government securities the Fund may purchase
carry variable interest rates. These securities have a rate of interest
subject to adjustment at least annually. This adjusted interest rate is
ordinarily tied to some objective standard, such as the 91-day U.S.
Treasury bill rate.
Variable interest rates will reduce the changes in the market value of
such securities from their original purchase prices. Accordingly, the
potential for capital appreciation or capital depreciation should not be
greater than the potential for capital appreciation or capital
depreciation of fixed interest rate U.S. government securities having
maturities equal to the interest rate adjustment dates of the variable
rate U.S. government securities.
The Fund may purchase variable rate U.S. government securities upon the
determination by the Board of Trustees that the interest rate as adjusted
will cause the instrument to have a current market value that
approximates its par value on the adjustment date.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. 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. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the 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. The 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 the
assets.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money except as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets at the time of the pledge.
- --------------------------------------------------------------------------------
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or
hold U.S. government securities permitted by its investment objective,
policies and limitations.
The above investment limitations cannot be changed without shareholder approval.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following limitations, however, may be changed
by the Board of Trustees (the "Trustees") without shareholder approval.
Shareholders will be notified before any material change in those limitations
becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund can acquire up to 3% of the total outstanding securities of
other investment companies. The Fund will limit its investments in the
securities of other investment companies to those money market funds
having investment objectives and policies similar to its own. The Fund
will purchase securities of other investment companies only in
open-market transactions involving no more than customary broker's
commissions. However, there is no limitation applicable to securities of
any investment company acquired in a merger, consolidation, or
acquisition of assets. It should be noted that investment companies incur
certain expenses such as management fees, and, therefore, any investment
by the Fund in such shares would be subject to customary expenses.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
FOUNTAIN SQUARE FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions. Except as listed below, none of the Trustees or Officers
are affiliated with The Fifth Third Bank ("Fifth Third Bank"), Fifth Third
Bancorp, Federated Investors, Federated Securities Corp., or Federated
Administrative Services.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue*+ Chairman of the President and Trustee, Federated Investors, Federated Advisers, Federated
Federated Investors Board of Trustees, Management, and Federated Research; President and Director, Federated
Tower President and Research Corp.; President, Passport Research, Ltd.; Trustee, Federated
Pittsburgh, PA Treasurer Administrative Services, Federated Services Company, and Federated
Shareholder Services; President or Vice President of certain investment
companies organized or advised by Federated Investors and its affiliates
(Federated Funds); Director, Trustee, or Managing General Partner of some of
the Federated Funds.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Edward Burke Carey Member of Board of President of Carey Leggett Realty Advisors.
395 East Town St. Trustees
Columbus, Ohio
- --------------------------------------------------------------------------------------------------------------------------------
Lee A. Carter+ Member of Board of Formerly, President, Local Marketing Corporation (retired December 31,
Cincinnati Commerce Trustees 1993).
Center
Suite 2020
Cincinnati, Ohio
- --------------------------------------------------------------------------------------------------------------------------------
Albert E. Harris Member of Board of Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993);
5905 Graves Road Trustees formerly, Senior Vice President, The Procter & Gamble Company (retired
Cincinnati, Ohio October, 1987).
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Margaret P. Tessaro Vice President and Vice President of Federated Administrative Services.
Federated Investors Assistant Treasurer
Tower
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Jay S. Neuman Secretary Corporate Counsel, Federated Investors; prior to January, 1991, Associate
Federated Investors Counsel, The Boston Company Advisors, Inc.
Tower
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Fund or the Trust
as defined in the Investment Company Act of 1940, as amended.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares.
As of September 16, 1994, Fifth Third Bank as nominee for numerous trust and
agency accounts, was the owner of record of 106,632,448 Trust Shares (100%) of
the Fund.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Fifth Third Bank. It provides investment
advisory services through its Trust and Investment Division. Fifth Third Bank is
a wholly-owned subsidiary of Fifth Third Bancorp.
The adviser shall not be liable to the Trust, the Fund or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ending July
31, 1994, 1993, and 1992, the Fund's adviser earned $466,283, $414,436, and
$365,013, respectively, of which $152,426, $155,413, and $136,880 were
voluntarily waived, respectively, because of undertakings to limit the Fund's
expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the adviser has agreed to
reimburse the Fund for its expenses over the limitation up to the amount
of the advisory fee in any single fiscal year.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced, in any
single fiscal year, by the amount of the excess, subject to an annual
adjustment.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers and dealers may be used by the adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the adviser or its affiliates might
otherwise have paid, it would tend to reduce expenses.
For the fiscal year ended July 31, 1994, 1993, and 1992, the Fund did not pay
any commissions on brokerage transactions.
ADMINISTRATIVE ARRANGEMENTS
- --------------------------------------------------------------------------------
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services ("FAS"), a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the fiscal years ended July 31, 1994, 1993, and
1992, the Fund incurred administrative fees of $134,133, $128,876, and $122,724,
respectively.
Under the custodian agreement, Fifth Third Bank holds the Fund's portfolio
securities and keeps all necessary records and documents relating to its duties.
Fifth Third Bank's fees for custody services are based upon the market value of
Fund securities held in custody plus certain securities transaction charges.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Bank of Cleveland are open for
business. The procedure for purchasing Shares is explained in the respective
prospectuses under "Investing in Investment Shares" or "Investing in Trust
Shares."
DISTRIBUTION PLAN (INVESTMENT SHARES)
For the fiscal years ended July 31, 1994, 1993, and 1992, distribution fees
applicable to Investment Shares paid to Federated Securities Corp. amounted to
$31,295, $51,688, and $15,014, respectively, all of which was voluntarily
waived.
With respect to the Investment Shares class of the Fund, the Trust has adopted a
Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange
Commission pursuant to the Investment Company Act of 1940. The Plan provides for
payment of fees to Federated Securities Corp. to finance any activity which is
principally intended to result in the sale of Investment Shares of the Fund
subject to the Plan. Such activities may include the advertising and marketing
of Investment Shares; preparing, printing, and distributing prospectuses and
sales literature to prospective shareholders, brokers, or administrators; and
implementing and operating the Plan. Pursuant to the Plan, Federated Securities
Corp. may pay fees to brokers for distribution and administrative services and
to administrators for administrative services as to Investment Shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to:
- --------------------------------------------------------------------------------
communicating account openings; communicating account closings; entering
purchase transactions; entering redemption transactions; providing or arranging
to provide accounting support for all transactions, wiring funds and receiving
funds for Investment Share purchases and redemptions, confirming and reconciling
all transactions, reviewing the activity in Fund accounts, and providing
training and supervision of broker personnel; posting and reinvesting dividends
to Fund accounts or arranging for this service to be performed by the Fund's
transfer agent; and maintaining and distributing current copies of prospectuses
and shareholder reports to the beneficial owners of Investment Shares and
prospective shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of
sufficient number of Investment Shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Fifth Third Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.50 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and if
rated, have received the requisite rating from one or more nationally
recognized statistical rating organizations. If the instruments are not
rated, the Trustees must determine that they are of comparable quality.
Shares of investment companies purchased by the Fund will meet these same
criteria and will have investment policies consistent with the Rule. The
Rule also requires the Fund to maintain a dollar-weighted average
portfolio maturity (not more than 90 days) appropriate to the objective
of maintaining a stable net asset value of $1.00 per share. In addition,
no instruments with a remaining maturity of more than 397 days can be
purchased by the Fund.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to
take advantage of short-term market variations. This policy may, from
time to time, result in high portfolio turnover. Under the amortized cost
method of valuation, neither the amount of daily income nor the net asset
value is affected by any unrealized appreciation or depreciation of the
portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of the Fund computed by dividing the annualized daily income on
the Fund's portfolio by the net asset value computed as above may tend to
- --------------------------------------------------------------------------------
be higher than a similar computation made by using a method of valuation
based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on shares
of the Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market
prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at the next computed net asset value after Fifth Third Bank
receives the redemption request. Redemption procedures are explained in the
respective prospectuses under "Redeeming Investment Shares" or "Redeeming Trust
Shares." Although Fifth Third Bank does not charge for telephone redemptions, it
reserves the right to charge a fee for the cost of wire-transferred redemptions
of less than $10,000.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash up to the lesser of $250,000 or 1% of a Fund's net asset
value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends and any short-term capital gains are taxable as ordinary income.
STATE AND LOCAL TAXES
The Fund intends to limit its investments to U.S. government securities paying
interest which, if owned directly by shareholders of the Fund, would generally
be exempt from state personal income tax. However, from time to time, the Fund
may also invest in other U.S. government securities if the adviser deems it
advantageous to do so. Moreover, under the laws of some states, the net
investment income generally distributed by the Fund may be taxable to
shareholders. State laws differ on this issue, and shareholders are urged to
consult their own tax advisers regarding the status of their accounts under
state and local tax laws.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
YIELD
- --------------------------------------------------------------------------------
The yield for Investment Shares for the seven-day period ended July 31, 1994 was
4.03%. The yield for Trust Shares was 4.03% for the same period.
The Fund calculates the yield for both classes of shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
- - determining the net change in the value of a hypothetical account with a
balance of one Share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional Shares
purchased with dividends earned from the original one Share and all dividends
declared on the original and any purchased Shares;
- - dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- - multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The effective yield for Investment Shares for the seven-day period ended July
31, 1994 was 4.11%. The effective yield for Trust Shares was 4.11% for the same
period.
The Fund's effective yield for both classes of shares is computed by compounding
the unannualized base period return by:
- - adding 1 to the base period return;
- - raising the sum to the 365/7th power; and
- - subtracting 1 from the result.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of both classes of shares depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in expenses of the Fund or of either class of shares; and
- - the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the 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.
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking for either class of
shares in the "short-term U.S. government funds" category in advertising and
sales literature.
- - SALOMON 30 DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities issued by the U.S. Treasury,
maturing in 30 days.
- - DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of money
market funds on a weekly basis and through its Money Market Insight
publication reports monthly and 12-month-to-date investment results for the
same money funds.
Advertisements and other sales literature for either class of shares may refer
to total return. Total return is the historic change in the value of an
investment in either class of shares based on the reinvestment of dividends over
a specified period of time.
1041201B (9/94)
FOUNTAIN SQUARE INTERNATIONAL EQUITY FUND
(A PORTFOLIO OF THE FOUNTAIN SQUARE FUNDS)
PROSPECTUS
The shares of Fountain Square International Equity Fund (the "Fund") offered by
this prospectus represent interests in a diversified portfolio of securities
which is one of a series of investment portfolios in the Fountain Square Funds
(the "Trust"), an open-end management investment company (a mutual fund).
The investment objective of the Fund is to seek long-term capital appreciation.
The Fund pursues this objective through a diversified portfolio primarily
invested in equity securities of non-U.S. issuers.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
Additional information about the Fund is contained in the Fund's Statement of
Additional Information dated August 1, 1994, which was filed with the Securities
and Exchange Commission. The information contained in the Statement of
Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Statement of Additional Information free of charge,
obtain other information, or make inquiries about the Fund by writing to or
calling the Trust.
THE INVESTMENT COMPANY SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF FIFTH THIRD BANK (THE "ADVISER"), AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL
RESERVE BOARD OR BY ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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.
Prospectus dated August 1, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- ------------------------------------------------------
EXPENSES OF THE FUND 2
- ------------------------------------------------------
OBJECTIVE OF THE FUND 3
- ------------------------------------------------------
Investment Policies 3
Money Market Instruments 4
Repurchase Agreements 4
Investing in Securities of Other
Investment Companies 4
Restricted and Illiquid Securities 4
When-Issued and Delayed
Delivery Transactions 5
Lending of Portfolio Securities 5
Foreign Currency Transactions 5
Forward Foreign Currency Exchange
Contracts 5
Options 5
Futures and Options on Futures 6
Risk Considerations 7
Exchange Rates 7
Foreign Companies 7
U.S. Government Policies 7
Emerging Markets 7
Investment Limitations 8
FOUNTAIN SQUARE FUNDS INFORMATION 8
- ------------------------------------------------------
Management of the Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 9
Sub-Adviser 9
Sub-Advisory Fees 9
Sub-Adviser's Background 9
Portfolio Manager 9
Distribution of Fund Shares 9
Distribution Plan 9
Administrative Arrangements 10
Administration of the Fund 10
Administrative Services 10
Custodian, Transfer Agent and
Dividend Disbursing Agent 10
Legal Counsel 10
Independent Auditors 10
Expenses of the Fund 11
Brokerage Transactions 11
NET ASSET VALUE 11
- ------------------------------------------------------
INVESTING IN THE FUND 11
- ------------------------------------------------------
Share Purchases 11
Through Fifth Third Bank
or Fifth Third Securities 11
Minimum Investment Required 12
What Shares Cost 12
Purchases at Net Asset Value 12
Dealer Concessions 12
Reducing/Eliminating the Sales Charge 13
Quantity Discounts and Accumulated
Purchases 13
Letter of Intent 13
Fifth Third Bank Club 53,
One Account Plus or One
Account Gold Programs 13
Purchases with Proceeds from
Redemptions of Unaffiliated Mutual
Fund Shares 14
Purchases with Proceeds from
Distributions of Qualified Retirement
Plans or Other Trusts Administered by
Fifth Third Bank 14
Concurrent Purchases 14
Systematic Investment Program 14
Certificates and Confirmations 14
Dividends and Capital Gains 14
EXCHANGES 14
- ------------------------------------------------------
REDEEMING SHARES 15
- ------------------------------------------------------
Through Fifth Third Bank or
Fifth Third Securities 15
By Telephone 15
By Mail 15
Receiving Payment 16
Systematic Withdrawal Program 16
Accounts with Low Balances 16
SHAREHOLDER INFORMATION 16
- ------------------------------------------------------
Voting Rights 16
Massachusetts Law 17
EFFECT OF BANKING LAWS 17
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TAX INFORMATION 17
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Federal Income Tax 17
PERFORMANCE INFORMATION 18
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ADDRESSES Inside Back Cover
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SYNOPSIS
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. Shares of the Fund are designed for individuals and
institutions as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio invested in equity securities of
non-U.S. issuers.
For information on how to purchase shares of the Fund, please refer to
"Investing in the Fund." A minimum initial investment of $2,500 is required for
the Fund, except for investments by individual retirement accounts ("IRAs").
Subsequent investments must be in amounts of at least $100. The Fund may make
certain investments and employ certain investment techniques that involve risks,
including investing in non-U.S. issuers, entering into repurchase agreements,
lending portfolio securities and entering into futures contracts and related
options. These risks are described under "Investment Policies." Shares are sold
at net asset value plus any applicable sales charge and are redeemed at net
asset value. Information on redeeming shares may be found under "Redeeming
Shares." The Fund is advised by Fifth Third Bank and sub-advised by Morgan
Stanley Asset Management Inc.
EXPENSES OF THE FUND
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)..................................................................... 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)............................... None
Redemption Fees (as a percentage of amount redeemed, if applicable).......... None
Exchange Fee................................................................. None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee............................................................... 1.00%
12b-1 Fees(1)................................................................ 0.00%
Other Expenses............................................................... 0.60%
Total Fund Operating Expenses........................................... 1.60%
</TABLE>
(1) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund will not accrue or pay 12b-1 fees until it has created a separate
class of shares for certain institutional investors. The Fund can pay up to
0.35% as a 12b-1 fee to the distributor.
* TOTAL OPERATING EXPENSES ARE ESTIMATED BASED ON AVERAGE EXPENSES EXPECTED TO
BE INCURRED DURING THE FISCAL YEAR ENDING JULY 31, 1995. DURING THE COURSE OF
THIS PERIOD, EXPENSES MAY BE MORE OR LESS THAN THE AVERAGE AMOUNT SHOWN.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND "INVESTING IN THE FUND".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
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<S> <C> <C>
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.
The Fund charges no redemption fees......................................... $ 61 $ 93
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING JULY 31,
1995.
OBJECTIVE OF THE FUND
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The investment objective of the Fund is to seek long-term capital appreciation.
The Fund invests primarily in equity securities of non-U.S. issuers. The
objective is based on the premise that investing in non-U.S. securities provides
three potential benefits over investing solely in U.S. securities:
- the opportunity to take advantage of investment opportunities in
countries outside the U.S. which may arise because of differing economic
and political cycles;
- the opportunity to invest in financial markets of foreign countries, some
of which are believed to have superior growth potential; and
- the opportunity to reduce the overall volatility of a U.S. only portfolio
by combining domestic and international investments and thereby
diversifying across a wide range of countries and currencies.
The investment objective cannot be changed without the approval of holders of a
majority of the Fund's shares. While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Board of Trustees ("Trustees") without the approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
INVESTMENT POLICIES
The Fund will invest at least 65%, and under normal market conditions
substantially all, of its total assets in equity securities of issuers located
in at least three countries outside of the United States. The Fund may also
purchase common stock equivalents (such as rights and warrants and securities
that are convertible into common stocks); corporate and government fixed income
securities denominated in currencies other than U.S. dollars; enter into
repurchase agreements, futures and options transactions involving securities and
securities indices, and foreign currency transactions, including forward foreign
currency exchange contracts; and maintain reserves in foreign or U.S. money
market instruments.
The Fund pursues its objective by investing in accordance with country
weightings determined by the adviser, Fifth Third Bank, in consultation with
Morgan Stanley Asset Management Inc. (the "sub-adviser"), in common stocks of
non-U.S. issuers which, in the aggregate, generally replicate broad country
indices. The sub-adviser utilizes a top-down approach in selecting investments
for the Fund that emphasizes country selection and weighting rather than
individual stock selection. This approach reflects the philosophy that a
diversified selection of securities representing exposure to world markets based
upon the economic outlook and current valuation levels (as discussed below) for
each country is an effective way to maximize the return and minimize the risk
associated with international investment. (Although, of course there can be no
assurance that these goals will be achieved.)
In consultation with the adviser, the sub-adviser determines country allocations
for the Fund on an ongoing basis within policy ranges dictated by each country's
market capitalization and liquidity. The Fund will invest substantially in
industrialized countries throughout the world that comprise the Morgan Stanley
Capital International EAFE (Europe, Australia and the Far East) Index. In
addition, the Fund may invest in emerging country equity securities. As used in
this Prospectus, the term "emerging country" applies to any country which, in
the opinion of the sub-adviser, is generally considered to be an emerging or
developing country by the international financial community, including the
International Bank for Reconstruction and Development (more commonly known as
the World Bank) and the International Finance Corporation. There are currently
over 130 countries which, in the opinion of the sub-adviser, are generally
considered to be emerging or developing countries by the international financial
community, approximately 40 of which currently have stock markets. These
countries generally include every nation in the world except the United States,
Canada, Japan, Australia, New Zealand and most nations located in Western
Europe. Currently, investing in many emerging countries is not feasible or may
involve unacceptable political risks. The Fund will focus its investments on
those emerging market countries in which it believes the economies are
developing strongly and in which the markets are becoming more sophisticated. As
markets in other countries develop, the Fund expects to expand and further
diversify the emerging countries in which it invests. The Fund does not
intend to invest in any security in a country where the currency is not freely
convertible to U.S. dollars, unless the Fund has obtained the necessary
governmental licensing to convert such currency or other appropriately licensed
or sanctioned contractual guarantee to protect such investment against loss of
that currency's external value, or the Fund has a reasonable expectation at the
time the investment is made that such governmental licensing or other
appropriately licensed or sanctioned guarantee would be obtained or that the
currency in which the security is quoted would be freely convertible at the time
of any proposed sale of the security by the Fund.
By analyzing a variety of macroeconomic and political factors, the sub-adviser
develops fundamental projections on interest rates, currencies, corporate
profits and economic growth for each country. These country projections are then
used to determine what is believed to be a fair value for the stock market of
each country. Discrepancies between actual value and fair value as determined by
the sub-adviser provide an expected return for each stock market. The expected
return is adjusted by currency return expectations derived from the
sub-adviser's purchasing-power parity exchange rate model to arrive at an
expected total return in U.S. dollars. The final country allocation decision is
then arrived at by considering the expected total return in light of various
country specific considerations such as market size, volatility, liquidity and
country risk.
Within a particular country, investments generally are made through the purchase
of common stocks which, in aggregate, replicate a broad market index, which in
most cases will be the Morgan Stanley Capital International Index for the given
country. The sub-adviser may overweight or underweight an industry segment of a
particular index if it concludes this would be advantageous to the Fund. Stock
selection by the Fund in this manner helps reduce stock-specific risk through
diversification and minimizes transaction costs, which can be substantial in
foreign markets.
MONEY MARKET INSTRUMENTS. The Fund may invest in U.S. and foreign short-term
money market instruments, including interest-bearing call deposits with banks,
government obligations, certificates of deposit, bankers' acceptances,
commercial paper, short-term corporate debt securities, and repurchase
agreements. These investments may be used to temporarily invest cash received
from the sale of Fund shares, to establish and maintain reserves for temporary
defensive purposes, or to take advantage of market opportunities.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting stock of any such investment company, invest
more than 5% of its total assets in any one such investment company, or invest
more than 10% of its total assets in such other investment companies in general.
To the extent that the Fund invests in securities issued by other investment
companies, the Fund will indirectly bear its proportionate share of any fees and
expenses paid by such companies in addition to the fees and expenses payable
directly by the Fund.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. Restricted
securities may be issued by new and early stage companies which may include a
high degree of business and financial risk that can result in substantial
losses. As a result of the absence of a public trading market for these
securities, they may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund,
or less than what may be considered the fair value of such securities. Further,
companies whose securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements which might be applicable
if their securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expense of registration. The Fund
will limit investments in illiquid securities, including certain restricted
securities not determined
by the Trustees to be liquid, over-the-counter options, and repurchase
agreements providing for settlement in more than seven days after notice, to 15%
of its net assets.
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. In when-issued and delayed delivery transactions, the Fund relies
on the seller to complete the transaction. The seller's failure to complete the
transaction may cause the Fund to miss a price or yield considered to be
advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100% of the value of the securities loaned.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. (Please
see Foreign Currency Transactions in the Statement of Additional Information for
further information about the risks.)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will vary
between 24 hours and 60 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the
sub-adviser will consider the likelihood of changes in currency values when
making investment decisions, the sub-adviser believes that it is important to be
able to enter into forward contracts when it believes the interests of the Fund
will be served. The Fund will not enter into forward contracts for hedging
purposes in a particular currency in an amount in excess of the Fund's assets
denominated in that currency.
OPTIONS. The Fund may deal in options on foreign currencies, securities, and
securities indices, and on futures contracts involving these items, which
options may be listed for trading on an international securities exchange or
traded over-the-counter. The Fund may use options to manage interest rate and
currency risks. The Fund may also write covered call options and secured put
options to generate income or lock in gains. The Fund may write covered call
options and secured put options on up to 25% of its net assets and may purchase
put and call options provided that no more than 5% of the fair market value of
its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
FUTURES AND OPTIONS ON FUTURES. The Fund may enter into futures contracts
involving foreign currency, securities and securities indices, or options
thereon, for bona fide hedging purposes. The Fund may also enter into such
futures contracts or related options for purposes other than bona fide hedging
if the aggregate amount of initial margin deposits on the Fund's futures and
related options positions would not exceed 5% of the net liquidation value of
the Fund's assets, provided further that in the case of an option that is
in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. In addition, the Fund may not sell
futures contracts if the value of such futures contracts exceeds the total
market value of the Fund's portfolio securities. Futures contracts and options
thereon sold by the Fund are generally subject to segregation and coverage
requirements established by either the Commodity Futures Trading Commission
("CFTC") or the SEC, with the result that, if the Fund does not hold the
instrument underlying the futures contract or option, the Fund will be required
to segregate on an ongoing basis with its custodian cash, U.S. government
securities, or other liquid high grade debt obligations in an amount at least
equal to the Fund' obligations with respect to such instruments.
The Fund may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, including non-U.S. exchanges to the extent permitted by
the CFTC. Securities index futures contracts are based on indexes that reflect
the market value of securities of the firms included in the indexes. An index
futures contract is an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price at
which the index contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When the Fund is not fully invested and anticipates a significant market
advance, it may enter into futures contracts to purchase the index in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that it intends to purchase. In many of these transactions,
the Fund will purchase such securities upon termination of the futures position
but, depending on market conditions, a futures position may be terminated
without the corresponding purchases of common stock. The Fund may also invest in
securities index futures contracts when the sub-adviser believes such investment
is more efficient, liquid or cost-effective than investing directly in the
securities underlying the index.
An option on a securities index futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a securities index
futures contract. The Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment
and may enter into closing purchase transactions with respect to written options
in order to terminate existing positions. There is no guarantee that such
closing transactions can be effected. The Fund may also invest in options on
securities index futures contracts when the sub-adviser believes such investment
is more efficient, liquid or cost-effective than investing directly in the
futures contract or in the securities underlying the index, or when the futures
contract or underlying securities are not available for investment upon
favorable terms.
The use of futures and related options involves special considerations and
risks, for example, (1) the ability of the Fund to utilize futures successfully
will depend on the sub-adviser's ability to predict pertinent market movements;
(2) there might be imperfect correlation, or even no correlation, between the
change in market value of the securities held by the Fund and the prices of the
futures and options thereon relating to the securities purchased or sold by the
Fund. The use of futures and related options may reduce risk of loss by wholly
or partially offsetting the negative effect of unfavorable price movements but
they can also reduce the opportunity for gain by offsetting the positive effect
of favorable price movements in positions. No assurance can be given that the
sub-adviser's judgment in this respect will be correct.
RISK CONSIDERATIONS. Investing in non-U.S. securities carries substantial risks
in addition to those associated with domestic investments. In an attempt to
reduce some of these risks, the Fund diversifies its investments broadly among
foreign countries, which may include both developed and emerging countries. At
least three different countries will always be represented.
EXCHANGE RATES. Foreign securities are denominated in foreign currencies.
Therefore, the value in U.S. dollars of the Fund's assets and income may be
affected by changes in exchange rates and regulations. Although the Fund
values its assets daily in U.S. dollars, it will not convert its holding of
foreign currencies to U.S. dollars daily. When the Fund converts its
holdings to another currency, it may incur conversion costs. Foreign
exchange dealers realize a profit on the difference between the prices at
which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
- less publicly available information about foreign companies;
- the lack of uniform financial accounting standards applicable to foreign
companies;
- less readily available market quotations on foreign companies;
- differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
- differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
- generally lower foreign stock market volume;
- the likelihood that foreign securities may be less liquid or more
volatile;
- foreign brokerage commissions may be higher;
- unreliable mail service between countries; and
- political or financial changes which adversely affect investments in some
countries.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the Fund. Although the Fund is unaware of any current restrictions,
investors are advised that these policies could be reinstituted.
EMERGING MARKETS. The Fund may take advantage of the unusual opportunities
for higher returns available from investing in emerging countries. These
investments, however, carry considerably more volatility and risk because
they generally are associated with less mature economies and less stable
political systems. The economies of individual emerging countries may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rate of inflation, currency depreciation,
capital reinvestment, resource self-sufficiency and balance of payments
position. Further, the economies of developing countries generally are
heavily dependent upon international trade and, accordingly, have been, and
may continue to be, adversely affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been, and may continue to
be, adversely affected by economic conditions in the countries with which
they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject
to limitation in other emerging countries. Foreign ownership limitations
also may be imposed by the charters of individual companies in emerging
countries to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some emerging countries. The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental registration or approval
for such repatriation. Any investment subject to such repatriation controls
will be considered illiquid if it appears reasonably likely that this
process will take more than seven days.
With respect to any emerging country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or the value of the Fund's investments in those countries. In
addition, it may be difficult to obtain and enforce a judgment in a court
outside of the U.S.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market or other portfolio
instrument, as applicable, for a percentage of its cash value with an
agreement to buy it back on a set date) or pledge securities except,
under certain circumstances, the Fund may borrow money up to one-third of
the value of its total assets and pledge assets as necessary to secure
such borrowings; or
- underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the sale
of restricted securities which the Fund may purchase pursuant to its
investment objective, policies and limitations.
The above investment limitations cannot be changed without shareholder approval.
FOUNTAIN SQUARE FUNDS INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
and except as noted below with regard to the sub-adviser, investment decisions
for the Fund are made by Fifth Third Bank, the Fund's adviser, subject to
direction by the Trustees. The adviser continually conducts investment research
and supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the assets of
the Fund. As discussed further below, the adviser has retained the sub-adviser
to act as sub-adviser to the Fund. As adviser, Fifth Third Bank will conduct a
program for ongoing oversight and evaluation of the sub-adviser's services to
the Fund, and will regularly report to the Trustees on these matters. Fifth
Third Bank will also assist in the formulation of, and will continue to monitor,
the structure and strategies of the portfolio to meet the needs of shareholders.
As part of the above, Fifth Third Bank will review the portfolio daily and will
monitor the Fund's expenses, as well as the brokerage and research services
provided to the Fund and selection of brokers by the sub-adviser.
ADVISORY FEES. The adviser receives an investment advisory fee at an
annual rate equal to 1.00% of the Fund's average daily net assets. The fee,
while higher than the advisory fee paid by other mutual funds in general,
is comparable to fees paid by many mutual funds with similar objectives
and policies. The investment advisory contract provides for the voluntary
waiver of expenses by the adviser from time to time. The adviser has
undertaken to waive up to the amount of the advisory fee, for operating
expenses, in excess of limitations established by certain states. The
adviser may voluntarily choose to waive a portion of its fees or reimburse
the Fund for certain other expenses, but reserves the right to terminate
such waiver or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank, is a
wholly-owned subsidiary of Fifth Third Bancorp, a bank holding company
organized under the laws of Ohio. Fifth Third Bank is a commercial bank
offering a wide range of banking services to its customers. As of March 31,
1994, Fifth Third Bank and its affiliates managed assets in excess of $6.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $40.0 billion.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages 14 such pools with
total assets of over $1.14 billion. Fifth Third Bank has managed mutual
funds since 1988.
As part of its regular banking operations, Fifth Third Bank may make loans
to public companies. Thus, it may be possible, from time to time, for the
Fund to hold or acquire the securities of issuers which are also lending
clients of Fifth Third Bank. The lending relationship will not be a factor
in the selection of securities.
SUB-ADVISER. Under the terms of a Sub-Advisory Agreement between Fifth Third
Bank and the sub-adviser, the sub-adviser will be responsible as sub-adviser for
managing the Fund's portfolio, selecting investments for purchase or sale, along
with the countries in which the Fund will invest, and the dealers in these
securities. In addition, the sub-adviser will furnish to Fifth Third Bank such
investment advice and statistical and other factual information as may from time
to time be reasonably requested by Fifth Third Bank.
SUB-ADVISORY FEES. The adviser will be responsible for compensating the
sub-adviser at the annual rate of 0.50% of the Fund's average daily net
assets.
SUB-ADVISER'S BACKGROUND. Morgan Stanley Asset Management Inc., with
principal offices at 1221 Avenue of the Americas, New York, NY 10020, is a
wholly-owned subsidiary of Morgan Stanley Group Inc. It conducts a
worldwide portfolio management business, providing a broad range of
portfolio management services to customers in the United States and abroad.
At March 31, 1994, the sub-adviser managed investments totaling
approximately $34.8 billion under active management and $13.4 billion as
Named Fiduciary or Fiduciary Adviser.
PORTFOLIO MANAGER. Paul Jackson is a Principal of Morgan Stanley & Co. and
joined the sub-adviser in 1991. He has been the portfolio manager of the
Fund since its inception. Mr. Jackson began at Morgan Stanley & Co. in 1986
concentrating on top-down analysis as an Economist and Quantitative
Analyst. As a member of the Equity Research Department, he was responsible
for Morgan Stanley & Co.'s global quantitative research effort. During this
time, he authored the GlobalQuant publication. Formerly, Mr. Jackson worked
at the U.K. Department of Energy focusing on macroeconomic analysis. Mr.
Jackson graduated from the London School of Economics and was awarded a
Masters degree in Economics from University College, Oxford.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. serves as the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is
the distributor for a number of investment companies. Federated Securities Corp.
is a subsidiary of Federated Investors.
DISTRIBUTION PLAN
Pursuant to the provisions of a distribution plan adopted in accordance with
Rule 12b-1 (the "Plan"), under the Investment Company Act of 1940, the Fund will
pay to Federated Securities Corp. an amount computed at an annual rate of up to
0.35% of the average daily net asset value of the Fund's shares to finance any
activity which is principally intended to result in the sale of shares subject
to the Plan. The Fund will not accrue or pay any distribution expenses pursuant
to the Plan until a separate class of shares has been created for certain
institutional investors.
Federated Securities Corp. may from time to time and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the shares exceed such lower expense
limitation as the distributor may, by notice to the Trust, voluntarily declare
to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales and/or administrative services as agents for their clients or customers
who beneficially own shares. Administrative services may include, but are not
limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel including clerical, supervisory, and
computer as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries regarding the Fund; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests.
Financial institutions will receive fees from the distributor based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
ADMINISTRATIVE ARRANGEMENTS. The distributor may also pay financial
institutions a fee based upon the average net asset value of shares of their
customers invested in the Trust for providing administrative services. This fee
is in addition to the amounts paid under the distribution plan for
administrative services, and, if paid, will be reimbursed by the adviser and not
the Trust.
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 services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund, such as legal and accounting services.
Federated Administrative Services provides these at an annual rate as specified
below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
- --------------------- ------------------------------------
<C> <S>
.150% of the first $250 million
.125% of the next $250 million
.100% of the next $250 million
.075% in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$150,000 with respect to the Fund. Federated Administrative Services may choose
voluntarily to waive a portion of its fee at any time.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Fund, transfer
agent for the shares of the Fund, and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P.,
Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of the Trust's
expenses. The expenses for the Fund include, but are not limited to, the cost
of: organizing the Fund and continuing existence of the Fund and the Trust;
Trustees' fees; investment advisory and administrative services; printing
prospectuses and other Fund documents for shareholders; registering the Trust,
the Fund and shares of the Fund; taxes and commissions; issuing, purchasing,
repurchasing, and redeeming shares; fees for custodians, transfer agents,
dividend disbursing agents, shareholder servicing agents, and registrars;
printing, mailing, auditing, accounting, and legal expenses; reports to
shareholders and governmental agencies; meetings of Trustees and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such nonrecurring and extraordinary items as may arise.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser and sub-adviser look for prompt execution of the order
at a favorable price. In working with dealers, the adviser and sub-adviser will
generally utilize those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can be
obtained elsewhere. In selecting among firms believed to meet these criteria,
the adviser and sub-adviser may give consideration to those firms which have
sold or are selling shares of the Fund. The adviser and sub-adviser make
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
Subject to the overriding objective of obtaining the best possible execution of
orders, a portion of the Fund's portfolio brokerage transactions may be
allocated to broker affiliates of the sub-adviser. In order for such affiliates
to effect any portfolio transactions for the Fund, the commissions, fees or
other remuneration they receive must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time. Furthermore, the
Trustees of the Fund, including a majority of the Trustees who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to such affiliates
are consistent with the foregoing standard.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of the Fund fluctuates daily and is determined by
dividing the sum of the market value of all securities and other assets, less
liabilities, by the number shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Bank of Cleveland are open for business. Customers of the Fifth
Third Trust and Investment Division may purchase Fund shares through their Trust
Officer. Customers of Fifth Third Securities may purchase shares through their
Fifth Third Securities representative. All other investors should purchase
shares directly from the distributor. In connection with the sale of shares of
the Fund, the distributor may from time to time offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject any
purchase request. Purchases through Fifth Third Bank may not be available to
investors in all states.
THROUGH FIFTH THIRD BANK OR FIFTH THIRD SECURITIES. To place an order for
shares, a customer of the Trust and Investment Division may telephone their
Fifth Third Trust Officer. Customers other than those of the Trust and
Investment Division may telephone Fifth Third Securities at (513) 744-8888 in
Cincinnati or toll-free (800) 334-0483. Texas residents should purchase shares
through Federated Securities Corp. at 1-800-358-2801.
Purchase orders must be received by Fifth Third Bank by 4:00 p.m. (Cincinnati
time) in order for shares to be purchased at that day's price. Payment may be
made to Fifth Third Bank either by check or
federal funds. Purchases by check are considered received after payment by check
is converted into federal funds and received by Fifth Third Bank. This is
normally the next business day after Fifth Third Bank receives the check. When
payment is made with federal funds, the order is considered received when
federal funds are received by Fifth Third Bank. Federal funds should be wired to
Fifth Third Bank as follows: ABA No. 042 000 314 Fifth Third Cincinnati.
Attention: Mutual Fund Services Department; For Credit to: (shareholder name and
account number); For Further Credit to: Fountain Square (Name of Fund).
Investors not purchasing through Fifth Third Bank should consult their financial
institutions for wiring instructions.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $2,500, unless the investment is
for an IRA, in which case the minimum initial investment is $1,000. Subsequent
investments must be in amounts of at least $100.
WHAT SHARES COST
Shares of the Fund are sold at net asset value next determined after an order is
received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
- --------------------------------------------------------------------- ---------------------
<S> <C> <C>
Less than $50,000............................. 4.50% 4.71%
$50,000 but less than $100,000................ 4.00% 4.17%
$100,000 but less than $150,000............... 3.00% 3.09%
$150,000 but less than $250,000............... 2.00% 2.04%
$250,000 but less than $500,000............... 1.00% 1.01%
$500,000 or more.............................. 0.00% 0.00%
</TABLE>
The net asset value for the Fund is determined at the close of trading on the
New York Stock Exchange, currently 4:00 p.m. (New York time) Monday through
Friday, except on: (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; and (iii) the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day, and Christmas Day.
PURCHASES AT NET ASSET VALUE
Shares of the Fund may be purchased at net asset value, without a sales charge,
by current and retired employees and Directors of Fifth Third Bancorp and their
spouses and children under 21, Fountain Square Fund Trustees and clients of
Fifth Third Bank who make purchases through the Trust and Investment Division.
DEALER CONCESSIONS
For sales of shares of the Fund, a dealer will normally receive up to 85% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor, in its
sole discretion, may uniformly offer to pay to all dealers selling shares of the
Fund, all or a portion of the sales charge it normally retains. If accepted by
the dealer, such additional payments will be predicated upon the amount of Fund
shares sold.
The sales charge for shares sold other than through registered broker/dealers
will be retained by the distributor. The distributor may pay fees to banks out
of the sales charge in exchange for sales and/or administrative services
performed on behalf of the bank's customers in connection with the initiation of
customer accounts and purchases of shares.
REDUCING/ELIMINATING THE SALES CHARGE
The sales charge can be reduced or eliminated on the purchase of shares through:
- quantity discounts and accumulated purchases;
- signing a 13-month letter of intent;
- Fifth Third Bank's Club 53, One Account Plus or One Account Gold
Programs;
- purchases with proceeds from redemptions of unaffiliated mutual fund
shares;
- purchases with proceeds from distributions of qualified retirement plans
or other trusts administered by Fifth Third Bank; or
- concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The distributor will combine
purchases made on the same day by the investors, their spouses, and the
investor's children under age 21 when it calculates the sales charge. In
addition, the sales charge, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Fund shares is made, the distributor will aggregate
such additional purchases with previous purchases of shares of the Fund provided
the prior purchase is still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$40,000 and he purchases $10,000 more at the current public offering price, the
sales charge on the additional purchase according to the schedule now in effect
would be 4.00%, not 4.50%.
To receive the sales charge reduction, an investor should complete the
appropriate section of the account application at the time the purchase is made
indicating that Fund shares have been purchased and are still invested or that
such purchases are being combined. The distributor will reduce the sales charge
after it confirms the purchase.
LETTER OF INTENT. If a shareholder intends to purchase at least $50,000 of Fund
shares over the next 13 months, the sales charge may be reduced by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales charge adjustment depending on the amount actually purchased within the
13-month period and a provision for the Fund's custodian to hold up to 4.50% of
the total amount intended to be purchased in escrow (in shares of the Fund)
until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent,
which must be $50,000 or more of Fund shares, is not purchased. In this event,
an appropriate number of escrowed shares may be redeemed in order to realize the
difference in the sales charge.
This letter of intent will not oblige the shareholder to purchase shares, but if
he does, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. The letter may be dated as of a
prior date to include any purchases made within the past 90 days.
FIFTH THIRD BANK CLUB 53, ONE ACCOUNT PLUS OR ONE ACCOUNT GOLD PROGRAMS. All
shareholders who have a Club 53 Account, One Account Plus, or One Account Gold
through Fifth Third Bank are eligible for a reduced sales charge on the purchase
of shares of the Fund. Shareholders should consult their local Fifth Third
Banking Center or Fifth Third Securities Representative for details.
The reduced sales charges applicable to the accounts are as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
- ------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Less than $50,000...................................... 2.75% 2.83%
$50,000-$99,999........................................ 2.50% 2.56%
$100,000-$149,999...................................... 2.00% 2.04%
$150,000-$249,999...................................... 1.50% 1.52%
$250,000-$499,999...................................... 0.75% 0.76%
$500,000 or more....................................... 0.00% 0.00%
</TABLE>
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED MUTUAL FUND SHARES.
Investors may purchase shares of the Fund at net asset value, without a sales
charge, with the proceeds from the redemption of shares of a mutual fund which
was sold with a sales charge or commission. The purchase must be made within 60
days of the redemption, and Fifth Third Securities must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made.
PURCHASES WITH PROCEEDS FROM DISTRIBUTIONS OF QUALIFIED RETIREMENT PLANS OR
OTHER TRUSTS ADMINISTERED BY FIFTH THIRD BANK. Investors may purchase shares of
the Fund at net asset value, without a sales charge, with the proceeds from the
distribution of a qualified retirement plan or other trust administered by Fifth
Third Bank.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
Funds in the Trust, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $20,000 in shares of one of the
Funds of the Trust with a sales charge, and $30,000 in shares of another Fund
with a sales charge, the sales charge would be reduced on both purchases.
To receive this sales charge reduction, Fifth Third Bank or Federated Securities
Corp. must be notified by the shareholder in writing or by their financial
institution at the time the concurrent purchases are made. The Fund will reduce
the sales charge after it confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received by Fifth Third Bank, plus any applicable sales charge. The minimum
initial investment requirement does not apply for those shareholders who
participate in the Systematic Investment Program. A shareholder may apply for
participation in this program through Fifth Third Securities.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Fifth Third Bank maintains a share account for
each shareholder of record. Share certificates are not issued. Detailed
statements that include account balances, information on each purchase or
redemption, and a report of dividends paid are sent to shareholders.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared just prior to determining net asset value. Capital gains
realized by the Fund, if any, will be distributed at least once every 12 months.
Dividends and capital gains will be reinvested in additional shares on payment
dates at the ex-dividend date net asset value without a sales charge unless cash
payments are requested by shareholders by writing to the Fund or Fifth Third
Bank as appropriate.
Dividends are paid to all shareholders invested in the Fund on the record date.
Dividends are declared and paid annually.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder who is a customer of the Fifth Third Trust and Investment Division
may exchange shares of the Fund for shares of any of the other funds in the
Trust by calling or sending a written request to their Fifth Third Bank Trust
Officer.
Shareholders who are clients of Fifth Third Securities may exchange shares of
the Fund for shares of any of the other funds in the Trust by calling Fifth
Third Securities at (513) 744-8888 in Cincinnati or toll-free (800) 334-0483 or
sending a written request to Fifth Third Securities. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Orders to exchange shares of the Fund for shares of any of the other Funds will
be executed by redeeming the shares owned at net asset value and purchasing
shares of any of the other Funds at the
net asset value determined after the exchange request is received. Orders for
exchanges received by a Fund prior to 4:00 p.m. (Cincinnati time) on any day
that Fund is open for business will be executed as of the close of business that
day. Orders for exchanges received after 4:00 p.m. (Cincinnati time) on any
business day will be executed at the close of the next business day.
When exchanging into and out of shares of the Funds in the Trust, shareholders
who have paid a sales load once upon purchasing shares of the Fund will not have
to pay a sales load again on an exchange.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time. Shareholders would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form as described below and can be made through the
Fifth Third Trust and Investment Division or Fifth Third Securities by their
respective customers or directly through the Fund by all other investors.
THROUGH FIFTH THIRD BANK OR FIFTH THIRD SECURITIES
BY TELEPHONE. Shareholders who are customers of Fifth Third Trust and
Investment Division may telephone their Fifth Third Bank Trust Officer.
Shareholders other than those of the Fifth Third Trust and Investment Division
may telephone Fifth Third Securities at (513) 744-8888 in Cincinnati or toll-
free (800) 334-0483. Telephone redemption instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
For calls received before 4:00 p.m. (Cincinnati time), proceeds will normally be
disbursed the next day to the shareholder's account at Fifth Third Bank or Fifth
Third Securities, or a check will be sent to the address of record. In no event
will proceeds be disbursed more than seven days after a proper request for
redemption has been received. If at any time the Fund shall determine it
necessary to terminate or modify this method of redemption, shareholders would
be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from the Fifth Third Trust and Investment Division, Fifth Third
Securities, or the distributor.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. A shareholder who is a customer of the Fifth Third Trust and
Investment Division may redeem shares by sending a written request to:
Fifth Third Bank
Trust and Investment Division
Fountain Square Redemptions 1090E5
38 Fountain Square Plaza
Cincinnati, OH 45263
Shareholders other than those of the Fifth Third Trust and Investment Division
may redeem shares by sending a written request to:
Fifth Third Securities, Inc.
Fountain Square Redemptions
P.O. Box 1639
Cincinnati, OH 45201
The written request should include the shareholder's name, the Fund name, the
account number, the share or dollar amount requested and the proper endorsement.
Shareholders should call their Trust Officer or their Fifth Third Securities
representative for assistance in redeeming by mail.
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 Fund, 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
FDIC;
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings and loan association or a savings bank whose deposits are
insured by the Savings Association Insurance Fund; 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 its 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 its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. 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 the Fund or its agents
have received payment for shares from the shareholder.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Fund
shares, and the fluctuation of the net asset value of Fund shares redeemed under
this program, redemptions may reduce, and eventually deplete, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in 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 Fifth Third Securities. Due to the fact that shares are sold
with a sales charge, it is not advisable for shareholders to be purchasing
shares while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $2,500.
Before redeeming shares to close an account, the Fund will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund in the
Trust have equal voting rights except that, in
matters affecting only a particular Fund, only shares of that Fund are entitled
to vote. As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the Trust or a Fund's operation and for the election of
Trustees under certain circumstances.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of the Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of the Fund for any act or obligation of the
Trust on behalf of the Fund. Therefore, financial loss resulting from liability
as a shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from the
assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956, as amended, or any affiliate thereof from sponsoring, organizing or
controlling a registered, open-end investment company continuously engaged in
the issuance of its shares, and from issuing, underwriting, selling or
distributing securities in general. Such laws and regulations do not prohibit
such a holding company or affiliate from acting as investment adviser, transfer
agent or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of their customers. The Fund's
adviser, Fifth Third Bank, is subject to such banking laws and regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for the Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or the Fund. In such event, changes in the operation of a
Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment or redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisers and other means of continuing available investment services.
It is not expected that existing Fund's shareholders would suffer any adverse
financial consequences (if another adviser with equivalent abilities to Fifth
Third Bank is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
However, the Fund may invest in the stock of certain foreign
corporations which would constitute a Passive Foreign Investment Company (PFIC).
Federal income taxes may be imposed on the Fund upon disposition of PFIC
investments.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemption on this income. The effective rate of foreign tax
cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividend earned in an IRA or qualified retirement plan until distributed.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Internal Revenue Code stipulations that would allow
shareholders to claim a foreign tax credit or deduction on their U.S. income tax
returns. The Internal Revenue Code, as amended, may limit a shareholder's
ability to claim a foreign tax credit. Furthermore, shareholders who elect to
deduct their portion of the Fund's foreign taxes rather than take the foreign
tax credit must itemize deductions on their income tax returns.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
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From time to time, the Fund advertises total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return and yield.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
ADDRESSES
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<TABLE>
<S> <C> <C>
Fountain Square International Federated Investors Tower
Equity Fund Pittsburgh, Pennsylvania 15222-3779
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Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Investment Adviser
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
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Sub-Adviser
Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas
New York, New York 10020
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Custodian, Transfer Agent, and Dividend Disbursing Agent
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
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Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
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Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
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Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
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</TABLE>
FOUNTAIN SQUARE
INTERNATIONAL
EQUITY FUND
PROSPECTUS
A Diversified Portfolio of
Fountain Square Funds
An Open-End, Management
Investment Company
August 1, 1994
FEDERATED SECURITIES CORP.
(LOGO)
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Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
0090702A-R (5/94)
FOUNTAIN SQUARE INTERNATIONAL EQUITY FUND
(A PORTFOLIO OF THE FOUNTAIN SQUARE FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Fountain Square International Equity Fund ("the Fund") dated August 1, 1994.
This Statement is not a prospectus itself. To receive a copy of the prospectus,
customers of Fifth Third Trust and Investment Division may write to the Trust or
call (513) 579-6056 in Cincinnati or toll-free (800) 654-5372; customers of
Fifth Third Securities may write to the Trust or call (513) 744-8888 in
Cincinnati or toll-free (800) 334-0483.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated August 1, 1994
TABLE OF CONTENTS
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GENERAL INFORMATION ABOUT THE FUND 1
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INVESTMENT OBJECTIVE AND POLICIES OF THE FUND 1
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Types of Investments 1
Reverse Repurchase Agreements 4
Lending of Portfolio Securities 4
Restricted and Illiquid Securities 4
When-Issued and Delayed
Delivery Transactions 5
Money Market Instruments
Repurchase Agreements 5
Portfolio Turnover 5
Investment Limitations 6
FOUNTAIN SQUARE FUNDS MANAGEMENT 8
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Officers and Trustees 8
Fund Ownership 8
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
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Adviser to the Fund 9
Sub-Adviser 9
Advisory Fees 9
Sub-Advisory Fees 9
ADMINISTRATIVE AND CUSTODY SERVICES 9
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ADMINISTRATIVE ARRANGEMENTS 10
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BROKERAGE TRANSACTIONS 10
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PURCHASING SHARES 10
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Distribution Plan 10
DETERMINING NET ASSET VALUE 11
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Determining Market Value
of Securities 11
Trading in Foreign Securities 11
REDEEMING SHARES 11
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Redemption in Kind 11
TAX STATUS 12
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The Fund's Tax Status 12
Foreign Taxes 12
Shareholders' Tax Status 12
TOTAL RETURN 12
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YIELD 12
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PERFORMANCE COMPARISONS 13
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GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
Fountain Square International Equity Fund is a portfolio in the Fountain Square
Funds (the "Trust"). The Trust was established as a Massachusetts business trust
under a Declaration of Trust dated September 15, 1988.
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
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The prospectus discusses the objective of the Fund and the policies employed to
achieve the objective. The following discussion supplements the description of
the Fund's investment policies in the prospectus. The Fund's investment
objective cannot be changed without approval of shareholders. Unless otherwise
indicated, the investment policies described below may be changed by the Board
of Trustees ("Trustees") without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
TYPES OF INVESTMENTS
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. Convertible securities
include fixed-income securities that may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at
the option of the holder during a specified period. Convertible
securities may take the form of convertible preferred stock, convertible
bonds or debentures, units consisting of "usable" bonds and warrants or a
combination of the features of several of these securities. The
investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for a variety of
investment strategies.
The Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of Fifth Third Bank, the
Fund's investment adviser, or Morgan Stanley Asset Management Inc.,
("sub-adviser") (collectively referred to as "adviser"), the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objective. The Fund may also elect to hold or
trade convertible securities. In selecting convertible securities, the
Fund's adviser evaluates the investment characteristics of the
convertible security as a fixed-income instrument, and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible
security, the Fund's adviser considers numerous factors, including the
economic and political outlook, the value of the security relative to
other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
WARRANTS
The Fund may invest in warrants. Warrants are options to purchase common
stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of
time. Warrants may have a life ranging from less than one year to twenty
years, or they may be perpetual. However, most warrants have expiration
dates after which they are worthless. In addition, a warrant is worthless
if the market price of the common stock does not exceed the warrant's
exercise price during the life of the warrant. Warrants have no voting
rights, pay no dividends, and have no rights with respect to the assets
of the corporation issuing them. The percentage increase or decrease in
the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned
common stock. The Fund will not invest more than 5% of the value of its
total assets in warrants. No more than 2% of this 5% may be warrants
which are not listed on the New York or American Stock Exchanges.
Warrants acquired in units or attached to other securities may be deemed
to be without value for purposes of this policy.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio or gain
relatively rapid, liquid and cost-effective exposure to certain markets
by buying and selling futures contracts and options on futures contracts.
FUTURES CONTRACTS. A futures contract is a firm commitment by two
parties, the seller who agrees to make delivery of the specific type of
security called for in the contract ("going short") and the buyer who
agrees to take delivery of the security ("going long") at a certain time
in the future. However, a securities index futures contract is an
agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the difference between the value of the index
at the close of the last trading day of the contract and the price at
which the index was originally written. No physical delivery of the
underlying security in the index is made.
The Fund may purchase or sell a futures contract to protect the Fund from
fluctuations in the value of its securities caused by anticipated changes
in interest rates or market conditions. The Fund may also invest in
securities index futures contracts when the sub-adviser believes such
investment is more efficient, liquid or cost-effective than investing
directly in the securities underlying the index.
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PURCHASING PUT OPTIONS ON FUTURES CONTRACTS. The Fund may purchase listed
put options or over-the-counter put options on futures contracts. Unlike
entering directly into a futures contract, which requires the purchaser
to buy a financial instrument on a set date at a specified price, the
purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price. The Fund may purchase put
options on futures contracts to protect its portfolio investments against
decreases in value resulting from market factors such as an anticipated
changes in interest rates or when the sub-adviser believes such
investment is more efficient, liquid or cost-effective than investing
directly in the futures contract or the underlying securities or when
such futures contracts or securities are unavailable for investment upon
favorable terms.
WRITING PUT OPTIONS ON FUTURES CONTRACTS. The Fund may write listed put
options on financial futures contracts to hedge its portfolio or when the
sub-adviser believes such investment is more efficient, liquid or cost-
effective than investing directly in the futures contract or the
underlying securities or when such futures contracts or securities are
unavailable for investment upon favorable terms. When the Fund writes a
put option on a futures contract, it receives a premium for undertaking
the obligation to assume a long futures position (buying a futures
contract) at a fixed price at any time during the life of the option.
PURCHASING CALL OPTIONS ON FUTURES CONTRACTS. The Fund may buy listed
call options on financial futures contracts to hedge its portfolio. When
the Fund purchases a call option on a futures contract, it is purchasing
the right (not the obligation) to assume a long futures position (buy a
futures contract) at a fixed price at any time during the life of the
option.
WRITING CALL OPTIONS ON FUTURES CONTRACTS. The Fund may write listed call
options or over-the-counter call options on futures contracts to hedge
its portfolio or when the sub-adviser believes such investment is more
efficient, liquid or cost-effective than investing directly in the
futures contract or the underlying securities or when such futures
contracts or securities are unavailable for investment upon favorable
terms. When the Fund writes a call option on a futures contract, it is
undertaking the obligation of assuming a short futures position (selling
a futures contract) at the strike price at any time during the life of
the option if the option is exercised.
LIMITATION ON OPEN FUTURES POSITION. The Fund will not maintain open
positions in futures contracts it has sold or options it has written on
futures contracts if, in the aggregate, the value of the option positions
(marked to market) exceeds the current market value of its securities
portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the
securities or securities index underlying the futures contract and the
futures contracts. If this limitation is exceeded at any time, the Fund
will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
"MARGIN" IN FUTURES TRANSACTIONS. Unlike the purchase or sale of a
security, the Fund does not pay or receive money upon the purchase or
sale of a futures contract. Rather, the Fund is required to deposit an
amount of "initial margin" in cash or U.S. Treasury bills with the
custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in
securities transactions in that futures contracts initial margin does not
involve a borrowing by the Fund to finance the transactions. Initial
margin is in the nature of a performance bond or good-faith deposit on
the contract which is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been
satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of an amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will mark to
market its open futures positions.
The Fund is also required to deposit and maintain margin when they write
call options on futures contracts.
PURCHASING AND WRITING OVER-THE-COUNTER OPTIONS. The Fund may purchase
and write over-the-counter options on portfolio investments in negotiated
transactions with the buyers or writers of such options. Over-the-counter
options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while over-the-counter options may not.
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FOREIGN CURRENCY TRANSACTIONS
CURRENCY RISKS. The exchange rates between the U.S. dollar and foreign
currencies are a function of such factors as supply and demand in the
currency exchange markets, international balances of payments,
governmental intervention, speculation and other economic and political
conditions. Although the Fund values its assets daily in U.S. dollars,
the Fund may not convert its holdings of foreign currencies to U.S.
dollars daily. The Fund may incur conversion costs when it converts its
holdings to another currency. Foreign exchange dealers may realize a
profit on the difference between the price at which the Fund buys and
sells currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its portfolio investments. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market
or through forward contracts to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into
forward foreign currency exchange contracts in order to protect against a
possible loss resulting from an adverse change in the relationship
between the U.S. dollar and a foreign currency involved in an underlying
transaction. However, forward foreign currency exchange contracts may
limit potential gains which could result from a positive change in such
currency relationships. The adviser believes that it is important to have
the flexibility to enter into forward foreign currency exchange contracts
whenever it determines that it is in the Fund's best interest to do so.
The Fund will not speculate in foreign currency exchange.
The Fund will not enter into forward foreign currency exchange contracts
or maintain a net exposure in such contracts when it would be obligated
to deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency or, in
the case of a "cross-hedge" denominated in a currency or currencies that
the adviser believes will tend to be closely correlated with that
currency with regard to price movements. Generally, the Fund will not
enter into a forward foreign currency exchange contract with a term
longer than one year.
FOREIGN CURRENCY OPTIONS. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency
at the exercise price on a specified date or during the option period.
The owner of a call option has the right, but not the obligation, to buy
the currency. Conversely, the owner of a put option has the right, but
not the obligation, to sell the currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position
during the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally rises in value if the underlying currency depreciates
in value. Although purchasing a foreign currency option can protect the
Fund against an adverse movement in the value of a foreign currency, the
option will not limit the movement in the value of such currency. For
example, if the Fund was holding securities denominated in a foreign
currency that was appreciating and had purchased a foreign currency put
to hedge against a decline in the value of the currency, the Fund would
not have to exercise their put option. Likewise, if the Fund were to
enter into a contract to purchase a security denominated in foreign
currency and, in conjunction with that purchase, were to purchase a
foreign currency call option to hedge against a rise in value of the
currency, and if the value of the currency instead depreciated between
the date of purchase and the settlement date, the Fund would not have to
exercise its call. Instead, the Fund could acquire in the spot market the
amount of foreign currency needed for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS. Buyers and
sellers of foreign currency options are subject to the same risks that
apply to options generally. In addition, there are certain additional
risks associated with foreign currency options. The markets in foreign
currency options are relatively new, and the Fund's ability to establish
and close out positions on such options is subject to the maintenance of
a liquid secondary market. Although the Fund will not purchase or write
such options unless and until, in the opinion of the Fund's adviser, the
market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in connection
with the underlying currency, there can be no assurance that a liquid
secondary market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or
both currencies and may have no relationship to the investment merits of
a foreign security. Because foreign currency
- --------------------------------------------------------------------------------
transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign
currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1
million) for the underlying foreign currencies at prices that are less
favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any 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 (i.e., 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. option
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 options markets until
they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS. By using foreign currency futures
contracts and options on such contracts, the Fund may be able to achieve
many of the same objectives as it would through the use of forward
foreign currency exchange contracts. The Fund may be able to achieve
these objectives possibly more effectively and at a lower cost by using
futures transactions instead of forward foreign currency exchange
contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS. Buyers and sellers of foreign currency futures contracts
are subject to the same risks that apply to the use of futures generally.
In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated
with options on currencies, as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts
is relatively new. The ability to establish and close out positions on
such options is subject to the maintenance of a liquid secondary market.
To reduce this risk, the Fund will not purchase or write options on
foreign currency futures contracts unless and until, in the opinion of
the Fund's adviser, the market for such options has developed
sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying
foreign currency futures contracts. Compared to the purchase or sale of
foreign currency futures contracts, the purchase of call or put options
on futures contracts involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the option (plus
transaction costs). However, there may be circumstances when the purchase
of a call or put option on a futures contract would result in a loss,
such as when there is no movement in the price of the underlying currency
or futures contract.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for the instrument's market
value in cash, and agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase agreements may
enable the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
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. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in securities issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) securities are restricted as to disposition under the federal securities
laws and are generally sold to institutional investors, such as the Fund, who
agree that they are purchasing such securities for
- --------------------------------------------------------------------------------
investment purposes and not with a view to public distributions. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) securities are
normally resold to other institutional investors like the Fund through or with
the assistance of the issuer or investment dealers who make a market in such
securities, thus providing liquidity. The Fund believes that Section 4(2)
securities and possibly certain other restricted securities which meet the
criteria for liquidity established by the Trustees are quite liquid. The Fund
intends, therefore, to treat the restricted securities which meet the criteria
for liquidity established by the Trustees, including Section 4(2) securities, as
determined by the Fund's adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange commission ("SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the Staff of the SEC has left the question of
determining the liquidity of all restricted securities to the Trustees. The
Trustees consider the following criteria in determining the liquidity of certain
restricted securities:
- - the frequency of trades and quotes for the security;
- - the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
- - dealer undertakings to make a market in the security; and
- - the nature of the security and the nature of the marketplace trades.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values at the time of delivery
of the securities purchased may vary from the purchase prices.
No fees or expenses, other than normal transaction costs, are incurred. However,
liquid assets of the Fund sufficient to make payment for the securities to be
purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
MONEY MARKET INSTRUMENTS
The Fund may acquire money market instruments rated in one of the two highest
rating categories by a Nationally Recognized Statistical Rating Organization or
which, in the opinion of the adviser or sub-adviser, are of commensurate
quality.
REPURCHASE AGREEMENTS
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 Fund believes 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 the adviser to be
creditworthy pursuant to guidelines established by the Trustees.
PORTFOLIO TURNOVER
It is not anticipated that the portfolio trading engaged in by the Fund will
result in its annual rate of portfolio turnover exceeding 100%. The Fund's
adviser does not anticipate that portfolio turnover will result in adverse tax
consequences. However, relatively high portfolio turnover may result in high
transaction costs to the Fund.
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INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that it may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount
borrowed, and except to the extent that the Fund may enter into futures
contracts.
The Fund will not borrow money or engage in reverse repurchase agreements except
as a temporary, extraordinary, or emergency measure or to facilitate management
of the Fund by enabling it to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The Fund
will not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
INVESTING IN COMMODITIES
The Fund will not invest in commodities, except that the Fund reserves
the right to engage in transactions involving futures contracts options,
and forward contracts with respect to securities, securities indexes or
currencies.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including real estate
limited partnership interests, although the Fund may invest in securities
of issuers whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry (other than securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities and repurchase agreements
collateralized by such securities).
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities which the Fund may purchase in
accordance with its investment objective, policies, and limitations.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. A deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if as a result
more than 5% of the value of its total assets would be invested in the
securities of that issuer. The Fund will not acquire more than 10% of the
outstanding voting securities of such issuer.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets, except to
secure permitted borrowings. In these cases, the Fund may pledge assets
as necessary to secure such borrowings. For purposes of this limitation,
where applicable, (a) the deposit of assets in escrow in connection with
the writing of covered call or secured put options and the purchase of
securities on a when-issued basis and (b) collateral arrangements with
respect to: (i) the purchase and sale of securities options (and options
on securities indexes) and (ii) initial or variation margin for futures
contracts, will not be deemed to be pledges of the Fund's assets.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
purchase or holding of U.S. government obligations, corporate bonds,
debentures, notes, certificates of indebtedness, or other debt securities
of any issuer, repurchase agreements, or other transactions which are
permitted by the Fund's investment objective, policies, and limitations
or Declaration of Trust.
- --------------------------------------------------------------------------------
The above investment limitations cannot be changed without approval of the
Fund's shareholders. The following limitations may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in securities
subject to restrictions on resale under the Securities Act of 1933,
except for restricted securities which meet the criteria for liquidity as
established by the Trustees. In order to comply with registration
requirements of a certain state, the Fund has agreed to limit its
investment in restricted securities to 5% of its total assets. If state
requirements change, this policy may be changed without notice to
shareholders.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including, as applicable, repurchase agreements
providing for settlement in more than seven days after notice,
over-the-counter options, and certain restricted securities not
determined by the Trustees to be liquid.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its net assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investments in such warrants not listed on the New York or American Stock
Exchanges to 2% of its net assets. (If state restrictions change, this
latter restriction may be revised without notice to shareholders.) For
purposes of this investment restriction, warrants will be valued at the
lower of cost or market, except that warrants acquired by the Fund in
units with or attached to securities may be deemed to be without value.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities or futures
contracts, unless the securities or futures contracts are held in the
Fund's portfolio or unless the Fund is entitled to them in deliverable
form without further payment or after segregating cash in the amount of
any further payment.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities or futures contracts
unless the securities or futures contracts are held in the Fund's
portfolio or unless the Fund is entitled to them in deliverable form
without further payment or after segregating cash in the amount of any
further payment.
INVESTMENT IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, will invest no more than 5% of total assets in any one
investment company, and will invest no more than 10% of its total assets
in investment companies in general. The Fund will purchase securities of
closed-end investment companies only in open-market transactions
involving only customary broker's commissions. However, these limitations
are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. The Fund will
invest in other investment companies primarily for the purpose of
investing its short-term cash on a temporary basis. The adviser and sub-
adviser will waive their investment advisory and sub-advisory fees on
assets invested in securities of open-end investment companies.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust, the investment adviser, or a
sub-adviser owning individually more than 1/2 of 1% of the issuer's
securities, together own more than 5% of the issuer's securities.
- --------------------------------------------------------------------------------
Except with respect to the Fund's policy of borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
Under normal circumstances, the Fund does not expect to borrow money in excess
of 5% of the value of its net assets during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
FOUNTAIN SQUARE FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, principal
occupations, and present positions. Except as listed below, none of the Trustees
or Officers are affiliated with Fifth Third Bank, Fifth Third Bancorp, Federated
Investors, Federated Securities Corp., or Federated Administrative Services.
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue*+ Chairman of the President and Trustee, Federated Investors; President and Trustee, Federated
Federated Investors Board of Advisers, Federated Management, and Federated Research; President and
Tower Trustees, Director, Federated Research Corp.; President, Passport Research, Ltd.;
Pittsburgh, PA President and Trustee, Federated Administrative Services, Federated Services Company, and
Treasurer Federated Shareholder Services.
- --------------------------------------------------------------------------------------------------------------------------------
Edward Burke Carey Member of Chairman of Carey Leggett Realty Advisors.
395 East Town St. Board of
Columbus, Ohio Trustees
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Lee A. Carter+ Member of President of Local Marketing Corporation.
Cincinnati Commerce Board of
Center Trustees
600 Vine Street
Suite 2020
Cincinnati, Ohio
- --------------------------------------------------------------------------------------------------------------------------------
Albert E. Harris Member of Chairman of the Board EDB Holdings, Inc. (retired December, 1992); Formerly
P.O. Box 583 Board of Senior Vice President, The Procter & Gamble Company (retired October, 1987).
Milford, Ohio Trustees
- --------------------------------------------------------------------------------------------------------------------------------
Craig P. Churman Vice President Vice President, Federated Administrative Services.
Federated Investors and Assistant
Tower Treasurer
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Jay S. Neuman Secretary Corporate Counsel, Federated Investors; prior to January, 1991, Associate
Federated Investors Counsel, The Boston Company Advisors, Inc.
Tower
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Funds or the Trust
as defined in the Investment Company Act of 1940.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding shares of the Fund.
- --------------------------------------------------------------------------------
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's adviser is Fifth Third Bank. It provides investment advisory services
through its Trust and Investment Division. Fifth Third Bank is a wholly-owned
subsidiary of Fifth Third Bancorp.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.
Because of the internal controls maintained by Fifth Third Bank to restrict the
flow of non-public information, Fund investments are typically made without any
knowledge of Fifth Third Bank's or its affiliates' lending relationships with an
issuer.
SUB-ADVISER
Morgan Stanley Asset Management Inc. is the sub-adviser to the Fund under the
terms of a Sub-Advisory Agreement between Fifth Third Bank and Morgan Stanley
Asset Management Inc.
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the prospectus.
SUB-ADVISORY FEES
For its sub-advisory services, Morgan Stanley Asset Management Inc. receives an
annual sub-advisory fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The adviser and sub-adviser have undertaken to comply with the expense
limitations established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2 1/2% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets, and
1 1/2% per year of the remaining average net assets, the adviser has
agreed to reimburse the Fund for its expenses over the limitation up to
the amount of the advisory fees in any single fiscal year.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory and sub-advisory fees paid will be
reduced proportionally by the amount of the excess, subject to an annual
adjustment.
This arrangement is not part of the advisory contract or sub-advisory
agreement and may be amended or rescinded in the future.
ADMINISTRATIVE AND CUSTODY SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services ("FAS"), which is a subsidiary of Federated
Investors, provides administrative personnel and services to the Funds for the
fees set forth in the prospectus.
Under the custodian agreement, Fifth Third Bank holds the Fund's domestic
portfolio securities and keeps all necessary records and documents relating to
its duties. Pursuant to an agreement with Fifth Third Bank, Morgan Stanley Trust
Company, Brooklyn, NY, acts as the Fund's sub-custodian for foreign assets held
outside the United States and employs subcustodians who were approved by the
Trustees of the Fund in accordance with regulations of the Securities and
Exchange Commission. Morgan Stanley Trust Company is an affiliate of Morgan
Stanley Asset Management Inc. Fees for custody services are based upon the
market value of Fund securities held in custody plus certain securities
transaction charges.
ADMINISTRATIVE ARRANGEMENTS
- --------------------------------------------------------------------------------
The distributor pays fees to brokers and dealers for distribution and
administrative services and to administrators for administrative services. The
administrative services include, but are not limited to, providing office space,
equipment, telephone facilities, and various personnel, including clerical,
supervisory, and computer, as is necessary or beneficial to establish and
maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser and sub-adviser look for prompt execution of the order
at a favorable price. In working with dealers, the adviser and sub-adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can be
obtained elsewhere. The adviser and sub-adviser make decisions on portfolio
transactions and select brokers and dealers subject to guidelines established by
the Trustees.
The adviser and sub-adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Fund or
to the adviser and sub-adviser and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and sub-adviser and their affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided.
Research services provided by brokers may be used by the adviser and the
sub-adviser in advising the Fund and other accounts. To the extent that receipt
of these services may supplant services for which the adviser and the
sub-adviser or their affiliates might otherwise have paid, it would tend to
reduce their expenses.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the adviser and sub-adviser, investments of the
type the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser and sub-adviser are
prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed by
the adviser and sub-adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained or disposed of by the Fund. In other cases,
however, it is believed that coordination and the ability to participate in
volume transactions will be to the benefit of the Fund.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares of the Fund are sold at their net asset value with a sales charge on days
the New York Stock Exchange and the Federal Reserve Bank of Cleveland are open
for business. The procedure for purchasing shares of the Fund is explained in
the prospectus under "Investing in the Fund."
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940. The Plan provides for payment of fees to
Federated Securities Corp. to finance any activity which is principally intended
to result in the sale of Fund shares subject to the Plan. Such activities may
include the advertising and marketing of shares; preparing, printing, and
distributing prospectuses and sales literature to prospective shareholders,
brokers, or administrators; and, implementing and operating the Plan. Pursuant
to the Plan, Federated Securities Corp. may pay fees to brokers for distribution
and administrative services and to administrators for administrative services as
to shares. The administrative services are provided by a representative who has
knowledge of the shareholder's particular circumstances and goals, and include,
but are not limited to: communicating account openings; communicating account
closings; entering purchase transactions; entering redemption transactions;
providing or arranging to provide accounting support for all transactions,
wiring funds and receiving funds for share purchases and redemptions, confirming
and reconciling all transactions, reviewing the activity in Fund accounts, and
providing training and supervision of broker personnel; posting and reinvesting
dividends to Fund accounts or arranging for this service to be performed by the
Fund's transfer agent; and
- --------------------------------------------------------------------------------
maintaining and distributing current copies of prospectuses and shareholder
reports to the beneficial owners of shares and prospective shareholders.
The Trustees expect that the Plan will result in the sale of a sufficient number
of shares so as to allow the Fund to achieve economic viability. It is also
anticipated that an increase in the size of the Fund will facilitate more
efficient portfolio management and assist the Fund in seeking to achieve its
investment objective.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for shares of the Fund, a gain or loss may be realized by the
investor.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus. Net asset value will not
be calculated on days on which the New York Stock Exchange is closed.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
- - for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
- - in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
- - for bonds and other fixed-income securities, as determined by an independent
pricing service;
- - for short-term obligations, according to the prices as furnished by an
independent pricing service, except that short-term obligations with
maturities of less than 60 days may be valued at amortized cost; and
- - for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider yield, quality, coupon
rate, maturity, type of issue, trading characteristics, and other market data.
The Fund will value futures contracts and options at their market values
established by the exchanges on which they are traded at the close of trading on
such exchanges unless the Trustees determine in good faith that another method
of valuing such investments is necessary to appraise their fair market value.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
Fund values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Trustees, although the actual calculation may be done by
others.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at the next computed net asset value after the Fund receives
the redemption request. Redemption procedures are explained in the prospectus
under "Redeeming Shares." Although Fifth Third Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
- --------------------------------------------------------------------------------
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
However, the Fund may invest in the stock of certain foreign corporations which
would constitute a Passive Foreign Investment Company (PFIC). Federal income
taxes may be imposed on the Fund upon disposition of PFIC investments.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. The Fund's dividends, and any short-term
capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax on long-term capital gains distributed
to them regardless of how long they have held the Fund shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the 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 maximum offering price 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 reinvestment of
all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of the Fund depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in the Fund's expenses; and
- - various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return as
described above.
Investors may use financial publications and/or indices to obtain a more
complete view of the 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 the Fund uses in advertising may include:
- - LIPPER ANALYTICAL SERVICES, INC. ("LIPPER"), an independent mutual fund rating
service, ranks funds in various fund categories by making comparable
calculations using total return. Total return assumes the reinvestment of all
capital gains distributions and income dividends and takes into account any
change in net asset value over a specified period of time. From time to time,
the Fund will quote its Lipper ranking in the appropriate category in
advertising and sales literature.
- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
- - EUROPE, AUSTRALIA, AND FAR EAST (EAFE) is a market capitalization weighted
foreign securities index, which is widely used to measure the performance of
European, Australian, New Zealand and Far Eastern stock markets. The index
covers approximately 1,020 companies drawn from 18 countries in the above
regions. The index values its securities daily in both U.S. dollars and local
currency and calculates total returns monthly. EAFE U.S. dollar total return
is a net dividend figure less Luxembourg withholding tax. The EAFE is
monitored by Capital International, S.A., Geneva, Switzerland.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. The total return
represents the historic change in the value of an investment in the Fund based
on reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
4041103B 5/94
